FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 31, 1995 was
105,930,151.<PAGE>
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INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
Condensed Consolidated Balance Sheet at
June 30, 1995 and December 31, 1994 3
Condensed Consolidated Income Statement for the
three and six months ended June 30, 1995 and 1994 4
Condensed Consolidated Statement of Cash Flows
for the six months ended June 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-17
Exhibit 11 - Computations of Primary and
Fully Diluted Earnings Per Share 18-19
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 20
Item 4 - Submission of Matters to a Vote of Security
Holders 20
Item 6 - Exhibits and Reports on Form 8-K 21
SIGNATURES 23
2<PAGE>
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PART I. FINANCIAL INFORMATION
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
ASSETS
JUNE 30, DECEMBER 31,
1995 1994
Current assets:
Cash and cash equivalents $ 153,449 $ 207,023
Marketable securities 5,691 4,231
Accounts and notes receivable, net of
allowance for doubtful accounts 1,177,654 949,392
Inventories 948,970 679,308
Prepaid expenses and deferred taxes 271,084 162,933
Total current assets 2,556,848 2,002,887
Investments and advances:
Dresser-Rand Company 85,186 90,705
Partially-owned equity companies 235,118 173,871
320,304 264,576
Property, plant and equipment, at cost 2,143,280 1,818,564
Less - accumulated depreciation 911,153 859,273
Net property, plant and equipment 1,232,127 959,291
Goodwill and other intangible assets, net 1,284,056 124,487
Deferred income taxes 161,056 74,480
Other assets 248,933 171,200
Total assets $5,803,324 $3,596,921
LIABILITIES AND EQUITY
Current liabilities:
Loans payable $ 465,261 $ 117,249
Accounts payable and accruals 1,258,245 922,828
Total current liabilities 1,723,506 1,040,077
Long-term debt 1,287,826 315,850
Postemployment liabilities 849,884 518,297
Ingersoll-Dresser Pump Company
minority interest 158,244 154,069
Other liabilities 131,185 37,286
Shareowners' equity:
Common stock 218,820 218,338
Other shareowners' equity 1,433,859 1,313,004
Total shareowners' equity 1,652,679 1,531,342
Total liabilities and equity $5,803,324 $3,596,921
See accompanying notes to condensed consolidated financial statements.
3<PAGE>
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<TABLE>
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in thousands except per share figures)
Three Months Ended Six Months Ended
June 30, June 30,
<C> <C> <C> <C>
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES $1,392,127 $1,143,808 $2,577,712 $2,154,116
Cost of goods sold 1,051,003 865,976 1,944,114 1,641,900
Administrative, selling and service
engineering expenses 222,407 186,066 425,684 360,323
Operating income 118,717 91,766 207,914 151,893
Interest expense 18,065 11,734 27,029 23,605
Other income (expense), net 4,390 (1,284) (1,606) (3,437)
Dresser-Rand income 5,000 4,300 5,300 10,000
Ingersoll-Dresser Pump
minority interest (3,109) (1,836) (5,354) (1,652)
Earnings before income taxes 106,933 81,212 179,225 133,199
Provision for income taxes 40,288 29,643 66,313 48,618
Net earnings $ 66,645 $ 51,569 $ 112,912 $ 84,581
Average number of common
shares outstanding 105,664 105,469 105,618 105,432
Net earnings per common share $ 0.63 $ 0.49 $1.07 $0.80
Dividends per common share $0.185 $0.175 $0.37 $0.35
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4<PAGE>
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INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
1995 1994
Cash flows from operating activities:
Net earnings $ 112,912 $ 84,581
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 78,748 65,495
Equity earnings/loss, net of dividends (14,938) (13,172)
Loss on disposition of domestic
paving business 7,100 --
Minority interest in earnings 7,596 2,124
Deferred income taxes (14,304) 7,148
Other noncash items (4,874) (3,632)
Changes in other assets and liabilities, net (75,173) (73,411)
Net cash provided by operating activities 97,067 69,133
Cash flows from investing activities:
Capital expenditures (93,143) (73,301)
Proceeds from sales of property, plant
and equipment 24,081 4,341
Acquisitions, net of cash (1,136,476) (22,260)
(Increase) decrease in marketable securities (774) 1,183
Cash invested in or advances from
equity companies (14,328) 24,090
Net cash used in investing activities (1,220,640) (65,947)
Cash flows from financing activities:
Increase in short-term borrowings 312,600 52,312
Proceeds from long-term debt 802,611 2,577
Payments of long-term debt (13,505) (1,565)
Net change in debt 1,101,706 53,324
Dividends paid (39,079) (36,909)
Other 5,250 2,710
Net cash provided by financing activities 1,067,877 19,125
Effect of exchange rate changes
on cash and cash equivalents 2,122 6,278
Net (decrease) increase in cash and
cash equivalents (53,574) 28,589
Cash and cash equivalents-beginning of period 207,023 227,993
Cash and cash equivalents-end of period $ 153,449 $256,582
See accompanying notes to condensed consolidated financial statements.
