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 March 31, 1998
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 April 30, 1998 was
165,507,070.
INGERSOLL-RAND COMPANY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheet at March 31,
1998 and December 31, 1997
Condensed Consolidated Income Statement for the
three months ended March 31, 1998 and 1997
Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Exhibit 11 - Computations of Basic and Diluted Earnings
Per Share
SIGNATURES
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
Current assets:
Cash and cash equivalents $ 106.2 $ 104.9
Marketable securities 8.2 6.9
Accounts and notes receivable, net of
allowance for doubtful accounts 1,322.8 1,281.5
Inventories 920.1 854.8
Prepaid expenses and deferred taxes 265.2 250.3
Assets held for sale 32.4 46.5
Total current assets 2,654.9 2,544.9
Investments and advances:
Dresser-Rand Company 110.3 115.0
Partially-owned equity companies 210.5 213.0
320.8 328.0
Property, plant and equipment, at cost 2,318.9 2,275.2
Less - accumulated depreciation 1,024.6 992.0
Net property, plant and equipment 1,294.3 1,283.2
Intangible assets, net 3,815.2 3,833.0
Deferred income taxes 207.0 214.9
Other assets 230.0 211.6
Total assets $8,522.2 $8,415.6
LIABILITIES AND EQUITY
Current liabilities:
Loans payable $ 448.4 $ 925.1
Accounts payable and accruals 1,515.8 1,402.7
Total current liabilities 1,964.2 2,327.8
Long-term debt 2,527.5 2,528.0
Postemployment liabilities 952.5 937.1
Minority interests 126.4 127.9
Other liabilities 155.7 153.4
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 402.5 -
Shareholders' equity:
Common stock 336.0 334.8
Other shareholders' equity 2,232.7 2,163.0
Accumulated other comprehensive income (175.3) (156.4)
Total shareholders' equity 2,393.4 2,341.4
Total liabilities and equity $8,522.2 $8,415.6
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENT
(in millions except per share figures)
Three Months Ended
March 31,
1998 1997
Net sales $2,002.9 $1,639.4
Cost of goods sold 1,484.1 1,228.4
Administrative, selling and service
engineering expenses 305.2 244.4
Operating income 213.6 166.6
Interest expense (62.8) (27.9)
Other income (expense), net 4.7 (5.7)
Dresser-Rand income 1.8 1.5
Minority interests (3.7) (2.9)
Earnings before income taxes 153.6 131.6
Provision for income taxes 54.5 53.8
Net earnings $ 99.1 $ 77.8
Average number of basic common
shares outstanding 164.0 162.3
Basic earnings per common share $ 0.60 $ 0.48
Diluted earnings per common share $ 0.60 $ 0.48
Dividends per common share $0.150 $0.137
See accompanying notes to condensed consolidated financial statements.
INGERSOLL-RAND COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net earnings $ 99.1 $ 77.8
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 69.4 56.1
(Gain)/loss on sale of property plant and
equipment (0.1) 0.2
Gain on sale of businesses - (5.8)
Net equity earnings/losses, net of dividends (6.1) (3.3)
Minority interests in earnings, net of dividends 2.9 2.9
Other items 5.3 11.5
Changes in other assets and liabilities, net 5.6 (91.5)
Net cash provided by operating activities 176.1 47.9
Cash flows from investing activities:
Capital expenditures (63.1) (40.1)
Proceeds from sales of property, plant and
equipment 1.4 10.8
Acquisitions, net of cash (31.4) -
Proceeds from business dispositions 19.3 241.5
Increase in marketable securities (1.5) (0.5)
Cash advances from (to) equity companies 5.5 10.6
Net cash (used in) provided by investing
activities (69.8) 222.3
Cash flows from financing activities:
(Decrease)increase in short-term borrowings (476.3) 14.3
Proceeds from long-term debt - 1.6
Payments of long-term debt (0.5) (0.8)
Net change in debt (476.8) 15.1
Issuance of equity-linked securities 402.5 -
Issuance costs and fees (12.1) -
Net proceeds from issuance of equity-linked
securities 390.4 -
Purchase of treasury stock (8.3) -
Dividends paid (24.6) (22.2)
Proceeds from exercise of stock options 12.6 8.9
Net cash (used in) provided by financing
activities (106.7) 1.8
Effect of exchange rate changes on cash and
and cash equivalents 1.7 10.0
Net increase in cash and cash equivalents 1.3 282.0
Cash and cash equivalents - beginning of period 104.9 184.1
Cash and cash equivalents - end of period $106.2 $466.1
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 months ended March 31,
1998 and 1997.
