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, 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 October 31,
2000 was 160,516,390.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at September 30, 2000
and December 31, 1999
Condensed Consolidated Income Statement for the three and
nine months ended September 30, 2000 and 1999
Condensed Consolidated Statement of Cash Flows for the nine
months ended September 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 6 - Exhibits and Reports on Form 8-K
SIGNATURES
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
September 30, December 31,
2000 1999
Current assets:
Cash and cash equivalents $ 58.0 $ 222.9
Marketable securities 105.7 0.5
Accounts and notes receivable, net of
allowance for doubtful accounts 1,481.7 988.5
Inventories 961.5 742.1
Prepaid expenses and deferred income taxes 158.2 114.6
Assets held for sale 664.9 799.7
Total current assets 3,430.0 2,868.3
Investments in and advances with
partially-owned equity affiliates 166.3 198.2
Property, plant and equipment, at cost 2,346.6 2,084.9
Less - accumulated depreciation 909.8 844.7
Net property, plant and equipment 1,436.8 1,240.2
Intangible assets, net 5,156.2 3,726.3
Deferred income taxes 142.7 158.0
Other assets 277.4 209.2
Total assets $10,609.4 $8,400.2
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accruals $1,421.9 $ 1,224.4
Loans payable 2,388.0 495.5
Income taxes 167.0 19.0
Total current liabilities 3,976.9 1,738.9
Long-term debt 1,678.1 2,113.3
Postemployment liabilities 839.1 805.0
Minority interests 111.8 95.7
Other liabilities 202.0 161.8
6,807.9 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 3,315.1 2,917.7
Accumulated other comprehensive income (259.1) (177.0)
Total shareholders' equity 3,399.0 3,083.0
Total liabilities and equity $10,609.4 $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 Nine months ended
September 30, September 30,
2000 1999 2000 1999
<S> <S> <S> <S>
Net sales $2,255.9 $1,846.1 $6,418.4 $5,779.2
Cost of goods sold 1,668.9 1,324.7 4,674.5 4,183.3
Administrative, selling and service
engineering expenses 310.8 248.5 849.9 779.6
Restructuring charges 30.2 - 30.2 -
Operating income 246.0 272.9 863.8 816.3
Interest expense (74.8) (50.1) (178.3) (155.7)
Other income (expense), net (1.9) (8.2) (3.0) (13.4)
Minority interests (10.0) (7.6) (30.2) (21.3)
Results from assets held for sale, net
of tax 28.0 (0.7) 14.4 6.0
Earnings before income taxes 187.3 206.3 666.7 631.9
Provision for income taxes 56.6 73.5 226.6 222.2
Earnings from continuing operations 130.7 132.8 440.1 409.7
Discontinued operations, net of tax 121.2 4.7 123.2 15.5
Net earnings $ 251.9 $ 137.5 $ 563.3 $ 425.2
Basic earnings per common share
Continuing operations $ 0.81 $ 0.81 $ 2.73 $ 2.50
Discontinued operations 0.75 0.03 0.76 0.09
$ 1.56 $ 0.84 $ 3.49 $ 2.59
Diluted earnings per common share
Continuing operations $ 0.80 $ 0.80 $ 2.70 $ 2.47
Discontinued operations 0.75 0.03 0.76 0.09
$ 1.55 $ 0.83 $ 3.46 $ 2.56
Dividends per share $ 0.17 $ 0.17 $ 0.51 $ 0.47
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Nine months ended
September 30,
2000 1999
Cash flows from operating activities:
Income from continuing operations $ 440.1 $ 409.7
Adjustments to arrive at net cash
provided by operating activities:
Restructure of operations 30.2 -
Depreciation and amortization 218.9 204.5
Gain on sale of businesses (36.0) -
Gain on sale of property, plant and
equipment (7.2) (0.5)
Minority interests in earnings, net of
dividends 5.9 0.3
Equity earnings/losses, net of dividends (5.5) (2.2)
Deferred income taxes 5.1 19.8
Changes in other asset and liabilities, net (400.5) (179.1)
Other, net 27.5 29.4
Net cash provided by operating activities 278.5 481.9
Cash flows from investing activities:
Capital expenditures (123.8) (125.2)
Acquisitions, net of cash (2,346.5) (160.2)
Proceeds from business dispositions 950.3 47.0
Proceeds from sale of property, plant and
equipment 19.0 17.0
Other, net 13.0 (1.1)
Net cash used in investing activities (1,488.0) (222.5)
Cash flows from financing activities:
Increase/(decrease) in short-term borrowings 1,344.2 (25.4)
Proceeds from long-term debt 2.8 21.5
Payments of long-term debt (76.8) (101.1)
Net change in debt 1,270.2 (105.0)
Purchase of treasury stock (118.4) (167.1)
Dividends paid (82.6) (77.5)
Proceeds from exercise of stock options 5.7 67.5
Net cash provided by (used in) financing
