0000050485-95-000086.txt : 19950815 0000050485-95-000086.hdr.sgml : 19950815 ACCESSION NUMBER: 0000050485-95-000086 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INGERSOLL RAND CO CENTRAL INDEX KEY: 0000050485 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 135156640 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00985 FILM NUMBER: 95562083 BUSINESS ADDRESS: STREET 1: 200 CHESTNUT RIDGE RD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07675 BUSINESS PHONE: 2015730123 MAIL ADDRESS: STREET 1: 200 CHESTNUT RIDGE ROAD CITY: WOODCLIFF LAKE STATE: NJ ZIP: 07675 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-985 INGERSOLL-RAND COMPANY Exact name of registrant as specified in its charter New Jersey 13-5156640 State of incorporation I.R.S. Employer Identification No. Woodcliff Lake, New Jersey 07675 Address of principal executive offices Zip Code (201) 573-0123 Telephone number of principal executive offices Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes . X . No . . . The number of shares of common stock outstanding as of July 31, 1995 was 105,930,151. INGERSOLL-RAND COMPANY FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Page Condensed Consolidated Balance Sheet at June 30, 1995 and December 31, 1994 3 Condensed Consolidated Income Statement for the three and six months ended June 30, 1995 and 1994 4 Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-17 Exhibit 11 - Computations of Primary and Fully Diluted Earnings Per Share 18-19 PART II. OTHER INFORMATION Item 1 - Legal Proceedings 20 Item 4 - Submission of Matters to a Vote of Security Holders 20 Item 6 - Exhibits and Reports on Form 8-K 21 SIGNATURES 23 2 PART I. FINANCIAL INFORMATION INGERSOLL-RAND COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (in thousands) ASSETS JUNE 30, DECEMBER 31, 1995 1994 Current assets: Cash and cash equivalents $ 153,449 $ 207,023 Marketable securities 5,691 4,231 Accounts and notes receivable, net of allowance for doubtful accounts 1,177,654 949,392 Inventories 948,970 679,308 Prepaid expenses and deferred taxes 271,084 162,933 Total current assets 2,556,848 2,002,887 Investments and advances: Dresser-Rand Company 85,186 90,705 Partially-owned equity companies 235,118 173,871 320,304 264,576 Property, plant and equipment, at cost 2,143,280 1,818,564 Less - accumulated depreciation 911,153 859,273 Net property, plant and equipment 1,232,127 959,291 Goodwill and other intangible assets, net 1,284,056 124,487 Deferred income taxes 161,056 74,480 Other assets 248,933 171,200 Total assets $5,803,324 $3,596,921 LIABILITIES AND EQUITY Current liabilities: Loans payable $ 465,261 $ 117,249 Accounts payable and accruals 1,258,245 922,828 Total current liabilities 1,723,506 1,040,077 Long-term debt 1,287,826 315,850 Postemployment liabilities 849,884 518,297 Ingersoll-Dresser Pump Company minority interest 158,244 154,069 Other liabilities 131,185 37,286 Shareowners' equity: Common stock 218,820 218,338 Other shareowners' equity 1,433,859 1,313,004 Total shareowners' equity 1,652,679 1,531,342 Total liabilities and equity $5,803,324 $3,596,921 See accompanying notes to condensed consolidated financial statements. 3 INGERSOLL-RAND COMPANY CONDENSED CONSOLIDATED INCOME STATEMENT (in thousands except per share figures) Three Months Ended Six Months Ended June 30, June 30, 1995 1994 1995 1994 NET SALES $1,392,127 $1,143,808 $2,577,712 $2,154,116 Cost of goods sold 1,051,003 865,976 1,944,114 1,641,900 Administrative, selling and service engineering expenses 222,407 186,066 425,684 360,323 Operating income 118,717 91,766 207,914 151,893 Interest expense 18,065 11,734 27,029 23,605 Other income (expense), net 4,390 (1,284) (1,606) (3,437) Dresser-Rand income 5,000 4,300 5,300 10,000 Ingersoll-Dresser Pump minority interest (3,109) (1,836) (5,354) (1,652) Earnings before income taxes 106,933 81,212 179,225 133,199 Provision for income taxes 40,288 29,643 66,313 48,618 Net earnings $ 66,645 $ 51,569 $ 112,912 $ 84,581 Average number of common shares outstanding 105,664 105,469 105,618 105,432 Net earnings per common share $ 0.63 $ 0.49 $1.07 $0.80 Dividends per common share $0.185 $0.175 $0.37 $0.35 See accompanying notes to condensed consolidated financial statements.
4 INGERSOLL-RAND COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Six Months Ended June 30, 1995 1994 Cash flows from operating activities: Net earnings $ 112,912 $ 84,581 Adjustments to arrive at net cash provided by operating activities: Depreciation and amortization 78,748 65,495 Equity earnings/loss, net of dividends (14,938) (13,172) Loss on disposition of domestic paving business 7,100 -- Minority interest in earnings 7,596 2,124 Deferred income taxes (14,304) 7,148 Other noncash items (4,874) (3,632) Changes in other assets and liabilities, net (75,173) (73,411) Net cash provided by operating activities 97,067 69,133 Cash flows from investing activities: Capital expenditures (93,143) (73,301) Proceeds from sales of property, plant and equipment 24,081 4,341 Acquisitions, net of cash (1,136,476) (22,260) (Increase) decrease in marketable securities (774) 1,183 Cash invested in or advances from equity companies (14,328) 24,090 Net cash used in investing activities (1,220,640) (65,947) Cash flows from financing activities: Increase in short-term borrowings 312,600 52,312 Proceeds from long-term debt 802,611 2,577 Payments of long-term debt (13,505) (1,565) Net change in debt 1,101,706 53,324 Dividends paid (39,079) (36,909) Other 5,250 2,710 Net cash provided by financing activities 1,067,877 19,125 Effect of exchange rate changes on cash and cash equivalents 2,122 6,278 Net (decrease) increase in cash and cash equivalents (53,574) 28,589 Cash and cash equivalents-beginning of period 207,023 227,993 Cash and cash equivalents-end of period $ 153,449 $256,582 See accompanying notes to condensed consolidated financial statements. 