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, 1996
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 26, 1996 was
109,257,932.<PAGE>
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
Condensed Consolidated Balance Sheet at
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Income Statement for the
three and six months ended June 30, 1996 and 1995 4
Condensed Consolidated Statement of Cash Flows
for the six months ended June 30, 1996 and 1995 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
SIGNATURES 21
2<PAGE>
PART I. FINANCIAL INFORMATION
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
Current assets:
Cash and cash equivalents $ 73.6 $ 137.3
Marketable securities 9.1 9.3
Accounts and notes receivable, net of
allowance for doubtful accounts 1,174.7 1,109.9
Inventories 949.2 912.6
Prepaid expenses and deferred taxes 191.9 176.5
Total current assets 2,398.5 2,345.6
Investments and advances:
Dresser-Rand Company 122.0 93.9
Partially-owned equity companies 219.0 223.3
341.0 317.2
Property, plant and equipment, at cost 2,265.1 2,205.2
Less - accumulated depreciation 970.5 926.8
Net property, plant and equipment 1,294.6 1,278.4
Intangible assets, net 1,290.5 1,253.6
Deferred income taxes 138.4 134.8
Other assets 232.8 233.7
Total assets $5,695.8 $5,563.3
LIABILITIES AND EQUITY
Current liabilities:
Loans payable $ 122.3 $ 155.4
Accounts payable and accruals 1,241.3 1,173.8
Total current liabilities 1,363.6 1,329.2
Long-term debt 1,303.7 1,304.4
Postemployment liabilities 839.0 832.1
Ingersoll-Dresser Pump Company minority interest 109.6 170.8
Other liabilities 152.4 131.3
Shareowners' equity:
Common stock 220.1 219.4
Other shareowners' equity 1,707.4 1,576.1
Total shareowners' equity 1,927.5 1,795.5
Total liabilities and equity $5,695.8 $5,563.3
See accompanying notes to condensed consolidated financial statements.
3<PAGE>
<TABLE>
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions except per share figures)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $1,761.9 $1,392.1 $3,366.7 $2,577.7
Cost of goods sold 1,338.0 1,051.0 2,546.7 1,944.1
Administrative, selling and service
engineering expenses 247.6 222.4 493.1 425.7
Operating income 176.3 118.7 326.9 207.9
Interest expense (32.1) (18.1) (63.4) (27.0)
Other income (expense), net (0.5) 4.4 (1.9) (1.6)
Dresser-Rand income 7.0 5.0 7.5 5.3
Ingersoll-Dresser Pump
minority interest (4.2) (3.1) (4.3) (5.4)
Earnings before income taxes 146.5 106.9 264.8 179.2
Provision for income taxes 54.2 40.3 98.0 66.3
Net earnings $ 92.3 $ 66.6 $ 166.8 $ 112.9
Average number of common
shares outstanding 107.4 105.7 107.2 105.6
Net earnings per common share $ 0.86 $ 0.63 $1.56 $1.07
Dividends per common share $0.185 $0.185 $0.37 $0.37
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4<PAGE>
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Net earnings $ 166.8 $ 112.9
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 101.7 78.7
(Gain)/loss on sale of businesses (45.1) 7.1
Realignment of operations 30.4 --
Equity earnings/loss, net of dividends (6.1) (14.9)
Minority interest in earnings 5.8 7.6
Deferred income taxes (3.7) (14.3)
Other noncash items 2.7 (4.9)
Changes in other assets and
liabilities, net (171.5) (75.2)
Net cash provided by operating activities 81.0 97.0
Cash flows from investing activities:
Capital expenditures (99.7) (93.1)
Proceeds from sales of property, plant
and equipment 15.5 24.1
Acquisitions, net of cash (96.3) (1,136.5)
Proceeds from business dispositions 122.6 --
Increase in marketable securities (4.5) (.8)
Cash advances (to) from equity companies (27.2) (14.3)
Net cash used in investing activities (89.6) (1,220.6)
Cash flows from financing activities:
(Decrease) increase in short-term borrowings (8.0) 312.6
Proceeds from long-term debt .1 802.6
Payments of long-term debt (24.1) (13.5)
Net change in debt (32.0) 1,101.7
Dividends paid (39.7) (39.1)
Other 9.0 5.3
Net cash (used in) provided by financing
activities (62.7) 1,067.9
Effect of exchange rate changes
on cash and cash equivalents 7.6 2.1
Net decrease in cash and cash equivalents (63.7) (53.6)
Cash and cash equivalents -
beginning of period 137.3 207.0
Cash and cash equivalents - end of period $ 73.6 $ 153.4
See accompanying notes to condensed consolidated financial statements.
