UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ |
X |
] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period
ended September 30, 2002
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
LIMITED
(Exact name of registrant as specified in its
charter)
Bermuda |
|
N/A |
Clarendon
House |
(441) 295-2838
(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 Class A common shares outstanding as of October 31, 2002 was 169,186,817.
INGERSOLL-RAND COMPANY LIMITED
FORM 10-Q
INDEX
PART I |
FINANCIAL INFORMATION |
Item 1 -
Financial Statements: |
|
Condensed
Consolidated Income Statement for the three and nine months ended September
30, 2002 and 2001 |
|
Condensed
Consolidated Balance Sheet at September 30, 2002 and December 31, 2001 |
|
Condensed
Consolidated Statement of Cash Flows for the nine months ended September 30,
2002 and 2001 |
|
Notes to
Condensed Consolidated Financial Statements |
|
Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations |
|
Item 3 -
Quantitative and Qualitative Disclosures about Market Risk |
|
Item 4 - Controls and Procedures |
|
PART II |
OTHER INFORMATION |
SIGNATURES |
|
CERTIFICATIONS |
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements
INGERSOLL-RAND COMPANY LIMITED
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions except per share
amounts)
Three months ended | Nine months ended | |||||||
September 30, | September 30, | |||||||
2002 | 2001 | 2002 | 2001 | |||||
Net sales | $ 2,518.1 | $ 2,374.9 | $ 7,411.4 | $ 7,125.5 | ||||
Cost of goods sold | 1,951.5 | 1,865.0 | 5,720.6 | 5,585.6 | ||||
Selling and administrative expenses | 387.5 | 368.8 | 1,114.6 | 1,066.3 | ||||
Restructuring charges | 10.7 | 25.6 | 29.8 | 57.2 | ||||
Operating income | 168.4 | 115.5 | 546.4 | 416.4 | ||||
Interest expense | (59.1) | (66.1) | (178.1) | (191.7) | ||||
Other income (expense), net | 4.1 | (15.6) | (17.4) | (10.1) | ||||
Minority interests | (4.2) | (2.5) | (11.4) | (16.7) | ||||
Earnings before income taxes | 109.2 | 31.3 | 339.5 | 197.9 | ||||
Provision (benefit) for income taxes | 19.9 | (2.6) | 61.9 | 51.8 | ||||
Net earnings before cumulative effect | ||||||||
of change in accounting principle | 89.3 | 33.9 | 277.6 | 146.1 | ||||
Cumulative effect of change in | ||||||||
accounting principle, net of tax | - | - | (634.5) | - | ||||
Net earnings (loss) | $ 89.3 | $ 33.9 | $ (356.9) | $ 146.1 | ||||
Basic earnings (loss) per common share: | ||||||||
Net earnings before cumulative effect | ||||||||
of change in accounting principle | $ 0.53 | $ 0.20 | $ 1.64 | $ 0.89 | ||||
Cumulative effect of change in | ||||||||
accounting principle, net of tax | - | - | (3.76) | - | ||||
Net earnings (loss) | $ 0.53 | $ 0.20 | $ (2.12) | $ 0.89 | ||||
Diluted earnings (loss) per common share: | ||||||||
Net earnings before cumulative effect | ||||||||
of change in accounting principle | $ 0.53 | $ 0.20 | $ 1.63 | $ 0.88 | ||||
Cumulative effect of change in | ||||||||
accounting principle, net of tax | - | - | (3.72) | - | ||||
Net earnings (loss) | $ 0.53 | $ 0.20 | $ (2.09) | $ 0.88 | ||||
Dividends per share | $ 0.17 | $ 0.17 | $ 0.51 | $ 0.51 | ||||
See accompanying notes to condensed consolidated financial statements. | ||||||||
INGERSOLL-RAND
COMPANY LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET
(in
millions)
September 30, 2002 | December 31, 2001 | |||
ASSETS | ||||
Current assets: | ||||
Cash and cash equivalents | $ 112.9 | $ 114.0 | ||
Marketable securities | 1.4 | 7.4 | ||
Accounts and notes receivable, net | 1,554.2 | 1,482.9 | ||
Inventories | 1,425.8 | 1,295.3 | ||
Prepaid expenses and deferred income taxes | 295.5 | 288.2 | ||
Total current assets | 3,389.8 | 3,187.8 | ||
Property, plant and equipment, net | 1,630.5 | 1,633.0 | ||
Goodwill | 3,991.5 | 4,811.7 | ||
Intangible assets, net | 888.9 | 849.1 | ||
Other assets | 841.9 | 582.1 | ||
Total assets | $ 10,742.6 | $ 11,063.7 | ||
LIABILITIES AND EQUITY | ||||
Current liabilities: | ||||
Accounts payable | $ 734.1 | $ 761.0 | ||
Accrued expenses and other current liabilities | 1,549.6 | 1,526.3 | ||
Loans payable | 1,273.5 | 563.7 | ||
Total current liabilities | 3,557.2 | 2,851.0 | ||
Long-term debt | 2,166.2 | 2,900.7 | ||
Postemployment and other benefit liabilities | 919.9 | 920.4 | ||
Other noncurrent liabilities | 498.8 | 475.0 | ||
Total liabilities | 7,142.1 | 7,147.1 | ||
Shareholders' equity: | ||||
Common shares | 169.2 | 168.0 | ||
Other shareholders' equity | 3,666.1 | 4,070.0 | ||
Accumulated other comprehensive income | (234.8) | (321.4) | ||
Total shareholders' equity | 3,600.5 | 3,916.6 | ||
Total liabilities and shareholders' equity | $ 10,742.6 | $ 11,063.7 | ||
See accompanying notes to condensed consolidated financial statements. | ||||
INGERSOLL-RAND COMPANY
LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Nine months ended September 30, |
|||
2002 | 2001 | ||
Cash flows from operating activities: | |||
Net earnings before cumulative effect of change in | |||
accounting principle | $ 277.6 | $ 146.1 | |
Adjustments to arrive at net cash provided by operating activities: | |||
Restructure of operations | 29.8 | 57.2 | |
Depreciation and amortization | 189.0 | 277.5 | |
Changes in other asset and liabilities, net | (283.1) | (393.0) | |
Other, net | 40.7 | 23.0 | |
Net cash provided by operating activities | 254.0 | 110.8 | |
Cash flows from investing activities: | |||
Capital expenditures | (113.0) | (130.0) | |
Investments and acquisitions, net of cash | (104.7) | (141.3) | |
Proceeds from business dispositions | - | 17.5 | |
Decrease in marketable securities | 5.9 | 91.5 | |
Proceeds from sale of property, plant and equipment | 37.5 | 23.5 | |
Other, net | (2.9) | 3.7 | |
Net cash used in investing activities | (177.2) | (135.1) | |
Cash flows from financing activities: | |||
Net change in debt | (28.8) | 194.3 | |
Purchase of treasury stock | - | (72.5) | |
Dividends paid | (86.1) | (84.5) | |
Proceeds from exercise of stock options | 35.7 | 9.4 | |
Net cash (used in) provided by financing activities | (79.2) | 46.7 | |
Effect of exchange rate changes on cash and cash equivalents | 1.3 | (14.1) | |
Net (decrease) increase in cash and cash equivalents | (1.1) | 8.3 | |
Cash and cash equivalents - beginning of period | 114.0 | 97.0 | |
Cash and cash equivalents - end of period | $ 112.9 | $ 105.3 | |
See accompanying notes to condensed consolidated financial statements. | |||
INGERSOLL-RAND COMPANY
LIMITED
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, 2002 and 2001.
The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.
Note 2 - During the third quarter of 2000, the Company commenced a $325 million restructuring program, which included such actions as plant rationalizations, organizational realignments consistent with the Company's new market-based structure and the consolidation of back-office processes. During the fourth quarter of 2001, the Company commenced a second restructuring program for an additional $150 million to further reduce the general and administrative expenses across the Company. These programs include certain costs that are identified in Staff Accounting Bulletin (SAB) 100, "Restructuring and Impairment Charges", and Emerging Issues Task Force (EITF) 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring)", as restructuring, as well as other related costs that do not meet the criteria to be classified as restructuring. Nonrecurring costs associated with these activities not qualifying as restructuring are referred to as "productivity investments" and have been charged to "Cost of goods sold" and "Selling and administrative expenses." Substantially all income statement activity and cash payments under both programs is expected to be completed by December 31, 2002. Remaining amounts relate primarily to ongoing lease commitments and pension liabilities. The Company expects lower costs and improved customer service in all segments as a result of these actions. The Company manages the 2000 and 2001 programs as a single restructuring program totaling $475 million. Therefore, all comments regarding restructure activity refer to both programs combined.
The total employee terminations related to the restructuring program is expected to be approximately 6,000 (excluding Hussmann International, Inc. (Hussmann)) by December 31, 2002. See Note 3 for restructuring activities of Hussmann, which were recorded as part of purchase accounting for the acquisition. These terminations impacted both the salaried and hourly employee groups. The total number of manufacturing facilities to be closed by December 31, 2002 is 21 (excluding Hussmann). Payments for the terminations of employees and facility closures have been made since the inception of the program and will be substantially completed by December 31, 2002.
Management teams that were directly involved with the required actions developed the projected costs for each project within each segment and the Corporate Center. The costs incurred relating to the restructuring and productivity investments included involuntary employee termination benefits and relocation costs, lease exit costs, equipment write-offs, moving costs, and new site set up costs.
A reconciliation of the consolidated restructuring reserve
for the 2000 and 2001 programs is as follows:
Employee termination cost |
Facility exit costs |
Total |
||||
In millions | ||||||
Balance at December 31, 2001 | $ 34.5 | $ 7.1 | $ 41.6 | |||
Provision | 31.7 | (1.9) | 29.8 | |||
Cash payments | (34.1) | (3.1) | (37.2) | |||
Non-cash write-offs | - | (1.5) | (1.5) | |||
Balance at September 30, 2002 | $ 32.1 | $ 0.6 | $ 32.7 | |||
- Close five manufacturing locations: U.S. (2), Europe (2) and Latin America (1).
- Outsource the manufacturing of certain components used in products.
- Terminate 1,429 employees.
As of September 30, 2002, all five specified manufacturing locations have been closed, the outsourcing of certain product manufacturing was completed and 1,384 employees were terminated, with an additional 45 expected by December 31, 2002.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee |
Facility exit costs |
Total |
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 1.6 | $ 6.9 | $ - | $ - | $ 1.6 | $ 6.9 | |||||
Provision | 1.1 | 4.5 | (3.7) | 1.5 | (2.6) | 6.0 | |||||
Cash (payments) receipts | (2.7) | (4.6) | 3.7 | - | 1.0 | (4.6) | |||||
Non-cash write-offs | - | - | - | (1.0) | - | (1.0) | |||||
Balance at September 30, 2002 | $ - | $ 6.8 | $ - | $ 0.5 | $ - | $ 7.3 | |||||
- Close eight manufacturing locations: U.S. (4), Asia Pacific (3) and Europe (1).
- Terminate 1,342 employees.
As of September 30, 2002, seven of the specified manufacturing locations have been closed with the final closure to occur by December 31, 2002. Employees terminated as of September 30, 2002 were 1,309 with an additional 33 employees to be terminated by December 31, 2002.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee | Facility | ||||||||||
termination costs | exit costs | Total | |||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 3.1 | $ 3.7 | $ 2.7 | $ - | $ 5.8 | $ 3.7 | |||||
Provision | (2.8) | 6.8 | - | - | (2.8) | 6.8 | |||||
Cash payments | - | (5.9) | (2.7) | - | (2.7) | (5.9) | |||||
Balance at September 30, 2002 | $ 0.3 | $ 4.6 | $ - | $ - | $ 0.3 | $ 4.6 | |||||
During
the third quarter of 2001, an accrual of $6.2 million was recorded by Air
Solutions related to the announcement of a U.K. facility closing. This location manufactured products for two
business units, Air Solutions (Air & Productivity Solutions segment) and
Portable Power (Infrastructure segment).