activities 1,074.9 (282.1)
Net cash (used in) provided by discontinued
operations (22.1) 35.1
Effect of exchange rate changes on cash and
and cash equivalents (8.2) 5.9
Net (decrease)/increase in cash and cash
equivalents (164.9) 18.3
Cash and cash equivalents - beginning
of period 222.9 43.5
Cash and cash equivalents - end of period $ 58.0 $ 61.8
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - In the opinion of management, the accompanying condensed
consolidated financial statements contain all adjustments
(including normal recurring accruals) necessary to present
fairly the consolidated unaudited financial position and
results of operations for the three and nine months ended
September 30, 2000 and 1999. As discussed in Note 3,
certain prior amounts in the condensed consolidated
financial statements have been reclassified in order to
conform with current year presentation.
Note 2 - In order to reposition itself for the future, the company has
undertaken a restructuring and productivity investments
program, which is expected to have a total pretax cost of
$325 million. These programs include such actions as plant
rationalizations, organizational realignments consistent with
the company's new market-based structure and the
consolidation of back office processes. Restructuring charges
for the three months ended September 30, 2000 were $30.2
million. Restructuring charges of $8.0 million ($5.1 million,
net of tax) incurred by Dresser-Rand Company (D-R) during the
period, have been included in results from the assets held
for sale, net of tax. Restructuring charges incurred consist
of costs associated with severance and other employee
termination benefits covering approximately 1,200 employees
to date. Of the $38.2 million of restructuring charges, $10.3
million has been paid, with the remainder to be paid by
September 30, 2001. In addition, productivity investments
charges of $13.2 million and $9.3 million were included in
cost of goods sold and administrative, selling and service
engineering expenses, respectively. Productivity investments
charges are expensed as incurred and consist of costs for
equipment moving, facility redesign, employee relocation and
retraining, systems enhancements and consultants.
Note 3 - On February 2, 2000, the company completed the purchase of
the 51% of D-R not previously owned by acquiring the joint
venture partner's share for a net purchase price of
approximately $543 million in cash. On September 5, 2000, the
company completed the sale of the reciprocating gas
compressor packaging and rental business of D-R to Hanover
Compressor Company (Hanover). The sale was completed for
$190 million, of which $95 million was in cash with the
balance in Hanover common stock. The company recorded a
$30.2 million after-tax gain on the sale. The company
expects to hold the Hanover stock for a minimum of five
months after the closing. The company continues the process
to sell the remaining portion of D-R, which was reclassified
on the condensed consolidated income statement into results
from assets held for sale, net of tax for the nine months
ended September 30, 2000. In prior periods their results had
been reported as discontinued operations, net of tax on the
condensed consolidated income statement. The net assets of
D-R have been included in assets held for sale on the
condensed balance sheet for the nine months ended September
30, 2000 and in prior periods. The company expects
to complete the transaction in 2001.
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.
On August 10, 2000 the company completed the acquisition of
Interflex Datensysteme GmbH for approximately $60 million.
Interflex based in Stuttgart, Germany, provides integrated
products and services for electronic access control, time
and attendance recording, personnel scheduling and
industrial data management.
Note 4 - In June 2000, the company acquired Hussmann International,
Inc. (Hussmann), for approximately $1.7 billion in cash after
taking into account amounts paid for outstanding stock
options, debt retirement, employee contracts and transaction
costs. Hussmann's business is the design, production,
installation and service of merchandising and refrigeration
systems for the global food industry. Hussmann is based in
Bridgeton, Missouri, and reported consolidated sales of $1.3
billion for the year ended December 31, 1999.
