FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 31, 1996
was 109,453,782.<PAGE>
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
Condensed Consolidated Balance Sheet at
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Income Statement for the
three and nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statement of Cash Flows
for the nine months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-19
Exhibit 11 - Computations of Primary and
Fully Diluted Earnings Per Share 20-21
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 22
SIGNATURES 23
2<PAGE>
PART I. FINANCIAL INFORMATION
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
Current assets:
Cash and cash equivalents $ 115.2 $ 137.3
Marketable securities 9.4 9.3
Accounts and notes receivable, net of
allowance for doubtful accounts 1,085.3 1,109.9
Inventories 924.7 912.6
Prepaid expenses and deferred taxes 210.0 176.5
Assets held for sale 51.0 --
Total current assets 2,395.6 2,345.6
Investments and advances:
Dresser-Rand Company 136.6 93.9
Partially-owned equity companies 220.2 223.3
356.8 317.2
Property, plant and equipment, at cost 2,262.7 2,205.2
Less - accumulated depreciation 975.3 926.8
Net property, plant and equipment 1,287.4 1,278.4
Intangible assets, net 1,305.8 1,253.6
Deferred income taxes 140.9 134.8
Other assets 220.1 233.7
Total assets $5,706.6 $5,563.3
LIABILITIES AND EQUITY
Current liabilities:
Loans payable $ 264.9 $ 155.4
Accounts payable and accruals 1,181.4 1,173.8
Total current liabilities 1,446.3 1,329.2
Long-term debt 1,168.9 1,304.4
Postemployment liabilities 840.2 832.1
Ingersoll-Dresser Pump Company minority interest 113.1 170.8
Other liabilities 139.3 131.3
Shareowners' equity:
Common stock 220.5 219.4
Other shareowners' equity 1,778.3 1,576.1
Total shareowners' equity 1,998.8 1,795.5
Total liabilities and equity $5,706.6 $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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $1,595.8 $1,521.3 $4,962.5 $4,099.0
Cost of goods sold 1,206.7 1,163.2 3,753.4 3,107.3
Administrative, selling and service
engineering expenses 240.4 239.0 733.5 664.7
Operating income 148.7 119.1 475.6 327.0
Interest expense (28.1) (32.4) (91.5) (59.4)
Other income (expense), net 4.9 5.6 3.0 4.0
Dresser-Rand income 8.5 6.0 16.0 11.3
Ingersoll-Dresser Pump
minority interest (4.0) (0.2) (8.3) (5.6)
Earnings before income taxes 130.0 98.1 394.8 277.3
Provision for income taxes 48.1 36.3 146.1 102.6
Net earnings $ 81.9 $ 61.8 $ 248.7 $ 174.7
Average number of common
shares outstanding 107.7 106.1 107.4 105.8
Net earnings per common share $ 0.76 $ 0.58 $ 2.32 $ 1.65
Dividends per common share $0.205 $0.185 $0.575 $0.555
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4<PAGE>
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net earnings $ 248.7 $ 174.7
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 154.5 131.9
(Gain)/loss on sale of businesses (45.1) 7.1
Realignment of operations 30.4 --
Equity earnings/loss, net of dividends (16.1) (27.2)
Minority interest in earnings 10.3 7.7
Deferred income taxes (25.5) (0.1)
Other noncash items (1.9) 0.2
Changes in other assets and
liabilities, net (159.0) (109.8)
Net cash provided by operating activities 196.3 184.5
Cash flows from investing activities:
Capital expenditures (143.5) (157.9)
Proceeds from sales of property, plant
and equipment 31.2 13.5
Acquisitions, net of cash (130.5) (1,136.5)
Proceeds from business dispositions 122.6 --
Increase in marketable securities (4.6) (5.0)
Cash advances (to) from equity companies (32.8) 22.5
Net cash used in investing activities (157.6) (1,263.4)
Cash flows from financing activities:
Increase in short-term borrowings 4.6 108.5
Proceeds from long-term debt .1 902.7
Payments of long-term debt (27.7) (16.9)
Net change in debt (23.0) 994.3
Proceeds from sale of treasury
stock to LESOP -- 104.3
Dividends paid (61.8) (58.7)
Other 15.0 13.7
Net cash (used in) provided by financing
activities (69.8) 1,053.6
Effect of exchange rate changes
on cash and cash equivalents 9.0 5.0
Net decrease in cash and cash equivalents (22.1) (20.3)
Cash and cash equivalents -
beginning of period 137.3 207.0
Cash and cash equivalents - end of period $ 115.2 $ 186.7
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 nine months ended
September 30, 1996 and 1995.