During the first quarter of 2002, management determined that $3.1
million, of the original $6.2 million, was related to the Portable Power business
and an entry was recorded to properly reflect the activity in each
business. This resulted in a
reclassification between the Air & Productivity Solutions segment and
the Infrastructure segment.
- Close one manufacturing location in the U.S.
- Terminate 1,446 employees.
As of September 30, 2002, the specified manufacturing location was closed, and 1,172 employees were terminated, with an additional 274 expected by December 31, 2002.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
|
|
|
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 1.1 | $ 2.7 | $ - | $ - | $ 1.1 | $ 2.7 | |||||
Provision | 0.7 | 2.6 | - | - | 0.7 | 2.6 | |||||
Cash payments | - | (4.4) | - | - | - | (4.4) | |||||
Balance at September 30, 2002 | $ 1.8 | $ 0.9 | $ - | $ - | $ 1.8 | $ 0.9 | |||||
- Organizational realignment - five regions reduced to three.
- Terminate 318 employees.
- Close or consolidate several non-manufacturing locations.
As of September 30, 2002, the organizational realignment was complete, all 318 identified employees were terminated, and the closure of the non-manufacturing locations was complete.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee termination costs |
|
|
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ - | $ - | $ - | $ - | $ - | $ - | |||||
Provision | 1.5 | - | - | - | 1.5 | - | |||||
Cash payments | (1.5) | - | - | - | (1.5) | - | |||||
Balance at September 30, 2002 | $ - | $ - | $ - | $ - | $ - | $ - | |||||
Infrastructure
Manufacturing facilities became a focus to improve
production efficiencies and decrease manufacturing operating costs. The
consolidation of the manufacturing locations will enable the business to
leverage its capacity when the volumes return. Additional significant
management realignments were essential to the success of the market strategy
and to leverage the distribution channels.
The approved actions were as follows:
- Close two manufacturing locations in the U.S.
- Terminate 714 employees.
As of September 30, 2002, the two specified manufacturing location were closed, and 698 employees were terminated. An additional 16 employee terminations are expected by December 31, 2002.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee termination costs |
|
Total |
||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | ||||
Balance at December 31, 2001 | $ 1.6 | $ 0.5 | $ 0.3 | $ - | $ 1.9 | $ 0.5 | ||||
Provision | 3.7 | 3.1 | - | - | 3.7 | 3.1 | ||||
Cash payments | (2.6) | (3.5) | - | - | (2.6) | (3.5) | ||||
Non-cash write-offs | - | - | (0.3) | - | (0.3) | - | ||||
Balance at September 30, 2002 | $ 2.7 | $ 0.1 | $ - | $ - | $ 2.7 | $ 0.1 | ||||
Manufacturing facilities became a focus to improve production efficiencies and decrease manufacturing operating costs. Management also reviewed the current S&A expense structure and determined that significant actions were required to align the cost structure with the current volume levels. The approved actions were as follows:
- Close five manufacturing locations: U.S. (3) and Europe (2).
- Terminate 496 employees.
As of September 30, 2002, all of the specified manufacturing locations were closed and 433 employees were terminated. An additional 63 employee terminations are expected by December 31, 2002.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee termination costs |
|
|
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 2.4 | $ - | $ 4.1 | $ - | $ 6.5 | $ - | |||||
Provision | 2.3 | 1.6 | 0.3 | - | 2.6 | 1.6 | |||||
Cash payments | (4.0) | (1.5) | (4.1) | - | (8.1) | (1.5) | |||||
Non-cash write-offs | - | - | (0.2) | - | (0.2) | - | |||||
Balance at September 30, 2002 | $ 0.7 | $ 0.1 | $ 0.1 | $ - | $ 0.8 | $ 0.1 | |||||
Corporate Center
Management determined that previously decentralized back office functions (such
as accounts payable, accounts receivable, benefits administration and payroll)
proved to be an inefficient way of managing costs of high volume
transactions. The creation of Global
Business Services (a shared service center) enabled the Company to consolidate
high volume transactions at a lower cost by reducing the number of employees in
business units' back office operations. These actions resulted in employee terminations
of 164 as of September 30, 2002, and an additional 232 reduction in staff is
expected by December 31, 2002. The
restructuring costs associated with corporate are primarily related to the
involuntary employee terminations.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee termination costs |
|
|
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 8.6 | $ 2.3 | $ - | $ - | $ 8.6 | $ 2.3 | |||||
Provision | - | 6.6 | - | - | - | 6.6 | |||||
Cash payments | (0.9) | (2.5) | - | - | (0.9) | (2.5) | |||||
Balance at September 30, 2002 | $ 7.7 | $ 6.4 | $ - | $ - | $ 7.7 | $ 6.4 | |||||
Note 3- In June 2000, the Company acquired Hussmann for approximately $1.7 billion in cash, after consideration of 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.
As part of the acquisition process, the Company determined that significant synergies could be achieved through the consolidation of manufacturing facilities and the reduction of excess manufacturing and selling and administrative employees. The Company expects lower costs and improved customer service as a result of these actions. The following initiatives were identified to achieve these synergies.
-
Mexico - one corporate office
and two manufacturing facilities were closed. All three of these
locations
were combined into an existing Hussmann Mexican facility.
-
U.K. -
closure of a manufacturing facility in England. Numerous sales offices were closed and certain
facilities were
merged into existing Company facilities.
-
Spain -
closure of one manufacturing facility. Operations
were combined with existing facilities or
outsourced.
The international plant closures were completed by December 31, 2001.
The costs incurred relating to each of the above restructurings included involuntary employee termination benefits and relocation costs, lease exit costs, and equipment write-offs.
During the first half of 2001, Hussmann recorded $43 million of additional restructuring liabilities to goodwill. These additional amounts were recorded due to the finalization of exit plans of the remaining facilities identified at acquisition in accordance with the integration plan. Additionally, in accordance with EITF 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination", costs exceeding the amounts originally recorded as liabilities required an adjustment to increase the liability and were identified within one year of the acquisition date, and therefore recorded as part of the acquisition price.
The total number of employees terminated as part of the above restructuring plans was approximately 1,500. These terminations affected both the salaried and hourly employee groups.
The restructuring has been substantially completed as of the third quarter 2002, and the reserves have been utilized, except those relating to ongoing lease commitments and pension liabilities not yet settled. The remaining exit cost liabilities relating to employee termination costs will be paid by June 30, 2003. All facility exit costs, except for ongoing lease commitments, are expected to be paid by December 31, 2002. Ongoing lease commitment payments of approximately $0.3 million are expected to be paid annually from 2003 through 2016, unless subleased.
A reconciliation of the restructuring reserve is as follows:
Employee |
Facility exit costs |
Total |
||||
In millions | ||||||
Balance at December 31, 2001 | $ 12.1 | $ 23.1 | $ 35.2 | |||
Cash payments | (10.9) | (9.2) | (20.1) | |||
Balance at September 30, 2002 | $ 1.2 | $ 13.9 | $ 15.1 | |||
In the first quarter of 2002, the Company acquired a 30% interest in CISA S.p.A. (CISA), a European manufacturer of mechanical and electronic security products, for approximately $60 million. CISA operates worldwide and will enable the Company to provide customers with a complete portfolio of security products in the Americas and the European and Asia Pacific markets.
In June 2002, the Company acquired Electronic Technologies Corporation (ETC), based in Dover Plains, New York, for approximately $22 million. ETC provides specialty security systems integration, serving as a single source for integrating a facility's access control, closed circuit television and fire/life safety systems. The final purchase price may be increased by approximately $15 million based upon certain future operating goals as specified in the contract.
In addition to the above acquisitions, the Company made several smaller acquisitions in 2002 totaling approximately $23 million.
Note 4 - Inventories are stated at cost, which is not in excess of market. Most U.S. manufactured inventories, excluding the Climate Control and Dresser-Rand segments, are valued on the last-in, first-out (LIFO) method. All other inventories are valued using the first-in, first-out (FIFO) method. The composition of inventories was as follows:
In millions | September 30, 2002 | December 31, 2001 | |||
Raw materials and supplies | $ 328.2 | $ 307.9 | |||
Work-in-process | 436.0 | 395.5 | |||
Finished goods | 804.1 | 733.1 | |||
1,568.3 | 1,436.5 | ||||
Less-LIFO reserve | 142.5 | 141.2 | |||
Total | $ 1,425.8 | $ 1,295.3 | |||
Note 5 - Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets". Under the provisions of this standard, goodwill and intangible assets deemed to have indefinite lives are no longer subject to amortization, but rather are tested for impairment at least annually. All other intangible assets are to be amortized over their estimated useful lives.
Step one of the impairment testing required under SFAS No. 142 was completed by June 30, 2002. Under step one of the impairment test, all reporting units were identified in accordance with the guidance of SFAS No. 142 and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." The January 1, 2002 carrying value of the reporting units was then compared to the fair value of the reporting units. Fair value was computed by utilizing a discounted cash flow model. Upon completion of the comparison of the values of the reporting units, it was determined that the carrying value of the Thermo King reporting unit of the Climate Control segment was in excess of its fair value.
Step two of the impairment test, which compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill, was then completed. The implied fair value of goodwill was determined by allocating the fair value of the reporting unit to all the assets and liabilities (including unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. This resulted in a goodwill impairment charge of $864.4 million being recorded. As required by SFAS No. 142, this charge, $634.5 million, net of tax, was recognized as a cumulative effect of a change in accounting principle retroactive to January 1, 2002.
The following is a reconciliation of previously reported financial information and adjusted amounts excluding amortization expense relating to goodwill and other intangible assets deemed to have indefinite lives, which are no longer being amortized:
|
|
||||||||||||
Basic | Diluted | Basic | Diluted | ||||||||||
earnings | earnings | earnings | earnings | ||||||||||
In millions except per share amounts | Earnings | per share | per share | Earnings | per share | per share | |||||||
Net earnings as reported | $ 33.9 | $ 0.20 | $ 0.20 | $ 146.1 | $ 0.89 | $ 0.88 | |||||||
Goodwill amortization expense, | |||||||||||||
net of tax | 31.1 | 0.19 | 0.19 | 90.6 | 0.55 | 0.55 | |||||||
Other intangible asset amortization | |||||||||||||
expense, net of tax | 0.5 | - | - | 1.4 | 0.01 | 0.01 | |||||||
Adjusted net earnings | $ 65.5 | $ 0.39 | $ 0.39 | $ 238.1 | $ 1.45 | $ 1.44 | |||||||
The changes in the carrying amount of goodwill for the
nine months ended September 30, 2002 are as follows:
|
Reclassifications |
|
|
Impairment losses |
|
|||||||
In millions | ||||||||||||
Climate Control | $ 3,336.1 | $ (24.0) | $ 16.6 | $ 6.0 | $ (864.4) | $ 2,470.3 | ||||||
Industrial Solutions: | - | |||||||||||
Air & Productivity Solutions | 102.0 | - | 2.2 | 2.7 | - | 106.9 | ||||||
Dresser-Rand | 24.4 | - | - | (0.1) | - | 24.3 | ||||||
Engineered Solutions | 4.2 | - | - | 0.4 | - | 4.6 | ||||||
Infrastructure | 885.1 | - | 3.0 | 3.5 | - | 891.6 | ||||||
Security & Safety | 459.9 | (8.6) | 20.3 | 22.2 | - | 493.8 | ||||||
Total | $ 4,811.7 | $ (32.6) | $ 42.1 | $ 34.7 | $ (864.4) | $ 3,991.5 | ||||||
* Upon acquisition of a new business, the Company records the excess purchase
price to goodwill
until final valuations are completed to further disaggregate the amount.
