Exhibit 13
INGERSOLL-RAND
1999
ANNUAL REPORT
TO
SHAREHOLDERS
Consolidated Statement of Income
In millions except per share amounts
For the years ended December 31 1999 1998 1997
Net sales $7,666.7 $7,384.7 $6,239.1
Cost of goods sold 5,515.0 5,387.8 4,613.0
Administrative, selling and
service engineering
expenses 1,052.4 1,027.8 902.6
Operating income 1,099.3 969.1 723.5
Interest expense (203.1) (224.1) (135.2)
Other income (expense), net (22.3) (15.3) (6.3)
Minority interests (29.1) (23.5) (3.6)
Earnings before income taxes 844.8 706.2 578.4
Provision for income taxes 299.9 250.7 219.8
Earnings from continuing
operations 544.9 455.5 358.6
Discontinued operations
(net of tax) 46.2 53.6 21.9
Net earnings $ 591.1 $ 509.1 $380.5
Basic earnings per share
Continuing operations $3.33 $2.78 $2.20
Discontinued operations 0.28 0.33 0.13
$3.61 $3.11 $2.33
Diluted earnings per share
Continuing operations $3.29 $2.75 $2.18
Discontinued operations 0.28 0.33 0.13
$3.57 $3.08 $2.31
See accompanying Notes to Consolidated Financial Statements.
Consolidated Balance Sheet
In millions except share amounts
December 31 1999 1998
Assets
Current assets:
Cash and cash equivalents $ 222.9 $ 43.5
Marketable securities 0.5 2.0
Accounts and notes receivable, less
allowance for doubtful accounts of
$33.4 in 1999 and $35.4 in 1998 988.5 963.7
Inventories 742.1 824.8
Prepaid expenses 60.7 55.7
Assets held for sale 799.7 400.1
Deferred income taxes 53.9 68.8
2,868.3 2,358.6
Investments in and advances with
partially owned equity affiliates 198.2 183.6
Property, plant and equipment, at cost:
Land and buildings 570.3 569.4
Machinery and equipment 1,514.6 1,492.3
2,084.9 2,061.7
Less-accumulated depreciation 844.7 825.0
1,240.2 1,236.7
Intangible assets, net 3,726.3 3,765.8
Deferred income taxes 158.0 206.0
Other assets 209.2 175.7
$8,400.2 $7,926.4
Liabilities and Equity
Current liabilities:
Accounts payable and accruals $1,224.4 $1,284.4
Loans payable 495.5 318.0
Income taxes 19.0 18.8
1,738.9 1,621.2
Long-term debt 2,113.3 2,166.0
Postemployment and other benefit liabilities 805.0 820.5
Minority interests 95.7 33.6
Other liabilities 161.8 152.5
4,914.7 4,793.8
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the company 402.5 402.5
Shareholders' equity:
Common stock, $2 par value, authorized
600,000,000 shares; issued:
1999-171,168,096; 1998-168,883,779 342.3 337.8
Capital in excess of par value 237.8 133.4
Retained earnings 3,053.1 2,567.3
3,633.2 3,038.5
Unallocated LESOP shares, at cost (16.5) (27.0)
Treasury stock, at cost (356.7) (150.9)
Accumulated other comprehensive income (177.0) (130.5)
Shareholders' equity 3,083.0 2,730.1
$8,400.2 $7,926.4
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Shareholders' Equity
In millions
Capital in Accumulated
Total excess other
shareholders' Common stock of par Retained Unallocated Treasury comprehensive Comprehensive
equity Amount Shares value earnings LESOP stock income income
Balance at December 31, 1996 $2,109.9 $220.6 110.3 $143.5 $1,869.6 $(55.6) $(11.5) $(56.7)
Net earnings 380.5 380.5 $380.5
Foreign currency translation (76.3) (76.3) (76.3)
Reclassification adjustment 3.1
Total comprehensive income $307.3
Issuance of shares under
stock plans 2.8 0.1 0.1 2.7
Exercise of stock options 52.6 2.7 1.3 49.9
Stock split 3-for-2 - 111.4 55.7 (111.4)
Allocation of LESOP shares 21.9 7.7 14.2
Purchase of treasury shares (33.0) (33.0)
Cash dividends (93.6) (93.6)
Balance at December 31, 1997 2,364.8 334.8 167.4 92.4 2,156.5 (41.4) (44.5) (133.0)
Net earnings 509.1 509.1 509.1
Foreign currency translation 2.5 2.5 2.5
Total comprehensive income $511.6
Issuance of shares under
stock plans 2.2 0.1 0.1 2.1
Exercise of stock options 45.8 2.9 1.4 42.9
Issuance of equity-linked
securities (16.4) (16.4)
Allocation of LESOP shares 26.8 12.4 14.4
Purchase of treasury shares (106.4) (106.4)
Cash dividends (98.3) (98.3)
Balance at December 31, 1998 2,730.1 337.8 168.9 133.4 2,567.3 (27.0) (150.9) (130.5)
Net earnings 591.1 591.1 591.1
Foreign currency translation (46.5) (46.5) (46.5)
Total comprehensive income $544.6
Issuance of shares under
stock plans 3.0 0.1 0.1 2.9
Exercise of stock options 91.8 4.4 2.2 87.4
Allocation of LESOP shares 24.6 14.1 10.5
Purchase of treasury shares (205.8) (205.8)
Cash dividends (105.3) (105.3)
Balance at December 31, 1999 $3,083.0 $ 342.3 171.2 $237.8 $3,053.1 $(16.5) $(356.7) $(177.0)
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Cash Flows
In millions
For the years ended December 31 1999 1998 1997
Cash flows from operating activities:
Income from continuing operations $544.9 $455.5 $358.6
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 272.4 263.6 192.2
Gain on sale of businesses (14.6) (6.6) (7.7)
Gain on sale of property, plant
and equipment (3.4) (8.9) (3.2)
Minority interests, net of dividends (0.2) 0.7 3.4
Equity earnings/losses,
net of dividends (3.1) (6.9) (10.9)
Deferred income taxes 41.8 6.2 (9.7)
Other items 40.9 26.7 41.8
Changes in assets and liabilities
(Increase) decrease in:
Accounts and notes receivable (57.7) 109.3 0.2
Inventories 56.7 (76.0) 53.0
Other current and noncurrent
assets 12.8 21.0 (3.1)
(Decrease) increase in:
Accounts payable and accruals (55.6) 86.0 39.6
Other current and noncurrent
liabilities 1.6 (11.0) 13.4
Net cash provided by operating
activities 836.5 859.6 667.6
Cash flows from investing activities:
Capital expenditures (190.5) (200.9) (169.8)
Proceeds from sales of property,
plant and equipment 30.4 22.9 34.6
Proceeds from business dispositions 84.8 58.0 252.8
Acquisitions, net of cash* (161.2) (55.6) (2,891.3)
Decrease (increase) in marketable
securities 1.5 1.8 (0.1)
Cash (invested in) or advances (to)
from equity companies (2.0) 11.9 5.0
Net cash used in investing
activities (237.0) (161.9) (2,768.8)
Cash flows from financing activities:
(Decrease) increase in short-term
