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, 1997
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, 1997 was
165,549,047.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at
September 30, 1997 and December 31, 1996
Condensed Consolidated Income Statement for the
three and nine months ended September 30, 1997 and 1996
Condensed Consolidated Statement of Cash Flows
for the nine months ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Exhibit 11 - Computations of Primary and
Fully Diluted Earnings Per Share
Part II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
Current assets:
Cash and cash equivalents $ 207.3 $ 184.1
Marketable securities 8.4 8.0
Accounts and notes receivable, net of
allowance for doubtful accounts 1,170.8 1,066.2
Inventories 779.8 775.1
Deferred taxes and prepaid expenses 282.5 236.5
Assets held for sale 15.0 265.7
Total current assets 2,463.8 2,535.6
Investments and advances:
Dresser-Rand Company 143.7 152.6
Partially-owned equity companies 226.1 223.6
369.8 376.2
Property, plant and equipment, at cost 2,157.8 2,103.7
Less - accumulated depreciation 1,002.5 958.3
Net property, plant and equipment 1,155.3 1,145.4
Intangible assets, net 1,458.7 1,178.0
Deferred income taxes 145.5 162.6
Other assets 219.5 223.8
Total assets $5,812.6 $5,621.6
LIABILITIES AND EQUITY
Current liabilities:
Loans payable $ 182.0 $ 162.3
Accounts payable and accruals 1,265.6 1,127.9
Total current liabilities 1,447.6 1,290.2
Long-term debt 1,020.3 1,163.8
Postemployment liabilities 826.2 814.7
Ingersoll-Dresser Pump Company minority interest 103.1 113.4
Other liabilities 133.0 148.7
Shareowners' equity:
Common stock 334.5 220.6
Other shareowners' equity 1,947.9 1,870.2
Total shareowners' equity 2,282.4 2,090.8
Total liabilities and equity $5,812.6 $5,621.6
See accompanying notes to condensed consolidated financial statements.
<TABLE>
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions except per share figures)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES $1,694.0 $1,595.8 $5,170.8 $4,962.5
Cost of goods sold 1,250.8 1,206.7 3,834.7 3,753.4
Administrative, selling and service
engineering expenses 263.5 240.4 780.2 733.5
Operating income 179.7 148.7 555.9 475.6
Interest expense (26.1) (28.1) (83.1) (91.5)
Other income (expense), net (1.7) 4.9 (9.2) 3.0
Dresser-Rand income 8.0 8.5 17.5 16.0
Ingersoll-Dresser Pump
minority interest (3.3) (4.0) (13.0) (8.3)
Earnings before income taxes 156.6 130.0 468.1 394.8
Provision for income taxes 59.5 48.1 181.6 146.1
Net earnings $ 97.1 $ 81.9 $ 286.5 $ 248.7
Average number of common
shares outstanding (*) 163.9 161.5 163.1 161.1
Net earnings per common share (*) $ 0.60 $ 0.50 $ 1.76 $ 1.54
Dividends per common share (*) $0.150 $0.137 $0.423 $0.383
* Share and per share amounts have been restated to reflect the three-for-two
stock split, as discussed in Note 10.
See accompanying notes to condensed consolidated financial statements.
</TABLE>
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net earnings $ 286.5 $ 248.7
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 149.8 154.5
(Gain)/loss on sale of businesses (3.9) (45.1)
Realignment of operations -- 30.4
Equity earnings/loss, net of dividends (24.5) (16.1)
Minority interest in earnings 15.2 9.2
Deferred income taxes 2.7 (25.5)
Other noncash items 19.5 (1.9)
Changes in other assets and
liabilities, net (44.7) (157.9)
Net cash provided by operating activities 400.6 196.3
Cash flows from investing activities:
Capital expenditures (115.5) (143.5)
Proceeds from sales of property, plant
and equipment 14.9 31.2
Acquisitions, net of cash (328.9) (130.5)
Proceeds from business dispositions 249.5 122.6
Increase in marketable securities (2.0) (4.6)
Cash advances (to) from equity companies 16.0 (32.8)
Net cash used in investing activities (166.0) (157.6)
Cash flows from financing activities:
(Decrease) increase in short-term borrowings (50.6) 4.6
Proceeds from long-term debt 2.2 .1
Payments of long-term debt (133.7) (27.7)
Net change in debt (182.1) (23.0)
Purchase of treasury stock (20.2) --
Dividends paid (69.0) (61.8)
Other 39.9 15.0
Net cash used in financing activities (231.4) (69.8)
Effect of exchange rate changes
on cash and cash equivalents 20.0 9.0
Net increase (decrease) in cash and
cash equivalents 23.2 (22.1)
Cash and cash equivalents -
beginning of period 184.1 137.3
Cash and cash equivalents - end of period $207.3 $ 115.2
See accompanying notes to condensed consolidated financial statements.