5<PAGE>
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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 six months ended
June 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
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 six months ended June 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):
For the six months ended June 30 1995 1994
Sales $3,195 $2,757
Net earnings 126 76
Earnings per share $1.19 $0.72
6<PAGE>
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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 half 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 six months ended June 30, 1995 was to
increase net income by approximately $2.0 million ($0.02 per
share). The effect on the three months ended March 31, 1995
was not material and accordingly, the results for that
quarter have not been restated to reflect the change to the
straight-line depreciation method.
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):
June 30, December 31,
1995 1994
Raw materials and supplies $ 220,484 $ 117,613
Work-in-process 337,945 293,023
Finished goods 556,826 429,655
1,115,255 840,291
Less - LIFO reserve 166,285 160,983
Total $ 948,970 $ 679,308
Work-in-process inventories are stated after deducting
customer progress payments of $28,201,000 at June 30, 1995
and $27,242,000 at December 31, 1994.
7<PAGE>
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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 - The company's investment in the Dresser-Rand partnership at
June 30, 1995 and December 31, 1994 was $168,130,000 and
$160,832,000, respectively. The company owed Dresser-Rand
$82,944,000 at June 30, 1995 and $70,127,000 at December 31,
1994.
Net sales of Dresser-Rand were $452.3 million for the six
months ended June 30, 1995 and $540.7 million for the six
months ended June 30, 1994; and gross profit was $93.1
million and $94.6 million, respectively. Dresser-Rand's net
income for the six months ended June 30, 1995 was $10.8
million and $20.4 million for the six months ended June 30,
1994.
The summarized financial position of Dresser-Rand was as
follows (in thousands):
June 30, December 31,
1995 1994
Current assets $ 448,748 $ 440,539
Property, plant and
equipment, net 214,866 197,797
Other assets and investments 20,500 18,445
684,114 656,781
Deduct:
Current liabilities 338,423 295,048
Noncurrent liabilities 197,236 188,937
535,659 483,985
Net partners' equity
and advances $ 148,455 $ 172,796
Note 7 - 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 8 - 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.
8<PAGE>
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INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the second quarter of 1995 totalled $1.4
billion, representing a 21.7 percent increase over last year's second
quarter. Sales for the month of June for the Clark Equipment Company
(Clark), acquired May 31, 1995, are included in the company's
results, since the acquisition date. Net sales excluding Clark,
approximated $1.3 billion, an 11 percent increase over the 1994
second quarter. Net sales for the comparable quarter of 1994
totalled $1.1 billion. Operating income for the three months ended
June 30, 1995 totalled $118.7 million, which represents a 29.3
percent increase over the $91.8 million reported for the second
quarter of 1994. Operating income for the second quarter of 1995
includes the results of Clark and the loss associated with the sale
of the company's domestic paving equipment business (a preacquisition
requirement for the company to complete the purchase of Clark).