5 INGERSOLL-RAND COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated unaudited financial position and results of operations for the three and six months ended June 30, 1995 and 1994. Note 2 - On May 25, 1995, CEC Acquisition Corp. (CEC), a wholly-owned subsidiary of the company, acquired 16,553,617 shares of Clark Equipment Company (Clark) (which, together with shares already owned by the company, represented approximately 98.4 percent of the outstanding shares) for a cash price of $86 per share pursuant to an April 12, 1995 amended tender offer. Clark's business is the design, manufacture and sale of compact construction machinery, asphalt paving equipment, axles and transmissions for off-highway equipment, and golf cars and utility vehicles. On May 31, 1995, the company completed the merger of CEC with Clark. Upon consummation of the merger, Clark became a wholly-owned subsidiary of the company and the shareholders of Clark who did not tender their shares became entitled to receive $86 per share. The total purchase price for Clark was approximately $1.5 billion after taking into account amounts paid in respect of outstanding stock options, employment contracts and various transaction costs. The acquisition has been accounted for as a purchase. The purchase price was preliminarily allocated to the acquired assets and liabilities based on estimated fair values and is subject to final adjustment. The company has classified as goodwill, the costs in excess of the fair value of net assets acquired. Such excess costs are being amortized on a straight line basis over forty years. Intangible assets also represent costs allocated to patents and trademarks and other specifically identifiable assets arising from business acquisitions. These assets are amortized over their estimated useful lives. The results of Clark's operations have been included in the consolidated financial statements from the acquisition date. The following unaudited pro forma consolidated results of operations for the six months ended June 30, 1995 and 1994 reflect the acquisition as though it occurred at the beginning of the respective periods after adjustments for the impact of interest on acquisition debt, depreciation and amortization of assets, including goodwill, to reflect the preliminary purchase price allocation, and the elimination of Clark's income from discontinued operations related to its disposition of its investments in VME Group N.V. and Clark Automotive Products Corporation (in millions except per share amounts): For the six months ended June 30 1995 1994 Sales $3,195 $2,757 Net earnings 126 76 Earnings per share $1.19 $0.72 6 INGERSOLL-RAND COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 2 - Continued: It should be noted that the company's actual results for the first half of 1995 (and the above pro forma amounts) were adversely affected by the loss on the sale of the company's domestic paving business, which was a preacquisition requirement to the Clark purchase. The above pro forma results are not necessarily indicative of what the actual results would have been had the acquisition occurred at the beginning of the respective periods. Further, the pro forma results are not intended to be a projection of future results of the combined companies, as it should be noted that the Blaw-Knox and Club Car portions of the Clark acquisition tend to concentrate the majority of their yearly operating profit during the first half of the year. Note 3 - The company principally uses accelerated depreciation methods for both tax and financial reporting purposes for assets placed in service prior to December 31, 1994. The company changed to the straight-line method for financial reporting purposes for assets acquired on or after January 1, 1995 while continuing to use accelerated depreciation for tax purposes. The straight-line method is the predominant method used throughout the industries in which the company operates and its adoption increases the comparability of the company's results with those of its competitors. The effect of the change on the six months ended June 30, 1995 was to increase net income by approximately $2.0 million ($0.02 per share). The effect on the three months ended March 31, 1995 was not material and accordingly, the results for that quarter have not been restated to reflect the change to the straight-line depreciation method. Note 4 - Inventories of appropriate domestic manufactured standard products are valued on the last-in, first-out (LIFO) method and all other inventories are valued using the first-in, first-out (FIFO) method. The composition of inventories for the balance sheets presented were as follows (in thousands): June 30, December 31, 1995 1994 Raw materials and supplies $ 220,484 $ 117,613 Work-in-process 337,945 293,023 Finished goods 556,826 429,655 1,115,255 840,291 Less - LIFO reserve 166,285 160,983 Total $ 948,970 $ 679,308 Work-in-process inventories are stated after deducting customer progress payments of $28,201,000 at June 30, 1995 and $27,242,000 at December 31, 1994. 7 INGERSOLL-RAND COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 5 - On May 15, 1995, the company sold its domestic paving equipment business to Champion Road Machinery Limited of Canada. The sale was a preacquisition requirement of the United States Justice Department prior to the Clark acquisition. The company incurred a $7.1 million pretax loss associated with this sale. Note 6 - The company's investment in the Dresser-Rand partnership at June 30, 1995 and December 31, 1994 was $168,130,000 and $160,832,000, respectively. The company owed Dresser-Rand $82,944,000 at June 30, 1995 and $70,127,000 at December 31, 1994. Net sales of Dresser-Rand were $452.3 million for the six months ended June 30, 1995 and $540.7 million for the six months ended June 30, 1994; and gross profit was $93.1 million and $94.6 million, respectively. Dresser-Rand's net income for the six months ended June 30, 1995 was $10.8 million and $20.4 million for the six months ended June 30, 1994. The summarized financial position of Dresser-Rand was as follows (in thousands): June 30, December 31, 1995 1994 Current assets $ 448,748 $ 440,539 Property, plant and equipment, net 214,866 197,797 Other assets and investments 20,500 18,445 684,114 656,781 Deduct: Current liabilities 338,423 295,048 Noncurrent liabilities 197,236 188,937 535,659 483,985 Net partners' equity and advances $ 148,455 $ 172,796 Note 7 - On April 11, 1994, the company acquired full ownership of the ball bearing joint venture with GMN Georg Mueller of America, Inc. The company previously owned 50% of the joint venture. Note 8 - On June 30, 1994, the company acquired Montabert S.A., a French manufacturer of hydraulic rock-breaking and drilling equipment, for a cash payment and the assumption of certain liabilities. 