12
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, 1999
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
Stock Purchase Rights New York, London and Amsterdam
Common Stock, $2 par value New York, London and Amsterdam
Income PRIDES New York
Growth PRIDES New York
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 [ ]
The aggregate market value of common stock held by nonaffiliates
on February 29, 2000 was $6,205,708,872 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 February
29, 2000 was 162,210,632.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for fiscal year ended December
31, 1999. 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 1999 Annual Report to Shareholders is not
to be deemed filed as part of this report.
Proxy Statement for Annual Meeting of Shareholders to be held
on May 3, 2000. 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.
On August 12, 1999, the company announced its intention to
dispose of its interest in Dresser-Rand Company (D-R), a joint
venture involved in the reciprocating compressor and turbo
machinery business, and Ingersoll-Dresser Pump Company (IDP), a
joint venture involved in the pump equipment business. On
October 5, 1999, the joint venture partner, as permitted under
the joint venture agreements, elected to sell its share of the
joint ventures to the company. Effective December 31, 1999, the
company completed the purchase of the joint venture partner's 49%
share of IDP for a net purchase price of approximately $377
million payable by the issuance of a promissory note, which was
redeemed On January 14, 2000. The acquisition of the joint
venture partner's 51% share of D-R was completed on February 2,
2000 and is estimated at a net purchase price of approximately
$536 million. The net assets have been reported as assets held
for sale in the company's financial statements. Historically,
IDP had been reported as part of the Engineered Products Segment,
while D-R had been reported as equity in earnings of partially-
owned affiliates.
On February 10, 2000, the company agreed to sell its IDP unit to
the Flowserve Corporation for $775 million in cash. The
transaction is subject to regulatory approval and is expected to
close during the second quarter of 2000. The company intends to
divest D-R in the near future.
On March 30, 1999, the company completed the acquisition of
Harrow Industries, Inc. (Harrow), a leading manufacturer of
access control technologies, architectural hardware, and
decorative bath fittings and accessories. The purchase price was
approximately $160 million, which included the assumption of
certain debt. The acquisition has been accounted for as a
purchase and, accordingly, the purchase price was allocated to
the acquired assets and assumed liabilities based on their
estimated fair values.
During the third quarter, the company received proceeds of $47.0
million, which approximated book value on the sale of a portion of
the Harrow assets. In December 1999, the company also sold certain
net assets of the Automation Division. The transaction resulted
in a net gain of approximately $4.4 million. The company also
made several minor dispositions during 1999.
Products
The company manufactures and sells primarily nonelectrical
machinery and equipment. Principal products include the
following:
Air balancers Hoists
Air compressors & Hydraulic breakers
accessories Lubrication equipment
Air dryers Micro turbines
Air logic controls Material handling equipment
Air motors Mining equipment
Air and electric tools Needle roller bearings
Architectural columns Paving equipment
Asphalt compactors Piston pumps
Asphalt pavers Pneumatic breakers
Automated dispensing systems Pneumatic cylinders
Automatic doors Pneumatic valves
Automotive components Portable compressors
Ball bearings Portable generators
Bath fittings and accessories Portable light towers
Blasthole drills Road-building machinery
Blowers Rock drills
Compact hydraulic excavators Rock stabilizers
Construction equipment Roller bearings
Diaphragm pumps Rotary drills
Door closers and controls Rough-terrain material handlers
Door locks, latches & Skid-steer loaders
locksets Soil compactors
Door and door frames (steel) Spray-coating systems
Drilling equipment and accessories Submersible pumps
Electrical security products Telescopic material handlers
Engine-starting systems Transport temperature control
Exit devices systems
Extrusion pump systems Utility vehicles
Fastener-tightening Waterjet-cutting
systems systems
Fluid-handling equipment Water-well drills
Golf cars Winches
These products are sold primarily under the company's name and
also under other names including ABG, Blaw-Knox, Bobcat, Charles
Maire, Club Car, Dixie-Pacific, Dor-O-Matic, Ecoair, Fafnir,
Falcon, Glynn-Johnson, Johnstone, LCN, Legge, Monarch, Montabert,
Normbau, Schlage, Steelcraft, Thermo King, Torrington, Von Duprin
and Zimmerman.
During the past three years, the division of the company's sales
between capital goods and expendables has been in the approximate
ratio of 63 percent and 37 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.
Additional information on the company's business and financial
information about industry segments is presented in Note 18 to
the Consolidated Financial Statements included in the company's
Annual Report to Shareholders for 1999, 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 75 subsidiary sales and service companies with a
supporting chain of distributors in over 100 countries.
Working Capital
The products manufactured by the company must usually be 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.
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, transport temperature
control products, air tools, 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 accounted for
approximately 34 percent of the consolidated net sales in 1999.
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, 1999,
believed by it to be firm, was $210 million for the Specialty
Vehicles Segment, $310 million for the Air & Temperature Control
Segment, $132 million for the Hardware & Tools Segment and $296
million for the Engineered Products Segment as compared to $248
million, $304 million, $189 million and $345 million,
respectively, at December 31, 1998. 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.
Research and Development
The company maintains extensive research and development
facilities for experimenting, testing and developing high quality
products. The company employs approximately 1,763 professional
employees for its research and development activities. The
company spent $186.2 million in 1999, $169.6 million in 1998 and
$138.2 million in 1997 on research 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 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.
During 1999, the company spent approximately $8 million on
capital projects for pollution abatement and control and an
additional $6 million for environmental remediation expenditures
at sites presently or formerly owned or leased by the company.
It should be noted that these amounts are difficult to estimate
because environmental improvement costs are generally a part of
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, and
has received notices of potential violations of environmental
laws and regulations from the Environmental Protection Agency and
similar state authorities. It is identified as a potentially
responsible party (PRP) for cleanup costs associated with off-
site waste disposal at approximately 30 federal Superfund and
state remediations sites, excluding sites as to which the
company's records disclose no involvement or as to which the
company's liability has been fully determined. For all sites
there are other PRPs and in most instances, the company's site
involvement is minimal. In estimating its liability, the company
has assumed it will not bear the entire cost of remediation of
any site to the exclusion of other PRPs who may be jointly and
severally liable. The ability of other PRPs to participate has
been taken into account, based generally on the parties'
financial condition and probable contribution on a per site
basis. Additional lawsuits and claims involving environmental
matters are likely to arise from time to time in the future.
Although uncertainties regarding environmental technology, state
and federal laws and regulations and individual site information
make estimating the liability difficult, management believes that
the total liability for the cost of remediation and environmental
lawsuits and claims will not have a material 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 46,000 employees of the company
throughout the world, of whom approximately 29,000 work in the
United States and 17,000 in foreign countries. The company
believes relations with its employees are good.
Item 2. PROPERTIES
The company's executive offices are located at Woodcliff Lake,
New Jersey. Manufacturing and assembly operations are conducted
in 53 plants in the United States; 4 plants in Canada; 29 plants
in Europe; 13 plants in Asia, and 4 plants in Latin America. The
company also maintains various warehouses, offices and repair
centers throughout the world.
