FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-985
INGERSOLL-RAND COMPANY
Exact name of registrant as specified in its charter
New Jersey 13-5156640
State of incorporation I.R.S. Employer Identification No.
Woodcliff Lake, New Jersey 07675
Address of principal executive offices Zip Code
(201) 573-0123
Telephone number of principal executive offices
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes . X . No . . .
The number of shares of common stock outstanding as of October 31, 1995 was
108,906,159.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
Condensed Consolidated Balance Sheet at
September 30, 1995 and December 31, 1994 3
Condensed Consolidated Income Statement for the
three and nine months ended September 30, 1995 and 1994 4
Condensed Consolidated Statement of Cash Flows
for the nine months ended September 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-19
Exhibit 11 - Computations of Primary and
Fully Diluted Earnings Per Share 20-21
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 22
SIGNATURES 23
2
PART I. FINANCIAL INFORMATION
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1995 1994
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 186,741 $ 207,023
Marketable securities 9,843 4,231
Accounts and notes receivable, net of
allowance for doubtful accounts 1,142,847 949,392
Inventories 917,707 679,308
Prepaid expenses and deferred taxes 192,773 162,933
Total current assets 2,449,911 2,002,887
Investments and advances:
Dresser-Rand Company 78,802 90,705
Partially-owned equity companies 230,695 173,871
309,497 264,576
<S> <C> <C>
Property, plant and equipment, at cost 2,186,774 1,818,564
Less - accumulated depreciation 941,053 859,273
Net property, plant and equipment 1,245,721 959,291
Goodwill and other intangible assets, net 1,278,161 124,487
Deferred income taxes 161,290 74,480
Other assets 218,151 171,200
Total assets $5,662,731 $3,596,921
LIABILITIES AND EQUITY
Current liabilities:
<S> <C> <C>
Loans payable $ 257,404 $ 117,249
Accounts payable and accruals 1,165,166 922,828
Total current liabilities 1,422,570 1,040,077
<S> <C> <C>
Long-term debt 1,383,951 315,850
Postemployment liabilities 853,744 518,297
Ingersoll-Dresser Pump Company
minority interest 154,802 154,069
Other liabilities 120,743 37,286
Shareowners' equity:
Common stock 219,402 218,338
Other shareowners' equity 1,507,519 1,313,004
Total shareowners' equity 1,726,921 1,531,342
Total liabilities and equity $5,662,731 $3,596,921
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in thousands except per share figures)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES $1,521,305 $1,113,670 $4,099,017 $3,267,786
Cost of goods sold 1,163,112 840,171 3,107,226 2,482,071
Administrative, selling and service
engineering expenses 239,099 184,534 664,783 544,857
Operating income 119,094 88,965 327,008 240,858
Interest expense 32,407 11,279 59,436 34,884
Other income (expense), net 5,671 (5,876) 4,065 (9,313)
Dresser-Rand income 6,000 5,400 11,300 15,400
Ingersoll-Dresser Pump
minority interest (241) (1,023) (5,595) (2,675)
Earnings before income taxes 98,117 76,187 277,342 209,386
Provision for income taxes 36,304 27,808 102,617 76,426
Net earnings $ 61,813 $ 48,379 $ 174,725 $ 132,960
Average number of common
shares outstanding 106,130 105,483 105,811 105,447
Net earnings per common share $ 0.58 $ 0.46 $1.65 $1.26
Dividends per common share $0.185 $0.185 $0.555 $0.535
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
Nine Months Ended
September 30,
1995 1994
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 174,725 $132,960
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 131,876 98,551
Equity earnings/loss, net of dividends (27,208) (22,295)
Loss on disposition of domestic
paving business 7,100 --
Minority interest in earnings 7,676 2,662
Deferred income taxes (84) 13,235
Other noncash items 227 (7,245)
Changes in other assets and liabilities, net (109,827) (18,385)
Net cash provided by operating activities 184,485 199,483
Cash flows from investing activities:
Capital expenditures (157,906) (109,353)
Proceeds from sales of property, plant
and equipment 13,443 4,858
Proceeds from business dispositions -- 2,250
Acquisitions, net of cash (1,136,476) (36,507)
(Increase) decrease in marketable securities (4,987) 2,404
Cash invested in or advances from
equity companies 22,484 35,939
Net cash used in investing activities (1,263,442) (100,409)
Cash flows from financing activities:
Increase in short-term borrowings 108,476 38,536
Proceeds from long-term debt 902,676 2,330
Payments of long-term debt (16,865) (82,951)
Net change in debt 994,287 (42,085)
Proceeds from sale of treasury
stock to LESOP 104,328 --
Dividends paid (58,678) (56,424)
Other 13,739 2,952
Net cash provided by financing activities 1,053,676 (95,557)
Effect of exchange rate changes
on cash and cash equivalents 4,999 6,011
Net (decrease) increase in cash and
cash equivalents (20,282) 9,528
Cash and cash equivalents-beginning of period 207,023 227,993
Cash and cash equivalents-end of period $ 186,741 $237,521
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - In the opinion of management, the accompanying condensed
consolidated financial statements contain all adjustments
(consisting only of 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, 1995 and 1994.
