特靈科技 (TT) 2001 Q1 法說會逐字稿

Good day and welcome to the Ingersoll Rand, first quarter 2001 earnings conference call. First call is being recorded at this time for opening remarks and introduction, I would like to turn over the call to the vice-president of Investor Relations and Communications Mr. Matthew T. Farrell. Please go ahead Sir. 00:0017

Good morning and welcome to our first quarter call. We released earnings at 7 a.m. this morning. I am sure you all have copies. The release is posted on our web site. I would like to cover some housekeeping items before we begin. This morning concurrent with our normal phone and conference call, we will be broadcasting the call for our public web site. There you will also find the slide presentation to augment the call. To participate via the web, go to and click on the yellow circle link you can find on the left hand side of the screen. Please note that all the slides will be immediately available. We will prompt you when to change them. Both the call and the presentation will be archived on our web site and will be available late this afternoon. Now please go to slide 2. Before we begin, let me remind you that there will be a forward-looking discussion this morning which, is covered by our state corporate statement. Please refer to our year end 10-K for details and factors that may enforce results. Now I would like to introduce the participants on our call this morning. We have Herbert Henkel, the Chairman, President, and the CEO, David Devonshire, our Executive Vice-President and CFO, and Steven Shawley our Corporate Controller. We will start with the formal presentation by Herbert Henkel and David Devonshire followed by a question and answer period. Herbert Henkel will start with the overview. Now please go to slide 3.

Thank you Matt and good morning. I thank you for joining us on our first quarter call. This morning we reported net earnings from continuing operations of 51 cents per share for the first quarter of 2001 excluding one time item. This is consistent with our most recent expectations for first quarter earnings, which we announced on 03/29/2001. The 51 cents per share excludes restructuring and productivity charges. Net earnings from continuing operation includes the remaining growth around businesses which produce the loss of 3 cents per share compared to a loss of 5 cents per share in 2000. Currency translation had a negative year-over-year impact of about 3 cents per share. The press release has a number of attachments that give details in our financial results, which Dave will cover in his presentation. Please go to slide 4. During our January conference, we cited a number of areas which we thought would be pluses or minuses to our first quarter results. The minuses, they included weak truck and trailer markets, decline in North American light vehicle production, lower orders from large U.S. rental companies and the ongoing negative effects of currency. On the plus side, businesses, which were expected to weather the quarter reasonably well were air solutions, Bobcats, and security and safety. Although we were directionally correct on these factors, we had not anticipated the magnitude of the deterioration in our North American-end markets. We originally forecasted that first quarter revenue would be down to 3%. Total revenues were actually down by 7%. The resulting lower volumes across virtually all of our businesses had a strong negative impact on our financial performance. In summary, not only were the minuses worse, but the expected pluses were weaker. Restructuring activity, which was another of the expected pluses did make a positive contribution to the quarter of about 4 cents per share. The program is currently on track. We are still targeting to close 18 factories, reduce our work force by 4000 and achieve an annual savings rate of 200 million or approximately 80 cents per share. We are accelerating these actions to offset the lower production requirement now forecasted for the balance of 2001. Along with the restructuring actions, the individual businesses have continued to make ongoing adjustments to expense, employment levels, as well as working capital and capital expenditures in response to the lower demands. Please go to slide 5. Hausmann. I would now like to spend a few minutes on Hausmann, which we acquired in 06/2001. Hausmann's first quarter performance was below our original plan. Sales were down about 19% compared to last year's first quarter when Hausmann was a public company. Operating earnings were down significantly. The sales decline was largely due to the delayed spending by our major supermarket customers particularly in the Northeast United States. Current order trends are encouraging and indicate that volumes and operating earnings will improve in the second quarter and for the balance of 2001. We are pleased to note that we may progress in integrating Hausmann and ThermoKing to capture our projected synergies and to reduce the combined business cost structures. We are also making progress in our strategy to increase Hausmann service business, which grew over 10% in the first quarter. We continue to view Hausmann as a neck-to-neck position that fits well with our long-term strategy. Please go to slide 6. Independent power. Now, I would like to update you on the development in our power works microturbine business. We now have 13 of the 70 kilowatt microturbines on test in the field. We are pleased with the performance of the field units specifically with respect to their efficiency and their durability. Our manufacturing and marketing preparation is nearly complete. Commercial shipments are expected to begin in the third quarter. Our plans are unchanged. We plan to ship 75-100 units in the second half and to achieve full production level in 2002. We believe this factor will be an exciting growth driver in the near future and continue to make the necessary investments. We will keep you informed about our progress in building this exciting business. Please go to slide 7.

On the acquisition front, we continue to make investments to accelerate our long-term growth. In March, we acquired Taylor industries and its affiliate business Taylor Refrigeration. Taylor has been a Hausmann distributor for 60 years. They also distribute IR Dor-O-Matic brand automatic doors. Taylor expands Hausmann equipment distribution and branch network and also fills the geographic gap to serve the Midwest grocery chains, as we continue to pursue our strategy of growing the installation and service businesses. On April 3rd, we acquired 19.5% of Talon technologies leading provider E-commerce products and solutions for expanding customer access to IR equipment and parts in dealer services. IR's infrastructure and air solution businesses will be the first to take advantage of Talon's products, as we continue to strengthen our distribution channels.