** Represents goodwill related to current year acquisitions or adjustments as a result of final allocations of purchase price.
The following table sets forth the gross amount and accumulated amortization of the Company's intangible assets:
September 30, 2002 |
December 31, 2001 |
|||||||
Gross | Accumulated | Gross | Accumulated | |||||
In millions | amount | amortization | amount | amortization | ||||
Customer relationships | $ 380.0 | $ 21.8 | $ 380.0 | $ 14.6 | ||||
Installed service base | 235.8 | 15.3 | 235.8 | 10.9 | ||||
Software | 97.8 | 12.6 | 82.4 | 3.6 | ||||
Trademarks | 7.1 | 5.8 | 152.7 | 4.9 | ||||
Other | 62.2 | 27.8 | 59.6 | 27.4 | ||||
Total amortizable intangible assets | 782.9 | 83.3 | 910.5 | 61.4 | ||||
Total indefinite lived intangible assets - trademarks | 189.3 | - | - | - | ||||
Total | $ 972.2 | $ 83.3 | $ 910.5 | $ 61.4 | ||||
During the first nine months of 2002, the Company recorded software in the amount of $15.1 million and a covenant not to compete in the amount of $1.3 million with weighted average amortization periods of 4.2 years and 5 years, respectively.
Intangible asset amortization expense for the third quarter and nine months ended of 2002 was $8.5 million and $24.3 million, respectively. Estimated intangible asset amortization expense for each of the next five fiscal years is expected to be $32.5 million in 2002, $39.0 million in 2003, $39.0 million in 2004, $39.0 million in 2005, and $35.4 million in 2006.
Note 6 - Information on basic and diluted shares is as follows:
Three months ended September 30, |
Nine months ended September 30, |
||||||
In millions | 2002 | 2001 | 2002 | 2001 | |||
Average number of basic shares | 169.2 | 168.3 | 168.8 | 164.3 | |||
Shares issuable under incentive stock plans | 0.7 | 0.9 | 1.5 | 1.2 | |||
Average number of diluted shares | 169.9 | 169.2 | 170.3 | 165.5 | |||
Diluted earnings per share computations for the three months ended September 30, 2002 and 2001 excluded the weighted average effect of the assumed exercise of approximately 11.7 million and 10.5 million shares issuable under stock benefit plans, respectively. Excluded for the nine-months ended September 30, 2002 and 2001 were 5.2 million and 5.3 shares, respectively. These shares were excluded because the effect would be anti-dilutive.
Note 7 - The components of comprehensive income are as follows:
Three months ended |
Nine months ended |
||||||
September 30, | September 30, | ||||||
In millions | 2002 | 2001 | 2002 | 2001 | |||
Net earnings | $ 89.3 | $ 33.9 | $(356.9) | $ 146.1 | |||
Other comprehensive income (loss): | |||||||
Foreign currency translation adjustment | 10.3 | 31.2 | 87.6 | (23.3) | |||
Change in fair value of derivatives qualifying | |||||||
as cash flow hedges, net of tax | (1.5) | (0.1) | (1.0) | 0.4 | |||
Reclassification to realized on marketable | |||||||
securities, net of tax | - | - | - | (16.4) | |||
Comprehensive income (loss) | $ 98.1 | $ 65.0 | $(270.3) | $ 106.8 | |||
Included in accumulated other comprehensive income at
September 30, 2002, is $0.6 million related to the fair value of derivatives
qualifying as cash flow hedges, of which $0.8 million of expense is expected to
be reclassified to earnings over the twelve month period ending September 30,
2003. The actual amounts that will be
reclassified to earnings over the next twelve months will vary from this amount
as a result of changes in market conditions.
No amounts were reclassified to earnings during the quarter in
connection with forecasted transactions that were no longer considered probable
of occurring.
At September 30, 2002, the maximum term of derivative instruments that hedge
forecasted transactions, for foreign currency hedges, was nine months. At September 30, 2002, the maximum term of
derivative instruments that hedge forecasted transactions, for commodity
hedges, was 15 months.
Note 8 - A summary of operations by reportable segment is as follows:
Three months ended | Nine months ended | ||||||
September 30, | September 30, | ||||||
In millions | 2002 | 2001 | 2002 | 2001 | |||
Net Sales | |||||||
Climate Control | $ 639.5 | $ 652.4 | $ 1,769.2 | $ 1,771.2 | |||
Industrial Solutions: | |||||||
Air & Productivity Solutions | 328.3 | 320.8 | 961.5 | 986.0 | |||
Dresser-Rand | 230.5 | 208.3 | 677.0 | 571.1 | |||
Engineered Solutions | 294.7 | 254.4 | 904.7 | 796.7 | |||
853.5 | 783.5 | 2,543.2 | 2,353.8 | ||||
Infrastructure | 623.9 | 578.5 | 1,988.3 | 1,959.6 | |||
Security & Safety | 401.2 | 360.5 | 1,110.7 | 1,040.9 | |||
Total | $ 2,518.1 | $ 2,374.9 | $ 7,411.4 | $ 7,125.5 | |||
Operating Income (Loss) | |||||||
Climate Control | $ 41.5 | $ 24.4 | $ 102.0 | $ 25.5 | |||
Industrial Solutions: | |||||||
Air & Productivity Solutions | 12.0 | 2.7 | 51.5 | 52.2 | |||
Dresser-Rand | 9.1 | 3.5 | 8.9 | (9.4) | |||
Engineered Solutions | 9.4 | 13.2 | 46.4 | 48.9 | |||
30.5 | 19.4 | 106.8 | 91.7 | ||||
Infrastructure | 44.7 | 34.5 | 197.1 | 190.3 | |||
Security & Safety | 70.3 | 61.2 | 200.7 | 171.8 | |||
Unallocated corporate expense | (18.6) | (24.0) | (60.2) | (62.9) | |||
Total | $ 168.4 | $ 115.5 | $ 546.4 | $ 416.4 | |||
No significant changes in assets by geographic area have occurred since December 31, 2001. |
Note 9 - As part of the reorganization, Ingersoll-Rand Company Limited (IR-Limited or the Company) guaranteed all of the issued public debt securities of Ingersoll-Rand Company (IR-New Jersey). The subsidiary issuer, IR-New Jersey, is 100% owned by the parent, IR-Limited, the guarantees are full and unconditional, and no other subsidiary of the Company guarantees the securities. The following condensed consolidated financial information for IR-Limited, IR-New Jersey, and all their other subsidiaries is included so that separate financial statements of IR-New Jersey are not required to be filed with the U.S. Securities and Exchange Commission.
In accordance with the reorganization of December 31, 2001, IR-Limited issued Class B common shares to IR-New Jersey in exchange for a $3.6 billion note and shares of certain IR-New Jersey subsidiaries. The note, which is due in 2011, has a fixed rate of interest of 11 percent per annum payable semi-annually and imposes certain restrictive covenants upon IR-New Jersey. The Class B common shares are non-voting and pay dividends comparable to the Class A common shares. In April 2002, IR-Limited contributed the note to a wholly owned subsidiary, which is included in the Other Subsidiaries below. Accordingly, the subsidiary of IR-Limited remains a creditor of IR New Jersey.
The condensed consolidating financial statements present IR-Limited and IR-New Jersey investments in their subsidiaries using the equity method of accounting. Intercompany investments in the non-voting Class B common shares are accounted for on the cost method and are reduced by intercompany dividends. In accordance with generally accepted accounting principles the amounts related to the issuance of the Class B shares have been presented as contra accounts in Shareholders' Equity since the Class B issuance on December 31, 2001. Amounts have been reclassified to conform with this presentation. The note payable continues to be reflected as a liability on the balance sheet of IR New Jersey and, accordingly, the note is enforceable in accordance
Condensed Consolidating Balance Sheet | |||||
September 30, 2002 | |||||
Other | Consolidating | IR-Limited | |||
In millions |
IR-Limited |
IR-New Jersey |
Subsidiaries | Adjustments | Consolidated |
Current assets: | |||||
Cash and cash equivalents | $ - | $ 54.3 | $ 58.6 | $ - | $ 112.9 |
Marketable securities | - | - | 1.4 | - | 1.4 |
Accounts and notes receivable, net | - | 145.4 | 1,408.8 | - | 1,554.2 |
Inventories, net | - | 158.0 | 1,267.8 | - | 1,425.8 |
Prepaid expenses and deferred income taxes | - | 56.9 | 238.6 | - | 295.5 |
Accounts and notes receivable affiliates | 1.3 | - | 9,675.5 | (9,676.8) | - |
Total current assets | 1.3 | 414.6 | 12,650.7 | (9,676.8) | 3,389.8 |
Investment in affiliates | 3,846.6 | 12,447.7 | 3,233.2 | (19,527.5) | - |
Property, plant and equipment, net | - | 269.7 | 1,360.8 | - | 1,630.5 |
Intangible assets, net | - | 175.1 | 4,705.3 | - | 4,880.4 |
Note receivable affiliate | - | - | - | - | - |
Other assets | - | 126.9 | 715.0 | - | 841.9 |
Total assets | $ 3,847.9 | $ 13,434.0 | $ 22,665.0 | $ (29,204.3) | $ 10,742.6 |
Current liabilities: | |||||
Accounts payable and accruals | $ - | $ 318.0 | $ 1,965.7 | $ - | $ 2,283.7 |
Loans payable | - | 1,130.6 | 142.9 | - | 1,273.5 |
Accounts and note payable affiliates | 247.4 | 3,036.8 | 6,392.6 | (9,676.8) | - |
Total current liabilities | 247.4 | 4,485.4 | 8,501.2 | (9,676.8) | 3,557.2 |
Long-term debt | - | 1,950.6 | 215.6 | - | 2,166.2 |
Note payable affiliate | - | 3,647.4 | - | (3,647.4) | - |
Other noncurrent liabilities | - | 117.4 | 1,301.3 | - | 1,418.7 |
Total liabilities | 247.4 | 10,200.8 | 10,018.1 | (13,324.2) | 7,142.1 |
Shareholders' equity: | |||||
Class A common shares | 169.2 | - | - | - | 169.2 |
Class B common shares | 135.3 | - | - | (135.3) | - |
Common shares | - | - | 2,362.8 | (2,362.8) | - |
Other shareholders' equity | 8,418.8 | 3,809.7 | 15,216.1 | (23,778.5) | 3,666.1 |
Accumulated other comprehensive income | 86.6 | (95.6) | (203.5) | (22.3) | (234.8) |
8,809.9 | 3,714.1 | 17,375.4 | (26,298.9) | 3,600.5 | |
Less: Contra account | (5,209.4) | (480.9) | (4,728.5) | 10,418.8 | - |
Total shareholders' equity | 3,600.5 | 3,233.2 | 12,646.9 | (15,880.1) | 3,600.5 |
|
|||||
Total liabilities and equity | $ 3,847.9 | $ 13,434.0 | $ 22,665.0 | $ (29,204.3) | $ 10,742.6 |
Condensed Consolidating Balance Sheet | |||||
December 31, 2001 | |||||
Other | Consolidating | IR-Limited | |||
In millions | IR-Limited | IR-New Jersey | Subsidiaries | Adjustments | Consolidated |
Current assets: | |||||
Cash and cash equivalents | $ - | $ 23.4 | $ 90.6 | $ - | $ 114.0 |
Marketable securities | - | - | 7.4 | - | 7.4 |
Accounts and notes receivable, net | - | 128.3 | 1,354.6 | - | 1,482.9 |