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 cost in excess of the
fair value of the net assets acquired. Such excess cost is
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 nine months ended September 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, based upon the preliminary
purchase price allocations (in millions, except per share
amounts):
For the nine months ended September 30, 2000 1999
Sales $7,052.2 $6,736.7
Net earnings 528.9 375.9
Basic earnings per common share
Continuing operations $ 2.51 $ 2.20
Discontinued operations 0.76 0.09
$ 3.27 $ 2.29
Diluted earnings per common share
Continuing operations $ 2.49 $ 2.17
Discontinued operations 0.76 0.09
$ 3.25 $ 2.26
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 5 - 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 gain of approximately $200
million. The net assets of IDP had been included in assets
held for sale on the condensed consolidated balance sheet
and their results had been reported as discontinued
operations, net of tax on the condensed consolidated income
statement.
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 6 - Inventories of domestically manufactured 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,
2000 1999
Raw materials and supplies $ 283.7 $ 161.7
Work-in-process 186.7 191.7
Finished goods 639.0 532.9
1,109.4 886.3
Less - LIFO reserve 147.9 144.2
Total $ 961.5 $ 742.1
Note 7 - Information on basic and diluted earnings per share is as
follows (in millions):
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
Average number of basic
shares 160.9 163.9 161.4 164.0
Shares issuable assuming
exercise under incentive
stock plans 1.2 2.2 1.4 2.2
Shares issuable in connection
with equity-linked
securities -- 0.3 -- --
Average number of diluted
shares 162.1 166.4 162.8 166.2
Note 8 - The components of comprehensive income are as follows (in
millions):
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
Net earnings $251.9 $137.5 $563.3 $425.2
Other comprehensive income -
foreign currency equity
adjustment (24.2) 22.9 (82.8) (28.2)
Unrealized gain on marketable
securities 0.7 -- 0.7 --
Comprehensive income $228.4 $160.4 $481.2 $397.0
Note 9 - During the first quarter of 2000, the company realigned its
businesses to reflect its change to a market-focused
organization. A summary of operations by reportable segment
is as follows:
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
Sales
Climate Control $ 669.2 $ 297.5 $1,383.6 $ 901.6
Industrial Productivity
Air Solutions 210.8 180.1 609.0 539.5
Bearings and Components 281.6 282.5 899.1 927.9
Industrial Products 207.6 219.6 725.2 746.5
700.0 682.2 2,233.3 2,213.9
Infrastructure Development 525.1 531.2 1,752.8 1,716.3
Security and Safety 361.6 335.2 1,048.7 947.4
Total $2,255.9 $1,846.1 $6,418.4 $5,779.2
Operating income
Climate Control $ 57.3 $ 41.8 $ 144.8 $ 127.6
Industrial Productivity
Air Solutions 21.5 23.2 66.8 60.3
Bearings and Components 40.6 29.9 123.4 95.9
Industrial Products 13.4 24.7 89.5 88.6
75.5 77.8 279.7 244.8
Infrastructure Development 74.0 93.8 296.9 303.2
Security and Safety 75.9 71.4 214.1 181.7
Unallocated corporate
expense (36.7) (11.9) (71.7) (41.0)
Total $ 246.0 $ 272.9 $ 863.8 $ 816.3
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
RESULTS OF OPERATIONS
The company reported net earnings of $251.9 million, and diluted
earnings per share of $1.55, for the third quarter ended September
30, 2000. Net earnings from continuing operations of $130.7 million
included one-time gains and charges relating to restructuring and
productivity investments. Net earnings from continuing operations
excluding these gains and charges were $139.6 million and diluted
earnings per share of $0.86. Net earnings from discontinued
operations were $0.75 and $0.03 for the third quarters of 2000 and
1999, respectively.