8 INGERSOLL-RAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales for the second quarter of 1995 totalled $1.4 billion, representing a 21.7 percent increase over last year's second quarter. Sales for the month of June for the Clark Equipment Company (Clark), acquired May 31, 1995, are included in the company's results, since the acquisition date. Net sales excluding Clark, approximated $1.3 billion, an 11 percent increase over the 1994 second quarter. Net sales for the comparable quarter of 1994 totalled $1.1 billion. Operating income for the three months ended June 30, 1995 totalled $118.7 million, which represents a 29.3 percent increase over the $91.8 million reported for the second quarter of 1994. Operating income for the second quarter of 1995 includes the results of Clark and the loss associated with the sale of the company's domestic paving equipment business (a preacquisition requirement for the company to complete the purchase of Clark). Excluding the Clark operations and the loss on the sale of the paving business, second quarter operating income would have exceeded last year's by approximately 22 percent. As noted above, the company's second quarter activity was composed of two major components. First, the company reported second quarter net earnings comparable to last year's second quarter of $68.6 million, or 65 cents per common share, versus $51.6 million, or 49 cents per common share for the three months ended June 30, 1994, reflecting an improvement of 33 percent. Second, net earnings from Clark and the loss associated with the sale of the domestic paving equipment business resulted in a net loss of $2.0 million, or two cents per share, in the quarter. The company's strong second quarter performance in its historical lines of business reflected continued strength of domestic markets, principally construction, general industrial and automotive-related industries, together with continued improvement in international results. Improved business conditions in the company's historical lines, coupled with the benefits derived through the company's continued cost-containment programs, were responsible for the second quarter improvement over the comparable 1994 period. There were no partial liquidations of LIFO (last-in, first- out) inventories during the second quarter of 1995 or 1994. Net gains from foreign exchange activities for the second quarter of 1995 totalled $0.4 million, less than one cent per common share, versus net losses of $1.8 million or two cents per common share for the comparable 1994 quarter. For the first six months of 1995, net sales amounted to $2.6 billion, a 20 percent improvement over last year's six month total. Sales for the first two quarters of the year, excluding Clark, would have exceeded last year's comparable sales by approximately 14 percent. Operating income for the first half of 1995 totalled $207.9 million, which represents a 36.9 percent increase over the $151.9 9 INGERSOLL-RAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) million reported for the comparable 1994 period. During the first six months of the year, IDP contributed approximately $12.3 million of operating income to the company's consolidated results versus approximately $6.4 million for the first half of 1994. The company reported net earnings of $112.9 million, or $1.07 per common share, for the first six months of 1995. Net earnings for the first half of 1994 totalled $84.6 million, or 80 cents per common share. Net earnings from Clark and the loss associated with the sale of the company's domestic paving equipment business resulted in a net loss of $2.0 million, or two cents per share, during the first six months of 1995. There were no partial liquidations of LIFO inventories during the first six months of 1995 or 1994. Foreign exchange losses for the first six months of 1995 decreased net earnings by $4.3 million or four cents per share as compared to net losses of $2.8 million or three cents per share for the comparable 1994 period. The ratio of cost of goods sold to sales for both the second quarter and first half of 1995 before considering the operating performance of Clark and the paving equipment disposition loss, improved by more than a full percentage point over the comparable periods in 1994 due to higher production rates and the continued benefits from cost containment programs. These ratios, after including Clark's operations and the loss on the sale of the paving business still reflected slight improvements over the comparable ratios in 1994. The ratio of administrative, selling and service engineering expenses to sales for both the second quarter and first six months of the year with or without Clark related activities reflected minimal change over the comparable periods in 1994. Other income (expense), net aggregated $4.4 million of net income for the three months ended June 30, 1995, an increase of $5.7 million over the net expense reported for 1994's second quarter. The second quarter increase in other income(expense) was attributed to lower foreign exchange losses of $2.8 million, combined with an increase in earnings from partially-owned equity companies and a reduction in miscellaneous expenses when compared to the amounts reported for the three-month period ended June 30, 1994. For the first six months of 1995, other income (expense), net totalled $1.6 million of net expense, a decrease of $1.8 million over the $3.4 million of net expense reported for the first six months of 1994. This decrease in net expense was the result of higher earnings from partially-owned equity companies of approximately $5.2 million, which was substantially offset by higher foreign currency losses of $3.4 million for the first half of the year. The other income (expense), net of the Clark units was immaterial for both periods presented. 