-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J/LMr6gZATV4ARMH3KcaijLNKUVafapNU1CQaAOh67I14bAdkGDslezjX0nIzius 2yLWm1YwTS6fy84cjcThvA== 0000050485-96-000005.txt : 19960401 0000050485-96-000005.hdr.sgml : 19960401 ACCESSION NUMBER: 0000050485-96-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00985 FILM NUMBER: 96540811 BUSINESS ADDRESS: STREET 1: 200 CHESTNUT RIDGE RD STREET 2: PO BOX 8738 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-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 No. 1-985 INGERSOLL-RAND COMPANY (Exact name of registrant as specified in its charter) New Jersey 13-5156640 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Woodcliff Lake, New Jersey 07675 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201)573-0123 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Series A Preference New York, London and Stock Purchase Rights Amsterdam Stock Exchanges Common Stock, $2 par value New York, London and Amsterdam Stock Exchanges Securities registered pursuant to Section 12(g) of the Act: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ] 1 The aggregate market value of common stock held by nonaffiliates on March 13, 1996 was $4,521,289,143 based on the closing price of such stock on the New York Stock Exchange. This includes the shares owned by the Registrant's Leveraged Employee Stock Ownership Plan. The number of shares of common stock outstanding as of March 13, 1996 was 109,064,532. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareowners for fiscal year ended December 31, 1995. With the exception of those portions which are incorporated by reference into Parts I, II and IV of this Form 10-K Annual Report, the 1995 Annual Report to Shareowners is not to be deemed filed as part of this report. Proxy Statement for Annual Meeting of Shareholders to be held on April 26, 1996. See Part III of this Form 10-K Annual Report for portions incorporated by reference. (A definitive proxy statement has been filed with the Commission since the close of the fiscal year). PART I Item 1. BUSINESS Ingersoll-Rand Company (the company) was organized in 1905 under the laws of the State of New Jersey as a consolidation of Ingersoll-Sergeant Drill Company and the Rand Drill Company, whose businesses were established in the early 1870's. Over the years, the company has supplemented its original business, which consisted primarily of the manufacture and sale of rock drilling equipment, with additional products which have been developed internally or obtained through acquisition. The following acquisitions have been accounted for as purchases and, accordingly, each purchase price was allocated to the acquired assets and assumed liabilities based on their estimated fair values. The results of operations since the dates of acquisition are included in the consolidated financial statements. o In August 1993, the company acquired the Kunsebeck, Germany, needle and cylindrical bearing business of FAG Kugelfischer Georg Schafer AG of Schweinfurt, Germany, for $42.5 million in cash. o In April 1994, the company acquired full ownership of the ball bearing joint venture with GMN Georg Mueller of America, Inc. for $4.9 million in cash. 2 o In June 1994, the company acquired Montabert S.A., a French manufacturer of hydraulic rock-breaking and drilling equipment for $18.4 million in cash plus assumption of liabilities. o In August 1994, the company acquired the Ecoair air compressor product line from MAN Gutehoffnungshutte AG (MAN GHH) for $10.6 million in cash. The company also entered into a 50/50 joint venture, GHH-RAND Schraubenkompressoren GmbH & Co. KG (GHH-RAND) with MAN GHH to manufacture airends. The company invested approximately $17.6 million in GHH-RAND. o In May 1995, the company acquired Clark Equipment Company (Clark) for approximately $1.5 billion in cash. Clark's business is the design, manufacture and sale of skid-steer loaders, compact excavators, agricultural equipment, asphalt paving equipment, transmissions for off-highway equipment, golf cars and light utility vehicles. o On January 31, 1996, the company acquired the Steelcraft Division of MascoTech, Inc. Steelcraft manufactures a wide range of cold-rolled and galvanized steel doors for use primarily in nonresidential construction. Dispositions that the company has made in recent years are as follows: o The company sold the assets of several small business units in 1993, as well as substantially all of the assets of its coal- mining machinery and aerospace bearings businesses for $55.5 million in cash. o In 1994, the assets of the Ingersoll-Dresser Pump Company (IDP) Australian operations were sold in return for shares of the purchaser. The company and Dresser Industries sold IRI International Corporation, a 50/50 joint venture that is a manufacturer of mobile drilling rigs, to a third party. o In May 1995, the company sold the domestic paving equipment business to Champion Road Machinery Limited of Canada. The sale was a preacquisition requirement, in order to satisfy concerns of the United States Justice Department, prior to the Clark acquisition. The company incurred a $7.1 million pretax loss associated with this sale. o On March 27, 1996, the company sold the assets of the Pulp Machinery Division to Beloit Corporation, a subsidiary of Harnischfeger Industries, Inc. The sales price is in excess of the book value of the assets. 3 Products The company manufactures and sells primarily nonelectrical machinery and equipment. Principal products include the following: Abrasive blasting and recovery Foundation drills systems Golf cars Agricultural sprayers Hoists Air compressors Industrial pumps Air dryers Lubrication equipment Air logic controls Material handling equipment Air motors Monitoring drills Air tools Needle roller bearings Architectural hardware trim Paving equipment Asphalt compactors Pellet mills Automated-parts finishing Pneumatic cylinders systems Pneumatic valves Automated production systems Portable compressors Automotive components Portable generators Axles Portable light towers Ball bearings Road-building machinery Blasthole drills Rock drills Compact hydraulic excavators Roller bearings Construction equipment Rotary drills Diaphragm pumps Rough-terrain forklifts Door closers Skid-steer loaders Door hardware Soil compactors Door locks Spray-coating systems Emergency exit devices Transmissions Engineered pumps Utility vehicles Engine-starting systems Waterjet-cutting systems Extrusion systems Water well drills Fluid-handling equipment Winches Feed-processing equipment These products are sold primarily under the company's name and also under other names including Torrington, Fafnir, Klemm, Schlage, CPM, LCN Closers, Von Duprin, Aro, ABG, Ingersoll-Dresser Pumps, Pacific, Worthington, Jeumont-Schneider Pumps, Pleuger, Blaw-Knox, Melroe, Club Car and Clark-Hurth. During the past three years, the division of the company's sales between capital goods and expendables has been in the approximate ratio of 55 percent and 45 percent, respectively. The company generally defines as expendables those products which are not capitalized by the ultimate user. Examples of such products are parts sold for replacement purposes, power tools and needle bearings. 4 Club Car's peak sales of golf cars occur during the months of February through June when units are shipped to golf clubs at the beginning of their golf season. Warm weather states, such as California and Florida, have golf seasons beginning in the fall which stimulate fleet and retail sales during the fall. Sales of Club Car's utility vehicle products occur year-round but are heavier in the spring. Additional information on the company's business and financial information about industry segments is presented in footnote 15 to the Consolidated Financial Statements of the company included in the company's Annual Report to Shareowners for 1995, incorporated by reference in this Form 10-K Annual Report. Distribution The company's products are distributed by a number of methods which the company believes are appropriate to the type of product. Sales are made domestically through branch sales offices and through distributorships and dealers across the United States. International sales are made through approximately 60 subsidiary sales and service companies with a supporting chain of distributors in over 100 countries. Working Capital The working capital requirements of the company vary with respect to the many products and industries in which it is involved. In general, the requirements of its Engineered Equipment Segment, which manufactures machinery for specialized customer needs, involve a relatively long lead time and, at times, more significant company investment with respect to the particular product or order. Historically, these orders are generally covered by progress payments, which reduce the company's investment in the amount of inventory maintained by this segment. The products manufactured by the company's Standard Machinery and Bearings, Locks and Tools segments are more in the nature of standard equipment. Consequently, a wider variety must usually be more readily available to meet rapid delivery requirements. Such working capital requirements are not, however, in the opinion of management, materially different from those experienced by the company's major competitors. Customers No material part of the company's business is dependent upon a single customer or very few customers, the loss of any one of which would have a material adverse effect on the company's operations. 5 Competitive Conditions The company's products are sold in highly competitive markets throughout the world against products produced by both foreign and domestic corporations. The principal methods of competition in these markets relate to price, quality and service. The company believes that it is one of the leading manufacturers in the world of a broad line of air compression systems, anti-friction bearings, construction equipment, air tools, pumps (through the IDP joint venture), golf cars and utility vehicles. In addition, the company believes it is a leading supplier in domestic markets for locks, other door hardware products, skid-steer loaders and asphalt paving equipment. International Operations Sales to customers outside the United States, including domestic sales for export, accounted for approximately 44 percent of the consolidated net sales in 1995. Information as to operating income by geographic area is set forth in footnote 15 to the Consolidated Financial Statements of the company included in the company's Annual Report to Shareowners for 1995, incorporated by reference in this Form 10-K Annual Report. Sales outside of the United States are made in more than 100 countries; therefore, the attendant risks of manufacturing or selling in a particular country, such as nationalization and establishment of common markets, would not have a significant effect on the company's international operations. Raw Materials The company manufactures many of the components included in its products. The principal raw materials required for the manufacture of the company's products are purchased from numerous suppliers, and the company believes that available sources of supply will generally be sufficient for its needs for the foreseeable future. Backlog The company's approximate backlog of orders at December 31, 1995, believed by it to be firm, was $389 million for the Standard Machinery Segment, $636 million for the Engineered Equipment Segment and $564 million for the Bearings, Locks and Tools Segment as compared to $176 million, $395 million and $438 million, respectively, at December 31, 1994. These backlog figures are based on orders received. While the major portion of the company's products are built in advance of order and either shipped or assembled from stock, orders for specialized machinery or specific customer application are submitted with extensive lead time and are often subject to revision, deferral, cancellation or termination. The company estimates that approximately 90 percent of the backlog will be shipped during the next twelve months. 6 Research, Engineering and Development The company maintains extensive research, engineering and development facilities for experimenting, testing and developing high quality products. The company employs approximately 1,700 professional employees for its research, engineering and development activities. The company spent $190 million in 1995, $155 million in 1994 and $150 million in 1993 on research, engineering and development. Patents and Licenses The company owns numerous patents and patent applications and is licensed under others. While it considers that in the aggregate its patents and licenses are valuable, it does not believe that its business is materially dependent on its patents or licenses or any group of them. In the company's opinion, engineering and production skills, and experience are more responsible for its market position than patents or licenses. Environmental Matters The company is subject to extensive environmental laws and regulations. We believe that the company, as well as industry in general, will be faced with increasingly stringent laws and regulations in the future. As a result, 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 the Clark acquisition. During 1995, the company spent approximately $6 million on capital projects for pollution abatement and control and an additional $8 million for environmental remediation expenditures, including operation and maintenance of existing environmental programs. It should be noted that these amounts are difficult to estimate because environmental improvements are generally intertwined with the overall improvement costs at a particular plant, and the accurate estimate of which portion of an improvement or a capital expenditure relates to an environmental improvement is difficult to ascertain. The company believes that these expenditure levels will continue and may increase over time. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain. 7 The company is a party to environmental lawsuits and claims. It has received notices of potential violations of environmental laws and regulations from the Environmental Protection Agency and similar state authorities, and is identified as a potentially responsible party (PRP) for cleanup costs at approximately 41 federal Superfund and state remediation sites (including Clark-acquired PRP locations). For all sites there are other PRPs and in most instances, the company's site involvement is minimal. While all PRPs may be jointly and severally liable to pay all site investigation and remediation costs, to date there is no indication the company will be liable for more than the costs of its own percentage of responsibility at any site. 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. Employees There are approximately 41,100 employees of the company throughout the world, of whom approximately 28,600 work in the United States and 12,500 in foreign countries. Approximately 32 percent of the company's United States production and maintenance employees, who work in 11 plants, are represented by 5 unions. The company believes relations with its employees are satisfactory. Item 2. PROPERTIES The company's executive offices are located at Woodcliff Lake, New Jersey. Manufacturing and assembly operations are conducted in 51 plants in the United States; 6 plants in Canada; 32 plants in Europe; 7 plants in Asia; 5 plants in Latin America and 1 plant in Africa. The company also maintains various warehouses, offices and repair centers in the United States, Canada and abroad. 8 Substantially all plant facilities are owned by the company and the remainder are under long-term lease. The company believes that its plants and equipment have been well-maintained and are generally in good condition. The company has several closed facilities that it is actively marketing with the intent of selling them at their net realizable value. The operating segments for which the facilities are primarily used are as described below. Facilities that produce products in several operating segments are classified by the products which they primarily manufacture. Facilities under long-term lease are included below and are not significant to each operating segment's total number of plants or square footage. Standard Machinery This segment's products include machinery regularly used in general manufacturing and in industries such as mining and construction. Products range from blasthole drills used in mining and construction, small air compressors found worldwide in auto service stations, skid-steer loaders and golf cars. The segment is aligned into five operating groups: Air Compressor, Construction and Mining, Melroe, Club Car and Mining Machinery (which was sold in 1993). The segment's manufacturing locations are as follows: Approximate Number of Plants Square Footage Domestic 11 3,321,000 International 13 2,338,000 Total 24 5,659,000 Engineered Equipment The products manufactured by this segment are predominantly designed for specific customer applications. The segment's diverse product line includes pumps, liquid/solid separation, densification machinery and axles and transmissions for off-highway vehicles. The segment is organized into three operating groups: Pump, Process Systems (a portion of which was sold in 1996) and Clark-Hurth. The segment's manufacturing facilities are as follows: Approximate Number of Plants Square Footage Domestic 12 2,969,000 International 23 3,081,000 Total 35 6,050,000 9 Bearings, Locks and Tools This segment primarily serves the automotive, capital goods, energy and construction industries. Products in this segment include bearings for specialized and industrial application, locks and door hardware for residential and commercial buildings, air tools for industrial use, air winches, hoists and engine starting systems, and automated production systems for transportation equipment manufacturers. There are three operating groups in this segment: Bearings and Components Group, Production Equipment Group and Architectural Hardware Group (formerly known as Door Hardware Group). The segment's manufacturing facilities are as follows: Approximate Number of Plants Square Footage Domestic 28 6,288,000 International 15 1,683,000 Total 43 7,971,000 Item 3. 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 cleanup of approximately 41 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. 10 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 awaiting trial. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the company's security holders during the last quarter of its fiscal year ended December 31, 1995. 11 The following information is included in accordance with the provision of Part III, Item 10. Date of Service as Principal Occupation and an Executive Other Information Name and Age Officer for Past Five Years James E. Perrella(60) 5/4/77 Chairman of the Board, President and Chief Executive Officer, Director (President and Director, 1992 - 1993; Executive Vice President, 1982 - 1992) J. Frank Travis(60) 2/7/90 Executive Vice President (Executive Vice President and President of the Production Equipment Group, 1993 - 1995; Vice President and President of the Bearings and Components Group, 1992 - 1993; President of the Air Compressor Group, 1989 - 1992) Thomas F. McBride(60) 9/5/79 Senior Vice President and Chief Financial Officer (Senior Vice President and Comptroller, 1992 - 1993; Vice President and Comptroller, 1981 - 1992) William J. Armstrong(54) 8/3/83 Vice President and Treasurer Paul L. Bergren(46) 12/2/92 Vice President, President of the Air Compressor Group, and President of Ingersoll-Rand Europe (Vice President and General Manager - Centrifugal Compressor Division, 1989 - 1992) Frederick W. Hadfield(59) 8/1/79 Vice President and President of IDP (Vice President, 1979 - 1994) Brian D. Jellison(50) 2/7/96 Vice President and President of the Architectural Hardware Group (President of the Door Hardware Group, 1994 - 1995; President, Von Duprin, 1988 - 1994) 12 Date of Service as Principal Occupation and an Executive Other Information Name and Age Officer for Past Five Years Daniel E. Kletter(57) 2/7/90 Vice President (Vice President and President of the Construction and Mining Group, 1989 - 1994) Patricia Nachtigal(49) 11/2/88 Vice President and General Counsel (Secretary and Managing Attorney, 1988 - 1991) Allen M. Nixon(55) 2/1/95 Vice President and President of Bearing and Components Group (Vice President and General Manager Torrington Needle Bearings Division, 1983 - 1994) James R. O'Dell(57) 12/3/88 Vice President Nicholas J. Pishotti(55) 4/10/95 Vice President and Vice President Strategic Sourcing (General Manager, Aircraft Engine Sourcing Department, General Electric Company, 1988 - 1995) Larry H. Pitsch(55) 2/7/90 Vice President and President of the Process Systems Group Donald H. Rice(51) 2/1/95 Vice President (Executive Director - Human Resources 1994; Vice President, Human Resources - Bearings and Components Group, 1988 - 1993) Gerald E. Swimmer(51) 5/1/82 Vice President R. Barry Uber(50) 2/7/90 Vice President and President of the Construction and Mining Group (Vice President and President of the Production Equipment Group, 1990 - 1994) Ronald G. Heller(49) 2/6/91 Secretary and Assistant General Counsel (Assistant General Counsel, 1988 - 1991) No family relationship exists between any of the above-listed executive officers of the company. All officers are elected to hold office for one year or until their successors are elected and qualify. 13 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information regarding the principal market for the company's common stock and related stockholder matters are as follows: Quarterly share prices and dividends for the common stock are shown in the following tabulation. The common shares are listed on the New York Stock Exchange and also on the London and Amsterdam exchanges. Common Stock High Low Dividend 1995 First quarter $34 $28 3/8 $.185 Second quarter 39 3/8 32 5/8 .185 Third quarter 42 3/8 35 5/8 .185 Fourth quarter 38 5/8 33 5/8 .185 High Low Dividend 1994 First quarter $41 5/8 $34 5/8 $.175 Second quarter 38 7/8 32 3/4 .175 Third quarter 38 3/4 34 3/8 .185 Fourth quarter 36 1/4 29 1/2 .185 The Bank of New York (Church Street Station, P.O. Box 11258, New York, NY 10286-1258, (800)524-4458) is the transfer agent, registrar and dividend reinvestment agent. There are no significant restrictions on the payment of dividends. The approximate number of record holders of common stock as of March 13, 1996 was 13,706. 14 Item 6. SELECTED FINANCIAL DATA Selected financial data for the five years ended December 31, 1995, is as follows (in millions except per share amounts): December 31 1995 1994 1993 1992 1991 Net sales $5,729.0 $4,507.5 $4,021.1 $3,783.8 $3,586.2 Net earnings (loss) 270.3 211.1 142.5 (234.4) 150.6 Total assets 5,563.3 3,596.9 3,375.3 3,387.6 2,979.6 Long-term debt 1,304.4 315.9 314.1 355.6 375.8 Shareowners' equity 1,795.5 1,531.3 1,349.8 1,293.4 1,633.1 Earnings (loss) per common share $2.55 $2.00 $1.36 $(2.25) $1.45 Dividends per common share 0.74 0.72 0.70 0.69 0.66
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations is included as Financial Review and Management Analysis in Exhibit 13 - the Annual Report to Shareowners for 1995 and is incorporated by reference in this Form 10-K Annual Report. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and supplementary financial information included in the accompanying Annual Report to Shareowners for 1995 are incorporated by reference in this Form 10-K Annual Report: (a) The consolidated financial statements and the report thereon of Price Waterhouse LLP dated February 6, 1996, are included as Exhibit 13 - the Annual Report to Shareowners (excluding the Financial Review and Management Analysis) for 1995. 15 (b) The unaudited quarterly financial data for the two-year period ended December 31, 1995, is as follows (in millions except per share amounts): Earnings per Net Cost of Operating Net common 1995 sales goods sold income earnings share First quarter $1,185.6 $ 893.1 $ 89.2 $ 46.3 $0.44 Second quarter 1,392.1 1,051.0 118.7 66.6 0.63 Third quarter 1,521.3 1,163.2 119.1 61.8 0.58 Fourth quarter 1,630.0 1,202.9 170.0 95.6 0.90 Year 1995 $5,729.0 $4,310.2 $497.0 $270.3 $2.55 1994 First quarter $1,010.3 $ 775.9 $ 60.1 $ 33.0 $0.31 Second quarter 1,143.8 866.0 91.8 51.5 0.49 Third quarter 1,113.7 840.2 89.0 48.4 0.46 Fourth quarter 1,239.7 895.0 136.1 78.2 0.74 Year 1994 $4,507.5 $3,377.1 $377.0 $211.1 $2.00 o The reductions in LIFO inventory quantities increased net earnings per share by $0.02 in the fourth quarter of 1995 and $0.01 and $0.06 in the third and fourth quarters of 1994, respectively. o The second, third and fourth quarters of 1995 include the results of Clark Equipment Company (see Note 2 of the Consolidated Financial Statements). Item 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 16 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is (i) incorporated by reference in this Form 10-K Annual Report from pages 1 through 6 of the company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 26, 1996, and (ii) included in Part I on pages 12 and 13 of this Form 10-K Annual Report. Item 11. EXECUTIVE COMPENSATION Information on executive compensation is incorporated by reference in this Form 10-K Annual Report from pages 6 through 15 of the company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 26, 1996. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information on security ownership of directors and nominees, directors and officers as a group and certain beneficial owners is incorporated by reference in this Form 10-K Annual Report on pages 4 and 5 of the company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 26, 1996. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by Item 13 is incorporated by reference in this Form 10-K Annual Report from page 15 of the company's definitive proxy statement for the Annual Meeting of Shareholders to be held on April 26, 1996. 17 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. and 2. Financial statements and financial statement schedules The financial statements, together with the report thereon of Price Waterhouse LLP dated February 6, 1996, included as Exhibit 13 (excluding Financial Review and Management Analysis) and the unaudited quarterly financial data included in Part II Item 8(b) are incorporated by reference in this Form 10-K Annual Report. The financial statement schedule listed in the accompanying index should be read in conjunction with the financial statements in such Annual Report to Shareowners for 1995. Separate financial statements for all 50 percent or less owned companies, accounted for by the equity method have been omitted because no individual entity constitutes a significant subsidiary. 3. Exhibits The exhibits listed on the accompanying index to exhibits are filed as part of this Form 10-K Annual Report. (b) Reports on Form 8-K None. 18 INGERSOLL-RAND COMPANY INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (Item 14 (a) 1 and 2) Form 10-K Consolidated Financial Statements: Report of independent accountants . . . . . . . . . . * Consolidated balance sheet at December 31, 1995 and 1994 . . . . . . . . . . . . * For the years ended December 31, 1995, 1994 and 1993: Consolidated statement of income . . . . . . . . . * Consolidated statement of shareowners' equity . . . . . . . . . . . . . . . . . . . . . * Consolidated statement of cash flows . . . . . . . * Notes to consolidated financial statements . . . . . * Selected unaudited quarterly financial data . . . . . . 16 Financial Statement Schedule: Report of independent accountants on financial statement schedule . . . . . . . . . . . 20 Consolidated schedule for the years ended December 31, 1995, 1994 and 1993: Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . 21 * See Exhibit 13 - Ingersoll-Rand Company Annual Report to Shareowners for 1995. Financial statement schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Financial statements of the company's 50 percent or less owned companies, are omitted because individually they do not meet the significant subsidiary test of Rule 3-09 of Regulation S-X. 19 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Ingersoll-Rand Company: Our audits of the consolidated financial statements referred to in our report dated February 6, 1996 included as part of Exhibit 13 - the Annual Report to Shareowners for 1995 of Ingersoll-Rand Company, (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /S/ Price Waterhouse LLP PRICE WATERHOUSE LLP Morristown, New Jersey February 6, 1996 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-60249) and to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-00829, No. 33- 35229, No. 2-98258 and Post-Effective Amendment No. 4 to No. 2-64708) of Ingersoll-Rand Company of our report dated February 6, 1996 included as part of Exhibit 13 - the Annual Report to Shareowners for 1995, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on this page. /S/ Price Waterhouse LLP PRICE WATERHOUSE LLP Morristown, New Jersey March 29, 1996 20 SCHEDULE II INGERSOLL-RAND COMPANY VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993 (Amounts in millions) Additions charged to Balance at costs and Balance beginning expenses Deductions at end Description of year (*) (**) of year 1995 Doubtful accounts $25.9 $17.8 $ 5.4 $38.3 1994 Doubtful accounts $22.1 $12.6 $ 8.8 $25.9 1993 Doubtful accounts $23.1 $10.2 $11.2 $22.1 (*) "Additions" include foreign currency translation. (**) "Deductions" include accounts and advances written off, less recoveries. 21 INGERSOLL-RAND COMPANY INDEX TO EXHIBITS (Item 14(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.) - 3 (i) Amendment to Restated Certificate of Incorporation of Ingersoll-Rand Company filed May 28, 1992. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See pages 30-32 of the 1993 Form 10-K). - 3 (ii) Restated Certificate of Incorporation of Ingersoll-Rand Company as amended through May 28, 1992. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See pages 33-60 of the 1993 Form 10-K). - 3 (iii) By-Laws of Ingersoll-Rand Company, as amended through January 1, 1996. 28-42 4 (i) Rights Agreement, dated as of December 7, 1988, as amended by Amendment No. 1 thereto dated as of December 7, 1994. Incorporated by reference from Form 8-A of Ingersoll- Rand Company filed on December 12, 1988, and Form 8-A/A of Ingersoll-Rand Company filed December 15, 1994. - 4 (ii) Indenture, dated as of August 1, 1986 between Ingersoll-Rand Company and the Bank of New York, as Trustee, as supplemented. (Incorporated by reference to Exhibits 4.1, 4.2 and 4.3 of the company's Form S-3 Registration Statement No. 33-39474). - 22 INGERSOLL-RAND COMPANY INDEX TO EXHIBITS (Item 14(a)) (Continued) Description Page 4 (iii) Ingersoll-Rand Company is a party to several long-term debt instruments under which in each case the total amount of securities authorized does not exceed 10% of the total assets of Ingersoll-Rand Company and its subsidiaries on a consolidated basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation S-K, Ingersoll-Rand Company agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. - 10 (iii) The following exhibits constitute management contracts or compensatory plans or arrangements required by Item 601 of Regulation S-K. 10 (iii) (a) Management Incentive Unit Plan of Ingersoll- Rand Company. Amendment to the Management Incentive Unit Plan, effective January 1, 1982. Amendment to the Management Incentive Unit Plan, effective January 1, 1987. Amendment to the Management Incentive Unit Plan, effective June 3, 1987. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See pages 78-92 of the 1993 Form 10-K). - 10 (iii) (b) Description of Ingersoll-Rand Company Retirement Plan for Non-employees Directors. Incorporated by reference to Form 10-K of Ingersoll- Rand Company for Fiscal Year Ended December 31, 1994. (See pages 39-47 of the 1994 Form 10-K). - 10 (iii) (c) Form of Contingent Compensation Agreements with Executive Vice Presidents and Group Presidents of Ingersoll-Rand Company. 43-47 10 (iii) (d) Description of Bonus Arrangements for Chairman, President and Staff Officers. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See page 100 of the 1993 Form 10-K). - 10 (iii) (e) Form of Change of Control Agreement with Chairman and Chief Executive Officer of Ingersoll-Rand Company. 48-64 23 INGERSOLL-RAND COMPANY INDEX TO EXHIBITS (Item 14(a)) (Continued) Description Page 10 (iii) (f) Form of Change of Control Agreement with selected executive officers other than Chairman of Ingersoll-Rand Company. 65-84 10 (iii) (g) Executive Supplementary Retirement Agreement for selected executive officers. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See pages 127-132 of the 1993 Form 10-K). - 10 (iii) (h) Incentive Stock Plan of 1985 of Ingersoll- Rand Company. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See pages 133-151 of the 1993 Form 10-K). - 10 (iii) (i) Forms of insurance and related letter agreements with certain executive officers. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See pages 152-160 of the 1993 Form 10-K). - 10 (iii) (j) Incentive Stock Plan of 1990 of Ingersoll- Rand Company. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See pages 161-182 of the 1993 Form 10-K). - 10 (iii) (k) Restated Supplemental Pension Plan. 85-91 10 (iii) (l) Supplemental Stock and Savings Investment Plan effective as of January 1, 1989. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See pages 189-198 of the 1993 Form 10-K). - 10 (iii) (m) Supplemental Retirement Account Plan effective as of January 1, 1989. Incorporated by reference to Form 10-K of Ingersoll-Rand Company for Fiscal Year Ended December 31, 1993. (See pages 199-206 of the 1993 Form 10-K). - 24 INGERSOLL-RAND COMPANY INDEX TO EXHIBITS (Item 14(a)) (Continued) Description Page 10 (iii) (n) Incentive Stock Plan of 1995 of Ingersoll- Rand Company. Incorporated by reference to the Notice of 1995 Annual Meeting of Shareholders and Proxy Statement dated March 15, 1995. (See Appendix A of the Proxy Statement dated March 15, 1995). - 10 (iii) (o) Senior Executive Performance Plan. Incorporated by reference to the Notice of 1995 Annual Meeting of Shareholders and Proxy Statement dated March 15, 1995. (See Appendix B of the Proxy Statement dated March 15, 1995). - 10 (iii) (p) Elected Officers Supplemental Plan. 92-108 10 (iii) (q) Selected Executive Officer Employment Agreement. 109-111 11 (i) Computation of Primary Earnings Per Share. 112 11 (ii) Computation of Fully Diluted Earnings Per Share. 113-114 12 Computations of Ratios of Earnings to Fixed Charges. 115 13 Ingersoll-Rand Company Annual Report to Shareowners for 1995. (Not deemed to be filed as part of this report except to the extent incorporated by reference). 116-175 18 Letter dated August 11, 1995 from Price Waterhouse LLP regarding change in accounting method. Incorporated by reference to Form 10-Q of Ingersoll-Rand Company for the quarterly period ended June 30, 1995 reported under Item 6, Exhibits. 21 List of Subsidiaries of Ingersoll-Rand Company. 176-178 27 Financial Data Schedule. 179 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) By /S/ Thomas F. McBride Thomas F. McBride Senior Vice President and Chief Financial Officer Date March 29, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date Chairman, President, Chief Executive Officer and Director (Principal /S/ James E. Perrella Executive Officer) March 29, 1996 (James E. Perrella) Senior Vice President Chief Financial Officer (Principal Financial /S/ Thomas F. McBride Officer) March 29, 1996 (Thomas F. McBride) Controller - Accounting and Reporting (Principal Accounting /S/ Richard A. Spohn Officer) March 29, 1996 (Richard A. Spohn) /S/ Theodore H. Black Director March 29, 1996 (Theodore H. Black) 26 Signature Title Date /S/ Brendan T. Byrne Director March 29, 1996 (Brendan T. Byrne) /S/ Joseph P. Flannery Director March 29, 1996 (Joseph P. Flannery) /S/ Constance J. Horner Director March 29, 1996 (Constance J. Horner) /S/ H. William Lichtenberger Director March 29, 1996 (H. William Lichtenberger) /S/ John E. Phipps Director March 29, 1996 (John E. Phipps) /S/ Cedric E. Ritchie Director March 29, 1996 (Cedric E. Ritchie) /S/ Orin R. Smith Director March 29, 1996 (Orin R. Smith) /S/ Richard J. Swift Director March 29, 1996 (Richard J. Swift) 27 EX-3 2 EXHIBIT 3 (iii) Page 1 of 15 BY-LAWS of INGERSOLL-RAND COMPANY As amended through January 1, 1996 28 EXHIBIT 3 (iii) Page 2 of 15 BY-LAWS of INGERSOLL-RAND COMPANY ARTICLE I. STOCKHOLDERS' MEETINGS Section 1. Annual Meeting: The annual meeting of the Stockholders of the Company shall be held on the fourth Thursday of April, in each year, or such other date as the Board of Directors may determine, at such hour and at such place within or without the State of New Jersey as may be fixed by the Board of Directors and stated in the notice of the meeting, for the election of Directors of the Company and for the transaction of such other business as may come before it in accordance with the provisions of these By-Laws. At any such annual meeting of Stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board of Directors, or (b) by any Stockholder entitled to vote at such meeting who complies with the procedures set forth in this Section 1. Any Stockholder entitled to vote at such meeting may propose business to be included in the agenda of such meeting only if written notice of such Stockholder's intent is given to the Secretary of the Company, either by personal delivery or by United States mail, postage prepaid, not later than 90 days in advance of the anniversary of the immediately preceding annual meeting or if the date of the annual meeting of Stockholders occurs more than 30 days before or 60 days after the anniversary of such immediately preceding annual meeting, not later than the close of business on the seventh day following the date on which notice of such meeting is given to Stockholders. A Stockholder's notice to the Secretary shall set forth in writing as to each matter such 29 EXHIBIT 3 (iii) Page 3 of 15 Stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Company's books, of the Stockholder proposing such business, (c) the class and number of shares of the Company which are beneficially owned by the Stockholder and (d) any material interest of the Stockholder in such business. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 1. The officer of the Company or other person presiding at the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 1, and, if such officer or other person should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 2. Special Meetings: Special meetings of the Stockholders may be held at the principal office of the Company in the State of New Jersey or at such other place within or without said State as may from time to time be designated by the Board of Directors and stated in the notice of the meeting, whenever called in writing by the Chairman of the Board, the Vice-Chairman or the President or by vote of a majority of the Board of Directors. At any special meeting of the Stockholders, only such business shall be conducted as shall have been brought before the meeting by or at the direction of the Board of Directors and such business shall be confined to the object or objects stated in the notice thereof. Section 3. Quorum: Unless otherwise provided in the Certificate of Incorporation of this Company or by statute, the presence in person or by proxy of the holders of record of the shares entitled to cast a majority of the votes at any meeting of the Stockholders shall constitute a quorum at such meeting. Whenever the holders of any class or series of shares are entitled to vote separately on a specified item of business, the presence in person or by proxy of the holders of record of the shares of such class or series entitled to cast a majority of the votes thereon shall constitute a quorum for the transaction of such specified item of business. 30 EXHIBIT 3 (iii) Page 4 of 15 If the holders of the amount of stock necessary to constitute a quorum shall fail to attend in person or by proxy at the time and place fixed by these By-Laws for an annual meeting, or as fixed by notice, as above provided for a special meeting, a majority in interest of the Stockholders present, in person or by proxy, may adjourn from time to time without notice other than announcement at the meeting until the holders of the amount of stock requisite to constitute a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. Section 4. Organization: The Chairman of the Board shall call meetings of the Stockholders to order and shall act as Chairman of such meetings. In the absence of the Chairman of the Board, the Vice-Chairman or the President, or in his absence an Executive Vice President shall preside: and in the absence of any of the foregoing officers, the Stockholders present, or the Board of Directors, may appoint any Stockholder to act as Chairman of any meeting. The Secretary of the Company shall act as Secretary of all meetings of the Stockholders. In the absence of the Secretary at any meeting of the Stockholders, the presiding officer may appoint any person to act as Secretary of the Meeting. Section 5. Voting: At each meeting of the Stockholders, every Stockholder shall be entitled to vote in person or by proxy appointed by instrument in writing subscribed by such Stockholder or by his duly authorized attorney and delivered to the inspectors at the meeting. The votes for Directors and, upon demand of any Stockholder, the votes upon any question before the meeting shall be by ballot. Section 6. Inspectors: At each annual stated meeting of the Stockholders for the election of Directors, the presiding officer of such meeting shall appoint two persons to act as inspectors, who shall be sworn to perform their duties in accordance with the laws of the State of New Jersey, and who shall return a formal certificate. 31 EXHIBIT 3 (iii) Page 5 of 15 Section 7. Nominations of Directors: Nominations for the election of Directors may be made by the Board of Directors or any Stockholder entitled to vote for the election of Directors. Any Stockholder entitled to vote for the election of Directors at a meeting or to express a consent in writing without a meeting may nominate a person or persons for election as a Director only if written notice of such Stockholder's intent to make such nomination is given to the Secretary of the Company, either by personal delivery or United States mail, postage prepaid, not later than (a) with respect to an election to be held at an annual meeting of Stockholders, 90 days in advance of the anniversary of the immediately preceding annual meeting or if the date of the annual meeting of Stockholders occurs more than 30 days before or 60 days after the anniversary of such immediately preceding annual meeting, not later than the close of business on the seventh day following the date on which notice of such meeting is given to Stockholders and (b) in the case of any Stockholder who wishes to nominate a person or persons for election as a Director pursuant to consents in writing by Stockholders without a meeting (to the extent election by such consents is permitted under applicable law and the Company's Certificate of Incorporation), 60 days in advance of the date on which materials soliciting such consents are first mailed to Stockholders or, if no such materials are required to be mailed under applicable law, 60 days in advance of the date on which the first such consent in writing is executed. Each such notice shall set forth the name and address of the Stockholder who intends to make the nomination and of the person or persons to be nominated for election as a Director, a representation that the Stockholder is a holder of record of stock of the Company entitled to vote at such meeting or to express such consent in writing and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or to execute such a consent in writing to elect such person or persons as a Director, a description of all arrangements or understandings between the Stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations for election as a Director are to be made by the Stockholder, such other information regarding each nominee proposed by such Stockholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission if such nominee had been nominated, or was intended to be nominated, for election as a Director by the Board of Directors, and the consent of each nominee to serve as a Director of the Company if so elected. The Board of Directors may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedures. 32 EXHIBIT 3 (iii) Page 6 of 15 ARTICLE II. BOARD OF DIRECTORS Section 1. Number and Election: The business and property of the Company shall be managed by a Board of ten Directors. The number of Directors may be altered from time to time by the alteration of these By-Laws, provided that, as required by the Restated Certificate of Incorporation, the Board shall never consist of less than eight members. As provided in the Restated Certificate of Incorporation, the Board of Directors shall be divided into three classes, two consisting of three Directors each and the remaining consisting of four Directors. At each annual election, the successors to the Directors of the class whose terms shall expire in that year shall be elected to hold office for a term of three years, so that the term of office of one class of Directors shall expire in each year. Each Director shall serve for the term for which such Director shall have been elected and until such Director's successor shall have been duly elected. Notwithstanding the foregoing provisions of this Section 1, if and as long as the Restated Certificate of Incorporation provides for the election of additional Directors by class or classes of stock, such additional Directors shall be elected in the manner and for the term provided in the Restated Certificate of Incorporation. Section 2. Vacancies: Subject to any requirements of the Certificate of Incorporation with respect to the filling of vacancies among additional Directors elected by a class or classes of stock, if the office of any Director becomes vacant, the remaining Directors may, by a majority vote, elect a successor who shall hold office until the next succeeding annual meeting of the Stockholders and until his successor shall have been elected and qualified. Section 3. Place of Meetings: The Directors may hold their meetings and may have an office and keep the books of the Company (except as otherwise may be provided for by law) in such place or places in the State of New Jersey or outside of the State of New Jersey as the Board from time to time may determine. 33 EXHIBIT 3 (iii) Page 7 of 15 Section 4. Regular Meetings: Regular meetings of the Board of Directors shall be held at such times and intervals as the Board may from time to time determine. It shall be the duty of the Secretary to send a notice to each of the Directors at his address as it appears on the books of the Company at least two (2) days before the holding of each regular meeting, but a failure of the Secretary to send such notice shall not invalidate any proceedings of the said Board. Section 5. Special Meetings: Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the Vice-Chairman or the President, or by one-third (1/3) of the Directors for the time being in office. The Secretary shall give notice of each special meeting by mailing the same at least two (2) days before the meeting, or by telegraphing the same at least one (1) day before the meeting to each Director, but such notice may be waived by any Director. At any meeting at which every Director shall be present, even without notice, any business may be transacted. Section 6. Quorum: Six (6) members of the Board of Directors, but not less than one-third (1/3) of the entire Board, shall constitute a quorum for the transaction of business; but if at any meeting of the Board there be less than a quorum present, those present may adjourn the meeting from time to time. At meetings of the Board of Directors, business shall be transacted in such order as from time to time the Board may determine. Section 7. Director Emeritus: The Board of Directors may appoint a person who has served with distinction and who has retired from the Board upon reaching mandatory retirement as provided herein to the position of Director Emeritus. A Director Emeritus shall be invited to attend all meetings of the Board and shall receive the same compensation as that paid to outside Directors. While serving as a Director Emeritus, he shall not be considered a retired director for pension benefit purposes; however, any pension benefits to which he may be entitled will commence upon his cessation of service as a Director Emeritus. 34 EXHIBIT 3 (iii) Page 8 of 15 He shall be appointed by the Board for a one-year term and may be reappointed from time to time by action of the Board. While the presence of a Director Emeritus at a Board meeting will not be considered for quorum or voting purposes, nevertheless, his advice and counsel on all matters to come before the Board is invited. ARTICLE III. COMMITTEES The Board of Directors may appoint from their number such standing committees as they deem best and to the extent permitted by statute may invest them with such of their own powers as they may deem advisable, subject to such conditions as they may prescribe. ARTICLE IV. OFFICERS Section 1. Officers: The executive officers of the Company shall include a Chairman of the Board of Directors, President, Treasurer and Secretary and may also include one or more Vice-Chairmen, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, and such other officers as the Board of Directors shall deem necessary or otherwise appropriate to elect. The Chief Executive Officer may hold the title of Chairman of the Board, or President, or both titles. The Board of Directors may appoint such other officers and advisory boards as they shall deem necessary, who shall have such authority and who shall perform such duties as from time to time may be prescribed by the Board of Directors. Any executive officer elected by the Board of Directors may be removed at any time with or without cause by the affirmative vote of two-thirds (2/3) of the entire Board of Directors. 35 EXHIBIT 3 (iii) Page 9 of 15 Any other appointed or elected officer, agent, employee or member of an advisory board may be removed at any time with or without cause by affirmative vote of the Directors or by the Committee or superior officer upon whom such power of removal may be conferred. Section 2. Powers and Duties: The Chairman of the Board shall preside at all meetings of the Board of Directors and Stockholders. Subject to designation by the Board of Directors he shall be the Chief Executive Officer of the Company, and he shall have responsibility for the active management of the business of the Company. He may sign and execute contracts and agreements authorized by the Board, delegate other officers to do so and may, from time to time, require from other officers and from employees of the Company opinions, reports or information upon any matter specified by him or generally upon the interests or affairs of the Company under the supervision of such officers or employees respectively. He may appoint and remove assistant officers and other employees and agents. He may exercise any other powers conferred upon him by the Board of Directors. Other officers shall have all the usual and customary powers and shall perform all the usual and customary duties incident to their respective offices and, in addition thereto and to any duties specifically prescribed by any subsequent provisions of these By-Laws, they shall respectively perform such other general or special duties as may from time to time be assigned to them by the Board of Directors or the Chief Executive Officer. The Board of Directors may appoint an officer to act as Chief Financial Officer of the Company, who shall have responsibility for the financial affairs of the Company. He will be responsible for the preparation of the financial statements of the Company, and such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer. The Board of Directors may appoint an officer to act as General Counsel of the Company, who shall have responsibility for the legal affairs of the Company. The Board of Directors may appoint the Comptroller to be the principal accounting and financial control officer of the Company. Securities of other corporations or interests in other entities held by the Company may be voted by the Chairman of the Board or by any other person designated by the Board of Directors or Chief Executive Officer. 36 EXHIBIT 3 (iii) Page 10 of 15 Section 3. Term: The executive officers elected by the Board of Directors shall hold office for one year or until their successors are elected and qualify. The Chairman, and any Vice-Chairman, shall be elected by the Directors from among their own number. One person may hold more than one office. ARTICLE V. BILLS, NOTES, AND CHECKS All bills, notes, checks or other negotiable instruments of the Company shall be made in the name of the Company and shall be signed by two executive officers or by any two persons duly authorized by the Board of Directors. No officers or agents of the Company, either singly or together shall have power to make any bill, note or check or other negotiable instrument in the name of the Company to bind the Company thereby, except as in this Article prescribed and provided. No officer or agent of this Company shall have power to endorse in the name, for or in behalf of the Company, any note, bill of exchange, draft, check or other written instrument for the payment of money, save only for purposes of the discount or the collection of the said instrument, unless thereunto duly and specially authorized by the vote of the Directors of this Company entered on the minutes of said Board. ARTICLE VI. CAPITAL STOCK Section 1. Certificates for Shares: The certificates for shares of the capital stock of the Company shall be in such form not inconsistent with the Certificate of Incorporation as shall be prepared or be approved by the Board of Directors. The certificates shall be signed by or bear thereon the facsimile 37 EXHIBIT 3 (iii) Page 11 of 15 signature of the Chairman, the Vice-Chairman, President, or an Executive Vice President, or a Vice President, and also be signed by or bear thereon the facsimile signature of the Treasurer or an Assistant Treasurer. The certificates shall be consecutively numbered. The name of the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered in the Company's books. Section 2. Transfers: Shares of the capital stock of the Company shall be transferred only on the books of the Company by the holder thereof in person or by his attorney, upon surrender of the certificate or certificates properly endorsed. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the Company. The Board of Directors may appoint Transfer Agents and Stock Registrars and may require all stock certificates to bear the signatures of such a Transfer Agent and of such a Registrar of Transfers, or any of them. The stock transfer books may be closed for such period next preceding any Stockholders' meeting, or the payment of dividends as the Board of Directors may from time to time determine, and during such period no stock shall be transferable. The Board of Directors may also fix in advance a date not more than 60 nor less than 10 days preceding the date of any meeting of Stockholders, nor more than 60 days preceding the date for the payment of any dividend on the Common Stock or any series of Preference Stock, or the date for allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the Stockholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividend, or any such allotment of rights, or to exercise the rights in respect to any such change, conversion or exchange of capital stock. In such cases only Stockholders of record on the date so fixed shall be entitled to such notice of and vote at such meeting, or to receive payment of such dividend, or allotment of rights, or to exercise such rights, as the case may be, and notwithstanding any transfer of any stock on the books of the Company after any such record date fixed as aforesaid. 38 EXHIBIT 3 (iii) Page 12 of 15 Section 3. Lost Stock Certificates: In case any stock certificate shall be lost, the Board of Directors may order a new certificate to be issued in its place upon receiving such proof of loss and such security therefor as may be satisfactory to it. ARTICLE VII. THE CORPORATE SEAL The Corporate Seal of the Company shall consist of a circle formed by the words "Ingersoll-Rand Company" and the letters "N. J." with the words "Corporate Seal" and the figures "1905" in the center. The Seal shall be attested by the signature of the Secretary or the Assistant Secretary or of the Treasurer or the Assistant Treasurer. When authorized by the Board of Directors, the Secretary shall affix the Seal, or cause it to be affixed, to all documents executed on behalf of the Company. The Board of Directors may also specifically or generally authorize other persons to affix the Seal. ARTICLE VIII. REACQUIRED SHARES When shares of the Company are reacquired by the Company by purchase, by redemption or by their conversion into other shares of the Company, such shares shall be treated by the Company as treasury shares, unless and to the extent the Board of Directors determines at any time that any such shares shall be cancelled. 39 EXHIBIT 3 (iii) Page 13 of 15 ARTICLE IX. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS Section 1. Right to Indemnification: Each person who was or is made a party or is threatened to be made a party to or is involved in any pending, threatened or completed civil, criminal, administrative or arbitrative action, suit or proceeding, or any appeal therein or any inquiry or investigation which could lead to such action, suit or proceeding ("proceeding"), by reason of his or her being or having been a Director or officer of the Company or of any constituent corporation absorbed by the Company in a consolidation or merger, or by reason of his or her being or having been a Director, officer, trustee, employee or agent of any other corporation (domestic or foreign) or of any partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise (whether or not for profit), serving as such at the request of the Company or of any such constituent corporation, or the legal representative of any such Director, officer, trustee, employee or agent, shall be indemnified and held harmless by the Company to the fullest extent permitted by the New Jersey Business Corporation Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said Act permitted prior to such amendment), from and against any and all reasonable costs, disbursements and attorneys' fees, and any and all amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties, incurred or suffered in connection with any such proceeding, and such indemnification shall continue as to a person who has ceased to be a Director, officer, trustee, employee or agent and shall inure to the benefit of his or her heirs, executors, administrators and assigns; provided, however, that there shall be no indemnification hereunder with respect to any settlement or other nonadjudicated disposition of any proceeding unless the Company has given its prior consent to such settlement or disposition. The right to indemnification conferred in this Section 1 shall be a contract right and shall include the right to be paid by the Company the expenses incurred in connection with any proceeding in advance of the final disposition of such proceeding as authorized by the Board of Directors; provided, 40 EXHIBIT 3 (iii) Page 14 of 15 however, that, if the New Jersey Business Corporation Act so requires, the payment of such expenses incurred by a Director or officer in his or her capacity as a Director or officer in advance of the final disposition of a proceeding shall be made only upon receipt by the Company of an undertaking, by or on behalf of such Director or officer, to repay all amounts so advanced if it shall ultimately be determined that such Director or officer is not entitled to be indemnified under this Section 1 or otherwise. The Company may, by action of its Board of Directors, provide for indemnification and advancement of expenses to employees and agents of the Company with the same scope and effect as the foregoing indemnification of Directors and officers. Section 2. Right of Claimant to Bring Suit: If a claim under Section 1 of this Article IX is not paid in full by the Company within thirty days after a written request has been received by the Company, the claimant may at any time thereafter apply to a court for an award of indemnification by the Company for the unpaid amount of the claim and, if successful on the merits or otherwise in connection with any proceeding, or in the defense of any claim, issue or matter therein, the claimant shall be entitled also to be paid by the Company any and all expenses incurred or suffered in connection with such proceeding. It shall be a defense to any such action (other than an action brought to enforce a claim for the advancement of expenses incurred in connection with any proceeding where the required undertaking, if any, has been tendered to the Company) that the claimant has not met the standard of conduct which makes it permissible under the New Jersey Business Corporation Act for the Company to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such proceeding that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the New Jersey Business Corporation Act, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, nor the termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 41 EXHIBIT 3 (iii) Page 15 of 15 Section 3. Non-Exclusivity of Rights: The right to indemnification and advancement of expenses provided by or granted pursuant to this Article IX shall not exclude or be exclusive of any other rights, including the right to be indemnified against any and all reasonable costs, disbursements and attorneys' fees, and any and all amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties incurred or suffered in proceedings by or in the right of the Company, to which any person may be entitled under a certificate of incorporation, by-law, agreement, vote of stockholders, or otherwise, provided that no indemnification shall be made to or on behalf of any person if a judgment or other final adjudication adverse to such person establishes that such person has not met the applicable standard of conduct required to be met under the New Jersey Business Corporation Act. ARTICLE X. AMENDMENTS The Board of Directors may, by a majority vote of the entire Board, make By-Laws and from time to time alter, amend or repeal any By-Law, but any By-Law made by the Board of Directors may be altered or repealed by the Stockholders at any annual or special meeting. Notice of such proposed alteration, amendment or repeal of any By-Law shall be included in the notice of the meeting of the Directors or Stockholders. ARTICLE XI. AUDITORS The Board of Directors may appoint a firm of certified public accountants to audit the books and accounts of the Company for the calendar year in which such appointment is made. 42 EX-10 3 EXHIBIT 10(iii)(c) Page 1 of 5 TO: EXECUTIVE VICE PRESIDENT SUBJECT: BONUS CONTRACT FOR 1996 The bonus plan applying to you for 1996 is outlined herein. Your bonus potential for 1996 will be divided into two parts. % of salary will be based on Group Operating results and % of salary will be based on the bonus awarded to the Chairman's Office. GROUP OPERATIONS CONTRACT (applies to % of salary) 1. Should your Operations Groups attain worldwide operating income of $ , you will receive a bonus of % of % of your annual salary rate in effect on December 31, 1996. 2a. For each $ by which your worldwide operating income exceeds $ up to $ , you will receive % of % of your salary. For each $ over $ , you will receive % of % of your salary. 2b. If you achieve a productivity improvement of %, you will receive an additional % of % of your salary. 3. If you attain % accounts receivable and inventory as a percent of sales, you will receive % of % of your salary. For each % reduction thereafter, you will receive an additional % of % of your salary. 4. You may receive an additional discretionary award of up to % of % of your salary. The award will be based upon your individual achievements and the accomplishments of your Groups. The award will also be determined on the basis of performance in process reengineering and in our company-wide procurement initiative. Any award also will be dependent upon the Company's overall performance. 43 EXHIBIT 10(iii)(c) Page 2 of 5 BONUS CONTRACT FOR 1996 - EXECUTIVE VICE PRESIDENT 5. The maximum bonus award on the sum of paragraphs (1) and (2) will be limited to % of % of your salary. The maximum bonus award on paragraph (3) will be limited to % of % of your salary. The maximum bonus award on paragraph (4) will be limited to % of % of your salary. 6. Should the Company achieve or exceed Earnings Per Share of $ , the total bonus percentage earned by you under paragraphs (1) through (5) will be increased in accordance with the following schedule: BONUS EARNED PAR. 1-5 E.P.S. ACHIEVED INCREASED BY $ 10% $ 15% $ 20% $ 25% CORPORATE CONTRACT (applies to % of salary) 7. You also will receive a bonus based upon the percentage bonus awarded to the Chairman's office which will apply to % of your salary. For example, if the bonus awarded to the Chairman's office is % of salary, your bonus award under this paragraph (7) would be % of % of salary. 8. The maximum bonus award for paragraphs (1) through (7) will be limited to % of your total annual salary rate in effect on December 31, 1996. 9. Acquisitions, divestitures, changes in assignment, changes in accounting procedures or tax law, abnormal deviations to plan in other income and expenses in your financial income statements, and/or corrections in historical data during 1996 may necessitate pro rata adjustments in the above goals and/or actual operating results. Any such changes will be advised to you in a timely manner. 44 EXHIBIT 10(iii)(c) Page 3 of 5 BONUS CONTRACT FOR 1996 - EXECUTIVE VICE PRESIDENT 10. The results will be tabulated by the Corporate Controller's Office and reflected on Operating Income and Accounts Receivable and Inventory Reports. 11. It is the present intention of the Company to decide the amount of bonus for 1996 in February 1997. If the above objectives are not attained, any bonus award will be made at the sole discretion of the Company. 12. The Company will be the final arbiter of interpretation of the above arrangements. /S/ J. E. Perrella J. E. Perrella Chairman 45 EXHIBIT 10(iii)(c) Page 4 of 5 TO: GROUP PRESIDENT SUBJECT: BONUS CONTRACT FOR 1996 The bonus plan applying to you for 1996 is outlined below: 1. Should your operating group attain worldwide operating income of $ , you will receive a bonus of % of your annual salary rate in effect on December 31, 1996. 2a. For each $ by which your worldwide operating income exceeds $ , you will receive % of your salary. 2b. If you achieve a productivity improvement of %, you will receive an additional % of your salary. 3. If you attain % accounts receivable and inventory as a percent of sales, you will receive % of your salary. For each % reduction thereafter, you will receive an additional % of your salary. 4. You may receive an additional discretionary award of up to % of your salary. The award will be based upon your individual achievements and the accomplishments of your Group. Your performance related to reengineering of business processes will be a major factor in determining the amount of bonus awarded under this paragraph especially in our company-wide procurement initiative. Any award also will be dependent upon the Company's overall performance. 5. The maximum bonus award on the sum of paragraphs (1) and (2) will be limited to % of your salary. The maximum bonus award on paragraph (3) will be % of salary. The maximum bonus award on paragraph (4) will be % of salary. The maximum award on the sum of paragraphs (1) through (4) will be limited to % of salary. 46 EXHIBIT 10(iii)(c) Page 5 of 5 BONUS CONTRACT FOR 1996 - GROUP PRESIDENT 6. Should the Company achieve or exceed Earnings Per Share of $ , the total bonus percentage earned by you under paragraphs (1) through (5) will be increased in accordance with the following schedule: EARNINGS PER SHARE BONUS % EARNED PAR.1-5 ATTAINED INCREASED BY $ 10% $ 15% $ 20% $ 25% 7. The maximum bonus award for paragraphs (1) through (6) will be limited to % of your annual salary rate in effect on December 31, 1996. 8. Acquisitions, divestitures, changes in assignment, changes in accounting procedures or tax law, abnormal deviations to plan in other income and expenses in your financial income statements, and/or corrections in historical data during 1996 may necessitate pro rata adjustments in the above goals and/or actual operating results. Any such changes will be advised as soon as possible. 9. The results will be tabulated by the Corporate Controller's Office and reflected on Operating Income and Accounts Receivable and Inventory Reports. 10. It is the present intention of the Company to decide the amount of bonus for 1996 in February 1997. If the above objectives are not attained, any bonus award made will be at the sole discretion of the Company. 11. The Company will be the final arbiter of interpretation of the above arrangements. /S/ J. E. Perrella J. E. Perrella Chairman 47 EX-10 4 EXHIBIT 10(iii)(e) Page 1 of 17 CHANGE OF CONTROL AGREEMENT WITH CHAIRMAN AND CHIEF EXECUTIVE OFFICER AGREEMENT made as of January 1, 1996, between INGERSOLL-RAND COMPANY, a New Jersey corporation (the "Company"), and ________________ (the "Employee"). Unless otherwise indicated, terms used herein and defined in Schedule A hereto shall have the meanings assigned to them in said Schedule. The Company and the Employee agree as follows: 1. OPERATION OF AGREEMENT. This Agreement shall be effective immediately upon its execution and shall continue thereafter from year to year prior to a Change of Control Event unless terminated as of any anniversary of the date hereof by either party upon written notice to the other party given at least 60 days, but not more than 90 days, prior to such anniversary date. Notwithstanding the foregoing, this Agreement may not be terminated after the occurrence of a Change of Control Event. 2. AGREEMENT TERM. The term of this Agreement shall begin on the date hereof and, unless terminated pursuant to paragraph 1 prior to a Change of Control Event, shall end on the fifth anniversary of the occurrence of a Change of Control Event. 3. EMPLOYEE'S POSITION AND RESPONSIBILITIES. (a) The Employee will continue to serve the Company upon the occurrence of a Change of Control Event as the Chief Executive Officer of the Company. In addition, the Company shall, upon the occurrence of such event, make its best efforts to insure the election and retention of the Employee as Chairman of the Board of the Company and any successor or parent company. (b) During the term of this Agreement the Employee shall devote his entire business time and attention exclusively to the business and affairs of the Company and shall use his best efforts to promote the interests of the Company. The participation of the Employee in outside directorships and civic activities not otherwise inconsistent with Company policy and the management of the Employee's personal investments in public companies in which the Employee holdings do not exceed 5% of the voting power or value of such companies shall not be deemed a violation of this paragraph 3. 48 EXHIBIT 10(iii)(e) Page 2 of 17 4. COMPENSATION AND OTHER BENEFITS UPON CHANGE OF CONTROL EVENT. The Company and the Employee agree that, upon the occurrence of any Change of Control Event, the Employee shall receive basic annual salary, bonus and fringe and other benefits as follows: (a) Basic Annual Salary and Bonus. The Employee's basic annual salary shall be at a rate not less than the rate of annual salary, which has been paid to the Employee immediately prior to the Change of Control Event, with such annual increases (but not decreases) equal to the greater of (i) salary increases as may be contemplated by any salary adjustment programs of the Company in effect immediately prior to the Change of Control Event and applicable to the Employee and such further increases as shall be determined from time to time by the Board or (ii) a percentage equal to the percentage increase (if any) in the "Consumer Price Index for All Urban Consumers" published by the United States Department of Labor's Bureau of Labor Statistics for the then most recently ended 12-month period. In addition, the Employee shall be entitled to receive an annual bonus in an amount not less than the highest annual bonus received by, or accrued on behalf of, the Employee during the lesser of (i) the five full Fiscal Years immediately preceding the Change of Control Event, or (ii) the number of full Fiscal Years immediately preceding the Change of Control Event during which the Employee has been employed by the Company. (b) Fringe Benefits; Business Expenses. The Employee shall be entitled to receive benefits, including but not limited to pension (and supplemental pension), savings and stock investment plan (and supplemental savings and stock investment plan), stock award, stock option, and insurance (including life insurance, medical and disability income insurance and accident and personal liability insurance) plans on terms no less favorable than those in effect under each such plan immediately prior to the Change of Control Event, and at no less than the same benefit levels (and no more than the same employee contribution levels) then in effect under each such plan and to receive all other fringe benefits and perquisites (or their equivalent) from time to time in effect for the benefit of any executive, management or administrative group for which the employment position then held by the Employee entitles the Employee to participate. The Company shall provide for the payment of, or reimburse the Employee for, all travel and other out-of-pocket expenses reasonably incurred by him in the performance of his duties hereunder. 49 EXHIBIT 10(iii)(e) Page 3 of 17 (c) Management Incentive Unit Award Plan. The Company and the Employee further agree that immediately upon the occurrence of any Change of Control Event, all amounts theretofore credited to the Employee under the Company's Management Incentive Unit Award Plan, as amended (the "MIU Plan"), shall become fully vested and all such amounts thereafter credited shall become fully vested immediately upon such crediting. 