We are continuing our efforts to sell the remainder of the Dresser-Rand businesses. The current environment is much more favorable for selling energy-related service businesses. We will continue to target completion of this transaction in 2001. Please go to slide #8. Overall, even though, we faced the tough North American market in the first quarter, we continue to make progress in implementing our long-range focus on growth and operational excellence. In summary, our restructuring efforts are on track for capturing the synergies from the combination of ThermoKing and Hausmann. Our after-market strategy is succeeding and providing us with growth and air solutions, bearings, and Hausmann. We are maintaining market share particularly, in our high-margin businesses, we continue to introduce new products most notably in the compact equipment product category. We are finalizing our manufacturing and marketing plans for the power works microturbines, and we continue to make built-on acquisitions as evidenced by our purchase of Taylor Refrigeration and we are proactively adjusting expense employment levels, working capital and capital spending to reflect current economic conditions. Please go to slide 9. I would like to introduce David Devonshire, who will discuss our financial performance in more details.

Good morning and thank you Herbert. I would like to begin my discussions with the quarterly results. My comments will focus on continuing operations, which include the remaining Dresser-Rand businesses. The results on Dresser-Rand are presented on the income statement as a one item labeled results from after sales less of tax. Please go to slide 10. Reported revenues for the first quarter were up 5%, to $ 2.1 billion excluding Hausmann and the effects of the stronger dollar, revenues were down 6% year-over-year. Please go to slide 11. On a geographic basis, first quarter revenues for the European Served Area were up 5% excluding Hausmann and adjusting for the impact of currency, revenues would have been up 3%. Latin American and Asia-Pacific revenues for the quarter were up 35% and 17% respectively to primarily to the additional revenues from Hausmann in those regions. Excluding Hausmann and the impact of currency revenues in Latin America were flat and up 7% in Asia-Pacific. Excluding Hausmann revenues in the US were down 10% in the quarter reflecting the slowing US economy. Please go the slide 12. This slide details the reconciliation between our reported earnings and our results from continuing operations, which exclude restructuring and one-time productivity investments. For the first quarter our containing operations earned $ 81.9 million or 51 cents per share compared to 80 cents last year. First quarter earnings per share were consistent with revised guidance, we provided in late March 2001. The decline EPS from the first quarter of 2000 is attributable to two factors. 1. Hausmann business has always shown a distinct seasonal pattern in which two thirds of the earnings are realized in the second half of the year. Including the impact of interesting goodwill Hausmann's operating results were 18 cents __ to our first quarter results, which is 3 cents more ___11:31 that our original forecast. 2. The slowing US economy has negatively impacted our results. We have seen major dramatic slowdown in the North American Truck and Trailer market and continuing weakness in European Truck and Trailer. A follow-up in North American light vehicle production in the 11:51___ capital spending by supermarkets and a declined in purchasing by large US rental companies. Many distributors and national accounts have adopted a wait-and-see attitude towards the US economy. Please go to slide 13. 00: 12:13 During the quarter, we continued our programs to restructured IR's worldwide operations in line with our long-range plans. ____ restructuring charges for the first quarter fell over 32.6 million including 3.3 million for Dresser-Rand. Excluding these charges, the restructuring program generated about four cents of EPS benefit in the first quarter. Restructuring charges for the entire program will total about $325,000,000 free tax and will continue to flow through our financial statements for the next three to four quarters. Please go to slide 14. First quarter operating margins declined to 9.3% of revenues compared to the 13.3% in the prior year. Adjusting for currency and the impact of Hausmann and the associated goodwill, first quarter operating margins would have been 11.1%. The decline in operating margins is a result of lower volumes, pricing pressures in certain parts markets and an unfavorable mix. As mentioned earlier, almost profitable market North America was up 10% in revenues. Please go to slide 15. With respect to the rest of the P & L interest expense of 65.9 million was up 17.7 million compared to the last year's first quarter. The purchase of Hausmann added $31,000,000 of interest expense to the quarter. Excluding Hausmann, interest expense was down 13 million to the lower jet levels and interest rates and the successful refinancing of $600,000,000 of debt in the first quarter. Just a reminder, the interest expense from debt required to purchase Dresser-Rand is reported in results from assets out for sale, not in the interest expense line. The net loss from assets out for sale, which is Dresser-Rand amounts to $4,900,000 in the quarter, compared to a loss of 7.9 million in the corresponding period in 2000. As a result of our continued tax planning initiatives, the effect of tax rate for the quarter excluding Dresser-Rand was 33%. We expect to sustain the effect of tax rate of 33% through 2002 to compared to 34.75% for the full year of 2000. Please go to slide 16. Moving on the balance sheet, working capital as a percentage of annual revenues was 11.1% or 10.6% excluding Hausmann, which is slightly above our targeted range of 10%. Capital expenditures in the first quarter were $ 36 million, which includes 3.6 million for Hausmann. Depreciation and amortization was $ 85 million, which includes $ 18.5 million for Hausmann. Our debts of the total capital were 49% compared to 48% at 12/31/2000. Total debt at the end of the first quarter was $ 3.8 billion. We repurchased about 1.3 million shares in the first quarter. Of this about 350,000 shares were purchased to offset the shares we issued in connection with the acquisition of Taylor Refrigeration. A total of 10.8 million shares had been purchased since the inception of the repurchase program in 1997. The total authorized repurchase is 15 million shares. I would now like to take a few minutes to talk about results of our business sectors. The discussion will focus on the ongoing continuing operations without restructuring charges. Please go to slide 17. The Climate Control sector, which includes ThermoKing and Hausmann, reported first quarter revenues of $ 515 million and operating income $ 5 million. ThermoKing's revenues declined 15% as growth in the Bus Air-conditioning and Sea Going container businesses was more than offset by a severe decline in the North American truck and Trailer markets and continue weak truck and trailer market results in Europe. Operating margins were significantly lowered due to the decline in the higher margin North American business and unfavorable currency comparisons. Hausmann operating results, which include the amortization of goodwill, associated with the acquisition were negatively impacted by deferred capital spending by several major supermarket chains. Back log and bid activity is strong indicating that the spending decline is a deferral rather than a permanent loss of business. Please go to slide 18. We will discuss the industrial productivity sector by reviewing the results of the air solutions, bearings and components and industrial product segments. First quarter reported revenues of this sector were $ 727 million. Operating income for this sector was $ 78 million for about 11% of revenues. Please go to slide 19. Air solutions reported flat revenues year-over-year and maintained its operating income at a margin of 10% of revenues. IR's active marketing strategy was evidenced in air solutions as a part in service revenues increased 9% over last year's first quarter. These revenue gains were offset by a decline and fail of complete units. Please go to slide 20. As a result of continuous softness in the US automotive and industrial equipment markets, bearings and components revenues and operating income declined by a 11% and 26% respectively. North American light vehicle production was down which has a significant impact on the automotive division. Despite the downturn, our active market shipments are up and the backlogging indicates that that will continue. Please go to slide 21. The industrial product segment which includes Club Car, tools, fluid products, and our independent power business showed year-over-year revenue growth of 2% 19:32 ___ reflecting gains at Club Car. Operating margins for this segment declined slightly mainly due to increased spending on new-product introductions particularly power works like 19:42____. Excluding the advancement of power works, the idea of year-over-year margin improvement in industrial product. Please go to slide 22. First quarter revenues in the infrastructure sector declined by 10% compared with the last year. That decline reflects weaker North American Road development, portable power, and drilling markets combined with dramatically reduced demands from large US rental accounts. Operating margins declined to about 13% of revenues primarily reflecting lower volumes and the negative effects of currency. While maintaining market share Bobcats showed slight volume increases over the last year excluding the fall off in large US rental account activity. At recently concluded Balmar construction equipment show in Munich, Germany, Bobcat introduced the industries first all wheels gear compact motor. This combined with new track loaders is expected to drive further growth in Bobcat's business. Please go to slide 23. The security and safety sector reported flat year-over-year revenues reflecting a slowing in US and European commercial and residential markets all set by an increase in electronics solutions revenues. Sector operating margins were 18.4% compared to 18.7% in 2000, reflecting continued investment in our electronics security solutions business. I will now conclude the final remarks with the 2001 outlook.