borrowings (36.8) (711.9) 685.6
Debt issuance costs - - (19.1)
Proceeds from long-term debt 21.5 0.2 1,508.6
Payments of long-term debt (252.2) (261.2) (133.8)
Net change in debt (267.5) (972.9) 2,041.3
Issuance of equity-linked securities - 402.5 -
Equity-linked securities issuance costs
and fees - (12.9) -
Net proceeds from issuance of equity-
linked securities - 389.6 -
Proceeds from exercise of stock
options 70.2 36.2 43.3
Purchase of treasury stock (205.8) (106.4) (33.0)
Dividends paid (105.3) (98.3) (93.6)
Other 63.3 10.0 -
Net cash (used in) provided by
financing activities (445.1) (741.8) 1,958.0
Net cash provided by discontinued
operations 32.8 20.1 58.8
Effect of exchange rate changes on cash
and cash equivalents (7.8) 1.0 5.8
Net increase (decrease) in cash
and cash equivalents 179.4 (23.0) (78.6)
Cash and cash equivalents-
beginning of year 43.5 66.5 145.1
Cash and cash equivalents-end of year $222.9 $43.5 $66.5
*Acquisitions:
Working capital, other than cash $ (61.0) $(13.5) $ (113.8)
Property, plant and equipment (13.0) (14.5) (186.6)
Intangibles and other assets (101.4) (34.9) (2,739.5)
Long-term debt and other liabilities 14.2 7.3 148.6
Net cash used to acquire businesses $(161.2) $(55.6) $(2,891.3)
Cash paid during the year for:
Interest, net of amounts capitalized $230.4 $206.1 $136.0
Income taxes 217.7 245.4 210.4
The company acquired the remaining 49% interest in IDP in a noncash
transaction by issuing a note for $377.0 million.
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Ingersoll-Rand is a multinational manufacturer of primarily
nonelectrical industrial equipment and components. The company's
principal lines of business are air compressors, architectural
hardware products, automotive parts and components, construction
equipment, golf cars and utility vehicles, pumps, tools and
transport temperature control systems. The company's broad product
line has applications in numerous industries including automotive,
construction, utilities, housing, recreational and transportation,
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 affiliates companiesare
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. Significant estimates include
accounting for doubtful accounts, amortization and depreciation,
warranty, sales returns, taxes and environmental and other
contingencies. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications were made to prior
year amounts to conform with the 1999 presentation, including
classifying two joint ventures as discontinued operations (see Note
2). Unless otherwise noted, all amounts and percentages disclosed
in these Notes do not include discontinued operations.
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 $73.0 million and $1.9
million at December 31, 1999 and 1998, respectively.
Inventories: Inventories are generally stated at cost, which is
not in excess of market. Domestically 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. Assets acquired subsequent to that date are
depreciated using the straight-line method over their estimated
useful lives.
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 generally over 40 years. Goodwill at
December 31, 1999 and 1998, was $3.7 billion. Intangible assets are
evaluated for impairment whenever circumstances indicate that the
carrying amounts may not be recoverable. Intangible assets also
represent costs allocated to patents arising from business
acquisitions, and debt issuance costs. These assets are amortized
on a straight-line basis over their estimated useful lives.
Accumulated amortization at December 31, 1999 and 1998, was $353.5
million and $246.3 million, respectively. Amortization of
intangible assets was $112.8 million, $110.1 million and $54.4
million in 1999, 1998 and 1997, 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. A valuation
allowance is established for deferred tax assets for which
realization is not likely.
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 no later than the
completion of feasibility studies or the company's commitment to a
plan of action. The assessment of this liability, which is
calculated based on existing technology, does not reflect any
offset for possible recoveries from insurance companies and is not
discounted.
Revenue Recognition: Sales of products are recorded for financial
reporting purposes generally when the products are shipped.
Provisions for discounts and rebates to customers and other
adjustments are generally provided at the time of sale.
Research and Development Costs: Research and development
expenditures, including qualifying engineering costs, are expensed
when incurred and amounted to $186.2 million in 1999, $169.6
million in 1998 and $138.2 million in 1997.
Comprehensive Income: Comprehensive income includes net income, and
currently in the case of the company, only foreign currency
translation adjustments. The amounts shown as reclassification
adjustments relate to the accumulated foreign currency translation
adjustment of entities that had been sold, and thus included in net
earnings of the current period.
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
accumulated other comprehensive income 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, 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 increased net earnings by $2.5 million in 1999 and
decreased net earnings by $8.0 million and $0.1 million in 1998
and 1997, respectively. Accumulated other comprehensive income was
decreased in 1999 by $46.5 million, increased in 1998 by $2.5
million and decreased in 1997 by $73.2 million due to foreign
currency equity adjustments related to translation and
dispositions.
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.
The company also purchases forward contracts to mitigate the
exposure of forecasted future cash flows of foreign subsidiaries.