5. PAYMENTS AND BENEFITS UPON TERMINATION. The Employee shall be entitled to the following payments and benefits upon Termination: (a) Salary and Bonus. The Company shall pay to the Employee, in a cash lump sum on the Termination Date, an amount equal to the sum of (i) the basic annual salary and any annual bonus in respect of a completed fiscal year, which have not yet been paid to, the Employee through the Termination Date; (ii) an amount equal to the last annual bonus received by, or awarded to, the Employee for the full Fiscal Year immediately preceding the Termination Date multiplied by a fraction the numerator of which shall be the number of full months the Employee was employed by the Company during the Fiscal Year containing the Employee's Termination Date and the denominator of which shall be 12; and (iii) an amount equal to the number of unused vacation days to which the Employee is entitled as of the Termination Date and any other amounts normally paid to an employee by the Company upon termination of employment. For these purposes, any partial month during which the Employee is employed shall be deemed a full month. (b) Severance. The Company shall pay to the Employee, in a cash lump sum not more than 30 days following the Termination Date, an amount equal to three times the sum of (i) the highest basic annual salary in effect at any time during the period beginning immediately prior to the Change of Control Event and ending on the Termination Date; and (ii) the highest annual bonus received by, or accrued on behalf of, the Employee during the period beginning five full Fiscal Years immediately preceding the Change of Control Event and ending on the Termination Date. (c) Employee Benefit Plans. For the three-year period following the Termination Date (or, if sooner, until the Employee is covered under a comparable plan offered by a subsequent employer), the Company shall continue to cover the Employee under those employee welfare benefit plans and programs (including, but not limited to, life, medical, 50 EXHIBIT 10(iii)(e) Page 4 of 17 prescription drugs, dental, accidental death and travel accident and disability coverage, but not including any severance pay plan or program other than that provided pursuant to this Agreement or any pension plan) applicable to the Employee on the Termination Date at the same benefit levels then in effect (or shall provide their equivalent); provided, however, that if the Employee becomes employed by a new employer that maintains any welfare plan that either (i) does not cover the Employee with respect to a pre- existing condition which was covered under the applicable Company welfare plan, or (ii) does not cover the Employee for a designated waiting period, the Employee's coverage hereunder under the applicable Company welfare plan (or the equivalent) shall continue (but shall be limited in the event of noncoverage due to a preexisting condition, to the preexisting condition itself) until the earlier of the end of the applicable period of noncoverage under the new employer's plan or the third anniversary of the Termination Date. (d) Savings and Retirement Account Plans. As soon as practicable following the determination thereof (but in any event no later than 30 days following the Termination Date), the Company shall pay the Employee an amount (in one lump sum cash payment) equal to the value (measured as of the last day of the month containing the Employee's Termination Date) of the sum of: (i) the number of Common Stock equivalents credited to the Employee's account under the Supplemental Savings and Stock Investment Plan at the Termination Date multiplied by the Company Stock Value (as defined in Section 5(g) below); (ii) the amount credited to the Employee's account under the Supplemental Retirement Account Plan at the Termination Date; (iii) all contributions to, or amounts credited to, the Company's Savings and Stock Investment Plan, Supplemental Savings and Stock Investment Plan, Retirement Account Plan and Supplemental Retirement Account Plan (and earnings and appreciation attributable thereto) that theretofore were made by the Company on behalf of the Employee and are forfeited as a result of the Employee's Termination; and (iv) three percent of the aggregate amount payable pursuant to subparagraphs 5(a) and 5(b) for each of the Savings and Stock Investment Plan and the Supplemental Savings and Stock Investment Plan and two percent for each of the Retirement Account and the Supplemental Retirement Account Plan. 51 EXHIBIT 10(iii)(e) Page 5 of 17 (e) Pension Benefits. (i) No later than 30 days following the Termination Date, the Company shall pay the Employee an amount (in one lump sum cash payment) equal to the Present Value of the sum of the pension benefits the Employee is entitled to receive under (A) the Restated Ingersoll-Rand Company Supplemental Pension Plan (the "Section 415 Excess Plan"), (B) the Ingersoll-Rand Company Elected Officers Supplemental Program (the "Sixty-five Percent Program" or the "Program"), and (C) the Executive Supplementary Retirement Agreement (the "Ten Year Annuity"), all as in effect immediately prior to the Change of Control Event (collectively the "Pension Benefit"). (ii) In calculating the portion of the Pension Benefit under section 1.1 of the Section 415 Excess Plan the Company shall credit the Employee with five additional years of Credited Service (within the meaning of the Plan and including wage, vesting and age credit) and five additional years of age for purposes of the Section 415 Excess Plan but not the Qualified Pension Plan. (If, after crediting five years of age, the Employee is less than fifty-five years old, it will be assumed that the benefit commencement age is fifty-five). (iii) In calculating the portion of the Pension Benefit under the Sixty-five Percent Program, the Company shall: (A) credit the Employee with an additional five Years of Service and an additional five years of age for purposes of computing the amount of the Pension Benefit; (B) reduce age 65 to age 62 in Section 5.1 (b) (i) of the Program; (C) define "Final Average Salary" in Section 1.8 of the Program as 1/3 of the severance amount determined pursuant to Section 5(b) of this Agreement; and (D) for purposes of benefit offset determinations compute retirement account amounts invested in Company stock and the account balance from employer matching contributions made in Company stock in Appendix A, paragraph (a)(2) and (3) of the Program using the lowest closing sale price of the Company stock on the New York Stock Exchange during the twelve months preceding the Change in Control Event. (iv) In calculating the portion of the Pension Benefit under the Ten-Year Annuity the Company shall credit the Employee with five additional years of age but to an age no greater than 65. 52 EXHIBIT 10(iii)(e) Page 6 of 17 (v) The Present Value of the Pension Benefit and the annuity value of the offsets referred to in paragraph (e) (iii)(D) above shall be calculated using (A) an interest rate equal to the product of (I) the 10-year Treasury Note rate as used in the Sixty-five Percent Program's definition of Actuarial Equivalent and (II) 1 minus the federal income tax rate at the highest bracket of income for individuals in effect for the year containing the date of payment, (B) the mortality rate used to determine lump sum values in the Sixty-five Percent Program, and (C) actual age without the five year addition to age except that the Ten-Year Annuity Present Value shall be calculated using no mortality assumption and actual age plus the additional five years. (vi) Calculation of all pension benefits amounts hereunder shall be made, at the expense of the Company, by the Wellesley Hills, Massachusetts office of Watson Wyatt (or the Company's then actuary immediately prior to the change of Control Event). (f) Retiree Welfare Benefits. For purposes of determining the Employee's eligibility for post-retirement benefits under any welfare benefit plan (as defined in section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) maintained by the Company prior to the occurrence of a Change of Control Event, the Employee shall be credited with an additional five years of service and five years of age (or any combination of years of service and age not exceeding 10 years, to the extent necessary to qualify for benefits). If, after taking into account such additional age and service, the Employee is eligible for the Company's post-retirement welfare benefits (or would have been eligible under the terms of such plans as in effect prior to the occurrence of the Change of Control Event), the Employee shall receive, commencing on the third anniversary of the Termination Date, post-retirement welfare benefits no less favorable than the benefits the Employee would have received under the terms and conditions of the applicable plans in effect immediately prior to the occurrence of the Change of Control Event. (g) Employee Stock Awards, Options, SARs and MIUs. No later than 30 days following the Termination Date, the Company shall pay the Employee an amount (in one lump sum cash payment) equal to the aggregate Company Stock Value (defined below) of 100% of the Employee's then outstanding and unpaid stock and stock based awards under the Company's Incentive Stock Plan of 1990, the Incentive Stock Plan of 1995, the MIU Plan and any similar plans of the Company (or 53 EXHIBIT 10(iii)(e) Page 7 of 17 any other company) hereafter adopted (at which time such stock and stock based awards shall be cancelled and be of no further force or effect). In addition, all options to purchase shares of Common Stock of the Company (or the stock of any company in respect of which options have been granted to the Employee) ("Company Stock") and all stock appreciation rights held by the Employee immediately prior to Termination shall become exercisable at any time on and after the Termination Date, whether or not otherwise exercisable in accordance with the terms of the employee benefit plans pursuant to which such options and stock appreciation rights were granted. For purposes of this Agreement, Company Stock Value shall be deemed to be the highest of: (i) the closing sale price of the Company Stock on the New York Stock Exchange on the Change of Control Event; (ii) the closing sale price of the Company Stock on the New York Stock Exchange on the Termination Date; and (iii) the highest closing sale price of the Company Stock on the New York Stock Exchange during the 30 trading days immediately preceding the acquisition of more than 50% of the outstanding Company Stock by any person or group (including affiliates of such person or group). If, as of any valuation date, the Company Stock is not traded on the New York Stock Exchange, the Company Stock Value shall be the closing sale price of the Company Stock on the principal national securities exchange on which the Common Stock is traded or, if the Common Stock is not traded on any national securities exchange, the closing bid price of the Common Stock in the over-the-counter market. (h) Valuation of Common Stock Equivalents. The Employee's Common Stock Equivalents under the MIU Plan shall, for purposes of payments pursuant thereto, be valued at the Company Stock Value. (i) Outplacement Expenses. For the three year period following the Termination Date, the Company shall reimburse the Employee for all reasonable expenses (up to a maximum of $15,000 per 12 month period) incurred by the Employee for professional outplacement services by qualified consultants selected by the Employee. (6) PARACHUTE EXCISE TAX GROSS-UP. (a) If, as a result of any payment or benefit provided under this Agreement, either alone or together with other payments and benefits which the Employee receives or is then entitled to receive from the Company, the Employee becomes subject to the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the 54 EXHIBIT 10(iii)(e) Page 8 of 17 "Code"), (together with any income, employment or other taxes, interest and penalties thereon an "Excise Tax"), the Company shall pay the Employee an amount (the "Gross-Up Payment") sufficient to place the Employee in the same after-tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code. For purposes of determining whether the Employee is subject to an Excise Tax, (i) any payments or benefits received by the Employee (whether pursuant to the terms hereof or pursuant to any plan, arrangement or other agreement with the Company or any entity affiliated with the Company) which payments ("Contingent Payments") are deemed to be contingent on a change described in Section 280G(b)(2)(A)(i) of the Code shall be taken into account, (ii) the amount of payments or benefits under this Agreement treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of all such payments and benefits hereunder as are Contingent Payments and (B) the amount of excess parachute payments within the meaning of 280G(b)(1) of the Code payable to the Employee, and (iii) the Employee shall be deemed to pay the taxes at the highest marginal applicable rates of such taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum deduction in federal income taxes which could be obtained from deduction of such state and local taxes. (b) The determination of whether the Employee is subject to Excise Tax and the amounts of such Excise Tax and Gross-Up Payment, as well as other calculations hereunder, shall be made at the expense of the Company by the independent auditors of the Company immediately prior to the Change of Control Event, which shall provide the Employee with prompt written notice (the "Company Notice") setting forth their determinations and calculations. Within 30 days following the receipt by the Employee of the Company Notice, the Employee may notify the Company in writing (the "Employee Notice") if the Employee disagrees with such determinations or calculations, setting forth the reasons for any such disagreement. If the Company and the Employee do not resolve such disagreement within 10 business days following receipt by the Company of the Employee Notice, the Company and the Employee shall agree upon a nationally recognized accounting or compensation firm (the "Resolving Firm") to make a determination with respect to such disagreement. If the Employee and the Company are unable to agree upon the Resolving Firm within 20 business days following the Employee Notice, the New York office of Towers, Perrin shall be the Resolving Firm. Within 30 business days following the Employee Notice, if the disagreement is not resolved by such time, each of the 55 EXHIBIT 10(iii)(e) Page 9 of 17 Employee and the Company shall submit its position to the Resolving Firm, which shall make a determination as to all such disagreements within 30 days following the last of such submissions, which determination shall be binding upon the Employee and the Company. The Company shall pay all reasonable expenses incurred by either party in connection with the determinations, calculations, disagreements or resolutions pursuant to this paragraph, including, but not limited to, reasonable legal, consulting or other similar fees. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30 day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably satisfactory to the Employee; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including, but not limited to, additional interest and penalties and related consulting or other similar fees) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. 56 EXHIBIT 10(iii)(e) Page 10 of 17 (d) The Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Employee is required to extend the statute of limitations to enable the Company to contest such claim, the Employee may limit this extension solely to such contested amount. The Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. In addition, no position may be taken nor any final resolution be agreed to by the Company without the Employee's consent if such position or resolution could reasonably be expected to adversely affect the Employee (including any other tax position of the Employee unrelated to the matters covered hereby). (e) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Company or the Resolving Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies and the Employee thereafter is required to pay to the Internal Revenue Service an additional amount in respect of any Excise Tax, the Company or the Resolving Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall promptly be paid by the Company to or for the benefit of the Employee. 57 EXHIBIT 10(iii)(e) Page 11 of 17 (f) If, after the receipt by Employee of an amount advanced by the Company in connection with the contest of Excise Tax claim, the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company in connection with an Excise Tax claim, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest the denial of such refund prior to the expiration of 30 days after such determination, such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall be offset, to the extent thereof, by the amount of the Gross-Up Payment. 7. EFFECT ON OTHER ARRANGEMENTS. Except to the extent expressly provided herein, no provision of this Agreement shall affect or limit any interests or rights vested in the Employee under any other agreement or arrangement with the Employee or under any pension, profit- sharing, medical or other insurance or other benefit plans of the Company which may be in effect and in which the Employee may be participating at any time. 8. CONFIDENTIALITY. The Employee agrees to hold in confidence any and all confidential information known to him concerning the Company and its businesses so long as such information is not otherwise publicly disclosed. 9. MISCELLANEOUS. (a) Legal Expenses. The Company shall pay all costs and expenses, including attorneys' fees, of the Company and, at least quarterly, the Employee, in connection with any legal proceedings, whether or not instituted by the Company, relating to the interpretation or enforcement of this Agreement. In the event that the provisions of this paragraph shall be determined to be invalid or unenforceable in any respect, such declaration shall not affect the remaining provisions of this Agreement, which shall continue in full force and effect. 58 EXHIBIT 10(iii)(e) Page 12 of 17 (b) Mitigation. All payments or benefits required by the terms of this Agreement shall be made or provided without offset, deduction, or mitigation on account of income the Employee may receive from other employment or otherwise and the Employee shall not have any obligation or duty to seek any other employment or otherwise earn any amounts to reduce or mitigate any payments required hereunder. (c) Death of the Employee. In the event of the Employee's death subsequent to Termination, all payments called for hereunder shall be paid to the Employee's designated beneficiary or beneficiaries, or to his estate if he has not designated a beneficiary or beneficiaries. (d) Notices. Any notice or other communication provided for in this Agreement or contemplated hereby shall be sufficiently given if given in writing and delivered by certified mail, return receipt requested, and addressed, in the case of the Company, to the Company at: 200 Chestnut Ridge Road Woodcliff Lake, New Jersey 07675 Attention: Chairman of the Board of Directors and, in the case of the Employee, to the Employee at: Either party may designate a different address by giving notice of change of address in the manner provided above. (e) Waiver. No waiver or modification in whole or in part of this Agreement, or any term or condition hereof, shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or any right or power by any party on one occasion shall not be construed as a waiver of, or a bar to, the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. (f) Binding Effect; Successors. This Agreement shall be binding upon and shall inure to the benefit of the Company and the Employee and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and 59 EXHIBIT 10(iii)(e) Page 13 of 17 inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this paragraph shall continue to apply to each subsequent employer of the Employee hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer. (g) Plan Limitations. In the event the Company is unable to provide any benefit required to be provided under this Agreement through a plan sponsored by the Company or its Affiliates, the Company shall, at its own cost and expense, take appropriate actions to insure that alternative arrangements are made so that equivalent benefits can be provided to the Employee, including to the extent appropriate purchasing for the benefit of the Employee (and if applicable the Employee's dependents) individual policies of insurance providing benefits, which on an after-tax basis, are equivalent to the benefits required to be provided hereunder. (h) Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to contracts made and to be performed therein. 10. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire understanding between the parties hereto and supersedes in all respects any prior employment or severance agreement or understanding between the Company (or any affiliate thereof) and the Employee. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. INGERSOLL-RAND COMPANY By 60 EXHIBIT 10(iii)(e) Page 14 of 17 Schedule A CERTAIN DEFINITIONS As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate", used to indicate a relationship with a specified person, means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such a specified person. "Associate", used to indicate a relationship with a specified person, means (i) any corporation, partnership, or other organization of which such specified person is an officer or partner; (ii) any trust or other estate in which such specified person has a substantial beneficial interest or as to which such specified person serves as trustee or in a similar fiduciary capacity; (iii) any relative or spouse of such specified person, or any relative of such spouse who has the same home as such specified person, or who is a director or officer of the Company or any of its parents or subsidiaries; and (iv) any person who is a director, officer, or partner of such specified person or of any corporation (other than the Company or any wholly-owned subsidiary of the Company), partnership or other entity which is an Affiliate of such specified person. "Beneficial Owner" means the same as such term is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended (or any successor provision at the time in effect); provided, however, that any individual, corporation, partnership, group, association, or other person or entity which has the right to acquire any of the Company's outstanding securities entitled to vote generally in the election of directors at any time in the future, whether such right is contingent or absolute, pursuant to any agreement, arrangement, or understanding or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed the Beneficial Owner of such securities. "Board" means the Board of Directors of the Company (or, if the Company is then a subsidiary of any other company, of the ultimate parent company). 61 EXHIBIT 10(iii)(e) Page 15 of 17 "Cause" means (i) any action by the Employee involving willful malfeasance or willful gross misconduct having a demonstrable adverse effect on the Company; (ii) substantial and continuing refusal by the Employee in willful breach of this Agreement to perform his employment duties hereunder; or (iii) the Employee being convicted of a felony under the laws of the United States or any state. Termination of the Employee for Cause shall be communicated by a Notice of Termination given within one year after the Board (i) has knowledge of conduct or an event allegedly constituting Cause; and (ii) has reason to believe that such conduct or event could be grounds for Cause. For purposes of this Agreement a "Notice of Termination" shall mean delivery to the Employee of a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Company's Board at a meeting of that Board called and held for the purpose (after reasonable notice to the Employee ("Preliminary Notice") and reasonable opportunity for the Employee, together with the Employee's counsel, to be heard before the Board prior to such vote) of finding, in the good faith opinion of the Board, that the Employee has engaged in the conduct constituting Cause and specifying the particulars thereof in detail. Upon the receipt of the Preliminary Notice, the Employee shall have 30 days in which to appear with counsel or take such other action as he desires on his behalf, and such 30- day period is hereby agreed to by the parties as a reasonable opportunity for the Employee to be heard. The Board shall no later than 45 days after the receipt of the Preliminary Notice by the Employee communicate its findings to Employee. A failure by the Board to make its finding of Cause or to communicate its conclusion within such 45-day period shall be deemed to be a finding that the Employee has not engaged in the conduct described herein. Any termination of the Employee's employment (other than by death or Permanent Disability) within 45 days after the date that the Preliminary Notice has been given to the Employee shall be deemed to be a termination for Cause; provided, however, that if during such period the Employee voluntarily terminates other than for Good Reason or the Company terminates the Employee other than for Cause, and the Employee is found (or is deemed to be found) not to have engaged in the conduct described herein, such termination shall not be deemed to be for Cause. "Change of Control Event" means the date (i) any individual, corporation, partnership, group, association or other person or entity, together with its Affiliates and Associates (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company), is or becomes the Beneficial Owner of securities of the Company representing 20% or 62 EXHIBIT 10(iii)(e) Page 16 of 17 more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors, unless a majority of the Continuing Directors determines in their sole discretion that a Change of Control Event has not occurred; (ii) the Continuing Directors fail to constitute a majority of the members of the Board; (iii) of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, other than any sale, lease, exchange or other transfer to any person or entity where the Company owns, directly or indirectly, at least 80 percent of the outstanding voting securities of such person or entity after any such transfer. "Continuing Director" means a director who either was a member of the Board on the date hereof or who became a member of the Board subsequent to such date and whose election, or nomination for election by the Company's shareholders, was Duly Approved by the Continuing Directors on the Board at the time of such nomination or election, either by a specific vote or by approval of the proxy statement issued by the Company on behalf of the Board in which such person is named as nominee for director, without due objection to such nomination. "Duly Approved by the Continuing Directors" means an action approved by the vote of at least a majority of the Continuing Directors then on the Board, except, if the votes of such Continuing Directors in favor of such action would be insufficient to constitute an act of the Board if a vote by all of its members were to have been taken, then such term shall mean an action approved by the unanimous vote of the Continuing Directors then on the Board so long as there are at least three Continuing Directors on the Board at the time of such unanimous vote. "Fiscal Year" means the fiscal year of the Company. "Good Reason" means (i) a material adverse change in the Employee's job responsibilities, title or status from those in effect prior to the Change of Control Event which change continues for a period of at least 15 days after written notice from the Employee; (ii) a reduction of the Employee's base salary or target bonus, the failure to pay Employee's salary or bonus when due, or the failure to maintain on behalf of the Employee (and his or her dependents) benefits which are at least as favorable in the aggregate to those provided for in paragraph 4(b); (iii) the relocation of the principal place of the Employee's employment to a location that is more than 35 miles further from the Employee's residence than such principal place of employment immediately prior to the Change of Control Event, 63 EXHIBIT 10(iii)(e) Page 17 of 17 or the imposition of travel requirements on the Employee not substantially consistent with such travel requirements existing immediately prior to the Change of Control Event; (iv) the failure of the Company to obtain the assumption of, and the agreement to perform, this Agreement by any successor as contemplated in paragraph 8(f); (v) any voluntary resignation of Employee's employment following a Change of Control Event or (vi) the failure of the Company to perform any of its other material obligations under this Agreement and the continuation of such failure for a period of 15 days after written notice from the Employee. "Permanent Disability", as applied to the Employee, means that (i) he has been totally incapacitated by bodily injury or disease so as to be prevented thereby from performing his duties hereunder; (ii) such total incapacity shall have continued for a period of six consecutive months; and (iii) such total incapacity will, in the opinion of a qualified physician, be permanent and continuous during the remainder of the Employee's life. "Termination" means (i) following the occurrence of a Change of Control Event, (A) the termination of the Employee's employment without Cause or (B) the resignation by an Employee for Good Reason upon ten days' prior written notice (or such shorter period as may be agreed upon between the Employee and the Company), and (ii) prior to the occurrence of a Change of Control Event, the termination of the Employee's employment or a material adverse change in the Employee's job responsibilities, title or status at the request of any individual or entity acquiring ownership and control of the Company; provided, that such term shall not include any termination of employment for Cause, any resignation without Good Reason, or any termination of employment on account of an Employee's death or Permanent Disability. "Termination Date" shall mean the effective date of an Employee's Termination; provided, that with respect to a Termination that occurs prior to a Change of Control Event, the effective date of such Termination shall be deemed to be the date immediately following the Change of Control Event. 64 EX-10 5 EXHIBIT 10(iii)(f) Page 1 of 20 CHANGE OF CONTROL AGREEMENT WITH SELECTED EXECUTIVE OFFICERS OTHER THAN CHAIRMAN AGREEMENT made as of January 1, 1996, between INGERSOLL-RAND COMPANY, a New Jersey corporation (the "Company"), and _______________ (the "Employee"). Unless otherwise indicated, terms used herein and defined in Schedule A hereto shall have the meanings assigned to them in said Schedule. The Company and the Employee agree as follows: 1. OPERATION OF AGREEMENT. This Agreement shall be effective immediately upon its execution and shall continue thereafter from year to year prior to a Change of Control Event unless terminated as of any anniversary of the date hereof by either party upon written notice to the other party given at least 60 days, but not more than 90 days, prior to such anniversary date. Notwithstanding the foregoing, this Agreement may not be terminated after the occurrence of a Change in Control Event. 2. AGREEMENT TERM. The term of this Agreement shall begin on the date hereof and, unless terminated pursuant to paragraph 1 prior to a Change of Control Event, shall end on the fifth anniversary of the occurrence of a Change of Control Event. 3. EMPLOYEE'S POSITION AND RESPONSIBILITIES. (a) The Employee will continue to serve the Company upon the occurrence of a Change of Control Event in the same capacity as he serves the Company immediately prior thereto, or in such other comparable executive, administrative or management capacities, requiring substantially equivalent expertise and responsibility, as the Board or Chief Executive Officer of the Company shall determine and deem suitable and in the best interests of the Company in accordance with the Employee's experience, expertise and capabilities. 65 EXHIBIT 10(iii)(f) Page 2 of 20 (b) During the term of this Agreement the Employee shall devote his entire business time and attention exclusively to the business and affairs of the Company and shall use his best efforts to promote the interests of the Company. The participation of the Employee in outside directorships and civic activities not otherwise inconsistent with Company policy and the management of the Employee's personal investments in public companies in which the Employee holdings do not exceed 5% of the voting power or value of such companies shall not be deemed a violation of this paragraph 3. 4. COMPENSATION AND OTHER BENEFITS UPON CHANGE OF CONTROL EVENT. The Company and the Employee agree that, upon the occurrence of any Change of Control Event, the Employee shall receive basic annual salary, bonus and fringe and other benefits as follows: (a) Basic Annual Salary and Bonus. The Employee's basic annual salary shall be at a rate not less than the rate of annual salary, which has been paid to the Employee immediately prior to the Change of Control Event, with such annual increases (but not decreases) equal to the greater of (i) salary increases as may be contemplated by any salary adjustment programs of the Company in effect immediately prior to the Change of Control Event and applicable to the Employee and such further increases as shall be determined from time to time by the Board or (ii) a percentage equal to the percentage increase (if any) in the "Consumer Price Index for All Urban Consumers" published by the United States Department of Labor's Bureau of Labor Statistics for the then most recently ended 12-month period. In addition, the Employee shall be entitled to receive an annual bonus in an amount not less than the highest annual bonus received by, or accrued on behalf of, the Employee during the lesser of (i) the five full Fiscal Years immediately preceding the Change of Control Event, or (ii) the number of full Fiscal Years immediately preceding the Change in Control Event during which the Employee has been employed by the Company. 66 EXHIBIT 10(iii)(f) Page 3 of 20 (b) Fringe Benefits; Business Expenses. The Employee shall be entitled to receive benefits, including but not limited to pension (and supplemental pension), savings and stock investment plan (and supplemental savings and stock investment plan), stock award, stock option, welfare benefit plans and programs including, but not limited to, life, medical, prescription drugs, dental, disability, and accidental death and travel accident coverage plans on terms no less favorable than those in effect under each such plan immediately prior to the Change of Control Event, and at no less than the same benefit levels (and no more than the same employee contribution levels) then in effect under each such plan and to receive all other fringe benefits and perquisites (or their equivalent) from time to time in effect for the benefit of any executive, management or administrative group for which the employment position then held by the Employee entitles the Employee to participate. The Company shall provide for the payment of, or reimburse the Employee for, all travel and other out-of-pocket expenses reasonably incurred by him in the performance of his duties hereunder. (c) Management Incentive Unit Award Plan. The Company and the Employee further agree that immediately upon the occurrence of any Change of Control Event, all amounts theretofore credited to the Employee under the Company's Management Incentive Unit Award Plan, as amended (the "MIU Plan"), shall become fully vested and all such amounts thereafter credited shall become fully vested immediately upon such crediting. 5. PAYMENTS AND BENEFITS UPON TERMINATION. The Employee shall be entitled to the following payments and benefits upon Termination: (a) Salary and Bonus. The Company shall pay to the Employee, in a cash lump sum on the Termination Date, an amount equal to the sum of (i) the basic annual salary and any annual bonus in respect of a completed fiscal year, which have not yet been paid to, the Employee through the Termination Date; (ii) an amount equal to the last annual bonus received by, or awarded to, the Employee for the full Fiscal Year immediately preceding the Termination Date multiplied by a fraction the numerator of which shall be the number of full months the Employee was employed by the 67 EXHIBIT 10(iii)(f) Page 4 of 20 Company during the Fiscal Year containing the Employee's Termination Date and the denominator of which shall be 12; and (iii) an amount equal to the number of unused vacation days to which the Employee is entitled as of the Termination Date and any other amounts normally paid to an employee by the Company upon termination of employment. For these purposes, any partial month during which the Employee is employed shall be deemed a full month. (b) Severance. The Company shall pay to the Employee, in a cash lump sum not more than 30 days following the Termination Date, an amount equal to three times the sum of (i) the highest basic annual salary in effect at any time during the period beginning immediately prior to the Change in Control Event and ending on the Termination Date; and (ii) the highest annual bonus received by, or accrued on behalf of, the Employee during the period beginning five full Fiscal Years immediately preceding the Change in Control Event and ending on the Termination Date. (c) Employee Benefit Plans. For the three-year period following the Termination Date (or, if sooner,until the Employee is covered under a comparable plan offered by a subsequent employer), the Company shall continue to cover the Employee under those employee welfare benefit plans and programs (including, but not limited to, life, medical, prescriptions, dental, accidental death and travel accident and disability coverage, but not including any severance pay plan or program other than that provided pursuant to this Agreement or any pension plan) applicable to the Employee on the Termination Date at the same benefit levels then in effect (or shall provide their equivalent); provided, however, that if the Employee becomes employed by a new employer that maintains any welfare plan that either (i) does not cover the Employee with respect to a pre-existing condition which was covered under the applicable Company welfare plan, or (ii) does not cover the Employee for a designated waiting period, the Employee's coverage hereunder under the applicable Company welfare plan (or the equivalent) shall continue (but shall be limited in the event of noncoverage due to a preexisting condition, to the preexisting condition itself) until the earlier of the end of the applicable period of noncoverage under the new employer's plan or the third anniversary of the Termination Date. 68 EXHIBIT 10(iii)(f) Page 5 of 20 (d) Savings and Retirement Account Plans. As soon as practicable following the determination thereof (but in any event no later than 30 days following the Termination Date), the Company shall pay the Employee an amount (in one lump sum cash payment) equal to the value (measured as of the last day of the month containing the Employee's Termination Date) of the sum of: (i) the number of Common Stock equivalents credited to the Employee's account under the Supplemental Savings and Stock Investment Plan at the Termination Date multiplied by the Company Stock Value (as defined in Section 5(g) below); (ii) the amount credited to the Employee's account under the Supplemental Retirement Account Plan at the Termination Date; (iii) all contributions to, or amounts credited to, the Company's Savings and Stock Investment Plan, Supplemental Savings and Stock Investment Plan, Retirement Account Plan and Supplemental Retirement Account Plan (and earnings and appreciation attributable thereto) that theretofore were made by the Company on behalf of the Employee and are forfeited as a result of the Employee's Termination; and (iv) three percent of the aggregate amount payable pursuant to subparagraphs 5(a) and 5(b) for each of the Savings and Stock Investment Plan and the Supplemental Savings and Stock Investment Plan and two percent for each of the Retirement Account and the Supplemental Retirement Account Plan. (e) Pension Benefits. (i) No later than 30 days following the Termination Date, the Company shall pay the Employee an amount (in one lump sum cash payment) equal to the Present Value of the sum of the pension benefits the Employee is entitled to receive under (A) the Restated Ingersoll-Rand Company Supplemental Pension Plan (the "Section 415 Excess Plan"), (B) the Ingersoll-Rand Company Elected Officers Supplemental Program (the "Sixty-five Percent Program" or the "Program"), and (C) the Executive Supplementary Retirement Agreement (the "Ten Year Annuity), all as in effect immediately prior to the Change in Control Event (collectively the "Pension Benefit"). 