Thank You, Dave Please go to slide 24. Our financial performance today and for the balance of the year is largely shaped by the US economy. Approximately, two thirds of our revenue is US based, and as we indicated in the release, US revenues were down 10% in the first quarter. We are all familiar with the various and the forecast in 2001. Refrigerated trucks and Trailer demand downed by more than 35%. North American light vehicle production downed by 15%. Industrial production declining. Large US rental company purchases are down by more than 50% and supermarket capital spending is delayed. In our March, 29, 2001 release we pointed out that we would have better visibility to our second quarter revenue and earnings in Mid April. Today, we ordered that to suggest a 7% decline in revenue in the second quarter excluding Hausmann, which is consistent with our experience in the first quarter. As you know the Hausmann business is seasonal. The second quarter revenues are projected to be approximately 25-30% greater than they were in the first quarter. Hausmann results would be far stronger in the second quarter, but they will still be expected to be about 5 cents to the diluted earnings. As I noted earlier, current order and backlog trends are encouraging and earnings will continue to improve in the second half. In light of these factors, our second quarter earnings per share forecast is in the range of 75-85 cents before one-time charges. Please go to slide 25. Full year revenues which were originally forecasted to be flat to up 1% with last year are now anticipated to be down 5% to 7% without Hausmann. We therefore expect full year earnings per share to be in the range of 3 dollars to 3 dollars and 25 cents before one time charges. The earnings revision is primarily a volume story. The variable margin loss due to lowered unit volume trace a 50-70 cents earnings gap compared to our prior forecast. In addition, price pressure in certain end markets, trades, and incremental negative impact of 5 to 10 times greater than earlier estimates. There are of course other puts and takes that are forecast such as a timing of restructuring. The microturbine launch, tax planning benefits, currency and new product introductions however, volume. Volume is the variable that central draw earning revision. Please go to slide 26. This is the end of our formal remarks. We will now open the floor to questions and Thank You Just a few ground rules. Please let restrict yourself to one question and one followup.

Today's question and answer session will be conducted electronically, in order to press the question please press the star key followed by the digit 1 on your touch tone telephone. We will go first. Today the David Russell of Solomon Smith Barney.

Hi, Good Morning everybody! A quick question on the full year 2001 outlook. Looking at it, the second half of the year, if we use the mid point of the second quarter range, the 80 cents it implies the second half of the year, year-over-year downs down slightly compared to the $86 you posted in the last year second half. There restructuring benefits, you made a comment about accelerating the restructuring benefits; the restructuring actions that is static. We noted 4 cents restructuring benefits in the first quarter. Can you help us little bit with the timing over this in the next three quarters and the magnitude of those structuring benefits?

It is steadily increasing amount where we had four, we expect you know that to increase directly 5 cents in the second quarter. We are looking at roughly you know 11 cents in the back half under the normal, you know in terms of how we spread the 20, what we are really hoping or not hoping, what we expect to do is to try to pull in more into the second half than we had originally planned.