5<PAGE>
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - In the opinion of management, the accompanying condensed
consolidated financial statements contain all adjustments
(including normal recurring accruals) necessary to present
fairly the consolidated unaudited financial position and
results of operations for the three and six months ended
June 30, 1996 and 1995.
Note 2 - In late May 1995, the company acquired Clark Equipment
Company (Clark). 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. The
total purchase price for Clark was approximately $1.5
billion. The acquisition was accounted for as a purchase.
The purchase price was allocated to the acquired assets and
liabilities based on estimated fair values. 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 six months ended June 30, 1995, reflect
the acquisition as though it occurred at the beginning of
the period 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
investment in VME Group N.V. (in millions except per share
amounts):
For the six months ended June 30 1995
Sales $3,195
Net earnings 126
Earnings per share $1.19
It should be noted that 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 period. 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 Club Car
portion of the Clark acquisition tends to concentrate the
majority of its yearly operating profit during the first
6<PAGE>
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 2 - Continued:
half of the year.
Note 3 - On January 31, 1996, the company acquired for $94.8 million
of cash and the assumption of certain liabilities, the
Steelcraft Division of MascoTech, Inc. Steelcraft
manufactures a wide range of cold-rolled and galvanized
steel doors for use primarily in nonresidential
construction. The acquisition was accounted for as a
purchase with Steelcraft results included since the
acquisition date. Pro forma results assuming Steelcraft had
been acquired at the beginning of the year would not have
been significantly different than those reported.
Note 4 - In the first quarter of 1996, the company accrued for the
realignment of its foreign operations, principally in
Europe. These accruals were primarily for severance
payments and pension benefits associated with work force
reductions. Also in the first quarter, accruals were
established for the exit or abandonment of selected European
product lines and the closing of a steel foundry. These
accruals totalled approximately $30.4 million and were
charged to operating income.
Note 5 - On March 26, 1996, the company sold most of the assets of
the Pulp Machinery Division for approximately $122.3 million
to Beloit Corporation, a subsidiary of Harnischfeger
Industries, Inc., realizing a pretax gain of $45 million.
In addition in March 1996, the company sold an investment
for a gain of $4.8 million.
Note 6 - 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 in the second quarter of
1995.
Note 7 - 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 June 30, 1996, approximately 1.7 million of these shares
remain unallocated and the amount 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.
7<PAGE>
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 8 - 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 millions):
June 30, December 31,
1996 1995
Raw materials and supplies $ 220.2 $ 211.8
Work-in-process 323.9 326.1
Finished goods 570.9 538.5
1,115.0 1,076.4
Less - LIFO reserve 165.8 163.8
Total $ 949.2 $ 912.6
Work-in-process inventories are stated after deducting
customer progress payments of $20.9 million at June 30, 1996
and $38.8 million at December 31, 1995.
Note 9 - The company's investment in the Dresser-Rand partnership at
June 30, 1996 and December 31, 1995 was $131.8 million and
$182.8 million, respectively. The company owed Dresser-Rand
$9.8 million at June 30, 1996 and $88.9 million at December
31, 1995. During the first quarter of 1996, Dresser-Rand
distributed $100 million proportionally to its partners (the
company's share was $49 million) which was offset against
its advances to the partners.
Net sales of Dresser-Rand were $488.5 million for the six
months ended June 30, 1996 and $452.3 million for the six
months ended June 30, 1995; and gross profit was $104.4
million and $93.1 million, respectively. Dresser-Rand's net
income for the six months ended June 30, 1996 was $15.3
million, as compared to $10.8 million for the six months
ended June 30, 1995.
The summarized financial position of Dresser-Rand was as
follows (in millions):
June 30, December 31,
1996 1995
Current assets $429.3 $457.2
Property, plant and
equipment, net 247.2 239.3
Other assets and investments 27.5 27.2
704.0 723.7
Deduct:
Current liabilities 259.2 341.4
Noncurrent liabilities 182.2 200.8
441.4 542.2
Net partners' equity
and advances $262.6 $181.5
8<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the second quarter of 1996 totalled $1.8
billion, representing a 26.6-percent increase over last year's second
quarter. Net sales for the comparable quarter of 1995 totalled $1.4
billion. The 1996 results include a full quarter of activity from
Clark Equipment Company (Clark), while the second quarter of 1995
includes only Clark's results since the May 31, 1995, acquisition
date. Net sales excluding Clark, for the 1996 second quarter
approximated $1.4 billion, a 6.7-percent increase over the 1995
second quarter.