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 reportable segments for which the facilities are primarily
used are described below. Facilities under long-term lease are
included below and are not significant to each operating
segment's total number of plants or square footage.
Specialty Vehicles
The Specialty Vehicle Segment designs, manufactures and markets
powered vehicles that play a niche role in such fields as
infrastructure development, commercial construction and material
movement. This segment's products include machinery regularly
used in general manufacturing and in industries such as mining
and construction. This segment's branded products include Bobcat
skid-steer loaders and compact hydraulic excavators, Club Car
golf cars and industrial vehicles, Blaw-Knox and ABG pavers, and
Ingersoll-Rand compactors, drilling equipment and rough-terrain
material handlers. The segment's manufacturing locations are as
follows:
Approximate
Number of Plants Square Footage
Domestic 7 2,906,000
International 4 604,000
Total 11 3,510,000
Air & Temperature Control
The Air and Temperature Control Segment focuses on markets
requiring air and refrigerant-gas compression technology and
services. This segment's branded products include Thermo King
transport temperature-control equipment, and Ingersoll-Rand air
compressors. The segment's manufacturing facilities are as
follows:
Approximate
Number of Plants Square Footage
Domestic 10 2,398,000
International 17 2,179,000
Total 27 4,577,000
Hardware and Tools
The Hardware and Tools Segment concentrates on manufacturing,
marketing, and managing the distribution channels required to
reach end user customers seeking products that enhance
productivity and security in the industrial, construction, and do-
it-yourself markets. This segment includes architectural
hardware products, such as Schlage locks, Von Duprin exit
devices, door-control hardware, steel doors, power operated doors
and architectural columns, and tools and related industrial-
production equipment. The segment's manufacturing facilities are
as follows:
Approximate
Number of Plants Square Footage
Domestic 21 3,611,000
International 20 2,118,000
Total 41 5,729,000
Engineered Products
The Engineered Products Segment is comprised of highly engineered
application products that are sold on a specific contract design
basis. Plants of IDP are no longer included as it has been
designated as discontinued operations. This segment's products
include Torrington and Fafnir bearings and components The
segment's manufacturing facilities are as follows:
Approximate
Number of Plants Square Footage
Domestic 15 3,544,000
International 9 1,719,000
Total 24 5,263,000
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 off-site waste disposal cleanup of approximately
30 sites under federal Superfund and similar state laws. In the
opinion of the company, pending legal matters, are not expected
to have a material adverse effect on the results of operations,
financial condition, liquidity or cash flows.
See also the discussion under Item 1 - Environmental Matters.
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, 1999.
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(64) 5/4/77 Chairman of the Board and
Director (President 1993-
April 1999, and Chief
Executive Officer
1993-October 1999)
Herbert L. Henkel(51) 4/5/99 Chief Executive Officer
(since October 1999),
President and Director
(since April 1999)
(Chief Operating Officer
April 1999 - October 1999;
Textron President, February
1999 - March 1999 and Chief
Operating Officer, 1998 -
March 1999; President of
Textron's Industrial
Products Segment 1994-
1998)
Brian D. Jellison(54) 2/7/96 Executive Vice President
(Vice President and
President of the
Architectural Hardware
Group, 1995 - 1998)
Steven T. Martin(59) 5/2/96 Executive Vice President
(Vice President, 1996-1998
and President of Production
Equipment Group, 1995-1998)
David W. Devonshire(54) 1/12/98 Executive Vice President
(since January 2000)
and Chief Financial
Officer, (Senior Vice
President and Chief
Financial Officer 1998 -
January 2000, Senior Vice
President and Chief
Financial Officer,
Owens Corning 1993 -
1997)
Patricia Nachtigal(53) 11/2/88 Vice President and General
Counsel
Nicholas J. Pishotti(59) 4/10/95 Vice President, Strategic
Technologies (General
Manager, Aircraft Engine
Sourcing Department,
General Electric Company,
1988-1995)
Steven R. Shawley(47) 6/1/98 Vice President and
Controller (Controller
June 1998-July 1999, Thermo
King Business Unit
Controller 1994-1998)
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.
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
1999
First quarter $52 7/16 $44 5/8 $.15
Second quarter 73 13/16 49 7/8 .15
Third quarter 67 11/16 53 .17
Fourth quarter 58 1/2 44 7/8 .17
High Low Dividend
1998
First quarter $49 1/4 $36 1/2 $.15
Second quarter 54 41 .15
Third quarter 47 5/8 34 7/8 .15
Fourth quarter 52 1/8 34 .15
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 February 29, 2000 was 11,510.
On February 11, 2000 the company completed the acquisition of
substantially all the assets of Neal Manufacturing Company in
exchange for 145,000 shares of the company's common stock.
These shares were previously held as treasury stock and had not
been registered.
Item 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31,
1999, is as follows (in millions except per share amounts):
December 31 1999 1998 1997 1996 1995
Net sales $7,666.7 $7,384.7 $6,239.1 $5,846.9 $4,936.1
Earnings from continuing
operations 544.9 455.5 358.6 324.7 243.8
Total assets 8,400.2 7,926.4 8,033.8 5,232.2 5,132.2
Long-term debt 2,113.3 2,166.0 2,528.0 1,163.8 1,304.4
Shareholders' equity 3,083.0 2,730.1 2,364.8 2,109.9 1,801.5
Basic earnings per share
Continuing operations $3.33 $2.78 $2.20 $2.01 $1.53
Discontinued operations 0.28 0.33 0.13 0.21 0.17
Diluted earnings per share
Continuing operations $3.29 $2.75 $2.18 $2.00 $1.52
Discontinued operations 0.28 0.33 0.13 0.21 0.17
Dividends per common
Share 0.64 0.60 0.57 0.52 0.49
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Background: In August 1999, the company notified Dresser
Industries (a wholly owned subsidiary of Halliburton Company) of
its desire to terminate their two joint ventures. The ventures
are Dresser-Rand Company (D-R), a producer of reciprocating
compressors and turbomachinery products, and Ingersoll-Dresser
Pump Company (IDP) a manufacturer of pumps used in industrial,
commercial and municipal applications. In accordance with the
terms of the joint venture agreements, the company gave notice
that it wanted to sell its 49% interest in D-R and its 51%
interest in IDP to Dresser Industries. Under the governing
agreements, Dresser Industries had the option to either buy one
or both of the joint ventures from or sell one or both of the
joint ventures to Ingersoll-Rand. However, the company also
announced that if Dresser Industries elected to sell its shares
in these joint ventures back to Ingersoll-Rand, the company would
divest of these units as soon as practical.
On October 5, 1999, the company was notified by Dresser
Industries that it had elected to sell its interests in the joint
ventures to the company. In accordance with the company's
decision to sell these units, as soon as practical, after they
were purchased from Dresser Industries, their results (and
related activity) have been reclassified as "Discontinued
operations (net of tax)" in the accompanying Consolidated
Statement of Income for the three years ended December 31, 1999.
In addition, the net assets of these units have been reclassified
as "Assets held for sale" on the accompanying Consolidated
Balance Sheet. Unless otherwise noted, amounts, percentages and
ratios discussed in this financial review and management analysis
do not include discontinued operations.
