EXHIBIT 13
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INGERSOLL-RAND COMPANY
ANNUAL REPORT
TO
SHAREOWNERS
FOR
1993
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Table of Contents
Financial Review and Management Analysis . . . . . . . 3-26
Consolidated Statement of Income . . . . . . . . . . . 27
Consolidated Balance Sheet . . . . . . . . . . . . . . 28-29
Consolidated Statement of Shareowners' Equity . . . . . 30-31
Consolidated Statement of Cash Flows . . . . . . . . . 32-33
Notes to Consolidated Financial Statements . . . . . . 34-62
Report of Management . . . . . . . . . . . . . . . . . 63
Report of Independent Accountants . . . . . . . . . . . 64
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Ingersoll-Rand Company
Financial Review and Management Analysis
1993 Compared to 1992
1993 continued to be a year of challenges and accomplishments for
the company. We were challenged by striving to exceed the prior
year's results while faced with a continued recession in Europe
throughout the year. The turnaround in Europe, which we had
originally expected by the latter half of 1993 did not occur.
However, based on stronger domestic markets, principally in the
automotive, housing, industrial and selected construction
markets, together with continued benefits from company-wide cost-
containment programs, the company was able to meet its operating
goals in 1993.
The company's outlook for 1994 is for a steady improvement in
operating results based on continued improvement in our domestic
markets combined with a gradual recovery in our international
markets throughout the year. These expectations are supported by
our aggressive cost-containment programs, our continuing emphasis
on total quality management and a focus on reengineering our
business processes aimed at accelerating our efficiency gains.
The company notes two significant events for the year. The
first was the full year inclusion of Ingersoll-Dresser Pump
Company (IDP) in the company's results. IDP is a joint venture
between the company and Dresser Industries, Inc., formed
effective October 1, 1992. IDP's operating results in 1993,
which are discussed throughout this report, were adversely
affected by the European recession, but benefitted from the
restructuring plan, which was provided for in 1992 but
implemented for the most part during 1993.
Second, the company adopted, effective January 1, 1993,
Statement of Financial Accounting Standards (SFAS) No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS No.
112 requires an accrual for the expected cost of benefits
provided by an employer to former or inactive employees after
employment but before retirement. These benefits typically are
associated with the continuation of medical and life insurance
benefits for employees on short- and long-term disability.
Previously, these benefits were expensed as incurred. The
company elected to adopt this standard in the fourth quarter of
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1993, and recognized the postemployment benefit obligation as of
January 1, 1993. The effect of the adoption of SFAS No. 112 for
the company totalled $21.0 million ($0.20 per share), net of a
$13.5 million tax benefit. Aside from the effect of the
adjustment, the adoption of SFAS No. 112 was not material to the
company's 1993 financial results and accordingly, the results for
the first three quarters of 1993 have not been restated to
reflect this adoption.
A comparison of key financial data between 1993 and 1992
follows:
o Net sales for 1993 totalled $4.0 billion, 6.3 percent higher
than in 1992. Excluding the sales from the pump units
contributed to IDP by Dresser, sales would have decreased by
approximately two percent.
o Cost of goods sold in 1993 was 75.0 percent of sales, compared
to 76.2 percent in 1992. A partial liquidation of LIFO
(last-in, first-out) inventories lowered 1993 costs by $12.5
million ($7.6 million after-tax, or seven cents per share); a
similar liquidation in 1992 lowered costs by $5.8 million
($3.6 million after-tax, or three cents per share). Excluding
the benefit of the LIFO liquidations, the 1993 cost of goods
sold percentage relationship to sales would have been 75.3
percent versus 76.3 percent for 1992. This reduction
represented the benefit from the company's continuing programs
of aggressive cost-containment and improved volume from some
of our domestic markets.
o Administrative, selling and service engineering expenses were
17.6 percent of sales in 1993, compared to 17.1 percent for
1992. The increase was due to the combined effect of
including IDP's results for the full year of 1993 and
increases in salaries, administrative costs and expenses of a
general nature.
o The 1993 restructure of operations charge totalled $5.0
million and related to the company's decision to sell its
underground coal-mining machinery business during the second
quarter of the year. The sale of this business was finalized
in July 1993. The 1992 restructure charges totalled $80
million, $70 million of which related to the IDP venture and
was recorded in last year's fourth quarter. The remaining $10
million charge was recorded in the third quarter of 1992 and
related to the company's decision to realign its aerospace
bearings business.
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o Interest expense for 1993 was $52.0 million, approximately
four percent lower than the $54.1 million reported for 1992.
The reduction was due to the combined effect of lower overall
outstanding debt and lower effective interest rates in 1993,
when compared to 1992.
o The "other income (expense), net" category is essentially the
sum of three activities: (i) foreign exchange, (ii) equity
interest in partially-owned equity companies, and (iii) other
miscellaneous income and expense items. In 1993, this
category totalled a net expense balance of $7.5 million, as
compared to only $0.7 million for the prior year. A review of
the components of this category show that:
- foreign exchange activity for 1993 totalled $6.6 million of
losses, as compared to $6.2 million of losses in 1992;
- earnings from equity interests in partially-owned equity
companies decreased by approximately $5 million in 1993,
when compared to the prior year, principally due to the 1992
sale of the company's interest in one of these equity
companies; and
- other net miscellaneous expense items were approximately
one-half of prior-year levels, but 1992 included a gain from
the sale of an equity interest in a company, which offset
last year's net miscellaneous expense items.
o Dresser-Rand Company is another partnership between the
company and Dresser Industries, Inc. It commenced operations
on January 1, 1987, and comprises the worldwide reciprocating
compressor and turbomachinery businesses of the two companies.
The company's pretax profits from its interest in Dresser-Rand
for 1993 totalled $33.1 million, as compared to $27.6 million
in the prior year. The improvement in the operating results
of Dresser-Rand is attributed primarily to the benefits
obtained from cost-containment programs and the efficiencies
generated by maintaining volume levels at their manufacturing
locations.
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o The Ingersoll-Dresser Pump Company minority interest
represents Dresser's interest in the operating results of IDP.
In 1993, the minority interest was a charge of $11.6 million,
and represented the portion of IDP's earnings that were
allocable to our joint venture partner. The 1992 benefit of
$35.0 million basically represented the portion of last year's
$70 million restructure charge for IDP, which was the
responsibility of our joint venture partner. IDP's 1992
fourth quarter results, excluding the restructure charge, were
essentially at the break-even level. Overall, the
restructuring efforts in IDP have been substantially completed
and the company expects to realize the majority of the
benefits from these actions in 1994 and beyond.
o The company's effective tax rate for 1993 was 35.5 percent,
which is a modest decrease over the 36.8 percent reported for
the prior year. The variance from the 35.0 percent statutory
rate was due primarily to the higher tax rates associated with
foreign earnings and the effect of state and local taxes.
o At December 31, 1993, employment totalled 35,143. This
represents a net decrease of 165 employees over last year's
level of 35,308. Acquisitions added a total of 2,610
employees, while divestitures, attrition and cost-reduction
programs reduced total employment by 2,775.
Liquidity and Capital Resources
Management continues to maximize efforts to utilize assets and
resources in an efficient manner. The following table contains
several key measures of the company's financial performance:
1993 1992 1991
Working capital (in millions) $878 $888 $904
Current ratio 1.9 1.8 2.2
Debt-to-total capital ratio 28/72 30/70 23/77
Average working capital
to net sales 22.0% 23.7% 22.8%
Average days outstanding
in receivables 64.1 61.1 61.1
Average months' supply
of inventory 4.4 4.6 4.9
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Ingersoll-Rand, as a large multinational company, maintains
significant operations in foreign countries. The movement of the
U.S. dollar against foreign currencies has a day-to-day impact on
the company's financial position. This impact is not always
apparent since the company reports its consolidated results in
U.S. dollars. During 1993, many foreign currencies weakened
against the U.S. dollar for most of the year and the effect of
these foreign currency fluctuations was significant.
The following highlights the financial results and financial
condition of the company's operations, with the impact of
currency variations where appropriate:
o Cash and cash equivalents totalled $228.0 million at December
31, 1993, $11.2 million more than the prior year-end balance
of $216.8 million. In evaluating the net change in cash and
cash equivalents, cash flows from operating, investing and
financing activities, and the effect of exchange rate changes
should be considered. Cash flows from operating activities
totalled $164.9 million, investing activities used $60.7
million and financing activities used $86.1 million. Exchange
rate changes during 1993 decreased cash and cash equivalents
by approximately $6.9 million.
o Marketable securities totalled $6.2 million at the end of
1993, approximately $7.2 million less than the balance at
December 31, 1992. Foreign marketable securities decreased by
approximately $0.8 million during the year due to foreign
exchange rate fluctuations. The remaining reduction was due
to the maturity of the various securities and their
liquidation into cash and cash equivalents.
o Receivables totalled $797.5 million at December 31, 1993,
compared to $809.6 million at the prior year-end, for a net
decrease of $12.1 million. Currency translation decreased the
receivable balance during the year by $27.7 million, offset
partially by increased receivables, principally from IDP's
European operations. The average days outstanding in
receivables increased slightly from 1992's level because of
the higher mix of international receivables, due to the IDP
joint venture, which traditionally carry longer payment terms
than domestic receivables.
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o Inventories amounted to $713.7 million at December 31, 1993,
$56.6 million lower than last year's level of $770.3 million.
This decrease was a result of the company's aggressive
inventory control programs, which reduced inventory levels by
approximately $36 million. Currency movements accounted for
an additional $18.8 million reduction in inventory for the
year. Acquisitions less dispositions accounted for the
remaining difference. During the last three years, the
company has been able to reduce its inventory by more than
$100 million (excluding the inventory from the contributed
pump units of Dresser). The company's emphasis on inventory
control was reflected in the reduction in the average months'
supply of inventory, which was 4.4 months at December 31,
1993, compared to 4.6 months at the prior year-end.
o Prepaid expenses totalled $39.8 million at the end of the
year, $15.7 million lower than the balance at December 31,
1992. Foreign exchange activity had the effect of reducing
the balance in this account by $0.8 million during the year.
The net decrease for the year was split between a general
decrease in the company's prepaid expenses and the disposition
of certain assets held for sale.
o Deferred income taxes (current) of $116.9 million at December
31, 1993, represent the deferred tax benefit of the difference
between the book and tax values of various current assets and
liabilities. A schedule of the components for this balance is
in Note 12 of the Notes to Consolidated Financial Statements.
The year-end balance represented an increase of approximately
$15 million from the December 31, 1992, level. Changes due to
foreign currency movements had an immaterial effect on the
year's activities.
o The investment in Dresser-Rand Company totalled $112.6 million
at December 31, 1993. This represented a net decrease of
approximately $7.1 million from 1992's balance of $119.7
million. The components of the change for 1993 consisted of
income for the current year of $33.1 million, a $37.7 million
change in the advance account between the entities and a $2.5
million reduction due to currency fluctuations.
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o The investments in partially-owned equity companies at
December 31, 1993, totalled $158.6 million, $9.3 million
higher than the 1992 balance. The components of this change
consisted of income for the current year of $15.6 million,
dividends of $3.1 million, a net decrease in the amounts due
from these units of $7.6 million and currency movements of
$4.4 million.
o Net property, plant and equipment increased by approximately
$28 million in 1993 to a year-end balance of $875.1 million.
Fixed assets from acquisitions during 1993 added $25.9
million. Capital expenditures in 1993 totalled $132.0
million, a slight increase over the prior year's level.
Foreign exchange fluctuations decreased the net fixed asset
values in U.S. dollars by approximately $11.9 million. The
remaining net decrease was principally due to depreciation
expense.
o Intangible assets, net, totalled $105.9 million at December
31, 1993, as compared to $113.2 million at December 31, 1992,
for a net decrease of $7.3 million. Amortization (which was
charged to expense) accounted for a reduction of $5.9 million.
The remaining net change was attributable to currency
fluctuations and acquisitions during the year.
o Deferred income taxes (noncurrent) totalled $90.9 million at
December 31, 1993. This net deferred asset arose in 1992
primarily because of the tax effects related to the adoption
of SFAS No. 106 (Postretirement Benefits Other Than Pensions).