During the quarter, two significant transactions affected year-to-year
comparisons. Prior to this quarter, Dresser-Rand Company (D-R)
results had been reported as discontinued operations. Since the sale
of D-R was not completed within a year, D-R is now presented as
results from assets held for sale, net of tax. During the third
quarter, the company also began its program to restructure and
initiate productivity investments across its worldwide operations.
Restructuring charges incurred consist of costs associated with
severance and other employee termination benefits. Productivity
investments charges incurred consist of costs for equipment moving,
facility redesign, employee relocation and retraining, systems
enhancements, and consultants. Charges for productivity investments
are expensed as incurred. Restructuring and productivity investments
charges were incurred by all business segments.
Revenues from continuing operations for the third quarter totaled
$2.3 billion, an increase of 22% from the third quarter of last year.
Revenues increased by 3% excluding the results of Hussmann
International, Inc. (Hussmann) acquired on June 14, 2000. These
results were achieved despite lower demand for Thermo King products
specifically in the North American and European trailer and truck
business as well as for Road Machinery, Drills and Portable Power
products. Bobcat, Hussmann, and Security and Safety experienced
strong demand.
The ratio of cost of goods sold to sales for the third quarter was
74% and reflected an improvement of 2.2% over the third quarter of
1999. Included in cost of goods sold for the quarter is $13.2
million of other charges relating to productivity investments
incurred to reposition the company for the future.
Administrative, selling and service engineering expenses were $310.8
million, or 13.8% of revenues. Last year, administrative, selling
and service engineering expenses were 13.5% of revenues. This
increase is due to the inclusion of $9.3 million of charges
associated with productivity investments.
In order to reposition itself for the future, the company has
undertaken a restructuring and productivity investments program, which
is expected to have a pretax cost of $325 million and includes plant
rationalizations, organizational realignments consistent with the
company's new market-based structure and the consolidation of back
office processes. Restructuring charges for the three months ended
September 30, 2000 were $30.2 million. Restructuring charges incurred
by D-R of $8.0 million ($5.1 million, net of tax) during the period
have been included in results from the assets held for sale, net of
tax. Productivity investments charges were included in cost of goods sold
and administrative, selling and service engineering expenses. After-
tax charges for restructuring and productivity investments for the
third quarter totaled $39.1 million.
Operating income for the three months ended September 30, 2000
totaled $246.0 million, a decrease of $26.9 million over the prior
year's third quarter. Restructuring charges and productivity
investments included in operating income were $52.7 million.
Excluding these charges, operating income increased by 9.5%.
Operating income for the third quarter 2000 reflects a full quarter's
results from Hussmann.
Interest expense for third quarter 2000 of $74.8 million was $24.7
million higher than the prior year's third quarter due to the impact
of the debt incurred for the purchase of Hussmann. This increase was
partially offset by lower year-over-year debt levels in the company's
other operations. Additional interest expense from the debt required
to purchase IDP has been reported as a component of discontinued
operations and D-R's portion has been reported as part of results
from assets held for sale.
Other income (expense), net aggregated $1.9 million of net expense
for the third quarter, as compared to $8.2 million in last year's
third quarter. This change is primarily attributable to lower foreign
exchange costs compared to 1999.
During the third quarter, the results of operations of D-R were
reclassified as results from assets held for sale, net of tax.
Reported third-quarter earnings of $28.0 million included one-time
after-tax charges of $5.1 million for restructuring charges related
to severance and related employee benefits, and a $30.2 million after-
tax gain on the sale of D-R's compression services business to
Hanover Compressor Company (Hanover). The remaining operations
contributed $2.9 million to third-quarter net earnings.
Minority interest increased by $2.4 million over last year's third
quarter 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 third quarter.
The company's effective tax rate for continuing operations, excluding
D-R, was 35.5% for both the third quarters of 2000 and 1999. The
company's overall effective tax rate for the third quarter of 2000
was 30.2% reflecting the impact of the inclusion of D-R, net of tax,
in continuing operations.
Earnings from discontinued operations, net of tax, were $121.2
million for the third quarter of 2000, representing the operating
results of Ingersoll-Dresser Pump Company (IDP), a $3.6 million net
loss in the third quarter of 2000, and an after-tax gain of $124.8
million recorded on the sale of IDP to Flowserve Corporation
(Flowserve). Earnings for discontinued operations in the third
quarter of 1999 represented the operating results for IDP.