Inventories, net | - | 134.8 | 1,160.5 | - | 1,295.3 |
Prepaid expenses and deferred income taxes | - | 57.8 | 230.4 | - | 288.2 |
Accounts and notes receivable affiliates | - | - | 2,957.9 | (2,957.9) | - |
Total current assets | - | 344.3 | 5,801.4 | (2,957.9) | 3,187.8 |
Investment in affiliates | 3,916.6 | 12,825.5 | 3,916.6 | (20,658.7) | - |
Property, plant and equipment, net | - | 238.9 | 1,394.1 | - | 1,633.0 |
Intangible assets, net | - | 123.4 | 5,537.4 | - | 5,660.8 |
Note receivable affiliate | - | - | - | ||
Other assets | - | 218.1 | 364.0 | - | 582.1 |
Total assets | $ 3,916.6 | $ 13,750.2 | $ 17,013.5 | $ (23,616.6) | $ 11,063.7 |
Current liabilities: | |||||
Accounts payable and accruals | $ - | $ 319.3 | $ 1,968.0 | $ - | $ 2,287.3 |
Loans payable | - | 449.7 | 114.0 | - | 563.7 |
Accounts and note payable affiliates | - | 2,650.0 | 307.9 | (2,957.9) | - |
Total current liabilities | - | 3,419.0 | 2,389.9 | (2,957.9) | 2,851.0 |
Long-term debt | - | 2,650.6 | 250.1 | - | 2,900.7 |
Note payable affiliate | - | 3,647.4 | - | (3,647.4) | - |
Other noncurrent liabilities | - | 116.6 | 1,278.8 | - | 1,395.4 |
Total liabilities | - | 9,833.6 | 3,918.8 | (6,605.3) | 7,147.1 |
Shareholders' equity: | |||||
Class A common shares | 168.0 | - | - | - | 168.0 |
Class B common shares | 135.3 | - | - | (135.3) | - |
Common shares | - | - | 2,362.8 | (2,362.8) | - |
Other shareholders' equity | 8,891.6 | 4,526.0 | 15,787.9 | (25,135.5) | 4,070.0 |
Accumulated other comprehensive income | - | (122.8) | (264.3) | 65.7 | (321.4) |
9,194.9 | 4,403.2 | 17,886.4 | (27,567.9) | 3,916.6 | |
Less: Contra account | (5,278.3) | (486.6) | (4,791.7) | 10,556.6 | - |
Total shareholders' equity | 3,916.6 | 3,916.6 | 13,094.7 | (17,011.3) | 3,916.6 |
Total liabilities and equity | $ 3,916.6 | $ 13,750.2 | $ 17,013.5 | $ (23,616.6) | $ 11,063.7 |
Condensed Consolidating Income Statement | |||||
For the three months ended September 30, 2002 | |||||
Other | Consolidating | IR-Limited | |||
In millions | IR-Limited | IR-New Jersey | Subsidiaries | Adjustments | Consolidated |
Net sales | $ - | $ 308.5 | $ 2,209.6 | $ - | $ 2,518.1 |
Cost of goods sold | - | 249.4 | 1,702.1 | - | 1,951.5 |
Selling and administrative expenses | - | 78.7 | 308.8 | - | 387.5 |
Restructuring charges | - | 7.5 | 3.2 | - | 10.7 |
Operating income | - | (27.1) | 195.5 | - | 168.4 |
Equity earnings in affiliates (net of tax) | 89.3 | 70.9 | (41.2) | (119.0) | - |
Interest expense | (46.8) | (12.3) | - | (59.1) | |
Intercompany interest and fees | (0.1) | (97.1) | 97.2 | - | - |
Other income (expense), net | 0.1 | (3.6) | 7.6 | - | 4.1 |
Minority interests | - | - | (4.2) | - | (4.2) |
Earnings before income taxes | 89.3 | (103.7) | 242.6 | (119.0) | 109.2 |
(Benefit) provision for income taxes | - | (62.5) | 82.4 | - | 19.9 |
Net earnings (loss) | $ 89.3 | $ (41.2) | $ 160.2 | $ (119.0) | $ 89.3 |
Condensed Consolidating Income Statement | |||||
For the three months ended September 30, 2001 | |||||
Other | Consolidating | IR-Limited | |||
In millions | IR-Limited | IR-New Jersey | Subsidiaries | Adjustments | Consolidated |
Net sales | $ - | $ 304.1 | $ 2,070.8 | $ - | $ 2,374.9 |
Cost of goods sold | - | 225.4 | 1,639.6 | - | 1,865.0 |
Selling and administrative expenses | - | 76.9 | 291.9 | - | 368.8 |
Restructuring charges | - | 5.8 | 19.8 | - | 25.6 |
Operating income | - | (4.0) | 119.5 | - | 115.5 |
Equity earnings in affiliates (net of tax) | - | 79.8 | - | (79.8) | - |
Interest expense | - | (54.6) | (11.5) | - | (66.1) |
Intercompany interest and fees | - | 8.2 | (8.2) | - | - |
Other income (expense), net | - | (19.7) | 4.1 | - | (15.6) |
Minority interests | - | - | (2.5) | - | (2.5) |
Earnings before income taxes | - | 9.7 | 101.4 | (79.8) | 31.3 |
(Benefit) provision for income taxes | - | (24.2) | 21.6 | - | (2.6) |
Net earnings (loss) | $ - | $ 33.9 | $ 79.8 | $ (79.8) | $ 33.9 |
Condensed Consolidating Income Statement | |||||
For the nine months ended September 30, 2002 | |||||
Other | Consolidating | IR-Limited | |||
In millions | IR-Limited | IR-New Jersey | Subsidiaries | Adjustments | Consolidated |
Net sales | $ - | $ 929.7 | $ 6,481.7 | $ - | $ 7,411.4 |
Cost of goods sold | - | 709.3 | 5,011.3 | - | 5,720.6 |
Selling and administrative expenses | - | 219.2 | 895.4 | - | 1,114.6 |
Restructuring charges | - | 16.9 | 12.9 | - | 29.8 |
Operating income | - | (15.7) | 562.1 | - | 546.4 |
Equity earnings in affiliates (net of tax) | |||||
before the cumulative effect of change in | |||||
accounting principle | 177.6 | 216.4 | (81.7) | (312.3) | - |
Interest expense | - | (140.6) | (37.5) | - | (178.1) |
Intercompany interest and fees | 99.9 | (288.4) | 188.5 | - | - |
Other income (expense), net | 0.1 | (21.0) | 3.5 | - | (17.4) |
Minority interests | - | - | (11.4) | - | (11.4) |
Earnings before income taxes | 277.6 | (249.3) | 623.5 | (312.3) | 339.5 |
(Benefit) provision for income taxes | - | (167.6) | 229.5 | - | 61.9 |
Net earnings before cumulative effect of | |||||
change in accounting principle | 277.6 | (81.7) | 394.0 | (312.3) | 277.6 |
principle, net of tax | (634.5) | (634.5) | (634.5) | 1,269.0 | (634.5) |
Net earnings (loss) | $ (356.9) | $ (716.2) | $ (240.5) | $ 956.7 | $ (356.9) |
Condensed Consolidating Income Statement | |||||
For the nine months ended September 30, 2001 | |||||
Other | Consolidating | IR-Limited | |||
In millions | IR-Limited | IR-New Jersey | Subsidiaries | Adjustments | Consolidated |
Net sales | $ - | $ 941.4 | $ 6,184.1 | $ - | $ 7,125.5 |
Cost of goods sold | - | 681.0 | 4,904.6 | - | 5,585.6 |
Selling and administrative expenses | - | 210.4 | 855.9 | - | 1,066.3 |
Restructuring charges | - | 8.8 | 48.4 | - | 57.2 |
Operating income | - | 41.2 | 375.2 | - | 416.4 |
Equity earnings in affiliates (net of tax) | - | 236.8 | - | (236.8) | - |
Interest expense | - | (156.1) | (35.6) | - | (191.7) |
Intercompany interest and fees | - | 15.4 | (15.4) | - | - |
Other income (expense), net | - | (32.3) | 22.2 | - | (10.1) |
Minority interests | - | - | (16.7) | (16.7) | |
Earnings before income taxes | - | 105.0 | 329.7 | (236.8) | 197.9 |
(Benefit) provision for income taxes | - | (41.1) | 92.9 | - | 51.8 |
Net earnings (loss) | $ - | $ 146.1 | $ 236.8 | $ (236.8) | $ 146.1 |
Condensed Consolidating Statement of Cash Flows | |||||
For the nine months ended September 30, 2002 | |||||
Other | Consolidating | IR-Limited | |||
In millions | IR-Limited | IR-New Jersey | Subsidiaries | Adjustments | Consolidated |
Net cash provided by operating activities | $ 119.3 |
$ 57.5 |
$ 77.2 |
$ - |
$ 254.0 |
Cash flows from investing activities: | |||||
Capital expenditures | - | (12.1) | (100.9) | - | (113.0) |
Investments and acquisitions, net of cash | - | (2.8) | (101.9) | - | (104.7) |
Decrease in marketable securities | - | 5.9 | - | 5.9 | |
equipment | - | 1.9 | 35.6 | - | 37.5 |
Other, net | - | (2.9) | - | (2.9) | |
Net cash (used in) investing activities | - | (13.0) | (164.2) | - | (177.2) |
Cash flows from financing activities: | |||||
Net change in debt | - | (19.3) | (9.5) | - | (28.8) |
Dividends paid | (155.0) | 5.7 | 63.2 | - | (86.1) |
Proceeds from the exercise of stock options | 35.7 | - | - | - | 35.7 |
Net cash (used in) provided by financing | |||||
activities | (119.3) | (13.6) | 53.7 | - | (79.2) |
Effect of exchange rate changes on cash and | |||||
cash equivalents | - | - | 1.3 | - | 1.3 |
Net increase (decrease) in cash and cash | |||||
equivalents | - | 30.9 | (32.0) | - | (1.1) |
Cash and cash equivalents - beginning of | |||||
period | - | 23.4 | 90.6 | - | 114.0 |
Cash and cash equivalents - end of period | $ - | $ 54.3 | $ 58.6 | $ - | $ 112.9 |
Condensed Consolidating Statement of Cash Flows | |||||
For the nine months ended September 30, 2001 | |||||
Other | Consolidating | IR-Limited | |||
In millions | IR-Limited | IR-New Jersey | Subsidiaries | Adjustments | Consolidated |
Net cash (used in) provided by operating | |||||
activities | $ - | $ (171.1) | $ 281.9 | $ - | $ 110.8 |
Cash flows from investing activities: | |||||
Capital expenditures | - | (15.4) | (114.6) | - | (130.0) |
Investments and acquisitions, net of cash | - | (8.1) | (133.2) | - | (141.3) |
Proceeds from business dispositions | - | 17.5 | - | 17.5 | |
Decrease (increase) in marketable securities | - | 95.0 | (3.5) | - | 91.5 |
equipment | - | 4.1 | 19.4 | - | 23.5 |
Other, net | - | - | 3.7 | - | 3.7 |
Net cash provided by (used in) investing | |||||
activities | - | 75.6 | (210.7) | - | (135.1) |
Cash flows from financing activities: | |||||
Net change in debt | - | 275.8 | (81.5) | - | 194.3 |
Purchase of treasury stock | - | (72.5) | - | - | (72.5) |
Dividends paid | - | (84.5) | - | - | (84.5) |
Proceeds from the exercise of stock options | - | 9.4 | - | - | 9.4 |
Net cash provided by (used in) financing | |||||
activities | - | 128.2 | (81.5) | - | 46.7 |
Effect of exchange rate changes on cash and | |||||
cash equivalents | - | - | (14.1) | - | (14.1) |
Net increase (decrease) in cash and cash | |||||
equivalents | - | 32.7 | (24.4) | - | 8.3 |
Cash and cash equivalents - beginning of | |||||
period | - | - | 97.0 | - | 97.0 |
Cash and cash equivalents - end of period | $ - | $ 32.7 | $ 72.6 | $ - | $ 105.3 |
Note 10 - On October 16, 2002, the Company announced that it had agreed to sell its Engineered Solutions business, part of the Company's Industrial Solutions Sector, to The Timken Company (Timken). The consideration will consist of $700 million in cash and $140 million of Timken common stock. The sale, which is subject to government regulatory approvals and debt and equity financing, is targeted to close by the end of the first quarter of 2003. Engineered Solutions is comprised of the Company's worldwide operations relating to precision bearings and motion-control components and assemblies, and includes the Torrington, Fafnir, Kilian, Nadella and IRB brands. The business, which had 2001 revenues of $1.1 billion, employs approximately 10,500 people and operates 27 plants throughout the world.
