EXHIBIT 13
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INGERSOLL-RAND
1995
ANNUAL REPORT
TO
SHAREOWNERS
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Table of Contents
Financial Review and Management Analysis . . . . . . . . 3-23
Consolidated Statement of Income . . . . . . . . . . . . 24
Consolidated Balance Sheet . . . . . . . . . . . . . . . . 25
Consolidated Statement of Shareowners' Equity . . . . . . 26-27
Consolidated Statement of Cash Flows . . . . . . . . . . 28-29
Notes to Consolidated Financial Statements . . . . . . . 30-58
Report of Management . . . . . . . . . . . . . . . . . . 59
Report of Independent Accountants . . . . . . . . . . . . 60
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Ingersoll-Rand Company
Financial Review and Management Analysis
1995 Compared to 1994
1995 will go down in the company's history as a year of
financial records and the year of our largest acquisition. Our
financial achievements in 1995 were the result of a solid and
stable domestic economy for most of our company's products,
moderately growing European markets and the continuing benefits
from asset management and productivity-improvement programs,
which are becoming a daily thought process for more and more of
our employees.
Sales for 1995 exceeded $5.7 billion, which generated $497
million of operating income and $270 million of net earnings
($2.55 per share). These results include our successful
acquisition of Clark Equipment Company (Clark), effective June 1,
1995. Our 1995 results, before considering the positive benefits
from the Clark acquisition, would have also established company
records.
The Clark acquisition (which is described in Note 2 to the
Consolidated Financial Statements) will add more than $1 billion
of sales on an annualized basis to the company's results.
Products include Melroe's Bobcat skid-steer loaders and compact
excavators, Clark-Hurth axles and transmissions, Blaw-Knox pavers
and Club Car golf cars and utility vehicles.
The company's economic outlook for 1996 remains fairly
consistent with last year and calls for a steady improvement in
operating results based on continued stability in our domestic
markets and continuing strength in our international markets.
These expectations are bolstered by aggressive asset management
and productivity-improvement programs, as well as the company's
focus on total quality management and reengineering efforts to
accelerate our efficiency gains.
A comparison of key financial data between 1995 and 1994
follows:
o Net sales in 1995 established a record at $5.7 billion,
reflecting a 27-percent improvement over 1994's total of $4.5
billion. Sales for 1995, excluding Clark, exceeded last
year's total by approximately 10 percent, and also established
a new record.
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o Cost of goods sold in 1995 was 75.2 percent of sales compared
to 74.9 percent in 1994. Partial liquidations of LIFO (last-
in, first-out) inventory lowered 1995 costs by only $3.4
million ($2.1 million after-tax, or two cents per share) as
compared to an $11.6 million ($7.1 million after-tax, or seven
cents per share) liquidation in 1994. Excluding the effects
of the LIFO liquidations, the 1995 cost of goods sold
percentage relationship to sales would have been 75.3 percent
versus 75.2 percent for 1994. The percentage of cost of goods
sold to sales improved approximately one percent, excluding
Clark and the loss on the paving business (a preacquisition
requirement) from the calculation. This reduction represents
the benefits derived from the company's continuing
productivity-improvement and reengineering programs.
o Administrative, selling and service engineering expenses were
16.1 percent of sales in 1995, compared to 16.7 percent for
1994. The marked improvement was due to the continued effect
of the company's efforts from productivity-improvement
programs and the benefit of leverage from the increased sales
volume, which were large enough to offset the effects of
inflation for salaries, services, etc. The effect of the
Clark acquisition did not have a material impact on these
percentages in 1995.
o Operating income for the year totalled $497.0 million, a 32
percent increase over 1994's operating income of $377.0
million. Operating income in 1995, without Clark-related
activities, totalled $435.1 million, reflecting a 15-percent
increase over 1994's level.
o Interest expense for the year totalled $86.6 million, which is
almost double 1994's level. Interest costs associated with
Clark's existing debt and its acquisition totalled $47.7
million. The company's interest expense, without Clark, would
have been $38.9 million, an 11.2-percent reduction from the
company's 1994 interest expense total of $43.8 million. This
is the result of lower interest rates and the company's
aggressive asset management program.
o Other income (expense), net, is essentially the sum of three
activities: (i) foreign exchange, (ii) equity interests in
partially-owned equity companies, and (iii) other
miscellaneous income and expense items. In 1995, this
category netted to an income balance of $9.4 million, a
favorable change of $24.1 million over 1994's net expense of
$14.7 million. A review of the components of this category
shows that:
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o foreign exchange activity for 1995 totalled $6.2 million of
losses, which is comparable to the $6.1 million of losses in
1994;
o earnings from equity interests in partially-owned equity
companies were approximately $12.5 million higher than
1994's level, which included a loss on the sale of a
partially-owned company; and
o other net miscellaneous expense items were approximately
one-half the prior year's level, principally due to higher
gains on the sale of fixed assets, higher royalty earnings
and a favorable benefit from the activities of the Clark
units.
o Dresser-Rand Company (Dresser-Rand) is a partnership between
the company and Dresser Industries, Inc. (Dresser). It
commenced operations on January 1, 1987, and comprises the
worldwide reciprocating compressor and turbomachinery
businesses of the two companies. The company's pretax profits
from its interest in Dresser-Rand for 1995 totalled $22.0
million, as compared to $24.6 million in the prior year. The
reduction is primarily attributed to lower sales volumes in
1995, when compared to 1994. However, Dresser-Rand began 1996
with a backlog in excess of $950 million.
o Ingersoll-Dresser Pump Company (IDP) is another partnership
between the company and Dresser in which the company owns the
majority interest. In 1995, the minority interest charge was
$12.7 million, as compared to the 1994 charge of $13.2
million. This charge reflects the portion of IDP's earnings
that was allocable to our joint venture partner and indicates
that IDP's earnings in 1995 were lower than in the prior year.
o The company's effective tax rate for 1995 was 37.0 percent,
which represents a slight increase over the 36.0 percent
reported for the prior year. The variance from the 35.0
percent statutory rate was due primarily to the higher tax
rates associated with foreign earnings, the effect of state
and local taxes and the nondeductibility of the goodwill
associated with the Clark acquisition.
At December 31, 1995, employment totalled 41,133. This
represents a net increase of 5,201 employees over last year's
level of 35,932. The Clark acquisition added 5,304 new
employees, while employment levels in the company's traditional
businesses declined by 103 people during 1995.
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Liquidity and Capital Resources
The most significant event affecting the company's liquidity
during 1995 was the Clark acquisition, which became effective
June 1, 1995. The total purchase price paid for Clark was
approximately $1.5 billion. After considering the cash on
Clark's books at the acquisition date, the actual cash cost of
the transaction was approximately $1.1 billion. The effects of
this transaction will be discussed throughout this section of our
report and additional information on the acquisition is described
in Note 2 to the Consolidated Financial Statements.
The following table contains several key measures which the
company's management uses to gauge the company's financial
performance:
1995 1994 1993
Working capital (in millions) $1,016 $963 $878
Current ratio 1.8 1.9 1.9
Debt-to-total capital ratio 45% 22% 28%
Average working capital
to net sales 17.3% 20.4% 22.0%
Average days outstanding
in receivables 63.1 64.6 64.1
Average months' supply
of inventory 3.3 3.7 4.4
Ingersoll-Rand, as a large multinational company, maintains
significant operations in foreign countries. The movement of the
U.S. dollar against foreign currencies has a day-to-day impact on
the company's financial position. This impact is not always
apparent since the company reports its consolidated results in
U.S. dollars. Generally, the functional currency of the
company's foreign subsidiaries is their local currency, the
currency in which they transact their business. During 1995,
many foreign currencies strengthened against the U.S. dollar for
most of the year and the effect of these foreign currency
fluctuations was significant. The company manages exposure to
changes in foreign currency exchange rates through its normal
operating and financing activities, as well as through the use of
forward exchange contracts. The company attempts, through its
hedging activities, to mitigate the impact on the income
statement of changes in foreign exchange rates. Additionally,
the company maintains operations in hyperinflationary economies
and in countries, such as Mexico, where the company's operations
transact business in U.S. dollars. The functional currency of
these operations has been and will remain the U.S. dollar.
(additional information on the company's use of financial
instruments can be found in Note 9 to the Consolidated Financial
Statements.)
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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 $137.3 million at December
31, 1995, a $69.7 million decrease from the prior year-end
balance of $207.0 million. In evaluating the net change in
cash and cash equivalents, cash flows from operating,
investing and financing activities, and the effect of exchange
rate changes, should be considered. Cash flows from operating
activities totalled $403.6 million, investing activities used
$1,307.9 million and financing activities generated funds of
$830.2 million. Exchange rate changes during 1995 increased
cash and cash equivalents by approximately $4.4 million.
o Marketable securities totalled $9.3 million at the end of
1995, $5.1 million more than the balance at December 31, 1994.
The increase was due to the investment of excess cash in
various securities by foreign subsidiaries at favorable
interest rates. Foreign marketable securities decreased
slightly during the year due to foreign exchange rate
fluctuations.
o Receivables totalled $1,109.9 million at December 31, 1995,
compared to $949.4 million at the prior year end, for a net
increase of $160.5 million. Currency translation increased
the receivable balance during the year by $16.0 million, and
acquisitions added approximately $193 million during 1995.
However, the company's focus on decreasing its receivable base
through its asset management program produced a $50.9 million
reduction in receivables during the year, in spite of the
heavy sales volume in the fourth quarter of 1995. The average
days outstanding in receivables decreased to 63.1 days from
last year's level of 64.6 days, as benefits from the company's
asset management program are beginning to be realized.
o Inventories amounted to $912.6 million at December 31, 1995,
an increase of $233.3 million over last year's level of $679.3
million. Currency movements accounted for a $10.6 million
increase in inventory for the year, while acquisitions (net of
a contribution to a joint venture) accounted for an additional
$207.5 million increase in inventory. The remaining increase
of $15.2 million reflects a year-end inventory build, to
fulfill new orders during the first few months of the year
based on the company's sales growth and backlog. However, the
company's emphasis on inventory control was reflected in the
reduction of the average months' supply of inventory, which
was 3.3 months at December 31, 1995, compared to 3.7 months at
the prior year end.
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o Prepaid expenses totalled $58.0 million at the end of the
year, $14.2 million higher than the balance at December 31,
1994. Foreign exchange activity had a minimal effect on the
balance in this account, while acquisition activity accounted
for an additional $8.3 million of the increase. The remaining
net increase for the year was due to a general increase in the
company's prepaid expenses.
o Deferred income taxes (current) of $118.5 million at December
31, 1995, represent the deferred tax benefit of the difference
between the book and tax values of various current assets and
liabilities. A schedule of the components for this balance is
in Note 14 to the Consolidated Financial Statements. The
year-end balance represented a decrease of $0.7 million from
the December 31, 1994, level. Changes due to foreign currency
movements had no effect on the year's activity.
o The investment in Dresser-Rand Company totalled $93.9 million
at December 31, 1995. This represented a net increase of
approximately $3.2 million from 1994's balance of $90.7
million. The components of the change for 1995 consisted of
income for the current year of $22.0 million, and an $18.8
million change in the advance account between the entities.
o The investments in partially-owned equity companies at
December 31, 1995, totalled $223.3 million, $49.4 million
higher than the 1994 balance. Income and dividends from
investments in partially-owned equity companies were $26.2
million and $6.7 million, respectively. Amounts due from
these units increased from $3.4 million to $20.4 million at
December 31, 1995. Currency movements relating to partially-
owned equity companies were approximately $1 million in 1995.
During 1995, the company contributed approximately $11 million
of assets for an equity interest in a European joint venture.
These assets were principally inventory and fixed assets.
o Net property, plant and equipment increased by $319.1 million
in 1995 to a year-end balance of $1,278.4 million. Fixed
assets from acquisitions during 1995 added $292.0 million.