69 EXHIBIT 10(iii)(f) Page 6 of 20 (ii) In calculating the portion of the Pension Benefit under section 1.1 of the Section 415 Excess Plan the Company shall credit the Employee with five additional years of Credited Service (within the meaning of the Plan and including wage, vesting and age credit) and five additional years of age for purposes of the Section 415 Excess Plan but not the Qualified Pension Plan. (If, after crediting five years of age, the Employee is less than fifty-five years old, it will be assumed that the benefit commencement date is the first date on which the Employee becomes eligible to begin receiving payment of benefits under the Qualified Pension Plan). (iii) In calculating the portion of the Pension Benefit under the Sixty-five Percent Program, the Company shall: (A) credit the Employee with an additional five Years of Service and an additional five years of age for purposes of computing the amount of the Pension Benefit; (B) reduce age 65 to age 62 in Section 5.1 (b) (i) of the Program; (C) define "Final Average Salary" in Section 1.8 of the Program as 1/3 of the severance amount determined pursuant to Section 5(b) of this Agreement; and (D) for purposes of benefit offset determinations compute retirement account amounts invested in Company stock and the account balance from employer matching contributions made in Company stock in Appendix A, paragraph (a)(2) and (3) of the Program using the lowest closing sale price of the Company stock on the New York Stock Exchange during the twelve months preceding the Change in Control Event. (iv) In calculating the portion of the Pension Benefit under the Ten-Year Annuity the Company shall credit the Employee with five additional years of age but to an age no greater than 65. (v) The Present Value of the Pension Benefit and the annuity value of the offsets referred to in (e)(iii)(D) above shall be calculated using (A) an interest rate equal to the product of (I) the 10-year Treasury Note rate as used in the Sixty-five Percent Program's definition of Actuarial Equivalent and (II) 1 minus the federal income tax rate at the highest bracket of income for individuals in effect for the year containing the date of payment, (B) the mortality rate used to determine lump sum values in the Sixty-five Percent Program, and (C) actual age without the five year addition to age except that the Ten-Year Annuity Present Value shall be calculated using no mortality assumption and actual age plus the additional five years. 70 EXHIBIT 10(iii)(f) Page 7 of 20 (vi) Calculation of all pension benefits amounts hereunder shall be made, at the expense of the Company, by the Wellesley Hills, Massachusetts office of Watson Wyatt (or the Company's then actuary immediately prior to the change of Control Event). (f) Retiree Welfare Benefits. For purposes of determining the Employee's eligibility for post-retirement benefits under any welfare benefit plan (as defined in section 3(1) of the Employee Retirement Income Security Act of 1974, as amended) maintained by the Company prior to the occurrence of a Change of Control Event, the Employee shall be credited with an additional five years of service and five years of age (or any combination of years of service and age not exceeding 10 years, to the extent necessary to qualify for benefits). If, after taking into account such additional age and service, the Employee is eligible for the Company's post-retirement welfare benefits (or would have been eligible under the terms of such plans as in effect prior to the occurrence of the Change of Control Event), the Employee shall receive, commencing on the third anniversary of the Termination Date, post-retirement welfare benefits no less favorable than the benefits the Employee would have received under the terms and conditions of the applicable plans in effect immediately prior to the occurrence of the Change of Control Event. (g) Employee Stock Awards, Options, SARs and MIUs. No later than 30 days following the Termination Date, the Company shall pay the Employee an amount (in one lump sum cash payment) equal to the aggregate Company Stock Value (defined below) of 100% of the Employee's then outstanding and unpaid stock and stock based awards under the Company's Incentive Stock Plan of 1990, the Incentive Stock Plan of 1995, the MIU Plan and any similar plans of the Company (or any other company) hereafter adopted (at which time such stock and stock based awards shall be cancelled and be of no further force or effect). In addition, all options to purchase shares of Common Stock of the Company (or the stock of any company in respect of which options have been granted to the Employee) ("Company Stock") and all stock appreciation rights held by the Employee immediately prior to Termination shall become exercisable at any time on and after the Termination Date, whether or not otherwise exercisable in accordance with the terms of the employee 71 EXHIBIT 10(iii)(f) Page 8 of 20 benefit plans pursuant to which such options and stock appreciation rights were granted. For purposes of this Agreement, Company Stock Value shall be deemed to be the highest of: (i) the closing sale price of the Company Stock on the New York Stock Exchange on the Change in Control Event; (ii) the closing sale price of the Company Stock on the New York Stock Exchange on the Termination Date; and (iii) the highest closing sale price of the Company Stock on the New York Stock Exchange during the 30 trading days immediately preceding the acquisition of more than 50% of the outstanding Company Stock by any person or group (including affiliates of such person or group). If, as of any valuation date, the Company Stock is not traded on the New York Stock Exchange, the Company Stock Value shall be the closing sale price of the Company Stock on the principal national securities exchange on which the Common Stock is traded or, if the Common Stock is not traded on any national securities exchange, the closing bid price of the Common Stock in the over-the-counter market. (h) Valuation of Common Stock Equivalents. The Employee's Common Stock Equivalents under the MIU Plan shall, for purposes of payments pursuant thereto, be valued at the Company Stock Value. (i) Outplacement Expenses. For the three year period following the Termination Date, the Company shall reimburse the Employee for all reasonable expenses (up to a maximum of $15,000 per 12 month period) incurred by the Employee for professional outplacement services by qualified consultants selected by the Employee. 6. PARACHUTE EXCISE TAX GROSS-UP. (a) If, as a result of any payment or benefit provided under this Agreement, either alone or together with other payments and benefits which the Employee receives or is then entitled to receive from the Company, the Employee becomes subject to the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), (together with any income, employment or other taxes, interest and penalties thereon an "Excise Tax"), the Company shall pay the Employee an amount (the "Gross-Up Payment") sufficient to place the Employee in the same after-tax financial position that he would have been in if he had not 72 EXHIBIT 10(iii)(f) Page 9 of 20 incurred any tax liability under Section 4999 of the Code. For purposes of determining whether the Employee is subject to an Excise Tax, (i) any payments or benefits received by the Employee (whether pursuant to the terms hereof or pursuant to any plan, arrangement or other agreement with the Company or any entity affiliated with the Company) which payments ("Contingent Payments") are deemed to be contingent on a change described in Section 280G(b)(2)(A)(i) of the Code shall be taken into account, (ii) the amount of payments or benefits under this Agreement treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of all such payments and benefits hereunder as are Contingent Payments and (B) the amount of excess parachute payments within the meaning of 280G(b)(1) of the Code payable to the Employee, and (iii) the Employee shall be deemed to pay the taxes at the highest marginal applicable rates of such taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum deduction in federal income taxes which could be obtained from deduction of such state and local taxes. (b) The determination of whether the Employee is subject to Excise Tax and the amounts of such Excise Tax and Gross-Up Payment, as well as other calculations hereunder, shall be made at the expense of the Company by the independent auditors of the Company immediately prior to the Change of Control Event, which shall provide the Employee with prompt written notice (the "Company Notice") setting forth their determinations and calculations. Within 30 days following the receipt by the Employee of the Company Notice, the Employee may notify the Company in writing (the "Employee Notice") if the Employee disagrees with such determinations or calculations, setting forth the reasons for any such disagreement. If the Company and the Employee do not resolve such disagreement within 10 business days following receipt by the Company of the Employee Notice, the Company and the Employee shall agree upon a nationally recognized accounting or compensation firm (the "Resolving Firm") to make a determination with respect to such disagreement. If the Employee and the Company are unable to agree upon the Resolving Firm within 20 business days following the Employee Notice, the New York office of Towers, Perrin shall be the Resolving Firm. Within 30 business days following the Employee Notice, if the disagreement is not resolved by such time, each of the 73 EXHIBIT 10(iii)(f) Page 10 of 20 Employee and the Company shall submit its position to the Resolving Firm, which shall make a determination as to all such disagreements within 30 days following the last of such submissions, which determination shall be binding upon the Employee and the Company. The Company shall pay all reasonable expenses incurred by either party in connection with the determinations, calculations, disagreements or resolutions pursuant to this paragraph, including, but not limited to, reasonable legal, consulting or other similar fees. (c) The Employee shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than 10 business days after the Employee is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Employee shall not pay such claim prior to the expiration of the 30 day period following the date on which the Employee gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Employee in writing prior to the expiration of such period that it desires to contest such claim, the Employee shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company and reasonably satisfactory to the Employee; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; 74 EXHIBIT 10(iii)(f) Page 11 of 20 provided, however, that the Company shall bear and pay directly all costs and expenses (including, but not limited to, additional interest and penalties and related legal, consulting or other similar fees) incurred in connection with such contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or other tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. (d) The Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Employee to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Employee agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Employee on an interest-free basis, and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or other tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided, further, that if the Employee is required to extend the statute of limitations to enable the Company to contest such claim, the Employee may limit this extension solely to such contested amount. The Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Employee shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. In addition, no position may be taken nor any final resolution be agreed to by the Company without the Employee's consent if such position or resolution could reasonably be expected to adversely affect the Employee (including any other tax position of the Employee unrelated to the matters covered hereby). 75 EXHIBIT 10(iii)(f) Page 12 of 20 (e) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Company or the Resolving Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies and the Employee thereafter is required to pay to the Internal Revenue Service an additional amount in respect of any Excise Tax, the Company or the Resolving Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall promptly be paid by the Company to or for the benefit of the Employee. (f) If, after the receipt by Employee of an amount advanced by the Company in connection with the contest of Excise Tax claim, the Employee becomes entitled to receive any refund with respect to such claim, the Employee shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Employee of an amount advanced by the Company in connection with an Excise Tax claim, a determination is made that Employee shall not be entitled to any refund with respect to such claim and the Company does not notify the Employee in writing of its intent to contest the denial of such refund prior to the expiration of 30 days after such determination, such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall be offset, to the extent thereof, by the amount of the Gross-Up Payment. 7. EFFECT ON OTHER ARRANGEMENTS. Except to the extent expressly provided herein, no provision of this Agreement shall affect or limit any interests or rights vested in the Employee under any other agreement or arrangement with the Employee or under any pension, profit- sharing, medical or other insurance or other benefit plans of the Company which may be in effect and in which the Employee may be participating at any time. 76 EXHIBIT 10(iii)(f) Page 13 of 20 8. CONFIDENTIALITY. The Employee agrees to hold in confidence any and all confidential information known to him concerning the Company and its businesses so long as such information is not otherwise publicly disclosed. 9. MISCELLANEOUS. (a) Legal Expenses. The Company shall pay all costs and expenses, including attorneys' fees, of the Company and, at least quarterly, the Employee, in connection with any legal proceedings, whether or not instituted by the Company, relating to the interpretation or enforcement of this Agreement. In the event that the provisions of this paragraph shall be determined to be invalid or unenforceable in any respect, such declaration shall not affect the remaining provisions of this Agreement, which shall continue in full force and effect. (b) Mitigation. All payments or benefits required by the terms of this Agreement shall be made or provided without offset, deduction, or mitigation on account of income the Employee may receive from other employment or otherwise and the Employee shall not have any obligation or duty to seek any other employment or otherwise earn any amounts to reduce or mitigate any payments required hereunder. (c) Death of the Employee. In the event of the Employee's death subsequent to Termination, all payments called for hereunder shall be paid to the Employee's designated beneficiary or beneficiaries, or to his estate if he has not designated a beneficiary or beneficiaries. (d) Notices. Any notice or other communication provided for in this Agreement or contemplated hereby shall be sufficiently given if given in writing and delivered by certified mail, return receipt requested, and addressed, in the case of the Company, to the Company at: 200 Chestnut Ridge Road Woodcliff Lake, New Jersey 07675 Attention: Chairman of the Board of Directors and, in the case of the Employee, to the Employee at: 77 EXHIBIT 10(iii)(f) Page 14 of 20 Either party may designate a different address by giving notice of change of address in the manner provided above. (e) Waiver. No waiver or modification in whole or in part of this Agreement, or any term or condition hereof, shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or any right or power by any party on one occasion shall not be construed as a waiver of, or a bar to, the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. (f) Binding Effect; Successors. This Agreement shall be binding upon and shall inure to the benefit of the Company and the Employee and their respective heirs, legal representatives, successors and assigns. If the Company shall be merged into or consolidated with another entity, the provisions of this Agreement shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. The provisions of this paragraph shall continue to apply to each subsequent employer of the Employee hereunder in the event of any subsequent merger, consolidation or transfer of assets of such subsequent employer. (g) Plan Limitations. In the event the Company is unable to provide any benefit required to be provided under this Agreement through a plan sponsored by the Company or its Affiliates, the Company shall, at its own cost and expense, take appropriate actions to insure that alternative arrangements are made so that equivalent benefits can be provided to the Employee, including to the extent appropriate purchasing for the benefit of the Employee (and if applicable the Employee's dependents) individual policies of insurance providing benefits, which on an after-tax basis, are equivalent to the benefits required to be provided hereunder. 78 EXHIBIT 10(iii)(f) Page 15 of 20 (h) Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to contracts made and to be performed therein. 10. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire understanding between the parties hereto and supersedes in all respects any prior employment or severance agreement or understanding between the Company (or any affiliate thereof) and the Employee. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as of the day and year first above written. INGERSOLL-RAND COMPANY By 79 EXHIBIT 10(iii)(f) Page 16 of 20 Schedule A CERTAIN DEFINITIONS As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate", used to indicate a relationship with a specified person, means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such a specified person. "Associate", used to indicate a relationship with a specified person, means (i) any corporation, partnership, or other organization of which such specified person is an officer or partner; (ii) any trust or other estate in which such specified person has a substantial beneficial interest or as to which such specified person serves as trustee or in a similar fiduciary capacity; (iii) any relative or spouse of such specified person, or any relative of such spouse who has the same home as such specified person, or who is a director or officer of the Company or any of its parents or subsidiaries; and (iv) any person who is a director, officer, or partner of such specified person or of any corporation (other than the Company or any wholly-owned subsidiary of the Company), partnership or other entity which is an Affiliate of such specified person. "Beneficial Owner" means the same as such term is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended (or any successor provision at the time in effect); provided, however, that any individual, corporation, partnership, group, association, or other person or entity which has the right to acquire any of the Company's outstanding securities entitled to vote generally in the election of directors at any time in the future, whether such right is contingent or absolute, pursuant to any agreement, arrangement, or understanding or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed the Beneficial Owner of such securities. "Board" means the Board of Directors of the Company (or, if the Company is then a subsidiary of any other company, of the ultimate parent company). 80 EXHIBIT 10(iii)(f) Page 17 of 20 "Cause" means (i) any action by the Employee involving willful malfeasance or willful gross misconduct having a demonstrable adverse effect on the Company; (ii) substantial and continuing refusal by the Employee in willful breach of this Agreement to perform his employment duties hereunder; or (iii) the Employee being convicted of a felony under the laws of the United States or any state. Termination of the Employee for Cause shall be communicated by a Notice of Termination given within one year after the Board (i) has knowledge of conduct or an event allegedly constituting Cause; and (ii) has reason to believe that such conduct or event could be grounds for Cause. For purposes of this Agreement a "Notice of Termination" shall mean delivery to the Employee of a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Company's Board at a meeting of that Board called and held for the purpose (after reasonable notice to the Employee ("Preliminary Notice") and reasonable opportunity for the Employee, together with the Employee's counsel, to be heard before the Board prior to such vote) of finding, in the good faith opinion of the Board, that the Employee has engaged in the conduct constituting Cause and specifying the particulars thereof in detail. Upon the receipt of the Preliminary Notice, the Employee shall have 30 days in which to appear with counsel or take such other action as he desires on his behalf, and such 30- day period is hereby agreed to by the parties as a reasonable opportunity for the Employee to be heard. The Board shall no later than 45 days after the receipt of the Preliminary Notice by the Employee communicate its findings to Employee. A failure by the Board to make its finding of Cause or to communicate its conclusion within such 45-day period shall be deemed to be a finding that the Employee has not engaged in the conduct described herein. Any termination of the Employee's employment (other than by death or Permanent Disability) within 45 days after the date that the Preliminary Notice has been given to the Employee shall be deemed to be a termination for Cause; provided, however, that if during such period the Employee voluntarily terminates other than for Good Reason or the Company terminates the Employee other than for Cause, and the Employee is found (or is deemed to be found) not to have engaged in the conduct described herein, such termination shall not be deemed to be for Cause. 81 EXHIBIT 10(iii)(f) Page 18 of 20 "Change of Control Event" means the date (i) any individual, corporation, partnership, group, association or other person or entity, together with its Affiliates and Associates (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company), is or becomes the Beneficial Owner of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities entitled to vote generally in the election of directors, unless a majority of the Continuing Directors determines in their sole discretion that a Change of Control Event has not occurred; (ii) the Continuing Directors fail to constitute a majority of the members of the Board; (iii) of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, other than any sale, lease, exchange or other transfer to any person or entity where the Company owns, directly or indirectly, at least 80 percent of the outstanding voting securities of such person or entity after any such transfer. "Continuing Director" means a director who either was a member of the Board on the date hereof or who became a member of the Board subsequent to such date and whose election, or nomination for election by the Company's shareholders, was Duly Approved by the Continuing Directors on the Board at the time of such nomination or election, either by a specific vote or by approval of the proxy statement issued by the Company on behalf of the Board in which such person is named as nominee for director, without due objection to such nomination. "Duly Approved by the Continuing Directors" means an action approved by the vote of at least a majority of the Continuing Directors then on the Board, except, if the votes of such Continuing Directors in favor of such action would be insufficient to constitute an act of the Board if a vote by all of its members were to have been taken, then such term shall mean an action approved by the unanimous vote of the Continuing Directors then on the Board so long as there are at least three Continuing Directors on the Board at the time of such unanimous vote. "Fiscal Year" means the fiscal year of the Company. 82 EXHIBIT 10(iii)(f) Page 19 of 20 "Good Reason" means (i) a material adverse change in the Employee's job responsibilities, title or status from those in effect prior to the Change of Control Event which change continues for a period of at least 15 days after written notice from the Employee; (ii) a reduction of the Employee's base salary or target bonus, the failure to pay Employee's salary or bonus when due, or the failure to maintain on behalf of the Employee (and his or her dependents) benefits which are at least as favorable in the aggregate to those provided for in paragraph 4(b); (iii) the relocation of the principal place of the Employee's employment to a location that is more than 35 miles further from the Employee's residence than such principal place of employment immediately prior to the Change in Control Event, or the imposition of travel requirements on the Employee not substantially consistent with such travel requirements existing immediately prior to the Change in Control Event; (iv) the failure of the Company to obtain the assumption of, and the agreement to perform, this Agreement by any successor as contemplated in paragraph 8(f); or (v) the failure of the Company to perform any of its other material obligations under this Agreement and the continuation of such failure for a period of 15 days after written notice from the Employee. "Permanent Disability", as applied to the Employee, means that (i) he has been totally incapacitated by bodily injury or disease so as to be prevented thereby from performing his duties hereunder; (ii) such total incapacity shall have continued for a period of six consecutive months; and (iii) such total incapacity will, in the opinion of a qualified physician, be permanent and continuous during the remainder of the Employee's life. "Termination" means (i) following the occurrence of a Change in Control Event, (A) the termination of the Employee's employment without Cause or (B) the resignation by an Employee for Good Reason upon ten days' prior written notice (or such shorter period as may be agreed upon between the Employee and the Company), and (ii) prior to the occurrence of a Change in Control Event, the termination of the Employee's employment or a material adverse change in the Employee's job responsibilities, title or status at the request of any individual or entity acquiring ownership and control of the Company; provided, that such term shall not include any termination of employment for Cause, any resignation without Good Reason, or any termination of employment on account of an Employee's death or Permanent Disability. 83 EXHIBIT 10(iii)(f) Page 20 of 20 "Termination Date" shall mean the effective date of an Employee's Termination; provided, that with respect to a Termination that occurs prior to a Change of Control Event, the effective date of such Termination shall be deemed to be the date immediately following the Change of Control Event. 84 EX-10 6 EXHIBIT 10(iii)(k) Page 1 of 7 RESTATED INGERSOLL-RAND COMPANY SUPPLEMENTAL PENSION PLAN INTRODUCTION Ingersoll-Rand Company (the "Company") maintains one or more pension plans (the "Qualified Pension Plans") for salaried employees employed by the Company, and certain subsidiaries and affiliates of the Company (the "Employees"), under which benefits are subject to plan qualification limits imposed by the Internal Revenue Code of 1986, as amended (the "Code"). The Company recognizes that in certain circumstances it is desirable to provide pension benefits to Employees which are supplemental to those provided by the Qualified Pension Plans. The circumstances in which supplemental benefits will be paid are: o when the limitation on benefits payable under the Company's Qualified Pension Plans as specified in Section 415 of the Code (the "Section 415 Limits") reduces the benefit otherwise payable under the Qualified Pension Plans; and o when, effective for years after 1988, the limitation on the amount of compensation that may be taken into accounting in determining benefits under the Company's Qualified Pension Plans, as specified in Section 401(a)(17) of the Code (the "Section 401 (a)(17) Limit"), reduces the benefit otherwise payable under the Qualified Pension Plans. Accordingly, the Company maintains this Supplemental Pension Plan to provide a vehicle under which supplemental benefits can be paid to salaried employees employed by the Company and certain subsidiaries and affiliates of the Company. The provisions of this Supplemental Pension Plan shall be applicable to all persons who retire or otherwise terminate employment on or after June 30, 1995 and shall supersede the provisions of the Company's Supplemental Pension Plan maintained by the Company prior to June 30, 1995. 85 EXHIBIT 10(iii)(k) Page 2 of 7 SECTION 1 SUPPLEMENTAL PLAN BENEFITS 1.1 Excess Pension Benefit. An Employee shall be entitled to a benefit under this Supplemental Pension Plan if his benefit determined under the provisions of the Qualified Pension Plan in which he participates is less than such benefit would have been if (i) the Section 415 Limits did not apply, and (ii) the definition of Compensation specified under such Qualified Pension Plan did not exclude compensation after 1988 in excess of the Section 401(a)(17) Limit. If an Employee's benefit from the Qualified Pension Plan in which he participates is reduced as a result of any of the conditions described in the preceding paragraph, the benefit to which the Employee shall be entitled under this Supplemental Pension Plan shall be equal to the excess of (a) over (b) where: (a) is the benefit which would have been payable under the terms of such Qualified Pension Plan, as a single life annuity with benefits payable monthly, if (i) the Section 415 Limits did not apply, and (ii) the definition of Compensation specified under such Qualified Pension Plan did not exclude compensation after 1988 in excess of the Section 401 (a)(17) Limit; and (b) is the benefit actually payable as a single life annuity to the Employee under the terms of such Qualified Pension Plan. For purposes of this Section 1.1, the single life annuity payable under the terms of the Qualified Pension Plan shall be determined as of the Employee's Determination Date. The Determination Date shall be (a) in the case of separation from service by reason of retirement, the Employee's retirement date, and (b) in the case of separation from service other than by reason of retirement (such as death or disability), the first date on which the Employee becomes eligible to begin receiving payment of benefits under the Qualified Pension Plan. 86 EXHIBIT 10(iii)(k) Page 3 of 7 Notwithstanding the foregoing, if an Employee elected by the Board of Directors of the Company as an officer of the Company has attained age 62 and retires or otherwise terminates employment, he shall be entitled to receive a benefit under this Supplemental Pension Plan on or after attaining age 62 without reduction for receiving such benefit prior to his Normal Retirement Date. SECTION 2 VESTING 2.1 Vesting. An Employee shall be vested in the benefit provided under Section 1.1 of this Supplemental Pension Plan in accordance with the vesting provisions of the Qualified Pension Plan. SECTION 3 DISTRIBUTIONS 3.1 Payment of Benefits. Benefits payable under this Supplemental Pension Plan shall be made in the event of retirement, disability or any other termination of employment. Benefits shall be payable solely in the form of a lump sum. The lump sum amount, determined as of the Employee s Determination Date, shall be the Actuarial Equivalent value of the single life annuity determined under Section 1.1 hereof. For purposes of this Section 3.1, Actuarial Equivalent means an amount having equal value when computed on the basis of the 1983 Group Annuity Mortality Table (blended) and an interest rate equal to the average of the monthly rates for ten-year constant maturities for US Treasury Securities for the twelve-month period immediately preceding the month prior to the month in which the Employee s Determination Date occurs, such rate as published in Federal Reserve statistical release H.15 (519). Such benefit shall be paid on the Payment Date, together with interest accrued thereon from the Determination Date, (a) if the assets are held in trust, then at the interest rate of the trust, or (b) if the assets are not held in trust, at the then current earnings rate of the Fixed Income Fund of the Ingersoll-Rand Company Savings and Stock 87 EXHIBIT 10(iii)(k) Page 4 of 7 Investment Plan. An Employee s Payment Date shall be the later of (a) the first business day of the year following the Determination Date, or (b) the first day of the sixth month following the Determination Date. Notwithstanding the foregoing, an Employee who retires under this Supplemental Pension Plan may elect within the 30-day period immediately preceding his Determination Date to have his benefit determined as of his Determination Date using an alternative interest rate. The alternative interest rate used to determine the Actuarial Equivalent benefit payable in a lump sum shall be the interest rate equal to the 10- Year Treasury Note rate as published in the New York Times in the Key Rate Table under the Credit Market Section, or, if such rate is unavailable, as provided by Telerate, in either case as of the business day immediately preceding the date payment is made to the Employee. In the event an Employee elects to have his benefit determined under this paragraph, no interest will be payable from the Employee's Determination Date until the Payment Date. 3.2 Payments to Beneficiaries. In the event that an Employee dies prior to the Payment Date but on or after the Determination Date, payment shall be made to the beneficiary designated by the Employee under this Supplemental Pension Plan. An Employee may designate a beneficiary, or change the designated beneficiary, without obtaining consent of a spouse, provided that such designation or change shall be effective only upon receipt of written notification by the Compensation and Nominating Committee. In the event of failure to designate a beneficiary under this Supplemental Pension Plan, an Employee's beneficiary under this Plan shall be the same as the beneficiary under the Ingersoll- Rand Company Savings and Stock Investment Plan. 3.3 Withholding. The Company shall be entitled to withhold from the payment due under this Supplemental Pension Plan any and all taxes of any nature required by any government to be withheld from such payment. 3.4 Loans. No loans to Employees shall be permitted under this Supplemental Pension Plan. 88 EXHIBIT 10(iii)(k) Page 5 of 7 SECTION 4 MISCELLANEOUS 4.1 Amendment and Termination. This Supplemental Pension Plan may, at any time and from time to time, be amended or terminated, without consent of any Employee or beneficiary, (a) by the Board of Directors of the Company or (b) in the case of amendments which do not materially modify the provisions hereof, the Committee, provided, however, that no such amendment or termination shall reduce any benefits accrued under the terms of this Supplemental Pension Plan prior to the date of termination or amendment. Notwithstanding the foregoing in the event the Company's Board of Directors (or any trustee of any trust established by the Company for purposes of satisfying its obligations hereunder) determines that a "change of control" of the Company has occurred, any subsequent amendment modifying or terminating the Plan shall have no force or effect. For purposes of this paragraph, a "change of control shall have the meaning designated in the Ingersoll-Rand Benefit Trust Agreement, dated as of September 1, 1988, as amended, between the Company and The Bank of New York, as trustee, established by the Company for purposes of satisfying certain obligations to executive employees of the Company. 4.2 No Contract of Employment. The establishment of this Supplemental Pension Plan or any modification thereof shall not give any Employee or other person the right to remain in the service of the Company or any of its subsidiaries, and all Employees and other persons shall remain subject to discharge to the same extent as if the Supplemental Pension Plan had never been adopted. 4.3 Compensation and Nominating Committee. This Supplemental Pension Plan shall be administered by the Compensation and Nominating Committee appointed by the Company's Board of Directors, or any successor committee appointed by the Company's Board of Directors (the "Committee"). The Committee shall make all determinations as to the right of any person to a benefit. Any denial by the Committee 89 EXHIBIT 10(iii)(k) Page 6 of 7 of the claim for benefits under this Supplemental Pension Plan by an Employee or beneficiary shall be stated in writing by the Committee and delivered or mailed to the Employee or beneficiary. Such notice shall set forth the specific reasons for the Committee's decision. In addition, the Committee shall afford a reasonable opportunity to any Employee or beneficiary whose claim for benefits has been denied for a review of the decision denying the claim. 4.4 Entire Agreement; Successors. This Supplemental Pension Plan, including any subsequently adopted amendments, shall constitute the entire agreement or contract between the Company and any Employee regarding this Supplemental Pension Plan. There are no covenants, promises, agreements, conditions or understandings, either oral or written between the Company and any Employee relating to the subject matter hereof, other than those set forth herein. This Supplemental Pension Plan and any amendment shall be binding on the Company and the Employee and their respective heirs, administrators, trustees, successors, and assigns, including but not limited to, any successors to the Company by merger, consolidation or otherwise by operation of law, and on all designated beneficiaries of the Employee. 4.5 Severability. If any provision of this Supplemental Pension Plan shall to any extent be invalid or unenforceable, the remainder of the Supplemental Pension Plan shall not be affected thereby, and each provision of the Supplemental Pension Plan shall be valid and enforced to the fullest extent permitted by law. 4.6 Application of Plan Provisions. All relevant provisions of the Qualified Pension Plans shall apply to the extent applicable to the contractual obligations of the Company under this Supplemental Pension Plan. With respect to any Employee, the applicable provisions shall be those of the Qualified Pension Plan in which the Employee participates. Benefits provided under the Supplemental Pension Plan are independent of, and in addition to, any payments made to Employees under any other plan, program, or agreement between the Company and Employees in the Supplemental Pension Plan, or any other compensation payable to the Employee by the Company, or by any subsidiary, or affiliate of the Company. The laws of the state of New Jersey shall govern this Supplemental Pension Plan. 90 EXHIBIT 10(iii)(k) Page 7 of 7 4.7 Participant as General Creditor. The Company shall have the right to establish a reserve or make any investment for the purposes of satisfying its obligation hereunder for payment of benefits at its discretion, provided, however, that no Employee eligible to participate in this Supplemental Pension Plan shall have any interest in such investment or reserve. To the extent that any person acquires a right to receive benefits under this Supplemental Pension Plan, such rights shall be no greater than the right of any unsecured general creditor of the Company. 