The carrying amounts of the major classes of assets and liabilities being sold are as follows:
In millions | |||||
Assets | |||||
Current assets | $ 298.9 | $ 278.2 | |||
Investments in and advances with partially owned | |||||
equity companies | 106.8 | 104.5 | |||
Property, plant and equipment, net | 346.4 | 345.0 | |||
Goodwill and other intangible assets, net | 5.6 | 5.2 | |||
Other assets | 11.8 | 11.1 | |||
Total assets | $ 769.5 | $ 744.0 | |||
Liabilities | |||||
Current liabilities | $ 162.3 | $ 125.4 | |||
Long-term debt | - | - | |||
Other liabilities | 71.6 | 74.1 | |||
Total liabilities | $ 233.9 | $ 199.5 | |||
Revenues of the Engineered Solutions business for the nine months ended September 30, 2002 and 2001 were $912.4 million and $804.9 million, respectively. These revenues include intercompany revenues of $7.7 million and $8.2 million, respectively. Pre-tax earnings for the nine months ended September 30, 2002 and 2001, including corporate charges of $16.3 million and $16.1 million, respectively, were $46.1 million and $25.0 million, respectively. The Engineered Solutions business currently participates under an agreement to sell a defined pool of trade accounts receivable to a wholly owned special purpose subsidiary of the Company. The subsidiary that holds these receivables sells undivided interests in such accounts receivable to financiers. At December 31, 2001, and September 30, 2002, $60 million was utilized under the program relating to the Engineered Solutions business.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
INGERSOLL-RAND COMPANY
LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended September 30, |
|||||||||||||
2002 |
2001 |
||||||||||||
Restructure | Restructure | ||||||||||||
and | and | SFAS | |||||||||||
Reported | productivity | Adjusted | Reported | productivity | No. 142 | Adjusted | |||||||
In millions | results | charges | results | results | charges | amortization | results | ||||||
Net sales | $ 2,518.1 | $ - | $ 2,518.1 | $ 2,374.9 | $ - | $ - | $ 2,374.9 | ||||||
Cost of goods sold | 1,951.5 | 9.1 | 1,942.4 | 1,865.0 | 24.4 | 33.8 | 1,806.8 | ||||||
Selling and administrative expenses | 387.5 | 1.6 | 385.9 | 368.8 | 13.2 | 2.3 | 353.3 | ||||||
Restructuring charges | 10.7 | 10.7 | - | 25.6 | 25.6 | - | - | ||||||
Operating income | $ 168.4 | $ (21.4) | $ 189.8 | $ 115.5 | $ (63.2) | $ (36.1) | $ 214.8 | ||||||
Operating margin | 6.7% | 7.5% | 4.9% | 9.0% | |||||||||
Cost of goods sold, and selling and administrative expenses include charges for productivity investments. Productivity investments consist of costs for equipment moving, facility redesign, employee relocation and retraining, and systems enhancements. Charges for productivity investments are expensed as incurred. See "Restructuring" for further discussion. In addition, 2001 reported results include amortization of goodwill and indefinite lived intangible assets. As a result of the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets", goodwill and indefinite lived intangible assets are no longer subject to amortization. Results are shown on a "reported" basis, as well as before restructure, productivity investments, and goodwill and indefinite lived intangible asset amortization (SFAS No. 142 amortization).
Cost
of Goods Sold
Cost of goods sold in the third quarter of 2002 was 77.5%
of sales as compared to 78.5% in 2001.
Excluding productivity investments and SFAS No. 142 amortization, the
ratio of cost of goods sold to sales was 77.1% in the third quarter of 2002 and
76.1% in the comparable prior period.
The increase was mainly attributable to unfavorable product mix, which
was partially offset by the benefits associated with the restructuring programs
and increased productivity.
Selling and Administrative
Expenses
Selling
and administrative expenses in the third quarter of 2002 were 15.4% of sales as
compared to 15.5% in 2001. Excluding
productivity investments and SFAS No. 142 amortization, the ratio of selling and
administrative expenses to sales was 15.3% in the third quarter of 2002 and
14.9% in the comparable prior period.
The increase in the ratio is largely attributable to the acquisition of
service oriented businesses that have higher S&A ratios than the Company's
historical mix of businesses.
Other
Income (Expense)
Other
income (expense), net, includes foreign exchange activities, equity in earnings
of partially owned affiliates, and other miscellaneous income and expense
items. Other income (expense), net,
aggregated $4.1 million of net income in the third quarter of 2002 as compared
with $15.6 million of net expense in 2001.
The improvement between the comparable quarters is mainly due to an
insurance settlement of $10.0 million,
lower foreign exchange losses of $ 4.2
million, and a gain on the sale of a facility of $3.7 million.
Backlog
Incoming orders for the third quarter of 2002 totaled $2.5
billion, which was comparable to the third quarter of 2001. The Company's backlog of orders at September
30, 2002, believed to be firm, was $2.0 billion, which was an increase of
approximately $200 million from December 31, 2001.
Nine months ended September 30, |
|||||||||||||
2002 | 2001 | ||||||||||||
Restructure | Restructure | ||||||||||||
and | and | SFAS | Adjusted | ||||||||||
Reported | productivity | Adjusted | Reported | productivity | No. 142 | results | |||||||
In millions | results | charges | results | results | charges | amortization | |||||||
Net sales | $ 7,411.4 | $ - | $ 7,411.4 | $ 7,125.5 | $ - | $ - | $ 7,125.5 | ||||||
Cost of goods sold | 5,720.6 | 31.3 | 5,689.3 | 5,585.6 | 65.8 | 99.2 | 5,420.6 | ||||||
Selling and administrative expenses | 1,114.6 | 6.1 | 1,108.5 | 1,066.3 | 31.1 | 6.7 | 1,028.5 | ||||||
Restructuring charges | 29.8 | 29.8 | - | 57.2 | 57.2 | - | - | ||||||
Operating income | $ 546.4 | $ (67.2) | $ 613.6 | $ 416.4 | $ (154.1) | $ (105.9) | $ 676.4 | ||||||
Operating margin | 7.4% | 8.3% | 5.8% | 9.5% | |||||||||
Cost of goods sold, and selling and administrative expenses include charges for productivity investments. Productivity investments consist of costs for equipment moving, facility redesign, employee relocation and retraining, and systems enhancements. Charges for productivity investments are expensed as incurred. See "Restructuring" for further discussion. In addition, 2001 reported results include amortization of goodwill and indefinite lived intangible assets. As a result of the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill and indefinite lived intangible assets are no longer subject to amortization. Results are shown on a "reported" basis, as well as before restructure, productivity investments, and goodwill and indefinite lived intangible asset amortization (SFAS No. 142 amortization).
Cost
of Goods Sold
Cost of goods sold for the first nine months of 2002 was
77.2% of sales as compared to 78.4% in 2001.
Excluding productivity investments and SFAS No. 142 amortization, the
ratio of cost of goods sold to sales was 76.8% in the first nine months of 2002
and 76.1% in the comparable prior period.
The increase was mainly attributable to unfavorable product mix and
pricing pressure, which was partially offset by the benefits associated with
the restructuring programs and improved productivity.
Selling and Administrative
Expenses
Selling and administrative expenses in the first nine
months of 2002 and 2001 were 15.0% of sales.
Excluding productivity investments and SFAS No. 142 amortization, the
ratio of selling and administrative expenses to sales was 15.0% in the first
nine months of 2002 and 14.4% in the comparable prior period. The increase in the ratio is largely
attributable to the acquisition of service oriented businesses that have higher
S&A ratios than the Company's historical mix of businesses.
Other
Income (Expense)
Other
income (expense), net, includes foreign exchange activities, equity in earnings
of partially owned affiliates, and other miscellaneous income and expense
items. Other income (expense), net,
aggregated $17.4 million of net expense in the first nine months of 2002 as
compared with $10.1 million of net expense in 2001. The gain on an insurance settlement of approximately $10.0
million and the gain on the sale of a facility of $3.7 million in the first
nine months of 2002 was greater than the $8.8 million gain on the sale of stock
received in connection with the sale of Dresser-Rand's compression services
business in 2001. The remaining change
is mainly attributable to higher foreign exchange losses of $5.4 million and
lower miscellaneous income items in 2002.
The total employee terminations related to the restructuring program is expected to be approximately 6,000 (excluding Hussmann International, Inc. (Hussmann); See Note 3 to the Condensed Consolidated Financial Statements) by December 31, 2002. These terminations impacted both the salaried and hourly employee groups. The total number of manufacturing facilities to be closed by December 31, 2002 is 21 (excluding Hussmann). Payments for the terminations of employees and facility closures have been made since the inception of the program and will be substantially completed by December 31, 2002.
The planned benefit of the program is estimated to be approximately $225 million on an annual basis once fully implemented. Approximately $10 million of benefits from the above-mentioned actions were realized in the second half of 2000. During 2001, the Company realized approximately $125 million of incremental benefits from the program. Due to the timing of completion of facility-related projects, the first year of full realization of the benefits is expected to be 2003.
Management teams that were directly involved with the required actions developed the projected costs for each project within each segment and the Corporate Center. The costs incurred relating to the restructuring and productivity investments included involuntary employee termination benefits and relocation costs, lease exit costs, equipment write-offs, moving costs, and new site set up costs.
The projected savings identified at the project level were developed by the management teams at the various locations and were based on the historical data that pertained to the specific actions (payroll, benefits and variable overhead).
A reconciliation of the consolidated restructuring reserve for the 2000 and 2001 programs is as follows:
Employee termination cost |
Facility exit costs |
Total |
||||
In millions | ||||||
Balance at December 31, 2001 | $ 34.5 | $ 7.1 | $ 41.6 | |||
Provision | 31.7 | (1.9) | 29.8 | |||
Cash payments | (34.1) | (3.1) | (37.2) | |||
Non-cash write-offs | - | (1.5) | (1.5) | |||
Balance at September 30, 2002 | $ 32.1 | $ 0.6 | $ 32.7 | |||
- Close five manufacturing locations: U.S. (2), Europe (2) and Latin America (1).
- Outsource the manufacturing of certain components used in products.
- Terminate 1,429 employees.