Note 2 - In the first quarter of 1998, the company acquired for
approximately $15.4 million in cash, the assets of Johnstone
Pump Company (Johnstone). Johnstone manufactures industrial
piston pumps, automated dispensing systems and related
products for use primarily in the automotive industry.
Johnstone's results have been reported as part of the
Production Equipment Group. Also in the first quarter of
1998, the company acquired for approximately $16 million in
cash, the door hardware technology and intellectual property
relating to residential door locksets from the Master Lock
unit of Fortune Brands, Inc. The Master Lock transaction
covers patents and some manufacturing assets used to produce
residential locks, excluding padlocks. The door lockset
technology will be incorporated into the Architectural
Hardware Group. 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 significantly different than those
reported.
Note 3 - On March 20, 1998 the company completed the sale of Ing. G.
Klemm Bohrtechnik GmbH, which had been reported as part of
the Construction and Mining Group in the Standard Machinery
Segment. Also in the first quarter, the company sold
certain assets of Newman Tonks Group Limited. Sales proceeds
approximated the book value of these assets. The assets
sold were classified as assets held for sale at December 31,
1997.
Note 4 - On October 31, 1997, the company acquired Thermo King
Corporation (Thermo King), from CBS, Inc. (formerly
Westinghouse Electric Corporation), for approximately $2.56
billion in cash. Thermo King is the world leader in the
transport temperature control business for trailers, truck
bodies, seagoing containers, buses and light-rail cars.
This transaction has been accounted for as a purchase, with
the results included since its acquisition date. The
following unaudited pro forma consolidated results of
operations for the three months ended March 31, 1997,
reflect the acquisition as though it occurred at the
beginning of the period after adjustments for the impact of
interest on acquisition debt, and depreciation and
amortization of assets, including goodwill, to reflect the
purchase price allocation (in millions except per share
amounts):
For the three months ended March 31 1997
Sales $1,886.5
Net earnings 66.5
Basic earnings per share $0.41
Diluted earnings per share 0.41
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.
Note 5 - On April 3, 1997, the company completed the acquisition of
Newman Tonks Group PLC (Newman Tonks), for approximately
$370 million. Newman Tonks is a leading manufacturer,
specifier and supplier of branded architectural hardware
products. 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 6 - On February 14, 1997, the company sold the Clark-Hurth
Components Group (Clark-Hurth) for approximately $241.5
million of net cash. Clark-Hurth results were 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 7 - 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):
March 31, December 31,
1998 1997
Raw materials and supplies $ 176.5 $ 174.1
Work-in-process 251.5 218.6
Finished goods 645.1 613.8
1,073.1 1,006.5
Less - LIFO reserve 153.0 151.7
Total $ 920.1 $ 854.8
Work-in-process inventories are stated after deducting
customer progress payments of $18.4 million at March 31,
1998 and $17.8 million at December 31, 1997.
Note 8 - The company's investment in the Dresser-Rand partnership at
March 31, 1998 and December 31, 1997, was $153.7 million and
$154.7 million, respectively. The company owed Dresser-Rand
$43.4 million and $39.7 million at March 31, 1998 and
December 31, 1997, respectively. Net sales of Dresser-Rand
were $231.4 million for the three months ended March 31,
1998, and $260.2 million for the three months ended March
31, 1997; and gross profit was $41.7 million and $49.8
million, respectively.
Dresser-Rand's net income for the three months ended March
31, 1998 was $3.7 million, as compared to $3.1 million for
the three months ended March 31, 1997.
The summarized financial position of Dresser-Rand was as
follows (in millions):
March 31, December 31,
1998 1997
Current assets $485.3 $488.4
Property, plant and
equipment, net 237.8 248.2
Other assets and investments 48.5 54.1
771.6 790.7
Deduct:
Current liabilities 292.1 368.4
Noncurrent liabilities 169.3 195.8
461.4 564.2
Net partners' equity
and advances $310.2 $226.5
Note 9 - In March 1998, the company, together with Ingersoll-
Financing I, a Delaware statutory business trust of the
company (Finance Trust), issued an aggregate of (a)
16,100,000 equity-linked securities, and (b)1,610,000
Finance Trust 6.22% capital securities, each with a $25
stated liquidation amount (the capital securities). The
equity-linked securities consisted of (a)14,490,000 income
equity-linked securities (income securities), and (b)
1,610,000 growth equity-linked securities (growth
securities).