4.8 Nonassignability. The right of any Employee or any beneficiary in any benefit hereunder shall not be subject to attachment or other legal process for the debts of such Employee or beneficiary, nor shall any such benefit be subject to anticipation, alienation, sale, transfer, assignment or encumbrance. 91 EX-10 7 EXHIBIT 10(iii)(p) Page 1 of 17 INGERSOLL-RAND COMPANY ELECTED OFFICERS SUPPLEMENTAL PROGRAM Introduction Ingersoll-Rand Company (the "Company") desires to adopt the Ingersoll-Rand Company Elected Officers Supplemental Program (the "Program") to provide retirement benefits to certain individuals employed by the Company in addition to the benefits provided from other qualified and non-qualified plans maintained by the Company. It is intended that this Program be treated as a plan which is unfunded and maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of the Employee Retirement Income Security Act of 1974, as amended. This Program shall be effective as of June 30, 1995. 92 EXHIBIT 10(iii)(p) Page 2 of 17 INGERSOLL-RAND TABLE OF CONTENTS Page INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1 - DEFINITIONS 1.1 Actuarial Equivalent . . . . . . . . . . . . . . 4 1.2 Board . . . . . . . . . . . . . . . . . . . . . . 4 1.3 Change of Control . . . . . . . . . . . . . . . . 4 1.4 Company . . . . . . . . . . . . . . . . . . . . . 4 1.5 Committee . . . . . . . . . . . . . . . . . . . . 4 1.6 Elected Officer . . . . . . . . . . . . . . . . . 4 1.7 Employee . . . . . . . . . . . . . . . . . . . . 4 1.8 Final Average Salary . . . . . . . . . . . . . . 4 1.9 Pension Plan . . . . . . . . . . . . . . . . . . 5 1.10 Program . . . . . . . . . . . . . . . . . . . . . 5 1.11 Year of Service . . . . . . . . . . . . . . . . . 5 SECTION 2 - PARTICIPATION 2.1 Commencement of Participation . . . . . . . . . . 5 2.2 Duration of Participation . . . . . . . . . . . . 5 SECTION 3 - AMOUNT OF BENEFIT 3.1 Amount of Benefit . . . . . . . . . . . . . . . . 6 SECTION 4 - VESTING 4.1 Vesting . . . . . . . . . . . . . . . . . . . . . 6 4.2 Forfeiture for Cause . . . . . . . . . . . . . . 6-7 SECTION 5 - DISTRIBUTIONS 5.1 Retirement . . . . . . . . . . . . . . . . . . . 7-8 5.2 Form of Distribution . . . . . . . . . . . . . . 8-9 5.3 Disability . . . . . . . . . . . . . . . . . . . 9 5.4 Death . . . . . . . . . . . . . . . . . . . . . . 10 5.5 Payment of Benefits . . . . . . . . . . . . . . . 10 93 EXHIBIT 10(iii)(p) Page 3 of 17 INGERSOLL-RAND TABLE OF CONTENTS (cont.) Page SECTION 6 - FUNDING 6.1 Funding . . . . . . . . . . . . . . . . . . . . . . 10 6.2 Company Obligation . . . . . . . . . . . . . . . . 11 SECTION 7 - CHANGE OF CONTROL 7.1 Contributions to Trust . . . . . . . . . . . . . . 11 7.2 Amendments . . . . . . . . . . . . . . . . . . . . 11 SECTION 8 - MISCELLANEOUS 8.1 Amendment and Termination . . . . . . . . . . . . .11-12 8.2 No Contract of Employment . . . . . . . . . . . . . 12 8.3 Withholding . . . . . . . . . . . . . . . . . . . . 12 8.4 Loans . . . . . . . . . . . . . . . . . . . . . . . 12 8.5 Compensation and Nominating Committee . . . . . . .12-13 8.6 Entire Agreement; Successors . . . . . . . . . . . 13 8.7 Severability . . . . . . . . . . . . . . . . . . . 13 8.8 Governing Law . . . . . . . . . . . . . . . . . . . 13 8.9 Participant as General Creditor . . . . . . . . . . 13 8.10 Nonassignability . . . . . . . . . . . . . . . . . 14 APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . .14-17 94 EXHIBIT 10(iii)(p) Page 4 of 17 SECTION 1 DEFINITIONS 1.1 "Actuarial Equivalent" means an amount having equal value when computed on the basis of the 1983 Group Annuity Mortality Table (blended) and an interest rate equal to the average of the monthly rates for ten-year Constant Maturities for US Treasury Securities for the twelve-month period immediately preceding the month prior to the month in which a determination of benefit occurs, such rate as published in Federal Reserve statistical release H.15(519). 1.2 "Board" means the Board of Directors of Ingersoll-Rand Company. 1.3 "Change of Control" shall have the same meaning as a "change of control of the Company" (as set forth in the Company's Incentive Stock Plan of 1995), unless a different definition is used for purposes of any severance of employment agreement between an Employer and an Employee, in which event such definition shall apply. 1.4 "Company" means Ingersoll-Rand Company, and its successors or assigns. 1.5 "Committee" means the Compensation and Nominating Committee of the Board. 1.6 "Elected Officer" means an individual elected by the Board as an officer of the Company. 1.7 "Employee" means an individual eligible to participate in the Program as provided in Section 2.1 1.8 "Final Average Salary" means the sum of the following: (a) the average of each of the five highest bonus payments made during the six most recent calendar years including the year during which the Employee's retirement, death, or disability occurs or a Change of Control occurs, and (b) the Employee's annualized base rate of pay in effect immediately prior to the date of determination. 95 EXHIBIT 10(iii)(p) Page 5 of 17 1.9 "Pension Plan" means the Ingersoll-Rand Pension Plan Number One as in effect on June 30, 1995 and as amended from time to time. 1.10 "Program" means the Ingersoll-Rand Company Elected Officers Supplemental Program as stated herein and as may be amended from time to time. 1.11 "Year of Service" shall be determined in accordance with the terms of the Pension Plan used to determine Years of Vesting Service, provided that in the event an Employee earns one or more hours of service during a calendar year, he shall be credited with a Year of Service with respect to such year for purposes of the Program. Whenever the word "he," "his," or "him" is used in the Program, such word is intended to embrace within its purview the word "she" or "her", as may be appropriate. SECTION 2 PARTICIPATION 2.1 Commencement of Participation An individual employed by the Company shall commence participation in the Program upon becoming an Elected Officer of the Company. 2.2 Duration of Participation An Employee shall continue to participate in the Program until the earlier of his termination of employment, death, or election to waive the benefit provided under the Program. 96 EXHIBIT 10(iii)(p) Page 6 of 17 SECTION 3 AMOUNT OF BENEFIT 3.1 Amount of Benefit An Employee shall be entitled to receive a benefit under the Program equal to (a) minus (b) below: (a) 65% of his Final Average Salary, multiplied by a fraction, the numerator of which is his Years of Service (up to a maximum of 30), and the denominator of which is 30, minus (b) the amount set forth in Appendix A attached hereto. SECTION 4 VESTING 4.1 Vesting An Employee shall become vested in the benefit provided under this Program upon the earlier of (i) the attainment of age 55 and the completion of 15 Years of Service, (ii) the attainment of age 62, (iii) death, or (iv) a Change of Control. 4.2 Forfeiture for Cause All benefits for which an Employee would otherwise be eligible hereunder may be forfeited, at the discretion of the Committee, prior to the occurrence of a Change of Control under the following circumstances: (a) The Employee is discharged by the Company for cause, which shall be a breach of the standards set forth in the Ingersoll-Rand Company Code of Conduct; or (b) Determination by the Committee no later than 12 months after termination of employment that the Employee has engaged in serious or willful misconduct in connection with his employment with the Company; or 97 EXHIBIT 10(iii)(p) Page 7 of 17 (c) The Employee (whether while employed or for two years thereafter) without the written consent of the Company is employed by, becomes associated with, renders service to, or owns an interest in any business that is competitive with the Company or with any business in which the Company has a substantial interest as determined by the Committee; provided, however, that an Employee may own up to 1% of the publicly traded equity securities of any business, notwithstanding the foregoing. SECTION 5 DISTRIBUTIONS 5.1 Retirement Employee retirement distribution under the Program shall be as follows: (a) Normal Retirement - An Employee shall retire and receive the benefit under Section 3.1 upon attaining age 62, provided that the Chief Executive Officer of the Company (or in the case of the Chief Executive Officer, the Board) may request an Employee to remain in the employ of the Company after the Employee has attained age 62. (b) Early Retirement - An Employee may retire under the Program at any time after he becomes vested in accordance with Section 4.1. In the event he retires before age 62, he will receive a benefit under this Program in accordance with Section 5.5. Such benefit shall be equal to the benefit he would have received at age 62 under Section 3.1, provided however that: (i) the amount determined under Section 3.1(a) shall be reduced by .3% for each month that the benefit commences prior to age 65, (ii) the benefit offset amount derived from defined contribution account balances, as identified in the applicable Appendix, shall be converted to immediate annuities using the Actuarial Equivalent as defined in Section 1.1, and shall be based on the Employee's age at date of retirement, 98 EXHIBIT 10(iii)(p) Page 8 of 17 (iii) the benefit offset amount derived from defined benefit plans, as identified in Appendix A and as adjusted for retirement at the earliest date on which the Employee may retire and begin receiving a benefit under such defined benefit plans and as further adjusted, if necessary, to the Actuarial Equivalent of the benefit payable on the date benefits under the Program commence, shall be as determined under the applicable plans irrespective of whether the Employee elects to receive a benefit under such plans, and (iv) for years prior to Social Security normal retirement age, the Social Security Primary Insurance Amount shall be reduced by the same factors used by the Social Security Administration to adjust benefits payable at age 62 or later, and by .3% for each month that benefits under the Program commence prior to age 62. (c) Late Retirement - If an Employee retires after age 62 as provided under (a) above, he will receive a benefit equal to the greater of: (i) the benefit determined under Section 3.1 as of his date of retirement, or (ii) the benefit he would have received had he retired at age 62, credited with interest from the date he attained age 62 until his date of retirement. For purposes of this subsection (ii), the interest used will be rate will be equal to the rate of return earned by the Fixed Income Fund of the Ingersoll-Rand Company Savings and Stock Investment Plan during such period. 5.2 Form of Distribution Benefits under this Program shall be payable solely in a single lump sum. The lump sum amount, determined as of the Employee's date of retirement, shall be the Actuarial Equivalent value of a single life annuity of the benefit under Section 3.1 adjusted, if applicable, to reflect the 99 EXHIBIT 10(iii)(p) Page 9 of 17 provisions of Section 5.1. The lump sum distribution determined under this Section 5.2 shall be credited with interest at a rate equal to the rate of return earned by the Fixed Income Fund of the Ingersoll-Rand Company Savings and Stock Investment Plan from the Employee's date of retirement until the date of distribution. Notwithstanding the foregoing, an Employee who retires under this Program and receives a lump sum payment under this Section 5.2 may elect within the 30-day period immediately preceding his date of retirement to have his benefit determined as of his date of retirement, using an alternative interest rate. The alternative interest rate used to determine the Actuarial Equivalent benefit payable in a lump sum shall be the interest rate equal to the 10- Year Treasury Note rate as published in The New York Times in the Key Rate Table under the Credit Market Section, or, if such rate is unavailable, as provided by Telerate, in both cases as of the business day immediately preceding the date payment is made to the Employee. In the event an Employee elects to have his benefit determined under this paragraph, no interest will be payable from the Employee s date of retirement until the date of distribution. 5.3 Disability In the event that an Employee becomes disabled, he shall continue to earn benefits under the Program as if he continued to be employed by the Company at his same annualized base rate of pay as of the date he became disabled. Such Employee shall receive an immediate lump sum payment determined under Section 5.2 of the Program as of the Employee's 65th birthday. For purposes of determining his Final Average Salary, the average of each of the five highest bonus payments made out of the last six most recent bonuses received by the Employee prior to the date he became disabled shall be used. If an Employee is no longer disabled and he does not return to the employ of the Company or an affiliated company, he shall not be entitled to continued accrual under this Section for his period of disability. If an employee is no longer disabled and he returns to the employ of the Company, he will be entitled to continued accrual under this Section for the period of his disability. For purposes of the Program, an Employee shall be disabled if he is unable to continue to perform the duties of his position due to a physical or mental impairment. 100 EXHIBIT 10(iii)(p) Page 10 of 17 5.4 Death In the event that an Employee dies prior to retirement, his beneficiary shall receive a lump sum payment determined under Section 5.2 of this Program as of the date of the Employee's death as if the Employee retired on the date of his death; provided that if the Employee's death occurs prior to his attainment of age 55, his benefit shall be reduced by .3% for each month that the benefit commences before the Employee would have reached age 65. The Employee's beneficiary under this Program shall be the beneficiary under the Ingersoll-Rand Company Savings and Stock Investment Plan unless the Employee designates another beneficiary in writing, and such written designation has been received by the Committee prior to the date of death. An Employee may change the designated beneficiary under this Program at any time by providing such designation in writing to the Committee. 5.5 Payment of Benefits The benefit under the Program shall be paid on the later of (i) the first business day of the sixth month following the Employee's retirement or death, or (ii) the first business day of the calendar year following the Employee's retirement. In the event an Employee is disabled in accordance with Section 5.3, his benefit shall be paid on the first day of the month following the date that the Employee attains age 65. SECTION 6 FUNDING 6.1 Funding Except as provided in Section 8.9 hereof, the Company shall have no obligation to fund the benefit that an Employee earns under this Program. 101 EXHIBIT 10(iii)(p) Page 11 of 17 6.2 Company Obligation Notwithstanding the provisions of any trust agreement or similar funding vehicle to the contrary, the Company shall remain obligated to pay benefits under this Program. Nothing in this Program or any trust agreement shall relieve the Company of its liabilities to pay benefits under this Program except to the extent that such liabilities are met by the distribution of trust assets. SECTION 7 CHANGE OF CONTROL 7.1 Contributions to Trust In the event that a Change of Control has occurred, the Company shall be obligated to establish a trust and to contribute to the trust an amount necessary to fund the accrued benefit earned by the Employee under this Program (assuming immediate benefit commencement) as of the last day of the calendar month immediately preceding the date the Board of Directors determines that a Change of Control has occurred. If the Employee shall not have attained age 55, his annual benefit shall be determined on the same basis used to determine his accrued benefit in the case of death as specified in Section 5.4. 7.2 Amendments Following a Change of Control of the Company, any amendment modifying or terminating this Program shall have no force or effect. SECTION 8 MISCELLANEOUS 8.1 Amendment and Termination Except as provided in Section 7.2 hereof, this Program may, at any time and from time to time, be amended or terminated without the consent of any Employee or beneficiary, (a) by the Board of Directors of the Company, or (b) in the case of amendments which do not materially modify the provisions 102 EXHIBIT 10(iii)(p) Page 12 of 17 hereof, the Committee or such other committee appointed by the Board of Directors of the Company; provided, however, that no such amendment or termination shall reduce any benefits accrued under the terms of this Program prior to the date of termination or amendment. 8.2 No Contract of Employment The establishment of this Program or any modification hereof shall not give any Employee or other person the right to remain in the service of the Company or any of its subsidiaries, and all Employees and other persons shall remain subject to discharge to the same extent as if the Program had never been adopted. 8.3 Withholding The Company shall be entitled to withhold from any payment due under this Program any and all taxes of any nature required by any government to be withheld from such payment. 8.4 Loans No loans to Employees shall be permitted under this Program. 8.5 Compensation and Nominating Committee This Program shall be administered by the Committee (or any successor committee) of the Board of Directors of the Company. The primary responsibility of the Committee is to administer the Program for the exclusive benefit of the Employees and their beneficiaries, subject to the specific terms of the Program. The Committee shall administer the Program in accordance with its terms to the extent consistent with applicable law, and shall have the power to determine all questions arising in connection with the administration, interpretation, and application of the Program. Any such determination by the Committee shall be conclusive and binding upon all affected parties. Any denial by the Committee of a claim for benefits under this Program by an Employee or beneficiary shall be stated in writing by the Committee and delivered or mailed to the Employee or beneficiary. Such notice shall set forth the specific reasons for the Committee's decision. In addition, the Committee shall afford a reasonable opportunity to any 103 EXHIBIT 10(iii)(p) Page 13 of 17 Employee or beneficiary whose claim for benefits has been denied for a review of the decision denying this claim. 8.6 Entire Agreement; Successors This Program, including any subsequently adopted amendments, shall constitute the entire agreement or contract between the Company and any Employee regarding this Program. There are no covenants, promises, agreements, conditions or understandings, either oral or written, between the Company and any Employee relating to the subject matter hereof, other than those set forth herein. This Program and any amendment hereof shall be binding on the Company and the Employees and their respective heirs, administrators, trustees, successors and assigns, including but not limited to, any successors of the Company by merger, consolidation or otherwise by operation of law, and on all designated beneficiaries of the Employee. 8.7 Severability If any provisions of this Program shall, to any extent, be invalid or unenforceable, the remainder of this Program shall not be affected thereby, and each provision of this Program shall be valid and enforceable to the fullest extent permitted by law. 8.8 Governing Law The laws of the State of New Jersey shall govern this Program. 8.9 Participant as General Creditor Benefits under the Program shall be payable by the Company out of its general funds. The Company shall have the right to establish a reserve or make any investment for the purposes of satisfying its obligations hereunder for payment of benefits at its discretion, provided, however, that no Employee eligible to participate in this Program shall have any interest in such investment or reserve. To the extent that any person acquires a right to receive benefits under this Program, such rights shall be no greater than the right of any unsecured general creditor of the Company. 104 EXHIBIT 10(iii)(p) Page 14 of 17 8.10 Nonassignability To the extent permitted by law, the right of any Employee or any beneficiary in any benefit hereunder shall not be subject to attachment or any other legal process for the debts of such Employee or beneficiary nor shall any such benefit be subject to anticipation, alienation, sale, transfer, assignment or encumbrance. APPENDIX A Unless otherwise specified in another Appendix attached hereto, the sum of the following shall be used for purposes of Section 3.1(b) of the Program: (a) all employer-paid benefits under qualified retirement plans and associated supplemental plans sponsored by the Company, Ingersoll-Dresser Pump Company and Dresser Industries, Inc., provided that the Employee's intervening employment between Dresser Industries, Inc. and the Company is solely with Ingersoll-Dresser Pump Company; For purposes of determining the benefit under Section 3.1 of the Program, the following shall apply: (1) The Employee's benefit under the Pension Plan, Ingersoll-Dresser Pump Company Pension Plan, Ingersoll-Rand Company Supplemental Pension Plan, and the Ingersoll-Dresser Pump Company Supplemental Plan, shall be determined as a life annuity at the date of determination. (2) The Employee's account balance as of the date of determination under the Ingersoll-Rand Company Retirement Account Plan (provided that an appropriate adjustment shall be made for grandfathered Employees under such Plan), Ingersoll-Dresser Pump Company Retirement Account Plan (provided that an appropriate adjustment shall be made for grandfathered employees under such plan), Ingersoll-Rand Company Supplemental Retirement Account Plan, and the Ingersoll- Dresser Pump Company Supplemental Retirement 105 EXHIBIT 10(iii)(p) Page 15 of 17 Account Plan shall be determined as a life annuity based on the Actuarial Equivalent as of the date of determination. (3) The portion of the Employee's account balance derived from employer matching contributions under the Ingersoll-Rand Company Savings and Stock Incentive Plan, the Ingersoll-Dresser Pump Company Savings Plan, the Ingersoll-Rand Company Supplemental Savings and Stock Investment Plan, the Ingersoll-Dresser Pump Company Supplemental Savings Plan, and any other qualified defined contribution plan sponsored by the Company or an affiliated employer shall be determined as a life annuity based on the Actuarial Equivalent of such account balance as of the date of determination. An Employee's account balance shall be the sum of the following, whichever are applicable: (A) the Employee's account balance under such plan as of the date he commenced participation in this Program, the Ingersoll-Rand Company Key Management Supplemental Program or the Ingersoll- Dresser Pump Company Key Management Supplemental Program, whichever is earlier, including appreciation (depreciation) and dividends, such amount would have earned until the date of determination, (B) the benefit the Employee would have derived from Employer matching contributions had he contributed the maximum amount permissible under such plan after the date he commenced participation in the Program, the Ingersoll-Rand Company Key Management Supplemental Program or the Ingersoll- Dresser Pump Company Key Management Supplemental Program, whichever is earlier, until the date of determination, including appreciation (depreciation) and dividends, such amount would have earned until the date of determination, and 106 EXHIBIT 10(iii)(p) Page 16 of 17 (C) if the Employee has not contributed the maximum amount permissible under such plan during the year that the Employee becomes eligible for the Program, the Ingersoll- Rand Company Key Management Supplemental Program or the Ingersoll-Dresser Pump Company Key Management Supplemental Program, whichever is earlier, and the five calendar years prior to participation in this Program, the benefit he would have derived from Employer matching contributions had he contributed the maximum amount permissible under such plan minus the actual amount of Employer matching contributions allocated to his account during such period, including appreciation (depreciation), but excluding dividends that such amount would have earned until the date of determination, and (D) the amount of any withdrawal of Employer matching contributions from such plan for the five-year period immediately prior to participation in the Program, the Ingersoll-Rand Company Key Management Supplemental Program or the Ingersoll- Dresser Pump Company Key Management Supplemental Program, whichever is earlier, including appreciation (depreciation), but excluding dividends that such amount would have earned until the date of determination. (b) the Social Security Primary Insurance Amount as defined in the Pension Plan estimated at age 65, multiplied by a fraction, the numerator of which is his Years of Service (up to a maximum of 30), and the denominator of which is 30. For purposes of the Program, "Social Security Primary Insurance Amount" means the amount of the Employee's annual primary old age insurance determined under the Social Security Act in effect at the date of determination and payable in accordance with (i) or (ii) below. 107 EXHIBIT 10(iii)(p) Page 17 of 17 (i) For benefits determined on or after age 65, payable for the year following his date of retirement. (ii) For benefits determined before the Employee attains age 65, payable for the year following his retirement or death (or which would be payable when he first would have become eligible if he were than unemployed), assuming he will not receive after retirement (or death) any income that would be treated as wages for purposes of the Social Security Act. For purposes of determining the Social Security Benefit under paragraphs (i) and (ii) above, an Employee's covered earnings under said Act for each calendar year preceding the Employee's first full calendar year of employment shall be determined by multiplying his covered earnings subsequent to the year being determined by the ratio of the average per worker total wages as reported by the Social Security Administration for the calendar year being determined to such average for the calendar year subsequent to the year being determined. 108 EX-10 8 EXHIBIT 10(iii)(q) Page 1 of 3 SELECTED EXECUTIVE OFFICER EMPLOYMENT AGREEMENT Mr. N. J. Pishotti 8674 Twighlight Tear Lane Cincinnati, Ohio 45249 Dear Nick: On the basis of our discussions and your recent interviews with members of our management team, I am pleased to extend this written confirmation of our offer to become Vice President of Ingersoll-Rand Company, reporting to me as Chairman and Chief Executive Officer. Your initial assignment will be the advancement of our strategic sourcing capabilities, providing leadership and direction to help position Ingersoll-Rand achieve cost and inventory reductions, and improved corporate performance. The following confirms the terms and conditions of our offer: 1. Your starting base salary will be at an annual rate of $225,000, paid monthly. 2. Your annual bonus for the award year 1995 will be guaranteed at a minimum of 50% of base salary. Otherwise, in subsequent years, you will be eligible for awards of up to 90% of salary depending on both corporate and individual performance. 3. Upon joining the Company, you will receive an award of non-qualified stock options of 18,000 shares with Stock Appreciation Rights under our 1990 Incentive Stock Plan. This award is subject to the usual terms and conditions of awards under the Plan. You will be considered a full participant, and be eligible to receive further awards under the Plan in future years as administered by the Compensation Committee of the Board. 4. Ingersoll-Rand will provide you with a Stock Award of 10,000 shares, also administered under the terms of our 1990 Incentive Stock Plan. 109 EXHIBIT 10(iii)(q) Page 2 of 3 These awards vest in three annual installments, beginning in January, 1996, based on a predetermined performance target and continued employment. You will receive an award agreement which explains vesting requirements and other terms and conditions of your award. Our stock awards also provide participants with dividend equivalents, and represent an attractive additional equity interest in our company. 5. You will receive a benefit under the Executive Supplementary Retirement Agreement in an amount of $45,000 per year for ten years beginning at age 65, subject to the provisions of this plan. You will be eligible for a full pension based on 65% of your final eligible compensation at age 62. If you retire prior to age 62, your retirement would be subject to the terms and conditions of the company's qualified retirement plan. For purposes of retirement benefits, eligible compensation is your final salary, plus the final five- year average of annual bonuses received. Your full 65% benefit will be calculated from all sources including our qualified and non-qualified Pension Plan and Retirement Accounts, the employer portion of Ingersoll- Rand's and your former employer's 401(k) Plan contributions, and your former employer's retirement benefits. These special additional benefits will necessarily be provided outside the Corporate Retirement Plan of Ingersoll-Rand, and for the most part will be paid from the general funds of the company. For purposes of benefit service, we will consider that you have accrued a benefit of thirty percentage points of final compensation upon joining us, and will accrue seven percentage points per year of credited service, up to a maximum of 65%. 6. We will relocate you, your family and household goods to this area, and will pay you a $100,000 special allowance upon your relocation to cover differences in housing costs, mortgage interest and any other disadvantages. Your relocation expenses, including shipment of household goods, real estate commissions and mortgage points will be reimbursed according to our 110 EXHIBIT 10(iii)(q) Page 3 of 3 policy; however, your special allowance will not be subject to tax protection. Ingersoll-Rand's relocation policy also provides for equity advances, at company discretion, to facilitate home purchases prior to sale of your existing residence. And, our program also includes the possibility of home purchase should that be necessary to effect a smooth transition. 7. Your medical and life insurance coverage with Ingersoll-Rand will commence on the first day of the month following 30 days of employment. You should continue your current coverage with your former employer under COBRA to avoid any gap in your coverage. 8. In the unlikely event that you are involuntarily terminated by the company other than for cause (i.e., violation of law or serious breach of ethics), we will provide you with a severance payment equal to 3 years of salary plus your last annual bonus. In anticipation of your retirement, your severance payment will decline by one-third for each year of service beginning after age 59. 9. Our offer is conditioned upon satisfactorily completing a physical examination, which includes drug testing, and fulfilling the requirements of the Immigration Reform and Control Act of 1986. We at Ingersoll-Rand have given this offer careful consideration and we view it as an exciting opportunity for you in your career progression. We are confident that you have the capabilities to succeed with our company, and that we will enjoy an important and mutually rewarding long-term relationship. I hope you find our offer acceptable and will join us preferably on or before April 3, 1995. Assuming the foregoing is acceptable to you, please sign and return a copy of this letter to me by March 10, 1995. Sincerely, Accepted: /S/ James E. Perrella /S/ N. J. Pishotti James E. Perrella Chairman March 2, 1995 111 EX-11 9 EXHIBIT 11(i) INGERSOLL-RAND COMPANY COMPUTATION OF PRIMARY EARNINGS PER SHARE (In millions of dollars except for shares and per share amounts) Years ended December 31, 1995 1994 1993 1992 1991 PRIMARY EARNINGS PER SHARE: Earnings before effect of accounting changes.......... $270.3 $211.1 $163.5 $ 115.6 $150.6 Effect of accounting changes: - Postemployment benefits -- -- (21.0) -- -- - Postretirement benefits other than pensions....... -- -- -- (332.0) -- - Income taxes.............. -- -- -- (18.0) -- Net earnings (loss) applicable to common stock............. $270.3 $211.1 $142.5 $(234.4) $150.6 Average number of common shares outstanding.......... 106,069,078 105,458,116 104,991,535 104,340,622 103,634,178 Primary earnings per share: Earnings before effect of accounting changes.......... $2.55 $2.00 $ 1.56 $ 1.11 $1.45 Effect of accounting changes: - Postemployment benefits -- -- (0.20) -- -- - Postretirement benefits other than pensions..... -- -- -- (3.19) -- - Income taxes............ -- -- -- (0.17) -- Primary earnings (loss) per share....................... $2.55 $2.00 $ 1.36 $(2.25) $1.45 Notes: All common share and per share amounts have been adjusted for the 2-for-1 stock split which was made in the form of a stock dividend in 1992. 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, as follows: 1995 - 498,456; 1994 - 496,893; 1993 - 600,429; 1992 - 738,149; 1991 - 632,056.
112 EX-11 10 EXHIBIT 11(ii) Page 1 of 2 INGERSOLL-RAND COMPANY COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (In millions of dollars except for shares and per share amounts) Years ended December 31, 1995 1994 1993 1992 1991 FULLY DILUTED EARNINGS PER SHARE: Earnings applicable to common stock before effect of accounting changes........... $270.3 $211.1 $163.5 $ 115.6 $150.6 Effect of accounting changes: - Postemployment benefits -- -- (21.0) -- -- - Postretirement benefits other than pensions........ -- -- -- (332.0) -- - Income taxes............... -- -- -- (18.0) -- Net earnings (loss) applicable to common stock.............. $270.3 $211.1 $142.5 $(234.4) $150.6 Average number of common shares outstanding........... 106,069,078 105,458,116 104,991,535 104,340,622 103,634,178 Number of common shares issuable assuming exercise under incentive stock plans.. 498,456 496,893 600,429 738,149 632,056 Average number of outstanding shares as adjusted for fully diluted earnings per share calculations........... 106,567,534 105,955,009 105,591,964 105,078,771 104,266,234 113 EXHIBIT 11(ii) Page 2 of 2 INGERSOLL-RAND COMPANY COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE (In millions of dollars except for shares and per share amounts) (Continued) Years ended December 31, 1995 1994 1993 1992 1991 Fully diluted earnings per share: Earnings before effect of accounting change............ $2.54 $1.99 $ 1.55 $ 1.10 $1.44 Effect of accounting changes: - Postemployment benefits -- -- (0.20) -- -- - Postretirement benefits other than pensions...... -- -- -- (3.16) -- - Income taxes............. -- -- -- (0.17) -- Fully diluted earnings (loss) per share........................ $2.54 $1.99 $ 1.35 $(2.23) $1.44 Notes: All common share and per share amounts have been adjusted for the 2-for-1 stock split which was made in the form of a stock dividend in 1992. This calculation is presented in accordance with the Securities Exchange Act of 1934, although it is not required disclosure under APB Opinion No. 15. 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 incentive stock plans. Employee stock options outstanding have been included in the calculation of fully diluted earnings per share by applying the "Treasury Stock" Method quarterly. Such calculations have been made using the higher of the average month-end market prices or the market prices at the end of the quarter, in order to reflect the maximum potential dilution.
114 EX-12 11 EXHIBIT 12 INGERSOLL-RAND COMPANY COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES (Dollar Amounts in Millions) (2) Years Ended December 31, Fixed charges: 1995 1994 1993 1992 1991 Interest expense........................... $ 90.0 $ 46.9 $ 60.2 $ 64.7 $ 64.5 Amortization of debt discount and expense.. .8 .4 .7 .3 .3 Rentals (one-third of rentals)............. 21.6 18.8 19.4 20.8 21.2 Capitalized interest....................... 3.6 3.2 3.1 3.5 4.6 Total fixed charges.......................... $116.0 $ 69.3 $ 83.4 $ 89.3 $ 90.6 Net earnings (loss).......................... 270.3 $211.1 $142.5 $(234.4) $150.6 Add: Minority income (loss) of majority- owned subsidiaries.................. 14.5 15.1 13.6 (33.2) 1.9 Taxes on income....................... 158.9 118.8 90.0 67.4 84.6 Fixed charges......................... 116.0 69.3 83.4 89.3 90.6 Effect of accounting changes.......... -- -- 21.0 350.0 -- Less: Capitalized interest.................. 3.6 3.2 3.0 3.4 4.6 Undistributed earnings (losses) from less than 50% owned affiliates...... 33.3 33.3 40.0 16.6 13.5 Earnings available for fixed charges ........ $522.8 $377.8 $307.5 $ 219.1 $309.6 Ratio of earnings to fixed charges .......... 4.51 5.46 3.69(1) 2.45(3) 3.42(4) Undistributed earnings (losses) from less than 50% owned affiliates: Equity in earnings (losses)................ $ 36.6 $ 36.6 $ 42.1 $ 17.9 $ 14.7 Less: Dividends paid ................... 3.3 3.3 2.1 1.3 1.2 Undistributed earnings (losses) from less-than 50% owned affiliates........... $ 33.3 $ 33.3 $ 40.0 $ 16.6 $ 13.5 (1) The 1993 calculation includes the effect of the $5 million pretax charge relating to the restructure of the company's underground mining machinery business. Excluding this amount, the ratio would have been 3.75. (2) The company's portion of the earnings and fixed charges of the Dresser-Rand Company are included through September 30, 1992. Effective October 1, 1992, the company's ownership interest in the Dresser-Rand Company was reduced from 50% to 49%. (3) The 1992 calculation includes (i) the effect of the $10 million pretax charge relating to the restructure of the company's aerospace bearings business and (ii) the full effect of the $70 million pretax restructure of operations charge relating to the Ingersoll-Dresser Pump Company. Excluding the 1992 restructure charges the ratio would have been 3.35. (4) The 1991 ratio includes the $7.1 million net pretax benefit from a restructure of operations. Excluding this amount the ratio would have been 3.34.