These contracts range in duration from one to 12 months. Gains and
losses associated with the change in fair market value of these
contracts are recorded in other income.
Earnings Per Share: Basic earnings per share is based on the
weighted average number of common shares outstanding. Diluted
earnings per share is based on the weighted average number of
common shares outstanding as well as dilutive potential common
shares, which in the company's case comprise shares issuable under
stock benefit plans. The weighted average number of common shares
outstanding for basic earnings per share calculations were
163,644,073, 163,669,777 and 163,206,932 for 1999, 1998 and 1997,
respectively. For diluted earnings per share purposes, these
balances increased by 2,108,724, 1,812,035 and 1,617,803 shares for
1999, 1998 and 1997, respectively, due to the effect of common
equivalent shares issuable under the company's stock benefit plans.
Stock-based Compensation: SFAS No. 123, "Accounting for Stock-
Based Compensation," 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 continues to apply
the principles of APB No. 25 and has provided pro forma fair value
disclosures in Note 14.
New Accounting Standard: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement will become
effective beginning January 1, 2001. SFAS No. 133 requires all
derivatives to be recognized as assets or liabilities on the
balance sheet and measured at fair value. Changes in the fair
value of derivatives will be recognized in earnings or other
comprehensive income, depending on the designated purpose of the
derivative. The company is currently evaluating the impact of
adopting the standard and will comply as required.
NOTE 2 - DISCONTINUED OPERATIONS: 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 engineered pump
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 IDP by acquiring the
joint venture partner's 49% share for a net purchase price of
$377.0 million. A note for the full purchase price was issued to
the joint venture partner and was redeemed on January 14, 2000. The
net assets have been reported as assets held for sale in the
accompanying financial statements, and prior periods have been
restated to reflect these businesses as discontinued operations.
Historically, IDP had been reported as part of the Engineered
Products Segment, while D-R had been reported in other income
(expense), net.
The net assets of discontinued operations included in assets held
for sale at December 31, are as follows (in millions):
1999 1998
Cash and cash equivalents $ 49.9 $ 28.5
Other current assets 392.3 416.6
Investments in and advances
with partially owned affiliates 146.3 161.1
Property, plant and equipment, net 103.1 110.8
Intangibles and other assets 310.7 42.2
Current liabilities (194.5) (227.6)
Other liabilities (74.3) (78.1)
Minority interests - (100.0)
Cumulative translation adjustment 34.6 22.6
Net assets of discontinued operations
held for sale $ 768.1 $ 376.1
Income from discontinued operations included the following results
for the years ended December 31 (in millions):
1999 1998 1997
Net sales $837.9 $906.8 $864.2
Operating income 63.9 75.3 36.8
D-R equity earnings 25.4 33.0 9.4
Other income (expense), net 7.4 7.0 4.1
Interest expense (1.4) (1.6) (1.3)
Minority interest (23.7) (30.7) (13.7)
Earnings before income taxes 71.6 83.0 35.3
Income taxes 25.4 29.4 13.4
Income from discontinued
operations $ 46.2 $ 53.6 $ 21.9
The payable to D-R has been netted against the assets held for
sale. Results reported separately by either D-R or IDP that are
presented on a stand-alone basis may differ from the results based
on discontinued operations reporting.
NOTE 3 - ACQUISITIONS OF BUSINESSES: 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 $160.0 million, which included the
assumption of certain debt. Since acquisition, the company
segregated certain net assets of Harrow that would be sold within
twelve months.
In the first quarter of 1998, the company acquired for approximately
$15.4 million in cash, substantially all the assets of Johnstone Pump
Company (Johnstone). Johnstone manufactures industrial piston pumps,
automated dispensing systems and related products for use primarily in
the automotive industry. Also in the first quarter of 1998, the
company acquired for approximately $18.0 million in cash
certain manufacturing assets used to produce residential locks,
excluding padlocks, from the Master Lock unit of Fortune Brands, Inc.
In the third quarter of 1998, the company acquired full ownership of
GHH-RAND Schraubenkcompressoren GmbH & Co. KG (GHH-RAND), a
manufacturer of air ends for air compressors. The company previously
owned 50% of GHH-RAND Schraubenkcompressoren GmbH & Co. KG (GHH-RAND).
In addition, during 1998, the company purchased several smaller
businesses.
On October 31, 1997, the company acquired Thermo King Corporation
(Thermo King), for approximately $2.56 billion in cash. Thermo
King is the world leader in the transport temperature-control
business for trailers, truck bodies, seagoing containers, buses and
light-rail cars. The following unaudited pro forma consolidated
results of operations for the year ended December 31, 1997,
reflects the acquisition as though it occurred at the beginning of
the year, after adjustments for the impact of interest on
acquisition debt and depreciation and amortization of assets.
In millions except per share amounts 1997
Sales $7,101.2
Earnings from continuing operations 368.2
Basic earnings per share - continuing operations $2.26
Diluted earnings per share - continuing operations 2.23
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 year. Further, the pro forma results are not
intended to be a projection of future results of the combined
companies.
On April 3, 1997, the company completed the acquisition of Newman
Tonks Group PLC (Newman Tonks), a producer of architectural
hardware, for approximately $370.0 million.
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 4 - DISPOSITIONS: 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.
In the first quarter of 1998, the company completed the sale
of Ing. G. Klemm Bohrtechnik GmbH. Also, during 1998, the company
sold certain assets of Ingersoll-Rand Architectural Hardware Group
Limited (formerly Newman Tonks Group Limited PLC). Sale proceeds
approximated the book value of these assets. In the third quarter
of 1998, the company sold the Spra-Coupe product line, which was
reported as part of the Specialty Vehicles Segment. The sale price
of approximately $35.0 million resulted in a $9.0 million gain.
On February 14, 1997, the company sold the Clark-Hurth Components
Group (Clark-Hurth) for approximately $241.5 million of net cash.
This group's 1997 results, inclusive of the sale transaction,
produced operating income for the first quarter of approximately
$2.7 million, but on an after-tax basis, reduced net earnings by
approximately $3.6 million.