Each equity-linked security consists of a unit comprised
of (a)a contract to purchase from the company not later than
May 16, 2001, a number of shares of the company's common
stock equal to a specified rate and to receive an annual
contract adjustment payment until May 15, 2001 of 0.53%, (in
the case of an income security), or 0.78% (in the case of a
growth security), and (b) either beneficial ownership of a
capital security (in the case of an income security), or a
1/40 undivided interest in a zero coupon Treasury Security
maturing May 15, 2001 (in the case of a growth security).
Under the terms of the stock purchase contracts, the company
will issue between 6.9 million and 8.3 million common shares
by May 15, 2001. The capital securities associated with the
income securities and the U.S. Treasury Securities
associated with the growth securities have been pledged as
collateral to secure the holders' obligations in respect of
the common stock purchase contracts.
The capital securities were issued by the Finance Trust
and are entitled to a distribution rate of 6.22% per annum
of their $25 stated liquidation amount. The Finance Trust
utilized the proceeds from the issuance of the equity-linked
and capital securities to purchase an equivalent principal
amount of the company's 6.22% Debentures due May 16, 2003.
The interest rate on the 6.22% Debentures and the
distribution rate on the capital securities and common
securities of the Finance Trust are to be reset, subject to
certain limitations, effective May 16, 2001.
The company has recorded the present value of the
contract adjustment payments, totaling $6.1 million, as a
liability and a reduction of shareholders' equity. The
liability will be reduced as the contract adjustment
payments are made. The company has the right to defer the
contract adjustment payments and the payment of interest on
the 6.22% Debentures, but any such election will subject the
company to restrictions on the payment of dividends on and
redemption of, its outstanding shares of common stock, and
on the payment of interest on, or redemption of, debt
securities of the company junior in rank to the 6.22%
Debentures.
The company incurred costs of approximately $12 million
in connection with the issuance of the equity-linked
securities and the capital securities. The portion of such
costs which relate to the issuance of the stock purchase
contracts has been recorded as a reduction of shareholders'
equity.
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- The company adopted Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share" effective January 1, 1998.
SFAS No. 128 replaced the presentation of primary and fully
diluted earnings per share with basic and diluted earnings
per share. Basic earnings per share is based on the
weighted average number of common shares outstanding (164.0
million and 162.3 million for the first three months of 1998
and 1997, respectively). Diluted earnings per share is
based on the weighted average number of common shares
outstanding as well as dilutive potential common shares,
which in the company's case comprise shares issuable under
stock benefit plans (1.9 million and 1.2 million for the
first three months of 1998 and 1997, respectively). All
earnings per share amounts for all periods have been
restated to conform to the SFAS No. 128 requirements. The
adoption did not have a material effect on the calculation
of EPS.
Note 12- The company adopted SFAS No. 130 "Reporting Comprehensive
Income" effective January 1, 1998. The statement requires
minimum pension liability adjustments, unrealized gains or
losses on available-for-sale securities and foreign currency
translation adjustment, which prior to adoption were
reported separately in shareholders' equity, to be included
in other comprehensive income.
The components of comprehensive income are as follows (in
millions):
For the three months ended March 31 1998 1997
Net income $99.1 $77.8
Other comprehensive income -
Foreign currency equity adjustment (18.9) (49.4)
Comprehensive income $80.2 $28.4
Note 13- SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information" requires companies to report
financial and descriptive information about its operating
segments in financial statements for interim and annual
periods. The statement also requires additional disclosures
regarding products and services, geographic areas of
operation, and major customers. SFAS No. 131 will be
effective for the year ending December 31, 1998. The
company will comply as required.
Note 14- SFAS No. 132 "Employers' Disclosures about Pensions and
Other Postretirement Benefits - an amendment of FASB
Statements No. 87, 88, and 106" requires revised disclosures
about pension and other postretirement benefit plans. The
company will comply with the disclosure requirements of this
pronouncement for the year ending December 31, 1998.
INGERSOLL-RAND COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The company's results for the first quarter of the year established a
new record. Sales totalled $2.0 billion, operating income was $213.6
million and net earnings reached $99.1 million ($0.60 earnings per
share). For the first quarter of 1997, the company reported sales of
$1.6 billion, operating income of $166.6 million and net earnings of
$77.8 million ($0.48 earnings per share). After adjusting both
quarters for the effects of the company's acquisition and divestment
program, adjusted earnings per share for the first quarter of the
year increased an impressive 18 percent over last year's first
quarter.