10 INGERSOLL-RAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Ingersoll-Dresser Pump Company (IDP) is a partnership between Dresser Industries, Inc. and the company. The IDP minority interest represents Dresser's interest in the operating results of IDP. During the second quarter of 1995, the minority interest charge totalled $3.1 million, which indicates that IDP generated net earnings at the partnership level of approximately $6.3 million. For the first half of 1995, the minority interest charge totalled $5.4 million, which indicates that IDP generated approximately $11 million of net earnings at the partnership level for the first six months of the year. For the second quarter and first six months of 1994, the minority interest charge for IDP was $1.9 million and $1.7 million, respectively. The company's pretax profits for its 49 percent interest in Dresser-Rand Company (another partnership between Dresser Industries and the company) totalled $5.0 million for the second quarter of the year and $5.3 million for the first half of 1995. This compares to income of $4.3 million for the second quarter of 1994 and $10.0 million for the six months ended June 30, 1994. The second quarter increase was attributable to the recent strength in Dresser-Rand's markets, as compared to a year ago. Interest expense for the second quarter and first six months of 1995 was above the amounts reported in the comparable periods of 1994 by $6.4 million and $3.4 million, respectively. Interest expense for the second quarter totalled $18.1 million and was composed of $12.4 million associated with the operations of the company, including Clark and $5.7 million of interest expense associated with the cost of the Clark acquisition. Interest expense for the first six months of 1995 totalled $27.0 million and was composed of $21.3 million associated with the combined operations of the company, including Clark and $5.7 million of interest expense related to the Clark acquisition. The company's effective tax rates for the second quarter and first six months of 1995 were 37.7 percent and 37.0 percent, respectively. The company's effective tax rate for both the second quarter and first six months of 1994 was 36.5 percent. The company's effective tax rate differs from the statutory rate of 35 percent mainly due to the nondeductibility of goodwill associated with the Clark acquisition and the fact that Clark's effective tax rate was generally higher than Ingersoll-Rand's. In addition, the rate is also higher than the statutory rate because of state income taxes and some foreign earnings being taxed at higher rates. The effective tax rate for the full year of 1994 was 36 percent. The consolidated results for both the second quarter and first six months of the year benefitted from the combination of business improvements in most of the company's domestic markets (including 11 INGERSOLL-RAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) auto, construction and general industrial) and a continued emphasis on cost-containment programs throughout the company. International business has generally reflected increases during the first six months of 1995 when compared to the comparable periods in 1994. Incoming orders for the second quarter of the year totalled $1.3 billion and represents an increase of 16.8 percent over the 1994 second quarter. New orders associated with Clark totalled approximately $110 million. Second quarter bookings, excluding Clark, were up 7.3 percent and reflected strong international growth and a softening in domestic markets. The Process Systems and Bearings and Components groups were the only operations within the company which failed to report meaningful increases in second quarter bookings levels when compared to the second quarter of 1994. The company's backlog of orders at June 30, 1995, believed by it to be firm, was approximately $1.5 billion, which reflects an increase of $500 million over the December 31, 1994 balance. The company estimates that approximately 90 percent of the backlog will be shipped during the next twelve months. Property and Depreciation The company principally uses accelerated depreciation methods for both tax and financial reporting purposes for assets placed in service prior to December 31, 1994. The company changed to the straight-line method for financial reporting purposes for assets acquired on or after January 1, 1995, while continuing to use accelerated depreciation for tax purposes. The straight-line method is the predominant method used throughout the industries in which the company operates and its adoption increases the comparability of the company's results with those of its competitors. The effect of the change on the six months ended June 30, 1995 was to increase net income by approximately $2.0 million or $0.02 per share. The effect on the three months ended March 31, 1995 was not material and accordingly, the results for that quarter have not been restated to reflect the change to the straight-line depreciation method. Liquidity and Capital Resources The company's financial position at June 30, 1995 changed from December 31, 1994, principally due to the acquisition of Clark. In the first six months of 1995, working capital decreased by approximately $129.5 million to $833.3 million at June 30, 1995 from December 31, 1994's balance of $962.8 million. The current ratio at June 30, 1995 was 1.5 to 1, down from the 1.9 to 1 ratio at December 31, 1994. 