Excluding the Clark operations and the loss on the sale of the paving
business, second quarter operating income would have exceeded last
year's by approximately 22 percent.
As noted above, the company's second quarter activity was
composed of two major components. First, the company reported second
quarter net earnings comparable to last year's second quarter of
$68.6 million, or 65 cents per common share, versus $51.6 million, or
49 cents per common share for the three months ended June 30, 1994,
reflecting an improvement of 33 percent. Second, net earnings from
Clark and the loss associated with the sale of the domestic paving
equipment business resulted in a net loss of $2.0 million, or two
cents per share, in the quarter. The company's strong second quarter
performance in its historical lines of business reflected continued
strength of domestic markets, principally construction, general
industrial and automotive-related industries, together with continued
improvement in international results. Improved business conditions
in the company's historical lines, coupled with the benefits derived
through the company's continued cost-containment programs, were
responsible for the second quarter improvement over the comparable
1994 period.
There were no partial liquidations of LIFO (last-in, first-
out) inventories during the second quarter of 1995 or 1994. Net
gains from foreign exchange activities for the second quarter of 1995
totalled $0.4 million, less than one cent per common share, versus
net losses of $1.8 million or two cents per common share for the
comparable 1994 quarter.
For the first six months of 1995, net sales amounted to $2.6
billion, a 20 percent improvement over last year's six month total.
Sales for the first two quarters of the year, excluding Clark, would
have exceeded last year's comparable sales by approximately 14
percent. Operating income for the first half of 1995 totalled $207.9
million, which represents a 36.9 percent increase over the $151.9
9<PAGE>
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INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
million reported for the comparable 1994 period. During the first
six months of the year, IDP contributed approximately $12.3 million
of operating income to the company's consolidated results versus
approximately $6.4 million for the first half of 1994.
The company reported net earnings of $112.9 million, or $1.07
per common share, for the first six months of 1995. Net earnings for
the first half of 1994 totalled $84.6 million, or 80 cents 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 $2.0 million, or two cents per share, during the first six
months of 1995.
There were no partial liquidations of LIFO inventories during
the first six months of 1995 or 1994. Foreign exchange losses for
the first six months of 1995 decreased net earnings by $4.3 million
or four cents per share as compared to net losses of $2.8 million or
three cents per share for the comparable 1994 period.
The ratio of cost of goods sold to sales for both the second
quarter and first half of 1995 before considering the operating
performance of Clark and the paving equipment disposition loss,
improved by more than a full percentage point over the comparable
periods in 1994 due to higher production rates and the continued
benefits from cost containment programs. These ratios, after
including Clark's operations and the loss on the sale of the paving
business still reflected slight improvements over the comparable
ratios in 1994. The ratio of administrative, selling and service
engineering expenses to sales for both the second quarter and first
six months of the year with or without Clark related activities
reflected minimal change over the comparable periods in 1994.
Other income (expense), net aggregated $4.4 million of net
income for the three months ended June 30, 1995, an increase of $5.7
million over the net expense reported for 1994's second quarter. The
second quarter increase in other income(expense) was attributed to
lower foreign exchange losses of $2.8 million, combined with an
increase 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 June 30, 1994. For the
first six months of 1995, other income (expense), net totalled $1.6
million of net expense, a decrease of $1.8 million over the $3.4
million of net expense reported for the first six months of 1994.
This decrease in net expense was the result of higher earnings from
partially-owned equity companies of approximately $5.2 million, which
was substantially offset by higher foreign currency losses of $3.4
million for the first half of the year. The other income (expense),
net of the Clark units was immaterial for both periods presented.
10<PAGE>
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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 second quarter of 1995, the minority interest charge
totalled $3.1 million, which indicates that IDP generated net
earnings at the partnership level of approximately $6.3 million. For
the first half of 1995, the minority interest charge totalled $5.4
million, which indicates that IDP generated approximately $11 million
of net earnings at the partnership level for the first six months of
the year. For the second quarter and first six months of 1994, the
minority interest charge for IDP was $1.9 million and $1.7 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 $5.0 million for the second quarter of the
year and $5.3 million for the first half of 1995. This compares to
income of $4.3 million for the second quarter of 1994 and $10.0
million for the six months ended June 30, 1994. The second quarter
increase was attributable to the recent strength in Dresser-Rand's
markets, as compared to a year ago.