Note 2 - In late May 1995, the company acquired Clark Equipment
Company (Clark). The results of Clark's operations have
been included in the consolidated financial statements from
the acquisition date. The following unaudited pro forma
consolidated results of operations for the nine months ended
September 30, 1995, 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 nine months ended September 30 1995
Sales $4,716
Net earnings 188
Earnings per share $1.78
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
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. On August 27, 1996, the company acquired for
$34.2 million, substantially all of the assets of Zimmerman
International Corp. (Zimmerman). Zimmerman manufactures
equipment and systems that assist in handling or lifting
6<PAGE>
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 3 - Continued:
tools, components and materials for a variety of industrial
operations.
All transactions have been accounted for as purchases, with
the results included since their respective acquisition
dates. Pro forma results assuming the acquisitions had
occurred 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 September 30, 1996, approximately 1.6 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):
September 30, December 31,
1996 1995
Raw materials and supplies $ 211.6 $ 211.8
Work-in-process 364.2 326.1
Finished goods 516.2 538.5
1,092.0 1,076.4
Less - LIFO reserve 167.3 163.8
Total $ 924.7 $ 912.6
Work-in-process inventories are stated after deducting
customer progress payments of $23.3 million at September 30,
1996 and $38.8 million at December 31, 1995.
Note 9 - The company's investment in the Dresser-Rand partnership at
September 30, 1996 and December 31, 1995 was $141.4 million
and $182.8 million, respectively. The company owed
Dresser-Rand $4.8 million at September 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.
The summarized financial position of Dresser-Rand was as
follows (in millions):
September 30, December 31,
1996 1995
Current assets $469.6 $457.2
Property, plant and
equipment, net 245.4 239.3
Other assets and investments 33.1 27.2
748.1 723.7
Deduct:
Current liabilities 284.7 341.4
Noncurrent liabilities 183.5 200.8
468.2 542.2
Net partners' equity
and advances $279.9 $181.5
8<PAGE>
INGERSOLL-RAND COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Note 9 - Continued:
Net sales of Dresser-Rand were $835.2 million for the
nine months ended September 30, 1996 and $749.6 million
for the nine months ended September 30, 1995; and gross
profit was $167.6 million and $150.3 million,
respectively. Dresser-Rand's net income for the nine
months ended September 30, 1996 was $32.7 million, as
compared to $23.1 million for the nine months ended
September 30, 1995.
Note 10 - In August 1996, the company agreed to sell the remaining
assets of the Process Systems Group to Gencor Industries,
Inc., subject to certain closing conditions. At
September 30, 1996, the net assets subject to sale
totalled $51.0 million and have been classified as
current assets on the Condensed Consolidated Balance
Sheet. The sale is expected to be completed during the
fourth quarter of 1996 at a price in excess of the
carrying value of the net assets. The Process Systems
Group has been reported as part of the Engineered
Equipment Segment.
9<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the third quarter of 1996 totalled $1.6 billion,
representing a 4.9-percent increase over last year's third-quarter
total of $1.5 billion. Both quarters include three months of
activity from Clark Equipment Company (Clark) which was acquired on
May 31, 1995. Net sales excluding Clark, for the 1996 third quarter
approximated $1.2 billion, a 3.8-percent increase over last year's
third quarter.
Operating income for the three months ended September 30, 1996
totalled $148.7 million, and represents a 24.9-percent improvement
over the $119.1 million reported for the third quarter of 1995.