Operating income for the three months ended June 30, 1996
totalled $176.3 million (a 10-percent operating margin), and
represents a 48.5 percent improvement over the $118.7 million
reported for the second quarter of 1995. Excluding Clark's results,
operating income for the three months ended June 30, 1996 totalled
$127.6 million which reflects a 14.4-percent improvement over the
prior year's second quarter. Operating income for the second quarter
of 1996 included the results of Clark for a full quarter, while
operating income for the second quarter of 1995 included only Clark's
results for June 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).
The company reported second quarter net earnings of $92.3
million, or 86 cents per common share, versus $66.6 million, or 63
cents per common share for the three months ended June 30, 1995,
reflecting an improvement of 39 percent. Net earnings from Clark
contributed approximately $13.1 million (or 12 cents per common
share) to the company's results for the three months ended June 30,
1996 as compared to a net loss of two cents per share, in the similar
quarter of 1995. The company's strong second-quarter performance
from Clark and its historical lines of business reflect continued
strength in domestic markets, principally construction, general
industrial, housing and automotive-related industries, together with
an improvement in international operations.
A partial liquidation of LIFO (last-in, first-out)
inventories lowered costs by $2.3 million (approximately $1.4 million
after-tax or one cent per share), during the second quarter of 1996.
There was no partial liquidation of LIFO inventories in the second
quarter of 1995. Foreign exchange losses for the second quarter of
1996 decreased net earnings by $1.3 million, or one cent per common
share, versus foreign exchange gains of $0.4 million, or less than
one cent per common share for the comparable 1995 quarter.
For the first six months of 1996, net sales amounted to $3.4
billion, a 31-percent improvement over last year's six-month total.
Sales for the first two quarters of the year, excluding Clark, would
9<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
have exceeded last year's comparable sales by approximately five
percent. Operating income for the first half of 1996 totalled $326.9
million, which represents a 57-percent increase over the $207.9
million reported for the comparable 1995 period. Operating income
for the first six months of 1996, without Clark, increased by 18
percent compared to 1995. In addition to the inclusion of Clark
results, the following noncomparable items affected the company's
first six months results:
o the net gain on the sale of the Pulp Machinery Division
generated net earnings of approximately $28 million (or 26
cents per common share);
o the charge to operating income for the realignment of the
company's foreign operations (principally in Europe)
totalled approximately $18 million. This charge reduced net
earnings by approximately $11 million (or 11 cents per
common share);
o charges associated with the exit or abandonment of
selected European product lines reduced operating income by
approximately $7 million. The after-tax effect of this item
reduced net earnings by approximately $4.5 million (or four
cents per share);
o charges incurred by Ingersoll-Dresser Pump Company (IDP)
for the closing of a steel foundry, reduced operating income
by approximately $5.4 million. This item affected the
company's earnings by approximately $2 million (or two cents
per share);
o a gain on the sale of an investment benefitted the first
six months results by $4.8 million ($3.0 million after-tax,
or three cents per common share).
The company reported net earnings of $166.8 million, or
$1.56 per common share, for the first six months of 1996. Net
earnings for the first half of 1995 totalled $112.9 million, or $1.07
per common share. Net earnings from Clark for the first six months
of 1996 resulted in income of $24.6 million, or 23 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.
A partial liquidation of LIFO inventories lowered costs
during the first six months of 1996 by $2.3 million (approximately
$1.4 million after-tax or one cent per common share). There was no
partial liquidation of LIFO inventories during the first six months
of 1995. Foreign exchange losses for the first six months of 1996
decreased net earnings by $2.4 million or two cents per share as
compared to foreign exchange losses of $4.3 million or four cents per
share for the comparable 1995 period.
10<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
The ratio of cost of goods sold to sales for both the second
quarter and first half of 1996 with or without considering the
operating performance of Clark, remained approximately the same over
the comparable periods in 1995. 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 improved over the comparable periods in 1995.
Other income (expense) aggregated $(0.5) million of net
expense for the three months ended June 30, 1996, a decrease of $4.9
million over the other income reported for 1995's second quarter.