NOTE 5 - INVENTORIES: At December 31, inventories were as follows:
In millions 1999 1998
Raw materials and supplies $ 161.7 $ 166.8
Work-in-process 191.7 195.8
Finished goods 532.9 607.6
886.3 970.2
Less-LIFO reserve 144.2 145.4
Total $ 742.1 $ 824.8
Work-in-process inventories are stated after deducting customer
progress payments of $2.0 million in 1999 and $5.6 million in 1998.
At December 31, 1999 and 1998, LIFO inventories comprised
approximately 51% and 49%, respectively, of consolidated
inventories. There were no material liquidations of LIFO layers
for all periods presented.
NOTE 6 - INVESTMENTS IN PARTIALLY OWNED EQUITY AFFILIATES: The
company has numerous investments, ranging from 20% to 50%, in
companies that operate in similar lines of business.
The company's investments in and amounts due to/(from) partially
owned equity affiliates amounted to $197.4 million and $0.8
million, respectively, at December 31, 1999, and $184.3 million and
$(0.7) million, respectively, at December 31, 1998. The company's
equity in the net earnings of its partially owned equity affiliates
was $9.5 million, $13.6 million and $18.5 million in 1999, 1998 and
1997 respectively.
The company received dividends based on its equity interests in
these companies of $6.4 million, $6.7 million, and $7.6 million in
1999, 1998 and 1997, respectively.
Summarized financial information for these partially owned equity
affiliates at December 31, and for the years then ended:
In millions 1999 1998
Current assets $ 329.8 $ 392.4
Property, plant and equipment, net 260.0 247.2
Other assets 14.1 15.9
Total assets $ 603.9 $ 655.5
Current liabilities $ 171.5 $ 199.5
Long-term debt 61.3 63.1
Other liabilities 22.8 20.9
Total shareholders' equity 348.3 372.0
Total liabilities and equity $ 603.9 $ 655.5
In millions 1999 1998 1997
Net sales $ 609.3 $ 665.8 $ 782.0
Gross profit 88.1 94.9 126.7
Net earnings 19.5 26.1 37.4
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUALS: Accounts payable and
accruals at December 31, were:
In millions 1999 1998
Accounts payable $ 319.2 $ 371.5
Accrued:
Payrolls and benefits 215.1 235.1
Taxes other than income 36.9 39.9
Insurance and claims 116.1 106.6
Postemployment benefits 82.3 63.3
Warranties 57.8 67.5
Interest 60.6 48.1
Other accruals 336.4 352.4
$1,224.4 $1,284.4
NOTE 8 - FINANCIAL INSTRUMENTS: The company, as a large
multinational company, maintains significant operations in foreign
countries. As a result of these global 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 and options.
In late 1999, the company began purchasing commodity contracts to
hedge a portion of the costs of metals used in its products.
Activity for 1999 was minimal.
The purpose of the company's hedging activities is to mitigate the
impact of changes in foreign currency exchange rates. The company
attempts to hedge transaction exposures through natural offsets. To
the extent that this is not practicable, major exposure areas
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 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 1999 1998
Buy Sell Buy Sell
Australian dollars $ - $ 1.4 $ 2.4 $ 11.5
Brazilian reais - - - 13.8
British pounds 29.2 16.3 13.7 158.9
Canadian dollars 107.3 17.9 2.0 42.4
Czech koruna - - - 10.9
Danish krona 14.5 0.8 5.9 5.9
Euro and euro-linked
currencies 44.3 5.8 102.8 343.4
Japanese yen 4.9 0.6 2.8 19.7
New Zealand dollars - 2.2 3.0 6.4
Singapore dollars 1.3 11.2 - 11.9
Other 4.4 10.1 0.9 3.6
Total $205.9 $66.3 $133.5 $628.4
Forward contracts utilized by the company have maturities of one to
12 months.
The company's forward contracts that hedge transactions or firm
commitments 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. Contracts purchased to mitigate
the variability of future cash flows of foreign subsidiaries bear
market risk to the extent actual transacted amounts vary from the
forecasted amounts. All gains and losses on these contracts have
been included in earnings.
The counterparties to the company's forward contracts consist of a
number of major international financial institutions. The company
could be exposed to loss in the event of nonperformance by the
counterparties. However, 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, 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:
In millions 1999 1998
Long-term debt:
Carrying value $2,113.3 $2,166.0
Estimated fair value 2,083.9 2,299.7
Forward contracts:
Contract (notional) amounts:
Buy contracts $ 205.9 $ 133.5
Sell contracts 66.3 628.4
Fair (market) values:
Buy contracts 209.2 142.9
Sell contracts 66.5 635.3
Fair value of long-term debt was determined by reference to the
December 31, 1999 and 1998, market values of comparably rated debt
instruments. Fair values of forward contracts are based on dealer
quotes at the respective reporting dates.
NOTE 9 - LONG-TERM DEBT AND CREDIT FACILITIES:
At December 31, long-term debt consisted of:
In millions 1999 1998
6 7/8% Notes Due 2003 $ 100.0 $ 100.0
6.255% Notes Due 2001 400.0 400.0
9% Debentures Due 2021 125.0 125.0
7.20% Debentures Due 2025 150.0 150.0
6.48% Debentures Due 2025 150.0 150.0
6.391% Debentures Due 2027 200.0 200.0
6.443% Debentures Due 2027 200.0 200.0
Medium-term Notes Due 2001-2028, at
an average rate of 6.43% 609.9 679.9
9.75% Clark Debentures Due 2001 100.0 100.0
Clark Medium-term Notes Due 2023,
at an average rate of 8.22% 50.2 50.2
Other domestic and foreign
loans and notes, at end-
of-year average interest
rates of 5.756% in 1999
and 6.278% in 1998, maturing
in various amounts to 2014 28.2 10.9
$2,113.3 $2,166.0
Debt retirements for the next five years are as follows:
$73.1 million in 2000, $736.3 million in 2001, $84.0 million in
2002, $198.3 million in 2003 and $315.5 million in 2004.