115 EX-13 12 EXHIBIT 13 Page 1 of 60 INGERSOLL-RAND 1995 ANNUAL REPORT TO SHAREOWNERS 116 EXHIBIT 13 Page 2 of 60 Table of Contents Financial Review and Management Analysis . . . . . . . . 3-23 Consolidated Statement of Income . . . . . . . . . . . . 24 Consolidated Balance Sheet . . . . . . . . . . . . . . . . 25 Consolidated Statement of Shareowners' Equity . . . . . . 26-27 Consolidated Statement of Cash Flows . . . . . . . . . . 28-29 Notes to Consolidated Financial Statements . . . . . . . 30-58 Report of Management . . . . . . . . . . . . . . . . . . 59 Report of Independent Accountants . . . . . . . . . . . . 60 117 EXHIBIT 13 Page 3 of 60 Ingersoll-Rand Company Financial Review and Management Analysis 1995 Compared to 1994 1995 will go down in the company's history as a year of financial records and the year of our largest acquisition. Our financial achievements in 1995 were the result of a solid and stable domestic economy for most of our company's products, moderately growing European markets and the continuing benefits from asset management and productivity-improvement programs, which are becoming a daily thought process for more and more of our employees. Sales for 1995 exceeded $5.7 billion, which generated $497 million of operating income and $270 million of net earnings ($2.55 per share). These results include our successful acquisition of Clark Equipment Company (Clark), effective June 1, 1995. Our 1995 results, before considering the positive benefits from the Clark acquisition, would have also established company records. The Clark acquisition (which is described in Note 2 to the Consolidated Financial Statements) will add more than $1 billion of sales on an annualized basis to the company's results. Products include Melroe's Bobcat skid-steer loaders and compact excavators, Clark-Hurth axles and transmissions, Blaw-Knox pavers and Club Car golf cars and utility vehicles. The company's economic outlook for 1996 remains fairly consistent with last year and calls for a steady improvement in operating results based on continued stability in our domestic markets and continuing strength in our international markets. These expectations are bolstered by aggressive asset management and productivity-improvement programs, as well as the company's focus on total quality management and reengineering efforts to accelerate our efficiency gains. A comparison of key financial data between 1995 and 1994 follows: o Net sales in 1995 established a record at $5.7 billion, reflecting a 27-percent improvement over 1994's total of $4.5 billion. Sales for 1995, excluding Clark, exceeded last year's total by approximately 10 percent, and also established a new record. 118 EXHIBIT 13 Page 4 of 60 o Cost of goods sold in 1995 was 75.2 percent of sales compared to 74.9 percent in 1994. Partial liquidations of LIFO (last- in, first-out) inventory lowered 1995 costs by only $3.4 million ($2.1 million after-tax, or two cents per share) as compared to an $11.6 million ($7.1 million after-tax, or seven cents per share) liquidation in 1994. Excluding the effects of the LIFO liquidations, the 1995 cost of goods sold percentage relationship to sales would have been 75.3 percent versus 75.2 percent for 1994. The percentage of cost of goods sold to sales improved approximately one percent, excluding Clark and the loss on the paving business (a preacquisition requirement) from the calculation. This reduction represents the benefits derived from the company's continuing productivity-improvement and reengineering programs. o Administrative, selling and service engineering expenses were 16.1 percent of sales in 1995, compared to 16.7 percent for 1994. The marked improvement was due to the continued effect of the company's efforts from productivity-improvement programs and the benefit of leverage from the increased sales volume, which were large enough to offset the effects of inflation for salaries, services, etc. The effect of the Clark acquisition did not have a material impact on these percentages in 1995. o Operating income for the year totalled $497.0 million, a 32 percent increase over 1994's operating income of $377.0 million. Operating income in 1995, without Clark-related activities, totalled $435.1 million, reflecting a 15-percent increase over 1994's level. o Interest expense for the year totalled $86.6 million, which is almost double 1994's level. Interest costs associated with Clark's existing debt and its acquisition totalled $47.7 million. The company's interest expense, without Clark, would have been $38.9 million, an 11.2-percent reduction from the company's 1994 interest expense total of $43.8 million. This is the result of lower interest rates and the company's aggressive asset management program. o Other income (expense), net, is essentially the sum of three activities: (i) foreign exchange, (ii) equity interests in partially-owned equity companies, and (iii) other miscellaneous income and expense items. In 1995, this category netted to an income balance of $9.4 million, a favorable change of $24.1 million over 1994's net expense of $14.7 million. A review of the components of this category shows that: 119 EXHIBIT 13 Page 5 of 60 o foreign exchange activity for 1995 totalled $6.2 million of losses, which is comparable to the $6.1 million of losses in 1994; o earnings from equity interests in partially-owned equity companies were approximately $12.5 million higher than 1994's level, which included a loss on the sale of a partially-owned company; and o other net miscellaneous expense items were approximately one-half the prior year's level, principally due to higher gains on the sale of fixed assets, higher royalty earnings and a favorable benefit from the activities of the Clark units. o Dresser-Rand Company (Dresser-Rand) is a partnership between the company and Dresser Industries, Inc. (Dresser). It commenced operations on January 1, 1987, and comprises the worldwide reciprocating compressor and turbomachinery businesses of the two companies. The company's pretax profits from its interest in Dresser-Rand for 1995 totalled $22.0 million, as compared to $24.6 million in the prior year. The reduction is primarily attributed to lower sales volumes in 1995, when compared to 1994. However, Dresser-Rand began 1996 with a backlog in excess of $950 million. o Ingersoll-Dresser Pump Company (IDP) is another partnership between the company and Dresser in which the company owns the majority interest. In 1995, the minority interest charge was $12.7 million, as compared to the 1994 charge of $13.2 million. This charge reflects the portion of IDP's earnings that was allocable to our joint venture partner and indicates that IDP's earnings in 1995 were lower than in the prior year. o The company's effective tax rate for 1995 was 37.0 percent, which represents a slight increase over the 36.0 percent reported for the prior year. The variance from the 35.0 percent statutory rate was due primarily to the higher tax rates associated with foreign earnings, the effect of state and local taxes and the nondeductibility of the goodwill associated with the Clark acquisition. At December 31, 1995, employment totalled 41,133. This represents a net increase of 5,201 employees over last year's level of 35,932. The Clark acquisition added 5,304 new employees, while employment levels in the company's traditional businesses declined by 103 people during 1995. 120 EXHIBIT 13 Page 6 of 60 Liquidity and Capital Resources The most significant event affecting the company's liquidity during 1995 was the Clark acquisition, which became effective June 1, 1995. The total purchase price paid for Clark was approximately $1.5 billion. After considering the cash on Clark's books at the acquisition date, the actual cash cost of the transaction was approximately $1.1 billion. The effects of this transaction will be discussed throughout this section of our report and additional information on the acquisition is described in Note 2 to the Consolidated Financial Statements. The following table contains several key measures which the company's management uses to gauge the company's financial performance: 1995 1994 1993 Working capital (in millions) $1,016 $963 $878 Current ratio 1.8 1.9 1.9 Debt-to-total capital ratio 45% 22% 28% Average working capital to net sales 17.3% 20.4% 22.0% Average days outstanding in receivables 63.1 64.6 64.1 Average months' supply of inventory 3.3 3.7 4.4 Ingersoll-Rand, as a large multinational company, maintains significant operations in foreign countries. The movement of the U.S. dollar against foreign currencies has a day-to-day impact on the company's financial position. This impact is not always apparent since the company reports its consolidated results in U.S. dollars. Generally, the functional currency of the company's foreign subsidiaries is their local currency, the currency in which they transact their business. During 1995, many foreign currencies strengthened against the U.S. dollar for most of the year and the effect of these foreign currency fluctuations was significant. The company manages exposure to changes in foreign currency exchange rates through its normal operating and financing activities, as well as through the use of forward exchange contracts. The company attempts, through its hedging activities, to mitigate the impact on the income statement of changes in foreign exchange rates. Additionally, the company maintains operations in hyperinflationary economies and in countries, such as Mexico, where the company's operations transact business in U.S. dollars. The functional currency of these operations has been and will remain the U.S. dollar. (additional information on the company's use of financial instruments can be found in Note 9 to the Consolidated Financial Statements.) 121 EXHIBIT 13 Page 7 of 60 The following highlights the financial results and financial condition of the company's operations, with the impact of currency variations where appropriate: o Cash and cash equivalents totalled $137.3 million at December 31, 1995, a $69.7 million decrease from the prior year-end balance of $207.0 million. 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 totalled $403.6 million, investing activities used $1,307.9 million and financing activities generated funds of $830.2 million. Exchange rate changes during 1995 increased cash and cash equivalents by approximately $4.4 million. o Marketable securities totalled $9.3 million at the end of 1995, $5.1 million more than the balance at December 31, 1994. The increase was due to the investment of excess cash in various securities by foreign subsidiaries at favorable interest rates. Foreign marketable securities decreased slightly during the year due to foreign exchange rate fluctuations. o Receivables totalled $1,109.9 million at December 31, 1995, compared to $949.4 million at the prior year end, for a net increase of $160.5 million. Currency translation increased the receivable balance during the year by $16.0 million, and acquisitions added approximately $193 million during 1995. However, the company's focus on decreasing its receivable base through its asset management program produced a $50.9 million reduction in receivables during the year, in spite of the heavy sales volume in the fourth quarter of 1995. The average days outstanding in receivables decreased to 63.1 days from last year's level of 64.6 days, as benefits from the company's asset management program are beginning to be realized. o Inventories amounted to $912.6 million at December 31, 1995, an increase of $233.3 million over last year's level of $679.3 million. Currency movements accounted for a $10.6 million increase in inventory for the year, while acquisitions (net of a contribution to a joint venture) accounted for an additional $207.5 million increase in inventory. The remaining increase of $15.2 million reflects a year-end inventory build, to fulfill new orders during the first few months of the year based on the company's sales growth and backlog. However, the company's emphasis on inventory control was reflected in the reduction of the average months' supply of inventory, which was 3.3 months at December 31, 1995, compared to 3.7 months at the prior year end. 122 EXHIBIT 13 Page 8 of 60 o Prepaid expenses totalled $58.0 million at the end of the year, $14.2 million higher than the balance at December 31, 1994. Foreign exchange activity had a minimal effect on the balance in this account, while acquisition activity accounted for an additional $8.3 million of the increase. The remaining net increase for the year was due to a general increase in the company's prepaid expenses. o Deferred income taxes (current) of $118.5 million at December 31, 1995, represent the deferred tax benefit of the difference between the book and tax values of various current assets and liabilities. A schedule of the components for this balance is in Note 14 to the Consolidated Financial Statements. The year-end balance represented a decrease of $0.7 million from the December 31, 1994, level. Changes due to foreign currency movements had no effect on the year's activity. o The investment in Dresser-Rand Company totalled $93.9 million at December 31, 1995. This represented a net increase of approximately $3.2 million from 1994's balance of $90.7 million. The components of the change for 1995 consisted of income for the current year of $22.0 million, and an $18.8 million change in the advance account between the entities. o The investments in partially-owned equity companies at December 31, 1995, totalled $223.3 million, $49.4 million higher than the 1994 balance. Income and dividends from investments in partially-owned equity companies were $26.2 million and $6.7 million, respectively. Amounts due from these units increased from $3.4 million to $20.4 million at December 31, 1995. Currency movements relating to partially- owned equity companies were approximately $1 million in 1995. During 1995, the company contributed approximately $11 million of assets for an equity interest in a European joint venture. These assets were principally inventory and fixed assets. o Net property, plant and equipment increased by $319.1 million in 1995 to a year-end balance of $1,278.4 million. Fixed assets from acquisitions during 1995 added $292.0 million. Capital expenditures in 1995 totalled $211.7 million, a 33-percent increase over the prior year's level. Foreign exchange fluctuations increased the net fixed asset values in U.S. dollars by approximately $12 million. The remaining net decrease was the result of depreciation, sales and retirements, and a contribution of assets to a joint venture company. 123 EXHIBIT 13 Page 9 of 60 o Intangible assets, net, totalled $1,253.6 million at December 31, 1995, as compared to $124.5 million at December 31, 1994, for a net increase of $1,129.1 million. Acquisitions added $1,122.1 million of intangibles, primarily goodwill, during 1995. Goodwill from the Clark acquisition was approximately $740 million. In addition, Clark had approximately $380 million of goodwill when acquired. Amortization expense accounted for a reduction of $25.3 million. The remaining net change was attributable to an increase from currency fluctuations and an increase in the required pension intangible asset. o Deferred income taxes (noncurrent) totalled $134.8 million at December 31, 1995. This net deferred asset arose in 1992 primarily because of the tax effects related to the adoption of SFAS No. 106 (Postretirement Benefits Other Than Pensions). The 1995 balance was $60.4 million higher than the 1994 balance principally due to taxes associated with or assumed as a result of the Clark acquisition. A listing of the components which comprised the balance at December 31, 1995, can be found in Note 14 to the Consolidated Financial Statements. o Other assets totalled $233.7 million at year end, an increase of $62.5 million from the December 31, 1994, balance of $171.2 million. The change in the account balance was primarily due to an increase in prepaid pensions and other noncurrent assets of approximately $19 million, with acquisition activity accounting for the balance of the increase. Foreign exchange activity in 1995 had a minimal effect on the account balance during the year. o Accounts payable and accruals totalled $1,129.8 million at December 31, 1995, an increase of $246.0 million from last year's balance of $883.8 million. Acquisition activity during 1995 accounted for $258.9 million of the increase and foreign exchange activity during the year added an additional $17.9 million. The company's aggressive cash management program accounted for the balance of the reduction. o Loans payable were $155.4 million at the end of 1995 and reflects a $38.2 million increase over the $117.2 million at December 31, 1994. Current maturities of long-term debt, included in loans payable, were $102.9 million and $4.2 million at December 31, 1995 and 1994, respectively. The company's aggressive cash management program accounted for an $81.5 million reduction in short-term debt for 1995, while acquisition activity and foreign currency fluctuations increased short-term debt during 1995 by $15.0 million and 124 EXHIBIT 13 Page 10 of 60 $5.9 million, respectively. The change in current maturities of long-term debt included movement to current maturities of $103.5 million, payments of $17.9 million, acquired debt of $12.8 million and foreign exchange activity. o Long-term debt, excluding current maturities, totalled $1,304.4 million, an increase of $988.5 million over the prior year's balance of $315.9 million. The acquisition of Clark resulted in $900 million of long-term debt relating to the purchase of Clark. The consolidation of Clark added another $195.4 million of debt to the company's balance sheet. Foreign currency fluctuations increased this liability by an additional $0.9 million. Reductions of $109.4 million in long-term debt were caused by the reclassification of $103.5 million of current maturities to loans payable and the early payment of an additional $5.9 million of debt during the year. o Postemployment liabilities at December 31, 1995, totalled $832.1 million, an increase of $313.8 million over the December 31, 1994, balance. Postemployment liabilities include medical and life insurance postretirement benefits, long-term pension accruals and other noncurrent postemployment accruals. The increase in the liability during 1995 is almost exclusively related to the Clark acquisition. Postemployment liabilities represent the company's noncurrent liabilities in accordance with SFAS Nos. 87, 106 and 112. (See Notes 16 and 17 to the Consolidated Financial Statements for additional information.) o The Ingersoll-Dresser Pump Company (IDP) minority interest, which represents Dresser's interest in the IDP joint venture, totalled $170.8 million and $154.1 million at December 31, 1995 and 1994, respectively. Earnings allocable to IDP's minority interest totalled $12.7 million for 1995, while increases due to translation adjustments totalled $2.9 million. At December 31, 1995, Dresser had loans payable to IDP totalling $9.7 million, which was shown as a reduction in IDP's minority interest. o Other liabilities (noncurrent) at December 31, 1995, totalled $131.3 million, which were $94.0 million higher than the balance at December 31, 1994. The net increase for 1995 is almost exclusively related to the Clark acquisition. These obligations are not expected to be paid out in the company's next business cycle. These accruals generally cover environmental obligations, legal accruals and other contractual obligations. 125 EXHIBIT 13 Page 11 of 60 o At the time of its acquisition by the company, Clark sponsored a Leveraged Employee Stock Ownership Plan (LESOP) for eligible employees. In connection with the acquisition, the company purchased the LESOP's Clark shares for $176.6 million. The company determined it would continue the LESOP to fund certain employee benefit plans. At December 31, 1995, approximately 1.9 million shares of the company's common stock were unallocated and the $70.2 million paid by the LESOP for those unallocated shares is classified as a reduction of shareowners' equity pending allocation to participants. (See Note 12 to the Consolidated Financial Statements for additional information.) Other information concerning the company's financial resources, commitments and plans is as follows: The average amount of short-term borrowings outstanding, excluding current maturities of long-term debt, was $156.1 million in 1995, compared to $141.9 million in 1994. The weighted average interest rate during 1995 was 8.3%, compared to 6.8% during the previous year. The maximum amounts outstanding during 1995 and 1994 were $222.0 million and $181.6 million, respectively. The increase in the 1995 average amount of short-term borrowings outstanding was attributable to short-term financings related to the Clark acquisition. The company had $800 million in domestic short-term credit lines at December 31, 1995, and $676 million of foreign credit available for working capital purposes, all of which were unused at the end of the year. These facilities exceed projected requirements for 1996 and provide direct support for commercial paper and indirect support for other financial instruments, such as letters of credit and comfort letters. At December 31, 1995, the debt-to-total capital ratio was 45 percent, as compared to 22 percent at the prior year end. The significant change in the ratio at December 31, 1995, was primarily due to the acquisition of Clark, which initially added approximately $1.5 billion of debt to the company's balance sheet generating an initial debt-to-total capital ratio of 55 percent. Since the acquisition, the company's continuing programs of inventory reductions and spending controls to generate cash, were used to reduce the company's overall debt obligations and lower the debt-to-total capital ratio to the 45-percent relationship at December 31, 1995. 126 EXHIBIT 13 Page 12 of 60 In 1995, foreign currency adjustments increased shareowners' equity by approximately $20.7 million. The change was due to the weakening of the U.S. dollar against other currencies in countries where the company has significant operations and the local currencies are the functional currencies. Currency fluctuations in France, Germany, Italy, India, Japan, Singapore and Spain accounted for over 90 percent of the change. Inventories, accounts receivable, net property, plant and equipment, accounts payable and loans payable were the principal accounts affected. As a result of the Clark acquisition, the company is involved in certain repurchase arrangements relating to product- distribution and product-financing activities. As of December 31, 1995, repurchase arrangements relating to product financing by an independent finance company approximated $102 million. It is not practicable to determine the additional amount subject to repurchase solely under dealer distribution agreements. Under the repurchase arrangements relating to product-distribution and product-financing activities when dealer terminations do occur, a newly selected dealer generally acquires the assets of the prior dealer and assumes any related financial obligation. Accordingly, the risk of loss to the company is minimal. Historically, Clark incurred only immaterial losses relating to these arrangements. In 1995, the company continued to sell an undivided fractional ownership interest in designated pools of accounts and notes receivable up to a maximum of $150 million. Similar agreements have been in effect since 1987. These agreements expire in one- and two-year periods based on the particular pool of receivables sold. The company intends to renew these agreements at their expiration dates with either the current institution or another financial institution using the basic terms and conditions of the existing agreements. At December 31, 1995 and 1994, $150 million and $125 million, respectively, of such receivables remained uncollected. Capital expenditures were $212 million and $159 million in 1995 and 1994, respectively. The company continues investing to improve manufacturing productivity, reduce costs and provide environmental enhancements and advanced technologies for existing facilities. The capital expenditure program for 1996 is estimated at approximately $225 million, including carryover from projects approved in prior periods. There are no planned projects that, either individually or in the aggregate, represent a material commitment for the company. Many of these projects are subject to review and cancellation at the option of the company without incurring substantial charges. 127 EXHIBIT 13 Page 13 of 60 As a result of high inflationary periods in the 1970s, experimental disclosure of supplementary information to measure the effects of inflation on historical financial statements in terms of the constant dollar and current costs was required. While the company presented inflation-adjusted data, the information presented was based on assumptions, estimates and judgments, which were far from precise indicators of the effects of inflation on the company. High inflationary trends have dissipated in recent years and, after a review of the effects of inflation, the company has determined that such information is neither material nor meaningful at this time. Environmental Matters The company is subject to extensive environmental laws and regulations. We believe that the company, as well as industry in general, will be faced with increasingly stringent laws and regulations in the future. As a result, 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 the Clark acquisition. During 1995, the company spent approximately $6 million on capital projects for pollution abatement and control and an additional $8 million for environmental remediation expenditures, including operation and maintenance of existing environmental programs. It should be noted that these amounts are difficult to estimate because environmental improvements are generally intertwined with the overall improvement costs at a particular plant, and the accurate estimate of which portion of an improvement or a capital expenditure relates to an environmental improvement is difficult to ascertain. The company believes that these expenditure levels will continue and may increase over time. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain. The company is a party to environmental lawsuits and claims. It has received notices of potential violations of environmental laws and regulations from the Environmental Protection Agency and similar state authorities, and is identified as a potentially responsible party (PRP) for cleanup costs at approximately 37 federal Superfund and state remediation sites (including Clark- acquired PRP locations). For all sites there are other PRPs and in most instances, the company's site involvement is minimal. 128 EXHIBIT 13 Page 14 of 60 While all PRPs may be jointly and severally liable to pay all site investigation and remediation costs, to date there is no indication the company will be liable for more than the costs of its own percentage of responsibility at any site. 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. 1994 Compared to 1993 1994 marked a milestone in the company's history. Its 1994 financial performance registered record levels in sales of $4.5 billion and record net earnings of $211.1 million, or $2.00 per share. 1994 was a year of achievement brought about by strong domestic markets for most of the company's products, recovering European markets and continued benefits from asset management and cost containment programs. The company's outlook for 1995 was for a steady improvement in operating results based on continued stability in our domestic markets and additional recoveries in our international markets. As outlined in 1993, these expectations are supplemented by our aggressive cost-containment programs, our commitment to total quality management and a focus on reengineering our business processes to accelerate our efficiency gains. A comparison of key financial data between 1994 and 1993 follows: o Net sales in 1994 totalled $4.5 billion, representing an increase of $486 million over 1993 and establishing a new record high. Net sales reflected strong increases in the Standard Machinery and Bearings, Locks and Tools segments. 129 EXHIBIT 13 Page 15 of 60 o Cost of goods sold in 1994 was 74.9 percent of sales, compared to 75.0 percent in 1993. A partial liquidation of LIFO (last-in, first-out) inventories lowered 1994 costs by $11.6 million ($7.1 million after-tax, or seven cents per share); a similar liquidation in 1993 lowered costs by $12.5 million ($7.6 million after-tax, or seven cents per share). Excluding the benefit of the LIFO liquidations, the 1994 cost of goods sold percentage relationship to sales would have been 75.2 percent versus 75.3 percent for 1993. This reduction represented the benefit from the company's continuing programs of aggressive cost-containment. o Administrative, selling and service engineering expenses were 16.7 percent of sales in 1994, compared to 17.6 percent for 1993. The marked improvement was due to the continued effect of the company's efforts from cost-containment programs and the benefit of leverage from the increased sales volume which were large enough to offset the effects of inflation for salaries, services, etc. o Operating income for the year totalled $377.0 million, an increase of 27.2 percent over 1993's operating income of $296.5 million, before the restructure of operations charge. The 1993 restructure of operations charge totalled $5.0 million and related to the company's decision to sell its underground coal-mining machinery business during the second quarter of the year. The sale of this business was finalized in July 1993. There were no restructuring charges in 1994. o Interest expense for 1994 was $43.8 million, approximately 16 percent lower than the $52.0 million reported for 1993. The reduction was due to lower overall outstanding indebtedness, which was a result of the company's ongoing asset management program. o The other income (expense), net, category is essentially the sum of three activities: (i) foreign exchange, (ii) equity interests in partially-owned equity companies, and (iii) other miscellaneous income and expense items. In 1994, this category totalled a net expense balance of $14.7 million, a $7.2 million increase in net expense over 1993's level. A review of the components of this category show that: o foreign exchange activity for 1994 totalled $6.1 million of losses, as compared to $6.6 million of losses in 1993; o earnings from equity interests in partially-owned equity companies were approximately $2 million lower than 1993's level, reflecting a 1994 loss on the sale of a partially- owned company; and 130 EXHIBIT 13 Page 16 of 60 o other net miscellaneous expense items were approximately double the 1993 level, principally due to lower gains on the sale of fixed assets and lower royalty earnings. o Dresser-Rand Company is a partnership between the company and Dresser Industries, Inc. (Dresser). It commenced operations on January 1, 1987, and comprises the worldwide reciprocating compressor and turbomachinery businesses of the two companies. The company's pretax profits from its interest in Dresser-Rand for 1994 totalled $24.6 million, as compared to $33.1 million in 1993. The reduction is attributed to the combination of an increase in expenses to establish a presence in Eastern Europe, increased depreciation charges due to the effect of equipment improvement programs during the past few years and lower production levels in some businesses. o Ingersoll-Dresser Pump Company (IDP) is another partnership between the company and Dresser in which the company owns the majority interest. In 1994, the minority interest charge was $13.2 million, as compared to the 1993 charge of $11.6 million. This charge reflects the portion of IDP's earnings that was allocable to our joint venture partner. o The company's effective tax rate for 1994 was 36.0 percent, which was a slight increase over the 35.5 percent reported for 1993. The variance from the 35.0 percent statutory rate was due primarily to the higher tax rates associated with foreign earnings and the effect of state and local taxes. At December 31, 1994, employment totalled 35,932. This represents a net increase of 789 employees over 1993's level of 35,143. Acquisitions accounted for virtually all of this increase. The following highlights the financial results and financial condition of the company's operations, with the impact of currency variations where appropriate: o Cash and cash equivalents totalled $207.0 million at December 31, 1994, a $21.0 million decrease from the December 31, 1993 balance of $228.0 million. 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 totalled $301.8 million, investing activities used $141.7 million and financing activities used $187.7 million. Exchange rate changes during 1994 increased cash and cash equivalents by approximately $6.6 million. 131 EXHIBIT 13 Page 17 of 60 o Marketable securities totalled $4.2 million at the end of 1994, $1.9 million less than the balance at December 31, 1993. Foreign marketable securities increased by approximately $0.9 million during the year due to foreign exchange rate fluctuations. The remaining reduction was due to the maturity of the various securities and their liquidation into cash and cash equivalents. o Receivables totalled $949.4 million at December 31, 1994, compared to $797.5 million at December 31, 1993, for a net increase of $151.9 million. Currency translation increased the receivable balance during the year by $21.4 million, and acquisitions added approximately $20 million during 1994. In addition, heavy sales volume in the 1994 fourth quarter contributed significantly to the increase. Net sales for the fourth quarter of 1994 increased 14 percent over 1993's fourth quarter. The average days outstanding in receivables increased slightly from 1993's level because of the higher mix of international receivables, which traditionally carry longer payment terms than domestic receivables and customers in certain domestic industries, who have implemented slightly longer payment terms. o Inventories amounted to $679.3 million at December 31, 1994, $34.4 million lower than December 31, 1993's level of $713.7 million. This decrease was a result of the company's aggressive inventory control programs and record fourth quarter sales, which reduced inventory levels by approximately $82 million. Currency movements accounted for a $21.3 million increase in inventory for the year, while acquisitions accounted for an additional $25.9 million increase in inventory. The company's emphasis on inventory control was reflected in the reduction in the average months' supply of inventory, which was 3.7 months at December 31, 1994, compared to 4.4 months at December 31, 1993. o Prepaid expenses totalled $43.8 million at the end of the year, $3.9 million higher than the balance at December 31, 1993. Foreign exchange activity had the effect of increasing the balance in this account by $1.9 million during the year. The remaining net increase for the year was due to a general increase in the company's prepaid expenses of $1.3 million, and acquisitions contributed $0.7 million. 132 EXHIBIT 13 Page 18 of 60 o Deferred income taxes (current) of $119.2 million at December 31, 1994, represent the deferred tax benefit of the difference between the book and tax values of various current assets and liabilities. A schedule of the components for this balance is in Note 14 to the Consolidated Financial Statements. The year-end balance represented an increase of approximately $2 million from the December 31, 1993, level. Changes due to foreign currency movements had an immaterial effect on the year's activity. o The investment in Dresser-Rand Company totalled $90.7 million at December 31, 1994. This represented a net decrease of approximately $21.9 million from 1993's balance of $112.6 million. The components of the change for 1994 consisted of income for the current year of $24.6 million, a $48.9 million change in the advance account between the entities and a $2.4 million increase due to currency fluctuations. o The investments in partially-owned equity companies at December 31, 1994, totalled $173.9 million, $15.2 million higher than the 1993 balance. Income and dividends from investments in partially-owned equity companies were $15.6 million and $3.8 million, respectively. Amounts due from these units decreased from $27.6 million to $3.4 million at December 31, 1994. Currency movements relating to partially- owned equity companies were approximately $11.1 million in 1994. In 1994, the company acquired full ownership of a ball bearing joint venture with GMN Mueller of America, Inc. The company also entered into a 50/50 joint venture, GHH-RAND Schraubenkompressoren GmbH & Co. KG, to manufacture airends. Also in 1994, the assets of the IDP Australian operations were sold in return for shares of the purchaser. The company also sold its interest in IRI International Corporation, a manufacturer of mobile drilling rigs. o Net property, plant and equipment increased by approximately $84 million in 1994 to a year-end balance of $959.3 million. Fixed assets from acquisitions during 1994 added $39.8 million. Capital expenditures in 1994 totalled $158.6 million, a 20-percent increase over 1993's level. Foreign exchange fluctuations increased the net fixed asset values in U.S. dollars by approximately $16.8 million. The remaining net decrease was principally due to depreciation expense. 