Capital expenditures in 1995 totalled $211.7 million, a
33-percent increase over the prior year's level. Foreign
exchange fluctuations increased the net fixed asset values in
U.S. dollars by approximately $12 million. The remaining net
decrease was the result of depreciation, sales and
retirements, and a contribution of assets to a joint venture
company.
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o Intangible assets, net, totalled $1,253.6 million at December
31, 1995, as compared to $124.5 million at December 31, 1994,
for a net increase of $1,129.1 million. Acquisitions added
$1,122.1 million of intangibles, primarily goodwill, during
1995. Goodwill from the Clark acquisition was approximately
$740 million. In addition, Clark had approximately $380
million of goodwill when acquired. Amortization expense
accounted for a reduction of $25.3 million. The remaining net
change was attributable to an increase from currency
fluctuations and an increase in the required pension
intangible asset.
o Deferred income taxes (noncurrent) totalled $134.8 million at
December 31, 1995. This net deferred asset arose in 1992
primarily because of the tax effects related to the adoption
of SFAS No. 106 (Postretirement Benefits Other Than Pensions).
The 1995 balance was $60.4 million higher than the 1994
balance principally due to taxes associated with or assumed as
a result of the Clark acquisition. A listing of the
components which comprised the balance at December 31, 1995,
can be found in Note 14 to the Consolidated Financial
Statements.
o Other assets totalled $233.7 million at year end, an increase
of $62.5 million from the December 31, 1994, balance of $171.2
million. The change in the account balance was primarily due
to an increase in prepaid pensions and other noncurrent assets
of approximately $19 million, with acquisition activity
accounting for the balance of the increase. Foreign exchange
activity in 1995 had a minimal effect on the account balance
during the year.
o Accounts payable and accruals totalled $1,129.8 million at
December 31, 1995, an increase of $246.0 million from last
year's balance of $883.8 million. Acquisition activity during
1995 accounted for $258.9 million of the increase and foreign
exchange activity during the year added an additional $17.9
million. The company's aggressive cash management program
accounted for the balance of the reduction.
o Loans payable were $155.4 million at the end of 1995 and
reflects a $38.2 million increase over the $117.2 million at
December 31, 1994. Current maturities of long-term debt,
included in loans payable, were $102.9 million and $4.2
million at December 31, 1995 and 1994, respectively. The
company's aggressive cash management program accounted for an
$81.5 million reduction in short-term debt for 1995, while
acquisition activity and foreign currency fluctuations
increased short-term debt during 1995 by $15.0 million and
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$5.9 million, respectively. The change in current maturities
of long-term debt included movement to current maturities of
$103.5 million, payments of $17.9 million, acquired debt of
$12.8 million and foreign exchange activity.
o Long-term debt, excluding current maturities, totalled
$1,304.4 million, an increase of $988.5 million over the prior
year's balance of $315.9 million. The acquisition of Clark
resulted in $900 million of long-term debt relating to the
purchase of Clark. The consolidation of Clark added another
$195.4 million of debt to the company's balance sheet.
Foreign currency fluctuations increased this liability by an
additional $0.9 million. Reductions of $109.4 million in
long-term debt were caused by the reclassification of $103.5
million of current maturities to loans payable and the early
payment of an additional $5.9 million of debt during the year.
o Postemployment liabilities at December 31, 1995, totalled
$832.1 million, an increase of $313.8 million over the
December 31, 1994, balance. Postemployment liabilities
include medical and life insurance postretirement benefits,
long-term pension accruals and other noncurrent postemployment
accruals. The increase in the liability during 1995 is almost
exclusively related to the Clark acquisition. Postemployment
liabilities represent the company's noncurrent liabilities in
accordance with SFAS Nos. 87, 106 and 112. (See Notes 16 and
17 to the Consolidated Financial Statements for additional
information.)
o The Ingersoll-Dresser Pump Company (IDP) minority interest,
which represents Dresser's interest in the IDP joint venture,
totalled $170.8 million and $154.1 million at December 31,
1995 and 1994, respectively. Earnings allocable to IDP's
minority interest totalled $12.7 million for 1995, while
increases due to translation adjustments totalled $2.9
million. At December 31, 1995, Dresser had loans payable to
IDP totalling $9.7 million, which was shown as a reduction in
IDP's minority interest.
o Other liabilities (noncurrent) at December 31, 1995, totalled
$131.3 million, which were $94.0 million higher than the
balance at December 31, 1994. The net increase for 1995 is
almost exclusively related to the Clark acquisition. These
obligations are not expected to be paid out in the company's
next business cycle. These accruals generally cover
environmental obligations, legal accruals and other
contractual obligations.
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o At the time of its acquisition by the company, Clark sponsored
a Leveraged Employee Stock Ownership Plan (LESOP) for eligible
employees. In connection with the acquisition, the company
purchased the LESOP's Clark shares for $176.6 million. The
company determined it would continue the LESOP to fund certain
employee benefit plans. At December 31, 1995, approximately
1.9 million shares of the company's common stock were
unallocated and the $70.2 million paid by the LESOP for those
unallocated shares is classified as a reduction of
shareowners' equity pending allocation to participants. (See
Note 12 to the Consolidated Financial Statements for
additional information.)
Other information concerning the company's financial
resources, commitments and plans is as follows:
The average amount of short-term borrowings outstanding,
excluding current maturities of long-term debt, was $156.1
million in 1995, compared to $141.9 million in 1994. The
weighted average interest rate during 1995 was 8.3%, compared to
6.8% during the previous year. The maximum amounts outstanding
during 1995 and 1994 were $222.0 million and $181.6 million,
respectively. The increase in the 1995 average amount of
short-term borrowings outstanding was attributable to short-term
financings related to the Clark acquisition.
The company had $800 million in domestic short-term credit
lines at December 31, 1995, and $676 million of foreign credit
available for working capital purposes, all of which were unused
at the end of the year. These facilities exceed projected
requirements for 1996 and provide direct support for commercial
paper and indirect support for other financial instruments, such
as letters of credit and comfort letters.
At December 31, 1995, the debt-to-total capital ratio was 45
percent, as compared to 22 percent at the prior year end. The
significant change in the ratio at December 31, 1995, was
primarily due to the acquisition of Clark, which initially added
approximately $1.5 billion of debt to the company's balance sheet
generating an initial debt-to-total capital ratio of 55 percent.
Since the acquisition, the company's continuing programs of
inventory reductions and spending controls to generate cash, were
used to reduce the company's overall debt obligations and lower
the debt-to-total capital ratio to the 45-percent relationship at
December 31, 1995.
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In 1995, foreign currency adjustments increased shareowners'
equity by approximately $20.7 million. The change was due to the
weakening of the U.S. dollar against other currencies in
countries where the company has significant operations and the
local currencies are the functional currencies. Currency
fluctuations in France, Germany, Italy, India, Japan, Singapore
and Spain accounted for over 90 percent of the change.
Inventories, accounts receivable, net property, plant and
equipment, accounts payable and loans payable were the principal
accounts affected.
As a result of the Clark acquisition, the company is involved
in certain repurchase arrangements relating to product-
distribution and product-financing activities. As of December
31, 1995, repurchase arrangements relating to product financing
by an independent finance company approximated $102 million. It
is not practicable to determine the additional amount subject to
repurchase solely under dealer distribution agreements. Under
the repurchase arrangements relating to product-distribution and
product-financing activities when dealer terminations do occur, a
newly selected dealer generally acquires the assets of the prior
dealer and assumes any related financial obligation.
Accordingly, the risk of loss to the company is minimal.
Historically, Clark incurred only immaterial losses relating to
these arrangements.
In 1995, the company continued to sell an undivided fractional
ownership interest in designated pools of accounts and notes
receivable up to a maximum of $150 million. Similar agreements
have been in effect since 1987. These agreements expire in one-
and two-year periods based on the particular pool of receivables
sold. The company intends to renew these agreements at their
expiration dates with either the current institution or another
financial institution using the basic terms and conditions of the
existing agreements. At December 31, 1995 and 1994, $150 million
and $125 million, respectively, of such receivables remained
uncollected.
Capital expenditures were $212 million and $159 million in
1995 and 1994, respectively. The company continues investing to
improve manufacturing productivity, reduce costs and provide
environmental enhancements and advanced technologies for existing
facilities. The capital expenditure program for 1996 is
estimated at approximately $225 million, including carryover from
projects approved in prior periods. There are no planned
projects that, either individually or in the aggregate, represent
a material commitment for the company. Many of these projects
are subject to review and cancellation at the option of the
company without incurring substantial charges.
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As a result of high inflationary periods in the 1970s,
experimental disclosure of supplementary information to measure
the effects of inflation on historical financial statements in
terms of the constant dollar and current costs was required.
While the company presented inflation-adjusted data, the
information presented was based on assumptions, estimates and
judgments, which were far from precise indicators of the effects
of inflation on the company. High inflationary trends have
dissipated in recent years and, after a review of the effects of
inflation, the company has determined that such information is
neither material nor meaningful at this time.
Environmental Matters
The company is subject to extensive environmental laws and
regulations. We believe that the company, as well as industry in
general, will be faced with increasingly stringent laws and
regulations in the future. As a result, the company has been and
continues to be dedicated to an environmental program to reduce
the utilization and generation of hazardous materials during the
manufacturing process and to remediate identified environmental
concerns. As to the latter, the company currently is engaged in
site investigations and remedial activities to address
environmental cleanup from past operations at current and former
manufacturing facilities, including the facilities added through
the Clark acquisition.
During 1995, the company spent approximately $6 million on
capital projects for pollution abatement and control and an
additional $8 million for environmental remediation expenditures,
including operation and maintenance of existing environmental
programs. It should be noted that these amounts are difficult to
estimate because environmental improvements are generally
intertwined with the overall improvement costs at a particular
plant, and the accurate estimate of which portion of an
improvement or a capital expenditure relates to an environmental
improvement is difficult to ascertain. The company believes that
these expenditure levels will continue and may increase over
time. Given the evolving nature of environmental laws,
regulations and technology, the ultimate cost of future
compliance is uncertain.
The company is a party to environmental lawsuits and claims.
It has received notices of potential violations of environmental
laws and regulations from the Environmental Protection Agency and
similar state authorities, and is identified as a potentially
responsible party (PRP) for cleanup costs at approximately 37
federal Superfund and state remediation sites (including Clark-
acquired PRP locations). For all sites there are other PRPs and
in most instances, the company's site involvement is minimal.
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While all PRPs may be jointly and severally liable to pay all
site investigation and remediation costs, to date there is no
indication the company will be liable for more than the costs of
its own percentage of responsibility at any site. Additional
lawsuits and claims involving environmental matters are likely to
arise from time to time in the future.
Although uncertainties regarding environmental technology,
state and federal laws and regulations and individual site
information make estimating the liability difficult, management
believes that the total liability for the cost of remediation and
environmental lawsuits and claims will not have a material effect
on the financial condition, results of operations, liquidity or
cash flows of the company for any year. It should be noted that
when the company estimates its liability for environmental
matters, such estimates are based on current technologies and the
company does not discount its liability or assume any insurance
recoveries.
1994 Compared to 1993
1994 marked a milestone in the company's history. Its 1994
financial performance registered record levels in sales of $4.5
billion and record net earnings of $211.1 million, or $2.00 per
share. 1994 was a year of achievement brought about by strong
domestic markets for most of the company's products, recovering
European markets and continued benefits from asset management and
cost containment programs.
The company's outlook for 1995 was for a steady improvement in
operating results based on continued stability in our domestic
markets and additional recoveries in our international markets.
As outlined in 1993, these expectations are supplemented by our
aggressive cost-containment programs, our commitment to total
quality management and a focus on reengineering our business
processes to accelerate our efficiency gains.
A comparison of key financial data between 1994 and 1993
follows:
o Net sales in 1994 totalled $4.5 billion, representing an
increase of $486 million over 1993 and establishing a new
record high. Net sales reflected strong increases in the
Standard Machinery and Bearings, Locks and Tools segments.