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. Incoming orders for
the third quarter of the year approximated $2.2 billion which
represents an increase of 21.6% over the prior year's third quarter.
The company's backlog of orders at September 30, 2000, believed by it
to be firm, was $1.2 billion, which approximated the adjusted backlog
at December 31, 1999. The company estimates that approximately 90
percent of the backlog will be shipped during the next twelve months.
Revenues from continuing operations for the first nine months of 2000
totaled $6.4 billion, an increase of 11% over the comparable period
of 1999. Revenues increased by 4% excluding the results of Hussmann.
Cost of goods sold for the first nine months of 2000 was 72.8% of
revenues, up slightly from last year's 72.4%. Included in cost of
goods sold year-to-date is $13.2 million of other charges relating to
the company's productivity investments.
Administrative, selling and service engineering expenses were $849.9
million, or 13.2% of revenues. Last year, administrative, selling
and service engineering expenses were 13.5% of revenues. The nine
months ended September 30, 2000 includes $9.3 million of charges
associated with productivity investments.
The company has undertaken a restructuring and productivity
investments program, which began in the third quarter of 2000.
Restructuring charges for the nine months ended September 30, 2000
were $30.2 million. Additionally, restructuring charges of $8.0
million ($5.1 million, net of tax) were incurred by D-R and have been
included in the results from the assets held for sale, net of taxes.
Productivity investments charges of $22.5 million were included in
cost of goods sold and administrative, selling and engineering
expenses. After-tax charges for restructuring and productivity
investments for the nine months ended September 30, 2000 totaled
$39.1 million.
Operating income for the nine months ended September 30, 2000 totaled
$863.8 million, an increase of $47.5 million over the prior year's
comparable period. Restructuring charges and productivity investments
included in operating income were $52.7 million. Excluding these
charges, operating income increased by 12%. Operating income for the
first nine months of 2000 reflects slightly more than a full quarter
of Hussmann's results. Excluding Hussmann results, operating income
was comparable to the nine month period ended September 30, 1999.
Interest expense for first nine months of 2000 of $178.3 million was
$22.6 million higher than the prior year's comparable period mainly
due to the impact of the debt incurred for the purchase of Hussmann.
This increase was partially offset by lower year-over-year debt
levels in the company's other operations. Additional interest
expense from the debt required to purchase IDP has been classified as
a component of discontinued operations and D-R's portion has been
reported as part of results from assets held for sale.
Other income (expense), net aggregated $3.0 million of net expenses
for the first nine months of 2000, as compared to $13.4 million in
last year's comparable period. This change is primarily attributable
to lower foreign exchange costs compared to 1999.
Minority interest increased by $8.9 million during the first nine
months of 2000 over last year's nine 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 nine-month total.
The operating results of D-R were reclassified as results from assets
held for sale, net of tax and reported separately. Reported earnings
of $14.4 million included one-time after-tax charges of $5.1 million
for restructuring charges related to organizational realignments and a
$30.2 million after-tax gain on the sale of D-R compression services
business to Hanover. The remaining operations contributed a $10.7
million loss for the first nine months of 2000.
The company's overall effective tax rate for continuing operations was
34.0% and 35.1% for the first nine months of 2000 and 1999,
respectively. Excluding D-R, the company's effective tax rate for
continuing operations was 34.7% and 35.5% for the first nine months of
2000 and 1999, respectively. The effective tax rate for the period
includes a tax credit of $5 million generated by the company's foreign
sales corporation. The tax rate for the fourth quarter is expected to
be 35.5%, excluding D-R. The effective tax rate for all of 1999 was
35.5%.
Earnings from discontinued operations, net of tax, were $123.2
million for the first nine months of 2000, representing the operating
results of IDP, a $1.6 million net loss in 2000, and an after-tax
gain of $124.8 million recorded on the sale of IDP to Flowserve.
Earnings from discontinued operations in the comparable period of
1999 represented the operating results for IDP.