Note 2 - On May 25, 1995, CEC Acquisition Corp. (CEC), a wholly-owned
subsidiary of the company, acquired 16,553,617 shares of
Clark Equipment Company (Clark) (which, together with shares
already owned by the company, represented approximately 98.4
percent of the outstanding shares) for a cash price of $86
per share pursuant to an April 12, 1995 amended tender
offer. Clark's business is the design, manufacture and sale
of compact construction machinery, asphalt paving equipment,
axles and transmissions for off-highway equipment, and golf
cars and utility vehicles. On May 31, 1995, the company
completed the merger of CEC with Clark. Upon consummation
of the merger, Clark became a wholly-owned subsidiary of the
company and the shareholders of Clark who did not tender
their shares became entitled to receive $86 per share. The
total purchase price for Clark was approximately $1.5
billion after taking into account amounts paid in respect of
outstanding stock options, employment contracts and various
transaction costs. The acquisition has been accounted for
as a purchase. The purchase price was preliminarily
allocated to the acquired assets and liabilities based on
estimated fair values and is subject to final adjustment.
The company has classified as goodwill the costs in excess
of the fair value of net assets acquired. Such excess costs
are being amortized on a straight line basis over forty
years. Intangible assets also represent costs allocated to
patents and trademarks and other specifically identifiable
assets arising from business acquisitions. These assets are
being amortized over their estimated useful lives.
The results of Clark's operations have been included in the
consolidated financial statements from the acquisition date.
The following unaudited pro forma consolidated results of
operations for the nine months ended September 30, 1995 and
1994, reflect the acquisition as though it occurred at the
beginning of the respective periods after adjustments for
the impact of interest on acquisition debt, depreciation and
amortization of assets, including goodwill, to reflect the
preliminary purchase price allocation, and the elimination
of Clark's income from discontinued operations related to
its disposition of its investments in VME Group N.V. and
Clark Automotive Products Corporation (in millions except
per share amounts):
<TABLE>
For the nine months ended September 30 1995 1994
<S> <C> <C>
Sales $4,716 $4,162
Net earnings 188 120
Earnings per share $1.78 $1.14
</TABLE>
6
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 2 - Continued:
It should be noted that the company's actual results for the
first three quarters of 1995 (and the above pro forma
amounts) were adversely affected by the loss on the sale of
the company's domestic paving business, which was a
preacquisition requirement to the Clark purchase. The above
pro forma results are not necessarily indicative of what the
actual results would have been had the acquisition occurred
at the beginning of the respective periods. Further, the pro
forma results are not intended to be a projection of future
results of the combined companies, as it should be noted
that the Blaw-Knox and Club Car portions of the Clark
acquisition tend to concentrate the majority of their yearly
operating profit during the first half of the year.
Note 3 - The company principally uses accelerated depreciation
methods for both tax and financial reporting purposes for
assets placed in service prior to December 31, 1994. The
company changed to the straight-line method for financial
reporting purposes for assets acquired on or after January
1, 1995 while continuing to use accelerated depreciation for
tax purposes. The straight-line method is the predominant
method used throughout the industries in which the company
operates and its adoption increases the comparability of the
company's results with those of its competitors. The effect
of the change on the three and nine months ended September
30, 1995 was to increase net income by approximately $4.2
million ($0.04 per share) and $6.2 million ($0.06 per
share), respectively.
Note 4 - Inventories of appropriate domestic manufactured standard
products are valued on the last-in, first-out (LIFO) method
and all other inventories are valued using the first-in,
first-out (FIFO) method. The composition of inventories for
the balance sheets presented were as follows (in thousands):
<TABLE>
September 30, December 31,
1995 1994
<S> <C> <C>
Raw materials and supplies $ 198,386 $ 117,613
Work-in-process 321,000 293,023
Finished goods 566,782 429,655
1,086,168 840,291
Less - LIFO reserve 168,461 160,983
Total $ 917,707 $ 679,308
</TABLE>
Work-in-process inventories are stated after deducting
customer progress payments of $40,352,000 at September 30,
1995 and $27,242,000 at December 31, 1994.
7
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 5 - On May 15, 1995, the company sold its domestic paving
equipment business to Champion Road Machinery Limited of
Canada. The sale was a preacquisition requirement of the
United States Justice Department prior to the Clark
acquisition. The company incurred a $7.1 million pretax
loss associated with this sale.