The 1993 balance was $13.9 million higher than the 1992
balance, primarily due to the company's adoption of SFAS No.
112 relating to postemployment benefits. A listing of the
components which comprised the balance at December 31, 1993,
can be found in Note 12 of the Notes to Consolidated Financial
Statements.
o Other assets totalled $130.0 million at year-end, an increase
of approximately $16.5 million from the December 31, 1992,
balance of $113.5 million. The change in the account balance
was primarily due to an increase in prepaid pensions. Foreign
exchange activity in 1993 had a minimal effect on the account
balance during the year.
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o Accounts payable and accruals totalled $762.4 million at
December 31, 1993, a decrease of $60.7 million from last
year's balance of $823.1 million. The majority of the 1993
reduction related to expenditures made with respect to
restructure of operations reserves for IDP, which were
established in the fourth quarter of 1992 but not paid until
the current year. All other activity, including acquisitions,
caused an increase of approximately $20 million in this
category during the year, while foreign exchange activity
decreased this account by approximately $21 million.
o Loans payable were $206.9 million at the end of 1993, compared
to $201.3 million at December 31, 1992. Current maturities of
long-term debt, included in loans payable, were $82 million
and $17.2 million at December 31, 1993 and 1992, respectively.
Excluding the current maturities of long-term debt, short-term
borrowings decreased by approximately $49.5 million during
1993. This balance can be attributed to a decrease in foreign
short-term debt and a reduction in the total loans outstanding
during 1993 of $4.2 million due to foreign currency
fluctuations.
o Long-term debt, excluding current maturities, totalled $314.1
million at December 31, 1993, compared to $355.6 million at
December 31, 1992, a net decrease of $41.5 million. This net
decrease was the result of additions to long-term debt of
$101.8 million reduced by transfers to loans payable for
current maturities and a $0.6 million reduction from foreign
currency fluctuations. The additions to long-term debt
primarily represented, the February 3, 1993, issuance by the
company of $100 million of notes at 6 7/8% per annum, which
are not redeemable prior to maturity in 2003. The proceeds
from these notes were used to redeem $68 million of the
company's outstanding 8.05% Debentures Due 2004 and for
general corporate purposes.
o Postemployment benefits at December 31, 1993, totalled $515.8
million, an increase of $21.3 million over the December 31,
1992, balance. Postemployment benefits include medical and
life insurance postretirement benefits, long-term pension
accruals and other noncurrent postemployment accruals.
Postemployment benefits represent the company's noncurrent
liability in accordance with SFAS Nos. 87, 106 and 112. SFAS
No. 112 was adopted as of January 1, 1993. See Notes 13 and
14 of the Notes to Consolidated Financial Statements for
additional information.
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o Ingersoll-Dresser Pump Company minority interest, which
represents Dresser's interest in the IDP joint venture,
totalled $146.3 million and $146.2 million at December 31,
1993 and 1992, respectively. Earnings allocable to IDP's
minority interest totalled $11.6 million for 1993, which were
virtually offset by translation adjustments and final
valuation modifications.
o Other liabilities (noncurrent) at December 31, 1993, totalled
$24.9 million, which were $6.9 million higher than the balance
at December 31, 1992. The net increase for 1993 represented
changes to various accruals, which are not expected to be paid
out in the company's next business cycle. These accruals
generally cover environmental obligations, legal accruals, and
other contractual obligations.
Other information concerning the company's financial
resources, commitments and plans is as follows:
The average amount of short-term borrowings outstanding,
excluding current maturities of long-term debt, was $159.1
million in 1993, compared to $166.5 million in 1992. The
weighted average interest rate during 1993 was 7.8%, compared to
10.4% during the previous year. The decrease in the 1993 average
amount of short-term borrowings outstanding was attributable to
the company's foreign operations, which used short-term debt
financings as a hedge against currency movements.
The company had $400 million of domestic short-term credit
lines at December 31, 1993, and $412 million of foreign credit
available for working capital purposes, all of which were unused
at the end of the year. These facilities exceed projected
requirements for 1994 and provide direct support for commercial
paper and indirect support for other financial instruments, such
as letters of credit and comfort letters.
At December 31, 1993, the debt-to-total capital ratio was
28/72, as compared to 30/70 at the prior year-end. The
improvement in the ratio at December 31, 1993, was primarily due
to the company's continuing program to reduce inventory and
control spending to generate cash to reduce the company's overall
debt obligations.
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In 1993, foreign currency adjustments decreased shareowners'
equity by approximately $31.7 million. The change was due to the
strengthening of the U.S. dollar against other currencies in
countries where the company has significant operations. Currency
fluctuations in the United Kingdom, Canada, France, Italy,
Germany, Japan and Spain accounted for virtually all of the
change. Inventories, accounts receivable, net property, plant
and equipment, accounts payable and loans payable were the
principal accounts affected.
In 1993, the company continued to sell an undivided fractional
ownership interest in designated pools of accounts and notes
receivables up to a maximum of $125 million. Similar agreements
have been in effect since 1987. These agreements expire in one-
and two-year periods based on the particular pool of receivables
sold. The company intends to renew these agreements at their
expiration dates with either the current institution or another
financial institution using the basic terms and conditions of the
existing agreement. At December 31, 1993 and 1992, $125 million
of such receivables remained uncollected.
Capital expenditures were $132 million in 1993 and 1992. 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 1994 is estimated at approximately $160
million, including carryover from projects approved in prior
periods. There are no planned projects that, either individually
or in the aggregate, represent a material commitment for the
company. Many of these projects are subject to review and
cancellation at the option of the company without incurring
substantial charges.
As a result of high inflationary periods in the 1970s,
experimental disclosure of supplementary information to measure
the effects of inflation on historical financial statements in
terms of the constant dollar and current costs was required.
While the company presented inflation-adjusted data, the
information presented was based on assumptions, estimates and
judgments, which were far from precise indicators of the effects
of inflation on the company. High inflationary trends have
dissipated in recent years and, after a review of the effects of
inflation, the company has determined that such information is
neither material nor meaningful at this time.
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Environmental Matters
The company is subject to extensive environmental laws and
regulations. We believe that the company, as well as industry in
general, will be faced with increasingly stringent laws and
regulations in the future. As a result, the company has been and
continues to be dedicated to an environmental program to reduce
the utilization and generation of hazardous materials during the
manufacturing process and to remediate identified environmental
concerns. As to the latter, the company currently is engaged in
site investigations and remedial activities to address
environmental cleanup from past operations at current and former
manufacturing facilities.
During 1993, the company spent approximately $10 million on
capital projects for pollution abatement and control and an
additional $8 million for environmental remediation expenditures,
including operation and maintenance of existing environmental
programs. It should be noted that these amounts are difficult to
estimate because environmental improvements are generally
intertwined with the overall improvement costs at a particular
plant, and the accurate estimate of which portion of an
improvement or a capital expenditure relates to an environmental
improvement is difficult to ascertain. The company believes that
these expenditure levels will continue and may increase over
time. Given the evolving nature of environmental laws,
regulations and technology, the ultimate cost of future
compliance is uncertain.
The company is a party to environmental lawsuits and claims.
It has received notices of potential violations of environmental
laws and regulations from the Environmental Protection Agency and
similar state authorities, and is identified as a potentially
responsible party (PRP) for cleanup costs at approximately 29
federal Superfund and state remediation sites. For all sites
there are other PRPs and in most instances, the company's site
involvement is minimal. While all PRPs may be jointly and
severally liable to pay all site investigation and remediation
costs, to date, there is no indication the company will be
severally liable at any site. Additional lawsuits and claims
involving environmental matters are likely to arise from time to
time in the future.
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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 or the results of operations of the
company for any year.
Pending Transactions
On December 22, 1993, Ingersoll-Rand announced that it has agreed
to acquire a 12-percent interest in Nuovo Pignone from Ente
Nazionale Idrocarburi (ENI), the Italian government-owned energy
conglomerate. Nuovo Pignone is a manufacturer of turbines,
compressors, pumps, valves and fuel dispensing systems, primarily
for energy-related industries.
The agreement with ENI also calls for General Electric, which
leads the consortium, to acquire a 25-percent share and for
Dresser Industries to acquire a 12-percent share in Nuovo
Pignone. The consortium has invited several Italian banks to
acquire up to 20-percent ownership. The remainder of the company
will be owned by subsidiaries of ENI (20 percent) and public
shareholders (11 percent). The purchase price for the company's
interest totals approximately $73 million. The transaction is
subject to antitrust review and is expected to close in the first
half of 1994.
On February 22, 1994, Ingersoll-Rand announced that it signed
a letter of intent to acquire the sales and service arm of
ECOAIR, a subsidiary of MAN Gutehoffnungshutte AG (MAN GHH),
based in Oberhausen, Germany. In addition, Ingersoll-Rand will
form a 50/50 joint venture company with MAN GHH to develop and
manufacture rotary-screw airends -- a key component in certain
industrial air compressors. The joint venture, to be based in
Oberhausen, primarily will market airends to other worldwide
compressor-packaging manufacturers and also supply airends to
Ingersoll-Rand. The relevant activities for MAN GHH's screw
compressor airend business will be transferred to the new
company. The transactions, subject to certain regulatory
approvals, are expected to be finalized by mid-1994.
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1992 Compared to 1991
1992 was a year of accomplishments and challenges for the
company. The company succeeded in its efforts to form
Ingersoll-Dresser Pump Company (IDP), effective October 1, 1992.
The original intent to form this joint venture between the
company and Dresser Industries, Inc. (Dresser), was announced in
May 1991, but objections from the United States Department of
Justice were not dropped until September 1992. The company owns
51 percent of this partnership; therefore, since formation, IDP
has been included in the company's consolidated financial
statements with Dresser's minority interest in the net assets and
financial results of IDP being shown separately.
It was a challenging year, not only because of IDP and
changing economic scenarios during the year, but the company also
adopted, effective January 1, 1992, Statements of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and No. 109,
"Accounting for Income Taxes."
SFAS No. 106 requires an accrual for the expected cost of
providing postretirement benefits, such as health care and life
insurance benefits, during the years that the employees provide
service to the company. Previously, these benefits were expensed
as incurred. In adopting this standard in the fourth quarter of
1992, the company elected to fully recognize the accumulated
postretirement benefit obligation as of January 1, 1992, and
accordingly, the company restated its results for the first three
quarters of 1992. The effect of the adoption of SFAS No. 106 for
the company's worldwide pre-1992 obligation totalled $283.8
million ($2.73 per share), net of a $145.2 million tax benefit.
In addition, the company incurred an additional after-tax
charge of $48.2 million ($0.46 per share) representing the
company's share of the effect of the adoption of SFAS No. 106 by
Dresser-Rand Company. Therefore, the total after-tax charge to
the company for the adoption of SFAS No. 106 was $332.0 million
($3.19 per share).
SFAS No. 109 changes the method of accounting for income taxes
from the deferral method to the liability method. Under the
liability method, deferred income taxes are determined based on
enacted tax laws and rates which are applied to the differences
between the financial statement bases and tax bases of assets and
liabilities. The effect of adopting SFAS No. 109 at January 1,
1992, produced an $18.0 million ($0.17 per share) charge to the
company.
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Finally, the worldwide economic climate had varying effects on
the company's operations during the year. Overall, the domestic
construction, industrial and automotive markets were stronger in
1992 than in 1991. Their strength more than offset the weakness
in the European markets that developed in the latter part of
1992.