12 INGERSOLL-RAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The company's cash and cash equivalents decreased by $53.6 million during the first six months of 1995 to $153.4 million from $207.0 million at December 31, 1994. In evaluating the net change in cash and cash equivalents, cash flows from operating, investing and financing activities, and the effect of exchange rate changes should be considered. Cash flows from operating activities provided $97.1 million, investing activities used $1.2 billion and financing activities provided $1.1 billion. Exchange rate changes during the first six months of 1995 increased cash and cash equivalents by $2.1 million. Receivables totalled $1.2 billion at June 30, 1995, which represents a $228.3 million increase from the amount reported at December 31, 1994. This increase was due to the inclusion of receivables from Clark and other acquisitions of $194.1 million, a $23.1 million effect of foreign currency translation during the first six months of 1995 and the effect of a strong selling period towards the end of the second quarter, offset by aggressive collection efforts. Inventories totalled $949.0 million at June 30, 1995, approximately $269.7 million higher than the December 31, 1994 level. The activity during the first half of 1995 represents the effect of acquisitions of $212.9 million, the net effect of increased sales and an increase due to exchange rates on the international inventories of $20.2 million. Intangible assets increased approximately $1.2 billion, which came from second-quarter acquisitions. Clark had approximately $400 million in intangible assets prior to its acquisition by the company. Long-term debt, including current maturities, at the end of the first six months of the year, totalled $1.3 billion, which reflects the additions associated with the financing of the Clark acquisition and existing long-term debt on Clark's books when acquired. The company's June 30, 1995 debt-to-total capital ratio was 51 percent, which reflects a significant change from the 22 percent ratio at December 31, 1994. The reason for the change was the financing of the acquisition of Clark. At June 30, 1995, long-term debt includes approximately $973 million and short-term loans includes approximately $223 million directly related to the Clark acquisition. During the first six months of 1995, foreign currency adjustments resulted in a net increase of approximately $40 million in shareowners' equity, caused by the weakening of the U.S. dollar against other currencies. Currency changes in Japan, Germany, 13 INGERSOLL-RAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) France, the United Kingdom, Netherlands, Singapore and Spain accounted for over 90 percent of this change. The translation of accounts receivable and inventories were the principal balance sheet items affected by the currency fluctuations since year-end. Environmental Matters Environmental matters at June 30, 1995 remain substantially unchanged from December 31, 1994, even with the inclusion of Clark. The company has been identified as a potentially responsible party in environmental proceedings brought under both the federal Superfund law and state remediation laws, involving 39 sites within the United States. For all sites, there are other potentially responsible parties and in most instances, the company's involvement is minimal. Although there is a possibility that a responsible party might have to bear more than its proportional share of site clean-up costs, if other responsible parties fail to make contributions, the company has not yet had, and to date there is no indication that it will have, to bear more than its proportional share of clean-up costs at any site. The company also is engaged in site investigations and remedial activities to address environmental cleanup from past operations at current and former manufacturing facilities. Additionally, Clark is a defendant in a lawsuit filed by the United States Environmental Protection Agency that seeks civil penalties for alleged violations of the Clean Water Act, arising out of the discharge of certain metal finishing wastewaters generated at a current manufacturing facility. Although uncertainties regarding environmental technology, state and federal regulations, insurance coverage and individual site information make estimating the liability difficult, management believes that the total liability for the cost of environmental remediation will not have a material effect on the financial condition, the results of operations, liquidity or cash flows of the company. It should be noted that when the company estimates its liability for environmental matters, such estimates are based on current technologies and the company does not discount its liability or assume any insurance recoveries. Acquisitions On May 25, 1995, CEC Acquisition Corp. (CEC), a wholly-owned subsidiary of the company, acquired 16,553,617 shares of Clark, which, together with shares already owned by the company, represented approximately 98.4 percent of the outstanding shares, for a cash price of $86 per share pursuant to an April 12, 1995 amended tender offer. Clark's business is the design, manufacture and sale of compact construction machinery, asphalt paving equipment, axles and transmissions for off-highway equipment, and golf cars and utility vehicles. On May 31, 1995, the company completed the merger of CEC with Clark. Upon consummation of the merger, Clark became a wholly- 14 INGERSOLL-RAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) owned subsidiary of the company and the shareholders of Clark who did not tender their shares became entitled to receive $86 per share. The total purchase price for Clark was approximately $1.5 billion after taking into account amounts paid in respect of outstanding stock options and certain