Note 6 - On September 28, 1995, the company sold 2,878,008 shares of
its Common Stock held in treasury to the Clark Equipment
Company Leveraged Employee Stock Ownership Plan (the LESOP),
for a price of $36.25 per share (the closing price of the
Common Stock on September 27, 1995 on the New York Stock
Exchange) or an aggregate of approximately $104.3 million.
At September 30, 1995, approximately 2,000,000 of these
shares remain unallocated and the $73 million paid by the
LESOP for those unallocated shares is classified as a
reduction of shareowners' equity pending allocation to
participants. The unallocated shares will be allocated to
participants in the LESOP (which now includes employees of
the company as well as those of Clark) as provided under its
terms.
Note 7 - The company's investment in the Dresser-Rand partnership at
September 30, 1995 and December 31, 1994 was $173,852,000
and $160,832,000, respectively. The company owed
Dresser-Rand $95,050,000 at September 30, 1995 and
$70,127,000 at December 31, 1994.
Net sales of Dresser-Rand were $749.6 million for the nine
months ended September 30, 1995 and $832.0 million for the
nine months ended September 30, 1994; and gross profit was
$150.3 million and $143.2 million, respectively.
Dresser-Rand's net income for the nine months ended
September 30, 1995 was $23.1 million and $31.5 million for
the nine months ended September 30, 1994.
The summarized financial position of Dresser-Rand was as
follows (in thousands):
<TABLE>
September 30, December 31,
1995 1994
<S> <C> <C>
Current assets $ 447,725 $ 440,539
Property, plant and
equipment, net 229,057 197,797
Other assets and investments 18,426 18,445
695,208 656,781
Deduct:
Current liabilities 354,308 295,048
Noncurrent liabilities 198,108 188,937
552,416 483,985
Net partners' equity
and advances $ 142,792 $ 172,796
</TABLE>
8
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 8 - On April 11, 1994, the company acquired full ownership of
the ball bearing joint venture with GMN Georg Mueller of
America, Inc. The company previously owned 50% of the joint
venture.
Note 9 - On June 30, 1994, the company acquired Montabert S.A., a
French manufacturer of hydraulic rock-breaking and drilling
equipment, for a cash payment and the assumption of certain
liabilities.
Note 10- Effective August 4, 1994, the company acquired the Ecoair
air compressor product line from MAN Gutenoffnungshutte AG
(MAN GHH) of Oberhausen, Germany for approximately $10.6
million. The company also entered into a 50/50 joint
venture, GHH-RAND Schraubenkompressoren GmbH & Co. KG
(GHH-RAND), with MAN GHH to manufacture airends. The
company invested approximately $17.6 million in GHH-RAND.
9
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the third quarter of 1995 totalled $1.5 billion,
representing a 36.6 percent increase over last year's third quarter
total of $1.1 billion. Sales for Clark Equipment Company (Clark),
acquired May 31, 1995, are included in the company's third quarter
results. Net sales excluding Clark, approximated $1.2 billion, an
eight percent increase over the 1994 third quarter. Operating income
for the three months ended September 30, 1995 totalled $119.1
million, which represents a 33.9 percent increase over the $89.0
million reported for the third quarter of 1994. Excluding the third
quarter results from the Clark operations, operating income would
have exceeded last year's by approximately ten percent.
Net earnings for the third quarter of 1995 totalled $61.8
million, or 58 cents per share, compared to $48.4 million, or 46
cents per share, for the third quarter of 1994. The current
quarter's results also include the third quarter activity from Clark,
which contributed $430,000 of net earnings for the quarter, after
purchase accounting adjustments and interest expense on the
acquisition debt. The company's strong third-quarter performance in
its historical lines of business would have reflected a sharper
improvement over 1994's third quarter were it not for the less than
expected results from Ingersoll-Dresser Pump Company and lost
revenues, due to system implementation problems, in the Door Hardware
Group.
There were no partial liquidations of LIFO (last-in, first
out) inventories during the third quarter of 1995. However, partial
liquidation of LIFO inventories benefitted cost of goods sold during
the third quarter of 1994 by $1.6 million (approximately $1.0 million
after tax or one cent per common share). Net gains from foreign
exchange activity during the three months ended September 30, 1995,
benefitted net earnings by $1.4 million or one cent per share.
During 1994's third quarter, the company reported net losses from
foreign exchange activity of $1.5 million, or two cents per common
share.
For the first nine months of 1995, net sales amounted to $4.1
billion, a 25.4 percent improvement over last year's nine month
total. Sales for the first three quarters of the year, excluding
Clark, would have exceeded last year's comparable sales level by
approximately 12 percent. Operating income for the first three
quarters of 1995 totalled $327.0 million, which represents a 35.8
percent increase over the $240.9 million reported for the comparable
1994 period. Operating income for the first nine months of 1995,
excluding Clark, would have exceeded 1994's total by approximately 24
percent.