A comparison of key financial data between 1992 and 1991
follows:
o Net sales for 1992 totalled $3.8 billion, 5.5 percent higher
than in 1991. Excluding the fourth quarter sales from the
pump units contributed to IDP by Dresser, the net sales
increase would have been two percent.
o Cost of goods sold in 1992 was 76.2 percent of sales, compared
to 76.0 percent in 1991. A partial liquidation of LIFO
(last-in, first-out) inventories lowered 1992 costs by $5.8
million ($3.6 million after-tax, or three cents per share); a
similar liquidation in 1991 lowered costs by $19.3 million
($12.0 million after-tax, or 12 cents per share). However,
1992 includes the effect of SFAS No. 106 (Postretirement
Benefits Other Than Pensions), which added approximately $22.2
million of additional costs in 1992, which were not in 1991's
cost of goods sold. Excluding the benefit of the LIFO
liquidations and the 1992 effect of SFAS No. 106 from the cost
of goods sold figures for the appropriate years, 1992's
percentage relationship to sales would have been 75.7 percent
versus 76.5 percent for 1991. This reduction represented the
benefit from the company's continuing programs of aggressive
cost-containment and improved volume increases in our domestic
markets.
o Administrative, selling and service engineering expenses were
17.1 percent of sales in 1992, compared to 16.6 percent for
1991. However, 1992 included approximately $7.4 million of
additional charges for SFAS No. 106 and, without these
charges, the 1992 percentage relationship to sales would have
been 16.9 percent. This figure represented a slight increase
over 1991 due to the fourth quarter effect of IDP, and
increases in salaries, administrative costs and fees of a
general nature.
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o The 1992 restructure of operations charge was comprised of the
following:
- $70 million charge in the fourth quarter associated with the
IDP joint venture. This charge, for the reduction in work
force and excess facilities, will transform IDP into a
world-class competitor in the pump business. The charge was
shared evenly by the partners of IDP; therefore, the
minority interest elimination for the restructure was $35.0
million and the company's portion was $35.0 million ($25.7
million after-tax, or $0.25 per share).
- $10.0 million charge in the third quarter relating to the
company's decision to realign its aerospace bearings
business due to depressed conditions in the aerospace
industry.
In 1991, the company reported a net benefit of $7.1 million
from a first quarter restructure of operations, which included
the sale of Schlage Electronics.
o Interest expense for 1992 was $54.1 million, approximately
nine percent lower than the $59.3 million reported for 1991.
The reduction was due to lower effective interest rates in
1992, when compared to 1991. At the end of 1992, all
short-term debt was related to our foreign operations.
o Other income (expense) for 1992 was a net expense of $734,000
representing a favorable variance of over $18 million from
1991's net expense figure. The 1992 improvement was generated
from increased earnings from partially-owned equity companies,
a $15 million gain from the sale of an equity interest in a
company and a reduction in costs of a miscellaneous nature.
These income improvements were reduced by an $8.7 million
unfavorable change in foreign currency, which produced a $6.2
million pretax loss in 1992, as compared to a $2.5 million
pretax gain in the prior year.
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o Dresser-Rand Company is another partnership between the
company and Dresser Industries, Inc. It commenced operations
on January 1, 1987, and comprises the worldwide reciprocating
compressor and turbomachinery businesses of the two companies.
Effective October 1, 1992, Dresser increased its ownership
interest in this partnership to 51 percent from 50 percent.
Dresser-Rand, as previously mentioned, adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," effective January 1, 1992. The effect of this
accounting change reduced the company's investment in
Dresser-Rand by the pretax effect of approximately $73
million.
The company's pretax profits from its interest in Dresser-Rand
for 1992 totalled $27.6 million, compared to $40.0 million in
1991. Additional charges during 1992 for the postretirement
accounting change caused $7.2 million of the year-to-year
decrease, while shipment delays on some large orders and a
deterioration in operating efficiencies contributed to the
balance of the reduction.
o The Ingersoll-Dresser Pump Company minority interest
represents Dresser's interest in the operating results of IDP.
This item was a decrease in expense to the company because the
entire $70 million restructure of operations charge was a
reduction in the company's operating results, and this charge
was shared equally between the partners. Excluding the
restructure of operations charge from IDP's results for 1992,
the partnership generated a minor amount of earnings for its
first three months of operation. Overall, the company
believes that the full operating benefits of the new venture
will not be realized until late 1994.
o The company's effective tax rate for 1992 was 36.8 percent,
which is a slight increase over the 36.0 percent reported for
1991. The variance from the 34.0 percent statutory rate was
due primarily to the higher tax rates associated with foreign
earnings.
o At December 31, 1992, employment totalled 35,308. This
represents an increase of 4,191 employees over the 1991 level
of 31,117. Employees from the pump units contributed by
Dresser to IDP totalled 4,741 employees and 1992 acquisitions
accounted for another 156 employees. Attrition and cost
reduction programs offset these increases by 706 employees.
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The following highlights the financial results and financial
condition of the company's operations, with the impact of
currency variations where appropriate:
o Cash and cash equivalents totalled $216.8 million at December
31, 1992, $79.9 million more than the 1991 balance of $136.9
million. In evaluating the net change in cash and cash
equivalents, cash flows from operating, investing and
financing activities and the effect of exchange rate changes
should be considered. Cash flows from operating activities
totalled $169.7 million, investing activities used $106.1
million and financing activities provided $24.5 million.
Exchange rate changes during 1992 decreased cash and cash
equivalents by approximately $8.2 million. In addition, cash
and cash equivalents from the pump units contributed by
Dresser to IDP accounted for a $10.1 million decrease in the
cash used for investing activities.
o Marketable securities totalled $13.4 million at the end of
1992, approximately $12.1 million more than the balance at
December 31, 1991. Marketable securities from pump units
contributed by Dresser totalled $15.2 million. Foreign
marketable securities decreased by approximately $1.5 million
during the year due to foreign exchange rate fluctuations.
o Receivables totalled $809.6 million at December 31, 1992,
compared to $652.3 million at 1991's year-end. The net
increase for 1992 of $157.3 million included approximately
$130.5 million from the pump units contributed by Dresser to
IDP. The remaining increase was due to stronger fourth
quarter sales. Currency translation decreased the receivables
balance during the year by $39.5 million. The average days
outstanding in receivables remained at the 1991 year-end
level, but represented a more aggressive domestic collection
effort reduced somewhat by a higher mix of international
receivables, with longer payment terms than domestic
receivables.
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o Inventories amounted to $770.3 million at December 31, 1992,
which is $23.4 million higher than 1991's level of $746.9
million. This increase included approximately $100 million of
inventory contributed from Dresser's pump units. Excluding
this increase from the year-to-year comparison shows that the
company's aggressive inventory control programs actually
reduced the inventory level by approximately $37 million and
currency movements accounted for an additional $40 million
reduction in inventory for 1992. During the last three years,
the company has been able to reduce its inventory by more than
$100 million (excluding the inventory from the contributed
pump units of Dresser). The company's emphasis on inventory
control is apparent by the reduction in the average months'
supply of inventory, which was 4.6 months at December 31,
1992, compared to 4.9 months at the 1991 year-end.
o Prepaid expenses totalled $55.6 million at the end of 1992,
$6.6 million higher than the balance at December 31, 1991.
Foreign exchange activity had the effect of reducing the
balance in this account by $3.6 million during 1992. The net
increase for the year was split between a general increase in
the company's prepaid expense activity and from pump units
contributed by Dresser.
o Deferred income taxes (current) of $101.8 million at December
31, 1992, represent the deferred tax benefit between the book
and tax values of various current assets and liabilities. A
schedule of the components for this balance is in Note 12 of
the Notes to Consolidated Financial Statements. The year-end
balance represented an increase of approximately $6.2 million
from the December 31, 1991, level. Changes due to foreign
currency movements had an immaterial effect on the year's
activities.
o The investment in Dresser-Rand Company totalled $119.7 million
at December 31, 1992. This represented a net decrease of
approximately $22.3 million from 1991's balance of $142.0
million. The components of the change for 1992 consisted of
the $73.1 million reduction for the adoption of SFAS No. 106;
income for 1992 of $27.6 million; a $26.5 million change in
the advance account between the entities and a $3.3 million
reduction due to currency fluctuations.
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o The investments in partially-owned equity companies at
December 31, 1992, totalled $149.4 million, $6.0 million lower
than the 1991 balance. The components of this change
consisted of the following:
- $20.6 million increase from the company's equity earnings in
these units;
- $6.4 million increase in amounts due from these units to the
company;
- $34.7 million decrease from the sale of the company's
interest in one of these units;
- $1.4 million decrease for dividends from these units;
- $7.3 million increase for investments from the contributed
pump units of Dresser to IDP; and
- $4.2 million decrease for the effect of currency
fluctuations during the year.
o Net property, plant and equipment increased approximately
$64.0 million in 1992 to a year-end balance of $847.1 million.
The contributed pump units from Dresser increased net fixed
assets during the year by approximately $74.6 million (assets
of $225.2 million less accumulated depreciation of $150.6
million). Fixed assets from acquisitions during 1992 added
$3.5 million. Capital expenditures in 1992 totalled $131.7
million, a decrease of $9.3 million from 1991. Foreign
exchange fluctuations decreased the net fixed asset values in
U.S. dollars by approximately $28.1 million. The remaining
net decrease was due principally to depreciation expense.
o Intangible assets, net, totalled $113.2 million at December
31, 1992, as compared to $104.5 million at December 31, 1991,
for a net increase of $8.7 million. Increases of $6.1 million
during the year came from the contributed pump units of
Dresser and acquisitions, as well as an increase in the
pension intangible asset of $9.1 million. Reductions came
from $5.6 million of amortization with the remainder from the
effect of currency fluctuations.
o Deferred income taxes (noncurrent) totalled $77.0 million at
December 31, 1992. This net deferred asset arose in 1992,
primarily because of the tax effects related to the adoption
of SFAS No. 106. A listing of the components which comprised
the December 31, 1992, balance can be found in Note 12 of the
Notes to Consolidated Financial Statements.
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EXHIBIT 13
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o Other assets totalled $113.5 million at year-end, an increase
of $1.0 million from the December 31, 1991, balance of $112.5
million. Assets from the contributed pump units accounted for
a major portion of this increase. Foreign exchange activity
in 1992 had minimal effect on the account balance during the
year.
o Accounts payable and accruals totalled $823.1 million at
December 31, 1992, an increase of $201.2 million over 1991's
balance of $621.9 million. Liabilities of the contributed
pump units from Dresser to IDP accounted for $126.1 million of
the increase, and the reserves established for the company's
restructure of operations charges during 1992 added another
$72 million. All other activity, including the accrual for
the current portion of postretirement benefits, caused another
$30.1 million increase in this account for 1992. Foreign
exchange activity during 1992 decreased accounts payable and
accruals by approximately $27 million.
o Loans payable were $201.3 million at the end of 1992, compared
to $118.3 million at December 31, 1991. Current maturities of
long-term debt, included in loans payable, were $17.2 million
at December 31, 1992, and $8.4 million at December 31, 1991.
Excluding the current maturities of long-term debt, short-term
borrowings increased by approximately $74.2 million during
1992. Loan balances from the contributed pump units of
Dresser accounted for $1.3 million of this increase. The
remainder of this balance can be attributed to increases in
foreign short-term debt of $93.0 million, offset by a
reduction in the value of the total amount of loans
outstanding during 1992 of $20.1 million due to foreign
currency fluctuations. The company uses foreign short-term
debt as a currency hedge, in addition to its traditional role
for financing accounts receivables and inventory.
o Long-term debt, excluding current maturities, totalled $355.6
million at December 31, 1992, compared to $375.8 million at
December 31, 1991, a net decrease of $20.2 million. This net
decrease was the result of additions to long-term debt of $2.8
million reduced by transfers to loans payable for current
maturities and a $1.8 million reduction from foreign currency
fluctuations.
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o Postemployment benefits totalled $494.5 million at December
31, 1992. Postemployment benefits represent the company's
noncurrent liability in accordance with SFAS Nos. 87 and 106.
Postemployment benefits include medical and life insurance
postretirement benefits and pensions. See Notes 13 and 14 of
the Notes to Consolidated Financial Statements for additional
information.
o Ingersoll-Dresser Pump Company minority interest totalled
$146.2 million at December 31, 1992, and represented Dresser's
interest in the IDP joint venture at year-end.
o Other liabilities (noncurrent) at December 31, 1992, totalled
$18.0 million, which was approximately $11 million lower than
the comparable balance at December 31, 1991. The net decrease
for 1992 represented the reduction caused by currency
fluctuations during the year and transfers to current
liabilities of previously established acquisition reserves.