On February 9, 2000 the company agreed to sell IDP to Flowserve
Corporation for $775.0 million in cash.
1999 Compared to 1998
The company reported another year of record earnings in 1999.
These achievements were the result of a strong domestic economy,
moderate economic growth in selected international markets, and
continued success of the company's asset-management, strategic-
sourcing and productivity-improvement programs.
Sales for 1999 totalled $7.7 billion, which generated $1,099.3
million of operating income and $544.9 million of net earnings
from continuing operations ($3.29 diluted earnings per share).
Net earnings from discontinued operations totalled $46.2 million
($0.28 diluted earnings per share).
For 1998, sales were $7.4 billion, which generated $969.1
million of operating income and produced net earnings from
continuing operations for the year of $455.5 million ($2.75
diluted earnings per share). In 1998, net earnings from
discontinued operations totalled $53.6 million ($0.33 diluted
earnings per share).
A comparison of key financial data between 1999 and 1998 follows:
o Net sales in 1999 amounted to $7.7 billion, reflecting 3.8%
improvement over the 1998 total of $7.4 billion.
o Cost of goods sold in 1999 was 71.9% of sales, compared to
73.0% in 1998. The ratio of cost of goods sold to sales
reflected a marked improvement in 1999 compared to 1998 based
on the continued success of the company's asset-management,
strategic-sourcing and productivity-improvement programs.
o Administrative, selling and service engineering expenses were
13.7% of sales in 1999, compared to 13.9% for 1998. This
decrease is attributable to the company's cost-containment
programs.
o Operating income for the year totalled $1,099.3 million, a
13.4% increase over 1998 operating income of $969.1 million.
The ratio of operating income to sales in 1999 was 14.3%,
compared to 13.1% for the prior year. This improvement was
the combined effect of the company's aggressive productivity-
improvement and procurement programs, and the continued
stability of domestic markets.
o Interest expense for the year totalled $203.1 million versus
$224.1 million for 1998. The reduction in interest expense
totalled $21.0 million principally due to lower average
outstanding debt balances during 1999 when compared to the
prior year.
o Other income (expense), net, is the sum of foreign exchange
activities, equity in earnings of partially owned affiliates, and
other miscellaneous income and expense items. In 1999, these
activities resulted in a net expense of $22.3 million, an
unfavorable change of $7.0 million compared to the 1998 net other
expense of $15.3 million. This change was caused by lower earnings
from partially owned affiliate companies, lower miscellaneous
income and higher miscellaneous expenses, which were offset by a
favorable change in foreign currency activity in 1999 when compared
to the prior year.
o The company's charges for minority interests are composed of
two items: (1) charges associated with the company's equity-
linked securities (issued during the first quarter of 1998),
which totalled $25.6 million in 1999 and $19.7 million in 1998;
and (2) interests of minority owners (less than 50 %) in a
consolidated unit of the company, which totalled $3.5 million
in 1999 and $3.8 million in 1998.
o The company's effective tax rate for both 1999 and 1998 was
35.5%. The variance from the 35.0% statutory rate primarily was
due to lower tax rates associated with foreign earnings, the
foreign sales corporation, favorable tax benefits associated
with income earned in Puerto Rico, offset by the effect of state
and local taxes and the nondeductibility of a portion of
goodwill.
o Discontinued operations (net of tax) for 1999 amounted to $46.2
million, which was $7.4 million lower than the $53.6 million for
the year ended December 31, 1998. This category represents the
company's 49% interest in the earnings of D-R and the company's
51% interest in IDP, net of appropriate taxes. As previously
announced, the company intends to divest these businesses;
therefore, their net operating results have been classified as
"discontinued operations." The partnership earnings in 1999 were
both approximately 20% below their 1998 levels. Additional
information on discontinued operations is contained throughout
this report and in Note 2 to the Consolidated Financial
Statements.
At December 31, 1999, employment totalled 46,062. This
represents a slight decrease from last year's level of 46,525.
Outlook
The company's outlook for 2000 is for continued strong
improvement in operating results based on a scenario of
moderate worldwide growth. Most of the company's end markets
including car production, housing, commercial construction and
road paving, have a positive outlook. These expectations will
be supported by aggressive asset-management, strategic-sourcing
and productivity-improvement programs.
Review of Business Segments
Specialty Vehicles
Specialty Vehicles Segment sales were $2.3 billion, an increase
of 7.7% over the $2.2 billion reported for 1998. Operating
income for 1999 totalled $405.3 million, representing an increase
of 21.6% over last year's total of $333.3 million. All major
product lines reported improvements in sales, operating income
and operating margins for the year.
Air and Temperature Control
The Air and Temperature Control Segment reported sales of
$2.2 billion, which almost equalled last year's level.
However, operating income for 1999 totalled $286.7 million,
reflecting a 9.2% improvement over the $262.5 million
reported for 1998. Thermo King's sales in 1999 reflected a
modest increase over 1998's level, but operating income
increased by approximately 5%. The air compressor business
reported a modest decrease in sales for the year; however,
operating income increased by more than 15%.
Hardware and Tools
The Hardware and Tools Segment sales increased by 8.7% to $1.9
billion. Operating income for the year was $320.3 million, an
increase of $32.0 million from $288.3 million reported for 1998.
Architectural hardware products reported increases of 15.5% in
sales and 13.3% in operating income. Industrial production
equipment reported lower sales in 1999, but a 4% increase in
operating income.
Engineered Products
The Engineered Products Segment only includes the results of the
company's bearings and components products. The results for IDP,
which were formerly included in this segment, have been
reclassified to discontinued operations. Sales for bearings and
components in 1999 reflect a 1% decrease from the prior year, but
operating income increased by 5%, when compared to 1998, due to
continued cost improvement programs.
Liquidity and Capital Resources
During 1999, the company continued to make progress in improving
its liquidity and capital resources through its aggressive asset
management programs and the ability to generate $836.5 million of
cash flow from its operations. These actions contributed to the
company's reduction in its debt-to-total capital ratio from 44%
at the end of last year to 42% at December 31, 1999. In addition,
adjusting the December 31, 1999, short-term liability for the
purchase of the remaining interest in IDP lowers the debt-to-
total capital ratio 38%.
The following table contains several key measures used by
management to gauge the company's financial performance:
1999 1998 1997
Working capital (in millions) $1,129 $737 $342
Current ratio 1.6 1.5 1.2
Debt-to-total capital ratio 42% 44% 59%
Average working capital
to net sales 11.8% 10.7% 16.6%
Average days outstanding
in receivables 46.2 48.8 53.5
Average months' supply
of inventory 2.4 2.4 2.5
Note: Working capital includes assets held for sale.
The company maintains significant operations in foreign
countries; therefore, the movement of the U.S. dollar against
foreign currencies has an impact on the company's financial
position. Generally, the functional currency of the company's
foreign subsidiaries is their local currency. 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 and options. The
company attempts, through its hedging activities, to mitigate the
impact on income of changes in foreign exchange rates.