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, 1997 and 1996.
Note 2 - On April 3, 1997, the company completed the acquisition of
Newman Tonks Group PLC (Newman Tonks), a United Kingdom-
based producer of architectural hardware, for approximately
$370 million. Newman Tonks, headquartered in Birmingham,
England, is a leading manufacturer, specifier and supplier
of branded architectural hardware products with 1996 sales
of approximately $425 million. This transaction has been
accounted for as a purchase, with the results included since
its acquisition date. Pro forma results assuming Newman
Tonks had been acquired at the beginning of the year would
not materially impact the results of the company.
Note 3 - On February 14, 1997 the company sold the Clark-Hurth
Components Group (Clark-Hurth) to Dana Corporation. At
December 31, 1996, the net assets held for sale totaled
$265.7 million and were classified as current assets on the
Consolidated Balance Sheet. Clark-Hurth results have been
reported as part of the Engineered Equipment Segment. This
group's 1997 results inclusive of the sale transaction,
produced operating income for the first quarter of
approximately $2.7 million, but on an after-tax basis,
reduced net earnings by approximately $3.6 million.
Note 4 - On January 31, 1996, the company acquired for $95.4 million
in cash and the assumption of certain liabilities, the
Steelcraft Division of MascoTech, Inc.(Steelcraft).
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
$34.3 million in cash and the assumption of certain
liabilities, substantially all of the assets of Zimmerman
International Corp. (Zimmerman). Zimmerman manufactures
equipment and systems that assist in handling or lifting
tools, components and materials for a variety of industrial
operations. These 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 materially different than those reported.
Note 5 - 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 1996 first quarter, accruals were
established for the exit or abandonment of selected European
product lines and the closing of a steel foundry. These
accruals totaled approximately $30.4 million and were
charged to operating income.
Note 6 - On March 26, 1996, the company sold most of the assets of
the Pulp Machinery Division (the largest unit within the
Process System Group) 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 7 - In August 1996, the company agreed to sell most of the
remaining assets of the Process Systems Group to Gencor
Industries, Inc., subject to certain closing conditions.
The sale was completed during the fourth quarter of 1996 at
a price of approximately $58 million in cash for a pretax
gain of approximately $10 million. The Process Systems
Group had been reported as part of the Engineered Equipment
Segment.
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,
1997 1996
Raw materials and supplies $ 170.6 $ 156.2
Work-in-process 237.0 238.7
Finished goods 533.7 538.1
941.3 933.0
Less - LIFO reserve 161.5 157.9
Total $ 779.8 $ 775.1
Work-in-process inventories are stated after deducting
customer progress payments of $16.1 million at September 30,
1997 and $24.9 million at December 31, 1996.
Note 9 - The company's investment in the Dresser-Rand partnership at
September 30, 1997 and December 31, 1996 was $160.0 million
and $149.4 million, respectively. The company owed
Dresser-Rand $16.3 million at September 30, 1997 and Dresser-
Rand owed the company $3.2 million at December 31, 1996.
During the first nine months of 1996, Dresser-Rand approved
and distributed $115.7 million of capital to its partners of
which $56.7 million was distributed to the company.
Dresser-Rand net sales were $861.4 million for the nine
months ended September 30, 1997 and $835.2 million for the
nine months ended September 30, 1996, and gross profit was
$164.7 million and $167.6 million, respectively.
Dresser-Rand's net income for the nine months ended
September 30, 1997 was $35.7 million, as compared to $32.7
million for the nine months ended September 30, 1996.
The summarized financial position of Dresser-Rand was as
follows (in millions):
September 30, December 31,
1997 1996
Current assets $463.0 $496.5
Property, plant and
equipment, net 245.9 262.5
Other assets and
investments 61.8 49.8
770.7 808.8
Deduct:
Current liabilities 272.5 306.4
Noncurrent liabilities 178.1 204.4
450.6 510.8
Net partners' equity
and advances $320.1 $298.0
Note 10-On August 6, 1997, the board of directors of the company declared
a three-for-two stock split in the form of a stock dividend. The
additional shares were distributed on September 2, 1997 to
shareowners of record on August 19, 1997. Par value per share of
common stock remained at $2.00 per share. The stock split has
been reflected in the accompanying financial statements and all
accompanying per share information for all periods presented have
been restated to reflect the stock split.