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o Cost of goods sold in 1994 was 74.9 percent of sales, compared
to 75.0 percent in 1993. A partial liquidation of LIFO
(last-in, first-out) inventories lowered 1994 costs by $11.6
million ($7.1 million after-tax, or seven cents per share); a
similar liquidation in 1993 lowered costs by $12.5 million
($7.6 million after-tax, or seven cents per share). Excluding
the benefit of the LIFO liquidations, the 1994 cost of goods
sold percentage relationship to sales would have been 75.2
percent versus 75.3 percent for 1993. This reduction
represented the benefit from the company's continuing programs
of aggressive cost-containment.
o Administrative, selling and service engineering expenses were
16.7 percent of sales in 1994, compared to 17.6 percent for
1993. The marked improvement was due to the continued effect
of the company's efforts from cost-containment programs and
the benefit of leverage from the increased sales volume which
were large enough to offset the effects of inflation for
salaries, services, etc.
o Operating income for the year totalled $377.0 million, an
increase of 27.2 percent over 1993's operating income of
$296.5 million, before the restructure of operations charge.
The 1993 restructure of operations charge totalled $5.0
million and related to the company's decision to sell its
underground coal-mining machinery business during the second
quarter of the year. The sale of this business was finalized
in July 1993. There were no restructuring charges in 1994.
o Interest expense for 1994 was $43.8 million, approximately 16
percent lower than the $52.0 million reported for 1993. The
reduction was due to lower overall outstanding indebtedness,
which was a result of the company's ongoing asset management
program.
o The other income (expense), net, category is essentially the
sum of three activities: (i) foreign exchange, (ii) equity
interests in partially-owned equity companies, and (iii) other
miscellaneous income and expense items. In 1994, this
category totalled a net expense balance of $14.7 million, a
$7.2 million increase in net expense over 1993's level. A
review of the components of this category show that:
o foreign exchange activity for 1994 totalled $6.1 million of
losses, as compared to $6.6 million of losses in 1993;
o earnings from equity interests in partially-owned equity
companies were approximately $2 million lower than 1993's
level, reflecting a 1994 loss on the sale of a partially-
owned company; and
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o other net miscellaneous expense items were approximately
double the 1993 level, principally due to lower gains on the
sale of fixed assets and lower royalty earnings.
o Dresser-Rand Company is a partnership between the company and
Dresser Industries, Inc. (Dresser). It commenced operations
on January 1, 1987, and comprises the worldwide reciprocating
compressor and turbomachinery businesses of the two companies.
The company's pretax profits from its interest in Dresser-Rand
for 1994 totalled $24.6 million, as compared to $33.1 million
in 1993. The reduction is attributed to the combination of an
increase in expenses to establish a presence in Eastern
Europe, increased depreciation charges due to the effect of
equipment improvement programs during the past few years and
lower production levels in some businesses.
o Ingersoll-Dresser Pump Company (IDP) is another partnership
between the company and Dresser in which the company owns the
majority interest. In 1994, the minority interest charge was
$13.2 million, as compared to the 1993 charge of $11.6
million. This charge reflects the portion of IDP's earnings
that was allocable to our joint venture partner.
o The company's effective tax rate for 1994 was 36.0 percent,
which was a slight increase over the 35.5 percent reported for
1993. The variance from the 35.0 percent statutory rate was
due primarily to the higher tax rates associated with foreign
earnings and the effect of state and local taxes.
At December 31, 1994, employment totalled 35,932. This
represents a net increase of 789 employees over 1993's level of
35,143. Acquisitions accounted for virtually all of this
increase.
The following highlights the financial results and financial
condition of the company's operations, with the impact of
currency variations where appropriate:
o Cash and cash equivalents totalled $207.0 million at December
31, 1994, a $21.0 million decrease from the December 31, 1993
balance of $228.0 million. In evaluating the net change in
cash and cash equivalents, cash flows from operating,
investing and financing activities, and the effect of exchange
rate changes, should be considered. Cash flows from operating
activities totalled $301.8 million, investing activities used
$141.7 million and financing activities used $187.7 million.
Exchange rate changes during 1994 increased cash and cash
equivalents by approximately $6.6 million.
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o Marketable securities totalled $4.2 million at the end of
1994, $1.9 million less than the balance at December 31, 1993.
Foreign marketable securities increased by approximately $0.9
million during the year due to foreign exchange rate
fluctuations. The remaining reduction was due to the maturity
of the various securities and their liquidation into cash and
cash equivalents.
o Receivables totalled $949.4 million at December 31, 1994,
compared to $797.5 million at December 31, 1993, for a net
increase of $151.9 million. Currency translation increased
the receivable balance during the year by $21.4 million, and
acquisitions added approximately $20 million during 1994. In
addition, heavy sales volume in the 1994 fourth quarter
contributed significantly to the increase. Net sales for the
fourth quarter of 1994 increased 14 percent over 1993's fourth
quarter. The average days outstanding in receivables
increased slightly from 1993's level because of the higher mix
of international receivables, which traditionally carry longer
payment terms than domestic receivables and customers in
certain domestic industries, who have implemented slightly
longer payment terms.
o Inventories amounted to $679.3 million at December 31, 1994,
$34.4 million lower than December 31, 1993's level of $713.7
million. This decrease was a result of the company's
aggressive inventory control programs and record fourth
quarter sales, which reduced inventory levels by approximately
$82 million. Currency movements accounted for a $21.3 million
increase in inventory for the year, while acquisitions
accounted for an additional $25.9 million increase in
inventory. The company's emphasis on inventory control was
reflected in the reduction in the average months' supply of
inventory, which was 3.7 months at December 31, 1994, compared
to 4.4 months at December 31, 1993.
o Prepaid expenses totalled $43.8 million at the end of the
year, $3.9 million higher than the balance at December 31,
1993. Foreign exchange activity had the effect of increasing
the balance in this account by $1.9 million during the year.
The remaining net increase for the year was due to a general
increase in the company's prepaid expenses of $1.3 million,
and acquisitions contributed $0.7 million.
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o Deferred income taxes (current) of $119.2 million at December
31, 1994, represent the deferred tax benefit of the difference
between the book and tax values of various current assets and
liabilities. A schedule of the components for this balance is
in Note 14 to the Consolidated Financial Statements. The
year-end balance represented an increase of approximately $2
million from the December 31, 1993, level. Changes due to
foreign currency movements had an immaterial effect on the
year's activity.
o The investment in Dresser-Rand Company totalled $90.7 million
at December 31, 1994. This represented a net decrease of
approximately $21.9 million from 1993's balance of $112.6
million. The components of the change for 1994 consisted of
income for the current year of $24.6 million, a $48.9 million
change in the advance account between the entities and a $2.4
million increase due to currency fluctuations.
o The investments in partially-owned equity companies at
December 31, 1994, totalled $173.9 million, $15.2 million
higher than the 1993 balance. Income and dividends from
investments in partially-owned equity companies were $15.6
million and $3.8 million, respectively. Amounts due from
these units decreased from $27.6 million to $3.4 million at
December 31, 1994. Currency movements relating to partially-
owned equity companies were approximately $11.1 million in
1994. In 1994, the company acquired full ownership of a ball
bearing joint venture with GMN Mueller of America, Inc. The
company also entered into a 50/50 joint venture, GHH-RAND
Schraubenkompressoren GmbH & Co. KG, to manufacture airends.
Also in 1994, the assets of the IDP Australian operations were
sold in return for shares of the purchaser. The company also
sold its interest in IRI International Corporation, a
manufacturer of mobile drilling rigs.
o Net property, plant and equipment increased by approximately
$84 million in 1994 to a year-end balance of $959.3 million.
Fixed assets from acquisitions during 1994 added $39.8
million. Capital expenditures in 1994 totalled $158.6
million, a 20-percent increase over 1993's level. Foreign
exchange fluctuations increased the net fixed asset values in
U.S. dollars by approximately $16.8 million. The remaining
net decrease was principally due to depreciation expense.
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o Intangible assets, net, totalled $124.5 million at December
31, 1994, as compared to $105.9 million at December 31, 1993,
for a net increase of $18.6 million. Amortization (which was
charged to expense) accounted for a reduction of $6.8 million.
Acquisitions added $27.8 million of intangibles during 1994.
The remaining net change was attributable to an increase from
currency fluctuations and a decrease in the required pension
intangible asset.
o Deferred income taxes (noncurrent) totalled $74.4 million at
December 31, 1994. This net deferred asset arose in 1992
primarily because of the tax effects related to the adoption
of SFAS No. 106 (Postretirement Benefits Other Than Pensions).
The 1994 balance was $16.4 million lower than the 1993
balance. A listing of the components which comprised the
balance at December 31, 1994, can be found in Note 14 to the
Consolidated Financial Statements.
o Other assets totalled $171.2 million at December 31, 1994, an
increase of approximately $41.2 million from the December 31,
1993, balance of $130.0 million. The change in the account
balance was primarily due to an increase in prepaid pensions
and acquisitions. Foreign exchange activity in 1994 had a
minimal effect on the account balance during the year.
o Accounts payable and accruals totalled $883.8 million at
December 31, 1994, an increase of $121.4 million from December
31, 1993's balance of $762.4 million. The increase in the
1994 balance is related to acquisitions, foreign exchange
activity, and a general increase in trade accounts payable.
Acquisitions caused an increase of approximately $50 million
and foreign currency activity added approximately $20 million.
o Loans payable were $117.2 million at the end of 1994, compared
to $206.9 million at December 31, 1993. Current maturities of
long-term debt, included in loans payable, were $4.2 million
and $82 million at December 31, 1994 and 1993, respectively.
Excluding the current maturities of long-term debt, short-term
borrowings decreased by $24.4 million during 1994. This
balance can be attributed to a decrease in foreign short-term
debt offset by increases in the total loans outstanding during
1994 of $11.8 million due to foreign currency fluctuations and
debt assumed from acquisitions.
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o Long-term debt, excluding current maturities, totalled $315.9
million at December 31, 1994, compared to $314.1 million at
December 31, 1993, a net increase of $1.8 million. This net
increase was the result of additions to long-term debt of $2.3
million, additions due to acquisitions of $6.9 million, a $0.4
million increase from foreign currency fluctuations; reduced
by transfers to loans payable for current maturities.
o Postemployment liabilities at December 31, 1994, totalled
$518.3 million, an increase of $2.5 million over the December
31, 1993, balance. Postemployment liabilities include medical
and life insurance postretirement benefits, long-term pension
accruals and other noncurrent postemployment accruals.
Postemployment liabilities represent the company's noncurrent
liabilities in accordance with SFAS Nos. 87, 106 and 112. See
Notes 16 and 17 to the Consolidated Financial Statements for
additional information.
o The Ingersoll-Dresser Pump Company minority interest, which
represents Dresser's interest in the IDP joint venture,
totalled $154.1 million and $146.3 million at December 31,
1994 and 1993, respectively. Earnings allocable to IDP's
minority interest totalled $13.2 million for 1994, while
increases due to translation adjustments totalled $5.4
million. At December 31, 1994, Dresser had loans payable to
IDP totalling $10.8 million which was shown as a reduction in
IDP's minority interest. Earnings allocable to IDP's minority
interest totalled $11.6 million for 1993, which were virtually
offset by translation adjustment and final valuation
modifications.
o Other liabilities (noncurrent) at December 31, 1994, totalled
$37.3 million, which were $12.4 million higher than the
balance at December 31, 1993. The net increase for 1994
represented changes to various accruals primarily due to
acquisitions, which are not expected to be paid out in the
company's next business cycle. These accruals generally cover
environmental obligations, legal accruals, and other
contractual obligations.
Other information concerning the company's financial
resources, commitments and plans is as follows:
135
EXHIBIT 13
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The average amount of short-term borrowings outstanding,
excluding current maturities of long-term debt, was $141.9
million in 1994, compared to $159.1 million in 1993. The
weighted average interest rate during 1994 was 6.8%, compared to
7.8% during 1993. The maximum amounts outstanding during 1994
and 1993 were $181.6 million and $184.1 million, respectively.
The decrease in the 1994 average amount of short-term borrowings
outstanding was attributable to the company's foreign operations,
which used short-term debt financings as a hedge against currency
movements.