Excluding Clark's results, operating income for the three months
ended September 30, 1996 totalled $115.3 million which reflects a
17.9-percent improvement over the prior year's third quarter without
Clark.
The company reported third quarter net earnings of $81.9
million, or 76 cents per common share, versus $61.8 million, or 58
cents per common share for the three months ended September 30, 1995,
reflecting an improvement of 32.5 percent. Net earnings from Clark
contributed approximately $5.6 million (or five cents per common
share) to the company's results for the three months ended September
30, 1996, as compared to net income of approximately $0.4 million (or
less than one cent per common share), in the similar quarter of 1995.
The company's third-quarter net earnings, both including and
excluding Clark's results, established a new third-quarter record.
The company's strong third-quarter performance was based on both the
solid results from Clark and from the company's historical lines of
business. These lines of business reflected continued strength in
domestic markets (principally general industrial, pump and housing
markets) combined with an improvement in some of the company's
international operations.
There were no partial liquidations of LIFO (last-in, first
out) inventories during the third quarter of either 1996 or 1995.
Net gains from foreign exchange activity during the three months
ended September 30, 1996 and 1995 benefitted net earnings by $0.7
million (or less than one cent per common share) and $1.4 million (or
one cent per common share), respectively.
For the first nine months of 1996, net sales amounted to $5.0
billion, a 21-percent improvement over last year's nine-month total.
Sales for the first three quarters of the year, excluding
Clark, would have exceeded last year's comparable sales level by
approximately five percent. Operating income for the first nine
months of 1996 totalled $475.6 million, which represents a 45-percent
increase over the $327.0 million reported for the comparable 1995
period. Operating income for the first three quarters of 1996,
10<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
without Clark, increased by approximately 18 percent compared to
1995. In addition to the inclusion of Clark results, the following
noncomparable items (recorded during the first quarter of the year)
affected the company's results for the nine months ended September
30, 1996:
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 results
by $4.8 million ($3.0 million after-tax, or three cents per
common share).
The company reported net earnings of $248.7 million, or $2.32
per common share, for the first nine months of 1996. Net earnings
for the first three quarters of 1995 totalled $174.7 million, or
$1.65 per common share. Net earnings from Clark for the first nine
months of 1996 resulted in income of $30.2 million, or 28 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 $1.6 million, or two cents per share, during the
first nine months of 1995.
A partial liquidation of LIFO inventories lowered cost of
goods sold during the first nine months of 1996 by $2.3 million
(approximately $1.4 million after-tax or one cent per common share).
There were no partial liquidations of LIFO inventories during the
first nine months of 1995. Foreign exchange losses for the first
nine months of 1996 decreased net earnings by $1.7 million or two
cents per common share as compared to foreign exchange losses of $2.9
million or three cents per common share for the comparable 1995
period.
11<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 third
quarter and first nine months of 1996 improved slightly over the
comparable periods of 1995. The ratio of administrative, selling and
service engineering expenses to sales for both the third quarter and
first nine months of the year improved over the comparable periods in
1995.
Other income (expense) aggregated $4.9 million of net income
for the three months ended September 30, 1996, a decrease of $0.7
million over the other income reported for 1995's third quarter.
This decline was the net effect of a reduction in the company's
portion of earnings from its partially-owned equity companies and
lower gains on foreign currency activity which were partially offset
by higher gains from the sale of excess fixed assets. For the first
nine months of 1996, other income (expense) totalled $3.0 million of
net income, which was $1.0 million lower than the $4.0 million of net
income reported for the first three quarters of 1995. This
unfavorable change was primarily the net effect of two positive and
two negative items. The positive items included gains on the sale of
an investment and excess fixed assets combined with a reduction in
losses from foreign currency activities. Offsetting these items were
a marked reduction in the company's portion of earnings from its
partially-owned equity companies and an increase in miscellaneous
expenses.