Interest expense for the second quarter and first six months
of 1995 was above the amounts reported in the comparable periods of
1994 by $6.4 million and $3.4 million, respectively. Interest
expense for the second quarter totalled $18.1 million and was
composed of $12.4 million associated with the operations of the
company, including Clark and $5.7 million of interest expense
associated with the cost of the Clark acquisition. Interest expense
for the first six months of 1995 totalled $27.0 million and was
composed of $21.3 million associated with the combined operations of
the company, including Clark and $5.7 million of interest expense
related to the Clark acquisition.
The company's effective tax rates for the second quarter and
first six months of 1995 were 37.7 percent and 37.0 percent,
respectively. The company's effective tax rate for both the second
quarter and first six 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 Ingersoll-Rand'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.
The consolidated results for both the second quarter and first
six months of the year benefitted from the combination of business
improvements in most of the company's domestic markets (including
11<PAGE>
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INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
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 six
months of 1995 when compared to the comparable periods in 1994.
Incoming orders for the second quarter of the year totalled $1.3
billion and represents an increase of 16.8 percent over the 1994
second quarter. New orders associated with Clark totalled
approximately $110 million. Second quarter bookings, excluding Clark,
were up 7.3 percent and reflected strong international growth and a
softening in domestic markets. The Process Systems and Bearings and
Components groups were the only operations within the company which
failed to report meaningful increases in second quarter bookings
levels when compared to the second quarter of 1994. The company's
backlog of orders at June 30, 1995, believed by it to be firm, was
approximately $1.5 billion, which reflects an increase of $500
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 six months ended June 30, 1995 was to increase net
income by approximately $2.0 million or $0.02 per share. The effect
on the three months ended March 31, 1995 was not material and
accordingly, the results for that quarter have not been restated to
reflect the change to the straight-line depreciation method.
Liquidity and Capital Resources
The company's financial position at June 30, 1995 changed from
December 31, 1994, principally due to the acquisition of Clark. In
the first six months of 1995, working capital decreased by
approximately $129.5 million to $833.3 million at June 30, 1995 from
December 31, 1994's balance of $962.8 million. The current ratio at
June 30, 1995 was 1.5 to 1, down from the 1.9 to 1 ratio at December
31, 1994.
12<PAGE>
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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 $53.6
million during the first six months of 1995 to $153.4 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 $97.1
million, investing activities used $1.2 billion and financing
activities provided $1.1 billion. Exchange rate changes during the
first six months of 1995 increased cash and cash equivalents by $2.1
million.
Receivables totalled $1.2 billion at June 30, 1995, which
represents a $228.3 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, a
$23.1 million effect of foreign currency translation during the first
six months of 1995 and the effect of a strong selling period towards
the end of the second quarter, offset by aggressive collection
efforts.
Inventories totalled $949.0 million at June 30, 1995,
approximately $269.7 million higher than the December 31, 1994 level.
The activity during the first half 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
$20.2 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 six months of the year, totalled $1.3 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 June 30, 1995 debt-to-total capital ratio was 51
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 June 30, 1995, long-term
debt includes approximately $973 million and short-term loans
includes approximately $223 million directly related to the Clark
acquisition.
During the first six months of 1995, foreign currency
adjustments resulted in a net increase of approximately $40 million
in shareowners' equity, caused by the weakening of the U.S. dollar
against other currencies. Currency changes in Japan, Germany,
13<PAGE>
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INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
France, the United Kingdom, Netherlands, 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.
Environmental Matters
Environmental matters at June 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 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-
14<PAGE>
<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
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
June 30, 1995, $300 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.
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 operation, liquidity or cash flows of the
company.