10
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
The company reported net earnings of $174.7 million, or $1.65
per common share, for the first nine months of 1995. Net earnings
for the first three quarters of 1994 totalled $133.0 million, or
$1.26 per common share. Net earnings from Clark and the loss
associated with the sale of the company's domestic paving equipment
business resulted in a net loss of approximately $1.6 million, or two
cents per share, during the first nine months of 1995.
There were no partial liquidations of LIFO inventories during
the first nine months of 1995. However, partial liquidations of LIFO
inventories benefitted costs of goods sold during the first nine
months of 1994 by $1.6 million (approximately $1.0 million after tax
or one cent per common share). Foreign exchange losses for the first
nine months of 1995 decreased net earnings by $2.9 million or three
cents per share as compared to net losses of $4.4 million or five
cents per share for the comparable 1994 period.
The ratio of cost of goods sold to sales for the third quarter
and first nine months of 1995 before considering the operating
performance of Clark and the paving equipment disposition loss,
improved by almost a full percentage point over the comparable
periods in 1994 due to higher production rates and the continued
benefits from cost containment programs. This ratio on a year-to-
date basis, after including Clark's operations and the loss on the
sale of the paving business still reflected a minor improvement over
the comparable ratio in 1994. The ratio of administrative, selling
and service engineering expenses to sales for both the third quarter
and first nine months of the year also reflected an improvement over
the comparable periods in 1994.
Other income (expense), net aggregated $5.7 million of net
income for the three months ended September 30, 1995, an increase of
$11.5 million over the net expense reported for 1994's third quarter.
The third quarter increase in other income (expense) was attributed
to a positive change in foreign exchange activity of $3.8 million,
combined with royalty and interest income, increases in earnings from
partially-owned equity companies and a reduction in miscellaneous
expenses when compared to the amounts reported for the three-month
period ended September 30, 1994. For the first nine months of 1995,
other income (expense), net totalled $4.1 million of net income, a
$13.4 million increase over the $9.3 million of net expense reported
for the first nine months of 1994. This favorable change is almost
exclusively due to higher earnings from partially-owned equity
companies. The increases and decreases from the other components of
this account offset each other. The other income (expense), net of
the Clark units for both the third quarter and since the acquisition,
provided approximately $1.6 million and $1.8 million, respectively,
of net other income to the consolidated results.
11
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
Ingersoll-Dresser Pump Company (IDP) is a partnership between
Dresser Industries, Inc. and the company. The IDP minority interest
represents Dresser's interest in the operating results of IDP.
During the third quarter of 1995, the minority interest charge
totalled $241,000, which indicates that IDP generated net earnings at
the partnership level of approximately $500,000. For the first three
quarters of 1995, the minority interest charge totalled $5.6 million,
which indicates that IDP generated approximately $11.5 million of net
earnings at the partnership level for the first nine months of the
year. For the third quarter and first nine months of 1994, the
minority interest charge for IDP was $1.0 million and $2.7 million,
respectively.
The company's pretax profits for its 49 percent interest in
Dresser-Rand Company (another partnership between Dresser Industries
and the company) totalled $6.0 million for the third quarter of the
year and $11.3 million for the first nine months of 1995. This
compares to income of $5.4 million for the third quarter of 1994 and
$15.4 million for the nine months ended September 30, 1994. The
third quarter increase was attributable to stronger Dresser-Rand
markets, as compared to a year ago.
Interest expense for the third quarter and first nine months
of 1995 was above the amounts reported in the comparable periods of
1994 by $21.1 million and $24.6 million, respectively. Interest
expense for the third quarter totalled $32.4 million and was composed
of $16.5 million associated with the operations of the company,
including Clark, and $15.9 million of interest expense associated
with the cost of the Clark acquisition. Interest expense for the
first nine months of 1995 totalled $59.4 million and was composed of
$37.8 million associated with the combined operations of the company,
including Clark, and $21.6 million of interest expense related to the
Clark acquisition.
The company's effective tax rates for both the third quarter
and first nine months of 1995 was 37.0 percent. The company's
effective tax rate for both the third quarter and first nine months
of 1994 was 36.5 percent. The company's effective tax rate differs
from the statutory rate of 35 percent mainly due to the
nondeductibility of goodwill associated with the Clark acquisition
and the fact that Clark's effective tax rate was generally higher
than the company's. In addition, the rate is also higher than the
statutory rate because of state income taxes and some foreign
earnings being taxed at higher rates. The effective tax rate for the
full year of 1994 was 36 percent.
12
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
The consolidated results for both the third quarter and first
nine months of the year benefitted from the combination of business
improvements in a number of the company's domestic markets (including
auto, construction and general industrial) and a continued emphasis
on cost-containment programs throughout the company. International
business has generally reflected increases during the first nine
months of 1995 when compared to the comparable period in 1994.
