FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to _______
Commission File Number 1-985
INGERSOLL-RAND COMPANY
Exact name of registrant as specified in its charter
New Jersey 13-5156640
State of incorporation I.R.S. Employer Identification No.
Woodcliff Lake, New Jersey 07677
Address of principal executive offices Zip Code
(201) 573-0123
Telephone number of principal executive offices
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes . X . No . . .
The number of shares of common stock outstanding as of July 31, 2000 was
161,106,803.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at June 30, 2000 and
December 31, 1999
Condensed Consolidated Income Statement for the three and
six months ended June 30, 2000 and 1999
Condensed Consolidated Statement of Cash Flows for the six
months ended June 30, 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 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
June 30, December 31,
2000 1999
Current assets:
Cash and cash equivalents $ 80.4 $ 222.9
Marketable securities 7.4 0.5
Accounts and notes receivable, net of
allowance for doubtful accounts 1,530.1 988.5
Inventories 947.2 742.1
Prepaid expenses and deferred income taxes 210.8 114.6
Assets held for sale 1,293.3 799.7
Total current assets 4,069.2 2,868.3
Investments in and advances with
partially-owned equity affiliates 165.7 198.2
Property, plant and equipment, at cost 2,311.7 2,084.9
Less - accumulated depreciation 880.2 844.7
Net property, plant and equipment 1,431.5 1,240.2
Intangible assets, net 5,127.5 3,726.3
Deferred income taxes 114.0 158.0
Other assets 270.7 209.2
Total assets $11,178.6 $8,400.2
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accruals $1,464.0 $1,224.4
Loans payable 3,242.4 495.5
Income taxes 59.9 19.0
Total current liabilities 4,766.3 1,738.9
Long-term debt 1,675.7 2,113.3
Postemployment liabilities 804.0 805.0
Minority interests 111.0 95.7
Other liabilities 186.0 161.8
7,543.0 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 343.0 342.3
Other shareholders' equity 3,125.7 2,917.7
Accumulated other comprehensive income (235.6) (177.0)
Total shareholders' equity 3,233.1 3,083.0
Total liabilities and equity $11,178.6 $8,400.2
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions except per share figures)
<TABLE>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $2,185.8 $2,042.0 $4,162.5 $3,933.1
Cost of goods sold 1,567.7 1,468.4 3,005.6 2,858.6
Administrative, selling and service
engineering expenses 269.6 268.8 539.1 531.1
Operating income 348.5 304.8 617.8 543.4
Interest expense (55.3) (53.1) (103.5) (105.6)
Other income (expense), net (4.0) (2.2) (1.2) (5.5)
Minority interests (12.7) (7.3) (20.1) (13.4)
Earnings before income taxes 276.5 242.2 493.0 418.9
Provision for income taxes 93.1 86.0 170.0 148.7
Earnings from continuing operations 183.4 156.2 323.0 270.2
Discontinued operations, (net of tax) (8.0) 10.3 (11.6) 17.4
Net earnings $ 175.4 $ 166.5 $ 311.4 $ 287.6
Basic earnings per common share
Continuing operations $ 1.14 $ 0.95 $ 2.00 $ 1.65
Discontinued operations (0.05) 0.06 (0.07) 0.10
$ 1.09 $ 1.01 $ 1.93 $ 1.75
Diluted earnings per common share
Continuing operations $ 1.13 $ 0.93 $ 1.98 $ 1.63
Discontinued operations (0.05) 0.06 (0.07) 0.10
$ 1.08 $ 0.99 $ 1.91 $ 1.73
Dividends per share $ 0.17 $ 0.15 $ 0.34 $ 0.30
</TABLE>
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Six months ended
June 30,
2000 1999
Cash flows from operating activities:
Income from continuing operations $ 323.0 $ 270.2
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 135.3 137.8
Changes in other assets and liabilities, net (336.5) (172.9)
Other, net 24.3 36.7
Net cash provided by operating activities 146.1 271.8
Cash flows from investing activities:
Capital expenditures (74.6) (84.7)
Acquisitions, net of cash (2,286.8) (159.8)
Proceeds from business dispositions 79.7 -
Other, net 23.2 14.4
Net cash used in investing activities (2,258.5) (230.1)
Cash flows from financing activities:
Increase/(decrease) in short-term borrowings 2,098.8 (16.5)
Proceeds from long-term debt 1.0 21.0
Payments of long-term debt (5.7) (0.9)
Net change in debt 2,094.1 3.6
Purchase of treasury stock (77.8) (82.0)
Dividends paid (55.2) (49.5)
Proceeds from exercise of stock options 5.7 66.6
Net cash provided/(used) in financing
activities 1,966.8 (61.3)
Net cash provided by discontinued operations 8.4 38.0
Effect of exchange rate changes on cash and
cash equivalents (5.3) (5.1)
Net (decrease)/increase in cash and cash
equivalents (142.5) 13.3
Cash and cash equivalents - beginning of period 222.9 43.5
Cash and cash equivalents - end of period $ 80.4 $ 56.8
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 six months ended
June 30, 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 $543 million in cash. As previously
announced, the company intends to divest of D-R as soon as
possible. (See Note 10 to the Condensed Consolidated Financial
Statements).