Review of Business Segments
The Standard Machinery Segment reported sales of $543.5
million during the second quarter of 1995, which represents a 53.3
percent increase from the $354.5 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.
15<PAGE>
<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
Excluding the sales from Clark units, the second quarter sales for
this segment were $449.9 million, or 26.9 percent over last year's
second quarter total. Operating income for the quarter was $49.7
million and represents a 63-percent improvement over the $30.5
million reported for the three months ended June 30, 1994. Excluding
the Clark operations and the loss on the sale of the company's
domestic paving equipment business (a preacquisition requirement to
the Clark purchase), second quarter operating income would have been
$43.8 million, a 43.6 percent improvement over the $30.5 million of
operating income for 1994's second quarter. For the first half of
1995, the segment's net sales totalled $942.2 million, which was 39.9
percent above the $673.6 million reported for the comparable 1994
period. Excluding the Clark operations and the loss on the sale of
the company's domestic paving equipment business, operating income
for the first six months of 1995 would have been $79.1 million, a
48.4 percent improvement over the $53.3 million of operating income
for 1994's first six months. Sales, operating income and operating
margins 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 second quarter and first six 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 second quarter of
the year totalled $275.6 million, which were $39.0 million higher
than 1994's second quarter total of $236.6 million. This segment's
activities include the operating results of the Clark-Hurth unit.
Excluding the Clark-Hurth sales, second quarter sales for the segment
were $245.2 million and represent a modest increase over the $236.6
million reported for the three months ended June 30, 1995. Operating
income for the quarter totalled $11.1 million, a $7.3 million
improvement over the $3.8 million reported for 1994's second quarter.
Excluding the Clark-Hurth operating results the segment's operating
income for the quarter was $9.7 million, a $5.9 million increase over
last year's comparable quarter. For the first six months of 1995, the
segment reported sales of $508.0 million which is 15.4 percent higher
than 1994's total of $440.2 million. Operating income for the first
half of 1995 was $18.6 million, as compared to $2.0 million for the
comparable 1994 period. Second quarter sales for IDP are down from
the amount reported for the three months ended June 30, 1994, while
operating income for IDP for the period reflects a slight
improvement. IDP's sales for the first six months of 1994 were
slightly above the amount reported for the first half of 1994, while
the operating income for the six months ended June 30, 1995 was
almost double the prior year's comparable period. Process Systems
Group's sales for the second quarter and the first six months of the
year were above the amounts reported for the three and six months
ended June 30, 1994. The group's sales for the first six months of
16<PAGE>
<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
the year were approximately 39 percent above 1994's level. Process
Systems Group operated at a profitable level in 1995's second quarter
as compared to the break-even level for the 1994 second quarter.
The Bearings, Locks and Tools Segment reported sales of $573.0
million for the three months ended June 30, 1995, a 3.7 percent
increase over last year's second quarter total of $552.7 million.
Operating income was $67.7 million, as compared to the 1994 second
quarter level of $67.1 million. For the first six months of 1995,
the segment reported net sales of $1.1 billion, 8.4 percent above the
amount reported in the comparable period of 1994. Operating income
for the first half of 1995, totalled $123.0 million compared to
$114.6 million reported for the six months ended June 30, 1994.
The Bearings and Components Group's sales in the second
quarter of 1995 were approximately four percent higher than in the
1994 second quarter. Results in the group essentially mirrored last
year's second quarter. Sales and operating income of the Bearings
and Components Group for the six months ended June 30, 1995 were both
up over nine percent.
Product mix and a softening in housing markets negatively
affected the operating results of the Door Hardware Group, which
reported a single digit decline in its operating income, when
compared to the amount reported for the three months ended June 30,
1994.
The Production Equipment Group's sales and operating income
for the second quarter of 1995 were above the amounts reported for
the three months ended June 30, 1994. The group's results for the
second quarter of 1994 were favorably affected by stronger business
conditions in both their domestic and international markets, when
compared to last year's second quarter.