In December 1998, the company repurchased $110.0 million of its
medium-term notes for $116.9 million including accrued interest.
The average coupon of the notes repurchased was 6.53% with
maturities ranging from 2000 to 2005.
At December 31, 1999, the company's committed revolving credit
lines consisted of two 364-day lines and a five-year line totalling
$1.3 billion and $750.0 million, respectively, both of which were
unused. These lines provide support for commercial paper and
indirectly provide support for other financing 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 a weighted average of 0.06375% per annum.
Available foreign lines of credit were $614.6 million, of which
$540.9 million were unused at December 31, 1999. No major cash
balances were subject to withdrawal restrictions. At December 31,
1999, and 1998 the average rate of interest for loans payable,
excluding the current portion of long-term debt, was 4.186% and
8.306%, respectively.
Capitalized interest on construction and other capital projects
amounted to $4.0 million, $4.0 million and $3.2 million in 1999,
1998 and 1997, respectively. Interest income, included in other
income (expense), net, was $5.4 million, $7.5 million and $11.0
million in 1999, 1998 and 1997, respectively.
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.
The company has established 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 expire annually
and will be renewed with either the current or another financial
institution. The company is retained as the servicer of the pooled
receivables. During 1999, 1998 and 1997, such sales of receivables
amounted to $781.8 million, $723.7 million and $614.0 million,
respectively. At December 31, 1999, $170.0 million of such sold
receivables remained uncollected.
Receivables, excluding the designated pool of accounts and notes
receivable, sold during 1999 and 1998 with recourse, amounted to
$57.5 million and $55.4 million, respectively. At December 31, 1999
and 1998, $18.7 million and $12.4 million, respectively, of such
receivables sold remained uncollected.
As of December 31, 1999, the company had no significant
concentrations of credit risk in trade receivables due to the large
number of customers which comprised its receivables base and their
dispersion across different industries and countries.
In the normal course of business, the company has issued several
direct and indirect guarantees, including performance letters of
credit, totalling approximately $104.0 million at December 31,
1999. The company has also guaranteed the residual value of leased
product in the aggregate amount of $39.1 million. Upon the
termination of a dealer, 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, and historically, only immaterial losses have been
incurred relating to these arrangements. Management believes these
guarantees will not adversely affect the consolidated financial
statements.
Certain office and warehouse facilities, transportation vehicles
and data processing equipment are leased. Total rental expense was
$71.6 million in 1999, $71.2 million in 1998 and $69.5 million in
1997. 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: $46.3
million in 2000, $37.2 million in 2001, $27.2 million in 2002,
$17.9 million in 2003, $15.7 million in 2004 and $25.7 million
thereafter.
NOTE 11 - EQUITY-LINKED SECURITIES: In March 1998, the company,
together with Ingersoll Financing I, a Delaware statutory business
trust of the company (Finance Trust), issued an aggregate of (a)
16,100,000 equity-linked securities, and (b) 1,610,000 Finance
Trust 6.22% capital securities, each with a $25 stated liquidation
amount (the capital securities). The equity-linked securities
consisted of (a) 14,490,000 income equity-linked securities (income
securities), and (b) 1,610,000 growth equity-linked securities
(growth securities).
Each equity-linked security consists of a unit comprised of (a) a
contract to purchase from the company no later than May 16, 2001, a
number of shares of the company's common stock determined in
accordance with a specified formula and to receive an annual
contract adjustment payment until May 15, 2001 of 0.53%, (in the
case of an income security), or 0.78% (in the case of a growth
security), and (b) either beneficial ownership of a capital
security (in the case of an income security), or a 1/40 undivided
beneficial interest in a zero coupon U.S. Treasury Security
maturing May 15, 2001 (in the case of a growth security). Under the
terms of the stock purchase contracts, the company will issue
between 6.9 million and 8.3 million common shares by May 16, 2001.
The capital securities associated with the income securities and
the U.S. Treasury Securities associated with the growth securities
have been pledged as collateral to secure the holders' obligations
in respect of the common stock purchase contracts.
The capital securities were issued by the Finance Trust and are
entitled to a distribution rate of 6.22% per annum of their $25
stated liquidation amount. The Finance Trust utilized the proceeds
from the issuance of the equity-linked and capital securities to
purchase $402.5 million of the company's 6.22% Debentures due May
16, 2003. The Debentures are the sole asset of the Finance Trust.
The interest rate on the 6.22% Debentures and the distribution rate
on the capital securities and common securities of the Finance
Trust are to be reset, subject to certain limitations, effective
May 16, 2001.
The company has recorded the present value of the contract
adjustment payments, totalling $6.4 million, as a liability and a
reduction of shareholders' equity. The liability will be reduced
as the contract adjustment payments are made. The company has the
right to defer the contract adjustment payments and the payment of
interest on the 6.22% Debentures, but any such election will
subject the company to restrictions on the payment of dividends on,
and redemption of, its outstanding shares of common stock, and on
the payment of interest on, or redemption of, debt securities of
the company junior in rank to the 6.22% Debentures.
The company paid costs of approximately $12.9 million in connection
with the issuance of the equity-linked securities and the capital
securities. The portion of such costs which relate to the issuance
of the stock purchase contracts has been recorded as a reduction of
shareholders' equity.
NOTE 12 - COMMON STOCK: In May 1997, the board of directors
authorized the repurchase of up to 15.0 million shares of the
company's common stock at management's discretion. Shares
repurchased will be used for general corporate purposes. The
number of treasury shares at December 31, 1999, and December 31,
1998, were 8,039,516 and 4,494,930, respectively.
In August 1997, the board of directors declared a three-for-two
stock split of the company's common stock. The stock split was
made in the form of a stock dividend, and was paid on September
2, 1997, to shareholders of record on August 19, 1997. All prior
year per share amounts have been restated to reflect the stock
split.
In November 1998, the company adopted a new shareholder rights plan
to replace the plan which expired on December 22, 1998. Under the
new plan, one right was distributed for each share of Ingersoll-
Rand common stock outstanding at the close of business on December
22, 1998.