The company had a $400 million domestic short-term credit line
at December 31, 1994, and $466 million of foreign credit
available for working capital purposes, all of which were unused
at the end of the year. These facilities provide direct support
for commercial paper and indirect support for other financial
instruments, such as letters of credit and comfort letters.
At December 31, 1994, the debt-to-total capital ratio was 22
percent, as compared to 28 percent at December 31, 1993. The
significant improvement in the ratio at December 31, 1994, was
primarily due to the company's continuing programs of inventory
reductions and spending controls to generate cash, which was used
to reduce the company's overall debt obligations.
In 1994, foreign currency adjustments increased shareowners'
equity by $38.4 million. The change was due to the weakening of
the U.S. dollar against other currencies in countries where the
company has significant operations and the local currencies are
the functional currencies. Currency fluctuations in the United
Kingdom, Canada, France, Italy, Germany, Australia, Singapore,
Japan and Spain accounted for approximately 80 percent of the
change. Inventories, accounts receivable, net property, plant
and equipment, accounts payable and loans payable were the
principal accounts affected.
In 1994, the company continued to sell an undivided fractional
ownership interest in designated pools of accounts and notes
receivable up to a maximum of $125 million. Similar agreements
have been in effect since 1987. These agreements expire in one-
and two-year periods based on the particular pool of receivables
sold. The company intends to renew these agreements at their
expiration dates with either the current institution or another
financial institution using the basic terms and conditions of the
existing agreements. At December 31, 1994 and 1993, $125 million
of such receivables remained uncollected.
136
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REVIEW OF BUSINESS SEGMENTS
Standard Machinery
Standard Machinery Segment sales were $2.3 billion, an increase
of 57 percent over the $1.4 billion reported for 1994. Operating
income for 1995, totalled $222.6 million, representing an
increase of 82 percent over last year's total of $122.4 million.
This segment now includes all of the operations of Clark, except
for Clark-Hurth, effective June 1, 1995. Without the sales from
the Clark units, 1995 sales were $1.7 billion, or $266.9 million
higher than 1994's level. Operating income, without the Clark
units was $157.0 million, an increase of 28 percent over 1994's
results.
The Construction and Mining Group's sales for 1995, excluding
the Blaw-Knox unit from Clark, were more than 20 percent higher
than last year's level due to strong domestic markets and
improved conditions in international markets. The group's
operating income and operating income margins improved markedly
over 1994's results. Sales for the Air Compressor Group were
approximately 15 percent higher than 1994's level based on
continued strong demand for its products both domestically and
internationally. The group reported a double-digit increase in
operating income for the year. The operations of the Clark
units, which are now included within this segment (i.e. Melroe
Company, Club Car, Inc. and Blaw-Knox Construction Equipment
Corporation) generated over $500 million in sales and produced
approximately $60 million of operating income since the June 1,
1995, acquisition date. However, it should be noted that the
operations of Club Car and Blaw-Knox are traditionally more
profitable during the first half of the year than in the latter
half.
Engineered Equipment
Engineered Equipment Segment sales for 1995 totalled $1.2
billion, or 31 percent above 1994's level. Operating income was
$49.5 million, representing a 40-percent increase over the 1994
total of $35.3 million. This segment also includes the results
of Clark-Hurth Components Company (Clark-Hurth), effective June
1, 1995. Excluding the sales from Clark-Hurth, 1995 segment
sales were $1,011.3 million, a nine-percent increase over 1994's
level. Operating income, without Clark-Hurth, totalled $41.6
million, representing an 18-percent increase over the amount
reported for the twelve months ended December 31, 1994.
137
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IDP's sales in 1995 reflected a marginal improvement over
1994's level; however, they reported lower operating income in
1995 versus 1994 due to lower margins on some large 1995 orders.
Sales and operating income in the Process Systems Group reflected
significant improvement over 1994 levels due to the continued
strength in the pulp and paper industry. (See Note 18 to the
Consolidated Financial Statements concerning the potential sale
of the Pulp Machinery Division.)
Bearings, Locks and Tools
In 1995, the Bearings, Locks and Tools Segment reported sales of
$2.2 billion, a five-percent increase over the prior year.
Operating income totalled $269.1 million, an increase of more
than $12 million over the $256.6 million reported for 1994.
Bearings and Components Group sales for 1995 exceeded the
prior year's level by more than six percent. A strong domestic
automotive industry and continued benefits from cost-containment
programs generated improved operating income for this group in
1995.
Architectural Hardware Group sales were slightly below 1994's
level. The group's operating income for the year was also below
1994's level by approximately five percent. The decline in sales
and operating income can be attributed to system problems during
the third quarter of the year when a new system failed to meet
expectations, and caused problems, such as shipment delays.
These problems were corrected by the end of the year.
The Production Equipment Group sales and operating income in
1995 reflected improvements over the amounts reported for the
prior year. An improving economy in the European-served area and
stronger domestic markets contributed to the group's improved
results for 1995.
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Consolidated Statement of Income
In millions except per share amounts
For the years ended December 31 1995 1994 1993
Net sales $5,729.0 $4,507.5 $4,021.1
Cost of goods sold 4,310.2 3,377.1 3,016.7
Administrative, selling and
service engineering
expenses 921.8 753.4 707.9
Restructure of operations-
charge -- -- (5.0)
Operating income 497.0 377.0 291.5
Interest expense (86.6) (43.8) (52.0)
Other income (expense), net 9.4 (14.7) (7.5)
Dresser-Rand income 22.0 24.6 33.1
Ingersoll-Dresser Pump
minority interest (12.7) (13.2) (11.6)
Earnings before income taxes
and effect of accounting
change 429.1 329.9 253.5
Provision for income taxes 158.8 118.8 90.0
Earnings before effect of
accounting change 270.3 211.1 163.5
Effect of accounting change
for postemployment benefits
(net of tax benefits) -- -- (21.0)
Net earnings $ 270.3 $ 211.1 $ 142.5
Earnings per share of
common stock:
Earnings before effect
of accounting change $2.55 $2.00 $1.56
Effect of accounting change
for postemployment benefits -- -- (0.20)
Net earnings per share $2.55 $2.00 $1.36
See accompanying notes to consolidated financial statements.
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Consolidated Balance Sheet
In millions except share amounts
December 31 1995 1994
Assets
Current assets:
Cash and cash equivalents $ 137.3 $ 207.0
Marketable securities 9.3 4.2
Accounts and notes receivable, less
allowance for doubtful accounts of
$38.3 in 1995 and $25.9 in 1994 1,109.9 949.4
Inventories 912.6 679.3
Prepaid expenses 58.0 43.8
Deferred income taxes 118.5 119.2
2,345.6 2,002.9
Investments and advances:
Dresser-Rand Company 93.9 90.7
Partially-owned equity companies 223.3 173.9
317.2 264.6
Property, plant and equipment, at cost:
Land and buildings 682.9 557.3
Machinery and equipment 1,522.3 1,261.3
2,205.2 1,818.6
Less-accumulated depreciation 926.8 859.3
1,278.4 959.3
Intangible assets, net 1,253.6 124.5
Deferred income taxes 134.8 74.4
Other assets 233.7 171.2
$5,563.3 $3,596.9
Liabilities and Equity
Current liabilities:
Accounts payable and accruals $1,129.8 $ 883.8
Loans payable 155.4 117.2
Customers' advance payments 17.7 16.9
Income taxes 26.3 22.1
1,329.2 1,040.0
Long-term debt 1,304.4 315.9
Postemployment liabilities 832.1 518.3
Ingersoll-Dresser Pump Company
minority interest 170.8 154.1
Other liabilities 131.3 37.3
Shareowners' equity:
Common stock, $2 par value, authorized
400,000,000 shares; issued:
1995-109,704,883; 1994-109,168,872 219.4 218.3
Capital in excess of par value 121.6 42.4
Earnings retained for use in the business 1,595.5 1,403.7
1,936.5 1,664.4
Less:
- Unallocated LESOP shares, at cost 70.2 --
- Treasury stock, at cost 11.5 53.1
- Foreign currency equity adjustment 59.3 80.0
Shareowners' equity 1,795.5 1,531.3
$5,563.3 $3,596.9
See accompanying notes to consolidated financial statements.
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Consolidated Statement of Shareowners' Equity
In millions except share data
December 31 1995 1994 1993
Common stock, $2 par value:
Balance at beginning of year $ 218.3 $ 217.9 $ 216.6
Exercise of stock options
and SARs 1.0 .2 1.1
Issuance of shares under
stock plans .1 .2 .2
Balance at end of year 219.4 218.3 217.9
Capital in excess of par value:
Balance at beginning of year 42.4 34.9 17.1
Exercise of stock options and
SARs including tax benefits 14.6 3.3 14.3
Issuance of shares under
stock plans 2.0 4.2 3.5
Sale of treasury shares to LESOP 62.7 -- --
Allocation of LESOP shares to
employees (0.1) -- --
Balance at end of year 121.6 42.4 34.9
Earnings retained for use
in the business:
Balance at beginning of year 1,403.7 1,268.5 1,199.5
Net earnings 270.3 211.1 142.5
Cash dividends (78.5) (75.9) (73.5)
Balance at end of year 1,595.5 1,403.7 1,268.5
Unallocated leveraged employee
stock ownership plan:
Balance at beginning of year -- -- --
Purchase of treasury shares (73.1) -- --
Allocation of shares to employees 2.9 -- --
Balance at end of year (70.2) -- --
Treasury stock-at cost:
Common stock, $2 par value:
Balance at beginning of year (53.1) (53.1) (53.1)
Sale of treasury shares to LESOP 41.6 -- --
Balance at end of year (11.5) (53.1) (53.1)
Foreign currency
equity adjustment:
Balance at beginning of year (80.0) (118.4) (86.7)
Adjustments due to
translation changes 20.7 38.4 (31.7)
Balance at end of year (59.3) (80.0) (118.4)
Total shareowners' equity $1,795.5 $1,531.3 $1,349.8
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Shares of Capital Stock
Common stock, $2 par value:
Balance at beginning of year 109,168,872 108,939,462 108,276,462
Exercise of stock options
and SARs 474,250 112,850 547,400
Issuance of shares under
stock plans 61,761 116,560 115,600
Balance at end of year 109,704,883 109,168,872 108,939,462
Unallocated leveraged employee
stock ownership plan:
Common stock, $2 par value:
Balance at beginning of year -- -- --
Purchase of treasury shares 2,878,008 -- --
Allocated to prior Clark
participants (862,680) -- --
LESOP shares allocated to
employees (78,130) -- --
Balance at end of year 1,937,198 -- --
Treasury stock:
Common stock, $2 par value:
Balance at beginning of year 3,672,732 3,672,732 3,672,822
Sale of shares to LESOP (2,878,008) -- --
Disposition of stock -- -- (90)
Balance at end of year 794,724 3,672,732 3,672,732
See accompanying notes to consolidated financial statements.