On May 6, 1992, the board of directors of the company declared
a two-for-one split of the company's common stock. The stock
split was made in the form of a stock dividend, payable on June
1, 1992, to shareowners of record on May 19, 1992. All prior
year per share amounts have been restated to reflect the stock
split. Concurrent with the stock split announcement, the board
of directors also increased the regular quarterly cash dividend
to a record 17 1/2 cents per common share on a post-split basis.
Other information concerning the company's financial
resources, commitments and plans was as follows:
The average amount of short-term borrowings outstanding in
1992 was $177.7 million, compared to $239.3 million in 1991. The
weighted average interest rate during 1992 was 10.2%, compared to
10.4% during the previous year. The decrease in the 1992 average
amount of short-term borrowings outstanding was attributable to
the company's foreign operations, which use short-term debt
financings as a hedge against currency movements.
The company had domestic short-term credit lines at December
31, 1992, of $420 million and $280 million of foreign credit
available for working capital purposes, all of which were unused
at the end of the year. These facilities provide direct support
for commercial paper and indirect support for other financial
instruments, such as letters of credit and comfort letters.
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At December 31, 1992, the debt-to-total capital ratio was
30/70, as compared to 23/77 at the prior year-end. The change in
the ratio at December 31, 1992, was primarily due to the
company's adoption of SFAS Nos. 106 and 109, which reduced the
company's equity by $350.0 million, effective January 1, 1992.
Excluding the effect of these one-time charges, the debt-to-total
capital ratio would have been 25/75.
In 1992, foreign currency adjustments decreased shareowners'
equity by approximately $53.3 million. The change is due to the
strengthening of the U.S. dollar against other currencies in
countries where the company has significant operations. Currency
changes in the United Kingdom, Canada, France, Italy, Germany and
Spain accounted for over 83 percent of the change. Inventories,
accounts receivable, net property, plant and equipment, accounts
payable and loans payable were the principal accounts affected.
In 1992, the company continued to sell an undivided fractional
ownership interest in designated pools of accounts and notes
receivables up to a maximum of $125 million. Similar agreements
have been in effect since 1987. These agreements expire in one-
and three-year periods based on the particular pool of
receivables sold. The company intends to renew these agreements
at their expiration dates with either the current institution or
another financial institution using the basic terms and
conditions of the existing agreement. At December 31, 1992 and
1991, $125 million of such receivables remained uncollected.
REVIEW OF BUSINESS SEGMENTS
Standard Machinery
Standard Machinery Segment's sales of $1.3 billion were
approximately $134.4 million lower than 1992's level. The 1993
sale of the Mining Machinery Group accounted for approximately
$50 million of the decline with the balance attributed to weak
European markets. Operating income for 1993, before a $5 million
restructure of operations charge, totalled $89.6 million, which
was slightly below the $90.9 million reported for the prior year.
The restructure of operations charge related to the sale of the
Mining Machinery Group, which was substantially completed in July
1993.
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EXHIBIT 13
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The Construction and Mining Group's sales for 1993 were
approximately five percent lower than the prior year's level due
to the European recession, but the group reported a slight
increase in its operating income margin primarily due to a
stronger domestic market and cost-containment programs. Sales
for the Air Compressor Group also were approximately five percent
below 1992's levels because of the weak European markets, but it
essentially maintained its operating income margin at the prior
year's rate. Mining Machinery Group's operating results for 1992
and for the current year, prior to its sale, were essentially at
the break-even level.
Engineered Equipment
Engineered Equipment Segment's sales for 1993 totalled $929.6
million, as compared to $645.3 million for 1992. However, 1993
included approximately $300 million of additional sales from the
contributed pump units of Dresser to IDP, when compared to last
year's total. (See Note 2 of the Notes to Consolidated Financial
Statements for additional information on IDP). Operating income
in 1993 totalled $30.5 million, which was comparable to last
year's operating income of $29.0 million, before a $70 million
restructure of operations charge. Last year's restructure of
operations charge related to IDP and was for the reduction in
work force and excess facilities, which was provided to transform
IDP into a world-class competitor in the pump business. The
segment's operations in 1993 were adversely affected by the
European recession and continued weakness in the pulp and paper
industry.
IDP's sales and operating income for 1993 were hampered by the
European recession. However, IDP substantially completed its
restructuring activities during 1993 and anticipates significant
operating improvements in 1994 from the results of these efforts,
assuming that current or slightly higher volume levels are
achieved in 1994.
Process Systems Group's sales in 1993 were lower than in the
prior year, principally due to the uncertainties in the pulp and
paper industry and the lack of increased pricing for pulp.
However, the group's operating income improved over 1992's level
based on benefits derived from aggressive cost-containment
programs.
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EXHIBIT 13
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Bearings, Locks and Tools
In 1993, this segment reported sales of $1.8 billion, a five
percent increase over the prior year. Operating income totalled
$210.7 million, 25.9 percent higher than the $167.4 million of
operating income reported for 1992, before a $10 million
restructure of operations charge.
Bearings and Components sales for 1993 were approximately
seven percent higher than the prior year. Operating income for
1993 was well above 1992's level even before considering the
negative effect of last year's $10 million restructure of
operations charge. The 1992 restructure charge related to the
company's decision to realign its aerospace bearings business,
which was completed during the second quarter of 1993. Overall,
strength in the domestic automobile industry during 1993 and
continued benefits from cost-containment programs were the
primary reasons for the group's improvement.
Door Hardware sales were approximately seven percent higher
than 1992's level. The improvement in operating income was
greater than the increase in sales and established a new record
for the group. Continued strength in the domestic housing market
and aggressive cost controls contributed to 1993's record
operating income.
The Production Equipment Group's sales for 1993 approximated
last year's level. However, the group reported a modest increase
in operating income over the amount reported for 1992. Softness
in sales throughout the European served area were offset by a
stronger domestic market. This domestic strength and cost-
containment programs produced the 1993 operating income
improvement.
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Consolidated Statement of Income
In thousands except per share amounts
For the years ended December 31 1993 1992 1991
Net sales $4,021,071 $3,783,787 $3,586,220
Cost of goods sold 3,016,690 2,881,861 2,725,059
Administrative, selling and
service engineering
expenses 707,867 646,687 594,800
Restructure of operations-
(charge) benefit (5,000) (80,000) 7,090
Operating income 291,514 175,239 273,451
Interest expense 51,955 54,129 59,284
Other income (expense), net (7,536) (734) (18,978)
Dresser-Rand income 33,090 27,630 40,000
Ingersoll-Dresser Pump
Company minority interest (11,589) 34,988 --
Earnings before income taxes
and effect of accounting
changes 253,524 182,994 235,189
Provision for income taxes 90,000 67,400 84,600
Earnings before effect of
accounting changes 163,524 115,594 150,589
Effect of accounting changes
(net of income tax benefits):
- Postemployment benefits (21,000) -- --
- Postretirement benefits
other than pensions -- (332,000) --
- Income taxes -- (18,000) --
Net earnings (loss) $ 142,524 $ (234,406) $ 150,589
Earnings per share of
common stock:
Earnings before effect
of accounting changes $ 1.56 $ 1.11 $1.45
Effect of accounting changes:
- Postemployment benefits (0.20) -- --
- Postretirement benefits
other than pensions -- (3.19) --
- Income taxes -- (0.17) --
Net earnings (loss) per share $ 1.36 $(2.25) $1.45
See accompanying notes to consolidated financial statements.
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EXHIBIT 13
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Consolidated Balance Sheet
In thousands except share amounts
December 31 1993 1992
Assets
Current assets:
Cash and cash equivalents $ 227,993 $ 216,832
Marketable securities 6,172 13,418
Accounts and notes receivable, less
allowance for doubtful accounts of
$22,089 in 1993 and $23,057 in 1992 797,525 809,646
Inventories 713,690 770,343
Prepaid expenses 39,844 55,553
Deferred income taxes 116,936 101,839
1,902,160 1,967,631
Investments and advances:
Dresser-Rand Company 112,630 119,712
Partially-owned equity companies 158,645 149,389
271,275 269,101
Property, plant and equipment, at cost:
Land and buildings 521,748 491,899
Machinery and equipment 1,143,680 1,143,018
1,665,428 1,634,917
Less-accumulated depreciation 790,284 787,813
875,144 847,104
Intangible assets, net 105,855 113,227
Deferred income taxes 90,913 76,973
Other assets 129,985 113,516
$3,375,332 $3,387,552
Liabilities and Equity
Current liabilities:
Accounts payable and accruals $ 762,387 $ 823,122
Loans payable 206,939 201,337
Customers' advance payments 24,231 17,839
Income taxes 30,767 37,517
1,024,324 1,079,815
Long-term debt 314,136 355,598
Postemployment liabilities 515,787 494,527
Ingersoll-Dresser Pump Company
minority interest 146,331 146,216
Other liabilities 24,929 18,021
Shareowners' equity:
Common stock, $2 par value, authorized
400,000,000 shares; issued:
1993-108,939,462; 1992-108,276,462 217,879 216,553
Capital in excess of par value 34,917 17,148
Earnings retained for use in the business 1,268,472 1,199,438
1,521,268 1,433,139
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Consolidated Balance Sheet (Continued)
In thousands except share amounts
December 31 1993 1992
Less:
- Treasury stock, at cost 53,035 53,036
- Foreign currency equity adjustment 118,408 86,728
Shareowners' equity 1,349,825 1,293,375
$3,375,332 $3,387,552
Certain amounts have been reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
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EXHIBIT 13
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Consolidated Statement of Shareowners' Equity
In thousands except share data
December 31 1993 1992 1991
Common stock, $2 par value:
Balance at beginning of year $ 216,553 $ 107,393 $ 107,122
Exercise of stock options
and SARs 1,095 964 164
Issuance of shares under
stock plans 231 135 107
Two-for-one stock split -- 108,061 --
Balance at end of year $ 217,879 $ 216,553 $ 107,393
Capital in excess of par value:
Balance at beginning of year $ 17,148 $ 106,265 $ 101,983
Exercise of stock options and
SARs including tax benefits 14,294 15,592 2,465
Issuance of shares under
stock plans 3,475 3,352 1,817
Two-for-one stock split -- (108,061) --
Balance at end of year $ 34,917 $ 17,148 $ 106,265
Earnings retained for use
in the business:
Balance at beginning of year $1,199,438 $1,505,881 $1,423,696
Net earnings (loss) 142,524 (234,406) 150,589
Cash dividends (73,490) (72,037) (68,404)
Balance at end of year $1,268,472 $1,199,438 $1,505,881
Treasury stock-at cost:
Common stock, $2 par value:
Balance at beginning of year $ (53,036) $ (53,036) $ (53,036)
Two-for-one stock split -- -- --
Purchases of stock -- -- --
Disposition of stock 1 -- --
Balance at end of year $ (53,035) $ (53,036) $ (53,036)
Foreign currency
equity adjustment:
Balance at beginning of year $ (86,728) $ (33,447) $ (23,341)
Adjustments due to
translation changes (31,680) (53,281) (12,040)
Sale or liquidation of
investments -- -- 1,934
Balance at end of year $ (118,408) $ (86,728) $ (33,447)
Total shareowners' equity $1,349,825 $1,293,375 $1,633,056
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Consolidated Statement of Shareowners' Equity (Continued)
In thousands except share data
December 31 1993 1992 1991
Shares of Capital Stock
Common stock, $2 par value:
Balance at beginning of year 108,276,462 53,696,378 53,561,116
Exercise of stock options
and SARs 547,400 482,175 82,025
Issuance of shares under
stock plans 115,600 67,278 53,237
Two-for-one stock split -- 54,030,631 --
Balance at end of year 108,939,462 108,276,462 53,696,378
Treasury stock-at cost:
Common stock, $2 par value:
Balance at beginning of year 3,672,822 1,836,409 1,836,409
Two-for-one stock split -- 1,836,409 --
Purchases of stock -- 4 --
Disposition of stock (90) -- --
Balance at end of year 3,672,732 3,672,822 1,836,409
See accompanying notes to consolidated financial statements.