Initially, the rights are attached to the common stock and are not
exercisable. The rights become exercisable and will trade
separately from the common stock 10 days following the first
public announcement that any person or group has acquired at least
15% of the company's outstanding common stock, or on the 10th day
following the commencement or the announcement of an intention to
commence a tender offer, which would result in that person or group
acquiring beneficial ownership of att least 15 % of the outstanding
shares of common stock. Each right would entitle the holder to
purchase one-thousandth of a share of Series A Preference Stock at
an exercise price of $200.
If any person or group acquires 15% or more of the company's common
stock, the rights not held by the 15% shareholder would become
exercisable to purchase the company's common stock at a 50%
discount. The plan provides that, at any time after a person or
group becomes an acquiring person and prior to the acquisition by
that person or group of 50% or more of the outstanding common
stock, the board may exchange the rights (other than the rights
held by the acquiring person, which will have become void), at an
exchange ratio of one share of common stock per right.
The new rights will expire on December 22, 2008, unless earlier
redeemed or exchanged by the company, as provided in the rights
plan. The company may elect to redeem the rights at $0.01 per
right.
NOTE 13 - LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN: The company's
sponsors a Leveraged Employee Stock Ownership Plan (LESOP) for
eligible employees. The LESOP is used to fund certain employee
benefit plans. At December 31, 1999, and December 31, 1998, the
LESOP held approximately 0.7 million and 1.1 million shares,
respectively, which are unallocated. The carrying value0 offor the
unallocated shares was $16.5 million and $27.0 million at December
31, 1999, and December 31, 1998, respectively, and is classified as
a reduction of shareholders' equity pending allocation to
participants. At December 31, 1999, the LESOP owed
the company $8.4 million payable 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 14 - 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 the grant. Options issued before December 31, 1998, became
exercisable one year after the date of the grant and expire at the
end of 10 years. Options issued after January 1, 1999, become
exercisable ratably over a three year period from their date of
grant and expire at the end of 10 years. The plans, approved in
1990, 1995 and 1998, also authorize stock appreciation rights
(SARs) and stock awards.
As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," the company continues to account for its stock plans
in accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and its related interpretations. Accordingly,
compensation expense has been recognized for SARs (which were
generally settled for cash) and for stock awards.
Under SFAS No. 123, compensation cost for the applicable provisions
of the company's incentive stock plans would be determined based
upon the fair value at the grant date for awards issued since 1996.
Applying this methodology would have reduced net earnings and
diluted earnings per share by approximately $8.5 million and five
cents per share for 1999; $14.7 million and nine cents per share
for 1998; and $10.0 million and six cents per share for 1997. On
December 15, 1996, the company cancelled SARs which were previously
attached to 2,758,500 stock options. Included in the SFAS No. 123
expense for 1997 was approximately $1.5 million (or one cent per
share) for the cost of this revocation. The average fair values of
the options granted during 1999, 1998 and 1997 were estimated at
$14.15, $8.06 and $8.55, respectively, on the date of grant, using
the Black-Scholes option-pricing model, which included the
following assumptions:
1999 1998 1997
Dividend yield 1.27% 1.42% 1.61%
Volatility 29.59% 25.76% 22.59%
Risk-free interest rate 4.93% 5.39% 6.52%
Forfeiture rate -- -- --
Expected life 4 years 4 years 4 years
Changes in options outstanding under the plans were as follows:
Shares subject Option Price Weighted average
to option range per share exercise price
January 1, 1997 5,955,150 $13.83-31.13 $23.25
Granted 2,031,000 30.33-41.28 34.14
Exercised (1,905,250) 13.83-28.54 22.74
Canceled (37,500) 26.21-26.63 26.29
December 31, 1997 6,043,400 $13.83-41.28 $27.06
Granted 2,280,250 37.03-47.03 42.45
Exercised (1,419,525) 13.83-40.47 25.65
Cancelled (69,600) 24.08-41.28 33.75
December 31, 1998 6,834,525 $14.77-47.03 $32.43
Granted 2,816,480 49.09-69.75 50.50
Exercised (2,216,558) 14.77-46.00 31.74
Cancelled (93,590) 26.21-26.63 48.99
December 31, 1999 7,340,857 $15.13-69.75 $39.35
At December 31, 1999, there were 402,050 SARs outstanding with no
stock options attached. The company has reserved 10,309,456 shares
for future awards at December 31, 1999. In addition, 554,875
440,422 shares of common stock were reserved for future issue,
contingent upon attainment of certain performance goals and future
service and 229,427 shares have been earned but deferred at
December 31, 1999.
The following table summarizes information concerning currently outstanding and
exercisable options:
Options Options
outstanding exercisable
Weighted Weighted Weighted
Number average average Number average
Range of outstanding remaining exercise exercisable exercise
exercise price at 12/31/99 life price at 12/31/99 price
$15.13-$20.00 81,400 1.2 $15.64 81,400 $15.64
20.01- 25.00 1,213,250 4.4 23.06 1,213,250 23.06
25.01- 30.00 663,500 6.4 26.31 663,500 26.31
30.01- 35.00 952,300 7.3 33.65 952,300 33.65
35.01- 40.00 - - - - -
40.01- 45.00 1,630,867 8.1 42.26 1,545,734 42.23
45.01- 50.00 2,254,290 9.1 49.01 68,483 46.45
50.01- 55.00 350,000 9.3 51.46 - -
55.01- 60.00 - - - - -
60.01- 65.00 45,900 9.7 62.59 - -
65.01- 69.75 149,350 9.4 65.93 - -
$15.13-$69.75 7,340,857 $39.35 4,524,667 $32.53
The weighted average number of shares exercisable and the weighted average
exercise prices were 4,561,025 shares at a price of $27.44 for December 31,
1998, and 4,012,400 shares at a price of $23.47 for December 31, 1997.
The company also maintains a shareholder-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 participants' accounts
at December 31, 1999 and 1998, are315,210 484,341 and 513,470, respectively.