Note 11-Earnings per share is computed based on the average number of
common shares outstanding (163.9 million and 163.1 million for the
three and nine months ended September 30, 1997, respectively, and
161.5 million and 161.1 million for the three and nine months
ended September 30, 1996, respectively). The Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings per Share" in February 1997, which is
required to be adopted on December 31, 1997. The impact of SFAS
No. 128 on the calculation of earnings per share for the three and
nine months ended September 30, 1997 and 1996 is not material.
Note 12-On October 31, 1997, the company completed its previously
announced acquisition of Thermo King Corporation (Thermo King),
a wholly-owned subsidiary of Westinghouse Electric Corporation,
for approximately $2.56 billion in cash.
Based in Minneapolis, Thermo King is the world leader in the
transport temperature control business for trailers, truck
bodies, sea-going containers, buses and light-rail cars.
Thermo King reported 1996 sales of approximately $1 billion and
net income of approximately $141 million. It has a global
presence with about 45 percent of its sales generated outside
North America. Thermo King operates six manufacturing/assembly
facilities in North America and international facilities
located in Ireland, Brazil, Germany, the Czech Republic,
Denmark, and, through majority-owned joint ventures, in Spain
and China.
The initial funds used to consummate the acquisition were
obtained from the issuance of commercial paper and the use of
approximately $100 million of available cash. Over the next
few months, the company expects to reduce the outstanding
commercial paper with the proceeds from the issuance of
approximately $1.6 billion of medium-term debt (with maturities
ranging from three to ten years) and $600 million of company
obligated mandatorily redeemable preference securities of a
subsidiary holding solely debentures of the company (an equity-
linked security).
Note 13-On October 24, 1997, in connection with the acquisition of
Thermo King, the company entered into forward interest rate
agreements to hedge the future U.S. Treasury component of the
interest rate related to an aggregate amount of $800 million of
medium-term financing related to the acquisition. These
contracts mature on December 1, 1997, and the financing is
planned to mature over periods of three ($400 million), seven
($200 million) and ten ($200 million) years. The weighted
average interest rate on the forward contracts was 6.02
percent. The actual effective rate on such borrowings will
consist of the U.S. Treasury rate component plus a credit
spread applicable to the company.
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net sales for the third quarter of 1997 totaled $1.7 billion,
representing a 6.2-percent increase over last year's third quarter.
However, sales comparisons between the two quarters have to be
adjusted to reflect the following:
o The third quarter of 1997 includes the results from the April 3,
1997 acquisition of the Newman Tonks Group PLC (Newman Tonks), a
U.K.-based producer of architectural hardware. Newman Tonks
generated approximately $85 million of bookings and approximately
$80 million of sales for the third quarter of the year. This unit
also contributed approximately $6 million of operating income for
the third quarter of the year, after the effect of estimated
purchase accounting adjustments.
o The third quarter of 1996 included the results of the Clark-Hurth
Components Group, which was sold on February 14, 1997, and the
Process Equipment Division Unit, which was sold effective
September 30, 1996. These operations reported combined bookings
of approximately $95 million for the third quarter of 1996. Their
combined 1996 third-quarter sales totaled approximately $102
million, which generated approximately $1.4 million of operating
income for the three months ended September 30, 1996.
Operating income for the three months ended September 30, 1997
totaled $179.7 million, and represents a 20.8-percent improvement
over the $148.7 million reported for the third quarter of 1996.
Other income/(expense) was $6.6 million lower than last year's
third quarter. This unfavorable variance is due primarily to the
following factors:
o last year's third quarter included gains of $3.6 million from the
sales of excess fixed assets;
o reduced interest and royalty income of approximately $1.4 million;
and
o increased minority interest charges other than Ingersoll-Dresser
Pump (IDP) minority interest.
Income from the company's share of the operations of the
Dresser-Rand joint venture totaled $8.0 million compared to $8.5
million in the third quarter of 1996. The reduction for the quarter
was attributed to lower third quarter invoicings when compared to
the 1996 third quarter.
The minority interest charge for the IDP joint venture totaled
$3.3 million, versus $4.0 million in the 1996 third quarter. This
reduction is mainly attributed to an increase in foreign income
taxes and a decrease in gains on sale of excess fixed assets for the
third quarter of 1997 when compared to 1996.
Ingersoll-Rand reported third quarter net earnings of $97.1
million (60 cents per common share) versus $81.9 million (50 cents
per common share) for the three months ended September 30, 1996,
reflecting an improvement of 18.6 percent. The earnings per share
figures reflect the effect of the September 2, 1997, three-for-two
stock split. The company's third-quarter performance established a
new third quarter record for the company. The company's record
third-quarter results were based on a strong domestic economy and
the benefits generated from the company's productivity-improvement
plans and procurement programs.