17<PAGE>
<PAGE>
<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 Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE (NOTE 1): 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net earnings applicable to common stock $ 66,645 $ 51,569 $112,912 $ 84,581
Average number of common shares outstanding 105,664 105,469 105,618 105,432
PRIMARY EARNINGS PER SHARE $0.63 $0.49 $1.07 $0.80
FULLY DILUTED EARNINGS PER SHARE (NOTE 2):(*)
Net earnings for the period $ 66,645 $ 51,569 $112,912 $ 84,581
Adjusted shares:
Average number of common shares outstanding 105,664 105,469 105,618 105,432
Number of common shares issuable
assuming exercise under incentive
stock plans 556 397 471 425
Average number of outstanding shares,
as adjusted for fully diluted earnings
per share calculations 106,220 105,866 106,089 105,857
FULLY DILUTED EARNINGS PER SHARE $0.62 $0.49 $1.06 $0.80
(*) 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>
18<PAGE>
<PAGE>
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.
19<PAGE>
<PAGE>
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 in the
discovery phase.
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the company held on
April 27, 1995, in addition to electing directors and ratifying the
appointment of the independent accountants, the shareholders voted as
follows:
(1) The shareholders adopted the Company's Incentive Stock Plan
of 1995. The vote was 52,507,983 votes in favor of the
resolution and 22,321,591 votes against.
(2) The shareholders adopted the Company's Senior Executive
Performance Plan. The vote was 65,054,829 votes in favor of
the resolution and 19,021,183 votes against.
20<PAGE>
<PAGE>
INGERSOLL-RAND COMPANY
PART II. - OTHER INFORMATION
(continued)
Item 6 - Exhibits and Reports on Form 8-K
a.) Exhibits
The exhibits listed on the accompanying index to
exhibits on page 22 are filed as part of this
Form 10-Q Quarterly Report.
b.) Reports on Form 8-K
(1) Form 8-K Current Report dated May 25, 1995 filed
June 5, 1995 reported under item 2, Acquisition of
Assets, and item 7, Financial Statements and Exhibits.
This Form 8-K reported on the acquisition of Clark by
the company and presented pro forma financial
information. The Form 8-K also included the audited
consolidated balance sheets of Clark at December 31,
1994 and 1993 and the consolidated statements of
income and retained earnings, and cash flows for the
years ended December 31, 1994, 1993 and 1992.
(2) Form 8-K Current Report dated June 5, 1995 filed
June 7, 1995 reported under item 5, Other Events, and
item 7, Exhibits. This Form 8-K reported the issuance
by the company on June 9, 1995, of $150 million of
7.20% Debentures Due 2025 and $150 million of 6.48%
Debentures Due 2025.
(3) Form 8-K/A Current Report dated May 25, 1995
filed June 15, 1995 reported under item 7, Financial
Statements. The unaudited consolidated balance sheet
of Clark at March 31, 1995 and the consolidated
statements of income and retained earnings, and cash
flows for the three months ended March 31, 1995 and
1994 were filed.
(4) Form 8-K Current Report dated July 17, 1995 filed
July 17, 1995 reported under item 5, Other Events, and
item 7, Exhibits. This Form 8-K reported that the
company will from time-to-time issue its Medium-Term
Notes, Series A, Due Nine Months or More from Date of
Issue having an aggregate initial offering price of up
to $600 million (or such greater amount if Notes are
issued at an original discount as shall result in
aggregate gross proceeds to the company of $600
million).