transactions. Included among the assets acquired by the company (indirectly through the acquisition of the shares of Clark) are the Melroe Company, Blaw-Knox Construction Equipment Company, Clark-Hurth Components and Club Car, Inc. Melroe products consist of skid steer loaders, compact excavators and a limited line of agricultural equipment. Blaw-Knox is one of the leading producers of asphalt paving equipment in the world. The products of the Clark-Hurth business consist of axles and transmissions for off-highway equipment. Club Car produces golf cars and light utility vehicles. The funds to consummate the acquisition came from borrowings of the company under a credit agreement. As of June 30, 1995, $300 million has been converted into long-term debt with lower interest rates. The Clark acquisition has been accounted for as a purchase and Clark's assets have been consolidated into the financial statements of the company. On June 30, 1994, the company completed its acquisition of Montabert, S.A. (Montabert), a French manufacturer of hydraulic rock- breaking and drilling equipment. Montabert's consolidated net sales for 1993 were approximately $75 million. Montabert's consolidated assets at December 31, 1993 totalled approximately $60 million. The purchase included a cash payment from the company and the assumption of certain liabilities of Montabert. Contingencies Clark sold Clark Material Handling Company (CMHC), its forklift truck business, to Terex Corporation (Terex) in 1992. As part of the sale Terex and CMHC assumed substantially all of Clark's obligations for existing and future product liability claims involving CMHC products. In the event that Terex and CMHC fail to perform or are unable to discharge the assumed obligations, Clark would be required to discharge such obligations. While the aggregate losses associated with these obligations could be significant, the company does not believe they would materially affect the financial condition, the results of operation, liquidity or cash flows of the company. Review of Business Segments The Standard Machinery Segment reported sales of $543.5 million during the second quarter of 1995, which represents a 53.3 percent increase from the $354.5 million for the same quarter of last year. This segment includes the operating results since acquisition of all Clark operations, with the exception of the Clark-Hurth unit. 15 INGERSOLL-RAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Excluding the sales from Clark units, the second quarter sales for this segment were $449.9 million, or 26.9 percent over last year's second quarter total. Operating income for the quarter was $49.7 million and represents a 63-percent improvement over the $30.5 million reported for the three months ended June 30, 1994. Excluding the Clark operations and the loss on the sale of the company's domestic paving equipment business (a preacquisition requirement to the Clark purchase), second quarter operating income would have been $43.8 million, a 43.6 percent improvement over the $30.5 million of operating income for 1994's second quarter. For the first half of 1995, the segment's net sales totalled $942.2 million, which was 39.9 percent above the $673.6 million reported for the comparable 1994 period. Excluding the Clark operations and the loss on the sale of the company's domestic paving equipment business, operating income for the first six months of 1995 would have been $79.1 million, a 48.4 percent improvement over the $53.3 million of operating income for 1994's first six months. Sales, operating income and operating margins in the company's traditional Construction and Mining and Air Compressor groups reflected marked improvements over the comparable 1994 figures. The increase in sales and operating income for both the second quarter and first six months of the year is attributed to stronger domestic and international markets for both construction and air compressor products. Engineered Equipment Segment's sales for the second quarter of the year totalled $275.6 million, which were $39.0 million higher than 1994's second quarter total of $236.6 million. This segment's activities include the operating results of the Clark-Hurth unit. Excluding the Clark-Hurth sales, second quarter sales for the segment were $245.2 million and represent a modest increase over the $236.6 million reported for the three months ended June 30, 1995. Operating income for the quarter totalled $11.1 million, a $7.3 million improvement over the $3.8 million reported for 1994's second quarter. Excluding the Clark-Hurth operating results the segment's operating income for the quarter was $9.7 million, a $5.9 million increase over last year's comparable quarter. For the first six months of 1995, the segment reported sales of $508.0 million which is 15.4 percent higher than 1994's total of $440.2 million. Operating income for the first half of 1995 was $18.6 million, as compared to $2.0 million for the comparable 1994 period. Second quarter sales for IDP are down from the amount reported for the three months ended June 30, 1994, while operating income for IDP for the period reflects a slight improvement. IDP's sales for the first six months of 1994 were slightly above the amount reported for the first half of 1994, while the operating income for the six months ended June 30, 1995 was almost double the prior year's comparable period. Process Systems Group's sales for the second quarter and the first six months of the year were above the amounts reported for the three and six months ended June 30, 1994. The group's sales for the first six months of 16 INGERSOLL-RAND COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) the year were approximately 39 percent above 1994's level. Process Systems Group operated at a profitable level in 1995's second quarter as compared to the break-even level for the 1994 second quarter. The Bearings, Locks and Tools Segment reported sales of $573.0 million for the three