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Consolidated Statement of Cash Flows
In millions
For the years ended December 31 1995 1994 1993
Cash flows from operating activities:
Net earnings $ 270.3 $ 211.1 $ 142.5
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 179.4 132.5 123.5
Gain on sale of assets (3.6) (.1) (5.5)
Loss on disposition of domestic
paving business 7.1 -- --
Minority interests 14.0 13.8 13.6
Equity earnings/losses,
net of dividends (41.5) (36.4) (45.6)
Deferred income taxes 15.1 14.2 (14.8)
Other noncash items 1.4 (10.5) .1
Effect of accounting changes -- -- 21.0
Restructure of operations -- -- 5.0
Changes in assets and liabilities
(Increase) decrease in:
Accounts and notes receivable 50.9 (111.8) (12.0)
Inventories (15.2) 81.6 35.5
Other current and noncurrent
assets (33.1) (14.6) (22.3)
(Decrease) increase in:
Accounts payable and accruals (37.9) 41.5 (73.3)
Other current and noncurrent
liabilities (3.3) (19.5) (2.8)
Net cash provided by operating
activities 403.6 301.8 164.9
Cash flows from investing activities:
Capital expenditures (211.7) (158.6) (132.0)
Proceeds from sales of property,
plant and equipment 26.5 7.3 6.6
Proceeds from business dispositions -- 2.2 55.5
Acquisitions, net of cash* (1,136.5) (37.8) (42.5)
(Increase) decrease in marketable
securities (4.6) 2.8 6.4
Cash (invested in) or advances (to)
from equity companies 18.4 42.4 45.3
Net cash used in investing
activities (1,307.9) (141.7) (60.7)
Cash flows from financing activities:
Decrease in short-term borrowings (81.5) (31.4) (49.5)
Debt issuance costs (6.0) -- --
Proceeds from long-term debt 901.7 2.3 101.8
Payments of long-term debt (23.7) (85.7) (78.0)
Net change in debt 790.5 (114.8) (25.7)
Proceeds from exercise of stock
options and treasury stock sales 118.2 3.0 13.1
Dividends paid (78.5) (75.9) (73.5)
Net cash provided by (used in)
financing activities 830.2 (187.7) (86.1)
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Consolidated Statement of Cash Flows (Continued)
In millions
For the years ended December 31 1995 1994 1993
Effect of exchange rate changes on cash
and cash equivalents 4.4 6.6 (6.9)
Net (decrease) increase in cash
and cash equivalents (69.7) (21.0) 11.2
Cash and cash equivalents-
beginning of year 207.0 228.0 216.8
Cash and cash equivalents-end of year $ 137.3 $ 207.0 $ 228.0
*Acquisitions:
Working capital, other than cash $ (161.4) $ 15.9 $ (25.6)
Property, plant and equipment (292.0) (39.8) (25.9)
Intangibles and other assets (1,330.0) (32.6) (2.0)
Long-term debt and other liabilities 646.9 18.7 11.0
Net cash used to acquire businesses $(1,136.5) $ (37.8) $ (42.5)
Cash paid during the year for:
Interest, net of amounts capitalized $ 72.1 $ 47.3 $ 47.4
Income taxes 120.1 119.8 127.0
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Ingersoll-Rand is a multinational manufacturer of primarily
nonelectrical industrial machinery and equipment. The company's
principal lines of business are air compressors, construction
equipment, automotive parts and components, pumps, tools, door
hardware products, golf cars and utility vehicles. The company's
broad product line has applications in numerous industries
including automotive, construction, mining, utilities, paper,
housing, recreational, as well as the general industrial market.
A summary of significant accounting policies used in the
preparation of the accompanying financial statements follows:
Principles of Consolidation: The consolidated financial
statements include the accounts of all wholly-owned and
majority-owned subsidiaries. Intercompany transactions and
balances have been eliminated. Partially-owned equity companies
are accounted for under the equity method. In conformity with
generally accepted accounting principles, management has used
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Actual results could differ
from those estimates.
Cash Equivalents: The company considers all highly liquid
investments, consisting primarily of time deposits and commercial
paper with maturities of three months or less when purchased, to
be cash equivalents. Cash equivalents were $40.0 million and
$108.3 million at December 31, 1995 and 1994, respectively.
Inventories: Inventories are generally stated at cost, which is
not in excess of market. Domestic manufactured inventories of
standard products are valued on the last-in, first-out (LIFO)
method and all other inventories are valued using the first-in,
first-out (FIFO) method.
Property and Depreciation: The company principally uses
accelerated depreciation methods for assets placed in service
prior to December 31, 1994 and the straight-line method for
assets acquired subsequent to that date.
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Intangible Assets: Intangible assets primarily represent the
excess of the purchase price of acquisitions over the fair value
of the net assets acquired. Such excess costs are being
amortized on a straight-line basis over various periods not
exceeding 40 years. Goodwill at December 31, 1995 and 1994, was
$1.2 billion and $114 million, respectively. The carrying value
of goodwill is evaluated periodically in relation to the
operating performance and future undiscounted net cash flows of
the related business. Intangible assets also represent costs
allocated to patents, tradenames and other specifically
identifiable assets arising from business acquisitions. These
assets are amortized on a straight-line basis over their
estimated useful lives. Accumulated amortization at December 31,
1995 and 1994, was $47.0 million and $26.5 million, respectively.
Amortization of intangible assets was $25.3 million, $6.8 million
and $5.9 million in 1995, 1994 and 1993, respectively.
Income Taxes: Deferred taxes are provided on temporary
differences between assets and liabilities for financial
reporting and tax purposes as measured by enacted tax rates
expected to apply when temporary differences are settled or
realized.
Environmental Costs: Environmental expenditures relating to
current operations are expensed or capitalized as appropriate.
Expenditures relating to existing conditions caused by past
operations, which do not contribute to current or future
revenues, are expensed. Costs to prepare environmental site
evaluations and feasibility studies are accrued when the company
commits to perform them. Liabilities for remediation costs are
recorded when they are probable and reasonably estimable,
generally the earlier of completion of feasibility studies or the
company's commitment to a plan of action. The assessment of this
liability is calculated based on existing technology, does not
reflect any offset for possible recoveries from insurance
companies and is not discounted. There were no material changes
in the liability for the periods presented.
Revenue Recognition: Sales of products are recorded for
financial reporting purposes generally when the products are
shipped.
Research, Engineering and Development Costs: Research and
development expenditures, including engineering costs, are
expensed when incurred and amounted to $190.4 million in 1995,
$154.6 million in 1994 and $150.1 million in 1993.
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Foreign Currency: Assets and liabilities of foreign entities,
where the local currency is the functional currency, have been
translated at year-end exchange rates, and income and expenses
have been translated using weighted average-for-the-year exchange
rates. Adjustments resulting from translation have been recorded
in shareowners' equity and are included in net earnings only upon
sale or liquidation of the underlying foreign investment.
For foreign entities where the U.S. dollar is the functional
currency, including those operating in highly inflationary
economies, inventory and property balances and related income
statement accounts have been translated using historical exchange
rates, and resulting gains and losses have been credited or
charged to net earnings.
Foreign currency transactions and translations recorded in the
income statement decreased net earnings by $3.9 million, $5.1
million and $4.7 million in 1995, 1994 and 1993, respectively.
Shareowners' equity was increased in 1995 by $20.7 million,
increased in 1994 by $38.4 million and reduced in 1993 by $31.7
million, due to foreign currency equity adjustments related to
translation.
The company hedges certain foreign currency transactions and
firm foreign currency commitments by entering into forward
exchange contracts (forward contracts). Gains and losses
associated with currency rate changes on forward contracts
hedging foreign currency transactions are recorded currently in
income. Gains and losses on forward contracts hedging firm
foreign currency commitments are deferred off-balance sheet and
included as a component of the related transaction, when
recorded; however, a loss is not deferred if deferral would lead
to the recognition of a loss in future periods.
Cash flows resulting from forward contracts accounted for as
hedges of identifiable transactions or events are classified in
the same category as the cash flows from the items being hedged.
Earnings Per Share: Net earnings per share of common stock are
earnings divided by the average number of common shares
outstanding during the year. The effect of common stock
equivalents on earnings per share was not material.
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Accounting Changes: The company principally uses accelerated
depreciation methods for both tax and financial reporting
purposes for assets placed in service prior to December 31, 1994.
The company changed to the straight-line method for financial
reporting purposes for assets acquired on or after January 1,
1995, while continuing to use accelerated depreciation for tax
purposes. The straight-line method is the predominant method
used throughout the industries in which the company operates and
its adoption increases the comparability of the company's results
with those of its competitors. The effect of the change on the
year ended December 31, 1995, increased net earnings by
approximately $6.8 million ($0.06 per share).
The company implemented Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective January 1, 1994. Adoption
of this statement had no impact on the financial statements.
Effective January 1, 1993, the company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." SFAS No.
112 requires an accrual for the expected cost of benefits
provided by an employer to former or inactive employees after
employment, but before retirement, such as the continuation of
medical and life insurance benefits for employees on long-term
disability. Previously, these benefits were expensed as
incurred. The effect of the adoption of SFAS No. 112 for the
company totalled $21.0 million ($0.20 per share), net of a $13.5
million tax benefit.
New Accounting Standards: In March 1995, the Financial
Accounting Standards Board (FASB) issued SFAS No. 121 "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which became effective on January 1, 1996. The
adoption of SFAS No. 121 is not expected to have a material
impact on the company's consolidated financial statements. Also
in 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation" which requires companies to measure employee
stock compensation plans based on the fair value method of
accounting or to continue to apply APB No. 25, "Accounting for
Stock Issued to Employees" and provide pro forma footnote
disclosures under the fair value method in SFAS No. 123. The
company will continue to apply the principles of APB No. 25 and
provide pro forma fair value disclosures starting in the 1996
Annual Report.
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NOTE 2 - ACQUISITIONS OF BUSINESSES: On May 25, 1995, CEC
Acquisition Corp. (CEC), a wholly-owned subsidiary of the
company, acquired 16,553,617 shares of Clark Equipment Company
(Clark), which, together with shares already owned by the
company, represented approximately 98.4 percent of the
outstanding shares, for a cash price of $86 per share pursuant to
an April 12, 1995, amended tender offer. On May 31, 1995, the
company completed the merger of CEC with Clark. Upon
consummation of the merger, Clark became a wholly-owned
subsidiary of the company. The total purchase price for Clark
was approximately $1.5 billion after taking into account amounts
paid in respect of outstanding stock options and certain
transactions. The purchase price exceeded net assets acquired by
approximately $1,120 million, which is being amortized on a
straight-line basis over 40 years. Included among the assets
acquired by the company through the acquisition of Clark are the
Melroe Company (Melroe), Blaw-Knox Construction Equipment
Corporation (Blaw-Knox), Clark-Hurth Components Company (Clark-
Hurth) and Club Car, Inc. (Club Car). Melroe products consist of
skid-steer loaders, compact excavators and a limited line of
agricultural equipment. Blaw-Knox is one of the leading
producers of asphalt paving equipment in the world. The products
of the Clark-Hurth business consist of axles and transmissions
for off-highway equipment. Club Car produces golf cars and light
utility vehicles. The funds to consummate the acquisition came
from borrowings of the company under a credit agreement, which
has been converted into long-term debt with lower interest rates.
The results of Clark's operations have been included in the
consolidated financial statements from the acquisition date. The
following unaudited pro forma consolidated results of operations
for the years ended December 31, 1995 and 1994, reflect the
acquisition as though it occurred at the beginning of the
respective periods after adjustments for the impact of interest
on acquisition debt, depreciation and amortization of assets,
including goodwill, to reflect the purchase price allocation, and
the elimination of Clark's income from discontinued operations
related to its disposition of its investments in VME Group N.V.
and Clark Automotive Products Corporation (in millions except per
share amounts):
(Unaudited)
For the years ended December 31 1995 1994
Sales $6,346.1 $5,689.5
Net earnings 283.5 198.7
Earnings per share $2.67 $1.87
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It should be noted that the company's actual results for 1995
(and the above pro forma amounts) were adversely affected by the
loss on the sale of the company's domestic paving business, which
was a preacquisition requirement to the Clark purchase. The
above pro forma results are not necessarily indicative of what
the actual results would have been had the acquisition occurred
at the beginning of the respective periods. Further, the pro
forma results are not intended to be a projection of future
results of the combined companies.
During 1994, the company made several acquisitions. In April
1994, the company acquired full ownership of the ball bearing
joint venture with GMN Georg Mueller of America, Inc. for $4.9
million in cash. The company previously owned 50% of the joint
venture. The company acquired Montabert S.A., a French
manufacturer of hydraulic rock-breaking and drilling equipment on
June 30, 1994, for approximately $18.4 million, plus assumption
of liabilities. In August 1994, the company acquired the Ecoair
air compressor product line from MAN Gutehoffnungshutte AG (MAN
GHH) for $10.6 million in cash. The company also entered into a
50/50 joint venture, GHH-RAND Schraubenkompressoren GmbH & Co. KG
(GHH-RAND) with MAN GHH to manufacture airends. The company
invested approximately $17.6 million in GHH-RAND. The company
also had several additional purchases of operations during the
year totalling $3.9 million in cash.