133 EXHIBIT 13 Page 19 of 60 o Intangible assets, net, totalled $124.5 million at December 31, 1994, as compared to $105.9 million at December 31, 1993, for a net increase of $18.6 million. Amortization (which was charged to expense) accounted for a reduction of $6.8 million. Acquisitions added $27.8 million of intangibles during 1994. The remaining net change was attributable to an increase from currency fluctuations and a decrease in the required pension intangible asset. o Deferred income taxes (noncurrent) totalled $74.4 million at December 31, 1994. This net deferred asset arose in 1992 primarily because of the tax effects related to the adoption of SFAS No. 106 (Postretirement Benefits Other Than Pensions). The 1994 balance was $16.4 million lower than the 1993 balance. A listing of the components which comprised the balance at December 31, 1994, can be found in Note 14 to the Consolidated Financial Statements. o Other assets totalled $171.2 million at December 31, 1994, an increase of approximately $41.2 million from the December 31, 1993, balance of $130.0 million. The change in the account balance was primarily due to an increase in prepaid pensions and acquisitions. Foreign exchange activity in 1994 had a minimal effect on the account balance during the year. o Accounts payable and accruals totalled $883.8 million at December 31, 1994, an increase of $121.4 million from December 31, 1993's balance of $762.4 million. The increase in the 1994 balance is related to acquisitions, foreign exchange activity, and a general increase in trade accounts payable. Acquisitions caused an increase of approximately $50 million and foreign currency activity added approximately $20 million. o Loans payable were $117.2 million at the end of 1994, compared to $206.9 million at December 31, 1993. Current maturities of long-term debt, included in loans payable, were $4.2 million and $82 million at December 31, 1994 and 1993, respectively. Excluding the current maturities of long-term debt, short-term borrowings decreased by $24.4 million during 1994. This balance can be attributed to a decrease in foreign short-term debt offset by increases in the total loans outstanding during 1994 of $11.8 million due to foreign currency fluctuations and debt assumed from acquisitions. 134 EXHIBIT 13 Page 20 of 60 o Long-term debt, excluding current maturities, totalled $315.9 million at December 31, 1994, compared to $314.1 million at December 31, 1993, a net increase of $1.8 million. This net increase was the result of additions to long-term debt of $2.3 million, additions due to acquisitions of $6.9 million, a $0.4 million increase from foreign currency fluctuations; reduced by transfers to loans payable for current maturities. o Postemployment liabilities at December 31, 1994, totalled $518.3 million, an increase of $2.5 million over the December 31, 1993, balance. Postemployment liabilities include medical and life insurance postretirement benefits, long-term pension accruals and other noncurrent postemployment accruals. Postemployment liabilities represent the company's noncurrent liabilities in accordance with SFAS Nos. 87, 106 and 112. See Notes 16 and 17 to the Consolidated Financial Statements for additional information. o The Ingersoll-Dresser Pump Company minority interest, which represents Dresser's interest in the IDP joint venture, totalled $154.1 million and $146.3 million at December 31, 1994 and 1993, respectively. Earnings allocable to IDP's minority interest totalled $13.2 million for 1994, while increases due to translation adjustments totalled $5.4 million. At December 31, 1994, Dresser had loans payable to IDP totalling $10.8 million which was shown as a reduction in IDP's minority interest. Earnings allocable to IDP's minority interest totalled $11.6 million for 1993, which were virtually offset by translation adjustment and final valuation modifications. o Other liabilities (noncurrent) at December 31, 1994, totalled $37.3 million, which were $12.4 million higher than the balance at December 31, 1993. The net increase for 1994 represented changes to various accruals primarily due to acquisitions, which are not expected to be paid out in the company's next business cycle. These accruals generally cover environmental obligations, legal accruals, and other contractual obligations. Other information concerning the company's financial resources, commitments and plans is as follows: 135 EXHIBIT 13 Page 21 of 60 The average amount of short-term borrowings outstanding, excluding current maturities of long-term debt, was $141.9 million in 1994, compared to $159.1 million in 1993. The weighted average interest rate during 1994 was 6.8%, compared to 7.8% during 1993. The maximum amounts outstanding during 1994 and 1993 were $181.6 million and $184.1 million, respectively. The decrease in the 1994 average amount of short-term borrowings outstanding was attributable to the company's foreign operations, which used short-term debt financings as a hedge against currency movements. The company had a $400 million domestic short-term credit line at December 31, 1994, and $466 million of foreign credit available for working capital purposes, all of which were unused at the end of the year. These facilities provide direct support for commercial paper and indirect support for other financial instruments, such as letters of credit and comfort letters. At December 31, 1994, the debt-to-total capital ratio was 22 percent, as compared to 28 percent at December 31, 1993. The significant improvement in the ratio at December 31, 1994, was primarily due to the company's continuing programs of inventory reductions and spending controls to generate cash, which was used to reduce the company's overall debt obligations. In 1994, foreign currency adjustments increased shareowners' equity by $38.4 million. The change was due to the weakening of the U.S. dollar against other currencies in countries where the company has significant operations and the local currencies are the functional currencies. Currency fluctuations in the United Kingdom, Canada, France, Italy, Germany, Australia, Singapore, Japan and Spain accounted for approximately 80 percent of the change. Inventories, accounts receivable, net property, plant and equipment, accounts payable and loans payable were the principal accounts affected. In 1994, the company continued to sell an undivided fractional ownership interest in designated pools of accounts and notes receivable up to a maximum of $125 million. Similar agreements have been in effect since 1987. These agreements expire in one- and two-year periods based on the particular pool of receivables sold. The company intends to renew these agreements at their expiration dates with either the current institution or another financial institution using the basic terms and conditions of the existing agreements. At December 31, 1994 and 1993, $125 million of such receivables remained uncollected. 136 EXHIBIT 13 Page 22 of 60 REVIEW OF BUSINESS SEGMENTS Standard Machinery Standard Machinery Segment sales were $2.3 billion, an increase of 57 percent over the $1.4 billion reported for 1994. Operating income for 1995, totalled $222.6 million, representing an increase of 82 percent over last year's total of $122.4 million. This segment now includes all of the operations of Clark, except for Clark-Hurth, effective June 1, 1995. Without the sales from the Clark units, 1995 sales were $1.7 billion, or $266.9 million higher than 1994's level. Operating income, without the Clark units was $157.0 million, an increase of 28 percent over 1994's results. The Construction and Mining Group's sales for 1995, excluding the Blaw-Knox unit from Clark, were more than 20 percent higher than last year's level due to strong domestic markets and improved conditions in international markets. The group's operating income and operating income margins improved markedly over 1994's results. Sales for the Air Compressor Group were approximately 15 percent higher than 1994's level based on continued strong demand for its products both domestically and internationally. The group reported a double-digit increase in operating income for the year. The operations of the Clark units, which are now included within this segment (i.e. Melroe Company, Club Car, Inc. and Blaw-Knox Construction Equipment Corporation) generated over $500 million in sales and produced approximately $60 million of operating income since the June 1, 1995, acquisition date. However, it should be noted that the operations of Club Car and Blaw-Knox are traditionally more profitable during the first half of the year than in the latter half. Engineered Equipment Engineered Equipment Segment sales for 1995 totalled $1.2 billion, or 31 percent above 1994's level. Operating income was $49.5 million, representing a 40-percent increase over the 1994 total of $35.3 million. This segment also includes the results of Clark-Hurth Components Company (Clark-Hurth), effective June 1, 1995. Excluding the sales from Clark-Hurth, 1995 segment sales were $1,011.3 million, a nine-percent increase over 1994's level. Operating income, without Clark-Hurth, totalled $41.6 million, representing an 18-percent increase over the amount reported for the twelve months ended December 31, 1994. 137 EXHIBIT 13 Page 23 of 60 IDP's sales in 1995 reflected a marginal improvement over 1994's level; however, they reported lower operating income in 1995 versus 1994 due to lower margins on some large 1995 orders. Sales and operating income in the Process Systems Group reflected significant improvement over 1994 levels due to the continued strength in the pulp and paper industry. (See Note 18 to the Consolidated Financial Statements concerning the potential sale of the Pulp Machinery Division.) Bearings, Locks and Tools In 1995, the Bearings, Locks and Tools Segment reported sales of $2.2 billion, a five-percent increase over the prior year. Operating income totalled $269.1 million, an increase of more than $12 million over the $256.6 million reported for 1994. Bearings and Components Group sales for 1995 exceeded the prior year's level by more than six percent. A strong domestic automotive industry and continued benefits from cost-containment programs generated improved operating income for this group in 1995. Architectural Hardware Group sales were slightly below 1994's level. The group's operating income for the year was also below 1994's level by approximately five percent. The decline in sales and operating income can be attributed to system problems during the third quarter of the year when a new system failed to meet expectations, and caused problems, such as shipment delays. These problems were corrected by the end of the year. The Production Equipment Group sales and operating income in 1995 reflected improvements over the amounts reported for the prior year. An improving economy in the European-served area and stronger domestic markets contributed to the group's improved results for 1995. 138 EXHIBIT 13 Page 24 of 60 Consolidated Statement of Income In millions except per share amounts For the years ended December 31 1995 1994 1993 Net sales $5,729.0 $4,507.5 $4,021.1 Cost of goods sold 4,310.2 3,377.1 3,016.7 Administrative, selling and service engineering expenses 921.8 753.4 707.9 Restructure of operations- charge -- -- (5.0) Operating income 497.0 377.0 291.5 Interest expense (86.6) (43.8) (52.0) Other income (expense), net 9.4 (14.7) (7.5) Dresser-Rand income 22.0 24.6 33.1 Ingersoll-Dresser Pump minority interest (12.7) (13.2) (11.6) Earnings before income taxes and effect of accounting change 429.1 329.9 253.5 Provision for income taxes 158.8 118.8 90.0 Earnings before effect of accounting change 270.3 211.1 163.5 Effect of accounting change for postemployment benefits (net of tax benefits) -- -- (21.0) Net earnings $ 270.3 $ 211.1 $ 142.5 Earnings per share of common stock: Earnings before effect of accounting change $2.55 $2.00 $1.56 Effect of accounting change for postemployment benefits -- -- (0.20) Net earnings per share $2.55 $2.00 $1.36 See accompanying notes to consolidated financial statements. 139 EXHIBIT 13 Page 25 of 60 Consolidated Balance Sheet In millions except share amounts December 31 1995 1994 Assets Current assets: Cash and cash equivalents $ 137.3 $ 207.0 Marketable securities 9.3 4.2 Accounts and notes receivable, less allowance for doubtful accounts of $38.3 in 1995 and $25.9 in 1994 1,109.9 949.4 Inventories 912.6 679.3 Prepaid expenses 58.0 43.8 Deferred income taxes 118.5 119.2 2,345.6 2,002.9 Investments and advances: Dresser-Rand Company 93.9 90.7 Partially-owned equity companies 223.3 173.9 317.2 264.6 Property, plant and equipment, at cost: Land and buildings 682.9 557.3 Machinery and equipment 1,522.3 1,261.3 2,205.2 1,818.6 Less-accumulated depreciation 926.8 859.3 1,278.4 959.3 Intangible assets, net 1,253.6 124.5 Deferred income taxes 134.8 74.4 Other assets 233.7 171.2 $5,563.3 $3,596.9 Liabilities and Equity Current liabilities: Accounts payable and accruals $1,129.8 $ 883.8 Loans payable 155.4 117.2 Customers' advance payments 17.7 16.9 Income taxes 26.3 22.1 1,329.2 1,040.0 Long-term debt 1,304.4 315.9 Postemployment liabilities 832.1 518.3 Ingersoll-Dresser Pump Company minority interest 170.8 154.1 Other liabilities 131.3 37.3 Shareowners' equity: Common stock, $2 par value, authorized 400,000,000 shares; issued: 1995-109,704,883; 1994-109,168,872 219.4 218.3 Capital in excess of par value 121.6 42.4 Earnings retained for use in the business 1,595.5 1,403.7 1,936.5 1,664.4 Less: - Unallocated LESOP shares, at cost 70.2 -- - Treasury stock, at cost 11.5 53.1 - Foreign currency equity adjustment 59.3 80.0 Shareowners' equity 1,795.5 1,531.3 $5,563.3 $3,596.9 See accompanying notes to consolidated financial statements. 140 EXHIBIT 13 Page 26 of 60 Consolidated Statement of Shareowners' Equity In millions except share data December 31 1995 1994 1993 Common stock, $2 par value: Balance at beginning of year $ 218.3 $ 217.9 $ 216.6 Exercise of stock options and SARs 1.0 .2 1.1 Issuance of shares under stock plans .1 .2 .2 Balance at end of year 219.4 218.3 217.9 Capital in excess of par value: Balance at beginning of year 42.4 34.9 17.1 Exercise of stock options and SARs including tax benefits 14.6 3.3 14.3 Issuance of shares under stock plans 2.0 4.2 3.5 Sale of treasury shares to LESOP 62.7 -- -- Allocation of LESOP shares to employees (0.1) -- -- Balance at end of year 121.6 42.4 34.9 Earnings retained for use in the business: Balance at beginning of year 1,403.7 1,268.5 1,199.5 Net earnings 270.3 211.1 142.5 Cash dividends (78.5) (75.9) (73.5) Balance at end of year 1,595.5 1,403.7 1,268.5 Unallocated leveraged employee stock ownership plan: Balance at beginning of year -- -- -- Purchase of treasury shares (73.1) -- -- Allocation of shares to employees 2.9 -- -- Balance at end of year (70.2) -- -- Treasury stock-at cost: Common stock, $2 par value: Balance at beginning of year (53.1) (53.1) (53.1) Sale of treasury shares to LESOP 41.6 -- -- Balance at end of year (11.5) (53.1) (53.1) Foreign currency equity adjustment: Balance at beginning of year (80.0) (118.4) (86.7) Adjustments due to translation changes 20.7 38.4 (31.7) Balance at end of year (59.3) (80.0) (118.4) Total shareowners' equity $1,795.5 $1,531.3 $1,349.8 141 EXHIBIT 13 Page 27 of 60 Shares of Capital Stock Common stock, $2 par value: Balance at beginning of year 109,168,872 108,939,462 108,276,462 Exercise of stock options and SARs 474,250 112,850 547,400 Issuance of shares under stock plans 61,761 116,560 115,600 Balance at end of year 109,704,883 109,168,872 108,939,462 Unallocated leveraged employee stock ownership plan: Common stock, $2 par value: Balance at beginning of year -- -- -- Purchase of treasury shares 2,878,008 -- -- Allocated to prior Clark participants (862,680) -- -- LESOP shares allocated to employees (78,130) -- -- Balance at end of year 1,937,198 -- -- Treasury stock: Common stock, $2 par value: Balance at beginning of year 3,672,732 3,672,732 3,672,822 Sale of shares to LESOP (2,878,008) -- -- Disposition of stock -- -- (90) Balance at end of year 794,724 3,672,732 3,672,732 See accompanying notes to consolidated financial statements. 142 EXHIBIT 13 Page 28 of 60 Consolidated Statement of Cash Flows In millions For the years ended December 31 1995 1994 1993 Cash flows from operating activities: Net earnings $ 270.3 $ 211.1 $ 142.5 Adjustments to arrive at net cash provided by operating activities: Depreciation and amortization 179.4 132.5 123.5 Gain on sale of assets (3.6) (.1) (5.5) Loss on disposition of domestic paving business 7.1 -- -- Minority interests 14.0 13.8 13.6 Equity earnings/losses, net of dividends (41.5) (36.4) (45.6) Deferred income taxes 15.1 14.2 (14.8) Other noncash items 1.4 (10.5) .1 Effect of accounting changes -- -- 21.0 Restructure of operations -- -- 5.0 Changes in assets and liabilities (Increase) decrease in: Accounts and notes receivable 50.9 (111.8) (12.0) Inventories (15.2) 81.6 35.5 Other current and noncurrent assets (33.1) (14.6) (22.3) (Decrease) increase in: Accounts payable and accruals (37.9) 41.5 (73.3) Other current and noncurrent liabilities (3.3) (19.5) (2.8) Net cash provided by operating activities 403.6 301.8 164.9 Cash flows from investing activities: Capital expenditures (211.7) (158.6) (132.0) Proceeds from sales of property, plant and equipment 26.5 7.3 6.6 Proceeds from business dispositions -- 2.2 55.5 Acquisitions, net of cash* (1,136.5) (37.8) (42.5) (Increase) decrease in marketable securities (4.6) 2.8 6.4 Cash (invested in) or advances (to) from equity companies 18.4 42.4 45.3 Net cash used in investing activities (1,307.9) (141.7) (60.7) Cash flows from financing activities: Decrease in short-term borrowings (81.5) (31.4) (49.5) Debt issuance costs (6.0) -- -- Proceeds from long-term debt 901.7 2.3 101.8 Payments of long-term debt (23.7) (85.7) (78.0) Net change in debt 790.5 (114.8) (25.7) Proceeds from exercise of stock options and treasury stock sales 118.2 3.0 13.1 Dividends paid (78.5) (75.9) (73.5) Net cash provided by (used in) financing activities 830.2 (187.7) (86.1) 143 EXHIBIT 13 Page 29 of 60 Consolidated Statement of Cash Flows (Continued) In millions For the years ended December 31 1995 1994 1993 Effect of exchange rate changes on cash and cash equivalents 4.4 6.6 (6.9) Net (decrease) increase in cash and cash equivalents (69.7) (21.0) 11.2 Cash and cash equivalents- beginning of year 207.0 228.0 216.8 Cash and cash equivalents-end of year $ 137.3 $ 207.0 $ 228.0 *Acquisitions: Working capital, other than cash $ (161.4) $ 15.9 $ (25.6) Property, plant and equipment (292.0) (39.8) (25.9) Intangibles and other assets (1,330.0) (32.6) (2.0) Long-term debt and other liabilities 646.9 18.7 11.0 Net cash used to acquire businesses $(1,136.5) $ (37.8) $ (42.5) Cash paid during the year for: Interest, net of amounts capitalized $ 72.1 $ 47.3 $ 47.4 Income taxes 120.1 119.8 127.0 See accompanying notes to consolidated financial statements. 144 EXHIBIT 13 Page 30 of 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Ingersoll-Rand is a multinational manufacturer of primarily nonelectrical industrial machinery and equipment. The company's principal lines of business are air compressors, construction equipment, automotive parts and components, pumps, tools, door hardware products, golf cars and utility vehicles. The company's broad product line has applications in numerous industries including automotive, construction, mining, utilities, paper, housing, recreational, as well as the general industrial market. A summary of significant accounting policies used in the preparation of the accompanying financial statements follows: Principles of Consolidation: The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. Intercompany transactions and balances have been eliminated. Partially-owned equity companies are accounted for under the equity method. In conformity with generally accepted accounting principles, management has used estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Cash Equivalents: The company considers all highly liquid investments, consisting primarily of time deposits and commercial paper with maturities of three months or less when purchased, to be cash equivalents. Cash equivalents were $40.0 million and $108.3 million at December 31, 1995 and 1994, respectively. Inventories: Inventories are generally stated at cost, which is not in excess of market. Domestic manufactured inventories of 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. Property and Depreciation: The company principally uses accelerated depreciation methods for assets placed in service prior to December 31, 1994 and the straight-line method for assets acquired subsequent to that date. 145 EXHIBIT 13 Page 31 of 60 Intangible Assets: Intangible assets primarily represent the excess of the purchase price of acquisitions over the fair value of the net assets acquired. Such excess costs are being amortized on a straight-line basis over various periods not exceeding 40 years. Goodwill at December 31, 1995 and 1994, was $1.2 billion and $114 million, respectively. The carrying value of goodwill is evaluated periodically in relation to the operating performance and future undiscounted net cash flows of the related business. Intangible assets also represent costs allocated to patents, tradenames and other specifically identifiable assets arising from business acquisitions. These assets are amortized on a straight-line basis over their estimated useful lives. Accumulated amortization at December 31, 1995 and 1994, was $47.0 million and $26.5 million, respectively. Amortization of intangible assets was $25.3 million, $6.8 million and $5.9 million in 1995, 1994 and 1993, respectively. Income Taxes: Deferred taxes are provided on temporary differences between assets and liabilities for financial reporting and tax purposes as measured by enacted tax rates expected to apply when temporary differences are settled or realized. Environmental Costs: Environmental expenditures relating to current operations are expensed or capitalized as appropriate. Expenditures relating to existing conditions caused by past operations, which do not contribute to current or future revenues, are expensed. Costs to prepare environmental site evaluations and feasibility studies are accrued when the company commits to perform them. Liabilities for remediation costs are recorded when they are probable and reasonably estimable, generally the earlier of completion of feasibility studies or the company's commitment to a plan of action. The assessment of this liability is calculated based on existing technology, does not reflect any offset for possible recoveries from insurance companies and is not discounted. There were no material changes in the liability for the periods presented. Revenue Recognition: Sales of products are recorded for financial reporting purposes generally when the products are shipped. Research, Engineering and Development Costs: Research and development expenditures, including engineering costs, are expensed when incurred and amounted to $190.4 million in 1995, $154.6 million in 1994 and $150.1 million in 1993. 146 EXHIBIT 13 Page 32 of 60 Foreign Currency: Assets and liabilities of foreign entities, where the local currency is the functional currency, have been translated at year-end exchange rates, and income and expenses have been translated using weighted average-for-the-year exchange rates. Adjustments resulting from translation have been recorded in shareowners' equity and are included in net earnings only upon sale or liquidation of the underlying foreign investment. For foreign entities where the U.S. dollar is the functional currency, including those operating in highly inflationary economies, inventory and property balances and related income statement accounts have been translated using historical exchange rates, and resulting gains and losses have been credited or charged to net earnings. Foreign currency transactions and translations recorded in the income statement decreased net earnings by $3.9 million, $5.1 million and $4.7 million in 1995, 1994 and 1993, respectively. Shareowners' equity was increased in 1995 by $20.7 million, increased in 1994 by $38.4 million and reduced in 1993 by $31.7 million, due to foreign currency equity adjustments related to translation. The company hedges certain foreign currency transactions and firm foreign currency commitments by entering into forward exchange contracts (forward contracts). Gains and losses associated with currency rate changes on forward contracts hedging foreign currency transactions are recorded currently in income. Gains and losses on forward contracts hedging firm foreign currency commitments are deferred off-balance sheet and included as a component of the related transaction, when recorded; however, a loss is not deferred if deferral would lead to the recognition of a loss in future periods. Cash flows resulting from forward contracts accounted for as hedges of identifiable transactions or events are classified in the same category as the cash flows from the items being hedged. Earnings Per Share: Net earnings per share of common stock are earnings divided by the average number of common shares outstanding during the year. The effect of common stock equivalents on earnings per share was not material. 147 EXHIBIT 13 Page 33 of 60 Accounting Changes: 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 year ended December 31, 1995, increased net earnings by approximately $6.8 million ($0.06 per share). The company implemented Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994. Adoption of this statement had no impact on the financial statements. Effective January 1, 1993, the company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." SFAS No. 112 requires an accrual for the expected cost of benefits provided by an employer to former or inactive employees after employment, but before retirement, such as the continuation of medical and life insurance benefits for employees on long-term disability. Previously, these benefits were expensed as incurred. The effect of the adoption of SFAS No. 112 for the company totalled $21.0 million ($0.20 per share), net of a $13.5 million tax benefit. New Accounting Standards: In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which became effective on January 1, 1996. The adoption of SFAS No. 121 is not expected to have a material impact on the company's consolidated financial statements. Also in 1995, the FASB issued SFAS No. 123, "Accounting for Stock- Based Compensation" which requires companies to measure employee stock compensation plans based on the fair value method of accounting or to continue to apply APB No. 25, "Accounting for Stock Issued to Employees" and provide pro forma footnote disclosures under the fair value method in SFAS No. 123. The company will continue to apply the principles of APB No. 25 and provide pro forma fair value disclosures starting in the 1996 Annual Report. 148 EXHIBIT 13 Page 34 of 60 NOTE 2 - ACQUISITIONS OF BUSINESSES: 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. 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. 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. The purchase price exceeded net assets acquired by approximately $1,120 million, which is being amortized on a straight-line basis over 40 years. Included among the assets acquired by the company through the acquisition of Clark are the Melroe Company (Melroe), Blaw-Knox Construction Equipment Corporation (Blaw-Knox), Clark-Hurth Components Company (Clark- Hurth) and Club Car, Inc. (Club Car). 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, which has been converted into long-term debt with lower interest rates. 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 years ended December 31, 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 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): (Unaudited) For the years ended December 31 1995 1994 Sales $6,346.1 $5,689.5 Net earnings 283.5 198.7 Earnings per share $2.67 $1.87 149 EXHIBIT 13 Page 35 of 60 It should be noted that the company's actual results for 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. During 1994, the company made several acquisitions. In April 1994, the company acquired full ownership of the ball bearing joint venture with GMN Georg Mueller of America, Inc. for $4.9 million in cash. The company previously owned 50% of the joint venture. The company acquired Montabert S.A., a French manufacturer of hydraulic rock-breaking and drilling equipment on June 30, 1994, for approximately $18.4 million, plus assumption of liabilities. In August 1994, the company acquired the Ecoair air compressor product line from MAN Gutehoffnungshutte AG (MAN GHH) for $10.6 million in cash. The company also entered into a 50/50 joint venture, GHH-RAND Schraubenkompressoren GmbH & Co. KG (GHH-RAND) with MAN GHH to manufacture airends. The company invested approximately $17.6 million in GHH-RAND. The company also had several additional purchases of operations during the year totalling $3.9 million in cash. In 1993, the company acquired the Kunsebeck, Germany, needle and cylindrical bearing business of FAG Kugelfischer Georg Schafer AG of Schweinfurt, Germany, for $42.5 million in cash. These transactions have been accounted for as purchases and accordingly, each purchase price was allocated to the acquired assets and assumed liabilities based on their estimated fair values. The company has classified as intangible assets the costs in excess of the fair value of the net assets of companies acquired. The results of all acquired operations have been included in the consolidated financial statements from their respective acquisition dates. NOTE 3 - DISPOSITIONS AND RESTRUCTURE OF OPERATIONS: 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, in order to satisfy concerns of the United States Justice Department, prior to the Clark acquisition. The company incurred a $7.1 million pretax loss associated with this sale. In 1994, the assets of the IDP Australian operations were sold in return for shares of the purchaser. The company and Dresser Industries sold IRI International Corporation, a 50/50 joint venture that is a manufacturer of mobile drilling rigs, to a third party. 150 EXHIBIT 13 Page 36 of 60 The company sold the assets of several small business units in 1993, as well as substantially all of the assets of its coal- mining machinery and aerospace bearings businesses for $55.5 million in cash. In connection with the sale of the company's underground coal-mining machinery assets to Long-Airdox Company, the company recorded a $5.0 million restructure of operations charge during the second quarter of 1993. NOTE 4 - INVENTORIES: At December 31, inventories were as follows: In millions 1995 1994 Raw materials and supplies $ 211.8 $117.6 Work-in-process 326.1 293.0 Finished goods 538.5 429.7 1,076.4 840.3 Less-LIFO reserve 163.8 161.0 Total $ 912.6 $679.3 Work-in-process inventories are stated after deducting customer progress payments of $38.8 million in 1995 and $27.2 million in 1994. At December 31, 1995 and 1994, LIFO inventories comprised approximately 41 percent and 35 percent, respectively, of consolidated inventories. During the periods presented, certain inventory quantities were reduced, resulting in partial liquidations of LIFO layers. This decreased cost of goods sold by $3.4 million in 1995, $11.6 million in 1994 and $12.5 million in 1993. These liquidations increased net earnings in 1995, 1994 and 1993 by approximately $2.1 million ($0.02 per share), $7.1 million ($0.07 per share) and $7.6 million ($0.07 per share), respectively. NOTE 5 - INVESTMENTS IN PARTIALLY-OWNED EQUITY COMPANIES: The company has numerous investments, ranging from 20 percent to 50 percent, in companies which operate in similar lines of business. The company's investments in and amounts due from partially- owned equity companies amounted to $202.9 million and $20.4 million, respectively, at December 31, 1995, and $170.5 million and $3.4 million, respectively, at December 31, 1994. The company's equity in the net earnings of its partially-owned equity companies was $26.2 million, $15.6 million and $15.6 million in 1995, 1994 and 1993, respectively. The company received dividends based on its equity interests in these companies of $6.7 million, $3.8 million and $3.1 million in 1995, 1994 and 1993, respectively. 151 EXHIBIT 13 Page 37 of 60 Summarized financial information for these partially-owned equity companies at December 31, and for the years presented was: In millions 1995 1994 Current assets $ 467.6 $ 388.6 Property, plant and equipment, net 284.9 264.6 Other assets 30.2 20.3 Total assets $ 782.7 $ 673.5 Current liabilities $ 272.0 $ 250.5 Long-term debt 56.5 50.2 Other liabilities 47.4 30.0 Total shareowners' equity 406.8 342.8 Total liabilities and equity $ 782.7 $ 673.5 In millions 1995 1994 1993 Net sales $ 872.5 $ 701.0 $ 730.1 Gross profit 180.2 142.0 127.5 Net earnings 55.8 33.7 48.5 NOTE 6 - DRESSER-RAND COMPANY: Dresser-Rand Company is a partnership between Dresser Industries, Inc. (51 percent), and the company (49 percent) comprising the worldwide reciprocating compressor and turbomachinery businesses of the two companies. The company's investment in Dresser-Rand is accounted for using the equity method of accounting. Summarized financial information for Dresser-Rand at December 31, and for the years presented was: In millions 1995 1994 Current assets $ 457.2 $ 440.5 Property, plant and equipment, net 239.3 197.8 Other assets 27.2 18.5 Total assets 723.7 656.8 Deduct: Current liabilities 341.4 295.1 Other liabilities 200.8 188.9 542.2 484.0 Net partners' equity and advances $ 181.5 $ 172.8 In millions 1995 1994 1993 Net sales $1,081.4 $1,219.4 $1,187.3 Gross profit 212.5 203.1 241.9 Net earnings 44.9 50.2 68.1 152 EXHIBIT 13 Page 38 of 60 The company's investment in Dresser-Rand was $182.8 million and $160.8 million at December 31, 1995 and 1994, respectively. The company owed Dresser-Rand $88.9 million at December 31, 1995, and $70.1 million at December 31, 1994. NOTE 7 - ACCOUNTS PAYABLE AND ACCRUALS: Accounts payable and accruals at December 31, were: In millions 1995 1994 Accounts payable $ 337.5 $ 255.6 Accrued: Payrolls and benefits 177.4 137.3 Taxes 59.5 48.6 Insurance and claims 110.9 93.7 Postemployment benefits 98.5 74.0 Warranties 52.3 36.8 Interest 33.6 10.8 Other accruals 260.1 227.0 $1,129.8 $ 883.8 NOTE 8 - LONG-TERM DEBT AND CREDIT FACILITIES: At December 31, long-term debt consisted of: In millions 1995 1994 6 7/8% Notes Due 2003 $ 100.0 $100.0 9% Debentures Due 2021 125.0 125.0 7.20% Debentures Due 2025 150.0 -- 6.48% Debentures Due 2025 150.0 -- Medium Term Notes Due 1997-2004, at an average rate of 6.57% 600.0 -- 9.75% Clark Debentures Due 2001 100.0 -- Clark Medium Term Notes Due 1998-2023, at an average rate of 7.89% 60.2 -- 8 1/4% Notes Due 1996 -- 75.0 Other domestic and foreign loans and notes, at end- of-year average interest rates of 6.53% in 1995 and 6.99% in 1994, maturing in various amounts to 2025 19.2 15.9 $1,304.4 $315.9 Debt retirements for the next five years are as follows: $102.9 million in 1996, $135.1 million in 1997, $146.7 million in 1998, $102.9 million in 1999 and $102.4 million in 2000. 153 EXHIBIT 13 Page 39 of 60 In June 1995, the company issued $150.0 million of debentures at 7.20% per annum, which are not redeemable prior to maturity in 2025 and $150.0 million of debentures at 6.48% per annum due in 2025 which may be repaid at the option of the holder on June 1, 2005. During July and August 1995, the company issued medium term notes totalling $600.0 million at an average rate of 6.57% with maturities ranging from 1997 to 2004. The proceeds from these financings were used to refinance short-term borrowings related to the acquisition of Clark. At December 31, 1995, the company had two five-year committed revolving credit lines totalling $800.2 million, both of which were unused. These lines provide support for commercial paper and indirectly provide support for other financial instruments, such as letters of credit and comfort letters, as required in the normal course of business. The company compensates banks for these lines with fees equal to .08% per annum. Available foreign lines of credit were $733.5 million, of which $676.0 million were unused at December 31, 1995. No major cash balances were subject to withdrawal restrictions. At December 31, 1995, the average rate of interest for loans payable, excluding the current portion of long-term debt, was 7.78% and related to foreign loans. Capitalized interest on construction and other capital projects amounted to $3.5 million, $3.2 million and $2.8 million in 1995, 1994 and 1993, respectively. Interest income, included in Other income (expense), net, was $11.5 million, $11.5 million and $11.7 million in 1995, 1994 and 1993, respectively. NOTE 9 - FINANCIAL INSTRUMENTS: The company, as a large multinational company, maintains significant operations in foreign countries. As a result of these global operating and financing activities, the company is exposed to changes in foreign currency exchange rates, which affect the results of operations and financial condition. The company manages exposure to changes in foreign currency exchange rates through its normal operating and financing activities, as well as through the use of financial instruments. Generally, the only financial instruments the company utilizes are forward exchange contracts. The purpose of the company's hedging activities is to mitigate the impact of changes in foreign exchange rates. The company attempts to hedge transaction exposures through natural offsets. To the extent this is not practicable, major exposure areas which are considered for hedging include, foreign currency denominated receivables and payables, intercompany loans, firm committed transactions, anticipated sales and purchases and dividends relating to foreign subsidiaries. The following table summarizes by major currency the contractual amounts of the company's forward contracts in U.S. dollars. Foreign currency amounts are 154 EXHIBIT 13 Page 40 of 60 translated at year-end rates at the respective reporting date. The "buy" amounts represent the U.S. equivalent of commitments to purchase foreign currencies, and the "sell" amounts represent the U.S. equivalent of commitments to sell foreign currencies. Some of the forward contracts involve the exchange of two foreign currencies according to local needs in foreign subsidiaries. At December 31, the contractual amounts were: In millions 1995 1994 Buy Sell Buy Sell Austrian schilling $ 9.6 $ 1.6 $ 3.5 $ .3 Belgian francs 3.2 8.3 .3 1.4 Canadian dollars 10.4 6.6 2.4 13.3 Deutsche marks 10.2 135.6 8.4 81.8 Dutch guilders 20.2 7.8 -- 1.3 French francs 24.1 38.5 3.3 10.6 Italian lira 41.1 6.9 34.9 2.3 Japanese yen 19.0 2.0 3.4 19.2 Pounds sterling 25.1 128.8 59.1 55.5 South African rand 3.5 12.8 6.6 14.4 Other 6.5 7.5 8.5 13.4 Total $172.9 $356.5 $130.4 $213.5 Forward contracts for normal operating activities have maturities of one to 12 months; and forward contracts for intercompany loans have maturities that range from one month to 36 months. The company's forward contracts do not subject the company to risk due to foreign exchange rate movement, since gains and losses on these contracts generally offset losses and gains on the assets, liabilities or other transactions being hedged. The counterparties to the company's forward contracts consist of a number of major international financial institutions. The credit ratings and concentration of risk of these financial institutions are monitored on a continuing basis and present no significant credit risk to the company. The carrying value of cash and cash equivalents, marketable securities (classified as held to maturity), accounts receivable, short-term borrowings and accounts payable are a reasonable estimate of their fair value due to the short-term nature of these instruments. The following table summarizes the estimated fair value of the company's remaining financial instruments at December 31: 155 EXHIBIT 13 Page 41 of 60 In millions 1995 1994 Long-term debt: Carrying value $1,304.4 $315.9 Estimated fair value 1,410.6 312.5 Forward contracts: Contract (notional) amounts: Buy contracts $ 172.9 $130.4 Sell contracts 356.5 213.5 Fair (market) values: Buy contracts 172.9 131.2 Sell contracts 356.8 211.9 Fair value of long-term debt was determined by reference to the December 31, 1995 and 1994, market values of comparably rated debt instruments. Fair values of forward contracts are based on dealer quotes at the respective reporting dates. NOTE 10 - COMMITMENTS AND CONTINGENCIES: The company is involved in various litigations, claims and administrative proceedings, including environmental matters, arising in the normal course of business. In assessing its potential environmental liability, the company bases its estimates on current technologies and does not discount its liability or assume any insurance recoveries. Amounts recorded for identified contingent liabilities are estimates, which are reviewed periodically and adjusted to reflect additional information when it becomes available. Subject to the uncertainties inherent in estimating future costs for contingent liabilities, management believes that recovery or liability with respect to these matters would not have a material effect on the financial condition, results of operations, liquidity or cash flows of the company for any year. In the normal course of business, the company has issued several direct and indirect guarantees, including performance letters of credit, totalling approximately $115 million at December 31, 1995. The company has also guaranteed the residual value of leased Club Car vehicles in the aggregate amount of $20.7 million. Management believes these guarantees will not adversely affect the consolidated financial statements. 