A description of the noncomparable units is as follows:
o The company completed its acquisition of Thermo King Corporation
(Thermo King) on October 31, 1997. For the first quarter of the
year, Thermo King reported sales of $289 million and generated
$39.3 million of operating income, after the effect of estimated
purchase accounting adjustments. After the allocation of
approximately $38 million of acquisition interest costs and
related income tax benefits, Thermo King generated three cents
per share to the company's first quarter results.
o The company completed its acquisition of Newman Tonks Group PLC
(Newman Tonks), at the beginning of April 1997. In the first
quarter of 1998, Newman Tonks generated approximately $65
million in sales, which produced approximately $3.1 million of
operating income, after the effect of goodwill and purchase
accounting adjustments. Newman Tonks reported a net loss for
the first quarter of 1998 of approximately $3 million (or two
cents per share) after considering the allocation of
approximately $5.8 million of acquisition interest costs.
o On February 14, 1997, the company sold the Clark-Hurth
Components Group. This group reported approximately $40 million
in sales during the first quarter of 1997. The group reported
approximately $2.7 million of operating income in last year's
first quarter, which included the pretax gain on its sale. The
group's net results for the first quarter of 1997 generated a
net loss of approximately $3.6 million (two cents per share),
after considering acquisition interest expense and the tax cost
of its disposition.
Excluding the noncomparable items from both quarters would
produce an adjusted net earnings for the first three months of 1998
of approximately $96 million ($0.59 earnings per share) versus an
adjusted net earnings amount of approximately $81 million ($0.50
earnings per share) for the first three months of 1997.
A comparison of key income statement amounts between the
quarters, is as follows:
o Net sales for the first three months of 1998 totalled $2.0
billion, an increase of 22 percent over last year's first
quarter. However, after excluding noncomparable units from both
periods, adjusted first quarter 1998 sales increased three
percent over last year's adjusted first quarter total, after the
effect of an unfavorable two percent change caused by currency.
o The ratio of cost of goods sold to sales for the first quarter
of 1998 reflected an improvement over the reported 1997 first
quarter ratio. After excluding noncomparable units, the overall
ratio reflected a marked improvement over last year's adjusted
first quarter total.
o The company did not have any partial liquidations of LIFO (last-
in, first-out) inventories during the first quarters of 1998 or
1997.
o The ratio of administrative, selling and service engineering
expenses to sales was 15.2 percent for the first three months of
1998, as compared to 14.9 percent for the first quarter of 1997.
This modest increase reflects the effects of the company's
recent acquisitions.
o Operating income for the first quarter of 1998 totalled $213.6
million, as compared to $166.6 million for last year's first
quarter. The ratio of operating income to sales in 1998 was 10.7
percent, as compared to 10.2 percent for the first three months
of the prior year. After excluding the noncomparable items from
both quarters, the adjusted 1998 first quarter operating income
reflects an improvement of approximately five percent over
1997's adjusted first quarter total.
o Other income (expense), net, aggregated $4.7 million of income
for the three months ended March 31, 1998, as compared to $5.7
million of expense in the first quarter of 1997. This $10.4
million favorable change is attributed to improved foreign
exchange activities, increases in the equity earnings from the
company's partially owned affiliates, gains from the sale of
surplus assets and lower miscellaneous expenses.
o The company's profits from its 49 percent interest in Dresser-
Rand Company totalled $1.8 million for the first quarter of
1998, reflecting an improvement over the $1.5 million reported
for the first three months of 1997. This modest increase is
attributed to lower taxes of the partnership.
o The company's charges for minority interests totalled $3.7
million for the first three months of the year versus $2.9
million in 1997. This change is attributed to a stronger
performance in net earnings by these consolidated entities,
principally Ingersoll-Dresser Pump Company (IDP) and the
company's operations in India and China during the comparable
periods.
o Interest expense for the first quarter of 1998 was $62.8 million
and included approximately $44 million attributable to the
Thermo King and Newman Tonks acquisitions.
o The company's effective tax rate for the first quarter of the
year was 35.5 percent. Last year's first quarter tax rate was
40.9 percent, due to the tax consequences of the Clark-Hurth
disposition. The company's effective tax rate for the full year
of 1997 was 38 percent. The current year's estimated effective
tax rate of 35.5 percent reflects benefits associated with
Thermo King's operations.
The consolidated results for the first quarter of the year
benefitted from the combination of business improvements in a number
of the company's domestic and foreign markets and a continued
emphasis on the company's productivity-improvement programs.