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
$23 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 June 14, 2000, IR Merger Corporation, a wholly owned
subsidiary of the company, acquired in excess of 93% of the
outstanding shares of Hussmann International, Inc. (Hussmann),
for a cash price of $29 per share pursuant to a May 16, 2000
tender offer. Hussmann's business is the design, production,
installation and service of merchandising and refrigeration
systems for the global food industry. Hussmann is based in
Bridgeton, Missouri, and reported consolidated sales of $1.3
billion for the year ended December 31, 1999. On June 16,
2000, the company completed the merger of IR Merger
Corporation with Hussmann. Upon consummation of the merger,
Hussmann became a wholly owned subsidiary of the company and
the shareholders of Hussmann who did not tender their shares
became entitled to receive $29 per share in cash. The total
purchase price for Hussmann was approximately $1.7 billion
after taking into account amounts paid for outstanding stock
options, employee contracts and various other transaction
costs.
The acquisition has been accounted for as a purchase. The
purchase price was preliminarily allocated to the acquired
assets and liabilities based on their estimated fair values
and the allocation is subject to final adjustment. The
company has classified as goodwill, the costs in excess of
the fair value of the net assets acquired. Such excess
costs are being amortized on a straight-line basis over
forty years. Intangible assets also represent costs
allocated to patents and trademarks and other specifically
identifiable assets arising from the acquisition. These
assets are being amortized over their estimated useful
lives.
The results of Hussmann's operations have been included in
the consolidated financial statements from the acquisition
date. The following unaudited pro forma consolidated
results for the six months ended June 30, 2000 and 1999
reflect the acquisition as though it occurred at the
beginning of the respective periods after adjustments for
interest on acquisition debt, depreciation and amortization
of assets, including goodwill, which reflect the preliminary
purchase price allocations (in millions, except per share
amounts):
For the six months ended June 30, 2000 1999
Sales $4,681.7 $4,567.6
Net earnings 283.5 248.5
Basic earnings per common share
Continuing operations $ 1.83 $ 1.41
Discontinued operations (0.07) 0.10
$ 1.76 $ 1.51
Diluted earnings per common share
Continuing operations $ 1.81 $ 1.39
Discontinued operations (0.07) 0.10
$ 1.74 $ 1.49
The above pro forma results are not necessarily indicative
of what the actual results would have been had the
acquisition occurred at the beginning of the respective
periods. 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.
Note 4 - On February 4, 2000, the company sold the Corona Clipper
business for approximately $43 million. Corona Clipper
manufactures hand tools for pruning and harvesting. Corona
Clipper was acquired on March 30, 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 August 8, 2000, the company sold Ingersoll-Dresser Pump
Company (IDP) to Flowserve Corporation for $775 million.
The company realized a pretax accounting gain of
approximately $200 million.
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 5 - Net assets of IDP and D-R are included in "Assets held for
sale" on the condensed consolidated balance sheet and their
results have been reported as "Discontinued operations (net
of tax)" on the condensed consolidated income statement.
The 1999 second quarter and year-to-date results have been
restated to reflect the discontinued operations.