In 1993, the company acquired the Kunsebeck, Germany, needle
and cylindrical bearing business of FAG Kugelfischer Georg
Schafer AG of Schweinfurt, Germany, for $42.5 million in cash.
These transactions have been accounted for as purchases and
accordingly, each purchase price was allocated to the acquired
assets and assumed liabilities based on their estimated fair
values. The company has classified as intangible assets the
costs in excess of the fair value of the net assets of companies
acquired. The results of all acquired operations have been
included in the consolidated financial statements from their
respective acquisition dates.
NOTE 3 - DISPOSITIONS AND RESTRUCTURE OF OPERATIONS: On May 15,
1995, the company sold its domestic paving equipment business to
Champion Road Machinery Limited of Canada. The sale was a
preacquisition requirement, in order to satisfy concerns of the
United States Justice Department, prior to the Clark acquisition.
The company incurred a $7.1 million pretax loss associated with
this sale.
In 1994, the assets of the IDP Australian operations were sold
in return for shares of the purchaser. The company and Dresser
Industries sold IRI International Corporation, a 50/50 joint
venture that is a manufacturer of mobile drilling rigs, to a
third party.
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The company sold the assets of several small business units in
1993, as well as substantially all of the assets of its coal-
mining machinery and aerospace bearings businesses for $55.5
million in cash. In connection with the sale of the company's
underground coal-mining machinery assets to Long-Airdox Company,
the company recorded a $5.0 million restructure of operations
charge during the second quarter of 1993.
NOTE 4 - INVENTORIES: At December 31, inventories were as
follows:
In millions 1995 1994
Raw materials and supplies $ 211.8 $117.6
Work-in-process 326.1 293.0
Finished goods 538.5 429.7
1,076.4 840.3
Less-LIFO reserve 163.8 161.0
Total $ 912.6 $679.3
Work-in-process inventories are stated after deducting
customer progress payments of $38.8 million in 1995 and $27.2
million in 1994. At December 31, 1995 and 1994, LIFO inventories
comprised approximately 41 percent and 35 percent, respectively,
of consolidated inventories.
During the periods presented, certain inventory quantities
were reduced, resulting in partial liquidations of LIFO layers.
This decreased cost of goods sold by $3.4 million in 1995, $11.6
million in 1994 and $12.5 million in 1993. These liquidations
increased net earnings in 1995, 1994 and 1993 by approximately
$2.1 million ($0.02 per share), $7.1 million ($0.07 per share)
and $7.6 million ($0.07 per share), respectively.
NOTE 5 - INVESTMENTS IN PARTIALLY-OWNED EQUITY COMPANIES: The
company has numerous investments, ranging from 20 percent to 50
percent, in companies which operate in similar lines of business.
The company's investments in and amounts due from partially-
owned equity companies amounted to $202.9 million and $20.4
million, respectively, at December 31, 1995, and $170.5 million
and $3.4 million, respectively, at December 31, 1994.
The company's equity in the net earnings of its
partially-owned equity companies was $26.2 million, $15.6 million
and $15.6 million in 1995, 1994 and 1993, respectively.
The company received dividends based on its equity interests
in these companies of $6.7 million, $3.8 million and $3.1 million
in 1995, 1994 and 1993, respectively.
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Summarized financial information for these partially-owned
equity companies at December 31, and for the years presented was:
In millions 1995 1994
Current assets $ 467.6 $ 388.6
Property, plant and
equipment, net 284.9 264.6
Other assets 30.2 20.3
Total assets $ 782.7 $ 673.5
Current liabilities $ 272.0 $ 250.5
Long-term debt 56.5 50.2
Other liabilities 47.4 30.0
Total shareowners' equity 406.8 342.8
Total liabilities
and equity $ 782.7 $ 673.5
In millions 1995 1994 1993
Net sales $ 872.5 $ 701.0 $ 730.1
Gross profit 180.2 142.0 127.5
Net earnings 55.8 33.7 48.5
NOTE 6 - DRESSER-RAND COMPANY: Dresser-Rand Company is a
partnership between Dresser Industries, Inc. (51 percent), and
the company (49 percent) comprising the worldwide reciprocating
compressor and turbomachinery businesses of the two companies.
The company's investment in Dresser-Rand is accounted for using
the equity method of accounting.
Summarized financial information for Dresser-Rand at December
31, and for the years presented was:
In millions 1995 1994
Current assets $ 457.2 $ 440.5
Property, plant and
equipment, net 239.3 197.8
Other assets 27.2 18.5
Total assets 723.7 656.8
Deduct:
Current liabilities 341.4 295.1
Other liabilities 200.8 188.9
542.2 484.0
Net partners' equity
and advances $ 181.5 $ 172.8
In millions 1995 1994 1993
Net sales $1,081.4 $1,219.4 $1,187.3
Gross profit 212.5 203.1 241.9
Net earnings 44.9 50.2 68.1
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The company's investment in Dresser-Rand was $182.8 million
and $160.8 million at December 31, 1995 and 1994, respectively.
The company owed Dresser-Rand $88.9 million at December 31, 1995,
and $70.1 million at December 31, 1994.
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUALS: Accounts payable and
accruals at December 31, were:
In millions 1995 1994
Accounts payable $ 337.5 $ 255.6
Accrued:
Payrolls and benefits 177.4 137.3
Taxes 59.5 48.6
Insurance and claims 110.9 93.7
Postemployment benefits 98.5 74.0
Warranties 52.3 36.8
Interest 33.6 10.8
Other accruals 260.1 227.0
$1,129.8 $ 883.8
NOTE 8 - LONG-TERM DEBT AND CREDIT FACILITIES:
At December 31, long-term debt consisted of:
In millions 1995 1994
6 7/8% Notes Due 2003 $ 100.0 $100.0
9% Debentures Due 2021 125.0 125.0
7.20% Debentures Due 2025 150.0 --
6.48% Debentures Due 2025 150.0 --
Medium Term Notes Due 1997-2004, at
an average rate of 6.57% 600.0 --
9.75% Clark Debentures Due 2001 100.0 --
Clark Medium Term Notes Due 1998-2023,
at an average rate of 7.89% 60.2 --
8 1/4% Notes Due 1996 -- 75.0
Other domestic and foreign
loans and notes, at end-
of-year average interest
rates of 6.53% in 1995
and 6.99% in 1994, maturing
in various amounts to 2025 19.2 15.9
$1,304.4 $315.9
Debt retirements for the next five years are as follows:
$102.9 million in 1996, $135.1 million in 1997, $146.7 million in
1998, $102.9 million in 1999 and $102.4 million in 2000.
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In June 1995, the company issued $150.0 million of debentures
at 7.20% per annum, which are not redeemable prior to maturity in
2025 and $150.0 million of debentures at 6.48% per annum due in
2025 which may be repaid at the option of the holder on June 1,
2005. During July and August 1995, the company issued medium
term notes totalling $600.0 million at an average rate of 6.57%
with maturities ranging from 1997 to 2004. The proceeds from
these financings were used to refinance short-term borrowings
related to the acquisition of Clark.
At December 31, 1995, the company had two five-year committed
revolving credit lines totalling $800.2 million, both of which
were unused. These lines provide support for commercial paper
and indirectly provide support for other financial instruments,
such as letters of credit and comfort letters, as required in the
normal course of business. The company compensates banks for
these lines with fees equal to .08% per annum. Available foreign
lines of credit were $733.5 million, of which $676.0 million were
unused at December 31, 1995. No major cash balances were subject
to withdrawal restrictions. At December 31, 1995, the average
rate of interest for loans payable, excluding the current portion
of long-term debt, was 7.78% and related to foreign loans.
Capitalized interest on construction and other capital
projects amounted to $3.5 million, $3.2 million and $2.8 million
in 1995, 1994 and 1993, respectively. Interest income, included
in Other income (expense), net, was $11.5 million, $11.5 million
and $11.7 million in 1995, 1994 and 1993, respectively.
NOTE 9 - FINANCIAL INSTRUMENTS: The company, as a large
multinational company, maintains significant operations in
foreign countries. As a result of these global operating and
financing activities, the company is exposed to changes in
foreign currency exchange rates, which affect the results of
operations and financial condition. The company manages exposure
to changes in foreign currency exchange rates through its normal
operating and financing activities, as well as through the use of
financial instruments. Generally, the only financial instruments
the company utilizes are forward exchange contracts.
The purpose of the company's hedging activities is to mitigate
the impact of changes in foreign exchange rates. The company
attempts to hedge transaction exposures through natural offsets.
To the extent this is not practicable, major exposure areas which
are considered for hedging include, foreign currency denominated
receivables and payables, intercompany loans, firm committed
transactions, anticipated sales and purchases and dividends
relating to foreign subsidiaries. The following table summarizes
by major currency the contractual amounts of the company's
forward contracts in U.S. dollars. Foreign currency amounts are
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translated at year-end rates at the respective reporting date.
The "buy" amounts represent the U.S. equivalent of commitments to
purchase foreign currencies, and the "sell" amounts represent the
U.S. equivalent of commitments to sell foreign currencies. Some
of the forward contracts involve the exchange of two foreign
currencies according to local needs in foreign subsidiaries. At
December 31, the contractual amounts were:
In millions 1995 1994
Buy Sell Buy Sell
Austrian schilling $ 9.6 $ 1.6 $ 3.5 $ .3
Belgian francs 3.2 8.3 .3 1.4
Canadian dollars 10.4 6.6 2.4 13.3
Deutsche marks 10.2 135.6 8.4 81.8
Dutch guilders 20.2 7.8 -- 1.3
French francs 24.1 38.5 3.3 10.6
Italian lira 41.1 6.9 34.9 2.3
Japanese yen 19.0 2.0 3.4 19.2
Pounds sterling 25.1 128.8 59.1 55.5
South African rand 3.5 12.8 6.6 14.4
Other 6.5 7.5 8.5 13.4
Total $172.9 $356.5 $130.4 $213.5
Forward contracts for normal operating activities have
maturities of one to 12 months; and forward contracts for
intercompany loans have maturities that range from one month to
36 months.
The company's forward contracts do not subject the company to
risk due to foreign exchange rate movement, since gains and
losses on these contracts generally offset losses and gains on
the assets, liabilities or other transactions being hedged.
The counterparties to the company's forward contracts consist
of a number of major international financial institutions. The
credit ratings and concentration of risk of these financial
institutions are monitored on a continuing basis and present no
significant credit risk to the company.
The carrying value of cash and cash equivalents, marketable
securities (classified as held to maturity), accounts receivable,
short-term borrowings and accounts payable are a reasonable
estimate of their fair value due to the short-term nature of
these instruments. The following table summarizes the estimated
fair value of the company's remaining financial instruments at
December 31:
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In millions 1995 1994
Long-term debt:
Carrying value $1,304.4 $315.9
Estimated fair value 1,410.6 312.5
Forward contracts:
Contract (notional) amounts:
Buy contracts $ 172.9 $130.4
Sell contracts 356.5 213.5
Fair (market) values:
Buy contracts 172.9 131.2
Sell contracts 356.8 211.9
Fair value of long-term debt was determined by reference to
the December 31, 1995 and 1994, market values of comparably rated
debt instruments. Fair values of forward contracts are based on
dealer quotes at the respective reporting dates.
NOTE 10 - COMMITMENTS AND CONTINGENCIES: The company is involved
in various litigations, claims and administrative proceedings,
including environmental matters, arising in the normal course of
business. In assessing its potential environmental liability,
the company bases its estimates on current technologies and does
not discount its liability or assume any insurance recoveries.
Amounts recorded for identified contingent liabilities are
estimates, which are reviewed periodically and adjusted to
reflect additional information when it becomes available.
Subject to the uncertainties inherent in estimating future costs
for contingent liabilities, management believes that recovery or
liability with respect to these matters would not have a material
effect on the financial condition, results of operations,
liquidity or cash flows of the company for any year.