The second quarter decrease in other income(expense) was attributed
to increased losses from foreign exchange activities and an increase
in miscellaneous expenses when compared to the amounts reported for
the three-month period ended June 30, 1995. For the first six months
of 1996, other income (expense) totalled $(1.9) million, a slight
increase of $0.3 million over the $(1.6) million of other expense
reported for the first six months of 1995. This unfavorable change
was primarily the net effect of two positive and two negative items.
The positive items included the first quarter gain on the sale of an
investment and a reduction in losses from foreign currency
activities. Offsetting these items were a reduction in the company's
portion of earnings from its partially-owned equity companies and an
increase in miscellaneous expense.
IDP is a partnership between Dresser Industries, Inc.
(Dresser) and the company. The IDP minority interest represents
Dresser's interest in the operating results of IDP. During the
second quarter of 1996, the minority interest charge totalled $4.2
million, which indicates that IDP generated net earnings at the
partnership level of approximately $8.6 million. For the first half
of 1996, the minority interest charge totalled $4.3 million, which
indicates that IDP generated approximately $8.8 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 1995, the
minority interest charge for IDP was $3.1 million and $5.4 million,
respectively.
The company's pretax profits for its 49-percent interest in
Dresser-Rand Company (another partnership between Dresser and the
company) totalled $7.0 million for the second quarter of the year and
$7.5 million for the first half of 1996. This compares to income of
$5.0 million for the second quarter of 1995 and $5.3 million for the
six months ended June 30, 1995. The second-quarter increase was
attributable to strength in Dresser-Rand's markets as compared to a
year ago.
Interest expense for the second quarter and first six months
of 1996 was $32.1 million and $63.4 million, respectively. The
interest expense reported for the quarter and the six months of 1996
was almost evenly divided between normal interest expense from the
11<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
combined operations of Ingersoll-Rand and Clark, and interest expense
associated with the Clark acquisition. Interest expense for the
second quarter of 1995 totalled $18.1 million and $27.0 million for
the first six months of 1995.
The company's effective tax rate for both the second quarter
and first six months of 1996 was 37.0 percent. The company's
effective tax rate 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 differs from the statutory rate of 35.0 percent
mainly due to the nondeductibility of goodwill associated with the
Clark acquisition. 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 1995 was 37.0 percent.
The consolidated results for both the second quarter and
first six months of the year benefitted from business improvements in
most of the company's domestic markets (including construction,
housing and general industrial). International business has
generally reflected increases during the first six months of 1996
when compared to the comparable period in 1995. Incoming orders for
the second quarter of the year totalled $1.7 billion and represent an
increase of 24 percent over the 1995 second quarter. New orders
associated with Clark totalled approximately $340 million. Second
quarter bookings, excluding Clark, were up eight percent and
reflected strong domestic growth and modest softness in selected
international areas. The company's backlog of orders at June 30,
1996 and December 31, 1995, believed by it to be firm, was
approximately $1.6 billion. The company estimates that approximately
90 percent of the backlog will be shipped during the next twelve
months.
Liquidity and Capital Resources
The company's financial position at June 30, 1996 was
comparable to its position at December 31, 1995. In the first six
months of 1996, working capital increased by approximately $18.5
million to $1,034.9 million at June 30, 1996 from December 31, 1995's
balance of $1,016.4 million. The current ratio at June 30, 1996 was
1.8 to 1, unchanged from December 31, 1995.
The company's cash and cash equivalents decreased by $63.7
million during the first six months of 1996 to $73.6 million from
$137.3 million at December 31, 1995. 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 $81.0
12<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
million, investing activities used $89.6 million and financing
activities used $62.7 million. Exchange rate changes during the
first six months of 1996 increased cash and cash equivalents by $7.6
million.
Receivables totalled $1.2 billion at June 30, 1996, which
represents a $64.8 million increase from the amount reported at
December 31, 1995. This increase was due to the inclusion of
receivables from the Steelcraft acquisition and the effect of a
strong selling period towards the end of the second quarter, offset
by the effect of translation, dispositions and aggressive collection
efforts.
Inventories totalled $949.2 million at June 30, 1996,
approximately $36.6 million higher than the December 31, 1995 level.
The activity during the first half of 1996 represents the net effect
of increased sales and acquisitions and dispositions, offset by a
decrease of $9.3 million due to the effect of currency translation on
the international inventories.
Intangible assets increased approximately $45 million. This
net increase came from the first quarter acquisition of Steelcraft
offset by amortization.