I would answer, like to expand the answer this way David, that if you recall we originally had said that we were announcing the closure of 18 facilities. We are as of today, telling you that we have expanded that number to 20 because of the overall volume decreases. Furthermore, we are in the process of also shutting down 5 Hausmann facilities, which will have an incremental 750 head count reduction. Those of course skill against the purchase price of accounting stuff, but those are the kind of actions that we are pulling in and we are trying mildly to try to go into close them faster. We are trying to do it faster because we also opportunity have less ___. We are also experiencing as you might expect some of the productivity issues when you announce closures and then the start of the issues to go on the other end. So we are confident, we can accomplish to 20 cents. We have a management team are pushing mildly to get that number to be even higher but I am not ready to commit today, as we speak to that number based on where we are in the face of face off process. 00: 27:28

So roughly speaking then, if you do put up a 11 to 13 cents or so of restructuring benefits in the second half, that implies that core business to be down about 10% down with restructuring benefit on top of it, you get that down lately second half guided, if you tells us the position is.

Yes

And one quick followup on that, Hausmann also a big part of that. The full year accretion number used to be lead plus 8%, obviously the number have split a bit, so but the full year number again or if you had it previously.

Full year number last time we made an announcement back in January was the fact that we started getting 8 cents to the degree that there is a slip that we lined up pulling back. We can still accomplish that. If some of that goes away we have in our conservative model put that number being relatively neutral. We go next to Alex Plantan of Ingle Schneider.

I just wanted to ask question about the Hausmann dilution. You obviously knew about the seasonality when you bought the company and yet if I read it, there was not much mentioned of it until you reported earnings on January 24, 2001 when you suggested that the first quarter would be 60 to 65 cents including 15 cents from Hausmann dilution, which is now 18. And up until that time, the street consensus was 84 cents for the first quarter, which would have been in line with your forecasting on January 24, 2001 without the dilution. So it is apparent to me that the street did not know about this dilution until you mentioned it on January 24, 2001 and I am wondering why it was not mentioned before, because now is a very big part of your analyses of what happened in the first quarter.

This is not really a surprise to us or maybe as you said will may be acquisition, I mean the numbers for Hausmann with public information last year, the difference between their reported results and what we had originally forecast of the 15 cent level was strictly due to the purchase price accounting, the surprise to us is the extra 3 cents because of the further deteriorations of ___ we had. I am sorry to beg if you recall, we do not wind up going out and giving really next year type projections until we wind up doing it in the January time frame.

But I was just wondering why the street was not. The difference between their reported results and while we had originally recently forecasted that the 15 cent level were strictly due to the purchase price accounting. The surprise for us is the extra three cents because of the further deterioration in volume that we had. I am sorry to break your call we don't windup going out and giving really next year tie projections, until we windup of doing it in the January time frame. But I was just wondering why this street was not aware of this dilution up until you mentioned on January 24th, you know you require a company back. I think we really don't have any kind of exposure or talking point where we will get into that kind of subject until we do the report in January. Again, if you look at it, in my mind it was actually a positive for us in the fact that we have predominantly been a ___ loaded company because many of the infrastructure etc products are more seasonal front end, this is more back end and it was actually going to go and do a better job of leveling out for the company overall. Historically, as I mentioned 2/3 rd of the operating income in Hausmann have been in the back half of the year.

We will go next to see Steve Wilson of Morgan Stanley.

Hi! Good morning.

Good morning to you.

I just wanted to look at cash flow a little bit, I mean, if it changed our assumption that half a the year ago, you mentioned some something a bit about bringing down the capex perhaps, I am wondering if you may be able to generate some cash out of working capital with the businesses slower than you expected, just kind of run through that for us?

Yeah, we were focusing at this point of time is, inventory returns do not reduce. We do not windup having more inventory around and working capital, so our target at this time is we are going to be looking at total capital expenditures that will be reduced from our initial plan of the forty hundred million, including the restructuring to be in the 175 to 200 million level. Keep the working capital at about 10% goal level that we had. So I will tell that we are meandering to free cash flow 400+ million for the full year rather than the 500 that we originally had forecasted.

Okay, thanks.

We will go next to Joel Tis of Lehman Brothers.

Hai guys, how are you doing?

Hai, Joe!

On this issue of new guidance, can you, in terms of just the fact, is the new guidance your best guess at down side risk or is it your best guess at what really happened this year?

I would tell you that we were now planning that we do not see the second quarter getting better which and the second half of a year and give us just some macros overall. We had originally in our numbers thought that infrastructure was going to be off a couple percent and that Bobcat is going to be up. We are now forecasted it to be slightly down, so I would tell you gentlemen, we are taking for as it is and not getting the economy better in the US world. And I was in Balmar two weeks ago and I started hearing this cloud starting to form in Europe and so we picked that into our manufacturing _____ assumptions as well as our overall forecast. So I would tell you personally I am looking at this as being an indication of activity level where I see it.

Okay, and then how many microturbines do you expect to produce at full production next year?

The capacity constraint as we have currently laid out is 10,000 and what we had said is that we were looking at how we windup putting out somewhere between 1000-1,010. It has a lot to do with how comfortable we are after have reduced it the 75 to 100 relative installation and service of those units. I am not worried about the customer demand, I am worried about being able to make sure that we service the product and that we do not have any startup problems.

We will go next to Barry Banister of ____

Hi! Gentlemen, how are you?

Good morning, thanks Barry.

The 340 basis point decline in infrastructure operating margin was much more than I have _____ in. Could you talk about the specific areas that were weak particularly did Bobcat rate below the 20 % margin line? Did you have a particularly weak result in paving or was Rock drills just a disaster, could you just give us color here on a product by product basis?