Incoming orders for the third quarter of the year totalled $1.6
billion which represents an increase of 37.0 percent over the 1994
third quarter. New orders associated with Clark totalled
approximately $325 million. Third quarter bookings, excluding Clark,
were up 8.3 percent and reflected strong international growth and a
softening in domestic markets. The Door Hardware and Bearings and
Components groups were the only operations within the company which
failed to report meaningful increases in third quarter bookings
levels when compared to the third quarter of 1994. The company's
backlog of orders at September 30, 1995, believed by it to be firm,
was approximately $1.5 billion, which reflects an increase of $530
million over the December 31, 1994 balance. The company estimates
that approximately 90 percent of the backlog will be shipped during
the next twelve months.
Property and Depreciation
The company principally uses accelerated depreciation methods
for both tax and financial reporting purposes for assets placed in
service prior to December 31, 1994. The company changed to the
straight-line method for financial reporting purposes for assets
acquired on or after January 1, 1995, while continuing to use
accelerated depreciation for tax purposes. The straight-line method
is the predominant method used throughout the industries in which the
company operates and its adoption increases the comparability of the
company's results with those of its competitors. The effect of the
change on the three and nine months ended September 30, 1995 was to
increase net income by approximately $4.2 million ($0.04 per share)
and $6.2 million ($0.06 per share), respectively.
Liquidity and Capital Resources
The company's financial position at September 30, 1995 changed
from December 31, 1994, principally due to the acquisition of Clark.
In the first nine months of 1995, working capital increased by
approximately $65 million to $1.0 billion at September 30, 1995 from
the December 31, 1994 balance of $962.8 million. The current ratio
at September 30, 1995 was 1.7 to 1, down from the 1.9 to 1 ratio at
December 31, 1994.
13
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
The company's cash and cash equivalents decreased by $20.3
million during the first nine months of 1995 to $186.7 million from
$207.0 million at December 31, 1994. In evaluating the net change in
cash and cash equivalents, cash flows from operating, investing and
financing activities, and the effect of exchange rate changes should
be considered. Cash flows from operating activities provided $184.5
million, investing activities used $1.3 billion and financing
activities provided $1.1 billion. Exchange rate changes during the
first nine months of 1995 increased cash and cash equivalents by $5.0
million.
Receivables totalled $1.1 billion at September 30, 1995, which
represents a $193.5 million increase from the amount reported at
December 31, 1994. This increase was due to the inclusion of
receivables from Clark and other acquisitions of $194.1 million, an
approximately $17 million effect of foreign currency translation
during the first nine months of 1995 and the effect of a strong
selling period towards the end of the third quarter, offset by
aggressive collection efforts.
Inventories totalled $917.7 million at September 30, 1995,
approximately $238 million higher than the December 31, 1994 level.
The activity during the first three quarters of 1995 represents the
effect of acquisitions of $212.9 million, the net effect of increased
sales and an increase due to exchange rates on the international
inventories of approximately $12 million.
Intangible assets increased approximately $1.2 billion, which
came from second-quarter acquisitions. Clark had approximately $400
million in intangible assets prior to its acquisition by the company.
Long-term debt, including current maturities, at the end of
the first nine months of the year, totalled $1.4 billion, which
reflects the additions associated with the financing of the Clark
acquisition and existing long-term debt on Clark's books when
acquired.
The company's September 30, 1995 debt-to-total capital ratio
was 49 percent, which reflects a significant change from the 22
percent ratio at December 31, 1994. The reason for the change was
the financing of the acquisition of Clark. At September 30, 1995,
long-term debt includes approximately $900 million and short-term
loans include approximately $55 million directly related to the Clark
acquisition.
During the first nine months of 1995, foreign currency
adjustments resulted in a net increase of approximately $32.5 million
14
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
in shareowners' equity, caused by the weakening of the U.S. dollar
against other currencies. Currency changes in France, Germany,
Italy, India, Japan, Singapore and Spain, accounted for over 90
percent of this change. The translation of accounts receivable and
inventories were the principal balance sheet items affected by the
currency fluctuations since year-end.
On September 28, 1995, the company sold 2,878,008 shares of
its Common Stock held in treasury to the Clark Equipment Company
Leveraged Employee Stock Ownership Plan (the LESOP), at a price of
$36.25 per share (the closing price of the Common Stock on September
27, 1995 on the New York Stock Exchange) for an aggregate amount of
approximately $104.3 million. At September 30, 1995, approximately
2,000,000 of these shares remain unallocated and the $73 million paid
by the LESOP for those unallocated shares is classified as a
reduction of shareowners' equity pending allocation to participants.
The unallocated shares will be allocated to participants in the LESOP
(which now includes employees of the company as well as those of
Clark) as provided under its terms. The proceeds of the sale were
primarily used to reduce short-term debt incurred in connection with
the acquisition of Clark.