There were no partial liquidations of LIFO (last-in, first
out) inventories during the third quarter of either 1997 or 1996.
Net gains from foreign exchange activity during the three months
ended September 30, 1997 and 1996 benefitted net earnings by $1.5
million (approximately one cent per common share) and $0.7 million
(less than one cent per common share), respectively.
The company's results for the first nine months of the year
reflected improvement over the comparable period last year. Net
sales totaled $5.2 billion, a 4.2 percent increase over 1996's first
nine-month sales total. Operating income amounted to $555.9 million
for an improvement of 16.9 percent over the $475.6 million total for
the first nine months of the prior year. Net earnings for the period
amounted to $286.5 million ($1.76 per common share) which is $37.8
million higher than last year's nine-month total of $248.7
million ($1.54 per common share). The earnings per share figures
reflect the effect of the September 2, 1997, three-for-two stock
split.
The improvement for the first nine months of the year is more
pronounced after the exclusion of the following noncomparable items
from both periods:
(a) the first quarter of 1997 contains operating income of $2.7
million from the Clark-Hurth Group (sold on February 14, 1997)
from the results of the group and the sale transaction. However,
due to the differences between the book and tax basis of the net
assets sold, this resulted in a net after-tax loss of
approximately $3.6 million;
(b) the second and third quarters of 1997 include the results of Newman
Tonks which reported sales of approximately $164 million and operating
income of approximately $7.0 million (after the effect of estimated
purchase accounting adjustments);
(c) the second quarter of 1997 includes a charge of $8.0 million
for the writedown of certain assets being held for sale;
(d) the first nine months of 1996 included the following:
(i) an operating income benefit of approximately $45
million from the sale of the Pulp Machinery
Division, which increased net earnings by
approximately $28 million;
(ii) a charge to operating income of approximately $25
million for the realignment of the company's
foreign operations and for the abandonment of
selected European product lines. These actions
reduced net earnings by approximately $15.5
million;
(iii) a charge to operating income of $5.4 million by
IDP for the closing of a steel foundry, which
reduced net earnings by approximately $2 million;
(iv) sales during the first nine months of 1996 for the
Clark Hurth Group (which was sold on February 14, 1997)
totaled approximately $260 million and contributed
approximately $2.6 million of operating income to
the company;
(v) the Process Systems Group was sold in two pieces
during 1996. The Pulp Machinery Division was sold
at the end of the first quarter of 1996 and the
remaining units were sold effective September 30, 1996.
This group generated approximately $90 million of
product sales during the first nine months of 1996
which resulted in approximately $5.8 million in
operating income for the company; and
(vi) a gain on the sale of an investment which benefitted
other income by $4.8 million.
A comparison of key income statement amounts between the first
nine months of both years is as follows:
o Net sales for the first nine months of 1997 were $208.3 million
above last year's first nine month total. Excluding noncomparable
units from both periods, adjusted sales for the first nine months
of 1997 increased approximately eight percent over last year's
adjusted nine month total.
o The ratio of cost of goods sold to sales for the first three
quarters of 1997 reflected an improvement over the reported 1996
nine-month ratio. Excluding noncomparable items from both
periods, the adjusted ratio of cost of goods sold to sales
reflected a marked improvement in 1997, when compared to 1996.
o A partial liquidation of LIFO (last in, first out) inventories
lowered cost of goods sold during the first nine months of 1997 by
$1.4 million compared to reductions of $2.3 million during the
first nine months of 1996.
o The ratio of administrative, selling and service engineering
expenses to sales was 15.1 percent for the first nine months of
1997, as compared to 14.8 percent for the same period of 1996.
This deterioration is primarily attributable to the inclusion of
Newman Tonks, which traditionally has had a higher ratio of
selling and administrative expenses to sales than the company's
historical lines and the divestment of Clark-Hurth which had a
lower ratio than that of the overall company.
o Operating income for the first nine months of 1997 was $555.9
million which was $80.3 million higher than last year's nine month
total. The ratio of operating income to sales in 1997 was 10.8
percent, as compared to 9.6 percent for the first nine months of
the prior year. After excluding the noncomparable items
(previously discussed) from both periods, the adjusted 1997
operating income reflects a significant improvement over the
adjusted 1996 figure. This improvement was the effect of an
improved economy and the company's aggressive productivity-
improvement and procurement programs.
o Other income (expense), net, aggregated $9.2 million of expense
for the nine months ended September 30, 1997, as compared to $3.0
million of income in the first nine months of 1996. This
unfavorable change was attributed to the following:
o 1996 includes a $4.8 million gain from the sale of an
investment and gains from the sales of excess fixed assets;
o the minority interest charges for the first nine months of
1997 were higher than the amount reported for the
comparable 1996 period; and
o the remaining difference is attributed to lower losses from
foreign currency transactions and higher costs of a
miscellaneous nature during the first nine months of 1997.