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Consolidated Statement of Cash Flows
In thousands
For the years ended December 31 1993 1992 1991
Cash flows from operating activities:
Net earnings (loss) $ 142,524 $(234,406) $ 150,589
Adjustments to arrive at net cash
provided by operating activities:
Effect of accounting changes 21,000 350,000 --
Restructure of operations 5,000 80,000 (7,090)
Depreciation and amortization 123,521 116,579 108,693
(Gain) loss on sale of assets (5,480) (15,429) 2,468
Minority interests 13,571 (33,181) --
Equity earnings/losses,
net of dividends (45,621) (46,790) (54,659)
Deferred income taxes (14,767) (43,575) 6,640
Other noncash items 125 44,273 (3,428)
Changes in assets and liabilities
(Increase) decrease in:
Accounts and notes receivable (11,998) (54,634) 1,432
Inventories 35,500 37,133 62,743
Other current and noncurrent
assets (22,414) (9,825) (25,268)
(Decrease) increase in:
Accounts payable and accruals (73,250) 12,437 4,151
Other current and noncurrent
liabilities (2,838) (32,837) (15,145)
Net cash provided by operating
activities 164,873 169,745 231,126
Cash flows from investing activities:
Capital expenditures (132,001) (131,650) (140,900)
Proceeds from sales of property,
plant and equipment 6,612 5,753 4,623
Proceeds from business dispositions 55,460 53,971 58,500
Acquisitions, net of cash and
formation of Ingersoll-Dresser Pump* (42,479) (2,928) (2,140)
Distribution from Dresser-Rand -- -- 74,000
Decrease in marketable securities 6,416 1,641 566
Cash (invested in) or advances (to)
from equity companies 45,282 (32,902) (12,629)
Net cash used in investing
activities (60,710) (106,115) (17,980)
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Consolidated Statement of Cash Flows (Continued)
In thousands
For the years ended December 31 1993 1992 1991
Cash flows from financing activities:
(Decrease) increase in short-term
borrowings (49,480) 92,955 (160,064)
Proceeds from long-term debt 101,779 2,806 126,749
Payments of long-term debt (78,042) (12,722) (27,320)
Net change in debt (25,743) 83,039 (60,635)
Proceeds from exercise of stock
options and treasury stock sales 13,116 13,511 1,897
Dividends paid (73,490) (72,037) (68,404)
Net cash (used in) provided by
financing activities (86,117) 24,513 (127,142)
Effect of exchange rate changes on cash
and cash equivalents (6,885) (8,231) 658
Net increase in cash
and cash equivalents 11,161 79,912 86,662
Cash and cash equivalents-
beginning of year 216,832 136,920 50,258
Cash and cash equivalents-end of year $ 227,993 $ 216,832 $ 136,920
*Acquisitions and formation
of Ingersoll-Dresser Pump:
Working capital, other than cash $ (25,542) $(127,313) $ (225)
Property, plant and equipment (25,910) (78,189) (551)
Intangibles and other assets (2,000) (19,088) (1,425)
Long-term debt and other liabilities 10,973 221,662 61
Net cash used to acquire businesses $ (42,479) $ (2,928) $ (2,140)
Cash paid during the year for:
Interest, net of amounts capitalized $ 47,388 $ 53,351 $ 56,604
Income taxes 126,954 140,909 99,719
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation: The consolidated financial
statements include the accounts of all wholly-owned and
majority-owned subsidiaries. Intercompany transactions and
balances have been eliminated. Partially-owned equity companies
are accounted for under the equity method.
Cash Equivalents: The company considers all highly liquid
investments consisting primarily of treasury bills and notes,
time deposits and commercial paper with a maturity of three
months or less when purchased to be cash equivalents. Cash
equivalents, at cost, which approximates market, were $75,046,000
and $135,128,000 at December 31, 1993 and 1992, respectively.
Marketable Securities: Marketable securities include equity and
debt securities and short-term instruments with maturities of
longer than three months. Marketable securities are carried at
cost, which approximates market. Net realized gains and losses
on the sale of marketable securities were insignificant for all
years presented.
Inventories: Inventories are generally stated at cost, which is
not in excess of market. Domestic manufactured inventories of
standard products are valued on the last-in, first-out (LIFO)
method and all other inventories are valued using the first-in,
first-out (FIFO) method.
Property and Depreciation: The company principally uses
accelerated depreciation methods for both tax and financial
reporting.
Intangible Assets: Intangible assets primarily represent the
excess of the purchase price of acquisitions over the fair value
of the net assets acquired. Such excess costs are being
amortized on a straight-line basis over various periods not
exceeding 40 years. Intangible assets also represent costs
allocated to patents, tradenames and other specifically
identifiable assets arising from business acquisitions. These
assets are amortized on a straight-line basis over their
estimated useful lives. Accumulated amortization at December 31,
1993 and 1992, was $19,657,000 and $21,524,000, respectively.
Amortization of intangible assets was $5,852,000, $5,597,000 and
$6,675,000 in 1993, 1992 and 1991, respectively.
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Income Taxes: The Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes" in February 1992. The company
elected to adopt the new standard effective January 1, 1992.
The new accounting standard requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial
statement bases and the tax bases of the company's assets and
liabilities using the enacted tax rates in effect at year-end,
the "liability method" (see Note 12).
Prior to 1992, the company deferred the past tax effects of
timing differences between financial reporting and taxable income
(the "deferral method").
Environmental Costs: Environmental expenditures relating to
current operations are expensed or capitalized as appropriate.
Expenditures relating to existing conditions caused by past
operations, which do not contribute to current or future
revenues, are expensed. Costs to prepare environmental site
evaluations and feasibility studies are accrued when the company
commits to perform them. Liabilities for remediation costs are
recorded when they are probable and reasonably estimable,
generally the earlier of completion of feasibility studies or the
company's commitment to a plan of action.
Revenue Recognition: Sales of products, other than long-term
contracts, are recorded for financial reporting purposes
generally when the products are shipped. Revenues on certain
long-term contracts are recorded using the percentage-of-
completion method for financial reporting purposes and a similar
method for tax purposes.
Research, Engineering and Development Costs: Research and
development expenditures, including engineering costs, are
expensed when incurred and amounted to $150,100,000 in 1993,
$138,400,000 in 1992 and $123,800,000 in 1991.
Foreign Currency: Assets and liabilities of foreign entities
operating in other than highly inflationary economies have been
translated at current exchange rates, and income and expenses
have been translated using average-for-the-year exchange rates.
Adjustments resulting from translation have been recorded in
shareowners' equity and are included in net earnings only upon
sale or liquidation of the underlying foreign investment.
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For foreign subsidiaries operating in highly inflationary
economies, inventory and property balances and related income
statement accounts have been translated using historical exchange
rates and resulting gains and losses have been credited or
charged to net earnings.
Foreign currency transactions and translations recorded in the
income statement decreased net earnings by $4,744,000 and
$4,848,000 in 1993 and 1992, respectively, and increased net
earnings in 1991 by $1,859,000. Shareowners' equity was reduced
in 1993, 1992 and 1991 by $31,680,000, $53,281,000 and
$12,040,000, respectively, due to foreign currency equity
adjustments related to translation, financial position hedges and
corresponding tax effects. In 1991, the cumulative translation
adjustment in shareowners' equity was reduced by $1,934,000 as a
result of the sale and/or liquidation of small foreign
investments and/or subsidiaries. Tax effects were not
significant for the periods presented.
The company hedges foreign currency transactions and firm
foreign currency commitments by entering into forward foreign
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 and included as a
component of the related transaction; 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 are accounted for
as hedges of identifiable transactions or events and classified
in the same category as the cash flows from the items being
hedged.
Earnings Per Share: Net earnings per share of common stock are
earnings divided by the average number of common shares
outstanding during the year. The effect of common stock
equivalents on earnings per share was not material.
Accounting Changes: Effective January 1, 1993, the company
adopted Statement of Financial Accounting Standards (SFAS) No.
112, "Employers' Accounting for Postemployment Benefits." SFAS
No. 112 requires an accrual for the expected cost of benefits
provided by an employer to former or inactive employees after
employment but before retirement, such as the continuation of
medical and life insurance benefits for employees on long-term
disability. Previously, these benefits were expensed as
incurred. The company elected to adopt this standard in the
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fourth quarter of 1993, and recognized the postemployment benefit
obligation as of January 1, 1993. The effect of the adoption of
SFAS No. 112 for the company totalled $21.0 million ($0.20 per
share), net of a $13.5 million tax benefit. Aside from the
effect of the adjustment, the adoption of SFAS No. 112 was not
material to the company's 1993 financial results and accordingly,
the results for the first three quarters of 1993 have not been
restated to reflect this adoption. Operating results for the
years preceding 1993 were not restated for the adoption of SFAS
No. 112.
The company adopted effective January 1, 1992, SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions" and SFAS No. 109, "Accounting for Income Taxes." SFAS
No. 106 requires an accrual for the expected cost of providing
postretirement benefits, such as health care and life insurance
benefits, during the years that the employees provide service to
the company. Previously, these benefits were expensed as
incurred. The effect of the adoption of SFAS No. 106 for the
company's worldwide pre-1992 obligations totalled $283.8 million
($2.73 per share), net of a $145.2 million tax benefit (see Note
14).
Also, in 1992, included in the $332.0 million ($3.19 per share)
after-tax effect of this accounting change was $48.2 million
($0.46 per share), representing the company's share of the effect
of the adoption of SFAS No. 106 by the Dresser-Rand partnership.
Earnings for 1992, before the effect of accounting changes,
decreased by $19.5 million ($0.19 per share) for the company's
worldwide obligations associated with SFAS No. 106. In addition,
the company's portion of earnings from Dresser-Rand Company was
reduced by $7.2 million or $4.8 million ($0.04 per share) after-
tax for the 1992 earnings effect of this accounting change.
The company also elected to apply the provisions of SFAS No.
109, "Accounting for Income Taxes" effective January 1, 1992.
SFAS No. 109 changes the method of accounting for income taxes
from the deferral method to the liability method. Under the
liability method, deferred income taxes are determined based on
enacted tax laws and rates, which are applied to the differences
between the financial statement bases and tax bases of assets and
liabilities (see "Income Taxes" and Note 12). The effect of
adopting SFAS No. 109 at January 1, 1992, produced an $18.0
million ($0.17 per share) charge to the company. This charge
related principally to the differences between the financial
statement value of assets and liabilities and the tax bases of
those items recorded for acquisitions made since 1984. The
effect of this adoption on the 1992 earnings of the company was
not material.
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Operating results for the years preceding 1992 were not
restated for the adoption of SFAS Nos. 106 and 109.
NOTE 2 - INGERSOLL-DRESSER PUMP COMPANY: Effective October 1,
1992, the company and Dresser Industries, Inc. (Dresser), formed
Ingersoll-Dresser Pump Company (IDP), a partnership, owned 51
percent by the company and 49 percent by Dresser. This joint
venture includes the majority of the worldwide pump operations of
the two companies, and its results have been included in the
consolidated financial statements of the company since the
formation date.
One of the principal purposes of this venture was to create a
pump company that is capable of competing for business on a
global basis. Management believes that the venture will produce
significantly enhanced efficiency in manufacturing, research and
development, and marketing.
The company's consolidated net sales for 1992 included
approximately $140 million for the pump units contributed by
Dresser. The effect of these sales on the company's operating
income for 1992 was minimal. However, during the fourth quarter
of 1992, the company recorded a $70.0 million restructure of
operations charge for IDP. This charge was for the reduction in
work force and realignment charges to relocate production and
eliminate excess plant and capacity, which will help transform
IDP into a world-class competitor in the pump business. This
charge was shared evenly by the partners of IDP; therefore, the
minority interest elimination for this item was $35.0 million and
the company's portion was $35.0 million ($25.7 million after-tax,
or $0.25 per share).