21<PAGE>
<PAGE>
INGERSOLL-RAND COMPANY
INDEX TO EXHIBITS
(Item 6(a))
Description Page
2 Agreement and Plan of Merger, dated as of April 9,1995
by and among Ingersoll-Rand Company, CEC Acquisition
Corp. and Clark Equipment Company (Incorporated by
reference from Amendment No. 2 to Schedule 14D-1 with
respect to the tender offer by CEC Acquisition Corp.,
a wholly-owned subsidiary of Ingersoll-Rand Company,
for shares of Clark Equipment Company.) --
12 Computation of Ratio of Earnings to Fixed Charges 24
18 Letter dated August 11, 1995 from Price Waterhouse LLP
regarding change in accounting method. 25
22<PAGE>
<PAGE>
INGERSOLL-RAND COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INGERSOLL-RAND COMPANY
(Registrant)
Date August 11, 1995 /S/ T.F. McBride
T.F. McBride, Senior Vice
President & Chief Financial Officer
Principal Financial Officer
Date August 11, 1995 /S/ R.A. Spohn
R.A. Spohn, Controller -
Accounting and Reporting
Principal Accounting Officer
23<PAGE>
<PAGE>
EXHIBIT 12
INGERSOLL-RAND COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Thousands)
For the Six Months Ended June 30, 1995
Fixed charges:
Interest expense . . . . . . . . . . . . . . . $ 28,741
Amortization of debt discount and expense . . . 156
Rentals (one-third of rentals) . . . . . . . . 10,395
Capitalized interest . . . . . . . . . . . . . 1,250
Total fixed charges . . . . . . . . . . . . . . . $ 40,542
Net earnings . . . . . . . . . . . . . . . . . . $112,912
Add: Minority income (loss) of majority-
owned subsidiaries . . . . . . . . . . . 5,809
Taxes on income . . . . . . . . . . . . . . 66,313
Fixed charges . . . . . . . . . . . . . . . 40,542
Less: Capitalized interest . . . . . . . . . . . 1,250
Undistributed earnings (losses) from
less than 50% owned affiliates . . . . . 10,136
Earnings available for fixed charges . . . . . . $214,190
Ratio of earnings to fixed charges . . . . . . . 5.28
Undistributed earnings (losses) from less
than 50% owned affiliates:
Equity in earnings (losses) . . . . . . . . . . $ 12,483
Less: Dividends paid . . . . . . . . . . . . 2,347
Undistributed earnings (losses) from
less-than 50% owned affiliates . . . . . . . $ 10,136
EXHIBIT 18
August 11, 1995
To the Board of Directors of
Ingersoll-Rand Company
We have been furnished with a copy of the Company's Form 10-Q for the
quarter ended June 30, 1995. Note 3 therein describes a change in
the method of depreciation of plant and equipment from accelerated
methods, principally sum-of-the-years' digits, to the straight line
method. It should be understood that the preferability of one
acceptable method of depreciation accounting over another has not
been addressed in any authoritative accounting literature and in
arriving at our opinion expressed below, we have relied on
management's business planning and judgment. Based upon our
discussions with management and the stated reasons for the change, we
believe that such change represents, in your circumstances, the
adoption of a preferable alternative accounting principle for
depreciation in conformity with Accounting Principles Board Opinion
No. 20.
We have not made an audit in accordance with generally accepted
auditing standards of the financial statements of Ingersoll-Rand
Company for the three-month or six-month periods ended June 30, 1995
or June 30, 1994 and, accordingly, we express no opinion thereon or
on the financial information filed as part of the Form 10-Q of which
this letter is to be an exhibit.
Your very truly,
/s/ Price Waterhouse LLP
Price Waterhouse LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE JUNE 30, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 153,449
<SECURITIES> 5,691
<RECEIVABLES> 1,213,766
<ALLOWANCES> 36,112
<INVENTORY> 948,970
<CURRENT-ASSETS> 2,556,848
<PP&E> 2,143,280
<DEPRECIATION> 911,153
<TOTAL-ASSETS> 5,803,324
<CURRENT-LIABILITIES> 1,723,506
<BONDS> 1,287,826
<COMMON> 218,820
0
0
<OTHER-SE> 1,433,859
<TOTAL-LIABILITY-AND-EQUITY> 5,803,324
<SALES> 2,577,712
<TOTAL-REVENUES> 2,577,712
<CGS> 1,944,114
<TOTAL-COSTS> 1,944,114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,029
<INCOME-PRETAX> 179,225
<INCOME-TAX> 66,313
<INCOME-CONTINUING> 112,912
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,912
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.06
</TABLE>