Additionally, the company maintains operations in countries where
the company transacts business in U.S. dollars. The functional
currency of these operations is the U.S. dollar. (Additional
information on the company's use of financial instruments can be
found in Note 8 to the Consolidated Financial Statements.)
The following points highlight the financial results and
financial condition of the company's operations with the impact
of foreign currency translation where appropriate:
o Cash and cash equivalents totalled $222.9 million at December
31, 1999, a $179.4 million increase from the prior year-end
balance of $43.5 million. Cash flows from operating activities
provided $836.5 million, investing activities used $237.0
million and financing activities used $445.1 million. Exchange
rate changes during 1999 decreased cash and cash equivalents by
$7.8 million.
o Receivables totalled $988.5 million at December 31, 1999,
compared to $963.7 million at the prior year end, a net
increase of $24.8 million. The increase is attributable to
higher sales activity during the later part of the fourth
quarter and acquisitions, which were offset by reductions
caused by exchange rate changes during 1999. The company
focuses on decreasing its receivables base through its asset-
management program, which produced a reduction in the average
days outstanding in receivables to 46.2 days from the 1998
level of 48.8 days.
o Inventories amounted to $742.1 million at December 31, 1999, a
decrease of $82.7 million from last year's level of $824.8
million. The net reduction to inventories during 1999 is the
net result of the reduction caused by exchange rate changes
during the year of $31.5 million, the company's effort to
reduce inventories, and the net effect of reductions caused by
dispositions exceeding increases from acquisitions.
o Prepaid expenses totalled $60.7 million at the end of the year,
$5.0 million higher than the balance at December 31, 1998. The
increase is associated with a general increase in prepaid
expense accounts from acquired companies during the year.
o Assets held for sale totalled $799.7 million. This reflects an
increase of $399.6 million over the December 31, 1998, balance
of $400.1 million. The account balance at the end of 1998
primarily represents the company's investments in their
ventures in IDP and D-R, which are now identified as
discontinued operations. (See Note 2 to the Consolidated
Financial Statements.) During the current year, this account
was increased by the operating results of the joint ventures
and the December 31, 1999, purchase of the remaining 49%
interest in IDP for $377.0 million as well as the net change in
the assets and liabilities of IDP. On February 2, 2000, the
company purchased the remaining 51% interest in D-R that it did
not previously own for an additional payment of $536.0 million.
o Deferred income taxes (current) of $53.9 million at December
31, 1999, represented the deferred tax benefit of the
difference between the book and tax values of various current
assets and liabilities. The components of the balance are
included in Note 15 to the Consolidated Financial Statements.
o Investments in and advances with partially owned equity
affiliates at December 31, 1999, totalled $198.2 million, an
increase of $14.6 million over the 1998 balance of $183.6
million. This category includes the company's investments in
partially owned equity affiliates (i.e. 50% or less ownership).
Income and dividends from the investments in partially owned
equity affiliates were $9.5 million and $6.4 million,
respectively, in 1999. Amounts due to these units increased
$1.5 million from December 31, 1998. Currency movements were
the primary cause of the remaining change in the account
balance.
o Net property, plant and equipment increased by $3.5 million in
1999 to a year-end balance of $1,240.2 million. Capital
expenditures in 1999 totalled $190.5 million, and acquisitions
(net of dispositions) added $2.7 million. Foreign exchange
fluctuations decreased net fixed assets by approximately $21.2
million. The remaining net decrease was the result of
depreciation and sales and retirements.
o Intangible assets, net, totalled $3,726.3 million at December
31, 1999, as compared to $3,765.8 million at December 31, 1998,
for a net decrease of $39.5 million. The amortization expense
for the current year was $112.8 million. Acquisition activity
and the effects of foreign currency translation accounted for
the balance of the change.
o Deferred income taxes (noncurrent) totalled $158.0 million at
December 31, 1999, an amount that was $48.0 million lower than
the 1998 balance. The components comprising the balance at
December 31, 1999, can be found in Note 15 to the Consolidated
Financial Statements.
o Other assets totalled $209.2 million at year end, an increase
of $33.5 million from the 1998 balance, primarily due to an
increase in prepaid pensions of $32.0 million.
o Accounts payable and accruals totalled $1,224.4 million at
December 31, 1999, a decrease of $60.0 million from last year's
balance of $1,284.4 million. Reduced inventory levels at year
end and acquisitions, net of dispositions, along with the
timing of payrolls and benefits accounted for the reduction in
1999.
o Loans payable including current maturities of long-term debt,
were $495.5 million at the end of 1999, which reflects a $177.5
million increase from the $318.0 million level at December 31,
1998. Approximately $252.2 million of current maturities of
long-term debt were repaid in 1999. The balance at the end of
1999 included a $377.0 million note payable issued in
connection with the company's purchase of the remaining
interest in the IDP joint venture. Excluding this item, loans
payable would have reflected a reduction from the 1998 year-end
balance of approximately $200.0 million. The effect of
translation activity during 1999 had a minimal effect on the
account balance during the year.
o Long-term debt, excluding current maturities, totalled $2,113.3
million, a reduction of approximately $52.7 million from the
prior year's balance of $2,166.0 million. Reductions in long-
term debt of $73.1 million represent the reclassification of
the current maturities of long-term debt to loans payable. Long-
term financings for plant and office expansions accounted for
the modest increase in debt activity for the year. Foreign
exchange activity had a minimal effect on the account balance
during the year.
o Postemployment and other benefit liabilities at December 31,
1999, totalled $805.0 million, a decrease of $15.5 million from
the December 31, 1998, balance. Postemployment liabilities
include medical and life insurance postretirement benefits,
long-term pension and other noncurrent benefit accruals. (See
Notes 16 and 17 to the Consolidated Financial Statements for
additional information.)
o Minority interest liabilities at December 31, 1999, totalled
$95.7 million, which represents a net increase of $62.1 million
over the balance at the end of the prior year. This liability
represents the ownership interests of other entities in certain
consolidated subsidiaries of the company. The increase for 1999
primarily represents an equity interest purchase by a vendor in
an entity controlled by the company.
o Other liabilities (noncurrent) at December 31, 1999, totalled
$161.8 million, an increase of $9.3 million over the balance at
December 31, 1998. The increase is associated with acquisitions
during 1999. These obligations are not expected to be paid in
the next year. Generally, these accruals cover environmental,
insurance, legal and other long-term contractual obligations.
Other information concerning the company's financial resources,
commitments and plans is as follows:
The average short-term borrowings outstanding, excluding current
maturities of long-term debt, was $104.8 million in 1999,
compared to $314.8 million in 1998. The weighted average
interest rate during 1999 was 6.6%, compared to 6.3% during the
previous year. The maximum amounts outstanding during 1999 and
1998 were $422.4 million and $794.1 million, respectively.
The company had $1.3 billion in domestic short-term credit lines
and $750.0 million in long-term credit lines at December 31, 1999
all of which were unused. Additionally, $599.8 million of
foreign credit lines were available for working capital purposes,
$527.3 million of which was used at the end of the year. These
facilities exceed projected requirements for 2000 and provide
direct support for commercial paper and indirect support for
other financial instruments, such as letters of credit and
comfort letters.