Note 6 - 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):
June 30, December 31,
2000 1999
Raw materials and supplies $ 262.4 $ 161.7
Work-in-process 203.5 191.7
Finished goods 627.8 532.9
1,093.7 886.3
Less - LIFO reserve 146.5 144.2
Total $ 947.2 $ 742.1
Note 7 - Information on basic and diluted earnings per share is as follows
(in millions):
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
Average number of basic
shares 161.5 164.5 161.7 164.1
Shares issuable assuming
exercise under incentive
stock plans 1.3 2.5 1.4 2.0
Shares issuable in connection
with equity-linked
securities -- 0.7 -- --
Average number of diluted
shares 162.8 167.7 163.1 166.1
Note 8 - The components of comprehensive income are as follows (in
millions):
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
Net earnings $175.4 $166.5 $311.4 $287.6
Other comprehensive income -
foreign currency equity
adjustment (40.8) (19.9) (58.6) (51.1)
Comprehensive income $134.6 $146.6 $252.8 $236.5
Note 9 - 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:
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
Sales
Climate Control $ 394.0 $ 313.3 $ 714.4 $ 604.1
Industrial Productivity
Air Solutions 209.3 185.7 398.2 359.4
Bearings and Components 312.7 318.0 617.5 645.4
Industrial Products 269.9 266.3 517.6 526.9
791.9 770.0 1,533.3 1,531.7
Infrastructure Development 646.3 636.9 1,227.7 1,185.1
Security and Safety 353.6 321.8 687.1 612.2
Total $2,185.8 $2,042.0 $4,162.5 $3,933.1
Operating income
Climate Control $ 48.8 $ 47.9 $ 87.5 $ 85.8
Industrial Productivity
Air Solutions 25.5 20.3 45.3 37.1
Bearings and Components 50.2 37.1 82.8 66.0
Industrial Products 39.9 36.7 76.1 63.9
115.6 94.1 204.2 167.0
Infrastructure Development 126.0 120.5 222.9 209.4
Security and Safety 75.3 56.4 138.2 110.3
Unallocated corporate
expense (17.2) (14.1) (35.0) (29.1)
Total $348.5 $304.8 $617.8 $543.4
No significant changes in assets by geographic area have occurred
since December 31, 1999.
Note 10 - On July 12, 2000, the company agreed to sell the reciprocating
gas compressor packaging and rental business of its D-R unit to
Hanover Compressor Company (Hanover) for $190 million, $95
million of which will be in cash with the balance in Hanover
common stock. The company expects to hold the Hanover stock for
a minimum of five months after the closing. The transaction is
subject to regulatory approval and is expected to close during
the third quarter of 2000.
On June 27, 2000, the company announced that it had agreed to
acquire Interflex Datensysteme GmbH (Interflex). Interflex,
based in Germany, provides integrated products and services for
electronic access control, time and attendance recording,
personnel scheduling and industrial data management. The
transaction closed on August 7, 2000.
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The company's results for the second quarter of the year established
a new record. Sales approximated $2.2 billion, operating income was
$348.5 million and earnings from continuing operations reached $183.4
million ($1.13 diluted earnings per share). For the second quarter
of 1999, the company's sales were approximately $2.0 billion, with
operating income of $304.8 million and earnings from continuing
operations of $156.2 million ($0.93 diluted earnings per share).
A comparison of key income statement amounts between the quarters, is
as follows:
o Net sales for the three months ended June 30, 2000 approximated
$2.2 billion, an increase of 7.0% over last year's second
quarter.
o The ratio of cost of goods sold to sales for the second quarter
of 2000 improved slightly to 71.7% compared to last year's
second quarter ratio of 71.9%. The improvement is attributable
to the benefits of cost reduction, efficiency and sourcing
programs which more than offset the negative effects of currency
on the cost ratio.
o The ratio of administrative, selling and service engineering
expenses to sales was 12.3% for the second quarter of the year,
as compared to 13.2% for the comparable 1999 quarter. The
quarterly improvement is attributed to continued success of the
company's cost-containment programs.
o Operating income for the three months ended June 30, 2000
totalled $348.5 million, an increase of $43.6 million (or 14.3%)
over the $304.8 million reported for 1999's second quarter. The
ratio of operating income to sales in 2000 was 15.9%, as
compared to 14.9% for the second quarter of the prior year.
o Other income (expense), net, aggregated $4.0 million of net expense
for the second quarter, as compared to $2.2 million of net expense
for the three months ended June 30, 1999. This additional net
expense is primarily attributed to a reduction in income from foreign
currency activity during the comparable periods.
o Minority interest increased from the second 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 during both quarters.