NOTE 15 - INCOME TAXES: Earnings before income taxes for the years
ended December 31, were taxed within the following jurisdictions:
In millions 1999 1998 1997
United States $669.0 $539.9 $452.5
Foreign 175.8 166.3 125.9
Total $844.8 $706.2 $578.4
The provision for income taxes was as follows:
In millions 1999 1998 1997
Current tax expense:
United States $220.5 $183.2 $176.9
Foreign 37.6 61.3 52.6
Total current 258.1 244.5 229.5
Deferred tax expense:
United States 26.4 12.0 (0.9)
Foreign 15.4 (5.8) (8.8)
Total deferred 41.8 6.2 (9.7)
Total provision for
income taxes $299.9 $250.7 $219.8
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, as a result of the following differences:
Percent of pretax income
1999 1998 1997
Statutory U.S. rates 35.0% 35.0% 35.0%
Increase (decrease) in rates
resulting from:
Amortization of goodwill 2.0 2.5 2.1
Foreign operations (1.0) 0.1 (0.4)
Foreign sales corporation (1.7) (2.0) (0.9)
State and local income taxes,
net of U.S. tax 2.1 2.3 1.3
Puerto Rico - Sec 936 Credit (1.8) (2.2) (0.6)
Other 0.9 (0.2) 1.5
Effective tax rate 35.5% 35.5% 38.0%
A summary of the deferred tax accounts at December 31, follows:
In millions 1999 1998 1997
Current deferred assets and (liabilities):
Differences between book and tax bases
of inventories and receivables $ 21.1 $ 21.4 $ 22.4
Differences between book and tax
expense for other employee related
benefits and allowances 8.5 16.7 4.5
Other reserves and valuation
allowances in excess of tax deductions 35.4 28.3 62.4
Other differences between tax and
financial statement values (11.1) 2.4 1.7
Gross current deferred net tax assets 53.9 68.8 91.0
Noncurrent deferred tax assets and
(liabilities):
Postretirement and postemployment
benefits other than pensions in
excess of tax deductions 262.4 255.1 255.4
Other reserves in excess of tax expense 119.2 124.0 118.9
Tax depreciation in excess of book
depreciation (124.7) (96.0) (95.2)
Pension contributions in excess of
book expense (38.5) (32.6) (34.2)
Taxes provided for unrepatriated
foreign earnings (22.5) (22.5) (28.5)
Gross noncurrent deferred net tax
assets 195.9 228.0 216.4
Less: deferred tax valuation
allowances (37.9) (22.0) (36.7)
Total net deferred tax assets $211.9 $274.8 $270.7
A total of $22.5 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. Therefore, it is not
practicable to estimate the amount of additional taxes which may be payable
upon repatriation.
NOTE 16 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: 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 fulltime employees retire from the
company between age 55 and 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. The company funds the benefit costs principally on
a pay-as-you-go basis.
Summary information on the company's plans at December 31, was as
follows:
In millions 1999 1998
Change in benefit obligations:
Benefit obligation at beginning of year $ 610.3 $ 567.4
Service cost 8.8 9.6
Interest cost 38.0 38.9
Plan participants' contributions 4.3 3.2
Actuarial (gains)/losses (36.8) 29.6
Benefits paid (58.4) (48.0)
Other 0.2 9.6
Benefit obligation at end of year $ 566.4 $ 610.3
Funded status:
Plan assets less than benefit
obligations $(566.4) $(610.3)
Unrecognized:
Prior service gains (54.5) (59.0)
Plan net gains (55.7) (20.2)
Accrued costs in the balance sheet $(676.6) $(689.5)
Weighted-average assumptions:
Discount rate 7.50% 6.75%
Current year medical inflation 6.50% 7.60%
Ultimate inflation rate (2003) 5.00% 4.50%
The components of net periodic postretirement benefits cost for the
years ended December 31, were as follows:
In millions 1999 1998 1997
Service cost $ 8.8 $ 9.6 $ 7.3
Interest cost 38.0 38.9 36.3
Net amortization of
unrecognized:
Prior service gains (4.2) (4.5) (4.5)
Plan net gains - - (0.9)
Net periodic postretirement
benefits cost $42.6 $44.0 $38.2
A 1% change in the medical trend rate assumed for postretirement
benefits would have the following effects at December 31, 1999:
In millions 1% Increase 1% Decrease
Effect on total of service and
interest cost components $ 3.6 $ (3.4)
Effect on postretirement
benefit obligation 47.3 (41.4)
NOTE 17 - 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.
Information regarding the company's pension plans in accordance
with SFAS No. 132 is as follows:
In millions 1999 1998
Change in benefit obligations:
Benefit obligation at beginning of year $1,985.7 $1,845.2
Service cost 42.0 37.7
Interest cost 132.1 130.3
Employee contributions 4.5 5.2
Amendments 3.6 19.4
Acquisitions 35.7 5.6
Expenses paid (3.9) (2.6)
Actuarial (gains)/losses (113.2) 91.4
Benefits paid (142.4) (143.1)
Foreign exchange impact (14.0) (3.9)
Other 4.6 0.5
Benefit obligation at end of year $1,934.7 $1,985.7
In millions 1999 1998
Change in plan assets:
Fair value at beginning of year $2,133.2 $1,977.0
Actual return on assets 197.7 262.7
Company contributions 17.4 37.7
Employee contributions 4.5 5.2
Acquisitions 48.7 0.8
Expenses paid (3.8) (2.6)
In millions 1999 1998
Benefits paid (140.2) (140.6)
Foreign exchange impact (10.6) (7.0)
Fair value of assets at end of year $2,246.9 $2,133.2
Funded status:
Plan assets in excess of benefit
obligations $ 312.2 $ 147.5
Unrecognized:
Net transition asset 6.9 8.0
Prior service costs 58.1 54.1
Plan net gains (317.2) (186.3)
Net amount recognized $ 60.0 $ 23.3
Prepaid/(accrued) costs included
in the balance sheet:
Prepaid benefit cost $ 136.7 $ 95.0
Accrued benefit liability (79.7) (73.1)
Intangible asset 3.0 1.4
Net amount recognized $ 60.0 $ 23.3
Weighted-average assumptions:
Discount rate:
U.S. plans 7.50% 6.75%
International plans 6.00% 6.75%
Rate of compensation increase:
U.S. plans 5.25% 4.50%
International plans 3.50% 4.50%
Expected return on plan assets:
U.S. plans 9.00% 9.00%
International plans 7.75% 8.00%
The components of the company's pension costs for the years ended
December 31, include the following:
In millions 1999 1998 1997
Service cost $ 42.0 $ 37.7 $ 33.4
Interest cost 132.1 130.3 117.7
Expected return on plan assets (183.0) (170.3) (148.6)
Net amortization of unrecognized:
Prior service costs 5.9 3.7 3.6
Transition amount 0.7 0.7 0.6
Plan net losses 2.9 2.3 0.9
Net pension cost $ 0.6 $ 4.4 $ 7.6
The projected benefit obligation, accumulated benefit obligation,
and fair value of plan assets for pension plans with accumulated
benefit obligations more than plan assets were $151.9 million,
$117.3 million and $37.7 million, respectively, as of December 31,
1999, and $169.0 million, $136.8 million and $59.1 million,
respectively, as of December 31, 1998.