We will try to give by market review. If you look at the road development, saving continues to be frankly relatively strong, both the laying it and compacting it. The real weakness in that business is in the soil compaction for it and that is on a global type basis. Secondly, getting into our special equipment, which has to do with the drilling side that continues to under perform relative to the market we had hoped for. The market there continues to be weaker and so we have some obviously drag there. On the Bobcat side, I would tell you that our actual first quarter performance was slightly or worst than we had forecast what was not really that big a deterioration. I think the biggest problem that we saw there was some of the aggressive pricing that was taking place in the market place as a result of others trying to push our product through. We have tried very hard and have been successful so far not to increase field inventories. So as a result we are putting through what is really end user demand, but overall in the margin number that you have for Bobcat, that is pretty close. So the real weakness, soil compaction, as well as continued weakness in the mining and the drilling business. Also, overall, Barry, currency does have an impact as particularly in this business that Bobcat by seven tenth of 1% and overall infrastructure it is probably four tenths of 1% percent.

The biggest terms to me though, that hold the line on pricing. Given the pricing in the industry and the follow up in demand your production was well below the retail and I am trying to figure out if that was an absorption problem that caused this margin document.

I would tell you that it is only pricing was really more and obviously absorption is there when you have something that has gross margin at the level that we are operating at. Our biggest concern in this particular area continues to be the level of buy from the large US rental. We had a significant fall off and we originally thought that we would be off only 15 %, as well we talked about in the last call. What I would tell you so far, we are saying that we too are experiencing an activity level for the sector overall at being more than 50% off. We are fighting to hold our cross, Barry, one thing that we are doing are with our dealers is maintaining normal traditional inventory levels particularly of Bobcat. So that we were not, you know, they are playing games through the inventories at the future expense of a real decline in earnings as a result of undue absorption. So we are balancing that, at the end of the day that is why we, you know, cash is king, so we are trying to make sure that we optimize the situation.

We will go next to Cliff Ransom of State Street.

Had a little favorite luck, I know how Hausmann feels, although I know you.

Sorry, Cliff we cannot hear you, can you speak up just a little bit?

Yeah, is that any better?

That is great, thank you.

I know that Hausmann is seasonal, I think you told us that, now that is okay. The question is you keep saying these are delayed, spending delayed, spending deferred, spending, other than the one line that, you know, inquiries looks good as backlog what gives you that confidence that the supermarket cramps down on their capital spending in this area is going to reverse.

Cliff, this business unlike many of the other that we are into has more of a poking backlog component and as a result, I would tell you that we have much better visibility in this business to what is going on in the third quarter and the third quarter is where we see the backlog at this point of time significantly higher than actually 2000 numbers. So it is the fill in on the back end that we were seeing so far from the booking filling in. We will represent more like a 35 to 65 mix. Based on, frankly a lot of bed, weather stuff in the North-East, something in the South Central side and also the North West for we actually talk with those large supermarket accounts. They are talking about the delay they encountered in the construction cycle and asking us to delay shipment into them, so I probably got better visibility in that than what it would be other places.

Can you tell me the net profits and minuses in that business between, fairly California is about to hit an even bigger energy crisis than they had in the heating season when they get to the cold season lot of bad things to think about the mid West, New York, may be New England, does that hurt or hinder your sales and installation process?

___, there is nothing positive in what you just described and that is also why, Cliff, I gave you the bandwidth of where we were originally talking about Hausmann being up 3 to 5 year-over-year, and now we have truncated that down to being flat year over year, so we try to take that into account.

Okay.

The other piece I would point out to you though, that we are really trying to offset this, remember that we reported that we were up almost 10% on the service business. We really are pushing mildly. Our footprint is now getting very, very complete around the countryside and we are looking at negotiating what I would refer to as large regional and/or nation wide businesses that could even have a positive impact as early as the second half of this year in that size of business. Because, one of the thing that does happen when there are power problems is that service becomes more and more of a critical issue.

Once again if you do have a question, please press the star key followed by the digit one. We will go next to David ____ of UBS Warburg.

Good morning. What would be the R&D spending or operating cost that was the best way to look at it at power works in the quarter?

We were about 4 million and I think that is roughly 2 cents.

Okay, and yesterday Parker Anderson talked about some improvement in business conditions in April at least well up to March. Do you see any improvement in April in businesses that serve industrial markets.

Dave, I would tell you that that data in our perspective, I do not know what they do, but in mine, when I see a one week wonderful, I say thank you, but I do not go take that to the bank yet. So, I do not know if this was left over from March it got pushed into April or if it is there so. I am not confident that what we would see would support an uptake that is why we continue to be at the level we are at.

Okay terrific, thanks.

Welcome.

We will go next to Joe ____ of Goldman Sachs.

Hi! This is Mary Jesseson, could you give us some update on your fixed sale list, given that there is going to be lower demand in North America, or some of your businesses that were in the green before a kind of moving below that into the yellow maybe?

No. Our approach is based on a five-year strategic plan outlook. It really is not based on a one-quarter or one half of the year. There is frankly at this point of time, although I am very disappointed, I would say the numbers we are reporting compared to what we were targeting. It really has not changed when we look at the overall outlook. It is the hour now responding to the current macro world, not what we see changing longer term. If anything, I would say is some of the areas where we now continue to see improvements on the service side continues to make me more optimistic that we are able to take some of those that were on the yellow side and move them into the green side. But as long as we are on that subject, maybe it would be worthwhile just to mention that as you all know ___ 00:42:24 has been for sale and the activity there continues to improve where there is a lot of strong quoting activity, it appears to be coming down from the engineering firms and so forth, and our bookings in the quarter were up 13% over the prior year and actually the bookings were 15% above sales in the quarter. So that results continue to improve making it increasing there for the probability in that business will be so this year.