Environmental Matters
Environmental matters at September 30, 1995 remain
substantially unchanged from December 31, 1994, even with the
inclusion of Clark. The company has been identified as a potentially
responsible party in environmental proceedings brought under both the
federal Superfund law and state remediation laws, involving 39 sites
within the United States. For all sites, there are other potentially
responsible parties and in most instances, the company's involvement
is minimal. Although there is a possibility that a responsible party
might have to bear more than its proportional share of site clean-up
costs if other responsible parties fail to make contributions, the
company has not yet had, and to date there is no indication that it
will have, to bear more than its proportional share of clean-up costs
at any site. The company also is engaged in site investigations and
remedial activities to address environmental cleanup from past
operations at current and former manufacturing facilities.
Additionally, Clark is a defendant in a lawsuit filed by the United
States Environmental Protection Agency that seeks civil penalties for
alleged violations of the Clean Water Act, arising out of the
discharge of certain metal finishing wastewaters generated at a
current manufacturing facility. Although uncertainties regarding
environmental technology, state and federal regulations, insurance
coverage and individual site information make estimating the
liability difficult, management believes that the total liability for
the cost of environmental remediation will not have a material effect
on the financial condition, the results of operations, liquidity or
15
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
cash flows of the company. It should be noted that when the company
estimates its liability for environmental matters, such estimates are
based on current technologies and the company does not discount its
liability or assume any insurance recoveries.
Acquisitions
On May 25, 1995, CEC Acquisition Corp. (CEC), a wholly-owned
subsidiary of the company, acquired 16,553,617 shares of Clark,
which, together with shares already owned by the company, represented
approximately 98.4 percent of the outstanding shares, for a cash
price of $86 per share pursuant to an April 12, 1995 amended tender
offer. Clark's business is the design, manufacture and sale of
compact construction machinery, asphalt paving equipment, axles and
transmissions for off-highway equipment, and golf cars and utility
vehicles. On May 31, 1995, the company completed the merger of CEC
with Clark. Upon consummation of the merger, Clark became a wholly-
owned subsidiary of the company and the shareholders of Clark who did
not tender their shares became entitled to receive $86 per share.
The total purchase price for Clark was approximately $1.5 billion
after taking into account amounts paid in respect of outstanding
stock options and certain transactions. Included among the assets
acquired by the company (indirectly through the acquisition of the
shares of Clark) are the Melroe Company, Blaw-Knox Construction
Equipment Company, Clark-Hurth Components and Club Car, Inc. Melroe
products consist of skid steer loaders, compact excavators and a
limited line of agricultural equipment. Blaw-Knox is one of the
leading producers of asphalt paving equipment in the world. The
products of the Clark-Hurth business consist of axles and
transmissions for off-highway equipment. Club Car produces golf cars
and light utility vehicles. The funds to consummate the acquisition
came from borrowings of the company under a credit agreement. As of
September 30, 1995, $900 million has been converted into long-term
debt with lower interest rates. The Clark acquisition has been
accounted for as a purchase and Clark's assets have been consolidated
into the financial statements of the company.
On June 30, 1994, the company completed its acquisition of
Montabert, S.A. (Montabert), a French manufacturer of hydraulic rock-
breaking and drilling equipment. Montabert's consolidated net sales
for 1993 were approximately $75 million. Montabert's consolidated
assets at December 31, 1993 totalled approximately $60 million. The
purchase included a cash payment from the company and the assumption
of certain liabilities of Montabert.
Effective August 4, 1994, the company acquired the Ecoair air
compressor product line from MAN Gutenoffnungshutte AG (MAN GHH) of
Oberhausen, Germany for approximately $10.6 million. The company
also entered into a 50/50 joint venture, GHH-RAND
16
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
Schraubenkompressoren GmbH & Co. KG, with MAN GHH to manufacture
airends. The company invested approximately $17.6 million in
GHH-RAND.
Contingencies
Clark sold Clark Material Handling Company (CMHC), its
forklift truck business, to Terex Corporation (Terex) in 1992. As
part of the sale Terex and CMHC assumed substantially all of Clark's
obligations for existing and future product liability claims
involving CMHC products. In the event that Terex and CMHC fail to
perform or are unable to discharge the assumed obligations, Clark
would be required to discharge such obligations. While the aggregate
losses associated with these obligations could be significant, the
company does not believe they would materially affect the financial
condition, the results of operations, liquidity or cash flows of the
company.
Review of Business Segments
The Standard Machinery Segment reported sales of $657.7
million during the third quarter of 1995, which represents a 77.6
percent increase from the $370.3 million for the same quarter of last
year. This segment includes the operating results since acquisition
of all Clark operations, with the exception of the Clark-Hurth unit.