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.
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 $25.1 million, $29.0 million and
$25.0 million in 1999, 1998 and 1997, respectively.
The company's costs relating to foreign defined contribution plans,
insured plans and other foreign benefit plans were $4.1 million,
$5.3 million and $8.6 million in 1999, 1998 and 1997, respectively.
NOTE 18 - BUSINESS SEGMENT INFORMATION: Operating segments are
defined as components of a company engaging in business activities
for which separate financial information is available and evaluated
regularly by the chief operating decision maker in assessing
performance and allocating resources.
The accounting policies of the operating segments are the same as
those described in the summary of significant accounting policies
except that the operating segments results are prepared on a
management basis that is consistent with the manner in which the
company disaggregates financial information for internal review and
decision making. The company evaluates performance based on
operating income contribution rates. Intercompany sales
transactions are entirely contained within each segment and are
eliminated at the segment level. A description of the company's
reportable segments is as follows:
Specialty Vehicles
The Specialty Vehicles Segment designs, manufactures and markets
powered vehicles that play a niche role in such fields as
infrastructure development, commercial construction and material
movement. Specialty Vehicles includes 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.
Air and Temperature Control
The Air and Temperature Control Segment focuses on markets
requiring air and refrigerant-gas compression technology and
services to provide gas pressure for distribution to end users or
to maintain a refrigeration cycle. Air and Temperature Control
includes Thermo King transport temperature-control equipment and
Ingersoll-Rand air compressors.
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. Hardware and Tools 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.
Engineered Products
The Engineered Products Segment is composed of highly engineered
specific application products that are sold on a contract basis.
Engineered Products includes Torrington and Fafnir bearings and
components.
Sales by destination and long-lived asset by geographic area for
the years ended December 31 were as follows:
In millions 1999 1998 1997
Sales
United States $5,051.5 $4,770.8 $4,003.5
Foreign 2,615.2 2,613.9 2,235.6
Total $7,666.7 $7,384.7 $6,239.1
In millions 1999 1998
Long-lived assets
United States $4,247.0 $4,211.9
Foreign 928.7 966.3
Total $5,175.7 $5,178.2
A summary of operations by reportable segments for the years ended
December 31, were as follows:
Dollar amounts in millions 1999 1998 1997
Specialty Vehicles
Sales $2,347.8 $2,180.4 $2,011.8
Operating income 405.3 333.3 226.7
Operating income as %
of sales 17.3% 15.3% 11.3%
Depreciation and
amortization 60.2 59.7 63.3
Air and Temperature Control
Sales 2,211.8 2,236.0 1,256.6
Operating income 286.7 262.5 133.7
Operating income as %
of sales 13.0% 11.7% 10.6%
Depreciation and
amortization 106.2 105.4 35.7
Hardware and Tools
Sales 1,874.2 1,724.2 1,652.1
Operating income 320.3 288.3 254.8
Operating income as %
of sales 17.1% 16.7% 15.4%
Depreciation and
amortization 52.2 44.8 39.7
Engineered Products
Sales 1,232.9 1,244.1 1,318.6
Operating income 144.2 136.9 157.1
Operating income as %
of sales 11.7% 11.0% 11.9%
Depreciation and
amortization 51.6 51.1 52.1
Total
Sales $7,666.7 $7,384.7 $6,239.1
Operating income from
reportable segments 1,156.5 1,021.0 772.3
Unallocated corporate
expenses (57.2) (51.9) (48.8)
Total operating income $1,099.3 $ 969.1 $ 723.5
Total operating income as
% of sales 14.3% 13.1% 11.6%
Depreciation and
amortization from
reportable segments 270.2 261.0 190.8
Unallocated depreciation
and amortization 2.2 2.6 1.4
Total depreciation and
amortization $ 272.4 $ 263.6 $ 192.2
NOTE 19 - SUBSEQUENT EVENTS (Unaudited): On February 2, 2000, the
company completed the purchase of D-R by acquiring the joint
venture partner's 51% share for a net purchase price of
approximately $536.0 million in cash. The company intends to
divest of this business (see Note 2).
On February 9, 2000, the company agreed to sell its IDP unit to
the Flowserve Corporation for $775.0 million in cash. The
transaction is subject to regulatory approval and is expected to
close during the second quarter of 2000.
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 shareholders.
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/David W. Devonshire
Executive Vice President and Chief Financial Officer
Report of Independent Accountants
PricewaterhouseCoopers LLP
400 Campus Drive
Florham Park, NJ 07932
February 1, 2000
To the Board of Directors and
Shareholders of Ingersoll-Rand Company:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, shareholders' equity and
cash flows present fairly, in all material respects, the financial
position of Ingersoll-Rand Company and its subsidiaries at December
31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards generally accepted in the United States,
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.
/S/PricewaterhouseCoopers LLP