months ended June 30, 1995, a 3.7 percent increase over last year's second quarter total of $552.7 million. Operating income was $67.7 million, as compared to the 1994 second quarter level of $67.1 million. For the first six months of 1995, the segment reported net sales of $1.1 billion, 8.4 percent above the amount reported in the comparable period of 1994. Operating income for the first half of 1995, totalled $123.0 million compared to $114.6 million reported for the six months ended June 30, 1994. The Bearings and Components Group's sales in the second quarter of 1995 were approximately four percent higher than in the 1994 second quarter. Results in the group essentially mirrored last year's second quarter. Sales and operating income of the Bearings and Components Group for the six months ended June 30, 1995 were both up over nine percent. Product mix and a softening in housing markets negatively affected the operating results of the Door Hardware Group, which reported a single digit decline in its operating income, when compared to the amount reported for the three months ended June 30, 1994. The Production Equipment Group's sales and operating income for the second quarter of 1995 were above the amounts reported for the three months ended June 30, 1994. The group's results for the second quarter of 1994 were favorably affected by stronger business conditions in both their domestic and international markets, when compared to last year's second quarter. 17 PART I - EXHIBIT 11 Page 1 of 2 INGERSOLL-RAND COMPANY COMPUTATIONS OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (in thousands except per share figures) Three Months Ended Six Months Ended June 30, June 30, PRIMARY EARNINGS PER SHARE (NOTE 1): 1995 1994 1995 1994 Net earnings applicable to common stock $ 66,645 $ 51,569 $112,912 $ 84,581 Average number of common shares outstanding 105,664 105,469 105,618 105,432 PRIMARY EARNINGS PER SHARE $0.63 $0.49 $1.07 $0.80 FULLY DILUTED EARNINGS PER SHARE (NOTE 2):(*) Net earnings for the period $ 66,645 $ 51,569 $112,912 $ 84,581 Adjusted shares: Average number of common shares outstanding 105,664 105,469 105,618 105,432 Number of common shares issuable assuming exercise under incentive stock plans 556 397 471 425 Average number of outstanding shares, as adjusted for fully diluted earnings per share calculations 106,220 105,866 106,089 105,857 FULLY DILUTED EARNINGS PER SHARE $0.62 $0.49 $1.06 $0.80 (*) This calculation is presented in accordance with the Securities Exchange Act of 1934, although it is not required disclosure under APB Opinion No. 15. See accompanying notes to computations of primary and fully diluted earnings per share.
18 PART I - EXHIBIT 11 Page 2 of 2 INGERSOLL-RAND COMPANY NOTES TO COMPUTATIONS OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE Note 1 - Shares issuable under outstanding stock plans, applying the "Treasury Stock" method, have been excluded from the computation of primary earnings per share since such shares were less than 1% of common shares outstanding. 2 - Net earnings per share of common stock computed on a fully diluted basis are based on the average number of common shares outstanding during each year after adjustment for individual securities which may be dilutive. Securities entering into consideration in making this calculation are common shares issuable under employee stock plans. Employee stock options outstanding are included in the calculation of fully diluted earnings per share by applying the "Treasury Stock" method quarterly. Such calculations are made using the higher of the average month-end market prices or the market price at the end of the quarter, in order to reflect the maximum potential dilution. 19 INGERSOLL-RAND COMPANY PART II. - OTHER INFORMATION Item 1 - Legal Proceedings In the normal course of business, the company is involved in a variety of lawsuits, claims and legal proceedings, including proceedings for the clean-up of 39 waste sites under federal Superfund and similar state laws. In the opinion of the company, pending legal matters, including the one discussed below, are not expected to have a material adverse affect on the results of operations, financial condition, liquidity or cash flows. On October 5, 1992, the United States Environmental Protection Agency (EPA) issued a Finding of Violation and Order for Compliance (Order) which alleges that Clark has failed to comply with the pretreatment regulations promulgated pursuant to Section 306 and 307 of the Clean Water Act. The Order alleges that certain metal finishing wastewaters generated at the Clark Melroe facility in Gwinner, North Dakota were discharged into the Publicly Owned Treatment Works (POTW) operated by the City of Gwinner in violation of the applicable pretreatment regulations. The Order also alleges that Clark failed to comply with the discharge limitations for metal finishing wastewater and all related reporting requirements. Clark has taken all actions required of it under the Order. On April 29, 1994, in United States of America v. Clark Equipment Company d/b/a Melroe Company, the U.S. filed suit against Clark in the United States District Court for the District of North Dakota. The complaint seeks (i) to permanently enjoin Clark to comply fully with all applicable requirements of the Act and Regulations and (ii) civil penalties against Clark of up to $25,000 per day for each violation for (a) alleged discharges of pollutants in violations of the effluent limitations contained in the pretreatment regulations, (b) a failure to submit timely and complete reports and (c) a failure to sample and analyze its regulated wastewater prior to discharge into the POTW. This case is now in the discovery phase. Item 4 - Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders of the company held on April 27, 1995, in addition to electing directors and ratifying the appointment of the independent accountants, the shareholders voted as follows: (1) The shareholders adopted the Company's Incentive Stock Plan of 1995. The vote was 52,507,983 votes in favor of the resolution and 22,321,591 votes against. (2) The shareholders adopted the Company's Senior Executive Performance Plan. The vote was 65,054,829 votes in favor of the resolution and 19,021,183 votes against. 