In 1999, foreign currency translation adjustments decreased
shareholders' equity by $46.5 million. This change was due to
the strengthening of the U.S. dollar against other currencies in
countries where the company has significant operations. Currency
changes in the euro, euro-linked currencies and the British pound
accounted for nearly all of the change.
The company utilizes two wholly owned special purpose subsidiaries
to purchase accounts and notes receivable at a discount from the
company on a continuous basis. These special purpose subsidiaries
simultaneously sell an undivided interest in these accounts and
notes receivable to a financial institution up to a maximum of
$170.0 million. The agreements between the special purpose
corporations and the financial institution are renewable annually.
The company intends to renew these agreements at their expiration
dates with either the current or another financial institution. The
company is retained as the servicer of the pooled receivables. At
December 31, 1999 and 1998, $170.0 million of such receivables
remained uncollected.
Capital expenditures were $190.5 million and $200.9 million in
1999 and 1998, 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 2000 is
estimated at approximately $210.0 million, including amounts
approved in prior periods. There are no planned projects, either
individually or in the aggregate, that 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.
Financial Market Risk
The company generates foreign currency exposures in the normal
course of business. To mitigate the risk from foreign currency
exchange rate fluctuations, the company will generally enter into
forward currency exchange contracts for the purchase or sale of a
currency in accordance with the company's policies and
procedures. The company applies sensitivity analysis and value at
risk (VAR) techniques when measuring the company's exposure to
currency fluctuations. VAR is a measurement of the estimated
loss in fair value until currency positions can be neutralized,
recessed or liquidated and assumes a 95% confidence level with
normal market conditions. The potential one-day loss, as of
December 31, 1999, was $1.1 million and it is considered
insignificant in relation to the company's results of operations
and shareholders' equity.
With regard to interest rate risk, the effect of a hypothetical
1% increase in interest rates, across all maturities, would
decrease the estimated fair value of the company's long-term debt
at December 31, 1999, from $2,083.9 million to an estimated fair
value of $2,004.1 million.
Environmental Matters
The company 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.
During 1999, the company spent approximately $8.0 million on
capital projects for pollution abatement and control, and an
additional $6.0 million for environmental remediation
expenditures at sites presently or formerly owned or leased by
the company. It should be noted that these amounts are difficult
to estimate because environmental improvement costs are generally
a part of the overall improvement costs at a particular plant.
Therefore, 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, and
has received notices of potential violations of environmental
laws and regulations from the Environmental Protection Agency and
similar state authorities. It is identified as a potentially
responsible party (PRP) for cleanup costs associated with off-
site waste disposal at approximately 30 federal Superfund and
state remediation sites, excluding sites as to which the
company's records disclose no involvement or as to which the
company's liability has been fully determined. For all sites
there are other PRPs and in most instances, the company's site
involvement is minimal. In estimating its liability, the company
has not assumed it will bear the entire cost of remediation of
any site to the exclusion of other PRPs who may be jointly and
severally liable. The ability of other PRPs to participate has
been taken into account, based generally on the parties'
financial condition and probable contributions on a per site
basis. Additional lawsuits and claims involving environmental
matters are likely to arise from time to time in the future.
Although uncertainties regarding environmental technology, state
and federal laws and regulations and individual site information
make estimating the liability difficult, management believes that
the total liability for the cost of remediation and environmental
lawsuits and claims will not have a material effect on the
financial condition, results of operations, liquidity or cash
flows of the company for any year. It should be noted that when
the company estimates its liability for environmental matters,
such estimates are based on current technologies, and the company
does not discount its liability or assume any insurance
recoveries.
Forward-looking Statements
This annual report contains not only historical information, but
also forward-looking statements regarding expectations for future
company performance. Forward-looking statements involve risk and
uncertainty. See the company's 1999 Annual Report on Form 10-K
for a discussion of factors which could cause future results to
differ from current expectations.
1998 Compared to 1997
Sales for 1998 totalled $7.4 billion, which generated $969.1
million of operating income and $455.5 million of net earnings
from continuing operations ($2.75 diluted earnings per share).
Net income from discontinued operations totalled $53.6 million
in 1998 ($0.33 diluted earnings per share). The company's
results for 1998 included a full year's benefit from the October
31, 1997, acquisition of Thermo King Corporation (Thermo King).
Thermo King reported 1998 sales of $1.2 billion with an
operating income contribution of $159.3 million and net earnings
of $24.0 million or 15 cents diluted earnings per share after
the allocation of acquisition interest expense and the related
tax benefit.
The company's results for 1997 were sales of $6.2 billion, which
generated $723.5 million of operating income and produced net
earnings from continuing operations of $358.6 million for the
year ($2.18 diluted earnings per share). In 1997, net income from
discontinued operations was $21.9 million (or $0.13 diluted
earnings per share). Thermo King generated $176.9 million of
sales and produced an operating loss of $0.2 million, after
goodwill amortization and the effect of estimated purchase
accounting adjustments for the last two months of 1997. Thermo
King's net loss for this two-month period was $11.3 million
(seven cents diluted earnings per share) after the allocation of
acquisition interest expense of $27.3 million.
Excluding Thermo King's results from both years, 1998 sales
increased modestly, with an 11.9% increase in operating income
resulting in a significant increase of 17% in net earnings from
continuing operations for 1998 over the adjusted 1997 results.
A comparison of key financial data between 1998 and 1997 follows:
o Net sales in 1998 were $7.4 billion, reflecting an 18.4%
improvement over the 1997 total of $6.2 billion. Excluding
Thermo King's results from both years, adjusted sales for 1998
increased by 2% over the 1997 adjusted total.
o Cost of goods sold in 1998 was 73.0% of sales, compared to
73.9% in 1997. Excluding Thermo King's results from both
years, the adjusted ratio of cost of goods sold to sales
reflected a marked improvement in 1998, compared to 1997.
o Administrative, selling and service engineering expenses were
13.9% of sales in 1998, compared to 14.5% for 1997. This
decrease is primarily attributable to the inclusion of Thermo
King, which traditionally had a lower ratio of selling and
administrative expenses to sales than the company's historical
lines of business.
o Operating income for the year totalled $969.1 million, a
33.9% increase over 1997 operating income of $723.5 million.