Liquidity and Capital Resources
The company's working capital at September 30, 2000 showed current
liabilities in excess of current assets of $546.9 million, which
reflects a change of $1,676.3 million 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 $250 million of
current liabilities to the company's consolidated balance sheet at
September 30, 2000, before considering the acquisition cost of
approximately $1.7 billion, which had been temporarily financed by the
issuance of short-term debt. Excluding Hussmann-related current assets
and liabilities from the company's September 30, 2000 condensed
consolidated balance sheet, working capital would be 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. The company used
the cash proceeds from the sale of IDP and D-R's compression services
business 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 0.9 at September 30,
2000. The company's debt-to-total capital ratio at September 30, 2000
was 51%, compared with 42% reported at December 31, 1999. This increase
is due to the Hussmann acquisition debt and February 2, 2000 purchase of
the D-R, partially offset by the proceeds from business dispositions.
The company's cash and cash equivalents totaled $58.0 million at
September 30, 2000 down significantly from the $222.9 million at
December 31, 1999, primarily due to cash used for acquisitions.
During the first nine months of the year, cash flows from operating
activities provided $278.5 million, investing activities used
$1,488.0 million and financing activities provided $1,074.9
million.
Receivables totaled $1.5 billion at September 30, 2000, which
represents an increase of $493.2 million increase over the amount
reported at December 31, 1999. Acquisitions increased the balance by
$347.5 million. The remaining increase was due to the timing of
third quarter sales and a slight increase in days sales outstanding
particularly in rental channels, offset by the effect of foreign
currency translation.
Inventories totaled $961.5 million at September 30, 2000, which
represents an increase of $219.4 million from the year-end balance of
$742.1 million. Acquisitions increased the balance by $132.7
million while foreign currency translation decreased the balance by
$30.1 million, respectively. The remainder is attributed to the
building of inventory to fulfill future orders.
Assets held for sale were $664.9 million at September 30, 2000, a
decrease of $134.8 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, IDP and D-R's compression services
business. The account also includes the losses generated by D-R for
the first nine months of 2000. (See Notes to the Condensed
Consolidated Financial Statements.)
Intangible assets increased by approximately $1.4 billion during the
first nine months of 2000. Acquisitions increased the account balance
by approximately $1.5 billion during the first nine months of the
year. Amortization expense for the first nine months of the year was
$96.5 million while capitalized software increased the balance by
$25.0 million. The remaining reduction is attributed to foreign
currency translation.
Loans payable totaled $2.4 billion at September 30, 2000 as compared
to $495.5 million at December 31, 1999. Acquisitions and the related
debt activity accounted for approximately $2.3 billion of the net
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 third quarter of 2000, the company repurchased 1.1 million
shares of its stock. Approximately 2.9 million shares have been
repurchased during the first nine months of 2000. The total
repurchase program is for 15 million shares, 9.8 million have been
repurchased since the program's inception.
During the nine months of 2000, foreign currency translation
adjustments resulted in a net decrease of $82.8 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 26 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 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 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 have been 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.
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. 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 with the company
realizing a pretax gain of $200 million. The company intends to use
substantially all of the gain realized on the sale of IDP on
restructuring and productivity investments initiatives, which began
in the third quarter of 2000.
On September 5, 2000, the company completed the sale of the
reciprocating gas compressor packaging and rental business of its D-R
unit to Hanover. The sale was completed for $190 million, of which
$95 million was in cash with the balance in Hanover stock. The
company expects to hold the stock for a minimum of six months after
its receipt. The company is continuing to market the remaining
portion of D-R, which is reported on the balance sheet as assets held
for sale. All results of D-R have been reclassified to results from
assets held for sale, net of tax. The results include the normal
results from operations, the gain on the sale of the D-R's
compression services business and a restructuring charge, net of
taxes.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement as amended, 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. The company's transition adjustment will not
currently have a material effect on the financial condition, or
results of operations of the company. The transition adjustment at
December 31, 2000 may be significantly different based on the
economic conditions and the company's hedging strategies during the
last quarter.
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.
Third-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 third quarter revenues totaled $669.2 million.