Excluding the sales from Clark units, the third quarter sales for
this segment were $422.5 million, or 14.1 percent over last year's
third quarter total. Operating income for the quarter was $60.8
million and represents a 110 percent improvement over the $28.9
million reported for the three months ended September 30, 1994.
Excluding the Clark operations, third quarter operating income would
have been $36.3 million, a 25.6 percent improvement over the $28.9
million of operating income for 1994's third quarter. For the first
three quarters of 1995, the segment's net sales totalled $1.6
billion, which was 53.3 percent above the $1.0 billion reported for
the comparable 1994 period. Operating income for the nine months
ended September 30, 1995 totalled $145.8 million, which is 77.2
percent over the $82.3 million reported for the comparable 1994
period. Excluding the sales from the Clark units, the 1995 nine
month sales figure for this segment would have been approximately
$1.3 billion, reflecting an 21.8 percent improvement over 1994's
level. Excluding the Clark operations and the loss on the sale of
the company's domestic paving equipment business, operating income
for the first nine months of 1995 would have been $107.5 million, a
30.6 percent improvement over the $82.3 million of operating income
for 1994's first nine months. Sales and operating income in the
company's traditional Construction and Mining and Air Compressor
groups reflected marked improvements over the comparable 1994
figures. The increase in sales and operating income for both the
17
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
third quarter and first nine months of the year is attributed to
stronger domestic and international markets for both construction and
air compressor products.
Engineered Equipment Segment's sales for the third quarter of
the year totalled $332.7 million, which were 59.3 percent higher than
1994's third quarter total of $208.8 million. This segment's
activities include the operating results of the Clark-Hurth unit.
Excluding the Clark-Hurth sales, third quarter sales for the segment
were $249.3 million and represent a 19.4 percent increase over the
$208.8 million reported for the three months ended September 30,
1994. Operating income for the quarter totalled $6.9 million, a $1.8
million improvement over the $5.1 million reported for 1994's third
quarter. Excluding the Clark-Hurth operating results, the segment's
operating income for the quarter was $6.7 million, a 31.4 percent
increase over last year's comparable quarter. For the first nine
months of 1995, the segment reported sales of $840.7 million which is
29.5 percent higher than 1994's total of $649.0 million. Operating
income for the first three quarters of 1995 was $25.5 million, as
compared to $7.0 million for the comparable 1994 period. Excluding
Clark-Hurth's results, sales for the first nine months of the year
exceeded the prior year's level by 12 percent and operating income
was more than triple the amount reported for the first three quarters
of 1994. Third quarter sales for IDP exceeded the amount reported
for the three months ended September 30, 1994, while operating income
for IDP for the period reflected a marked decline from 1994's third
quarter. IDP's sales for the first nine months of 1995 were above
the amount reported for the first three quarters of 1994, while the
operating income for the nine months ended September 30, 1995 was
approximately 50 percent above the prior year's comparable period.
Process Systems Group's sales for the third quarter and the first
nine months of the year were significantly above the amounts reported
for the three and nine months ended September 30, 1994.
The Bearings, Locks and Tools Segment reported sales of $530.9
million for the three months ended September 30, 1995, which
approximated last year's third quarter total of $534.6 million.
Operating income was $63.8 million, as compared to the 1994 third
quarter level of $63.4 million. For the first nine months of 1995,
the segment reported net sales of $1.7 billion, 5.3 percent above the
amount reported in the comparable period of 1994. Operating income
for the first three quarters of 1995, totalled $186.8 million
compared to $178.0 million reported for the nine months ended
September 30, 1994.
The Bearings and Components Group's sales in the third quarter
of 1995 were slightly higher than last year's third quarter.
However, the group's operating income reflected a marked improvement
over the amount reported for the third quarter of 1994. Sales and
18
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
operating income of the Bearings and Components Group for the nine
months ended September 30, 1995 both reflected improvements over
1994's levels.
Door Hardware Group's sales and operating income for both the
third quarter and nine months ended September 30, 1995 were below the
amounts reported for the comparable 1994 periods. This decline is
attributed to unexpected systems integration problems at the Lock
Division during the third quarter. The company believes that these
systems problems have been successfully identified and addressed.
The Production Equipment Group's sales and operating income
for the third quarter of 1995 were above the amounts reported for the
three months ended September 30, 1994. The group's results for the
third quarter of 1994 were favorably affected by stronger business
conditions in both their domestic and international markets, when
compared to last year's third quarter.