And just a follow-up question on Europe, where have you seen signs of slow down? I mean, you mentioned in construction equipments, has it been just a slow down? Are there any areas of decline?

It really is not a reported slow down. What I said was that the conversation that Balmar was starting to say "Gee, we are worried about a potential slow down in the third quarter." So with people were in, it is a discussion point rather than saying that it is actually into our bookings at this time.

Well then.

The thing is true in European car bills, when I met with some of our large customers, they are starting to express concerns about exporting US problems into Europe in the second half of the year just based on I think historical trends more than anything else. So, I do not have substantiated data, we are at this point of time just talking about feelings starting to be expressed.

We will go next to John Inch of ___.

Hi! Good morning. I was wondering if you could give us more color on the restructuring of the 41 million, Dave, how much of that was cash and I mean basically if we can give a little bit of color as to what you have been spending the money on?

Sure, first of all of the 41 million, most of it was cash, I would say about 80% of that was cash, so roughly 32 million was cash in the quarter. In terms of what specifically what we spend on in the quarter it relates to the, you know, the ___ and all the other more traditional costs. You know, I do not have the exact detail in front me, John, on that, but, let me see here what I can give you, I can tell you that, so we have got for example sort of five sectors, the total bisector was like 15 million in climate control, industrial product activity was 12 million, infrastructure was 7 million, and security and safety was 7 million. So, as you can see it was pretty evenly split with the exception of ThermoKing where we are closing quite a few facilities that are combined with Hausmann as well.

So how would you characterize the many activities in terms of geographic focus and then just maybe according to plan, are you ahead of plan or are you sort of even with where you were expected to be, just anything?

Well John, when I was over in Europe just two weeks ago, I also went to see we are opening up a new facility where we are moving out of Germany for the bearings and moving into ___ Czechoslovakia Republic, and we are well ahead of schedule there to where we are actually be in production as of July so the kind of things we are doing right now. We have hired the initial 75 operators and supervisor types in the Czechoslovakia Republic who are actually now as we are speaking running the machines and learning how to use them in Germany. I think that would be a good indicator of about where we are an awful lot. Our __ facility, we have shut it down. Product is now at this point in time actually being produced down in Garland, Texas. So, we are starting to now actually encounter plants being shut down and products physically being produced in the new facility, that is about the mood we are in. And as I said before, what we are trying to do is a car that would to accelerate, shut down, based on volume because most of the time the critical path is the ability to hire work force, train the new force in the new area. So the fact that it just starts slower really does help you on that kind of a basis. But what we are definitely doing is also reviewing the overall head count that we have since our troop is going to off where we were in the first place. Optimistically, the 20 cents will be significantly exceeded, but since we are really early on yet and actually getting to move to take place, I am reluctant really to tell in terms it could be 25 or 30 cents. But those are the kind of things we are working.

But John, there are going be some geographic 65% of the spend is in North America including Canada, 25% in Europe and 10% is the rest of the world.

We will go next to Marcus _____ of Midwest Research.

Hi. Good morning. Two questions, one Bobcat overall failed in the quarter of percentage changeovers a year ago and then secondly for the outlook of sales down 5-7%. Can you step through these segments and give us the sense, which segments are better and which segments are worse in that average.

Let me say in general for Bobcat in the first quarter and flat year over year.

Including Randall, you are saying?

In other words, total, total Bobcat is flat, see.

Okay.

Randall was about 100 in the US so that is going to be the magnitude. When you get into the overall phases, the kind of things we have talked about in past was the fact that we thought that Hausmann was going to be up and ThermoKing was going to be flat, or slightly down. We took those numbers down on ThermoKing specifically. We see that has deteriorated. Where we actually had had some pluses like in Air Solutions and in security, we saw those as being now more towards flat. Remember they were plus last time, we are look at those now running in the flat. So I bet if you check basically, all the things we are looking at, we are just looking at deflating those but somewhere in the 5-6% range from what we gave in the first quarter.

Just in those two areas we are seeing across the border. So even security and safety you see is significantly weaker.

Well, I said, yeah when we said originally, if you go back to the January thing, we talked at that time there were numbers were going in 6-8% what we are saying now is that based on the first quarter, the wait-and-see that we are seeing, calling and saying let us count on the fact that if the ___ were flat how much would you deal with, that how it works, isn't it.

Okay. All right, thank you.

Sure.

We will go next to Gary McNanis of JP Morgan.

Hi, everyone. Most of the questions have been answered on but just the lower interesting expense was like $66 million versus $75 million in the fourth quarter, what accounts for that? because it looks like that if anything was higher.

A lot of what we did, we have financed $600,000,000 of debt, made a Coupon of 4.75 and an ____ of 5.08% though we have a favorable basis points spread to the rates that we were counting on this year and that we are paying on that debt prior to the refinance.

Do you think that as a big difference?"

Yes, that is a big difference.

Okay, and you would expected that interest expense will continue to decline as we go through the year.

Yes, excluding Hausmann of course, right, on a comparative basis.

Right, in getting back to Hausmann, I mean, just a kind a of followup with what Cliff was getting in terms of, you know, your conferred that this is just deferred spending, I mean, maybe you can talk about how strong is the orders, year over year. I do not know how you want to look at it. Was it a backlog, just to put, and how much months of backlog do you have? Just give us some confidence, because most of the businesses, the profits are towards the end of the year.

Yes, right now, Gary, the only thing is the backlog that is filling in robustly is the third quarter. I do not have four quarters, I will say that they do not go that far out.