o Interest expense from continuing operations for the second
quarter of 2000 was $55.3 million, which includes $5.2 million
associated with debt issued to acquire Hussmann International,
Inc. (Hussmann). Excluding Hussmann-related interest expense,
interest expense for the second quarter of 2000 was $3.0 million
below last year's level. The decrease is attributable to lower
average debt balances during the comparable periods. Additional
interest expense from the debt required to purchase IDP and D-R
has been classified as a component of discontinued operations
and was not included in interest expense.
o The company's effective tax rate for the second quarter of the
year was 33.7% as compared to 35.5% for the three months ended
June 30, 1999. The effective tax rate in the second quarter of
2000 includes $5 million of tax credits generated by the
company's foreign sales corporation. The tax rate for the third
and fourth quarters of the current year is expected to be 35.5%.
o Discontinued operations (net of tax) for 2000 resulted in a loss
of $8.0 million for the second quarter of the year, compared
with income of $10.3 million in the comparable 1999 quarter.
Included in the 2000 results were all of Ingersoll-Dresser Pump
Company (IDP) results and 100% of Dresser-Rand Company (D-R)
since February 2, 2000 and the interest expense from the debt
required to purchase IDP and D-R as well as additional goodwill
amortization associated with the acquisitions, and tax credits
generated by the foreign sales corporation. IDP has shown
improvement in its quarterly results while unfavorable
conditions in the oil industry continue to adversely impact D-R
business. The second quarter of 1999 includes 51% of IDP's
earnings and 49% of D-R's results.
The consolidated results for the second 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 second quarter of the year approximated $2.1 billion, which was
higher than last year's second quarter total. The company's backlog
of orders at June 30, 2000, believed by it to be firm, was $1.0
billion, which was 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.
The company's results for the first six months of the year, also
established a new record. Sales approximated $4.2 billion, operating
income was $617.8 million and earnings from continuing operations
amounted to $323.0 million ($1.98 diluted earnings per share). For
the first two quarters of 1999, the company's sales were
approximately $3.9 billion, with operating income of $543.4 million
and earnings from continuing operations of $270.2 million ($1.63
diluted earnings per share).
A comparison of key income statement amounts between the six months
ended June 30, is as follows:
o Net sales for the six months ended June 30, 2000 approximated
$4.2 billion, an increase of 5.8% over last year's comparable
period.
o The ratio of cost of goods sold to sales for the first six
months of the year improved to 72.2% compared to last year's
ratio of 72.7%. The improvement is attributable to the benefits
of cost reduction, efficiency and strategic sourcing programs
which more than offset the negative effects of foreign currency
on the cost ratio.
o The ratio of administrative, selling and service engineering
expenses to sales was 13.0% for the first two quarters of 2000,
as compared to 13.5% for the comparable 1999 period. The
improvement is attributed to continued success of the company's
cost-containment programs.
o Operating income for the six months ended June 30, 2000 totalled
$617.8 million, an increase of $74.3 million (or 13.7%) over the
$543.4 million reported for 1999's first six months. The ratio
of operating income to sales in 2000 increased to 14.8%, as
compared to 13.8% for the comparable period of the prior year.
o Other income (expense), net, aggregated $1.2 million of net expense
for the first six months of the year, as compared to $5.5 million of
net expense for the six months ended June 30, 1999. Reduction in
income from currency transactions during the comparable periods was
more than offset by the gain from the first quarter sale of three
joint ventures and higher earnings from partially-owned affiliates.
o Minority interest increased by $6.6 million during the first
six months of 2000 over last year's six month total as a
result of higher earnings from consolidated jointly-owned
entities in which the company has a majority ownership.
Charges for the company's equity-linked securities equalled
last year's six month total.
o Interest expense for the first six months of 2000 was $103.5
million, which includes $5.2 million associated with debt issued
to acquire Hussmann. The overall decrease of $2.1 million from
last year is attributable to lower average debt balances during
the comparable periods. Additional interest expense from the
debt required to purchase IDP and D-R has been classified as a
component of discontinued operations and was not included in
interest expense.
o The company's effective tax rate for the first six months of the
year was 34.5% as compared to 35.5% for the six months ended
June 30, 1999. The effective tax rate for the period includes a
second quarter tax credit of $5 million generated by the
company's foreign sales corporation. The tax rate for the third
and fourth quarters of the current year is expected to be 35.5%
and the effective tax rate for all of 1999 was 35.5%.
o Discontinued operations (net of tax) for the first two quarters
of 2000 resulted in a loss of $11.6 million, compared with
income of $17.4 million in the comparable 1999 period. Included
in the 2000 results were all of IDP results and 100% of D-R
since February 2, 2000 and the interest expense from the debt
required to purchase IDP and D-R as well as additional goodwill
amortization associated with the acquisitions, and tax credits
generated by the foreign sales corporation. IDP has shown
improvement in its results while unfavorable conditions in the
oil industry continue to adversely impact D-R business. The
first six months of 1999 include 51% of IDP's earnings and 49%
of D-R's results.