As of September 30, 2002, all five specified manufacturing locations have been closed, the outsourcing of certain product manufacturing was completed and 1,384 employees were terminated, with an additional 45 expected by December 31, 2002.
The expected annual savings is approximately $35 million. For the nine months ended September 30, 2002, this segment has realized approximately $25 million of savings.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee |
Facility exit costs |
Total |
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 1.6 | $ 6.9 | $ - | $ - | $ 1.6 | $ 6.9 | |||||
Provision | 1.1 | 4.5 | (3.7) | 1.5 | (2.6) | 6.0 | |||||
Cash (payments) receipts | (2.7) | (4.6) | 3.7 | - | 1.0 | (4.6) | |||||
Non-cash write-offs | - | - | - | (1.0) | - | (1.0) | |||||
Balance at September 30, 2002 | $ - | $ 6.8 | $ - | $ 0.5 | $ - | $ 7.3 | |||||
- Close eight manufacturing locations: U.S. (4), Asia Pacific (3) and Europe (1).
- Terminate 1,342 employees.
As of September 30, 2002, seven of the specified manufacturing locations have
been closed with the final closure to occur by December 31, 2002. Employees
terminated as of September 30, 2002 were 1,309 with an additional 33 employees
to be terminated by December 31, 2002.
The expected annual savings is approximately $60 million. For the nine months ended September 30, 2002, this segment has realized approximately $25 million of savings.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee | Facility | ||||||||||
termination costs | exit costs | Total | |||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 3.1 | $ 3.7 | $ 2.7 | $ - | $ 5.8 | $ 3.7 | |||||
Provision | (2.8) | 6.8 | - | - | (2.8) | 6.8 | |||||
Cash payments | - | (5.9) | (2.7) | - | (2.7) | (5.9) | |||||
Balance at September 30, 2002 | $ 0.3 | $ 4.6 | $ - | $ - | $ 0.3 | $ 4.6 | |||||
Engineered Solutions
Management examined the Engineered Solutions' operations
and determined that the geographical realignment of the manufacturing footprint
was critical to achieve its strategic objectives. To enable the business to compete on a global scale, an Eastern
European manufacturing plant was opened.
Manufacturing facilities became a focus to improve production
efficiencies and decrease manufacturing operating costs. The approved actions were as follows:
- Close one manufacturing location in the U.S.
- Terminate 1,446 employees.
As of September 30, 2002, the specified manufacturing location was closed, and 1,172 employees were terminated, with an additional 274 expected by December 31, 2002.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
|
|
|
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 1.1 | $ 2.7 | $ - | $ - | $ 1.1 | $ 2.7 | |||||
Provision | 0.7 | 2.6 | - | - | 0.7 | 2.6 | |||||
Cash payments | - | (4.4) | - | - | - | (4.4) | |||||
Balance at September 30, 2002 | $ 1.8 | $ 0.9 | $ - | $ - | $ 1.8 | $ 0.9 | |||||
- Organizational realignment - five regions reduced to three.
- Terminate 318 employees.
- Close or consolidate several non-manufacturing locations.
As of September 30, 2002, the organizational realignment was complete, all 318 identified employees were terminated, and the closure of the non-manufacturing locations was complete.
As of December 31, 2001, this segment has realized approximately $10 million of savings, which it expects to be the annual savings in future years.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee termination costs |
|
|
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ - | $ - | $ - | $ - | $ - | $ - | |||||
Provision | 1.5 | - | - | - | 1.5 | - | |||||
Cash payments | (1.5) | - | - | - | (1.5) | - | |||||
Balance at September 30, 2002 | $ - | $ - | $ - | $ - | $ - | $ - | |||||
- Close two manufacturing locations in the U.S.
- Terminate 714 employees.
As of September 30, 2002, the two specified manufacturing location were closed, and 698 employees were terminated. An additional 16 employee terminations are expected by December 31, 2002.
The expected annual savings is approximately $29 million. For the nine months ended September 30, 2002, this segment has realized approximately $5 million of savings.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee termination costs |
|
Total |
||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | ||||
Balance at December 31, 2001 | $ 1.6 | $ 0.5 | $ 0.3 | $ - | $ 1.9 | $ 0.5 | ||||
Provision | 3.7 | 3.1 | - | - | 3.7 | 3.1 | ||||
Cash payments | (2.6) | (3.5) | - | - | (2.6) | (3.5) | ||||
Non-cash write-offs | - | - | (0.3) | - | (0.3) | - | ||||
Balance at September 30, 2002 | $ 2.7 | $ 0.1 | $ - | $ - | $ 2.7 | $ 0.1 | ||||
- Close five manufacturing locations: U.S. (3) and Europe (2).
- Terminate 496 employees.
As of September 30, 2002, all of the specified manufacturing locations were closed and 433 employees were terminated. An additional 63 employee terminations are expected by December 31, 2002.
The expected annual savings is approximately $39 million. For the nine months ended September 30, 2002, this segment has realized approximately $10 million of savings.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee termination costs |
|
|
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 2.4 | $ - | $ 4.1 | $ - | $ 6.5 | $ - | |||||
Provision | 2.3 | 1.6 | 0.3 | - | 2.6 | 1.6 | |||||
Cash payments | (4.0) | (1.5) | (4.1) | - | (8.1) | (1.5) | |||||
Non-cash write-offs | - | - | (0.2) | - | (0.2) | - | |||||
Balance at September 30, 2002 | $ 0.7 | $ 0.1 | $ 0.1 | $ - | $ 0.8 | $ 0.1 | |||||
Corporate Center
Management determined that previously decentralized back office functions (such
as accounts payable, accounts receivable, benefits administration and payroll)
proved to be an inefficient way of managing costs of high volume
transactions. The creation of Global
Business Services (a shared service center) enabled the Company to consolidate
high volume transactions at a lower cost. These actions resulted in employee
terminations of 164 as of September 30, 2002, and an additional 232 reduction
in staff is expected by December 31, 2002.
The restructuring costs associated with corporate are primarily related
to the involuntary employee terminations.
The savings associated with the corporate restructuring activities are
realized in the segments due to the reduction of employees in business units'
back office operations.
A reconciliation of the restructuring reserve for the 2000 and 2001 programs is as follows:
Employee termination costs |
|
|
|||||||||
In millions | Phase I | Phase II | Phase I | Phase II | Phase I | Phase II | |||||
Balance at December 31, 2001 | $ 8.6 | $ 2.3 | $ - | $ - | $ 8.6 | $ 2.3 | |||||
Provision | - | 6.6 | - | - | - | 6.6 | |||||
Cash payments | (0.9) | (2.5) | - | - | (0.9) | (2.5) | |||||
Balance at September 30, 2002 | $ 7.7 | $ 6.4 | $ - | $ - | $ 7.7 | $ 6.4 | |||||
Review of Business Segments
Reported results for 2001 include amortization of goodwill
and indefinite lived intangible assets.
As a result of the adoption of SFAS No. 142, "Goodwill and Other
Intangible Assets", goodwill and indefinite lived intangible assets are no
longer subject to amortization. Segment
results are shown on a "reported" basis, as well as before restructure,
productivity investments and SFAS No. 142 amortization.
The
following table summarizes costs for restructure, productivity investments and
SFAS No. 142 amortization by segment, for the three months ended September 30,
2002 and 2001:
2002 |
2001 |
||||||||||
Productivity | Productivity | SFAS No. 142 | |||||||||
In millions | Restructure | investments | Restructure | investments | amortization | ||||||
Climate Control | $ (1.3) | $ 1.2 | $ 4.2 | $ 10.5 | $ 22.7 | ||||||
Industrial Solutions: | |||||||||||
Air & Productivity Solutions | 6.4 | 1.5 | 9.8 | 7.6 | 0.9 | ||||||
Dresser-Rand | - | - | - | 0.7 | 2.3 | ||||||
Engineered Solutions | 1.4 | 5.9 | 2.7 | 4.5 | - | ||||||
Infrastructure | 1.5 | 0.6 | 2.9 | 1.9 | 6.7 | ||||||
Security & Safety | 3.6 | 1.5 | 0.2 | 11.2 | 3.5 | ||||||
Corporate | (0.9) | - | 5.8 | 1.2 | - | ||||||
Total | $ 10.7 | $ 10.7 | $ 25.6 | $ 37.6 | $ 36.1 | ||||||
The following table summarizes costs for restructure, productivity investments and SFAS No. 142 amortization by segment, for the nine months ended September 30, 2002 and 2001:
2002 |
2001 |
||||||||||
Productivity | Productivity | SFAS No. 142 | |||||||||
In millions | Restructure | investments | Restructure | investments | amortization | ||||||
Climate Control | $ 3.4 | $ 6.5 | $ 15.1 | $ 26.6 | $ 66.6 | ||||||
Industrial Solutions: | |||||||||||
Air & Productivity Solutions | 4.0 | 5.7 | 11.1 | 17.3 | 2.2 | ||||||
Dresser-Rand | 1.5 | - | 1.6 | 6.5 | 6.6 | ||||||
Engineered Solutions | 3.3 | 14.1 | 13.2 | 9.7 | - | ||||||
Infrastructure | 6.8 | 5.1 | 5.9 | 9.9 | 19.8 | ||||||
Security & Safety | 4.2 | 5.4 | 1.5 | 23.1 | 10.7 | ||||||
Corporate | 6.6 | 0.6 | 8.8 | 3.8 | - | ||||||
Total | $ 29.8 | $ 37.4 | $ 57.2 | $ 96.9 | $ 105.9 | ||||||
Climate
Control
Climate Control is engaged in the design, manufacture,
sale and service of transport temperature control units, HVAC systems,
refrigerated display merchandisers, beverage coolers, and walk-in storage
coolers and freezers. It includes the
market leading brands of Thermo King and Hussmann.
Three months ended | Nine months ended | ||||||
September 30, | September 30, | ||||||
In millions | 2002 | 2001 | 2002 | 2001 | |||
Sales | $ 639.5 | $ 652.4 | $ 1,769.2 | $ 1,771.2 | |||
Operating income, reported | 41.5 | 24.4 | 102.0 | 25.5 | |||
Operating margin, reported | 6.5% | 3.7% | 5.8% | 1.4% | |||
Operating income, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 41.4 | 61.8 | 111.9 | 133.8 | |||
Operating margin, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 6.5% | 9.5% | 6.3% | 7.6% | |||
Climate Control revenues for the third quarter 2002 decreased by approximately 2% compared to the third quarter of 2001. The decrease was mainly attributable to lower volumes associated with stationary refrigeration. On a comparable basis, operating income decreased by $20.4 million while operating margins declined from 9.5% in 2001 to 6.5% in 2002. The benefits associated with the restructuring programs and improved productivity increased operating income by approximately 13%, while favorable pricing over the comparable prior period increased operating income by approximately 5%. These increases were more than offset by lower volumes and unfavorable product mix, which decreased operating income by approximately 14% and other decreases caused by items such as increased warranty expenses, increased investment due to the startup of the Retail Solutions initiative and higher employee benefit and insurance costs, which decreased operating income by approximately 38%.
Climate Control revenues for the nine months ended September 30, 2002 remained constant compared to the nine months ended September 30, 2001. The increases resulting from acquisitions were offset by lower volumes. On a comparable basis, operating income decreased by $21.9 million while operating margins declined from 7.6% in 2001 to 6.3% in 2002. The benefits associated with the restructuring programs and improved productivity increased operating income by approximately 21%, while favorable pricing over the comparable prior period increased operating income by approximately 6%. These increases were more than offset by lower volumes and unfavorable product mix, which decreased operating income by approximately 22% and other decreases caused by items such as increased warranty expenses, increased investment due to the startup of the Retail Solutions initiative and higher employee benefit and insurance costs, which decreased operating income by approximately 19%.