Okay, so you have enough visibility for the third quarter, but I think ....

Right, the second quarter and third quarter.

The second and third quarter, does not have the profits in the fourth quarter.

No, what we said in turn is that we are talking this year, we look at about 65% two thirds of the profit in the second half and I have now visibility to more than half of that.

Okay. I am sorry, thanks.

We will go next to Elvis____

Good morning. I have got a question to ask, let me ask two specific questions. One, the matter all said and I still have trouble with this 1% margin in climate control, you know, a sort of, no matter how you explain it, it is still quite shocking about, it is about thoroughly shocking. Can we talk about the rest of year for that sector and were do you think normalized margins should be in that business. The ThermoKing business, you know, I will add to that much more valuable than truck markets going down is not going back any where near the level of trailer markets that they were for the last couple of years, and you have got to see volatility of Hausmann. There used to be double digit sector, you know.

You will see it again, soon.

What?

You will see it again soon, you know, this is the area where we have the biggest push on the restructuring. We have keyed up for this year to be accomplished by the end of the year, $57 million of synergy savings between the two. That is how we mentioned, when we did this thing last fall, we are totally on target to make that happen. We have, as we said before, we are shutting down five factories, just for Hausmann alone, reducing their head counts and 12 overall. So, this is the area were you have the most restructuring and it reflected, you accurately pointed out, the real reductions in the activity level. Overall activity at ThermoKing as we have said before, we are off 15%. But I am afraid the 15% reduction is arrived at by a very robust container business which is at less than half the gross margin of what we have in a very, very poor truck and trailer type business. So what we have really experienced, remember, where we started this restructuring last fall, we already had at that time started saying so candidly we got going too late. I do not know what we could have done to get going earlier, but clearly we need to do this faster because we are still chasing the reduction in revenues in that particular part. You and I, both have a very, very significant disappointment in that 1% number, but I would tell you that our expectation is that in 2002, there will again be an attractive double digit margin.

So we are looking at creeping back into the mid single digit every quarter, looking better from now for the rest of the year that we were talking about.

Yeah, yeah, that is exactly right.

Just because once again of the nature of the Hausmann business in that two thirds of the operating income cum second half.

More importantly, there is a huge restructuring going on in the business reducing the manufacturing facility by 12.

And we will get there even if the activity in the truck and trailer business next year and then we will somewhat better than this year but not anywhere near where we came from.

Yeah. It is part of this, that is why we needed to do this restructuring to get the fixed cost element to more accurately reflect the kind of volumes that we are looking at floating through.

I have one question, given the type of subjects, probably the other biggest disappointment in the last year or two is the lack of, in light of the acquisition activity. One big acquisition that Hausmann was trying out to be much more volatile and you know lack of small acquisition, we have not been able to sell businesses quickly enough unfortunately through the market place and you be buying like this most of since Hausmann. Looking at the step up of the acquisition activity, can you plan for the rest of this year or you are going to be concentrating on the restructuring more.

Our criteria for this year is to make sure that we deliver the free cash flow, deliver the restructuring, and continue to go and to make the both on acquisitions. I think we now have the large foundations upon which we can go put pieces on. The kind of bulls eye I am looking at 50-100-200 million will have positive near-term benefit to the company as well as long-term, really give us I think it is a great opportunity be less cyclical because we as you can say, we still are very dependent on how good and we need to keep focusing on this after market type business. So I look at our debt level where we are at and all things going on, yeah we are focusing on delivering gas so that we can go and generate 400 plus million and make full time acquisition this year. We will go next to Patricia Lee of Dresdner.

Hello, can you here me, this is Patricia from Dresdner. Just getting back to margin questioning, climate control of the 1% that we saw on the first quarter. How much did Hausmann hurt the first quarter margin versus the 12-1 of a year ago?

They are all written, so I think we can pull them all quick.

Well, I would say that in regards to ThermoKing overall was the only business that was in climate control last year.

Right.

And if you did look at ThermoKing, ThermoKing's margins this year were slightly less than 50% of what they were last year.

Okay

And so, I think that's the way to look at it. Once again, it is due to the significantly higher contribution margin coming from the North American truck and trailer business. I mean that is the reason why it is down.

Okay.

On the Hausmann's side that would account for the differences we set at 18 cents diluted in the first quarter to the corporation. So, it is where it is because, they are actually profitable, before the allocation of goodwill. But, you know with 2/3rd the revenues coming in the back half of the year, that hurts, but overall on a go forward basis here we are not forecasting disaster including the restructuring savings till then. We are expecting a full year margin for the sector to be around 10%.

Thank you,

Welcome.

We will go next to Joel _____ , of Lehman Brothers.

Just one more followup. How much debt you have allocated to dress around.

Three hundred and forty million.

Okay. Thank you.

We will go next to Barry Banister of ______.

Hi guys, I have looked in a little bit of refer for Edwin Toryville about their, in the industry and I look at the truck markets not likely to have a quicker rebound because they have an inventory over hang issue obviously in a much larger scale than for refrigerator trailers. But if, you know, given that we do have a little bit of inventory out there, I wonder how much is yours, is the first question and the second, if I look at the 15% decline in ThermoKing revenues and about 18% year over year in Hausmann, looking at my comparisons, it looks like you to have, you are up against three hundred fifteen million a year ago in the second quarter of Hausmann. So you got a really short of almost 18% sequential comparison, are you confident enough in that backlog which you got to have that much loaded into the next quarter and in the second half and that 10% margins goal does seem a little bit high.