o The company's pretax profits for its 49 percent interest in
Dresser-Rand Company totaled $17.5 million for the first nine
months of 1997, reflecting a modest improvement over the $16.0
million reported for the first nine months of 1996.
o The IDP minority interest charge totaled $13.0 million for the
first three quarters of 1997 versus $8.3 million for last year's
first nine months.
o Interest expense for the first nine months of the year totaled
$83.1 million, which represents an $8.4 million reduction from the
$91.5 million for the first nine months of last year, reflecting
the benefit of lower debt levels in 1997.
o The company's effective tax rate for the first nine months of 1997
was 38.8 percent. Taxes of $7.2 million relating to the sale of
Clark-Hurth resulted in an effective first-quarter rate of 40.9
percent. The effective tax rate for both the first nine months
and full year of 1996 was 37 percent.
The consolidated results for the first nine months of the year
benefited from the combination of business improvements in a number
of the company's domestic markets (including automotive,
construction and general industrial) and a continued emphasis on the
company's productivity-improvement and procurement programs, and
prior-year restructuring actions. Incoming orders for the first
nine months of the year totaled $5.3 billion, which was
approximately $212 million (or 4.2 percent) above last year's nine
month total.
Bookings for the third quarter excluding noncomparable businesses,
reflected an overall increase of seven percent. Bookings in the
United States were up approximately 12 percent, and international
orders were down one percent from last year, due to an unfavorable
currency impact of approximately seven percent. The company's
backlog of orders at September 30, 1997, believed by it to be firm,
was $1.3 billion. The company estimates that approximately 90
percent of the backlog will be shipped during the next twelve
months.
Liquidity and Capital Resources
In the first nine months of the year, the company completed
the sale of the Clark-Hurth Group on February 14, 1997, and the
acquisition of Newman Tonks, on April 3, 1997. The cash proceeds
from the Clark-Hurth disposition (received at the closing) were
approximately $242 million and the cash cost of the Newman Tonks
acquisition was approximately $370 million. During the first nine
months of 1997, the company's working capital decreased by
approximately $229.2 million to $1.0 billion from the December 31,
1996 balance. The current ratio at September 30, 1997 was 1.7 to
1.0 which is lower than the 2.0 to 1.0 at the end of last year.
These reductions are primarily attributed to the company's
divestitures and acquisitions program during the first nine months
of the year.
The company's cash and cash equivalents increased by $23.2
million during the first nine months of 1997 to $207.3 million
from $184.1 million at December 31, 1996. In evaluating the net
change in cash and cash equivalents, cash flows from operating,
investing and financing activities, and the effect of exchange rate
movements must be considered. Cash flows from operating activities
provided $400.6 million, investing activities used $166.0 million
and financing activities used $231.4 million. Exchange rate changes
during the first nine months of 1997 increased cash and cash
equivalents by $20.0 million.
Receivables totaled $1.2 billion at September 30, 1997, which
represents a $104.6 million increase over the amount reported at
December 31, 1996. The increase was attributed to strong third
quarter sales and $63.2 million from the acquisition of Newman
Tonks, partially offset by the effect of foreign currency
translation.
Inventories totaled $779.8 million at September 30, 1997,
approximately $4.7 million higher than the year-end balance of
$775.1 million. The net increase is the result of $68 million
increase related to the Newman Tonks acquisition and reductions due
to increased sales and improvement in the company's inventory
management programs and the effect of exchange rates applicable to
international inventories.
Intangible assets increased by approximately $280.7 million
during the first nine months of 1997, due primarily to the
acquisition of Newman Tonks, reduced by scheduled amortization.
Long-term debt, including current maturities, at September 30,
1997, totaled $1.2 billion. The company's debt-to-total capital
ratio (excluding minority interest) improved to 35-percent at
September 30, 1997, which represents a four percentage point
improvement over the 39 percent ratio at December 31, 1996.
During the first nine months of 1997, foreign currency
translation adjustments resulted in a net decrease of approximately
$64.7 million in shareowners' equity, caused by the strengthening of
the U.S. dollar against other currencies. Currency changes in
Belgium, France, Germany, Italy, Japan, Netherlands, Spain,
Singapore, Switzerland and the United Kingdom accounted for almost
all of this change.