The ratio of operating income to sales in 1998 was 13.1%,
compared to 11.6% for the prior year. After excluding Thermo
King's results from both years, adjusted 1998 operating
income still reflects a double-digit improvement over the
adjusted 1997 results. This improvement was the combined
effect of the company's aggressive productivity-improvement
and procurement programs, and the continued stability of
domestic markets.
o Interest expense for the year totalled $224.1 million versus
$135.2 million for 1997. Interest expense associated with the
debt incurred for the Thermo King acquisition totalled
approximately $129.3 million in 1998 (excluding costs related
to the company's equity-linked securities) and $27.3 million
for the last two months of 1997.
o Other income (expense), net, is the sum of foreign exchange
activities, equity in earnings of partially owned affiliates,
and other miscellaneous income and expense items. In 1998,
these activities resulted in a net expense of $15.3 million, an
unfavorable change of $9.0 million compared to the 1997 net
other expense of $6.3 million. This change was caused by lower
earnings from partially owned affiliates and higher foreign
exchange losses of $8.2 million in 1998, offset by lower net
miscellaneous income and expense items.
o The company's charges for minority interests are composed of
two items: (1) $19.7 million of charges associated with the
company's equity-linked securities issued during the first
quarter of 1998; and (2) interests of minority owners (less
than 50%) in a consolidated unit of the company which totalled
$3.8 million in 1998 and $3.6 million in 1997.
o The company's effective tax rate for 1998 was 35.5%, which
improved from the 38.0% reported for the prior year due to a
full-year favorable tax benefit associated with the Thermo King
acquisition. The variance from the 35.0% statutory rate
primarily was due to tax rates associated with foreign earnings,
the foreign sales corporation, favorable tax benefits associated
with the income earned in Puerto Rico, the effect of state and
local taxes and the nondeductibility of a portion of goodwill.
o Discontinued operations (net of tax) for 1998 amounted to
$53.6 million, which was more than double 1997's results of
$21.9 million. This category represents the company's 49%
interest in the earnings of D-R and the company's 51% interest
in IDP reduced by appropriate taxes. As previously announced,
the company intends to divest these units; therefore, their net
operating results have been classified as "discontinued
operations." The net earnings from these partnerships in 1998
were both substantially above their 1997 levels. These
increases were the result of a stronger economic climate for
their products, coupled with the fact that both operations
recorded a total of $60.0 million of restructuring charges
during 1997 to reduce their headcount and to close
underperforming operations. (See Note 2 to the Consolidated
Financial Statements for additional information.)
At December 31, 1998, employment totalled 46,525. This
represents a slight decrease from the prior year's level of
46,567.
During 1998, the company made significant progress in improving
its liquidity and capital resources by (1) completing the
financing of the Thermo King acquisition with the issuance of
$402.5 million of equity-linked securities during the first
quarter of the year, and (2) reducing the company's debt by an
additional $570.9 million, which was generated from the
company's strong cash flow during the year. The proceeds from
the equity-linked securities were used to reduce the company's
short-term borrowings, which were originally issued to satisfy
a portion of the cash requirements for the acquisition of
Thermo King on October 31, 1997. These actions primarily
contributed to the company's reduction in its debt-to-total
capital ratio from 59% at the end of 1997 to 44% at December
31, 1998.
The following points highlight the financial results and
financial condition of the company's operations with the impact
of foreign currency translation where appropriate:
o Cash and cash equivalents totalled $43.5 million at December
31, 1998, a $23.0 million reduction from the prior year-end
balance of $66.5 million. Cash flows from operating activities
provided $859.6 million, investing activities used $161.9
million and financing activities used $741.8 million. Exchange
rate changes during 1998 increased cash and cash equivalents by
$1.0 million.
o Marketable securities totalled $2.0 million at the end of 1998,
$1.8 million below the balance at December 31, 1997. The net
reduction was due to maturity and exchange rate changes.
o Receivables totalled $963.7 million at December 31, 1998,
compared to $1,080.7 million at the end of 1997, a net decrease
of $117.0 million. The decrease is attributable to improved
cash collections and reductions from dispositions. The company
focuses on decreasing its receivables base through its asset-
management program, which produced a reduction in the average
days outstanding in receivables to 48.8 days from the 1997
level of 53.5 days.
o Inventories amounted to $824.8 million at December 31, 1998, an
increase of $84.3 million from 1997's level of $740.5 million.
Inventory increases at year end in anticipation of early 1999
shipments were the primary reason for the increase. The
company's emphasis on inventory control was demonstrated by the
reduction of the average months' supply of inventory to 2.4
months at December 31, 1998, compared to 2.5 months at the
prior year end.
o Prepaid expenses totalled $55.7 million at the end of 1998,
$23.7 million lower than the balance at December 31, 1997.
Changes in prepaid pension assets and a general reduction in
other prepaid assets were the reasons for the reduction in the
account balance.
o Assets held for sale totalled $400.1 million at December 31,
1998, and reflects an increase of $11.0 million over the
December 31, 1997, balance of $389.1 million. The account
balance at the end of both years primarily represents the
company's investments in IDP and D-R, which are now identified
as discontinued operations. (See Note 2 to the Consolidated
Financial Statements.) During 1998, this account was increased
by the operating results of the joint ventures and was reduced
by changes in the net assets. In addition, the account balance
was also reduced by approximately $22.5 million, for other
asset dispositions not involving either IDP or D-R.
o Deferred income taxes (current) of $68.8 million at December
31, 1998, represented the deferred tax benefit of the
difference between the book and tax values of various current
assets and liabilities. The components of the balance are
included in Note 15 to the Consolidated Financial Statements.
o Investments in and advances with partially owned equity
affiliates at December 31, 1998, totalled $183.6 million, $16.1
million below the 1997 balance of $199.7 million. Income and
dividends from partially owned equity affiliates were $13.6
million and $6.7 million, respectively. Amounts due from these
units decreased $12.6 million from December 31, 1997. Currency
movements and acquisitions were the primary cause of the
remaining change in the account balance.
o Net property, plant and equipment increased by $63.0 million in
1998 to a year-end balance of $1,236.7 million. Capital
expenditures in 1998 totalled $200.9 million, and acquisitions
(net of dispositions) added $13.0 million. Foreign exchange
fluctuations increased net fixed assets by approximately $3.6
million. The remaining net decrease was the result of
depreciation and sales and retirements.
o Intangible assets, net, totalled $3,765.8 million at December
31, 1998, as compared to $3,822.4 million at December 31, 1997,
for a net decrease of $56.6 million. The amortization expense
for 1998 was $110.1 million. Acquisition activity and the
effects of foreign currency translation accounted for the
balance of the change.
o Deferred income taxes (noncurrent) totalled $206.0 million at
December 31, 1998. This total was $26.3 million higher than
the 1997 balance. The components comprising the balance at
December 31, 1998, can be found in Note 15 to the Consolidated
Financial Statements.
o Other assets totalled $175.7 million at the end of 1998, a
decrease of $31.6 million from the December 31, 1997, balance
of $207.3 million. Other assets decreased by approximately
$25.0 million due to a decrease in prepaid pensions and a
general reduction in other noncurrent assets. Foreign exchange
activity in 1998 had a minimal effect on the account balance
during the year.
o Accounts payable and accruals totalled $1,284.4 million at
December 31, 1998, an increase of $109.1 million from last
year's balance of $1,175.3 million. Increased inventory levels
at year end and acquisitions, net of dispositions, along with
the timing of payrolls and benefits account for the increase in
1998.
o Loans payable, including current maturities on long-term debt,
were $318.0 million at the end of 1998, which reflects a $605.8
million reduction from the $923.8 million level at December 31,
1997. Proceeds of $389.6 million from the issuance of the
company's equity-linked securities were used to reduce short-
term debt during the year. Current maturities of long-term
debt increased the account balance by an additional $251.8
million. In addition, the company also repaid approximately
$261.2 million of current maturities of long-term debt.
o Long-term debt, excluding current maturities, totalled $2,166.0
million, a reduction of approximately $362.1 million from the
prior year's balance of $2,528.1 million. Reductions in long-
term debt of $251.8 million represent the reclassification of
the current maturities of long-term debt to loans payable. In
addition, the company repaid $110.0 million of long-term
debt with accelerated payments during the year. Foreign
exchange activity had a minimal effect on the account balance
during the year.
o Postemployment and other benefit liabilities at December 31,
1998, totalled $820.5 million, a decrease of $41.6 million from
the December 31, 1997, balance. Postemployment liabilities
include medical and life insurance postretirement benefits,
long-term pension and other noncurrent postemployment accruals.