Long-term debt, including current maturities, at the end of
the first six months of the year, totalled $1.4 billion. The
company's June 30, 1996 debt-to-total capital ratio was 43 percent,
which reflects continuing improvement from the 45 percent ratio at
December 31, 1995.
During the first six months of 1996, foreign currency
adjustments resulted in a net decrease of $14.3 million in
shareowners' equity, caused by the strengthening of the U.S. dollar
against other currencies. Currency changes in Australia, Belgium,
France, Germany, Italy, Japan, South Africa 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 currency fluctuations in the first six months of 1996.
Environmental Matters
Environmental matters at June 30, 1996 remain substantially
unchanged from December 31, 1995. 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 38 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
13<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
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 an active 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 January 31, 1996 the company acquired the Steelcraft
Division of MascoTech, Inc., which manufactures a wide range of cold-
rolled and galvanized steel doors for use primarily in nonresidential
construction. The acquisition was paid for in cash and the
assumption of certain liabilities. Steelcraft is now a division of
the Architectural Hardware Group.
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
14<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
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 Clark acquisition has been accounted
for as a purchase and Clark's assets have been consolidated into the
financial statements of the company.
Dispositions
On March 26, 1996, the company sold most of the assets of
the Pulp Machinery Division for approximately $122.3 million to
Beloit Corporation, a subsidiary of Harnischfeger Industries, Inc.,
realizing a pretax gain of $45 million. In addition, in March 1996,
the company sold an investment in CAPCO Automotive Products
Corporation for a pretax gain of $4.8 million.
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 $798.8
million during the second quarter of 1996, which represents a 47-
percent increase from the $543.5 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.
Excluding the sales from the Clark unit, the second-quarter sales for
this segment were $480.9 million, or 6.9 percent over last year's
second-quarter total. Operating income for the quarter was $100.3
million and represents a 102-percent improvement over the $49.7
million reported for the three months ended June 30, 1995. Excluding
the Clark operations, second-quarter operating income would have been
$49.2 million, a 34-percent improvement over 1995's second quarter.
For the first half of 1996, the segment's net sales totalled $1,487.3
15<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
million, which was 57.9-percent above the $942.2 million reported for
the comparable 1995 period. Excluding the Clark operations,
operating income for the first six months of 1996 would have been
$61.9 million, and it included approximately $16 million of
noncomparable charges due to actions taken by the company during the
first quarter of the year. Stronger domestic and international
markets helped the traditional Construction and Mining and Air
Compressor groups report increased sales when compared to the 1995
figures.
Engineered Equipment Segment's sales for the second quarter
of the year totalled $336.0 million, which were $60.4 million higher
than 1995's second-quarter total of $275.6 million. This segment's
activities include the operating results of the Clark-Hurth unit, but
exclude the results of the Pulp Machinery Division which was sold
during the first quarter of 1996. Excluding the Clark-Hurth sales,
second quarter sales for the segment were $244.9 million. Operating
income for the quarter totalled $12.0 million, a modest improvement
over the $11.1 million reported for 1995's second quarter. Clark-
Hurth operated essentially at break-even for the second quarter of
1996, principally because of the poor economic situation in its
German markets. For the first six months of 1996, the segment
reported sales of $676.2 million. Operating income for the first
half of 1996 was $63.4 million. Second-quarter sales for IDP were up
over 10 percent and their operating income was more than double the
amount reported for the three months ended June 30, 1995. IDP's
sales for the first six months of 1996 were slightly above the amount
reported for the first half of 1995, while the operating income for
the six months ended June 30, 1996 was down slightly from the prior
year's comparable period. The remaining portion of the Process
Systems Group reported a modest increase in its second-quarter sales
and operating income compared to 1996 second-quarter results.
The Bearings, Locks and Tools Segment reported sales of
$627.1 million for the three months ended June 30, 1996, a 9.4-
percent increase over last year's second-quarter total of $573.0
million. Operating income was $74.7 million, as compared to the 1995
second-quarter level of $67.7 million. For the first six months of
1996, the segment reported net sales of $1.2 billion, 6.7-percent
above the amount reported in the comparable period of 1995.
Operating income for the first half of 1996, totalled $132.1 million
compared to $123.0 million reported for the six months ended June 30,
1995.
The Bearings and Components Group's sales and operating
income in the second quarter of 1996 were approximately five-percent
higher than in the 1995 second quarter. Sales and operating income
of the Bearings and Components Group for the six months ended June
30, 1996 were both up slightly.