Environmental Matters
The company has been and continues to be dedicated to an
environmental program to reduce the utilization and generation of
hazardous materials during the manufacturing process and to
remediate identified environmental concerns. As to the latter, the
company currently is engaged in site investigations and remedial
activities to address environmental cleanup from past operations at
current and former manufacturing facilities, including the
facilities added through acquisitions.
The company is a party to environmental lawsuits and claims,
and has received notices of potential violations of environmental
laws and regulations from the Environmental Protection Agency and
similar state authorities. It is identified as a potentially
responsible party(PRP) for cleanup costs associated with off-site
waste disposal at approximately 37 federal Superfund and state
remediation sites, excluding sites as to which the company's records
disclose no involvement or as to which the company's liability has
been fully determined. For all sites, there are other PRPs and in
most instances, the company's site involvement is minimal. In
estimating its liability, the company has assumed it will not bear
the entire cost of remediation of any site to the exclusion of other
PRPs who may be jointly and severally liable. The ability of other
PRPs to participate has been taken into account, based generally on
the parties' financial condition and probable contribution on a per
site basis. Additional lawsuits and claims involving environmental
matters are likely to arise from time to time in the future.
Although uncertainties regarding environmental technology,
state and federal laws and regulations and individual site
information make estimating the liability difficult, management
believes that the total liability for the cost of remediation and
environmental lawsuits and claims will not have a material affect on
the financial condition, results of operations, liquidity or cash
flows of the company for any year. 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 April 3, 1997, the company completed the acquisition of
Newman Tonks, a United Kingdom-based producer of architectural
hardware, for approximately $370 million. Newman Tonks,
headquartered in Birmingham, England, is a leading manufacturer,
specifier and supplier of branded architectural hardware products
with 1996 sales of approximately $425 million. This transaction has
been accounted for as a purchase, with the results included since its
acquisition date.
On August 27, 1996, the company acquired the business and
substantially all of the 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.
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.
Dispositions
On February 14, 1997, the company sold the Clark-Hurth Group
to Dana Corporation. Clark-Hurth had been reported as part of the
Engineered Equipment Segment. This group's 1997 results inclusive of
the sale transaction produced operating income for the first quarter
of $2.7 million; however, on an after-tax basis, this disposition
reduced net earnings by approximately $3.6 million.
On March 26, 1996, the company sold most of the assets of the
Pulp Machinery Division (the largest unit within the Process Systems
Group) 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.
In August 1996, the company agreed to sell most of the
remaining assets of the Process Systems Group to Gencor Industries,
Inc., subject to certain closing conditions. The sale was completed
during the fourth quarter of 1996 at a price of approximately $58
million in cash for a pretax gain of approximately $10 million.
Shareowners' Equity
On August 6, 1997, the board of directors approved a three-for-
two stock split of the company's common stock. The stock split was
effected in the form of a stock dividend and was paid on September 2,
1997, to stockholders of record on August 19, 1997. Fractional
shares were settled in cash.
On May 7, 1997, the company announced that its board of
directors had authorized the repurchase of up to 10 million shares of
the company's common stock. (The number of shares has been adjusted
to 15 million to reflect the effect of the September 2, 1997, three-
for-two stock split.) Based on market conditions, the share
repurchases will be made from time to time in the open market and in
privately negotiated transactions. As of October 31, 1997, the
number of shares repurchased under this program is 595,200 shares.
The repurchased shares will be available for general corporate
purposes.
Subsequent Events
On October 31, 1997, the company completed its previously
announced acquisition of Thermo King Corporation, a wholly-owned
subsidiary of Westinghouse Electric Corporation, for approximately
$2.56 billion in cash.
Based in Minneapolis, Thermo King is the world leader in the
transport temperature control business for trailers, truck bodies,
sea-going containers, buses and light-rail cars. Thermo King
reported 1996 sales of approximately $1 billion and net income of
approximately $141 million. It has a global presence with about 45
percent of its sales generated outside North America. Thermo King
operates six manufacturing/assembly facilities in North America and
international facilities located in Ireland, Germany, Brazil, the
Czech Republic, Denmark, and, through majority-owned joint
ventures, in Spain and China.
The initial funds used to consummate the acquisition were
obtained from the issuance of commercial paper and the use of
approximately $100 million of available cash. Over the next few
months, the company expects to reduce the outstanding commercial
paper with the proceeds from the issuance of approximately $1.6
billion of medium-term debt (with maturities ranging from three to
ten years) and $600 million of company obligated mandatorily
redeemable preference securities of a subsidiary holding solely
debentures of the company (an equity-linked security).