20 INGERSOLL-RAND COMPANY PART II. - OTHER INFORMATION (continued) Item 6 - Exhibits and Reports on Form 8-K a.) Exhibits The exhibits listed on the accompanying index to exhibits on page 22 are filed as part of this Form 10-Q Quarterly Report. b.) Reports on Form 8-K (1) Form 8-K Current Report dated May 25, 1995 filed June 5, 1995 reported under item 2, Acquisition of Assets, and item 7, Financial Statements and Exhibits. This Form 8-K reported on the acquisition of Clark by the company and presented pro forma financial information. The Form 8-K also included the audited consolidated balance sheets of Clark at December 31, 1994 and 1993 and the consolidated statements of income and retained earnings, and cash flows for the years ended December 31, 1994, 1993 and 1992. (2) Form 8-K Current Report dated June 5, 1995 filed June 7, 1995 reported under item 5, Other Events, and item 7, Exhibits. This Form 8-K reported the issuance by the company on June 9, 1995, of $150 million of 7.20% Debentures Due 2025 and $150 million of 6.48% Debentures Due 2025. (3) Form 8-K/A Current Report dated May 25, 1995 filed June 15, 1995 reported under item 7, Financial Statements. The unaudited consolidated balance sheet of Clark at March 31, 1995 and the consolidated statements of income and retained earnings, and cash flows for the three months ended March 31, 1995 and 1994 were filed. (4) Form 8-K Current Report dated July 17, 1995 filed July 17, 1995 reported under item 5, Other Events, and item 7, Exhibits. This Form 8-K reported that the company will from time-to-time issue its Medium-Term Notes, Series A, Due Nine Months or More from Date of Issue having an aggregate initial offering price of up to $600 million (or such greater amount if Notes are issued at an original discount as shall result in aggregate gross proceeds to the company of $600 million). 21 INGERSOLL-RAND COMPANY INDEX TO EXHIBITS (Item 6(a)) Description Page 2 Agreement and Plan of Merger, dated as of April 9,1995 by and among Ingersoll-Rand Company, CEC Acquisition Corp. and Clark Equipment Company (Incorporated by reference from Amendment No. 2 to Schedule 14D-1 with respect to the tender offer by CEC Acquisition Corp., a wholly-owned subsidiary of Ingersoll-Rand Company, for shares of Clark Equipment Company.) -- 12 Computation of Ratio of Earnings to Fixed Charges 24 18 Letter dated August 11, 1995 from Price Waterhouse LLP regarding change in accounting method. 25 22 INGERSOLL-RAND COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INGERSOLL-RAND COMPANY (Registrant) Date August 11, 1995 /S/ T.F. McBride T.F. McBride, Senior Vice President & Chief Financial Officer Principal Financial Officer Date August 11, 1995 /S/ R.A. Spohn R.A. Spohn, Controller - Accounting and Reporting Principal Accounting Officer 23 EX-12 2 EXHIBIT 12 INGERSOLL-RAND COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollar Amounts in Thousands) For the Six Months Ended June 30, 1995 Fixed charges: Interest expense . . . . . . . . . . . . . . . $ 28,741 Amortization of debt discount and expense . . . 156 Rentals (one-third of rentals) . . . . . . . . 10,395 Capitalized interest . . . . . . . . . . . . . 1,250 Total fixed charges . . . . . . . . . . . . . . . $ 40,542 Net earnings . . . . . . . . . . . . . . . . . . $112,912 Add: Minority income (loss) of majority- owned subsidiaries . . . . . . . . . . . 5,809 Taxes on income . . . . . . . . . . . . . . 66,313 Fixed charges . . . . . . . . . . . . . . . 40,542 Less: Capitalized interest . . . . . . . . . . . 1,250 Undistributed earnings (losses) from less than 50% owned affiliates . . . . . 10,136 Earnings available for fixed charges . . . . . . $214,190 Ratio of earnings to fixed charges . . . . . . . 5.28 Undistributed earnings (losses) from less than 50% owned affiliates: Equity in earnings (losses) . . . . . . . . . . $ 12,483 Less: Dividends paid . . . . . . . . . . . . 2,347 Undistributed earnings (losses) from less-than 50% owned affiliates . . . . . . . $ 10,136 EX-18 3 EXHIBIT 18 August 11, 1995 To the Board of Directors of Ingersoll-Rand Company We have been furnished with a copy of the Company's Form 10-Q for the quarter ended June 30, 1995. Note 3 therein describes a change in the method of depreciation of plant and equipment from accelerated methods, principally sum-of-the-years' digits, to the straight line method. It should be understood that the preferability of one acceptable method of depreciation accounting over another has not been addressed in any authoritative accounting literature and in arriving at our opinion expressed below, we have relied on management's business planning and judgment. Based upon our discussions with management and the stated reasons for the change, we believe that such change represents, in your circumstances, the adoption of a preferable alternative accounting principle for depreciation in conformity with Accounting Principles Board Opinion No. 20. We have not made an audit in accordance with generally accepted auditing standards of the financial statements of Ingersoll-Rand Company for the three-month or six-month periods ended June 30, 1995 or June 30, 1994 and, accordingly, we express no opinion thereon or on the financial information filed as part of the Form 10-Q of which this letter is to be an exhibit. Your very truly, /s/ Price Waterhouse LLP Price Waterhouse LLP EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1995 JUN-30-1995 153,449 5,691 1,213,766 36,112 948,970 2,556,848 2,143,280 911,153 5,803,324 1,723,506 1,287,826 218,820 0 0 1,433,859 5,803,324 2,577,712 2,577,712 1,944,114 1,944,114 0 0 27,029 179,225 66,313 112,912 0 0 0 112,912 1.07 1.06