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 third
quarter of 1996, the minority interest charge totalled $4.0 million,
which indicates that IDP generated net earnings at the partnership
level of approximately $8 million. For the first three quarters of
1996, the minority interest charge totalled $8.3 million, which
indicates that IDP generated approximately $17 million of net
earnings at the partnership level for the first nine months of the
year. For the third quarter and first nine months of 1995, the
minority interest charge for IDP was $0.2 million and $5.6 million,
respectively.
The company's pretax profits for its 49-percent interest in
Dresser-Rand Company (another partnership between Dresser and the
company) totalled $8.5 million for the third quarter of the year and
$16.0 million for the first nine months of 1996. This compares to
income of $6.0 million for the third quarter of 1995 and $11.3
million for the nine months ended September 30, 1995. The third-
quarter increase was attributable to improvement in Dresser-Rand's
markets as compared to a year ago.
12<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
Interest expense for the third quarter and first nine months
of 1996 was $28.1 million and $91.5 million, respectively. The
interest expense reported for the quarter and the nine months of 1996
was almost evenly divided between normal interest expense from the
combined operations of Ingersoll-Rand and Clark, and interest expense
associated with the Clark acquisition. Interest expense for the
third quarter of 1995 totalled $32.4 million and $59.4 million for
the first nine months of 1995.
The company's effective tax rate for the third quarter and
first nine months of 1996 and 1995 was 37.0 percent. 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 third quarter and first
nine months of the year benefitted from business improvements in a
number of the company's domestic markets (including general
industrial, pump and housing markets). International business has
generally reflected increases during the first nine months of 1996
when compared to the comparable period in 1995. Incoming orders for
the third quarter of the year totalled $1.6 billion and represent an
increase of 3.6 percent over the 1995 third quarter. New orders
associated with Clark totalled approximately $300 million. Third
quarter bookings, excluding Clark, were up 6.6 percent and reflected
strong domestic growth and a decrease in selected international
areas. The company's backlog of orders at September 30, 1996,
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 September 30, 1996
reflected a moderate change from December 31, 1995, which was
primarily caused by the reclassification of $132.5 million of Medium
Term Notes (issued to partially finance the Clark acquisition) from
the long-term debt classification to current maturities of long-term
debt, because repayment will occur during the third quarter of 1997.
A result of the reclassification is the reduction in working capital
to $949.3 million at September 30, 1996, as compared to $1.0 billion
at December 31, 1995. In addition, the reclassification changed the
company's current ratio to 1.7 to 1 at September 30, 1996 from a
ratio of 1.8 to 1 at December 31, 1995. However, it should be noted
13<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
that the company's debt-to-total capital ratio improved to 42 percent
at September 30, 1996 from the 45 percent ratio at December 31, 1995.
The company's cash and cash equivalents decreased by $22.1
million during the first nine months of 1996 to $115.2 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 $196.3
million, investing activities used $157.6 million and financing
activities used $69.8 million. Exchange rate changes during the
first nine months of 1996 increased cash and cash equivalents by $9.0
million.
Receivables totalled $1.1 billion at September 30, 1996, which
represents a $24.6 million decrease from the amount reported at
December 31, 1995. This decrease was the net effect of dispositions,
the classification of certain receivables as assets held for sale,
aggressive collection efforts and translation partially offset by
acquisitions and increased sales.
Inventories totalled $924.7 million at September 30, 1996,
approximately $12.0 million higher than the level at December 31,
1995. The activity during the first three quarters of 1996
represents the net effect of lower progress payments, increased sales
and acquisitions, offset by dispositions, the classification of
certain inventory as assets held for sale, and the effect of currency
translation on the international inventories.
Intangible assets increased approximately $52 million during
the first nine months of 1996. This net increase came from the
acquisitions of Steelcraft and Zimmerman partially offset by
amortization during the period.
Long-term debt, including current maturities, at September 30,
1996, totalled $1.4 billion. The company's September 30, 1996 debt-
to-total capital ratio was 42 percent, which reflects continuing
improvement from the 45 percent ratio at December 31, 1995.