In the normal course of business, the company has issued
several direct and indirect guarantees, including performance
letters of credit, totalling approximately $115 million at
December 31, 1995. The company has also guaranteed the residual
value of leased Club Car vehicles in the aggregate amount of
$20.7 million. Management believes these guarantees will not
adversely affect the consolidated financial statements.
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As a result of the Clark acquisition, the company is involved
in certain repurchase arrangements relating to product
distribution and product financing activities. As of December
31, 1995, repurchase arrangements relating to product financing
by an independent finance company approximated $101.6 million.
It is not practicable to determine the additional amount subject
to repurchase solely under dealer distribution agreements. Under
the repurchase arrangements relating to product-distribution and
product-financing activities, when dealer terminations do occur,
a newly selected dealer generally acquires the assets of the
prior dealer and assumes any related financial obligation.
Accordingly, the risk of loss to the company is minimal.
Historically, Clark incurred only immaterial losses relating to
these arrangements.
Clark sold Clark Material Handling Company (CMHC), its
forklift truck business, to Terex Corporation (Terex) in 1992.
As part of the sale, Terex and CMHC assumed substantially all of
the obligations for existing and future product liability claims
involving CMHC products. In the event that Terex and CMHC fail
to perform or are unable to discharge any of the assumed
obligations, the company could be required to discharge such
obligations. While the aggregate losses associated with these
obligations could be significant, the company does not believe
they would materially affect the financial condition, the results
of operations, liquidity or cash flows of the company in any one
year.
In 1995, the company continued to sell an undivided interest
in designated pools of accounts and notes receivable up to a
maximum of $150.0 million. Similar agreements have been in
effect since 1987. During 1995, 1994 and 1993, such sales
amounted to $533.7 million, $487.8 million and $518.7 million,
respectively. At December 31, 1995 and 1994, $150.0 million and
$125.0 million, respectively, of such sold receivables remained
uncollected. The undivided interest in the designated pool of
receivables was sold with limited recourse. These agreements
expire in one- and two-year periods based on the particular pool
of receivables sold. The company intends to renew these
agreements at their expiration dates with either the current
financial institution, or another financial institution, using
the basic terms and conditions of the existing agreements. For
receivables sold, the company has retained collection and
administrative responsibilities as agent for the purchaser.
Receivables, excluding the designated pools of accounts and
notes receivable, sold during 1995, 1994 and 1993 with recourse,
amounted to $175.9 million, $64.6 million and $39.3 million,
respectively. At December 31, 1995 and 1994, $35.3 million and
$14.7 million, respectively, of such receivables sold remained
uncollected.
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As of December 31, 1995, the company had no significant
concentrations of credit risk in trade receivables due to the
large number of customers which comprise its receivables base and
their dispersion across different industries and countries.
Certain office and warehouse facilities, transportation
vehicles and data processing equipment are leased. Total rental
expense was $64.7 million in 1995, $56.2 million in 1994 and
$57.9 million in 1993. Minimum lease payments required under
noncancellable operating leases with terms in excess of one year
for the next five years and thereafter, are as follows: $38.7
million in 1996, $27.5 million in 1997, $16.7 million in 1998,
$9.0 million in 1999, $6.7 million in 2000 and $17.2 million
thereafter.
NOTE 11 - COMMON STOCK: On December 7, 1988, the board of
directors adopted a Rights Plan (Plan) and declared a dividend
distribution of one right for each then outstanding share of the
company's common stock. As a result of the two-for-one stock
split in 1992, each current outstanding share of the company's
common stock has one-half a right associated with it. In
December 1994, the Plan was amended by the board of directors.
Under the Plan as amended, each right entitles the holder to
purchase 1/100th of a share of Series A preference stock at an
exercise price of $130. The company has reserved 563,000 shares
of Series A preference stock for issuance upon exercise of the
rights. The rights become exercisable in accordance with the
provisions of the Plan on (i) the tenth day following the
acquisition by a person or group of persons of 15 percent or more
of the company's common stock, (ii) the tenth day after the
commencement of a tender or exchange offer for 15 percent or more
of the company's common stock, or (iii) the determination by the
board of directors that a person is an Adverse Person as defined
in the Plan (Distribution Date). Upon either a person's becoming
an Acquiring Person as defined in the Plan, or the board's
determination that a person is an Adverse Person, or the
occurrence of certain other events following the Distribution
Date, each holder of a right shall thereafter have a right to
receive the common stock of the company (or in certain
circumstances, the stock of an acquiring entity) for a price of
approximately half its value. The rights are not exercisable by
any Acquiring Person or Adverse Person. The Plan as amended
provides that the board of directors, at its option any time
after any person becomes an Acquiring Person or an Adverse
Person, may exchange all or part of the outstanding and
exercisable rights for shares of common stock, currently at an
exchange ratio of one right for two shares. The right of the
holders to exercise the rights to purchase shares automatically
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terminates if the board orders an exchange of rights for shares.
The rights may be redeemed by the company for one cent per right
in accordance with the provisions of the Plan. The rights will
expire on December 22, 1998, unless redeemed earlier by the
company.
Shares held in treasury at December 31, 1995, will be used for
employee benefit plans and for other corporate purposes.
NOTE 12 - LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN: At the time
of its acquisition by the company, Clark sponsored a Leveraged
Employee Stock Ownership Plan (LESOP) for eligible employees. In
connection with the acquisition, the company purchased the
LESOP's shares for $176.6 million. The company determined it
would continue the LESOP to fund certain employee benefit plans.
Accordingly, on September 28, 1995, the company sold 2,878,008
shares of its Common Stock held in treasury to the LESOP, for a
price of $36.25 per share (the closing price of the Common Stock
on September 27, 1995, on the New York Stock Exchange) or an
aggregate of $104.3 million. At December 31, 1995, approximately
1.9 million of these shares remain unallocated and the $70.2
million paid by the LESOP for those unallocated shares is
classified as a reduction of shareowners' equity pending
allocation to participants. At December 31, 1995, the LESOP owed
the company $36.8 million repayable in monthly installments
through 2001. Company contributions to the LESOP and dividends
on unallocated shares are used to make loan principal and
interest payments. With each principal and interest payment, the
LESOP allocates a portion of the Common Stock to participating
employees.
NOTE 13 - INCENTIVE STOCK PLANS: Under the company's Incentive
Stock Plans, key employees have been granted options to purchase
common shares at prices not less than the fair market value at
the date of grant. The plans, approved in 1985, 1990 and 1995,
also authorize stock appreciation rights (SARs) and stock awards.
If SARs issued in conjunction with stock options are exercised,
the related stock options are cancelled; conversely, the exercise
of stock options cancels the SARs.
Changes during the year in options outstanding under the plans
were as follows:
Shares subject Option price
to option range per share
January 1, 1995 3,384,300 $10.04-37.19
Granted 988,900 34.75-40.06
Exercised 749,800 10.04-34.94
Cancelled 21,000 34.94
December 31, 1995 3,602,400 $11.95-40.06
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Of the shares subject to option, 1,988,250 were granted with
SARs. There are also 192,500 SARs outstanding with no stock
options. At December 31, 1995, options for 2,628,500 shares were
exercisable and 5,513,210 shares were available for future
awards. In addition, at December 31, 1995, 268,690 shares of
common stock were reserved for future issue, contingent upon
attainment of certain performance goals and future service.
The company also maintains a shareowner-approved Management
Incentive Unit Award Plan. Under the plan, qualifying executives
are awarded incentive units. When dividends are paid on common
stock, dividends are awarded to unit holders, one-half of which
is paid in cash, the remaining half of which is credited to the
participant's account in the form of so-called common stock
equivalents. The fair value of accumulated common stock
equivalents is paid in cash upon the participant's retirement.
The number of common stock equivalents credited to participant's
accounts at December 31, 1995 and 1994, are 288,837 and 284,409,
respectively.
NOTE 14 - INCOME TAXES: Earnings before income taxes and the
effect of accounting changes for the years ended December 31,
were taxed within the following jurisdictions:
In millions 1995 1994 1993
United States $308.0 $279.4 $229.5
Foreign 121.1 50.5 24.0
Total $429.1 $329.9 $253.5
The provision for income taxes before the effect of the
accounting change was as follows:
In millions 1995 1994 1993
Current tax expense:
United States $101.3 $ 69.8 $ 74.9
Foreign 42.7 34.8 30.6
Total current 139.7 104.6 105.5
Deferred tax expense:
United States 10.6 30.3 5.3
Foreign 4.2 (16.1) (20.8)
Total deferred 14.8 14.2 (15.5)
Total provision for
income taxes $158.8 $118.8 $ 90.0
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The provision for income taxes differs from the amount of
income taxes determined by applying the applicable U.S. statutory
income tax rate to pretax income before the effect of the
accounting change, as a result of the following differences:
Percent of pretax income
1995 1994 1993
Statutory U.S. rates 35.0% 35.0% 35.0%
Increase (decrease) in rates
resulting from:
Foreign operations 1.0 0.3 0.6
Effect of changes in statutory
rate on deferred taxes -- -- (2.2)
Earnings/losses of equity
companies (1.8) (0.9) (2.2)
State and local income taxes,
net of U.S. tax 1.3 1.6 1.3
Other 1.5 -- 3.0
Effective tax rates 37.0% 36.0% 35.5%
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A summary of the deferred tax accounts at December 31, follows:
In millions 1995 1994 1993
Current deferred assets and (liabilities):
Differences between book and tax bases
of inventories and receivables $ 30.8 $ 36.5 $ 32.6
Differences between book and tax
expense for other employee related
benefits and allowances 35.3 33.9 42.1
Provisions for restructure of
operations and plant closings
not yet deductible for tax purposes 9.4 6.4 5.3
Other reserves and valuation
allowances in excess of tax deductions 53.1 32.5 28.0
Other differences between tax and
financial statement values (10.1) 9.9 8.9
Gross current deferred net tax assets 118.5 119.2 116.9
Noncurrent deferred tax assets and
(liabilities):
Tax items associated with equity
companies 11.1 13.0 31.0
Postretirement and postemployment
benefits other than pensions in
excess of tax deductions 252.5 159.9 159.9
Other reserves in excess of tax expense 65.0 36.3 28.1
Tax depreciation in excess of book
depreciation (85.5) (46.0) (54.8)
Pension contributions in excess of
book expense (51.2) (47.5) (36.6)
Taxes provided for unrepatriated
foreign earnings (28.5) (20.1) (26.3)
Gross noncurrent deferred net tax assets 163.4 95.6 101.3
Less: deferred tax valuation allowances (28.6) (21.2) (10.4)
Total net deferred tax assets $253.3 $193.6 $207.8
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A total of $28.5 million of deferred taxes have been provided
for a portion of the undistributed earnings of subsidiaries
operating outside of the United States. As to the remainder,
these earnings have been, and under current plans will continue
to be reinvested and it is not practicable to estimate the amount
of additional taxes which may be payable upon repatriation.
NOTE 15 - BUSINESS SEGMENT INFORMATION: A description of
business segments and operations by business segment and
geographic area for the three years ended December 31, 1995, were
as follows:
DESCRIPTION OF BUSINESS SEGMENTS
Ingersoll-Rand's operations are organized into three worldwide
business segments: Standard Machinery; Engineered Equipment; and
Bearings, Locks and Tools.
Standard Machinery
The segment's products are categorized into five groups:
Air Compressor - products include portable, reciprocating, rotary
and centrifugal air compressors, vacuum pumps, air drying and
filtering systems and other compressor accessories. The products
are used primarily to supply pressurized air to industrial
plants, refineries, chemical plants, electrical utilities and
service stations.
Construction and Mining - manufactures vibratory compactors,
asphalt pavers, rock drills, blasthole drills, water-well drills,
crawler drills, jumbo drills, jackhammers and rock and roof
stabilizers primarily for the construction, highway maintenance,
metals-mining and well-drilling industries.
Melroe - manufactures skid-steer loaders, compact hydraulic
excavators and self-propelled agricultural sprayers. The
products are used primarily by the construction and agricultural
industries.