Liquidity and Capital Resources
The company's working capital at June 30, 2000 showed current
liabilities in excess of current assets by $697.1 million, which
reflects a change of $1.8 billion from the positive working capital
balance of $1,129.4 million at December 31, 1999. The primary reason for
this change is the June 14, 2000 acquisition of Hussmann. Hussmann
added approximately $500 million of current assets and $240 million of
current liabilities to the company's consolidated balance sheet at
June 30, 2000, before considering the acquisition cost of approximately $1.7
billion, which was temporarily financed by the issuance of short-term
debt. Excluding Hussmann related current assets and liabilities from the
company's June 30, 2000 condensed consolidated balance sheet, the
working capital balance would be approximately $595 million, which is
lower than the year end balance primarily due to the reclassification of
$400 million of the company's 6.255% Notes Due 2001, from long term debt
to current liabilities in the June 30, 2000 condensed consolidated
balance sheet. The company used the proceeds from the sale of IDP to
repay short-term debt.
The current ratio was 1.6 at the end of 1999, and the adjusted current
ratio (excluding Hussmann related activity) was 1.2 at June 30, 2000.
The company's debt-to-total capital ratio at June 30, 2000 was 57%,
compared with 42% reported at December 31, 1999. Excluding Hussmann
debt related activity the June 30, 2000 ratio would be 45%. This
increase of three percentage points is attributable to the
February 2, 2000 purchase of the remaining 51% of D-R.
The company's cash and cash equivalents totalled $80.4 million at
June 30, 2000 down significantly from the $222.9 million at
December 31, 1999, primarily due to cash used for the February 2, 2000
purchase of the remaining 51% interest in D-R. During the first six
months of the year, cash flows from operating activities provided
$146.1 million, investing activities used $2,258.5 million and
financing activities provided $1,966.8 million.
Receivables totalled $1.5 billion at June 30, 2000, which represents
an increase of $541.6 million increase over the amount reported at
December 31, 1999. Acquisitions and foreign currency translation
increased the balance by $339.9 million and $21.8 million,
respectively. The balance of the increase is attributed to the timing
of strong second quarter sales.
Inventories totalled $947.2 million at June 30, 2000, which
represents an increase of $205.1 million from the year-end balance of
$742.1 million. Acquisitions and foreign currency translation
increased the balance by $129.2 million and $21.3 million,
respectively. The remainder is attributed to the building of
inventory to fulfill orders in the third and fourth quarters.
Assets held for sale were $1,293.3 million at June 30, 2000, an
increase of $493.6 million over the December 31, 1999 balance. This
account increased by approximately $543 million due to the February
2, 2000 purchase of the remainder of D-R, and decreased due to the
sale of Corona Clipper and the losses generated by these discontinued
units during the first six months of the year. (See Notes 2 and 4 to
the Condensed Consolidated Financial Statements for discussion of the
status of the sales of these units.)
Intangible assets increased by approximately $1.4 billion during the
first six months of 2000. Acquisitions increased the account balance
by approximately $1.5 billion during the first six months of the
year. Amortization expense for the first six months of the year was
$57.1 million. The remaining reduction is attributed to foreign
currency translation.
Loans payable totalled $3.2 billion at June 30, 2000 as compared to
$495.5 million at December 31, 1999. Acquisitions and the related
debt activity accounted for approximately $2.2 billion of the increase
and the reclassification of $400 million of long-term debt to short-
term debt represents the remainder of the change from the year-end
balance.
During the first six months of 2000, foreign currency translation
adjustments resulted in a net decrease of $58.6 million in
shareholders' equity, caused primarily by the strengthening of the
U.S. dollar against European currencies.