During the first nine months of 1996, foreign currency
adjustments resulted in a net decrease of $13.5 million in
shareowners' equity, caused by the strengthening of the U.S. dollar
against other currencies. Currency changes in France, Germany,
Italy, Japan, South Africa and Spain accounted for nearly all of this
change. The translation of accounts receivable and inventories were
the principal balance sheet items affected by currency fluctuations
in the first nine months of 1996.
14<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
Environmental Matters
Environmental matters at September 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 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. 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 August 27, 1996, the company acquired the business and
assets of Zimmerman International Corp., which manufactures equipment
and systems that assist in handling or lifting tools, components and
materials for a variety of operations. The acquisition was paid for
in cash and the assumption of certain liabilities. Zimmerman's
business is now part of Tool and Hoist, a division of the Production
Equipment Group.
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.
15<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
In May 1995, the company acquired Clark Equipment Company for
a cash price of $86 per share. 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 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. The Clark acquisition has been
accounted for as a purchase and Clark's assets have been consolidated
into the financial statements of the company.
Assets Held for Sale and Dispositions
In August 1996, the company agreed to sell the remaining
assets of the Process Systems Group to Gencor Industries, Inc.,
subject to certain closing conditions. At September 30, 1996, the
net assets subject to sale totalled $51.0 million and have been
classified as current assets on the Condensed Consolidated Balance
Sheet. The sale is expected to be completed during the fourth
quarter of 1996 at a price in excess of the carrying value of the net
assets. The Process Systems Group has been reported as part of the
Engineered Equipment Segment.
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.
16<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
Review of Business Segments
The Standard Machinery Segment reported sales of $694.3
million during the third quarter of 1996, which is 5.6 percent above
1995's third quarter level of $657.7 million. This segment includes
the operating results since acquisition of all Clark operations, with
the exception of the Clark-Hurth unit. Excluding the sales from Clark
units, third-quarter sales for this segment were $424.4 million,
slightly above last year's third-quarter total. Operating income for
the quarter was $74.1 million and represents a 22-percent improvement
over the $60.8 million reported for the three months ended September
30, 1995. Excluding the Clark operations, third-quarter operating
income would have been $38.0 million, a five-percent improvement over
1995's third quarter. For the first nine months of 1996, the
segment's net sales totalled $2.2 billion, which was 36.4 percent
above the $1.6 billion reported for the comparable 1995 period.
Operating income for the first three quarters of 1996 totalled $227.0
million, which was 56 percent higher than the $145.8 million reported
for the comparable 1995 period. Excluding the Clark operations,
operating income for the first nine months of 1996 would have been
$100.1 million, including 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
Air Compressor and Melroe groups report increased sales and operating
income when compared to the third quarter of 1995.
Engineered Equipment Segment's sales for the third quarter of
the year totalled $301.2 million, which were $31.5 million lower than
1995's third-quarter total of $332.7 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,
third-quarter sales for the segment were $223.1 million. Operating
income for the quarter totalled $8.7 million, a modest improvement
over the $6.9 million reported for 1995's third quarter. Clark-Hurth
operated essentially at break-even for the third quarter of 1996,
principally because of the poor economic situation in German markets.
For the first nine months of 1996, the segment reported sales of
$977.4 million. Operating income for the first three quarters of
1996 was $72.1 million, as compared to $25.5 million for the
comparable 1995 period. Third quarter sales for IDP increased
approximately five percent and operating income improved
significantly over the amounts reported for the three months ended
September 30, 1995. IDP's sales for the first nine months of 1996
were more than five-percent higher than last year's nine month number
and their 1996 operating income reflected a significant improvement
over the comparable 1995 period. The remaining portion of the
Process Systems Group reported a modest decrease in its third-quarter
sales and operating income compared to 1995 third-quarter results.
17<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
The Bearings, Locks and Tools Segment reported sales of $600.3
million for the three months ended September 30, 1996, a 13.1-percent
increase over last year's third-quarter total of $530.9 million.