The net assets contributed by each partner to IDP were
approximately $180 million.
NOTE 3 - ACQUISITIONS AND DISPOSITIONS OF BUSINESSES: In 1993,
the company acquired the Kunsebeck, Germany, needle and
cylindrical bearing business of FAG Kugelfischer Georg Schafer AG
of Schweinfurt, Germany, for $42.5 million in cash, subject to
final contract negotiations.
In 1992, the company acquired Industrias del Rodamiento, S.A.
(IRSA), for $14.0 million in cash and $1.8 million in notes.
IRSA manufactures and markets an extensive line of bearings, as
well as wheel kits and automotive accessories. During 1991, the
company purchased the net assets of three small business units
for $2.1 million in cash.
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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.
The company sold the assets of several small business units in
1993, as well as substantially all of the assets of its coal-
mining machinery and aerospace bearings businesses for $55.5
million in cash.
NOTE 4 - RESTRUCTURE OF OPERATIONS: In July 1993, the company
sold substantially all of its underground coal-mining machinery
assets to Long-Airdox Company. In connection with this sale, the
company recorded a $5.0 million restructure of operations charge
during the second quarter of 1993.
During 1992, the company reported an $80,000,000 charge for
restructuring of operations consisting of a fourth quarter
$70,000,000 charge for IDP described in Note 2 and a third
quarter $10,000,000 charge associated with the company's
aerospace bearings unit. The third quarter restructure charge
was for the realignment of the company's aerospace bearings unit
resulting from the depressed condition of the aerospace business.
The after-tax cost for this charge was $6,200,000 or $0.06 per
share.
During the first quarter of 1991, the company reported a net
benefit of $7,090,000 from a restructure of operations. The net
benefit was comprised of (i) a $38,609,000 pretax gain from the
sale on January 18, 1991, of Schlage Electronics, a business unit
of the company's Schlage Lock Company subsidiary, to Westinghouse
Electric Corporation for $50,500,000 in cash, (ii) a $14,850,000
pretax charge for the exit costs associated with the
discontinuance of certain electronic products of Schlage Lock
Company, and (iii) a $16,669,000 pretax charge associated with
the discontinuance and sale of the company's North American
consumer compressor product line. This business was sold to the
DeVilbiss Air Power Company effective as of the close of business
on April 30, 1991, for cash proceeds of approximately $8,000,000.
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NOTE 5 - INVENTORIES: At December 31, inventories were as
follows:
In thousands 1993 1992
Raw materials and supplies $121,083 $128,605
Work-in-process 295,829 282,474
Finished goods 462,677 545,940
879,589 957,019
Less-LIFO reserve 165,899 186,676
Total $713,690 $770,343
Work-in-process inventories are stated after deducting customer
progress payments of $14,395,000 in 1993 and $30,361,000 in 1992.
At December 31, 1993 and 1992, LIFO inventories comprised
approximately 38 percent and 43 percent, respectively, of
consolidated inventories.
During the periods presented, inventory quantities were
reduced, resulting in partial liquidations of LIFO layers. This
decreased cost of goods sold by $12,506,000 in 1993, $5,801,000
in 1992 and $19,274,000 in 1991. These liquidations increased
net earnings in 1993, 1992 and 1991 by approximately $7,641,000
($0.07 per share), $3,599,000 ($0.03 per share) and $11,957,000
($0.12 per share), respectively.
NOTE 6 - INVESTMENTS IN PARTIALLY-OWNED EQUITY COMPANIES: The
company has numerous investments, ranging from 20 percent to 50
percent, in companies which operate in similar lines of business.
The company's investments in and amounts due from partially-
owned equity companies amounted to $131,051,000 and $27,594,000,
respectively, at December 31, 1993, and $111,569,000 and
$37,820,000, respectively, at December 31, 1992.
The company's equity in the net earnings of its partially-owned
equity companies was $15,641,000, $20,578,000 and $15,904,000 in
1993, 1992 and 1991, respectively.
The company received dividends based on its equity interests in
these companies of $3,110,000, $1,417,000 and $1,245,000 in 1993,
1992 and 1991, respectively.
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Summarized financial information for these partially-owned
equity companies at December 31, and for the years presented was:
In thousands 1993 1992
Current assets $ 355,884 $ 366,633
Property, plant and
equipment, net 256,322 246,151
Other assets 23,409 24,561
Total assets $ 635,615 $ 637,345
Current liabilities $ 326,830 $ 359,026
Long-term debt 44,024 50,006
Other liabilities 24,873 25,850
Total shareowners' equity 239,888 202,463
Total liabilities
and equity $ 635,615 $ 637,345
In thousands 1993 1992 1991
Net sales $ 730,138 $ 904,831 $ 995,336
Gross profit 127,467 187,802 196,545
Net earnings 48,494 42,167 51,788
NOTE 7 - DRESSER-RAND PARTNERSHIP: Dresser-Rand Company is a
partnership between Dresser Industries, Inc. (51 percent), and
the company (49 percent) comprising the worldwide reciprocating
compressor and turbomachinery businesses of the two companies.
The company's investment in Dresser-Rand is accounted for using
the equity method of accounting.
Summarized financial information for Dresser-Rand at December
31, and for the years presented was:
In thousands 1993 1992
Current assets $ 489,122 $ 468,238
Property, plant and
equipment, net 220,604 237,684
Other assets and investments 18,531 23,539
728,257 729,461
Deduct:
Current liabilities 321,629 333,059
Noncurrent liabilities 188,211 172,586
509,840 505,645
Net partners' equity
and advances $ 218,417 $ 223,816
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In thousands 1993 1992 1991
Net sales $1,187,279 $1,232,615 $1,194,135
Gross profit 241,906 229,396 242,884
Earnings before
effect of
accounting
change 68,112 52,916 80,001
Net income (loss) 68,112 (93,209) 80,001
The effect of the adoption of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" for
Dresser-Rand effective January 1, 1992, was $146,125,000.
Operating results for 1992 were reduced by $14,400,000 because of
this accounting change. The tax effects associated with this
change are recorded on the books of the partners.
The company's investment in Dresser-Rand was $133,867,000 and
$103,297,000 at December 31, 1993 and 1992, respectively. During
1991, Dresser-Rand approved and distributed $74,000,000 of
capital to each of its partners.
At December 31, 1993, the company owed Dresser-Rand $21,237,000
and at December 31, 1992, the company was due $16,415,000 from
Dresser-Rand.
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUALS: Accounts payable and
accruals at December 31, were:
In thousands 1993 1992
Accounts payable $201,172 $225,519
Accrued:
Payrolls and benefits 121,063 131,303
Taxes 46,842 42,112
Insurance and claims 98,474 92,535
Pensions and severance pay 31,862 47,919
Interest 14,057 12,841
Plant closings and
relocation expenses 14,743 43,748
Other accruals 234,174 227,145
$762,387 $823,122
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NOTE 9 - LONG-TERM DEBT AND CREDIT FACILITIES:
At December 31, long-term debt consisted of:
In thousands 1993 1992
6 7/8% Notes Due 2003 $100,000 $ --
9% Debentures Due 2021 125,000 125,000
8 3/8% Notes Due 1994 -- 75,000
8 1/4% Notes Due 1996 75,000 75,000
8.05% Debentures Due 1993-2004 -- 60,000
Other domestic and foreign
loans and notes, at end-
of-year average interest
rates of 8.61% in 1993
and 9.02% in 1992, maturing
in various amounts to 2012 14,136 20,598
$314,136 $355,598
Debt retirements for the next five years are as follows:
$81,962,000 in 1994, $4,523,000 in 1995, $79,919,000 in 1996,
$666,000 in 1997 and $473,000 in 1998.
In February 1993, the company issued $100,000,000 of notes at
6 7/8% per annum, which are not redeemable prior to maturity in
2003. The proceeds from these notes were used to redeem
$68,000,000 of the company's outstanding 8.05% Debentures Due
2004 and for general corporate purposes.
The approximate fair value of the company's long-term debt at
December 31, 1993, was $349,455,000. Fair value was determined
by reference to the December 31, 1993, market value of comparably
rated debt instruments.
At December 31, 1993, the company had a $100,000,000 364-day
revolving credit line and a $300,000,000 four year committed
revolving credit line, all of which were unused. These lines
provide support for commercial paper and indirectly provide
support for other financial instruments, such as letters of
credit and comfort letters, as required in the normal course of
business. The company compensates banks for these lines with
fees ranging from .08% to .125%, per annum. Available foreign
lines of credit were $548,177,000, of which $411,609,000 were
unused at December 31, 1993. No major cash balances were subject
to withdrawal restrictions. At December 31, 1993, the average
rate of interest for loans payable, excluding the current portion
of long-term debt, was 7.90% and related principally to foreign
loans.
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At December 31, 1992, the company had $64,000,000 of short-term
debt and an equivalent amount of short-term investments, for
which the company had a right of offset. Accordingly, the debt
and investments have been eliminated from the December 31, 1992,
balance sheet.
Capitalized interest on construction and other capital projects
amounted to $2,838,000, $3,460,000 and $4,201,000 in 1993, 1992
and 1991, respectively. Interest income, included in "Other
income (expense)," was $11,720,000, $15,396,000 and $11,595,000
in 1993, 1992 and 1991, 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. Based on the advice of counsel, management believes
that recovery or liability with respect to these matters would
not have material effect on the financial condition or the
results of operations of the company for any year.
In the normal course of business, the company has issued
several direct and indirect guarantees, including performance
letters of credit, totalling approximately $108,000,000 at
December 31, 1993. Management believes these guarantees will not
adversely affect the consolidated financial statements.
In 1993, the company continued to sell an undivided interest in
designated pools of accounts and notes receivable up to a maximum
of $125,000,000. Similar agreements have been in effect since
1987. During 1993, 1992 and 1991, such sales amounted to
$518,651,000, $526,090,000 and $490,500,000, respectively. At
December 31, 1993 and 1992, $125,000,000 of such sold receivables
remained uncollected. The undivided interest in the designated
pool of receivables was sold with limited recourse. These
agreements expire in one- and two-year periods based on the
particular pool of receivables sold. The company intends to
renew these agreements at their expiration dates with either the
current financial institution or another financial institution,
using the basic terms and conditions of the existing agreements.
For receivables sold, the company has retained collection and
administrative responsibilities as agent for the purchaser.
Receivables, excluding the designated pool of accounts and
notes receivable, sold during 1993, 1992 and 1991 with recourse
amounted to $39,284,000, $38,343,000 and $77,481,000,
respectively. At December 31, 1993 and 1992, $16,076,000 and
$19,999,000, respectively, of such receivables sold remained
uncollected.
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As of December 31, 1993, the company had no significant
concentrations of credit risk in trade receivables due to the
large number of customers which comprise its receivables base and
their dispersion across different industries and countries.
At December 31, 1993, the company had entered into forward
foreign exchange contracts to purchase and sell the equivalent of
approximately $306,515,000 of foreign currencies principally
denominated in pounds sterling, yen, French francs, Italian lira,
Deutsche marks and Canadian dollars. The fair value for these
forward foreign exchange contracts approximates carrying value.
Fair value is based on dealer quotes.
The forward contracts have maturities ranging from one to 36
months. The company's forward contracts do not subject the
company to risk due to exchange rate movements, because gains and
losses on these contracts generally offset losses and gains on
the assets, liabilities or other transactions being hedged.
The counterparties to these contracts consist of a number of
major international financial institutions. The credit ratings
and concentration of risk of these financial institutions are
monitored on a continuing basis and present no significant credit
risk to the company.
All principal manufacturing facilities are owned by the
company. Certain office and warehouse facilities, transportation
vehicles and data processing equipment are leased. Total rental
expense was $57,949,000 in 1993, $56,218,000 in 1992 and
$56,936,000 in 1991. 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:
$33,863,000 in 1994, $24,618,000 in 1995, $15,818,000 in 1996,
$8,648,000 in 1997, $6,738,000 in 1998 and $21,449,000
thereafter.