(See Notes 16 and 17 to the Consolidated Financial Statements
for additional information).
o Minority interest liabilities at December 31, 1998, totalled
$33.6 million, which represents a net increase of $10.1 million
over the balance at the end of the prior year. This liability
represents the ownership interests of other entities in
selected consolidated subsidiaries of the company. The change
in the account balance for 1998 was due to earnings, advances
and changes in ownership participation.
o Other liabilities (noncurrent) at December 31, 1998, totalled
$152.5 million, which reflected an increase of $6.5 million
over the balance at December 31, 1997. These obligations are
not expected to be paid in the next year. Generally, these
accruals cover environmental, insurance, legal and other long-
term contractual obligations.
Other information concerning the company's financial resources,
commitments and plans is as follows:
The average short-term borrowings outstanding, excluding
current maturities of long-term debt, was $314.8 million in
1998, compared to $376.0 million in 1997. The weighted average
interest rate during 1998 was 6.3%, compared to 6.2% during the
previous year. The maximum amounts outstanding during 1998 and
1997, were $794.1 million and $2,433.0 million, respectively.
The company had $1.0 billion in domestic short-term credit
lines at December 31, 1998, and $436.2 million of foreign
credit lines available for working capital purposes, $1.4
billion of which was unused at the end of the year.
In 1998, foreign currency translation adjustments increased
shareholders' equity by $2.5 million. This change was due to
the minor weakening of the U.S. dollar against other currencies
in countries where the company has significant operations.
Currency changes in France, Germany, and Japan accounted for
nearly all of the change.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
The information under the caption "Financial Market Risk" in Item
7, Management's Discussion and Analysis of Financial Condition
and Results of Operations is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The consolidated financial statements and the report thereon
of PricewaterhouseCoopers LLP dated February 1, 2000, are
included as Exhibit 13 - the Annual Report to Shareholders for
1998.
(b) The unaudited quarterly financial data for the two-year
period ended December 31, 1999, is as follows (in millions except
per share amounts):
Net Cost of Operating Net
1999 sales goods sold income earnings
First quarter $1,891.1 $1,390.2 $ 238.6 $121.1
Second quarter 2,042.0 1,468.4 304.8 166.6
Third quarter 1,846.1 1,324.7 272.9 137.5
Fourth quarter 1,887.5 1,331.7 283.0
165.9
Year 1999 $7,666.7 $5,515.0 $1,099.3 $591.1
Net Cost of Operating Net
1998 sales goods sold income earnings
First quarter $1,812.7 $1,341.9 $ 206.6 $ 99.1
Second quarter 1,954.4 1,429.5 266.8 140.9
Third quarter 1,802.3 1,320.1 237.0 119.4
Fourth quarter 1,815.3 1,296.3 258.7 149.7
Year 1998 $7,384.7 $5,387.8 $ 969.1 $509.1
All amounts shown have been restated to reflect discontinued operations.
1999 1998
Basic Diluted Basic Diluted
earnings earnings earnings earnings
per per per per
common common common common
share share share share
First quarter $0.74 $0.73 $0.60 $0.60
Second quarter 1.01 0.99 0.86 0.85
Third quarter 0.84 0.83 0.73 0.72
Fourth quarter 1.02 1.01 0.92 0.91
Year $3.61 $3.57 $3.11 $3.08
Item 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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 5,
and 17 of the company's definitive proxy statement for the Annual
Meeting of Shareholders to be held on May 3, 2000, and (ii)
included after Item 4 in Part I 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 7 through 17
of the company's definitive proxy statement for the Annual
Meeting of Shareholders to be held on May 3, 2000.
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 May 3, 2000.
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 17 of the company's
definitive proxy statement for the Annual Meeting of Shareholders
to be held on May 3, 2000.
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 PricewaterhouseCoopers LLP
dated February 1, 2000, included as Exhibit 13
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 Shareholders for 1999.
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.
(b) Reports on Form 8-K
None
3. Exhibits
The exhibits listed on the accompanying index to
exhibits are filed as part of this Form 10-K
Annual Report.
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, 1999 and 1998 *
For the years ended December 31, 1999, 1998
and 1997:
Consolidated statement of income *
Consolidated statement of shareholders'
equity *
Consolidated statement of cash flows *
Notes to consolidated financial statements *
Selected unaudited quarterly financial data **
Financial Statement Schedule:
Report of independent accountants on
financial statement schedule See below
Consolidated schedule for the years ended
December 31, 1999, 1998 and 1997:
Schedule II -- Valuation and Qualifying
Accounts See below
* See Exhibit 13 - Ingersoll-Rand Company Annual Report to
Shareholders for 1999.
** See Item 8 Financial Statements and Supplementary Data.
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.
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 1, 2000, appearing in the 1999
Annual Report to Shareholders 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)(2)
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/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
February 1, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-3 (No. 333-38367, No. 333-
37019, and No. 333-34029) and to the incorporation by reference
in the Registration Statements on Form S-8 (No. 333-42133, No.
333-19445, No. 333-67257, No. 333-00829, and No. 33-35229) of
Ingersoll-Rand Company of our report dated February 1, 2000
relating to the financial statements, which appears in the 1999
Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation
by reference of our report dated February 1, 2000 relating to the
financial statement schedule, which appears in this Form 10-K.
/S/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
March 29, 2000
SCHEDULE II
INGERSOLL-RAND COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(Amounts in millions)
Additions
charged to
Balance at costs and Balance
beginning expenses Deductions at end
Description of year (*) (**) of year
1999
Doubtful accounts $ 35.4 $ 8.7 $ 10.7 $ 33.4
1998
Doubtful accounts $ 29.4 $ 10.5 $ 4.5 $ 35.4
1997
Doubtful accounts $ 29.8 $ 10.8 $ 11.2 $ 29.4
(*) "Additions" include foreign currency translation.
(**) "Deductions" include accounts and advances written off,
less recoveries.
INGERSOLL-RAND COMPANY
INDEX TO EXHIBITS
(Item 14(a))
Description
3 (i) 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 the year
ended December 31, 1993, filed March 30, 1994.
3 (ii) 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 the year
ended December 31, 1993, filed March 30, 1994.