Operating income was $76.4 million, as compared to the 1995 third-
quarter level of $63.8 million. For the first nine months of 1996,
the segment reported net sales of $1.8 billion, 8.7 percent above the
amount reported in the comparable period of 1995. Operating income
for the first three quarters of 1996, totalled $208.5 million
compared to $186.8 million reported for the nine months ended
September 30, 1995.
The Bearings and Components Group's sales in the third quarter
of 1996 were approximately five percent higher than in the 1995 third
quarter. Sales of the Bearings and Components Group for the nine
months ended September 30, 1996 reflected a minor improvement over
1995's level with a comparable amount of operating income for both
periods.
Sales in the Architectural Hardware Group for the three and
the nine months ended September 30, 1996 were over 30 percent above
1995's levels, with approximately half of the increase attributed to
the January 31, 1996 acquisition of Steelcraft. Third-quarter
operating income for the group also improved markedly over 1995's
third quarter, which was depressed due to system integration
problems.
The Production Equipment Group's sales and operating income
for the third quarter of 1996 were slightly above the amounts
reported for the three months ended September 30, 1995. Sales and
operating income of the Production Equipment Group for the nine
months ended September 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.
18<PAGE>
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(continued)
The company cautions that a variety of factors could cause
business conditions and results to differ from expected results
contained in forward looking statements. The company continues to
include among those factors the following: 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, such as unanticipated pricing
actions or product and cost reduction strategies.
19<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 Nine Months Ended
September 30, September 30,
PRIMARY EARNINGS PER SHARE (NOTE 1): 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net earnings applicable to common stock $ 81.9 $ 61.8 $248.7 $174.7
Average number of common shares outstanding 107.7 106.1 107.4 105.8
PRIMARY EARNINGS PER SHARE $0.76 $0.58 $2.32 $1.65
FULLY DILUTED EARNINGS PER SHARE (NOTE 2):(*)
Net earnings for the period $ 81.9 $ 61.8 $248.7 $174.7
Adjusted shares:
Average number of common shares outstanding 107.7 106.1 107.4 105.8
Number of common shares issuable
assuming exercise under incentive
stock plans .7 .6 .6 .5
Average number of outstanding shares,
as adjusted for fully diluted earnings
per share calculations 108.4 106.7 108.0 106.3
FULLY DILUTED EARNINGS PER SHARE $0.75 $0.58 $2.30 $1.64
(*) This calculation is presented in accordance with the Securities Exchange Act of 1934,
although it is not required disclosure under APB Opinion No. 15.
See accompanying notes to computations of primary and fully diluted earnings per share.
</TABLE>
20<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.
21<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 are not expected to have a material
adverse effect 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 agreed to pay a $250,000 civil penalty and the
U.S. agreed to dismiss its suit, subject to a comment period, which
expired on August 9, 1996. The payment was made on September 5,
1996, and the suit dismissed on October 9, 1996.
22<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 November 13, 1996 By: /S/ G.V. Geraghty
G.V. Geraghty, Vice President
and Comptroller
Date November 13, 1996 /S/ R.A. Spohn
R.A. Spohn, Controller -
Accounting and Reporting
Principal Accounting Officer
23<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 115
<SECURITIES> 9
<RECEIVABLES> 1,121
<ALLOWANCES> 36
<INVENTORY> 925
<CURRENT-ASSETS> 2,396
<PP&E> 2,263
<DEPRECIATION> 975
<TOTAL-ASSETS> 5,707
<CURRENT-LIABILITIES> 1,446
<BONDS> 1,169
<COMMON> 221
0
0
<OTHER-SE> 1,778
<TOTAL-LIABILITY-AND-EQUITY> 5,707
<SALES> 4,963
<TOTAL-REVENUES> 4,963
<CGS> 3,753
<TOTAL-COSTS> 3,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> 395
<INCOME-TAX> 146
<INCOME-CONTINUING> 249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 249
<EPS-PRIMARY> 2.32
<EPS-DILUTED> 2.30
</TABLE>