NOTE 11 - INCENTIVE STOCK PLANS: Under the company's Incentive
Stock Plans, key employees have been granted options to purchase
common shares at prices not less than the fair market value at
the date of grant. The plans, approved in 1980, 1985 and 1990,
also authorize stock appreciation rights (SARs) and stock awards.
If SARs issued in conjunction with stock options are exercised,
the related stock options are cancelled; conversely, the exercise
of stock options cancels the SARs.
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Changes during the year in options outstanding under the plans
were as follows:
Shares subject Option price
to option range per share
January 1, 1993 2,787,400 $ 9.38-31.00
Granted 946,200 32.44-36.31
Exercised 970,900 9.38-31.00
December 31, 1993 2,762,700 $ 9.79-36.31
Of the shares subject to option, 1,512,500 were granted with
SARs. In addition, there are 176,000 SARs outstanding with no
stock options. At December 31, 1993, 273,160 shares of common
stock were reserved for future issue, contingent upon attainment
of certain performance goals and future service. At December 31,
1993, options for 1,816,500 shares were exercisable and
1,622,360 shares were available for future awards.
NOTE 12 - INCOME TAXES: Earnings before income taxes and the
effect of accounting changes for the years ended December 31,
were taxed within the following jurisdictions:
In thousands 1993 1992 1991
United States $229,503 $120,311 $137,649
Foreign 24,021 62,683 97,540
Total $253,524 $182,994 $235,189
The provision for income taxes before the effect of accounting
changes was as follows:
Current tax expense:
United States $ 74,912 $ 73,655 $ 50,093
Foreign 30,625 37,320 38,603
Total current 105,537 110,975 88,696
Deferred tax expense:
United States 5,261 (36,698) (9,141)
Foreign (20,798) (6,877) 5,045
Total deferred (15,537) (43,575) (4,096)
Total provision for
income taxes $ 90,000 $ 67,400 $ 84,600
As discussed in Note 1, the company adopted SFAS No. 109 as of
January 1, 1992, and the effect of this accounting change was
reported in the 1992 Consolidated Statement of Income. Prior
years' financial statements were not restated to reflect the
provisions of SFAS No. 109.
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The provision for income taxes differs from the amount of
income tax determined by applying the applicable U.S. statutory
income tax rate to pretax income before the effect of accounting
changes, as a result of the following differences:
Percent of pretax income
1993 1992 1991
Statutory U.S. rates 35.0% 34.0% 34.0%
Increase (decrease) in rates
resulting from:
Foreign operations 0.6 3.3 4.4
Bases difference on dispositions -- -- (3.6)
Effect of changes in statutory
rate on deferred taxes (2.2) -- --
Earnings/losses of equity
companies (2.2) (4.4) (2.5)
State and local income taxes,
net of U.S. tax 1.3 2.3 2.0
Other 3.0 1.6 1.7
Effective tax rates 35.5% 36.8% 36.0%
The deferred income tax accounts for 1993 and 1992 reflect the
impact of "temporary differences" between the value of assets and
liabilities for financial reporting purposes and their related
value as measured by tax laws. These temporary differences have
now been calculated in accordance with SFAS No. 109 and are more
inclusive in nature than "timing differences" as determined under
previously applicable accounting principles.
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A summary of the deferred tax accounts at December 31, follows:
In thousands 1993 1992
Current deferred assets and (liabilities):
Differences between book and tax bases
of inventories and receivables $ 32,576 $ 32,046
Differences between book and tax
expense for other employee related
benefits and allowances 42,137 31,373
Provisions for restructure of
operations and plant closings
not yet deductible for tax purposes 5,328 15,718
Other reserves and valuation
allowances in excess of tax deductions 27,954 25,604
Other differences between tax and
financial statement values 8,941 (2,902)
Gross current deferred net tax assets 116,936 101,839
Noncurrent deferred tax assets and
(liabilities):
Tax items associated with equity
companies 31,022 29,653
Postretirement and postemployment
benefits other than pensions in
excess of tax deductions 159,922 150,125
Other reserves in excess of tax expense 28,136 12,747
Tax depreciation in excess of book
depreciation (54,855) (52,841)
Pension contributions in excess of
book expense (36,607) (33,719)
Taxes provided for unrepatriated
foreign earnings (26,353) (25,600)
Gross noncurrent deferred net tax assets 101,265 80,365
Less: deferred tax valuation allowances (10,352) (3,392)
Total net deferred tax assets $207,849 $178,812
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The information presented above is in accordance with SFAS No.
109 for the years ended December 31, 1993 and 1992, respectively.
The following table identifies the current and noncurrent
deferred tax items which were part of the company's tax provision
for the year ended December 31, 1991.
In thousands 1991
Current deferred:
Plant closings and resizing costs $ (1,956)
Increase in reserves not currently
deductible for tax purposes (7,825)
Other (955)
Total current deferred $(10,736)
Noncurrent deferred:
Depreciation $ (3,233)
Pensions 6,915
Unrepatriated foreign earnings 4,760
Other (1,802)
Total noncurrent deferred $ 6,640
A total of $26,353,000 of deferred taxes have been provided for
a portion of the undistributed earnings of subsidiaries operating
outside of the United States. As to the remainder, these
earnings have been, and under current plans, will continue to be
reinvested and it is not practicable to estimate the amount of
additional taxes which may be payable upon repatriation.
NOTE 13 - 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. 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. Ingersoll-Dresser Pump
Company's costs for the year ended December 31, 1993, and the
three months ended December 31, 1992, and status of its benefit
plans at December 31, 1993 and 1992, have been consolidated.
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The components of the company's pension cost for the years
ended December 31, include the following:
In thousands 1993 1992 1991
Benefits earned during the
year $ 27,749 $ 25,813 $ 23,700
Interest cost on projected
benefit obligation 72,131 70,543 67,758
Actual return on plan assets (124,432) (84,446) (199,672)
Net amortization and deferral 32,685 (7,484) 121,729
Net pension cost $ 8,133 $ 4,426 $ 13,515
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The status of employee pension benefit plans at December 31, 1993 and 1992, was as
follows:
1993 1992
Overfunded Underfunded Overfunded Underfunded
In thousands plans plans plans plans
Actuarial present value of
projected benefit obligation,
based on employment service to
date and current salary levels:
Vested employees $ (962,348) $ (84,311) $ (807,210) $(67,972)
Nonvested employees (8,067) (4,764) (4,878) (3,146)
Accumulated benefit obligation (970,415) (89,075) (812,088) (71,118)
Additional amount related to
projected salary increases (38,713) (17,361) (45,873) (15,704)
Total projected benefit obligation (1,009,128) (106,436) (857,961) (86,822)
Funded assets at fair value 1,079,203 46,035 1,026,711 38,523
Assets in excess of (less than)
projected benefit obligation 70,075 (60,401) 168,750 (48,299)
Unamortized (net asset) liability
existing at date of adoption (3,344) 4,573 (7,289) 2,826
Unrecognized prior service cost 13,685 10,015 16,196 9,901
Unrecognized net loss (gain) 27,103 5,506 (75,026) --
Adjustment required to recognize
minimum liability -- (7,060) -- (1,430)
Purchase accounting tax benefit
on unfunded pension liability -- -- -- 3,354
Prepaid (accrued) pension cost $ 107,519 $ (47,367) $ 102,631 $(33,648)
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Plan investment assets of domestic plans are balanced between
equity securities and cash equivalents or debt securities.
Assets of foreign plans are invested principally in equity
securities.
The present value of benefit obligations for domestic plans at
December 31, 1993 and 1992, was determined using an assumed
discount rate of 7.0% and 7.5%, an expected long-term rate of
return on assets of 8.5% and 9.0% and an assumed rate of increase
in future compensation levels of 4.5% and 5.0%, respectively.
The weighted averages of the actuarially assumed discount rate,
long-term rate of return on assets and the rate for compensation
increases for foreign plans were 8.0%, 9.0% and 5.5% in 1993, and
9.0%, 9.0% and 6.5% in 1992, respectively.
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 $20,494,000, $19,106,000 and
$18,200,000 in 1993, 1992 and 1991, respectively. In addition,
the company maintains other supplemental benefit plans for
officers and other key employees.
The company's costs relating to foreign defined contribution
plans, insured plans and other foreign benefit plans were
$307,000, $553,000 and $650,000 in 1993, 1992 and 1991,
respectively.
In 1993, 1992 and 1991, 214, 211 and 216 employees,
respectively, were covered by multiemployer pension plans.
Amounts charged to pension cost and contributed to multiemployer
plans in 1993, 1992 and 1991 were $484,000, $460,000 and
$459,000, respectively.
The existing pension rules require the recognition of a
liability in the amount of the company's unfunded accumulated
benefit obligation with an equal amount recognized as an
intangible asset. As a result, the company recorded a current
liability of $1,226,400 and a noncurrent liability of $5,833,400
in 1993. An offsetting intangible asset was recorded in the
Consolidated Balance Sheet.
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NOTE 14 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: In the
fourth quarter of 1992, the company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," effective
January 1, 1992. The company elected to immediately recognize
the effect of the change in accounting for postretirement
benefits of $428.9 million ($283.8 million net of income tax
benefit), which represented the accumulated postretirement
benefit obligation (APBO) existing at January 1, 1992. The
results for the first three quarters of 1992 were restated as a
result of the adoption. In addition to the effect, the company's
1992 postretirement benefits cost increased $29.6 million ($19.5
million after-tax, or $0.19 per share). The company continues to
fund benefit costs principally on a pay-as-you-go basis, with the
retiree paying a portion of the costs. In situations where
full-time employees retire from the company between age 55 and
age 65, most are eligible to receive, at a cost to the retiree,
certain health care benefits identical to those available to
active employees. After attaining age 65, an eligible retiree's
health care benefit coverage becomes coordinated with Medicare,
with the retiree paying a portion of the cost of the coverage.
Summary information on the company's plans was as follows:
In thousands
December 31 1993 1992
Financial status of plans:
Accumulated postretirement benefit
obligation:
Retirees $(286,470) $(227,327)
Active employees (181,606) (227,917)
(468,076) (455,244)
Plan assets at fair value -- --
Unfunded accumulated benefit
obligation in excess of plan assets (468,076) (455,244)
Unrecognized net loss (gain) 88,325 --
Unrecognized prior service benefit (95,269) (21,700)
Accrued postretirement benefit cost $(475,020) $(476,944)
The components of net periodic postretirement benefit cost for
the years ended December 31, were as follows:
In millions 1993 1992
Service cost, benefits attributed to
employee service during the year $ 5.7 $11.4
Interest cost on accumulated
postretirement benefit obligation 28.3 32.6
Net amortization and deferral (5.1) --
Net periodic postretirement benefit cost $28.9 $44.0
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The discount rates used in determining the APBO were 7.0% and
7.5% at December 31, 1993 and 1992, respectively. The assumed
health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were 13.0% in 1993 and 14.4% in
1992, declining each year to ultimate rates of 5.0% and 5.5% by
2003, respectively.
Increasing the health care cost trend rate by 1% as of December
31, 1993, would increase the APBO by 9.3%. The effect of this
change on the sum of the service cost and interest cost
components of net periodic postretirement benefit cost for 1993
would be an increase of 8.2%. The company has made several
modifications to the cost-sharing provisions of its
postretirement plans.
In 1991, charges relating to the health care and life insurance
benefits for retirees were based on benefits paid and expenses
incurred. Such charges amounted to $12,916,000 in 1991.
NOTE 15 - COMMON STOCK: In May 1992, the board of directors
declared a two-for-one split of the company's common stock. The
stock split was made in the form of a stock dividend, payable on
June 1, 1992, to shareowners of record on May 19, 1992. All
prior year per share amounts have been restated to reflect the
stock split.