The Thermo King business was adversely affected by a severe decline
in the North American truck and trailer market, continued weak truck
and trailer results in Europe, and the unfavorable effect of
currency. However, the bus air conditioning and sea-going container
businesses improved substantially and total Thermo King revenue
increased by three percent to $307 million. Operating income for the
quarter for the Climate Control segment was $57.3 million, which
included restructuring and other charges of $6.0 million. Hussmann
operating results were consistent with expectations and the business
continued an excellent rate of incoming orders. Hussmann operating
results, excluding the effect of purchase accounting, reflected an
improvement of more than 12% from its reported results as an
independent company in the third quarter of 1999. Operating margins
declined primarily because of unfavorable currency comparisons and
product mix.
The Industrial Productivity Sector is composed of a group of
businesses focused on providing solutions for customers to enhance
industrial efficiency. Reported revenues of $700.0 million increased
by 3% compared to the amount reported for the three months ended
September 30, 1999. Last year's third quarter includes the results of
the Automation Division which was sold during the fourth quarter of
1999. Operating income was $75.5 million, which included $14.2
million of restructure and other charges. Excluding these charges,
operating income increased by 15%, primarily due to the improved
results in the Air Solutions and Bearings and Components businesses.
The Industrial Productivity Sector consists of three segments:
Air Solutions, which provides equipment and services for
compressed air systems, had revenues in the third quarter of
$210.8 million, an improvement of 17% compared to 1999.
Operating income increased by approximately 17%, excluding the
effect of restructure and other charges of $5.6 million. The
business' performance benefited primarily from the increased
emphasis on the aftermarket business and ongoing cost and
expense reduction activity.
Bearings and Components provides motion control technologies to
the automotive and industrial markets. Revenues for the quarter
declined slightly to $281.6 million, as lower volumes for
industrial bearings offset the gains made in automotive
bearings. Operating margins improved by 36% due to significant
ongoing cost and expense reduction activities and higher
aftermarket revenues. The recent downturn in the production of
light trucks and sport-utility vehicles is expected to affect
the fourth-quarter 2000 revenues of this business.
Industrial Products includes Club Car golf cars and utility
vehicles, tools and related industrial production equipment.
Reported revenues of $207.6 million in the third quarter
decreased by 5%, compared to the third quarter of 1999.
Excluding last year's third quarter revenues from the Automation
Division (which was sold in the fourth quarter of 1999),
revenues increased by 5%. Operating income of $13.4 million for
the third quarter of the year includes charges for restructure
and other productivity investments of $6.4 million. Lower
margins resulted from continued cost pressures in the European
industrial business and the unfavorable effects of currency.
The Infrastructure Development Sector includes Bobcat compact
equipment; road pavers and compactors; portable power products; and
drilling equipment. This sector's revenues for the third quarter of
the year totaled $525.1 million, reflecting a slight decrease over
last year's third quarter. Bobcat's double-digit revenue improvement
was offset by lower sales in the balance of the sector. Operating
income of $74.0 million, which includes charges for restructure and
productivity investments of $9.8 million, decreased from the prior
year's third quarter operating income of $93.8 million. Operating
margins for the sector were impacted significantly by foreign
exchange.
The Security and Safety Sector includes architectural hardware
products and electronic access-control technologies. For this
sector, third quarter revenues increased by 8% to $361.6 million,
when compared to the comparable quarter in the prior year. Operating
income increased to $75.9 million. This sector's operating income
included $3.5 million of charges for restructure and productivity
investments. The improvement occurred in both the commercial and
residential markets.
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
12 Computations of Ratios of Earnings
to Fixed Charges
27 Financial Data Schedule for the nine
months ended September 30, 2000
27 Restated Financial Data Schedules for the
years ended:
December 31, 1999, 1998 and 1997
Restated Financial Data Schedules
for the periods ended:
March 31, 2000 and June 30, 2000
March 31, 1999 and 1998
June 30, 1999 and 1998
September 30, 1999 and 1998
(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 14, 2000 /S/ D.W. Devonshire
D.W. Devonshire, Executive Vice
President & Chief Financial Officer
Principal Financial Officer
Date November 14, 2000 /S/ S.R. Shawley
S.R. Shawley, Vice President &
Controller
Principal Accounting Officer
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