19
<TABLE>
PART I - EXHIBIT 11
Page 1 of 2
INGERSOLL-RAND COMPANY
COMPUTATIONS OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(in thousands except per share figures)
Three Months Ended Nine Months Ended
September 30, September 30,
PRIMARY EARNINGS PER SHARE (NOTE 1): 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net earnings applicable to common stock $ 61,813 $ 48,379 $174,725 $132,960
Average number of common shares outstanding 106,130 105,483 105,811 105,447
PRIMARY EARNINGS PER SHARE $0.58 $0.46 $1.65 $1.26
FULLY DILUTED EARNINGS PER SHARE (NOTE 2):(*)
Net earnings for the period $ 61,813 $ 48,379 $174,725 $132,960
Adjusted shares:
Average number of common shares outstanding 106,130 105,483 105,811 105,447
Number of common shares issuable
assuming exercise under incentive
stock plans 566 616 503 489
Average number of outstanding shares,
as adjusted for fully diluted earnings
per share calculations 106,696 106,099 106,314 105,936
FULLY DILUTED EARNINGS PER SHARE $0.58 $0.46 $1.64 $1.26
(*) This calculation is presented in accordance with the Securities Exchange Act of 1934,
although it is not required disclosure under APB Opinion No. 15.
See accompanying notes to computations of primary and fully diluted earnings per share.
</TABLE>
20
PART I - EXHIBIT 11
Page 2 of 2
INGERSOLL-RAND COMPANY
NOTES TO COMPUTATIONS OF PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE
Note 1 - Shares issuable under outstanding stock plans, applying the
"Treasury Stock" method, have been excluded from the
computation of primary earnings per share since such shares
were less than 1% of common shares outstanding.
2 - Net earnings per share of common stock computed on a fully
diluted basis are based on the average number of common
shares outstanding during each year after adjustment for
individual securities which may be dilutive. Securities
entering into consideration in making this calculation are
common shares issuable under employee stock plans.
Employee stock options outstanding are included in the
calculation of fully diluted earnings per share by applying
the "Treasury Stock" method quarterly. Such calculations
are made using the higher of the average month-end market
prices or the market price at the end of the quarter, in
order to reflect the maximum potential dilution.
21
INGERSOLL-RAND COMPANY
PART II. - OTHER INFORMATION
Item 1 - Legal Proceedings
In the normal course of business, the company is involved in
a variety of lawsuits, claims and legal proceedings, including
proceedings for the clean-up of 39 waste sites under federal
Superfund and similar state laws. In the opinion of the company,
pending legal matters, including the one discussed below, are not
expected to have a material adverse affect on the results of
operations, financial condition, liquidity or cash flows.
On October 5, 1992, the United States Environmental
Protection Agency (EPA) issued a Finding of Violation and Order for
Compliance (Order) which alleges that Clark has failed to comply with
the pretreatment regulations promulgated pursuant to Section 306 and
307 of the Clean Water Act. The Order alleges that certain metal
finishing wastewaters generated at the Clark Melroe facility in
Gwinner, North Dakota were discharged into the Publicly Owned
Treatment Works (POTW) operated by the City of Gwinner in violation
of the applicable pretreatment regulations. The Order also alleges
that Clark failed to comply with the discharge limitations for metal
finishing wastewater and all related reporting requirements. Clark
has taken all actions required of it under the Order.
On April 29, 1994, in United States of America v. Clark
Equipment Company d/b/a Melroe Company, the U.S. filed suit against
Clark in the United States District Court for the District of North
Dakota. The complaint seeks (i) to permanently enjoin Clark to
comply fully with all applicable requirements of the Act and
Regulations and (ii) civil penalties against Clark of up to $25,000
per day for each violation for (a) alleged discharges of pollutants
in violations of the effluent limitations contained in the
pretreatment regulations, (b) a failure to submit timely and complete
reports and (c) a failure to sample and analyze its regulated
wastewater prior to discharge into the POTW. This case is now
awaiting trial.
22
INGERSOLL-RAND COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INGERSOLL-RAND COMPANY
(Registrant)
Date November 14, 1995 /S/ T.F. McBride
T.F. McBride, Senior Vice
President & Chief Financial Officer
Principal Financial Officer
Date November 14, 1995 /S/ R.A. Spohn
R.A. Spohn, Controller -
Accounting and Reporting
Principal Accounting Officer
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 186,741
<SECURITIES> 9,843
<RECEIVABLES> 1,179,260
<ALLOWANCES> 36,413
<INVENTORY> 917,707
<CURRENT-ASSETS> 2,449,911
<PP&E> 2,186,774
<DEPRECIATION> 941,053
<TOTAL-ASSETS> 5,662,731
<CURRENT-LIABILITIES> 1,422,570
<BONDS> 1,383,951
<COMMON> 219,402
0
0
<OTHER-SE> 1,507,519
<TOTAL-LIABILITY-AND-EQUITY> 5,662,731
<SALES> 4,099,017
<TOTAL-REVENUES> 4,099,017
<CGS> 3,107,226
<TOTAL-COSTS> 3,107,226
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,436
<INCOME-PRETAX> 277,342
<INCOME-TAX> 102,617
<INCOME-CONTINUING> 174,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,725
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.64
</TABLE>