Industrial Solutions
Industrial Solutions is composed of a diverse group of
businesses focused on providing solutions to enhance customers' industrial
efficiency. Industrial Solutions
consists of the following three segments:
Air & Productivity Solutions, Dresser-Rand and Engineered Solutions.
Three months ended | Nine months ended | ||||||
September 30, | September 30, | ||||||
In millions | 2002 | 2001 | 2002 | 2001 | |||
Sales | $ 328.3 | $ 320.8 | $ 961.5 | $ 986.0 | |||
Operating income, reported | 12.0 | 2.7 | 51.5 | 52.2 | |||
Operating margin, reported | 3.7% | 0.8% | 5.4% | 5.3% | |||
Operating income, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 19.9 | 21.0 | 61.2 | 82.8 | |||
Operating margin, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 6.1% | 6.5% | 6.4% | 8.4% | |||
Air & Productivity Solutions' revenues for the third quarter 2002 increased by approximately 2% compared to the third quarter of 2001. On a comparable basis, operating income decreased by $1.1 million while operating margins declined from 6.5% in 2001 to 6.1% in 2002. The benefits associated with the restructuring programs and improved productivity increased operating income by approximately 33%. This increase was more than offset by lower volumes and unfavorable product mix, which decreased operating income by approximately 16%, and higher employee benefit and insurance costs, which decreased operating income by approximately 20%. In addition, increased investment in developing the PowerWorks microturbine business also had a negative impact.
Air & Productivity Solutions' revenues for the nine months ended September 30, 2002 decreased by approximately 2% compared to the nine months ended September 30, 2001, due mainly to lower volumes. On a comparable basis, operating income decreased by $21.6 million while operating margins declined from 8.4% in 2001 to 6.4% in 2002. The benefits associated with the restructuring programs and improved productivity increased operating income by approximately 33%. This increase was more than offset by lower volumes and unfavorable product mix, which decreased operating income by approximately 29%, unfavorable pricing over the comparable prior period, which decreased operating income by 7%, and higher employee benefit and insurance costs, which decreased operating income by approximately 15%. In addition, increased investment in developing the PowerWorks microturbine business had a negative impact.
Three months ended | Nine months ended | ||||||
September 30, | September 30, | ||||||
In millions | 2002 | 2001 | 2002 | 2001 | |||
Sales | $ 230.5 | $ 208.3 | $ 677.0 | $ 571.1 | |||
Operating income, reported | 9.1 | 3.5 | 8.9 | (9.4) | |||
Operating margin, reported | 3.9% | 1.7% | 1.3% | -1.6% | |||
Operating income, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 9.1 | 6.5 | 10.4 | 5.3 | |||
Operating margin, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 3.9% | 3.1% | 1.5% | 0.9% | |||
Three months ended | Nine months ended | ||||||
September 30, | September 30, | ||||||
In millions | 2002 | 2001 | 2002 | 2001 | |||
Sales | $ 294.7 | $ 254.4 | $ 904.7 | $ 796.7 | |||
Operating income, reported | 9.4 | 13.2 | 46.4 | 48.9 | |||
Operating margin, reported | 3.2% | 5.2% | 5.1% | 6.1% | |||
Operating income, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 16.7 | 20.4 | 63.8 | 71.8 | |||
Operating margin, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 5.7% | 8.0% | 7.1% | 9.0% | |||
Engineered Solutions' revenues for the third quarter 2002 increased by approximately 16% compared to the third quarter of 2001. The results of the acquisition of Nadella and higher volumes accounted for an increase in revenues of approximately 12% and 4%, respectively. On a comparable basis, operating income decreased by $3.7 million while operating margins declined from 8.0% in 2001 to 5.7% in 2002. The benefits associated with the restructuring programs and improved productivity increased operating income by approximately 23%, while higher volumes and favorable product mix and the results of the acquisition of Nadella increased operating income by approximately 12% and 8%, respectively. These increases were more than offset by unfavorable pricing over the comparable prior period, which decreased operating income by approximately 16%, and higher employee benefit and insurance costs, which decreased operating income by approximately 49%.
Engineered Solutions' revenues for the nine months ended September 30, 2002 increased by approximately 14% compared to the nine months ended September 30, 2001. The results of the acquisition of Nadella and higher volumes accounted for an increase in revenues of approximately 11% and 3%, respectively. On a comparable basis, operating income decreased by $8.0 million while operating margins declined from 9.0% in 2001 to 7.1% in 2002. The benefits associated with the restructuring programs and improved productivity increased operating income by approximately 27%, while increased volume and favorable product mix also increased operating income by approximately 10%. These increases were more than offset by unfavorable pricing over the comparable prior period, which decreased operating income by approximately 17%, and higher employee benefit and insurance costs, which decreased operating income by approximately 29%.
Infrastructure
Infrastructure is engaged in the design, manufacture, sale
and service of skid-steer loaders, mini-excavators, electric and gasoline
powered golf and utility vehicles, portable compressors and light towers, road
construction and repair equipment, and a broad line of drills and drill
accessories.
Three months ended | Nine months ended | ||||||
September 30, | September 30, | ||||||
In millions | 2002 | 2001 | 2002 | 2001 | |||
Sales | $ 623.9 | $ 578.5 | $ 1,988.3 | $ 1,959.6 | |||
Operating income, reported | 44.7 | 34.5 | 197.1 | 190.3 | |||
Operating margin, reported | 7.2% | 6.0% | 9.9% | 9.7% | |||
Operating income, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 46.8 | 46.0 | 209.0 | 225.9 | |||
Operating margin, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 7.5% | 8.0% | 10.5% | 11.5% | |||
Three months ended | Nine months ended | ||||||
September 30, | September 30, | ||||||
In millions | 2002 | 2001 | 2002 | 2001 | |||
Sales | $ 401.2 | $ 360.5 | $ 1,110.7 | $ 1,040.9 | |||
Operating income, reported | 70.3 | 61.2 | 200.7 | 171.8 | |||
Operating margin, reported | 17.5% | 17.0% | 18.1% | 16.5% | |||
Operating income, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 75.4 | 76.1 | 210.3 | 207.1 | |||
Operating margin, before restructure, productivity | |||||||
investments and SFAS No. 142 amortization | 18.8% | 21.1% | 18.9% | 19.9% | |||
Security & Safety revenues for the third quarter 2002 increased by approximately 11% compared to the third quarter of 2001. The results of acquisitions accounted for an approximate 6% increase in revenues, with the remaining increase mainly attributable to higher volumes. On a comparable basis, operating income decreased by $0.7 million while operating margins declined from 21.1% in 2001 to 18.8% in 2002. The benefits associated with the restructuring programs and improved productivity increased operating income by approximately 8%, while higher volumes and favorable product mix increased revenue by approximately 6%. These increases were more than offset by higher employee benefit and insurance costs, which decreased operating income by approximately 15%, and continued investment in security and safety growth initiatives, which decreased operating income by approximately 3%.
Security & Safety revenues for the nine months ended September 30, 2002, increased by approximately 7% compared to the nine months ended September 30, 2001. The results of acquisitions accounted for an approximate 3% increase in revenues, with the remaining increase mainly attributable to higher volumes. On a comparable basis, operating income increased by $3.2 million while operating margins declined from 19.9% in 2001 to 18.9% in 2002. The benefits associated with the restructuring programs and improved productivity increased operating income by approximately 7%, while the higher volumes and favorable product mix increased operating income by approximately 4% and the positive results of acquisitions increased operating income by approximately 2%. These increases were partially offset by higher employee benefit and insurance costs, which decreased operating income by approximately 8%, and continued investment in security and safety growth initiatives, which decreased operating income by approximately 4%.
The Company's working capital was a negative $167.4 million at September 30, 2002, compared to $336.8 million at December 31, 2001. The decrease is primarily related to the reclassification of approximately $700 million of debt, which matures in February 2003, from long-term to short-term. The Company anticipates meeting its short-term debt obligations by utilizing operating cash flow, the proceeds from the proposed sale of its Engineered Solutions business or various means of refinancing available, if necessary.
During the first nine months of 2002, foreign currency translation adjustments resulted in a net increase of $87.6 million in shareowners' equity. Currency fluctuations in the euro and British pound accounted for the majority of the change.
The funded status of the Company's pension plans is dependent on many factors, including returns on invested assets, interest rates, and compensation increases. The asset values of the Company-sponsored funded pension plans have declined since December 31, 2001, due to continued poor performance of the equity markets. In addition, long-term interest rates have declined since year end. The recent declines in asset values and interest rates have been slightly offset by decreases in compensation increases. The Company anticipates these changes could cause additional expense of approximately $50 million in 2003. Pension accounting requires recognition of an additional minimum liability if the market value of the plan assets is less than the accumulated benefit obligation at the plans' measurement date. Upon final measurement in the fourth quarter of 2002, the Company currently expects to recognize an additional minimum pension liability, with an after-tax charge to equity ranging from $400 million to $600 million. At December 31, 2001, no additional minimum pension liability was required. Any equity charge would be non-cash and excluded for purposes of compliance with the company's financial covenants.
In estimating its liability, the Company has not assumed 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, U.S. federal and state 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.
In the first quarter, the Company acquired a 30% interest in CISA S.p.A. (CISA), a European manufacturer of mechanical and electronic security products, for approximately $60 million. CISA operates worldwide and will enable the Company to provide customers with a complete portfolio of security products in the Americas and the European and Asia Pacific markets.
In addition to the above acquisitions, the Company made several smaller acquisitions in 2002 totaling approximately $23 million.
New Accounting Standards
In June 2002, SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", was issued. The standard requires that a liability for a
cost that is associated with an exit or disposal activity be recognized when
the liability is incurred. It nullifies
the guidance of EITF No. 94-3, which recognized a liability for an exit cost on
the date an entity committed itself to an exit plan. The standard
will be effective for exit or disposal activities that are initiated after
December 31, 2002. The Company is
currently reviewing the provisions of SFAS No. 146 to determine its impact upon
adoption.
In June 2001, SFAS No. 143, "Accounting for Asset
Retirement Obligations", was issued.
The standard requires that legal obligations associated with the
retirement of tangible long-lived assets be recorded at
fair value when incurred and will be effective for the Company on January 1,
2003. The Company is currently
reviewing the provisions of SFAS No. 143 to determine the standard's impact
upon adoption.
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; tax legislation; currency fluctuations among the U.S. dollar and other currencies; demand for Company products and services; distributor inventory levels; failure to achieve the Company's productivity targets; and competitor actions including unanticipated pricing actions or new product introductions.
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
INGERSOLL-RAND COMPANY LIMITED
The Company is exposed to fluctuations in the price of major raw materials used in the manufacturing process, foreign currency fluctuations and interest rate changes. From time to time the Company enters into agreements to reduce its raw material, foreign currency and interest rate risks. Such agreements hedge only specific transactions or commitments. To minimize the risk of counterparty nonperformance, such agreements are made only through major financial institutions with significant experience in such financial instruments.
The Company generates foreign currency exposures in the normal course of business. To mitigate the risk from foreign currency exchange rate fluctuations, the Company will generally enter into forward currency exchange contracts or options for the purchase or sale of a currency in accordance with the Company's policies and procedures. The Company applies sensitivity analysis and value at risk (VAR) techniques when measuring the Company's exposure to currency fluctuations. VAR is a measurement of the estimated loss in fair value until currency positions can be neutralized, recessed or liquidated and assumes a 95% confidence level with normal market conditions.