Incoming orders for the first quarter of the year totalled $2.3
billion which was an increase of 27.3 percent over last year's first
quarter total. Bookings excluding noncomparable businesses,
represented an overall increase of five percent. Adjusted bookings
in the United States were up over 9 percent, and international orders
were down 4 percent from last year, including an unfavorable currency
impact of approximately two percent. The company's backlog of orders
at March 31, 1998, believed by it to be firm, was $1.8 billion, which
was approximately 20 percent higher than the backlog at December 31,
1997. 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 quarter of 1998, the company completed the
financing for the acquisition of Thermo King with the issuance of
$402.5 million of equity-linked securities (Note 9). The net
proceeds from this issuance were used to reduce a portion of the
company's short term borrowings, which were originally issued to
satisfy a portion of the cash requirements for the October 31, 1997
acquisition of Thermo King. Partially as a result of the first
quarter issuance of these equity-linked securities, the company's
working capital increased by $473.6 million to $690.7 million at
March 31, 1998, from the December 31, 1997 balance of $217.1 million.
The current ratio increased to 1.4 to 1.0 at the end of the first
quarter from the 1.1 to 1.0 at the end of 1997. The company's debt-
to-total capital ratio at March 31, 1998 totalled 50 percent, which
reflects a significant improvement from the 58 percent reported at
December 31, 1997.
The company's cash and cash equivalents totalled $106.2 million
at March 31, 1998 up slightly from the $104.9 million at December 31,
1997. 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 $176.1 million, investing
activities used $69.8 million and financing activities used $106.7
million. Exchange rate changes during the first three months of 1998
increased cash and cash equivalents by $1.7 million.
Receivables totalled $1.3 billion at March 31, 1998, which
represents a $41.3 million increase over the amount reported at
December 31, 1997. The increase was attributed to strong first
quarter sales, partially offset by the effect of foreign currency
translation.
Inventories totalled $920.1 million at March 31, 1998, which
represents an increase of $65.3 million over the year-end balance of
$854.8 million. The net increase is the result of building inventory
to fulfill orders in the second and third quarters offset by exchange
rates applicable to international inventories.
Intangible assets decreased by approximately $17.8 million
during the first three months of 1998. Intangibles were impacted
mainly by amortization, which was offset by increased goodwill due to
first quarter 1998 acquisitions.
Long term debt, including current maturities, at March 31, 1998,
totalled $2.7 billion. The company's debt-to-total capital ratio was
50 percent at March 31, 1998, which represented a significant
reduction from the 58 percent reported at December 31, 1997,
principally due to the first quarter issuance of $402.5 million of
equity-linked securities.
During the first three months of 1998, foreign currency
translation adjustments resulted in a net decrease of approximately
$18.9 million in shareowners' equity, caused by the strengthening of
the U.S. dollar against other currencies. Currency changes in
Australia, France, Germany, Ireland, Italy and Spain, accounted for
almost all of this change. Accounts receivable and inventories were
the principal balance sheet items affected by the currency
fluctuations since year end.
Computer Systems and the Year 2000
The company has conducted a detailed review of its computer
systems to identify those areas that could be affected by problems
associated with the failure of these systems to correctly process the
year 2000. The company is implementing a coordinated plan worldwide
to replace, modify and/or upgrade its computer hardware and software
to ensure that it will not malfunction as the result of failing to
correctly process the year 2000. The company has established a
detailed review and testing process to verify whether its systems and
products are or will be year 2000 compliant. In addition, the
company is working with its suppliers and distributors on this issue
to minimize problems in its supply and distribution chains. The
company believes that the related costs to replace, modify and/or
upgrade its existing systems and products to address this problem
will not have a material impact on the company's financial condition,
results of operation, liquidity or cash flows for any year.
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.
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 not assumed that it will 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 contributions 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 effect 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 October 31, 1997, the company acquired Thermo King for
approximately $2.56 billion in cash. Thermo King is the world leader
in the transport temperature control business for trailers, truck
bodies, seagoing containers, buses and light-rail cars.
On April 3, 1997, the company completed the acquisition of
Newman Tonks, a producer of architectural hardware, for approximately
$370 million. Newman Tonks is a leading manufacturer, specifier and
supplier of branded architectural hardware products and is based in
Birmingham, England.
In the first quarter of 1998, the company acquired for
approximately $15.4 million in cash, the assets of Johnstone Pump
Company (Johnstone). Johnstone manufactures industrial piston pumps,
automated dispensing systems and related products for use primarily
in the automotive industry. Also in the first quarter of 1998, the
company acquired for approximately $16 million in cash, the door
hardware technology and intellectual property relating to residential
door locksets from the Master Lock unit of Fortune Brands, Inc. The
Master Lock transaction covers patents and some manufacturing assets
used to produce residential locks, excluding padlocks.