16<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
Sales in the Architectural Hardware Group for the three and
the six months ended June 30, 1996 were up approximately 25 percent,
with half of the increase attributed to the January 31, 1996
acquisition of Steelcraft. Operating income for the group was up
over fifteen percent, when compared to the amounts reported for the
three and six months ended June 30, 1995.
The Production Equipment Group's sales for the second
quarter of 1996 were slightly above the amounts reported for the
three months ended June 30, 1995, while operating income was up over
10 percent for the 1996 second quarter. Sales and operating income
of the Production Equipment Group for the six months ended June 30,
1996 decreased slightly from last year's amounts for the comparable
period.
Safe Harbor Statement
Information provided by the Company in reports such as this
report on Form 10-Q, in press releases and in statements made by
employees in oral discussions, to the extent the information is not
historical fact, constitutes "forward looking statements" within the
meaning of the Securities Act of 1933 and the Securities Exchange Act
of 1934. Forward looking statements by their nature involve risk and
uncertainty.
The Company cautions that a variety of factors, including
but not limited to the following, could cause business conditions and
results to differ from those expected by the Company: changes in the
rate of economic growth in the United States and in other major
international economies such as Germany; significant changes in
trade, monetary and fiscal policies worldwide; currency fluctuations
among the U.S. dollar and other currencies; demand for Company
products; distributor inventory levels; failure to achieve the
Company's productivity targets; and, competitor actions including
unanticipated pricing actions or product and cost reduction
strategies.
17<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,
PRIMARY EARNINGS PER SHARE (NOTE 1): 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net earnings applicable to common stock $ 92.3 $ 66.6 $166.8 $112.9
Average number of common shares outstanding 107.4 105.7 107.2 105.6
PRIMARY EARNINGS PER SHARE $0.86 $0.63 $1.56 $1.07
FULLY DILUTED EARNINGS PER SHARE (NOTE 2):(*)
Net earnings for the period $ 92.3 $ 66.6 $166.8 $112.9
Adjusted shares:
Average number of common shares outstanding 107.4 105.7 107.2 105.6
Number of common shares issuable
assuming exercise under incentive
stock plans .6 .5 .6 .5
Average number of outstanding shares,
as adjusted for fully diluted earnings
per share calculations 108.0 106.2 107.8 106.1
FULLY DILUTED EARNINGS PER SHARE $0.86 $0.62 $1.55 $1.06
(*) 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>
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>
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 approximately 38 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) alleging that Clark failed to comply with the
pretreatment regulations promulgated pursuant to Section 306 and 307
of the Clean Water Act. The Order alleged 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 alleged
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 sought (i) to permanently enjoin Clark to
comply fully with all applicable requirements of the Clean Water 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. On July 17, 1996, a
stipulation of settlement between the U.S. and Clark was lodged with
the court for a public notice and comment period. In the
stipulation, Clark agrees to pay a $250,000 civil penalty and the
U.S. agrees to dismiss its suit. Subject to the comment period,
which expires on August 9, 1996, the stipulation of settlement will
be entered on the court docket and will be final.
Item 4 - Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the company held on
April 26, 1996, the shareholders, in addition to electing directors,
ratified the appointment of Price Waterhouse LLP as independent
accountants of the company for the year ending December 31, 1996 (the
vote for such proposal being 91,609,506 shares for, 201,422 shares
against and 240,180 shares abstaining).
20<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 9, 1996 /S/ T.F. McBride
T.F. McBride, Senior Vice
President & Chief Financial Officer
Principal Financial Officer
Date August 9, 1996 /S/ R.A. Spohn
R.A. Spohn, Controller -
Accounting and Reporting
Principal Accounting Officer
21<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 74
<SECURITIES> 9
<RECEIVABLES> 1,206
<ALLOWANCES> 32
<INVENTORY> 949
<CURRENT-ASSETS> 2,399
<PP&E> 2,265
<DEPRECIATION> 971
<TOTAL-ASSETS> 5,696
<CURRENT-LIABILITIES> 1,364
<BONDS> 1,304
<COMMON> 220
0
0
<OTHER-SE> 1,707
<TOTAL-LIABILITY-AND-EQUITY> 5,696
<SALES> 3,367
<TOTAL-REVENUES> 3,367
<CGS> 2,547
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<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 63
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</TABLE>