Environmental Matters
The company is a party to environmental lawsuits and claims, and has
received notices of potential violations of environmental laws and
regulations from the Environmental Protection Agency and similar
state authorities. It is identified as a potentially responsible
party (PRP) for cleanup costs associated with off-site waste disposal
at approximately 28 federal Superfund and state remediation sites,
excluding sites as to which the company's records disclose no
involvement or as to which the company's liability has been fully
determined. For all sites, there are other PRPs and in most
instances, the company's site involvement is minimal. In estimating
its liability, the company has not assumed that it will bear the
entire cost of remediation of any site to the exclusion of other PRPs
who may be jointly and severally liable. The ability of other PRPs
to participate has been taken into account, based generally on the
parties' financial condition and probable contributions on a per site
basis. Additional lawsuits and claims involving environmental
matters are likely to arise from time to time in the future.
Although uncertainties regarding environmental technology, state and
federal laws and regulations and individual site information make
estimating the liability difficult, management believes that the
total liability for the cost of remediation and environmental
lawsuits and claims will not have a material effect on the financial
condition, results of operations, liquidity or cash flows of the
company for any year. It should be noted that when the company
estimates its liability for environmental matters, such estimates
are based on current technologies, and the company does not discount
its liability or assume any insurance recoveries.
Acquisitions
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 Bobcat and Ingersoll-Rand compact
equipment lines in Europe. Sambron's results have been reported as
part of the Infrastructure Development Sector since their
acquisition.
On February 28, 2000, the company acquired for approximately $23
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.
On June 14, 2000, the company acquired Hussmann for approximately
$1.7 billion. Hussmann, based in Bridgeton, Missouri, is the world
leader in the design, production, installation and service of
merchandising and refrigeration systems for the global food industry.
Hussmann's results have been reported as part of the Climate Control
Sector since acquisition.
On August 7, 2000, the company acquired Interflex Datensysteme GmbH
(Interflex). Interflex, based in Germany, provides integrated
products and services for electronic access control, time and
attendance recording, personnel scheduling and industrial data
management. Interflex's results will be reported as part of the
Security and Safety Sector.
Dispositions
On February 4, 2000, the company sold the Corona Clipper business for
approximately $43 million. Corona Clipper is a manufacturer of hand
tools for pruning and harvesting. Corona Clipper was acquired on
March 30, 1999 in conjunction with the acquisition of Harrow
Industries, Inc.
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.
The company sold IDP to Flowserve Corporation (Flowserve) on
August 8, 2000 with the company realizing a pretax accounting gain
of $200 million. (See Discontinued Operations below). The company
intends to use substantially all of the gain realized on the sale of
IDP on productivity initiatives.
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 $543 million in cash. On February 9, 2000,
the company agreed to sell its IDP unit to Flowserve. The transaction
closed on August 8, 2000.
On July 12, 2000, the company agreed to sell the reciprocating gas
compressor packaging and rental business of D-R to Hanover Compressor
Company for $190 million, $95 million of which will be in cash, with
the balance in Hanover stock. The sale, which is subject to necessary
government and regulatory approvals, is expected to close during the
third quarter of the year. The company continues to market the
remaining portion of D-R and, although not currently involved in
serious negotiations, continues to target a sale prior to year-end
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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." This accounting bulletin will become effective in the
fourth quarter of 2000, and provides guidance in applying generally
accepted accounting principles to revenue recognition in financial
statements. The company is currently evaluating this bulletin and
will comply as required.
Second-quarter Business Segment Review
The Climate Control Sector includes Thermo King transport
temperature control equipment and Hussmann International, the world
leader in display case refrigeration, which was acquired on June 14,
2000. The sector's second quarter revenues totalled $394.0 million,
an increase of 26% compared to last year, reflecting improved results
for the North American truck market, the worldwide container business
and the inclusion of Hussmann. Operating earnings increased by two
percent to $48.8 million. Operating margins declined primarily
because of unfavorable currency comparisons and product mix. Hussmann
added revenues of $53.1 million and contributed $3.3 million of
operating income to the second quarters' results.
The Industrial Productivity Sector is composed of a group of
businesses focused on providing solutions for customers to enhance
industrial efficiency. Second-quarter revenues on a comparable basis
increased approximately five percent. Reported revenues of $791.9
million increased by three percent compared to the amount reported
for the three months ended June 30, 1999. Last year's second quarter
includes the results of the Automation Division which was sold during
the fourth quarter of 1999. Operating income increased by 23% to
$115.6 million, primarily due to the improved results in the Air
Solutions and Bearings and Components businesses. All businesses in
the sector reported improved operating margins for the second quarter
of the year. The Industrial Productivity Sector consists of three
segments:
O Air Solutions, which provides equipment and services for
compressed air systems, had revenues in the second quarter of
$209.3 million, an improvement of 13% compared to 1999, due to
improved overseas markets, stronger sales of small compressors
and increased service revenues. Operating income increased by
26% to $25.5 million, reflecting higher volumes and the impact
of ongoing cost-reduction and efficiency programs. Operating
margins improved to 12.2% of sales in the second quarter of the
year, as compared to 10.9% in the comparable 1999 quarter.