We said that we were looking at 25-30% increase, first quarter to second quarter in activity level based on the orders on hand. That takes step the Hausmann story. On the ThermoKing side, I think that what I said before is we are forecasting, Barry, that we have a market place that is out there 35% year over year reduction for the fall and first quarter number may be closer to 40 but is not that much different than we were forecasting for the full year in our assumptions.

I did hear your question on the 10% too Barry and If you heard me earlier, the climate control business has really spent the most on restructuring so far. So I would have to say that there is more on a relative basis in terms of contribution coming from that side of the business than from some of the other sectors.

Could you comment on the industry situation regarding inventories and your position within the industry on refrigerated trailer units?

When we meant last week the folks from ThermoKing that was not a significant issue as far as they were concerned at all.

And they felt that way about the competitors as well? Herbert I think they were talking more along, we really did not get into the conversation relating to the competitors visibility at this time, to go back what I said the first place. We were diligent; we were trying in the first quarter not to stop pipelines and then have to suffer through the rest. So, we are just really focusing on our own, and I see do not have visibility to what other will be saying at the time. I can give you how many days outstanding on ours and frankly they reflect in general on consistent practices.

What is your days outstanding?

We are trying to keep somewhere between two to two and half month's level as a sort of target for the in filled inventories.

Okay, I will followup later, thanks.

We will go next to Cliff Ransom of State Street Research.

Lets go back to this climate controlled margin issue, what I hear you, I want to make sure that you that I am hearing it correctly, that between restructuring actions and the seasonality of Hausmann, I do not have to worry about that operating income margin and climate control going negative before it goes positive.

That is correct.

When you are talking about Bobcat and really the whole infrastructure area, you keep referring to large rental companies cutting back on their spending. Are you making that distinction because large rental companies are an important part of your end market or because the small rental companies are still buying more. I am just trying to figure out why you are using the adjective large.

Because, frankly it is the one that we probably have more discussions about with others around the table. The fact is that in this category we have about a 100 million in the US and about 40 in Europe and another that is in the Bobcat side and about 60 in ____ so it is $ 200 million of business, that is more than what we do with the "mom and pop small," so it is both relative volume plus also I think volatility we are seeing because these are large, in some case public companies. We are really holding off a lot more and than what would the other.

The activity levels, Cliff, that I see the actually usage is no were near half, it is kind of 60%. Yeah, so what you have is just people responding to their own debt levels or whatever else is going on and so we are seeing much more of this draconian event, because of these large people adjusting to their casual requirements, then we see it as actual infield utilization.

But Herbert, they have not been cutting their budget, anywhere near severely as the total cost. When it is equipments that they can keep well utilized ________. Does that imply something negative about either skids fears or that of a compressor side of the house.

No, think it implies in terms of how desperate cash flow things are these days, Cliff.

Thank you, I appreciate.

We will go next Mark _____ of Midwest Research.

I had a followup on security and safety given that, you know if you look at all the tough sectors in the economy, construction is actually the area that has been holding up surprisingly well and commercial more so then residential, and you folks are introducing new products in Eva. Service initiative is well, so I am really surprised that the outlook has dropped off to near flat versus the historic, you know, the high single digit growth rate, can you talk about that a little more?

Lets us talk about it, what happened in the first quarter is that, in the first quarter we actually went from an independent rough sales organization to a company sales organization. In the process of making that transition, we took a lot of field inventories that was in the rough organizations and had that filled into the pipeline. I think that hurt some of the revenue streams that we had on the commercial side, nothing to do with the residential side. What we also heard is that the weather in the Northeast really delayed some of the projects getting to the stage were our equipment building site, that was the kind of conservation we had and we have now then taken the thing as being fine with being were it is, let us just assume that, that does not better for the rest of year and go push it through at that level.

So here its an area of cautiousness rather than of visibility of weak backlog or some other kind of indicator. Okay, in this independent rifting you have actually discontinued relationships with independents and now have company service centers moving in to fill that vacuum?

No, actually what we want of doing is we took from independent contractors status and actually wound up making them into employees and changed around their compensation packages and treated them as though they were now inside. In the process of doing so, they were, I think the numbers we had like 28 different organizations around the country and we separated party with three of them, the other 25 actually are now full in our organizations. It had to do with really the ability to focus them. If you think so, what we want to do, we wanted to go in forward. If you convert from that mechanical shop to being also the electronic solutions, so we need to make sure that we do not have to worry about whether or not the organization we were driving change through were are going to be responsive to it. Well, actually as company employees, think they be, well, trying to do that. So, I do not think we had disconnection there we had a transition to a new status. Well frankly we save us also some money going forward. Well, then this discontinuation of independent third party contractors that are now replaced with company employees.

Yes, it is dislocation then of the inventories, you talked about that hurt the first quarter, is that totally behind us or is that going to continue into the future?

I bet you, it is 90 plus percent behind us.

Okay, Thank you.

Gentlemen, at this time there are no other questions in the queue. Mr. Farrell, I will turn this conference back to you for any additional remarks.

Okay, we are going wrap up now, thank you for joining us. We will announce our second quarter result on Thursday July 19, 2001. There will be an instant replay of today's conference call available at 2:00 p.m. today and it will be available until April 25, 2001. The call in numbers for the replay is as follows, 719-457-0820 and the pass code is 598295. The audio and the replay from today's conference call will be archived on our website and finally the transcript of this conference call will be available on Ingersoll Rand website early next week. Please call, Joefinn ______, if you have additional questions at the following number 201-573-3113 or you could call me Matthew T. Farrell at 201-573-3038. This concludes our call. Thank you for joining us. This does conclude our conference call, we thank you for you participation. You may disconnect at this time.