156 EXHIBIT 13 Page 42 of 60 As a result of the Clark acquisition, the company is involved in certain repurchase arrangements relating to product distribution and product financing activities. As of December 31, 1995, repurchase arrangements relating to product financing by an independent finance company approximated $101.6 million. It is not practicable to determine the additional amount subject to repurchase solely under dealer distribution agreements. Under the repurchase arrangements relating to product-distribution and product-financing activities, when dealer terminations do occur, a newly selected dealer generally acquires the assets of the prior dealer and assumes any related financial obligation. Accordingly, the risk of loss to the company is minimal. Historically, Clark incurred only immaterial losses relating to these arrangements. 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 the 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 any of the assumed obligations, the company could 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 operations, liquidity or cash flows of the company in any one year. In 1995, the company continued to sell an undivided interest in designated pools of accounts and notes receivable up to a maximum of $150.0 million. Similar agreements have been in effect since 1987. During 1995, 1994 and 1993, such sales amounted to $533.7 million, $487.8 million and $518.7 million, respectively. At December 31, 1995 and 1994, $150.0 million and $125.0 million, respectively, of such sold receivables remained uncollected. The undivided interest in the designated pool of receivables was sold with limited recourse. These agreements expire in one- and two-year periods based on the particular pool of receivables sold. The company intends to renew these agreements at their expiration dates with either the current financial institution, or another financial institution, using the basic terms and conditions of the existing agreements. For receivables sold, the company has retained collection and administrative responsibilities as agent for the purchaser. Receivables, excluding the designated pools of accounts and notes receivable, sold during 1995, 1994 and 1993 with recourse, amounted to $175.9 million, $64.6 million and $39.3 million, respectively. At December 31, 1995 and 1994, $35.3 million and $14.7 million, respectively, of such receivables sold remained uncollected. 157 EXHIBIT 13 Page 43 of 60 As of December 31, 1995, the company had no significant concentrations of credit risk in trade receivables due to the large number of customers which comprise its receivables base and their dispersion across different industries and countries. Certain office and warehouse facilities, transportation vehicles and data processing equipment are leased. Total rental expense was $64.7 million in 1995, $56.2 million in 1994 and $57.9 million in 1993. Minimum lease payments required under noncancellable operating leases with terms in excess of one year for the next five years and thereafter, are as follows: $38.7 million in 1996, $27.5 million in 1997, $16.7 million in 1998, $9.0 million in 1999, $6.7 million in 2000 and $17.2 million thereafter. NOTE 11 - COMMON STOCK: On December 7, 1988, the board of directors adopted a Rights Plan (Plan) and declared a dividend distribution of one right for each then outstanding share of the company's common stock. As a result of the two-for-one stock split in 1992, each current outstanding share of the company's common stock has one-half a right associated with it. In December 1994, the Plan was amended by the board of directors. Under the Plan as amended, each right entitles the holder to purchase 1/100th of a share of Series A preference stock at an exercise price of $130. The company has reserved 563,000 shares of Series A preference stock for issuance upon exercise of the rights. The rights become exercisable in accordance with the provisions of the Plan on (i) the tenth day following the acquisition by a person or group of persons of 15 percent or more of the company's common stock, (ii) the tenth day after the commencement of a tender or exchange offer for 15 percent or more of the company's common stock, or (iii) the determination by the board of directors that a person is an Adverse Person as defined in the Plan (Distribution Date). Upon either a person's becoming an Acquiring Person as defined in the Plan, or the board's determination that a person is an Adverse Person, or the occurrence of certain other events following the Distribution Date, each holder of a right shall thereafter have a right to receive the common stock of the company (or in certain circumstances, the stock of an acquiring entity) for a price of approximately half its value. The rights are not exercisable by any Acquiring Person or Adverse Person. The Plan as amended provides that the board of directors, at its option any time after any person becomes an Acquiring Person or an Adverse Person, may exchange all or part of the outstanding and exercisable rights for shares of common stock, currently at an exchange ratio of one right for two shares. The right of the holders to exercise the rights to purchase shares automatically 158 EXHIBIT 13 Page 44 of 60 terminates if the board orders an exchange of rights for shares. The rights may be redeemed by the company for one cent per right in accordance with the provisions of the Plan. The rights will expire on December 22, 1998, unless redeemed earlier by the company. Shares held in treasury at December 31, 1995, will be used for employee benefit plans and for other corporate purposes. NOTE 12 - LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN: At the time of its acquisition by the company, Clark sponsored a Leveraged Employee Stock Ownership Plan (LESOP) for eligible employees. In connection with the acquisition, the company purchased the LESOP's shares for $176.6 million. The company determined it would continue the LESOP to fund certain employee benefit plans. Accordingly, on September 28, 1995, the company sold 2,878,008 shares of its Common Stock held in treasury to the LESOP, for a price of $36.25 per share (the closing price of the Common Stock on September 27, 1995, on the New York Stock Exchange) or an aggregate of $104.3 million. At December 31, 1995, approximately 1.9 million of these shares remain unallocated and the $70.2 million paid by the LESOP for those unallocated shares is classified as a reduction of shareowners' equity pending allocation to participants. At December 31, 1995, the LESOP owed the company $36.8 million repayable in monthly installments through 2001. Company contributions to the LESOP and dividends on unallocated shares are used to make loan principal and interest payments. With each principal and interest payment, the LESOP allocates a portion of the Common Stock to participating employees. NOTE 13 - INCENTIVE STOCK PLANS: Under the company's Incentive Stock Plans, key employees have been granted options to purchase common shares at prices not less than the fair market value at the date of grant. The plans, approved in 1985, 1990 and 1995, also authorize stock appreciation rights (SARs) and stock awards. If SARs issued in conjunction with stock options are exercised, the related stock options are cancelled; conversely, the exercise of stock options cancels the SARs. Changes during the year in options outstanding under the plans were as follows: Shares subject Option price to option range per share January 1, 1995 3,384,300 $10.04-37.19 Granted 988,900 34.75-40.06 Exercised 749,800 10.04-34.94 Cancelled 21,000 34.94 December 31, 1995 3,602,400 $11.95-40.06 159 EXHIBIT 13 Page 45 of 60 Of the shares subject to option, 1,988,250 were granted with SARs. There are also 192,500 SARs outstanding with no stock options. At December 31, 1995, options for 2,628,500 shares were exercisable and 5,513,210 shares were available for future awards. In addition, at December 31, 1995, 268,690 shares of common stock were reserved for future issue, contingent upon attainment of certain performance goals and future service. The company also maintains a shareowner-approved Management Incentive Unit Award Plan. Under the plan, qualifying executives are awarded incentive units. When dividends are paid on common stock, dividends are awarded to unit holders, one-half of which is paid in cash, the remaining half of which is credited to the participant's account in the form of so-called common stock equivalents. The fair value of accumulated common stock equivalents is paid in cash upon the participant's retirement. The number of common stock equivalents credited to participant's accounts at December 31, 1995 and 1994, are 288,837 and 284,409, respectively. NOTE 14 - INCOME TAXES: Earnings before income taxes and the effect of accounting changes for the years ended December 31, were taxed within the following jurisdictions: In millions 1995 1994 1993 United States $308.0 $279.4 $229.5 Foreign 121.1 50.5 24.0 Total $429.1 $329.9 $253.5 The provision for income taxes before the effect of the accounting change was as follows: In millions 1995 1994 1993 Current tax expense: United States $101.3 $ 69.8 $ 74.9 Foreign 42.7 34.8 30.6 Total current 139.7 104.6 105.5 Deferred tax expense: United States 10.6 30.3 5.3 Foreign 4.2 (16.1) (20.8) Total deferred 14.8 14.2 (15.5) Total provision for income taxes $158.8 $118.8 $ 90.0 160 EXHIBIT 13 Page 46 of 60 The provision for income taxes differs from the amount of income taxes determined by applying the applicable U.S. statutory income tax rate to pretax income before the effect of the accounting change, as a result of the following differences: Percent of pretax income 1995 1994 1993 Statutory U.S. rates 35.0% 35.0% 35.0% Increase (decrease) in rates resulting from: Foreign operations 1.0 0.3 0.6 Effect of changes in statutory rate on deferred taxes -- -- (2.2) Earnings/losses of equity companies (1.8) (0.9) (2.2) State and local income taxes, net of U.S. tax 1.3 1.6 1.3 Other 1.5 -- 3.0 Effective tax rates 37.0% 36.0% 35.5% 161 EXHIBIT 13 Page 47 of 60 A summary of the deferred tax accounts at December 31, follows: In millions 1995 1994 1993 Current deferred assets and (liabilities): Differences between book and tax bases of inventories and receivables $ 30.8 $ 36.5 $ 32.6 Differences between book and tax expense for other employee related benefits and allowances 35.3 33.9 42.1 Provisions for restructure of operations and plant closings not yet deductible for tax purposes 9.4 6.4 5.3 Other reserves and valuation allowances in excess of tax deductions 53.1 32.5 28.0 Other differences between tax and financial statement values (10.1) 9.9 8.9 Gross current deferred net tax assets 118.5 119.2 116.9 Noncurrent deferred tax assets and (liabilities): Tax items associated with equity companies 11.1 13.0 31.0 Postretirement and postemployment benefits other than pensions in excess of tax deductions 252.5 159.9 159.9 Other reserves in excess of tax expense 65.0 36.3 28.1 Tax depreciation in excess of book depreciation (85.5) (46.0) (54.8) Pension contributions in excess of book expense (51.2) (47.5) (36.6) Taxes provided for unrepatriated foreign earnings (28.5) (20.1) (26.3) Gross noncurrent deferred net tax assets 163.4 95.6 101.3 Less: deferred tax valuation allowances (28.6) (21.2) (10.4) Total net deferred tax assets $253.3 $193.6 $207.8
162 EXHIBIT 13 Page 48 of 60 A total of $28.5 million of deferred taxes have been provided for a portion of the undistributed earnings of subsidiaries operating outside of the United States. As to the remainder, these earnings have been, and under current plans will continue to be reinvested and it is not practicable to estimate the amount of additional taxes which may be payable upon repatriation. NOTE 15 - BUSINESS SEGMENT INFORMATION: A description of business segments and operations by business segment and geographic area for the three years ended December 31, 1995, were as follows: DESCRIPTION OF BUSINESS SEGMENTS Ingersoll-Rand's operations are organized into three worldwide business segments: Standard Machinery; Engineered Equipment; and Bearings, Locks and Tools. Standard Machinery The segment's products are categorized into five groups: Air Compressor - products include portable, reciprocating, rotary and centrifugal air compressors, vacuum pumps, air drying and filtering systems and other compressor accessories. The products are used primarily to supply pressurized air to industrial plants, refineries, chemical plants, electrical utilities and service stations. Construction and Mining - manufactures vibratory compactors, asphalt pavers, rock drills, blasthole drills, water-well drills, crawler drills, jumbo drills, jackhammers and rock and roof stabilizers primarily for the construction, highway maintenance, metals-mining and well-drilling industries. Melroe - manufactures skid-steer loaders, compact hydraulic excavators and self-propelled agricultural sprayers. The products are used primarily by the construction and agricultural industries. Club Car - manufactures golf cars and utility vehicles which are used primarily in the golf and resort industries. Mining Machinery(1) - products included continuous and long-wall mining machines, crushers, coal haulers and mine-service vehicles, which principally serve the underground coal-mining industry. 163 EXHIBIT 13 Page 49 of 60 Engineered Equipment The segment's products are categorized into three groups: Pump - manufactures centrifugal and reciprocating pumps. These products serve oil production and refining, chemical process, marine, agricultural, electric utility and general manufacturing industries. Process Systems - consists of pulp and paper processing equipment, pelleting equipment, filters, aerators and dewatering systems. This equipment is used in the pulp and paper, food and agricultural, and minerals-processing industries. Clark-Hurth - manufactures a broad line of axles and transmissions for the off-highway vehicle industry. Bearings, Locks and Tools The segment's products are categorized into three groups: Bearings and Components - principal products include needle bearings, needle roller bearings, needle rollers, thrust bearings, tapered roller bearings, drawn cup bearings, high-precision ball bearings, spherical bearings, radial bearings, universal joints, dowel pins, swagers and precision components. These products are sold principally to durables- industry customers primarily in the automotive and aerospace markets. Production Equipment - manufactures air-powered tools, hoists and winches, air motors and air starters, automated assembly and test systems, air and electric automated fastener tightening systems and waterjet cutting systems. These products are sold to general manufacturing industries and to the appliance, aircraft, construction and automotive industries. Architectural Hardware(2) - major products include locks, door closers and exit devices used in commercial and residential construction and the retail hardware market. (1) The Mining Machinery Group was sold during 1993 . (2) Prior to January 1, 1996, the Door Hardware Group. 164 EXHIBIT 13 Page 50 of 60 Operations by Business Segments Dollar amounts in millions For the years ended % of % of % of December 31 1995 total 1994 total 1993 total Standard Machinery Sales $2,270.6 40% $1,445.7 32% $1,250.9 31% Operating income excluding restructure of operations 222.6 41% 122.4 30% 89.6 27% Restructure of operations (charge) benefit -- -- (5.0) Operating income from operations 222.6 41% 122.4 30% 84.6 26% Operating income as % of sales 9.8% 8.5% 6.8% Identifiable assets 2,528.0 1,099.6 927.1 Depreciation and amortization 62.7 31.5 27.0 Capital expenditures 56.7 30.9 25.0 Engineered Equipment Sales 1,216.2 21% 926.4 21% 929.6 23% Operating income excluding restructure of operations 49.5 9% 35.3 8% 30.5 9% Restructure of operations (charge) benefit -- -- -- Operating income from operations 49.5 9% 35.3 8% 30.5 9% Operating income as % of sales 4.1% 3.8% 3.3% Identifiable assets 1,061.8 634.5 622.3 Depreciation and amortization 40.0 28.8 29.3 Capital expenditures 42.3 30.3 29.0 Bearings, Locks and Tools Sales 2,242.2 39% 2,135.4 47% 1,840.6 46% Operating income excluding restructure of operations 269.1 50% 256.6 62% 210.7 64% Restructure of operations (charge) benefit -- -- -- Operating income from operations 269.1 50% 256.6 62% 210.7 65% Operating income as % of sales 12.0% 12.0% 11.4% Identifiable assets 1,208.1 1,185.1 1,102.7 Depreciation and amortization 75.0 70.9 65.5 Capital expenditures 107.9 97.0 77.8 165 EXHIBIT 13 Page 51 of 60 Operations by Business Segments (continued) Dollar amounts in millions For the years ended % of % of % of December 31 1995 total 1994 total 1993 total Total Sales 5,729.0 100% 4,507.5 100% 4,021.1 100% Operating income excluding restructure of operations 541.2 100% 414.3 100% 330.8 100% Restructure of operations (charge) benefit -- -- (5.0) Operating income from operations 541.2 100% 414.3 100% 325.8 100% Operating income as % of sales 9.4% 9.2% 8.1% Identifiable assets 4,797.9 2,919.2 2,652.1 Depreciation and amortization 177.7 131.2 121.8 Capital expenditures 206.9 158.2 131.8 General corporate expenses charged to operating income (44.2) (37.3) (34.3) Operating income 497.0 377.0 291.5 Unallocated Interest expense (86.6) (43.8) (52.0) Other income (expense), net 9.4 (14.7) (7.5) Dresser-Rand income 22.0 24.6 33.1 Ingersoll-Dresser Pump minority interest (12.7) (13.2) (11.6) Earnings before income taxes and effect of accounting changes 429.1 329.9 253.5 Corporate assets (b) 765.4 677.7 723.2 Total assets $5,563.3 $3,596.9 $3,375.3 (b) Corporate assets consist primarily of cash and cash equivalents, marketable securities, investments and advances, and other assets not directly associated with the operations of a business segment.
166 EXHIBIT 13 Page 52 of 60 Operations by Geographic Area In millions United Other Adjustments/ For the year 1995 States Europe International Eliminations Consolidated Sales to customers $3,472.8 $1,754.0 $502.2 $ -- $5,729.0 Transfers between geographic areas 568.5 60.9 42.5 (671.9) -- Total sales and transfers $4,041.3 1,814.9 544.7 (671.9) $5,729.0 Operating income from operations $ 391.5 97.5 51.7 .5 $ 541.2 General corporate expenses charged to operating income (44.2) Operating income $ 497.0 Identifiable assets at December 31, 1995 $3,183.9 1,305.3 319.8 (11.1) $4,797.9 Corporate assets 765.4 Total assets at December 31, 1995 $5,563.3 For the year 1994 Sales to customers $2,809.9 1,253.9 443.7 -- $4,507.5 Transfers between geographic areas 429.7 54.7 34.1 (518.5) -- Total sales and transfers $3,239.6 1,308.6 477.8 (518.5) $4,507.5 Operating income from operations $ 335.8 43.2 34.5 .8 $ 414.3 General corporate expenses charged to operating income (37.3) Operating income $ 377.0 Identifiable assets at December 31, 1994 $1,684.3 949.0 297.5 (11.6) $2,919.2 Corporate assets 677.7 Total assets at December 31, 1994 $3,596.9 167 EXHIBIT 13 Page 53 of 60 Operations by Geographic Area (Continued) United Other Adjustments/ For the year 1993 States Europe International Eliminations Consolidated Sales to customers $2,526.9 1,071.5 422.7 -- $4,021.1 Transfers between geographic areas 357.3 53.0 33.0 (443.3) -- Total sales and transfers $2,884.2 1,124.5 455.7 (443.3) $4,021.1 Operating income excluding restructure of operations $ 260.0 35.5 34.7 .6 $ 330.8 Restructure of operations- charge (5.0) -- -- -- (5.0) Operating income from operations $ 255.0 35.5 34.7 .6 $ 325.8 General corporate expenses charged to operating income (34.3) Operating income $ 291.5 Identifiable assets at December 31, 1993 $1,597.3 780.5 286.7 (12.4) $2,652.1 Corporate assets 723.2 Total assets at December 31, 1993 $3,375.3 International sales of U.S. manufactured products in millions were $1,028.9 in 1995, $743.3 in 1994, and $580.7 in 1993.
168 EXHIBIT 13 Page 54 of 60 NOTE 16 - PENSION PLANS: The company has noncontributory pension plans covering substantially all domestic employees. In addition, certain employees in other countries are covered by pension plans. The company's domestic salaried plans principally provide benefits based on a career average earnings formula. The company's hourly pension plans provide benefits under flat benefit formulas. Foreign plans provide benefits based on earnings and years of service. Most of the foreign plans require employee contributions based on the employee's earnings. In addition, the company maintains other supplemental benefit plans for officers and other key employees. The company's policy is to fund an amount which could be in excess of the pension cost expensed, subject to the limitations imposed by current statutes or tax regulations. Clark's costs for the seven months ended December 31, 1995, and the status of its benefit plans at December 31, 1995, have been consolidated. The components of the company's pension cost for the years ended December 31, include the following: In millions 1995 1994 1993 Benefits earned during the year $ 32.7 $ 31.7 $ 27.7 Interest cost on projected benefit obligation 99.7 79.1 72.1 Actual return on plan assets (261.2) 6.3 (124.4) Net amortization and deferral 157.7 (99.6) 32.7 Net pension cost $ 28.9 $ 17.5 $ 8.1 169 EXHIBIT 13 Page 55 of 60 The status of employee pension benefit plans at December 31, 1995 and 1994, was as follows: 1995 1994 Overfunded Underfunded Overfunded Underfunded In millions plans plans plans plans Actuarial present value of projected benefit obligation, based on employment service to date and current salary levels: Vested employees $(1,101.2) $(310.3) $ (942.5) $(48.4) Nonvested employees (23.5) (13.8) (5.3) (6.0) Accumulated benefit obligation (1,124.7) (324.1) (947.8) (54.4) Additional amount related to projected salary increases (49.9) (26.4) (48.8) (20.6) Total projected benefit obligation (1,174.6) (350.5) (996.6) (75.0) Funded assets at fair value 1,331.7 207.5 1,053.9 12.4 Assets in excess of (less than) projected benefit obligation 157.1 (143.0) 57.3 (62.6) Unamortized (net asset) liability existing at date of adoption (2.5) 19.0 (3.5) 4.5 Unrecognized prior service cost 18.6 11.5 16.6 9.5 Unrecognized net (gain) loss (23.2) (3.4) 41.2 (.5) Adjustment required to recognize minimum liability -- (16.4) -- (1.0) Prepaid (accrued) pension cost $ 150.0 $(132.3) $ 111.6 $(50.1) Plan investment assets of domestic plans are balanced between equity securities and cash equivalents or debt securities. Assets of foreign plans are invested principally in equity securities. The present value of benefit obligations for domestic plans at December 31, 1995 and 1994, was determined using an assumed discount rate of 7.25% and 8.0%, an assumed rate of increase in future compensation levels of 4.75% and 5.5%, and an expected long-term rate of return on assets of 9.0% and 8.5%, respectively. The weighted averages of the actuarially assumed discount rate, long-term rate of return on assets and the rate for compensation increases for foreign plans were 8.5%, 9.0% and 6.5% in 1995, and 9.0%, 9.0% and 6.5% in 1994, respectively.
170 EXHIBIT 13 Page 56 of 60 Most of the company's domestic employees are covered by savings and other defined contribution plans. Employer contributions and costs are determined based on criteria specific to the individual plans and amounted to approximately $24.9 million, $21.7 million and $20.5 million in 1995, 1994 and 1993, respectively. The company's costs relating to foreign defined contribution plans, insured plans and other foreign benefit plans were $4.8 million, $4.3 million and $0.3 million in 1995, 1994 and 1993, respectively. In 1995, 1994 and 1993, the number of employees covered by multiemployer pension plans, was 210, 217 and 214, respectively. The amounts charged to pension cost and contributed to multiemployer plans was $0.5 million in 1995, 1994 and 1993, respectively. The existing pension rules require the recognition of a liability in the amount that the company's unfunded accumulated benefit obligation exceeds the accrued pension cost, with an equal amount recognized as an intangible asset. As a result, the company recorded in 1995 a noncurrent liability of $16.2 million and a current liability of $0.2 million, and a noncurrent liability of $1.0 million in 1994. Offsetting intangible assets were recorded in the Consolidated Balance Sheets. NOTE 17 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: In addition to providing pension benefits, the company sponsors several postretirement plans that cover most domestic employees. These plans provide for health care benefits and in some instances, life insurance benefits. Postretirement health plans are contributory and are adjusted annually. Life insurance plans are noncontributory. When full-time employees retire from the company between age 55 and age 65, most are eligible to receive, at a cost to the retiree, certain health care benefits identical to those available to active employees. After attaining age 65, an eligible retiree's health care benefit coverage becomes coordinated with Medicare. Clark's costs for the seven months ended December 31, 1995, and the status of its postretirement plans at December 31, 1995, have been consolidated. The company funds the benefit costs principally on a pay-as-you-go basis. 171 EXHIBIT 13 Page 57 of 60 Summary information on the company's plans at December 31, was as follows: In millions 1995 1994 Financial status of plans: Accumulated postretirement benefits obligation (APBO): Retirees $(462.9) $(251.3) Active employees (150.0) (120.2) (612.9) (371.5) Plan assets at fair value -- -- Unfunded accumulated benefits obligation in excess of plan assets (612.9) (371.5) Unrecognized net gain (9.9) (9.7) Unrecognized prior service benefits (84.8) (90.0) Accrued postretirement benefits cost $(707.6) $(471.2) The components of net periodic postretirement benefits cost for the years ended December 31, were as follows: In millions 1995 1994 1993 Service cost, benefits attributed to employee service during the year $ 5.2 $ 8.5 $ 5.7 Interest cost on accumulated postretirement benefit obligation 37.6 26.9 28.3 Net amortization and deferral (5.6) (5.2) (5.1) Net periodic postretirement benefits cost $37.2 $30.2 $28.9 The 1994 service cost of net periodic postretirement benefits cost includes a settlement charge of $3.2 million relating to retired employees from a closed facility. The discount rates used in determining the APBO were 7.25% and 8.0% at December 31, 1995 and 1994, respectively. The assumed health care cost trend rates used in measuring the accumulated postretirement benefits obligation were 10.35% in 1995 and 12.4% in 1994, respectively, declining each year to an ultimate rate by 2003 of 4.75% in 1995 and 5.5% in 1994. Increasing the health care cost trend rate by 1.0% as of December 31, 1995, would increase the APBO by 10%. The effect of this change on the sum of the service cost and interest cost components of net periodic postretirement benefits cost for 1995 would be an increase of 13%. In 1993, the company made several modifications to the cost-sharing provisions of the postretirement plans. 172 EXHIBIT 13 Page 58 of 60 NOTE 18 - SUBSEQUENT EVENTS: On January 29, 1996, the company signed a letter of intent to sell the assets of the Pulp Machinery Division to Harnischfeger Industries, Inc. The sales price is in excess of the book value of the assets and the sale is subject to the execution of a definitive purchase agreement and the approval by regulatory authorities. In addition, on January 31, 1996, the company acquired the Steelcraft Division of MascoTech, Inc. Steelcraft manufactures a wide range of cold-rolled and galvanized steel doors for use primarily in nonresidential construction. 173 EXHIBIT 13 Page 59 of 60 Report of Management The accompanying consolidated financial statements have been prepared by the company. They conform with generally accepted accounting principles and reflect judgments and estimates as to the expected effects of incomplete transactions and events being accounted for currently. The company believes that the accounting systems and related controls that it maintains are sufficient to provide reasonable assurance that assets are safeguarded, transactions are appropriately authorized and recorded, and the financial records are reliable for preparing such financial statements. The concept of reasonable assurance is based on the recognition that the cost of a system of internal accounting controls must be related to the benefits derived. The company maintains an internal audit function that is responsible for evaluating the adequacy and application of financial and operating controls and for testing compliance with company policies and procedures. The Audit Committee of the board of directors is comprised entirely of individuals who are not employees of the company. This committee meets periodically with the independent accountants, the internal auditors and management to consider audit results and to discuss significant internal accounting controls, auditing and financial reporting matters. The Audit Committee recommends the selection of the independent accountants, who are then appointed by the board of directors, subject to ratification by the shareowners. The independent accountants are engaged to perform an audit of the consolidated financial statements in accordance with generally accepted auditing standards. Their report follows. /S/ Thomas F. McBride Thomas F. McBride Senior Vice President and Chief Financial Officer 174 EXHIBIT 13 Page 60 of 60 Report of Independent Accountants February 6, 1996 To the Board of Directors and Shareowners of Ingersoll-Rand Company: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of shareowners' equity and of cash flows present fairly, in all material respects, the financial position of Ingersoll-Rand Company and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for postemployment benefits in 1993. /S/ Price Waterhouse LLP PRICE WATERHOUSE LLP 175 EX-21 13 EXHIBIT 21 Page 1 of 3 LIST OF SUBSIDIARIES OF INGERSOLL-RAND COMPANY The following list represents the principal subsidiaries of the company all of which (except as otherwise indicated) are deemed to be 100% owned, directly or indirectly, and whose financial statements are included in the consolidated statements. The subsidiaries of Ingersoll-Dresser Pump Company (IDP), a general partnership owned 51% by the company, are deemed to be 100% owned by IDP directly or indirectly. The names of particular subsidiaries omitted, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. SUBSIDIARIES OF INGERSOLL-RAND COMPANY California Pellet Mill Company California CPM/Europe BV Netherlands CPM/Europe Limited (Ireland) Ireland CPM/Europe S.A. France CPM/Pacific (Private) Limited Singapore California Pellet Mill Europe Limited England Clark Equipment Company Delaware Automotive Products Company Delaware Blaw-Knox Construction Equipment Corporation Delaware Clark Equity Company Delaware Clark Industries Company Delaware Blaw-Knox Company England Clark Business Services Corporation Michigan Celfor Insurance Co., Ltd. Bermuda Clark Distribution Services Inc. Michigan CDS Midwest, Inc. Michigan Clark Equipment Belgium N.V. Belgium Clark Equipment of Canada Ltd. Canada Clark Foreign Sales Corporation Barbados Ingersoll-Rand Italiana S.p.A. Italy Clark-Hurth Components S.A.R.L. France Clark-Hurth Components Marketing Company Delaware Clark-Hurth Components Vertriebs GmbH Germany Melroe Equipment Limited Canada Melroe Parts Trading GmbH Germany Club Car, Inc. Delaware Club Car International, Inc. Guam Club Car Limited New Zealand Ingersoll-Rand China Limited Delaware Ingersoll-Rand International, Inc. Delaware Ingersoll-Rand International Sales Inc. Delaware Ingersoll-Rand International Holding Corporation New Jersey Ingersoll-Rand S.A. Switzerland Woodcliff Insurance, Ltd. Bermuda 176 EXHIBIT 21 Page 2 of 3 Ingersoll-Rand Worldwide, Inc. Delaware Northern Research & Engineering Company Massachusetts Schlage Lock Company California Von Duprin, Inc. Indiana Schlage de Mexico S.A. de C.V. Mexico Silver Engineering Works, Inc. Colorado The Torrington Company Delaware Kilian Manufacturing Corporation Delaware Torrington Holdings, Inc. Delaware Industrias del Rodamiento S.A. Spain Ingersoll-Rand Iberica, S.L. Spain Compagnie Ingersoll-Rand France Ingersoll-Rand Equipements de Production S.A. France Ingersoll-Rand Equipements de Construction France Establissements Montabert S.A. France S.A. Charles Maire France Torrington France, S.A.R.L. France Ingersoll-Rand (Australia) Ltd. Australia Ingersoll-Rand S.E. Asia (Private), Limited Singapore Ingersoll-Rand Benelux Belgium N.V. Aro S.A. Belgium Ingersoll-Rand Canada, Inc. Canada Torrington, Inc. Canada Torrington Industria e Comercio Ltda. Brazil Ingersoll-Rand World Trade Ltd. Bermuda Ingersoll-Rand (Barbados) Corporation Barbados Torrington Beteiligungs GmbH Germany Torrington GmbH Germany Torrington Nadellager GmbH Germany Ingersoll-Rand GesmbH (Austria) Austria Ingersoll-Rand Sales Company Limited Delaware Ingersoll-Rand Holdings Limited England Ingersoll-Rand Company Limited England Ingersoll-Rand Company South Africa (Proprietary) Ltd. South Africa The Torrington Company Limited England The Aro Corporation (U.K.) Limited England Ingersoll-Rand Beteiligungs GmbH Germany ABG Allgemeine Baumaschinen-Gesellschaft mbH Germany ABG Verwaltungs GmbH Germany ABG Werke GmbH Germany Ingersoll-Rand GmbH Germany Ingersoll-Rand Beteiligungs und Grundstucks Verwaltungs GmbH Germany 177 EXHIBIT 21 Page 3 of 3 Ingersoll-Rand (India) Ltd. (74% owned by the company) India Ingersoll-Rand Japan Ltd. Japan Ingersoll-Rand Philippines, Inc. Philippines Ingersoll-Rand AB Sweden Ingersoll-Rand Services & Engineering Company Switzerland Ingersoll-Rand Acceptance Company, S.A. Switzerland Ingersoll-Rand Investment Company, S.A. Switzerland G. Klemm Bohrtechnik GmbH Germany Ingersoll-Rand S.A. de C.V. Mexico SUBSIDIARIES OF INGERSOLL-DRESSER PUMP COMPANY Worthington Argentina S.A.I.C. Argentina Ingersoll-Dresser Pumps (Australia) Pty. Limited Australia Worthington GmbH Austria Worthington Industria e Comercio Ltda. Brazil Ingersoll-Dresser Pump Canada Inc. Canada Ingersoll-Dresser Pumps de Colombia S.A. Colombia Worthington Centroamericana Ltda. Costa Rica Ingersoll-Dresser Pompes France IDP Pleuger France IDP International France Deutsche Ingersoll-Dresser Pumpen GmbH Germany Ingersoll-Dresser Pumpen GmbH Germany Pleuger Worthington GmbH Germany Ingersoll-Dresser Pumps S.p.A. Italy Worthington S.p.A. Italy Ingersoll-Dresser Pump (Asia) Pte. Ltd. Singapore Ingersoll-Dresser Pump S.A. Switzerland Ingersoll-Dresser Pump Services Sarl Switzerland ID Pump AG Switzerland Ingersoll-Dresser Pump Nederland B.V. Netherlands Ingersoll-Dresser Pumps (UK) Limited England Ingersoll-Dresser Pumps Newark Limited England Bombas Ingersoll-Dresser de Venezuela, C.A. (51% owned by IDP) Venezuela IDP Alternate Energy Company Delaware Mascoma Hydro Corporation New Hampshire Pump Investments, Inc. Delaware Energy Hydro Inc. Delaware Compania Ingersoll-Dresser Pump, S.A. Spain 178 EX-27 14
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 YEAR DEC-31-1995 DEC-31-1995 137 9 1,148 38 913 2,346 2,205 927 5,563 1,329 1,304 219 0 0 1,576 5,563 5,729 5,729 4,310 4,310 0 0 87 429 159 270 0 0 0 270 2.55 2.54
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