Dispositions
On February 14, 1997, the company sold the Clark-Hurth
Components Group (Clark-Hurth) for approximately $241.5 million of
net cash. Clark-Hurth results were 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, but on an after-tax basis, reduced net earnings by
approximately $3.6 million.
On March 20, 1998 the company completed the sale of Ing. G.
Klemm Bohrtechinik GmbH, which had been reported as part of the
Construction and Mining Group in the Standard Machinery Segment.
Also in the first quarter, the company sold certain assets of Newman
Tonks Group Limited. Sales proceeds approximated the book value of
these assets. The assets sold were classified as assets held for
sale at December 31, 1997.
First-quarter Business Segment Review
Standard Machinery - This segment's sales totalled $788.2 million for
the first quarter of 1998, which reflects a seven percent improvement
over 1997's first quarter level of $737.6 million. Operating income
for the quarter was $92.8 million, reflecting an improvement of 11.7
percent over last year's first quarter. All groups within the
segment reported improvements in both operating income and operating
income margins versus 1997's first quarter, with the exception of the
Air Compressor Group, which reported a reduction in first quarter
earnings of approximately 12 percent, principally due to softness in
its Asian markets. The segment's overall first quarter performance
reflects strong demand in North American markets and the benefits of
the company's continuous focus on productivity and cost improvements.
Engineered Equipment - With the sale of the Clark-Hurth business,
effective February 14, 1997, this segment is now composed solely of
IDP. IDP's sales for the first quarter totalled $190.2 million,
slightly below the 1997 first quarter total. IDP's operating income
for the first three months of the year was $6.5 million,
approximately $0.9 million below last year's first quarter. The
first quarter decrease was due to the decline in sales volume and an
eight percent unfavorable currency impact.
Business trends improved throughout the first quarter, with new
orders for the month of March reaching record levels. IDP's earnings
for the balance of 1998 are expected to improve significantly when
compared to 1997.
Bearings, Locks and Tools - First quarter sales of $735.5 million
were 10.3 percent higher than reported for the first three months of
1997. Operating income for the quarter was $88.2 million and
reflects a modest improvement over last year's first quarter.
Excluding the results of Newman Tonks (acquired April 3, 1997) sales
and operating income for the first quarter of 1998 were flat. Sales
for the Bearings and Components Group approximated last year's first
quarter. Inventory reduction programs and weakness in the Asian
markets caused the group's operating income to be below 1997's first
quarter level. Production Equipment Group's sales and operating
income for the first three months of 1998 were below the prior year's
first quarter, primarily due to the timing of shipments in the
Automated Production Systems Division. Architectural Hardware Group,
excluding Newman Tonks, reported impressive gains in sales and
operating income for the quarter.
Thermo King - On October 31, 1997, Ingersoll-Rand acquired Thermo
King, the world leader in the transport temperature control market.
For the first quarter of 1998, Thermo King reported sales of $289.0
million and generated $39.3 million of operating income, after the
effect of estimated purchase accounting adjustments. Thermo King's
markets remain strong and the company believes that their results
will continue to be accretive to earnings in 1998.
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.
EXHIBIT 11
INGERSOLL-RAND COMPANY
COMPUTATIONS OF BASIC AND DILUTED EARNINGS PER SHARE
(in millions except per share figures)
Three Months Ended
March 31,
1998 1997
BASIC EARNINGS PER SHARE
Net earnings applicable to common stock $99.1 $77.8
Average number of basic common shares
outstanding 164.0 162.3
BASIC EARNINGS PER SHARE $0.60 $0.48
DILUTED EARNINGS PER SHARE
Net earnings for the period $99.1 $77.8
Adjusted shares:
Average number of basic common shares
outstanding 164.0 162.3
Number of common shares issuable
assuming exercise under incentive
stock plans 1.9 1.2
Average number of outstanding shares,
as adjusted for diluted earnings
per share calculations 165.9 163.5
DILUTED EARNINGS PER SHARE $0.60 $0.48
Note: Prior period amounts have been restated for the 3-2 stock
split as discussed in Note 10 to the condensed consolidated financial
statements.
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 May 14, 1998 /S/ D. W. Devonshire
D. W. Devonshire, Senior Vice
President & Chief Financial Officer
Principal Financial Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
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