3 (iii) Amendment to Restated Certificate of Incorporation of
Ingersoll-Rand Company filed August 20, 1997. Incorporated by
reference to Form S-3 filed October 2, 1997.
3 (iv) By-Laws of Ingersoll-Rand Company, as amended through
October 1, 1999. Filed herewith.
4 (i) Rights Agreement, dated as of November 9, 1998.
Incorporated by reference from Form 8-A/A of Ingersoll-
Rand Company filed on November 13, 1998.
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.
4(iii) Purchase Contract Agreement dated as of March 23, 1998
between Ingersoll-Rand Company and The Bank of New York, as
Purchase Contract Agent. Incorporated by reference to Form 10-K
of Ingersoll-Rand Company for the year ended December 31, 1998,
filed March 30, 1999.
4(iv) Pledge Agreement dated as of March 23, 1998 between
Ingersoll-Rand Company and The Chase Manhattan Bank, as
Collateral Agent, Custodial Agent and Securities Intermediary.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
for the year ended December 31, 1998, filed March 30, 1999.
4(v) Indenture dated as of March 23, 1998 between Ingersoll-Rand
Company and The Bank of New York, as trustee. Incorporated by
reference to Form 10-K of Ingersoll-Rand Company for the year
ended December 31, 1998, filed March 30, 1999.
4(vi) First Supplemental Indenture dated as of March 23, 1998
between Ingersoll-Rand Company and The Bank of New York, as
trustee. Incorporated by reference to Form 10-K of Ingersoll-Rand
Company for the year ended December 31, 1998, filed March 30,
1999.
4(vii) Amended and Restated Declaration of Trust for Ingersoll-
Rand Financing I, a Delaware statutory business trust, dated
March 23, 1998. Incorporated by reference to Form 10-K of
Ingersoll-Rand Company for the year ended December 31, 1998,
filed March 30, 1999.
4(viii) Guarantee Agreement dated as of March 23, 1998, between
Ingersoll-Rand Company and The First National Bank of Chicago, as
trustee. Incorporated by reference to Form 10-K of Ingersoll-Rand
Company for the year ended December 31, 1998, filed March 30,
1999.
4 (ix) (a) 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 the year ended December 31, 1993, filed March 30, 1994.
10 (iii) (b) Ingersoll-Rand Company Directors Deferred
Compensation and Stock Award Plan. Incorporated by reference to
Form 10-K for the year ended December 31, 1996, filed March 26,
1997.
10 (iii) (c) Description of Bonus Arrangement for Executive Vice
Presidents of Ingersoll-Rand Company. Filed herewith.
10 (iii) (d) Description of Bonus Arrangement for Chairman,
President and Staff Officers. Incorporated by reference to Form
10-K of Ingersoll-Rand Company for the year ended December 31,
1993, filed March 30, 1994.
10 (iii) (e) Amended and Restated Form of Change of Control
Agreement as of March 1, 1999 with Chairman of Ingersoll-Rand
Company. Incorporated by reference to Form 10-K of Ingersoll-
Rand Company for the year ended December 31, 1998, filed March
30, 1999.
10 (iii) (f) Amended and Restated Form of Change of Control
Agreement as of March 1, 1999, with selected executive officers
other than Chairman of Ingersoll-Rand Company. Incorporated by
reference to Form 10-K of Ingersoll-Rand Company for the year
ended December 31, 1998, filed March 30, 1999.
10 (iii) (g) Executive Supplementary Retirement Agreement for
selected executive officers. Incorporated by reference to Form 10-
K of Ingersoll-Rand Company for the year ended December 31, 1993,
filed March 30, 1994.
10 (iii) (h) Executive Supplementary Retirement Agreement for
selected executive officers. Incorporated by reference to Form 10-
K for the year ended December 31, 1996, filed March 26, 1997.
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 the year ended December
31, 1993, filed March 30, 1994.
10 (iii) (j) Incentive Stock Plan of 1990 of Ingersoll-Rand
Company. Incorporated by reference to Form 10-K of Ingersoll-
Rand Company for the year ended December 31, 1993, filed March
30, 1994.
10 (iii) (k) Restated Supplemental Pension Plan. Incorporated
by reference to Form 10-K of Ingersoll-Rand Company for the year
ended December 31, 1995, filed March 29, 1996.
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 the year ended December
31, 1993, filed March 30, 1994.
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 the year ended December 31,
1993, filed March 30, 1994.
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) Amended and Restated Elected Officers Supplemental
Plan. Incorporated by reference to Form 10-K of Ingersoll-Rand
Company for the year ended December 31, 1998, filed March 30,
1999.
10 (iii) (q) Selected Executive Officer Employment Agreement.
Incorporated by reference to Form 10-K of Ingersoll-Rand
Company for the year ended December 31, 1995, filed
March 29, 1996.
10 (iii) (r) Executive Deferred Compensation and Stock Award
Plan. Incorporated by reference to Form 10-K for the year ended
December 31, 1996, filed March 26, 1997.
10 (iii) (s) Chief Financial Officer Employment Agreement.
Incorporated by reference to Form 10-K for the year ended
December 31, 1997, filed March 6, 1998.
10 (iii) (t) Incentive Stock Plan of 1998 of Ingersoll-Rand
Company. Incorporated by reference to Appendix A to the Notice
of 1998 Annual Meeting of Shareholders and Proxy Statement dated
March 17, 1998.
10 (iii) (u) Composite Employment Agreement with Chief Executive
Officer. Filed herewith.
11 Computation of Earnings Per Share. Filed herewith.
12 Computations of Ratios of Earnings to Fixed Charges.
Filed herewith.
13 Ingersoll-Rand Company Annual Report to Shareholders
for 1999. Not deemed to be filed as part of this report
except to the extent incorporated by reference. Filed herewith.
21 List of Subsidiaries of Ingersoll-Rand Company.
Filed herewith.
27 Financial Data Schedule.
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/ David W. Devonshire
Date March 30, 2000
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
President,Chief
Executive Officer
and Director (Principal
/S/ Herbert L. Henkel Executive Officer) March 30, 2000
(Herbert L. Henkel)
Executive Vice
President,Chief Financial
Officer (Principal
/S/ David W. Devonshire Financial Officer) March 30, 2000
(David W. Devonshire)
Vice President and
Controller (Principal
/S/ Steven R. Shawley Accounting Officer) March 30, 2000
(Steven R. Shawley)
/S/ James E. Perrella Chairman and Director March 30, 2000
(James E. Perrella)
/S/ Joseph P. Flannery Director March 30, 2000
(Joseph P. Flannery)
/S/ Peter C. Godsoe Director March 30, 2000
(Peter C. Godsoe)
/S/ Constance J. Horner Director March 30, 2000
(Constance J. Horner)
/S/ H. William Lichtenberger Director March 30, 2000
(H. William Lichtenberger)
/S/ Theodore E. Martin Director March 30, 2000
(Theodore E. Martin)
/S/ Orin R. Smith Director March 30, 2000
(Orin R. Smith)
/S/ Richard J. Swift Director March 30, 2000
(Richard J. Swift)
/S/ Tony L. White Director March 30, 2000
(Tony L. White)