On October 24, 1997, in connection with the acquisition of
Thermo King, the company entered into forward interest rate
agreements to hedge the future U.S. Treasury component of the
interest rate related to an aggregate amount of $800 million of
medium-term financing related to the acquisition. These contracts
mature on December 1, 1997, and the financing is planned to mature
over periods of three ($400 million), seven ($200 million) and ten
($200 million) years. The weighted average interest rate on the
forward contracts was 6.02 percent. The actual effective rate on
such borrowings will consist of the U.S. Treasury rate component
plus a credit spread applicable to the company.
Review of Business Segments
The Standard Machinery Segment reported sales of $762.8
million during the third quarter of 1997, which is 9.9 percent above
1996's third quarter level of $694.3 million. Operating income for
the quarter was $89.3 million and represents a 20.5-percent
improvement over the $74.1 million reported for the three months
ended September 30, 1996. For the first nine months of 1997 the
segment's net sales totaled $2.3 billion, which was seven percent
above the $2.2 billion reported for the comparable 1996 period.
Operating income for the first three quarters of 1997 totaled $284.6
million, which represents an improvement of 25.4 percent over the
$227.0 million reported for the comparable 1996 period.
The Construction and Mining Group, the Air Compressor Group
and Melroe Company all reported double-digit operating income
improvements for the third quarter of the year. The segment's
performance reflects continued strong demand in the North and South
American markets, the benefits of the company's continuous focus on
productivity and improved European results, mainly due to
restructuring actions taken in 1996.
The Engineered Equipment Segment is comprised solely of IDP
since the February 14, 1997, sale of the Clark-Hurth Group. IDP's
sales for the third quarter of the year totaled $198.8 million, which
reflects a modest increase over last year's third quarter level of
$196.6 million. However, IDP's operating income for the quarter
totaled $9.2 million, which reflects a strong improvement over last
year's $7.3 million. For the first nine months of 1997, IDP reported
sales of $613.3 million, which was down slightly from 1996's nine
month total of $618.0 million. Operating income for the first nine
months of the year was $32.9 million, reflecting a significant
improvement over the amount reported for the first three quarters of
1996. The first quarter of 1996 included a $5.4 million charge to
operating income for the closure of a steel foundry. The improvement
in operating income for both the third quarter and first nine months
of 1997 is attributed to the benefits from previous restructuring
actions and increased operating efficiencies.
The Bearings, Locks and Tools Segment reported sales of $732.4
million for the three months ended September 30, 1997, a 22.0-percent
increase over last year's third-quarter total of $600.3 million.
Operating income was $92.9 million, as compared to the 1996 third-
quarter level of $76.4 million. For the first nine months of 1997,
the segment reported net sales of $2.2 billion, 20.9 percent above
the amount reported in the comparable period of 1996. Operating
income for the first three quarters of 1997, totaled $271.4 million
compared to $208.5 million reported for the nine months ended
September 30, 1996. Since its April 3, 1997 acquisition, Newman
Tonks results have been included in this segment.
The Bearings and Components Group's sales for the third
quarter of 1997 were slightly higher than the amount reported for the
third quarter of 1996. However, operating income for the group was
below last year's third quarter by approximately 15 percent mainly
due to inventory reduction actions instituted during the quarter.
Sales for the nine months ended September 30, 1997 exceeded the
comparable period in 1996 by approximately five percent and operating
income reflected an improvement of more than 15 percent.
The Architectural Hardware Group's results include the
operations of Newman Tonks since its April 3, 1997, acquisition date.
For the third quarter of 1997, Newman Tonks generated approximately
$80 million in sales and contributed approximately $6 million of
operating income to the group's third quarter performance, after the
effect of estimated purchase accounting adjustments. Excluding
Newman Tonks, sales and operating income reported by the
Architectural Hardware Group for both the third quarter and first
nine months of 1997 reflected marked improvements over the comparable
amounts in the prior year.
The Production Equipment Group's sales and operating income
for the third quarter of 1997 were well above the amounts reported
for the three months ended September 30, 1996. Sales and operating
income of the Production Equipment Group for the nine months ended
September 30, 1997 exceeded the amounts reported for the comparable
1996 period by approximately 20 percent and 50 percent, respectively.
Approximately one-half of the sales and operating income improvements
is attributed to the Automated Production Systems Division.
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; 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 new product introductions.