O Bearings and Components provides motion control technologies
to the automotive and industrial markets. Revenues for the
quarter declined by two percent to $312.7 million, as increases
in automotive bearings were more than offset by lower revenues
for industrial bearings reduced sales of automotive components,
due to the loss of the camshaft business in 1999. However,
operating margins improved to 16.1% of sales for the second
quarter of the year, as compared to last year's comparable ratio
of 11.7%, due to a combination 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 $269.9 million in the second
quarter increased slightly, compared to the second quarter of
1999, even after considering the fact that last year's second
quarter included revenues from the Automation Division (which
was sold in the fourth quarter of 1999). Second-quarter revenues
on a comparable basis increased by eight percent. Operating
income of $39.9 million for the second quarter of the year
increased by nine percent over the prior year's comparable
quarter due to improved volume and the benefits from cost
reduction programs. Second quarter operating margins increased
to 14.8% of sales, as compared to 13.8% for three months ended
June 30, 1999.
The Infrastructure Development Sector includes Bobcat compact
equipment; road pavers and compactors; portable power products; and
drilling equipment. This sector's revenues for the second quarter
of the year totalled $646.3 million, reflecting a slight increase
over last year's second quarter. Revenues of Bobcat and domestic
paving equipment increased by more than 10%, while revenues from
portable power, compactor and drilling products declined.
Operating income of $126.0 million increased by five percent and the
operating margin for the second quarter improved to 19.5% of sales.
The Security and Safety Sector includes architectural hardware
products and electronic access-control technologies. For this
sector, second quarter revenues increased by 10% to $353.6 million,
when compared to the comparable quarter in the prior year. Operating
income increased by 34% to $75.3 million. This sector's operating
income margin improved to 21.3% of sales for the quarter, as
compared to 17.5% for the second quarter of 1999. 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 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the company held on May 3,
2000, the shareholders, in addition to electing directors, acted upon
the reapproval of the company's Senior Executive Performance Plan, and
ratified the appointment of PricewaterhouseCoopers LLP as independent
accountants of the company for the year ending December 31, 2000.
The shareholders voted as follows on the following matters:
1. Election of directors of the First Class to hold office for three
years. The voting result for each nominee is as follows:
Name Votes For Votes Withheld
Joseph P. Flannery 136,824,577 1,804,426
Theodore E. Martin 136,894,179 1,734,824
Richard J. Swift 136,904,075 1,724,928
Peter C. Godsoe, Herbert L. Henkel, Constance J. Horner, H. William
Lichtenberger, Orin R. Smith, and Tony L. White all continue as
directors of the company.
2. A vote of 128,930,006 votes for, 8,486,036 votes against, and
1,212,961 votes abstaining reapproved the company's Senior Executive
Performance Plan.
3. The reappointment of the company's independent accountants was
approved by a vote of 137,567,543 votes for 391,935 votes against
and 669,525 votes abstaining.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
2 Agreement and Plan of Merger, dated
as of May 11, 2000, by and among
Ingersoll-Rand Company, IR Merger
Corporation, Hussmann International,
Inc. was filed under cover of
Schedule SC TO-T with the Securities
and Exchange Commission on May 16,
2000 and is incorporated herein by
reference.
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K current report dated June 13, 2000 filed June 19,
2000 reported under item 2, acquisition of Assets, and Item 7,
Financial Statements and Exhibits. The Form 8-K reported on
the acquisition of Hussmann International, Inc., by the
company.
INGERSOLL-RAND COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INGERSOLL-RAND COMPANY
(Registrant)
Date August 14, 2000 /S/ D.W. Devonshire
D.W. Devonshire, Executive Vice
President & Chief Financial Officer
Principal Financial Officer
Date August 14, 2000 /S/ S.R. Shawley
S.R. Shawley, Vice President & Controller
Principal Accounting Officer