On December 7, 1988, the board of directors adopted a Rights
Plan (Plan) and declared a dividend distribution of one right for
each outstanding share of the company's common stock. Each right
entitles the holder to purchase 1/100th of a share of Series A
preference stock at an exercise price of $130, or, in lieu of
preference stock, the common stock of the company (or in certain
circumstances, the stock of an acquiring entity) for a price of
approximately one-half of its value. The rights become
exercisable in accordance with the provisions of the Plan a
specified number of days following (i) the acquisition by a
person or group of persons of 20 percent or more of the company's
common stock or (ii) the commencement of a tender or exchange
offer for 20 percent or more of the company's common stock. The
rights may not be exercisable by holders of 20 percent or more of
the company's common stock. The company has reserved 563,000
shares of Series A preference stock for issuance upon exercise of
the rights. The rights may be redeemed by the company for one
cent per right in accordance with the provisions of the Plan.
The rights will expire on December 22, 1998, unless redeemed
earlier by the company.
Shares held in treasury at December 31, 1993, will be used for
employee benefit plans and for other corporate purposes.
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NOTE 16 - BUSINESS SEGMENT INFORMATION: A description of
business segments and operations by business segments and
geographic area for the three years ended December 31, 1993 were
as follows:
DESCRIPTION OF BUSINESS SEGMENTS
Ingersoll-Rand's operations are organized into three worldwide
business segments: Standard Machinery; Engineered Equipment; and
Bearings, Locks and Tools.
Standard Machinery
The segment's products are categorized into three groups:
Air Compressor - products include reciprocating, rotary and
centrifugal air compressors, vacuum pumps, air drying and
filtering systems and other compressor accessories. The products
are used primarily to supply pressurized air to industrial
plants, refineries, chemical plants, electrical utilities and
service stations.
Construction and Mining - manufactures portable and packaged air
compressors, vibratory compactors, pavement millers, asphalt
pavers, rock drills, blasthole drills, water-well drills, crawler
drills, jumbo drills, jackhammers and rock and roof stabilizers
primarily for the construction, highway maintenance,
metals-mining and well-drilling industries.
Mining Machinery(1) - products include continuous and long-wall
mining machines, crushers, coal haulers and mine-service
vehicles, which principally serve the underground coal-mining
industry.
Engineered Equipment
The segment's products are categorized into two groups:
Pump(2) - manufactures centrifugal and reciprocating pumps.
These products serve oil production and refining, chemical
process, marine, agricultural, electric utility and general
manufacturing industries.
Process Systems - consists of pulp and paper processing
equipment, pelleting equipment, filters, aerators and dewatering
systems. This equipment is used in the pulp and paper, food and
agricultural, and minerals processing industries.
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Bearings, Locks and Tools
The segment's products are categorized into three groups:
Bearings and Components - principal products include needle
bearings, needle roller bearings, needle rollers, thrust
bearings, tapered roller bearings, drawn cup bearings,
high-precision ball bearings, spherical bearings, radial
bearings, universal joints, dowel pins, swagers and precision
components. These products are sold principally to durables-
industry customers primarily in the automotive and aerospace
markets.
Production Equipment - manufactures air-powered tools, hoists and
winches, air motors and air starters, automated assembly and test
systems, air and electric automated fastener tightening systems
and waterjet cutting systems. These products are sold to general
manufacturing industries and to the appliance, aircraft,
construction and automotive industries.
Door Hardware - major products include locks, door closers and
exit devices used in commercial and residential construction and
the retail hardware market.
(1)
The Mining Machinery Group was sold during 1993.
(2)
See Note 2 in the accompanying Notes to the Consolidated
Financial Statements for information regarding the joint
venture relating to this group.
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Operations by Business Segments
Dollar amounts in millions
For the years ended % of % of % of
December 31 1993 total 1992(b) total 1991 total
Standard Machinery
Sales $1,250.9 31% $1,385.3 37% $1,363.2 38%
Operating income excluding
restructure of operations 89.6 27% 90.9 32% 86.8 29%
Restructure of operations
(charge) benefit (5.0) -- (16.7)
Operating income from
operations 84.6 26% 90.9 44% 70.1 23%
Operating income as % of sales 6.8% 6.6% 5.1%
Identifiable assets 927.1 980.6 1,000.7
Depreciation 25.0 26.6 26.3
Capital expenditures 25.0 42.8 46.4
Engineered Equipment
Sales 929.6 23% 645.3 17% 575.7 16%
Operating income excluding
restructure of operations 30.5 9% 29.0 10% 55.7 19%
Restructure of operations
(charge) benefit -- (70.0) --
Operating income from
operations 30.5 9% (41.0) (20)% 55.7 18%
Operating income as % of sales 3.3% (6.4)% 9.7%
Identifiable assets 622.3 696.4 400.2
Depreciation 28.1 19.0 14.6
Capital expenditures 29.0 27.1 25.4
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Operations by Business Segments (Continued)
Dollar amounts in millions
For the years ended % of % of % of
December 31 1993 total 1992(b) total 1991 total
Bearings, Locks and Tools
Sales 1,840.6 46% 1,753.2 46% 1,647.3 46%
Operating income excluding
restructure of operations 210.7 64% 167.4 58% 155.3 52%
Restructure of operations
(charge) benefit -- (10.0) 23.8
Operating income from
operations 210.7 65% 157.4 76% 179.1 59%
Operating income as % of sales 11.4% 9.0% 10.9%
Identifiable assets 1,102.7 1,029.8 1,045.5
Depreciation 63.3 64.0 59.4
Capital expenditures 77.8 61.7 68.6
Total
Sales 4,021.1 100% 3,783.8 100% 3,586.2 100%
Operating income excluding
restructure of operations 330.8 100% 287.3 100% 297.8 100%
Restructure of operations
(charge) benefit (5.0) (80.0) 7.1
Operating income from
operations 325.8 100% 207.3 100% 304.9 100%
Operating income as % of sales 8.1% 5.5% 8.5%
Identifiable assets 2,652.1 2,706.8 2,446.4
Depreciation 116.4 109.6 100.3
Capital expenditures 131.8 131.6 140.4
General corporate expenses
charged to operating income 34.3 32.1 31.4
Operating income 291.5 175.2 273.5
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Operations by Business Segments (Continued)
Dollar amounts in millions
For the years ended % of % of % of
December 31 1993 total 1992(b) total 1991 total
Unallocated
Interest expense 52.0 54.1 59.3
Other income (expense), net (7.5) (0.7) (19.0)
Dresser-Rand income 33.1 27.6 40.0
Ingersoll-Dresser Pump
Company minority interest (11.6) 35.0 --
Earnings before income taxes,
extraordinary item and effect
of accounting changes 253.5 183.0 235.2
Corporate assets (a) 723.2 680.8 533.2
Total assets $3,375.3 $3,387.6 $2,979.6
(a) Corporate assets consist primarily of cash and cash equivalents, marketable securities,
investments and advances, and other assets not directly associated with the operations of a business
segment. (b) The 1992 change in accounting for postretirement benefits decreased operating income by
$4.7 million for Standard Machinery, $5.3 million for Engineered Equipment and $19.6 million for
Bearings, Locks and Tools.
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Operations by Geographic Area
In millions United Other Adjustments/
For the year 1993 States Europe International Eliminations Consolidated
Sales to customers $2,526.9 $1,071.5 $422.7 $ -- $4,021.1
Transfers between geographic
areas 357.3 53.0 33.0 (443.3) --
Total sales and transfers $2,884.2 1,124.5 455.7 (443.3) $4,021.1
Operating income excluding
restructure of operations $ 260.0 35.5 34.7 0.6 $ 330.8
Restructure of operations
(charge) benefit (5.0) -- -- -- (5.0)
Operating income from
operations $ 255.0 35.5 34.7 0.6 $ 325.8
General corporate expenses
charged to operating income 34.3
Operating income $ 291.5
Identifiable assets at
December 31, 1993 $1,597.3 780.5 286.7 (12.4) $2,652.1
Corporate assets 723.2
Total assets at
December 31, 1993 $3,375.3
For the year 1992
Sales to customers $2,311.2 1,064.4 408.2 -- $3,783.8
Transfers between geographic
areas 370.7 47.7 44.4 (462.8) --
Total sales and transfers $2,681.9 1,112.1 452.6 (462.8) $3,783.8
Operating income excluding
restructure of operations $ 184.3 54.9 47.0 1.1 $ 287.3
Restructure of operations
(charge) benefit (64.5) (12.7) (2.8) -- (80.0)
Operating income from
operations $ 119.8 42.2 44.2 1.1 $ 207.3
General corporate expenses
charged to operating income 32.1
Operating income $ 175.2
Identifiable assets at
December 31, 1992 $1,564.0 854.3 301.5 (13.0) $2,706.8
Corporate assets 680.8
Total assets at
December 31, 1992 $3,387.6
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Operations by Geographic Area (Continued)
In millions
United Other Adjustments/
For the year 1991 States Europe International Eliminations Consolidated
Sales to customers $2,160.3 980.1 445.8 -- $3,586.2
Transfers between geographic
areas 381.2 49.1 47.8 (478.1) --
Total sales and transfers $2,541.5 1,029.2 493.6 (478.1) $3,586.2
Operating income excluding
restructure of operations $ 149.6 89.2 57.7 1.3 $ 297.8
Restructure of operations
(charge) benefit 20.1 (13.0) -- -- 7.1
Operating income from
operations $ 169.7 76.2 57.7 1.3 $ 304.9
General corporate expenses
charged to operating income 31.4
Operating income $ 273.5
Identifiable assets at
December 31, 1991 $1,459.9 702.8 297.8 (14.1) $2,446.4
Corporate assets 533.2
Total assets at
December 31, 1991 $2,979.6
International sales of U.S. manufactured products were $580,700,000 in 1993, $577,200,000 in 1992 and
$564,400,000 in 1991.
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NOTE 17 - PENDING TRANSACTION: On December 22, 1993, Ingersoll-
Rand announced that it has agreed to acquire a 12-percent
interest in Nuovo Pignone from Ente Nazionale Idrocarburi (ENI),
the Italian government-owned energy conglomerate. Nuovo Pignone
is a manufacturer of turbines, compressors, pumps, valves and
fuel dispensing systems, primarily for energy-related industries.
The agreement with ENI also calls for General Electric USA,
which leads the consortium, to acquire a 25-percent share and for
Dresser Industries to acquire a 12-percent share in Nuovo
Pignone. The consortium has invited several Italian banks to
acquire up to 20-percent ownership. The remainder of the company
will be owned by subsidiaries of ENI (20 percent) and public
shareholders (11 percent). The purchase price for the company's
interest totals approximately $73 million.
The transaction is subject to antitrust review and is expected
to close in the first half of 1994.
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Report of Management
The accompanying consolidated financial statements have been
prepared by the company. They conform with generally accepted
accounting principles and reflect judgments and estimates as to
the expected effects of incomplete transactions and events being
accounted for currently. The company believes that the
accounting systems and related controls that it maintains are
sufficient to provide reasonable assurance that assets are
safeguarded, transactions are appropriately authorized and
recorded, and the financial records are reliable for preparing
such financial statements. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal
accounting controls must be related to the benefits derived. The
company maintains an internal audit function that is responsible
for evaluating the adequacy and application of financial and
operating controls and for testing compliance with company
policies and procedures.
The Audit Committee of the Board of Directors is comprised
entirely of individuals who are not employees of the company.
This committee meets periodically with the independent
accountants, the internal auditors and management to consider
audit results and to discuss significant internal accounting
controls, auditing and financial reporting matters. The Audit
Committee recommends the selection of the independent
accountants, who are then appointed by the board of directors,
subject to ratification by the shareowners.
The independent accountants are engaged to perform an audit
of the consolidated financial statements in accordance with
generally accepted auditing standards. Their report follows.
/S/ T. F. McBride
Thomas F. McBride
Senior Vice President and
Chief Financial Officer
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Report of Independent Accountants
February 1, 1994
To the Shareowners of Ingersoll-Rand Company:
In our opinion, the accompanying consolidated balance sheet
and the related consolidated statements of income, of
shareowners' equity and of cash flows present fairly, in all
material respects, the financial position of Ingersoll-Rand
Company and its subsidiaries at December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 1 to the consolidated financial
statements, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993 and adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," and Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," effective January 1, 1992.
/S/ Price Waterhouse
Price Waterhouse
Hackensack, New Jersey 07601
275