<TABLE>
PART I- EXHIBIT 11
Page 1 of 2
INGERSOLL-RAND COMPANY
COMPUTATIONS OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(in millions except per share figures)
Three Months Ended Nine Months Ended
September 30, September 30,
PRIMARY EARNINGS PER SHARE: 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net earnings applicable to common stock $ 97.1 $ 81.9 $286.5 $248.7
Average number of common shares outstanding (*) 163.9 161.5 163.1 161.1
PRIMARY EARNINGS PER SHARE $0.60 $0.50 $1.76 $1.54
FULLY DILUTED EARNINGS PER SHARE (NOTE 1):(**)
Net earnings for the period $ 97.1 $ 81.9 $286.5 $248.7
Adjusted shares:
Average number of common shares outstanding(*) 163.9 161.5 163.1 161.1
Number of common shares issuable
assuming exercise under incentive
stock plans 3.2 1.1 2.5 .7
Average number of outstanding shares,
as adjusted for fully diluted earnings
per share calculations 167.1 162.6 165.6 161.8
FULLY DILUTED EARNINGS PER SHARE $0.58 $0.50 $1.73 $1.54
(*) Common share and per share figures for 1996 have been restated to reflect
the three-for-two stock split declared by the company on August 6, 1997.
See Note 10 to the condensed consolidated financial statements for
additional information.
(**) 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>
PART I - EXHIBIT 11
Page 2 of 2
INGERSOLL-RAND COMPANY
NOTE TO COMPUTATIONS OF PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE
1 - 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.
INGERSOLL-RAND COMPANY
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the accompanying index to exhibits
are filed as part of this Form 10-Q Quarterly Report.
(b) Reports on Form 8-K
On September 17, 1997, the Registrant filed a Current
Report on Form 8-K dated September 12, 1997 for Item 5
(Other Events) and Item 7 (Exhibits). The Current Report
on Form 8-K related to the signing of a definitive purchase
agreement with Westinghouse Electric Corporation under
which the company agreed to acquire Thermo King
Corporation, a wholly-owned subsidiary of Westinghouse
Electric Corporation, for approximately $2.56 billion in
cash.
On November 5, 1997, the Registrant filed a Current Report
on Form 8-K dated October 31, 1997 for Item 2 (Acquisition
of Assets) and Item 7 (Financial Statements and Exhibits).
This Current Report on Form 8-K related to the acquisition
of all of the outstanding shares of capital stock of Thermo
King Corporation together with other equity interests and
assets related to Thermo King, from Westinghouse Electric
Corporation for an aggregate purchase price of
approximately $2.56 billion.
On November 6, 1997, the Registrant filed an Amendment to
its Current Report on Form 8-K dated October 31, 1997 for
Item 7 (Financial Statements and Exhibits). This amendment
placed on file supplemental interim financial statement
information on Thermo King Corporation and reports of
independent accountants.
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 6, 1997 /S/ G.V. Geraghty
G. V. Geraghty, Vice President &
Comptroller
Principal Accounting Officer
INGERSOLL-RAND COMPANY
INDEX TO EXHIBITS
(Item 6 (a))
DESCRIPTION:
3(i) Amendment to Restated Certificate of Incorporation of
Ingersoll-Rand Company filed August 20, 1997. (Incorporated by
reference to Exhibit 4.2 of the company's Form S-3 Registration
Statement No. 333-37019).
(12) Computations of Ratios of Earnings to Fixed Charges. (Filed
herewith).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SEPTEMBER 30, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 207
<SECURITIES> 8
<RECEIVABLES> 1,211
<ALLOWANCES> 40
<INVENTORY> 780
<CURRENT-ASSETS> 2,464
<PP&E> 2,158
<DEPRECIATION> 1,003
<TOTAL-ASSETS> 5,813
<CURRENT-LIABILITIES> 1,448
<BONDS> 1,020
0
0
<COMMON> 335
<OTHER-SE> 1,948
<TOTAL-LIABILITY-AND-EQUITY> 5,813
<SALES> 5,171
<TOTAL-REVENUES> 5,171
<CGS> 3,835
<TOTAL-COSTS> 3,835
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> 468
<INCOME-TAX> 181
<INCOME-CONTINUING> 287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.73
</TABLE>
EXHIBIT 12
INGERSOLL-RAND COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
For the nine months ended September 30, 1997
Fixed charges:
Interest expenses $85.0
Amortization of debt discount and expense .8
Rentals (one-third of rentals) 18.4
Capitalized interest 2.3
Total fixed charges $106.5
Net earnings $286.5
Add: Minority income/(losses) of majority-
owned subsidiaries 15.2
Taxes on income 181.6
Fixed charges 106.5
Less: Capitalized interest 2.3
Undistributed earnings/(losses) from
less than 50% owned affiliates 21.2
Earnings available for fixed charges $566.3
Ratio of earnings to fixed charges 5.32
Undistributed earnings/(losses) from less
than 50% owned affiliates:
Equity in earnings (losses) $24.4
Less: Dividends paid 3.2
Undistributed earnings/(losses) from
less-than 50% owned affiliates $21.2