The Company maintains significant operations in countries other than the U.S.; therefore, the movement of the U.S. dollar against foreign currencies has an impact on the Company's financial position. Generally, the functional currency of the Company's non-U.S. subsidiaries is their local currency. The Company manages exposure to changes in foreign currency exchange rates through its normal operations and financing activities, as well as through the use of forward exchange contracts and options. The Company attempts, through its hedging activities, to mitigate the impact on income of changes in foreign exchange rates.
Reorganization as a Bermuda Company and Related Risk Factors
On December 31, 2001, Ingersoll-Rand Company (IR-New Jersey) was effectively reorganized as Ingersoll-Rand Company Limited, a Bermuda company (the Reorganization). The Company believes that the Reorganization will enable it to realize a variety of potential, financial and strategic benefits, including to:
- help enhance business growth;
- create a more favorable corporate structure for expansion of the Company's current business;
-
improve
expected cash flow for use in investing in the development of higher-growth
product lines and
higher-growth businesses;
- improve expected cash flow for use in reducing the amount of the Company's debt;
- reduce the Company's worldwide effective tax rate;
- enable the Company to implement its business strategy more effectively; and
- expand the Company's investor base as its shares may become more attractive to non-U.S. investors.
To consummate the Reorganization, IR Merger Corporation, a New Jersey corporation, merged into IR-New Jersey, with IR-New Jersey as the surviving company. Upon the merger, IR-New Jersey became a wholly-owned, indirect subsidiary of the Company, and the outstanding shares of IR-New Jersey common stock were automatically cancelled in exchange for the issue of the Company's Class A common shares. In addition, as part of the Reorganization, IR-New Jersey and certain of its subsidiaries transferred shares of certain existing subsidiaries and issued certain debt to the Company in exchange for 135,250,003 shares of the Company's Class B common shares, such amount of shares being subject to adjustment based on the results of final valuation of the transferred subsidiaries. The number of Class B common shares issued had an aggregate value equal to the fair market value of the shares of the subsidiaries transferred (the transferred shares) and the amount of debt issued to the Company based on the market value of IR-New Jersey common stock at the effective time of the merger. Prior to the Reorganization, neither the Company nor IR-Merger Corporation had any significant assets or capitalization or engaged in any business or other activities other than in connection with formation and the merger and related reorganization transactions.
The Reorganization will expose the Company to the risks described below. In addition, the Company cannot be assured that the anticipated benefits of the Reorganization will be realized.
The Reorganization and related transfers of assets could result in a taxable gain.
There is a possibility of U.S. withholding tax if the Internal Revenue Service successfully disputes the value of the transferred shares. Therefore, while the Company believes that neither IR-New Jersey nor the Company will incur significant U.S. federal income or withholding taxes as a result of the transfer of the transferred shares, its projections will not be binding on the Internal Revenue Service. The Company cannot be assured that its anticipated tax costs with respect to the transferred shares will be borne out, that the Internal Revenue Service will not contest its determination, or that the Internal Revenue Service will not succeed in any such contest.
Certain of the Company's shareholders
may be subject to additional tax if the Company or any of
its non-U.S.
subsidiaries are considered a "controlled foreign corporation" or "CFC"
under
current U.S. tax laws.
A non-U.S. corporation (a foreign corporation), such as the Company, will constitute a "controlled foreign corporation" or "CFC" for U.S. federal income tax purposes if U.S. shareholders owning (directly, indirectly, or constructively) 10% or more of the foreign corporation's total combined voting power collectively own (directly, indirectly, or constructively) more than 50% of the total combined voting power or total value of the foreign corporation's shares. Following the merger and as of December 31, 2001, IR-New Jersey, through its ownership of the non-voting Class B common shares, owned approximately 45% of the total value of the Company's shares. As a consequence, any Class A common shareholder who is considered to own 10% of the voting power in the Company could cause the Company's non-U.S. subsidiaries or (if the Internal Revenue Service successfully takes the position that the Class B common shares held by IR-New Jersey in the Company are voting shares) the Company itself to be treated as a CFC.
If the Company or any of its foreign subsidiaries are treated as a CFC, this status should have no adverse effect on any of the Company's shareholders who do not own (directly, indirectly, or constructively) 10% or more of the total combined voting power of all classes of the Company's shares or the shares of any of its foreign subsidiaries. If, however, the Company or any of its foreign subsidiaries are treated as CFC for an uninterrupted period of 30 days or more during any taxable year, any U.S. shareholder who owns (directly, indirectly, or constructively) 10% or more of the total combined voting power of all classes of stock of the company or the subsidiary on any day during the taxable year and who directly or indirectly owns any stock in the corporation the last day of such year in which it is a CFC will have to include in its gross income for U.S. federal income tax purposes its pro rata share of the corporation's "subpart F income" relating to the period during which the corporation is a CFC.
In addition, the gain on the sale of the Company's shares, if treated as a CFC, realized by such a shareholder would be treated as ordinary income to the extent of the shareholder's proportionate share of the Company's and its CFC subsidiaries' undistributed earnings and profits accumulated during the shareholder's holding period of the shares while the Company is a CFC.
If the U.S. shareholder is a corporation, however, it may be eligible to credit against its U.S. tax liability with respect to these potential inclusions foreign taxes paid on the earnings and profits associated with the included income. A disposition of shares by a U.S. shareholder may result in termination of the Company's CFC status or the CFC status of its foreign subsidiaries.
The
Internal Revenue Service and non-U.S. taxing authorities may not agree with the
Company's
tax treatment of various items relating to the Reorganization.
The Company believes that the Reorganization will help enhance its business growth and cash flow and reduce its worldwide effective tax rate. However, the Company cannot give any assurance as to the amount of taxes it will pay as a result of or after the Reorganization. The amount of taxes it will pay will depend in part on the treatment given the Company by the taxing authorities in the jurisdictions in which it operates.
The Company
may become subject to U.S. corporate income tax, which would reduce its
net income.
Prior to the Reorganization, IR-New Jersey was subject to U.S. corporate income tax on its worldwide income. After the Reorganization, the earnings of IR-New Jersey and its U.S. subsidiaries continue to be subject to U.S. corporate income tax. The Company believes that as a result of the Reorganization its non-U.S. operations will generally not be subject to U.S. tax other than withholding taxes. However, if the Internal Revenue Service successfully contends that the Company or any of its non-U.S. affiliates are engaged in a trade or business in the U.S., the Company or that non-U.S. affiliate would, subject to possible income tax treaty exemptions, be required to pay U.S. corporate income tax and/or branch profits tax on income that is effectively connected with such trade or business.
Changes in laws or regulations could adversely affect the Company and its subsidiaries.
Changes in tax laws, treaties or regulations or the interpretation or enforcement thereof could adversely affect the tax consequences of the Reorganization to the Company and its subsidiaries. In this connection, bills have been introduced in the United States Congress which, if enacted, could substantially reduce or eliminate the tax benefits resulting from the Reorganization.
There are also proposed legislative and regulatory actions which
could reduce or eliminate the ability of the Company or its subsidiaries to
enter into contracts with governmental authorities.
The
enforcement of judgments in shareholder suits against the Company may be more
difficult
than it would have been to enforce shareholder suits against IR-New
Jersey.
The Company has been advised that a judgment for the payment of money rendered by a court in the United States based on civil liability would not be automatically enforceable in Bermuda. It has also been advised that with respect to a final and conclusive judgment obtained in a court of competent jurisdiction in the United States under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty), a Bermuda court would be expected to enforce a judgment based thereon, provided that (a) such courts had proper jurisdiction over the parties subject to such judgment, (b) such courts did not contravene the rules of natural justice of Bermuda, (c) such judgment was not obtained by fraud, (d) the enforcement of the judgment would not be contrary to the public policy of Bermuda, (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of Bermuda and (f) there is due compliance with the correct procedures under the laws of Bermuda.
As a result, it may be difficult for a holder of the Company's securities to effect service of process within the United States or to enforce judgments obtained against the Company in U.S. courts. The Company has irrevocably agreed that it may be served with process with respect to actions based on offers and sales of securities made in the United States by having Ingersoll-Rand Company, 200 Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677, be its U.S. agent appointed for that purpose.
A Bermuda court may impose civil liability on the Company or its directors or officers in a suit brought in the Supreme Court of Bermuda against the Company or such persons with respect to a violation of U.S. federal securities laws, provided that the facts surrounding such violation would constitute or give rise to a cause of action under Bermuda law.
Item 4 - Controls and Procedures
The Company's management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.
PART II OTHER INFORMATION
Item 1 - Legal Proceedings
By letter dated October 30, 2002, the Michigan Department of Environmental Quality ("DEQ") considers civil penalties of an unspecified amount to be accruing against the Company for an alleged violation of a DEQ Administrative Order of Consent ("AOC"). The AOC governs the Company's environmental investigation and cleanup obligations related to the McCoy Creek Industrial Park, Buchanan, Michigan. The Company believes it has valid defenses against the penalty and is seeking to resolve this matter before the DEQ issues a penalty assessment.
Item 6 - Exhibits and Reports on Form 8-K
INGERSOLL-RAND COMPANY LIMITED
EXHIBITS AND REPORTS
ON FORM 8-K
(a) Exhibits |
|
Exhibit No. |
Description |
99.1 |
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
99.2 |
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b) Reports on Form 8-K |
A Current Report of Form 8-K (Item 5) dated August 14, 2002, reporting the filing of Exhibit 99.1 - Statement Under Oath of Principal Executive Officer and Exhibit 99.2 - Statement Under Oath of Principal Financial Officer. |
A Current Report on Form 8-K (Item 5) dated October 16, 2002, reporting the filing of Exhibit 2.1 - Stock and Asset Purchase Agreement between Ingersoll-Rand Company Limited and The Timken Company and Exhibit 99.1 - Press Release issued by Ingersoll-Rand Company Limited, announcing the planned sale of its Engineered Solutions Business to Timken. |
|
(b) Reports on Form 8-K |
A Current Report of Form 8-K (Item 9) dated October 17, 2002, reporting the filing of Exhibit 99.1 - Press Release issued by Ingersoll Rand Company Limited, announcing financial results for the third quarter and year to date 2002. |
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.
(Registrant)
Date November 14, 2002 |
/s/ Timothy R. McLevish, |
|
Timothy R. McLevish, Senior Vice President & Chief Financial Officer
|
|
Principal Financial Officer
|
Date November 14, 2002 |
/s/ Richard W. Randall |
|
Richard W. Randall, Vice President & Controller |
|
Principal Accounting Officer
|
|
|
INGERSOLL-RAND COMPANY LIMITED
CERTIFICATIONS
I,
Herbert L. Henkel, certify that:
1.
I have reviewed this quarterly
report on Form 10-Q of Ingersoll-Rand Company Limited;
2.
Based on my knowledge, this
quarterly report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report;
3.
Based on my knowledge, the
financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and
I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure
controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly
report our conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and
I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in
the design or operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and
I have indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date November 14, 2002 |
/s/ Herbert L. Henkel |
Herbert L. Henkel |
I,
Timothy R. McLevish, certify that:
1.
I have reviewed this quarterly
report on Form 10-Q of Ingersoll-Rand Company Limited
2.
Based on my knowledge, this
quarterly report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with
respect to the period covered by this quarterly report;
3.
Based on my knowledge, the
financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and
I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure
controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly
report our conclusions about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and
I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in
the design or operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and
I have indicated in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date November 14, 2002 |
/s/ Timothy R. McLevish |
Timothy R. McLevish,
Senior Vice President & |