Club Car - manufactures golf cars and utility vehicles which are
used primarily in the golf and resort industries.
Mining Machinery(1) - products included continuous and long-wall
mining machines, crushers, coal haulers and mine-service
vehicles, which principally serve the underground coal-mining
industry.
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Engineered Equipment
The segment's products are categorized into three groups:
Pump - manufactures centrifugal and reciprocating pumps. These
products serve oil production and refining, chemical process,
marine, agricultural, electric utility and general manufacturing
industries.
Process Systems - consists of pulp and paper processing
equipment, pelleting equipment, filters, aerators and dewatering
systems. This equipment is used in the pulp and paper, food and
agricultural, and minerals-processing industries.
Clark-Hurth - manufactures a broad line of axles and
transmissions for the off-highway vehicle industry.
Bearings, Locks and Tools
The segment's products are categorized into three groups:
Bearings and Components - principal products include needle
bearings, needle roller bearings, needle rollers, thrust
bearings, tapered roller bearings, drawn cup bearings,
high-precision ball bearings, spherical bearings, radial
bearings, universal joints, dowel pins, swagers and precision
components. These products are sold principally to durables-
industry customers primarily in the automotive and aerospace
markets.
Production Equipment - manufactures air-powered tools, hoists and
winches, air motors and air starters, automated assembly and test
systems, air and electric automated fastener tightening systems
and waterjet cutting systems. These products are sold to general
manufacturing industries and to the appliance, aircraft,
construction and automotive industries.
Architectural Hardware(2) - major products include locks, door
closers and exit devices used in commercial and residential
construction and the retail hardware market.
(1)
The Mining Machinery Group was sold during 1993 .
(2)
Prior to January 1, 1996, the Door Hardware Group.
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Operations by Business Segments
Dollar amounts in millions
For the years ended % of % of % of
December 31 1995 total 1994 total 1993 total
Standard Machinery
Sales $2,270.6 40% $1,445.7 32% $1,250.9 31%
Operating income excluding
restructure of operations 222.6 41% 122.4 30% 89.6 27%
Restructure of operations
(charge) benefit -- -- (5.0)
Operating income from
operations 222.6 41% 122.4 30% 84.6 26%
Operating income as % of sales 9.8% 8.5% 6.8%
Identifiable assets 2,528.0 1,099.6 927.1
Depreciation and amortization 62.7 31.5 27.0
Capital expenditures 56.7 30.9 25.0
Engineered Equipment
Sales 1,216.2 21% 926.4 21% 929.6 23%
Operating income excluding
restructure of operations 49.5 9% 35.3 8% 30.5 9%
Restructure of operations
(charge) benefit -- -- --
Operating income from
operations 49.5 9% 35.3 8% 30.5 9%
Operating income as % of sales 4.1% 3.8% 3.3%
Identifiable assets 1,061.8 634.5 622.3
Depreciation and amortization 40.0 28.8 29.3
Capital expenditures 42.3 30.3 29.0
Bearings, Locks and Tools
Sales 2,242.2 39% 2,135.4 47% 1,840.6 46%
Operating income excluding
restructure of operations 269.1 50% 256.6 62% 210.7 64%
Restructure of operations
(charge) benefit -- -- --
Operating income from
operations 269.1 50% 256.6 62% 210.7 65%
Operating income as % of sales 12.0% 12.0% 11.4%
Identifiable assets 1,208.1 1,185.1 1,102.7
Depreciation and amortization 75.0 70.9 65.5
Capital expenditures 107.9 97.0 77.8
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Operations by Business Segments (continued)
Dollar amounts in millions
For the years ended % of % of % of
December 31 1995 total 1994 total 1993 total
Total
Sales 5,729.0 100% 4,507.5 100% 4,021.1 100%
Operating income excluding
restructure of operations 541.2 100% 414.3 100% 330.8 100%
Restructure of operations
(charge) benefit -- -- (5.0)
Operating income from
operations 541.2 100% 414.3 100% 325.8 100%
Operating income as % of sales 9.4% 9.2% 8.1%
Identifiable assets 4,797.9 2,919.2 2,652.1
Depreciation and amortization 177.7 131.2 121.8
Capital expenditures 206.9 158.2 131.8
General corporate expenses
charged to operating income (44.2) (37.3) (34.3)
Operating income 497.0 377.0 291.5
Unallocated
Interest expense (86.6) (43.8) (52.0)
Other income (expense), net 9.4 (14.7) (7.5)
Dresser-Rand income 22.0 24.6 33.1
Ingersoll-Dresser Pump
minority interest (12.7) (13.2) (11.6)
Earnings before income taxes
and effect of accounting
changes 429.1 329.9 253.5
Corporate assets (b) 765.4 677.7 723.2
Total assets $5,563.3 $3,596.9 $3,375.3
(b) Corporate assets consist primarily of cash and cash equivalents, marketable securities,
investments and advances, and other assets not directly associated with the operations of a
business segment.
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Operations by Geographic Area
In millions
United Other Adjustments/
For the year 1995 States Europe International Eliminations Consolidated
Sales to customers $3,472.8 $1,754.0 $502.2 $ -- $5,729.0
Transfers between geographic
areas 568.5 60.9 42.5 (671.9) --
Total sales and transfers $4,041.3 1,814.9 544.7 (671.9) $5,729.0
Operating income from
operations $ 391.5 97.5 51.7 .5 $ 541.2
General corporate expenses
charged to operating income (44.2)
Operating income $ 497.0
Identifiable assets at
December 31, 1995 $3,183.9 1,305.3 319.8 (11.1) $4,797.9
Corporate assets 765.4
Total assets at
December 31, 1995 $5,563.3
For the year 1994
Sales to customers $2,809.9 1,253.9 443.7 -- $4,507.5
Transfers between geographic
areas 429.7 54.7 34.1 (518.5) --
Total sales and transfers $3,239.6 1,308.6 477.8 (518.5) $4,507.5
Operating income from
operations $ 335.8 43.2 34.5 .8 $ 414.3
General corporate expenses
charged to operating income (37.3)
Operating income $ 377.0
Identifiable assets at
December 31, 1994 $1,684.3 949.0 297.5 (11.6) $2,919.2
Corporate assets 677.7
Total assets at
December 31, 1994 $3,596.9
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Operations by Geographic Area (Continued)
United Other Adjustments/
For the year 1993 States Europe International Eliminations Consolidated
Sales to customers $2,526.9 1,071.5 422.7 -- $4,021.1
Transfers between geographic
areas 357.3 53.0 33.0 (443.3) --
Total sales and transfers $2,884.2 1,124.5 455.7 (443.3) $4,021.1
Operating income excluding
restructure of operations $ 260.0 35.5 34.7 .6 $ 330.8
Restructure of operations-
charge (5.0) -- -- -- (5.0)
Operating income from
operations $ 255.0 35.5 34.7 .6 $ 325.8
General corporate expenses
charged to operating income (34.3)
Operating income $ 291.5
Identifiable assets at
December 31, 1993 $1,597.3 780.5 286.7 (12.4) $2,652.1
Corporate assets 723.2
Total assets at
December 31, 1993 $3,375.3
International sales of U.S. manufactured products in millions were $1,028.9 in 1995, $743.3 in 1994, and
$580.7 in 1993.
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NOTE 16 - PENSION PLANS: The company has noncontributory pension
plans covering substantially all domestic employees. In
addition, certain employees in other countries are covered by
pension plans. The company's domestic salaried plans principally
provide benefits based on a career average earnings formula. The
company's hourly pension plans provide benefits under flat
benefit formulas. Foreign plans provide benefits based on
earnings and years of service. Most of the foreign plans require
employee contributions based on the employee's earnings. In
addition, the company maintains other supplemental benefit plans
for officers and other key employees. The company's policy is to
fund an amount which could be in excess of the pension cost
expensed, subject to the limitations imposed by current statutes
or tax regulations. Clark's costs for the seven months ended
December 31, 1995, and the status of its benefit plans at
December 31, 1995, have been consolidated.
The components of the company's pension cost for the years
ended December 31, include the following:
In millions 1995 1994 1993
Benefits earned during the
year $ 32.7 $ 31.7 $ 27.7
Interest cost on projected
benefit obligation 99.7 79.1 72.1
Actual return on plan assets (261.2) 6.3 (124.4)
Net amortization and deferral 157.7 (99.6) 32.7
Net pension cost $ 28.9 $ 17.5 $ 8.1
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The status of employee pension benefit plans at December 31, 1995 and 1994, was as
follows:
1995 1994
Overfunded Underfunded Overfunded Underfunded
In millions plans plans plans plans
Actuarial present value of
projected benefit obligation,
based on employment service to
date and current salary levels:
Vested employees $(1,101.2) $(310.3) $ (942.5) $(48.4)
Nonvested employees (23.5) (13.8) (5.3) (6.0)
Accumulated benefit obligation (1,124.7) (324.1) (947.8) (54.4)
Additional amount related to
projected salary increases (49.9) (26.4) (48.8) (20.6)
Total projected benefit obligation (1,174.6) (350.5) (996.6) (75.0)
Funded assets at fair value 1,331.7 207.5 1,053.9 12.4
Assets in excess of (less than)
projected benefit obligation 157.1 (143.0) 57.3 (62.6)
Unamortized (net asset) liability
existing at date of adoption (2.5) 19.0 (3.5) 4.5
Unrecognized prior service cost 18.6 11.5 16.6 9.5
Unrecognized net (gain) loss (23.2) (3.4) 41.2 (.5)
Adjustment required to recognize
minimum liability -- (16.4) -- (1.0)
Prepaid (accrued) pension cost $ 150.0 $(132.3) $ 111.6 $(50.1)
Plan investment assets of domestic plans are balanced between equity securities and cash
equivalents or debt securities. Assets of foreign plans are invested principally in
equity securities.
The present value of benefit obligations for domestic plans at December 31, 1995 and
1994, was determined using an assumed discount rate of 7.25% and 8.0%, an assumed rate of
increase in future compensation levels of 4.75% and 5.5%, and an expected long-term rate
of return on assets of 9.0% and 8.5%, respectively. The weighted averages of the
actuarially assumed discount rate, long-term rate of return on assets and the rate for
compensation increases for foreign plans were 8.5%, 9.0% and 6.5% in 1995, and 9.0%, 9.0%
and 6.5% in 1994, respectively.
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Most of the company's domestic employees are covered by
savings and other defined contribution plans. Employer
contributions and costs are determined based on criteria specific
to the individual plans and amounted to approximately $24.9
million, $21.7 million and $20.5 million in 1995, 1994 and 1993,
respectively.
The company's costs relating to foreign defined contribution
plans, insured plans and other foreign benefit plans were
$4.8 million, $4.3 million and $0.3 million in 1995, 1994 and
1993, respectively.
In 1995, 1994 and 1993, the number of employees covered by
multiemployer pension plans, was 210, 217 and 214, respectively.
The amounts charged to pension cost and contributed to
multiemployer plans was $0.5 million in 1995, 1994 and 1993,
respectively.
The existing pension rules require the recognition of a
liability in the amount that the company's unfunded accumulated
benefit obligation exceeds the accrued pension cost, with an
equal amount recognized as an intangible asset. As a result, the
company recorded in 1995 a noncurrent liability of $16.2 million
and a current liability of $0.2 million, and a noncurrent
liability of $1.0 million in 1994. Offsetting intangible assets
were recorded in the Consolidated Balance Sheets.
NOTE 17 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: In
addition to providing pension benefits, the company sponsors
several postretirement plans that cover most domestic employees.
These plans provide for health care benefits and in some
instances, life insurance benefits. Postretirement health plans
are contributory and are adjusted annually. Life insurance plans
are noncontributory. When full-time employees retire from the
company between age 55 and age 65, most are eligible to receive,
at a cost to the retiree, certain health care benefits identical
to those available to active employees. After attaining age 65,
an eligible retiree's health care benefit coverage becomes
coordinated with Medicare. Clark's costs for the seven months
ended December 31, 1995, and the status of its postretirement
plans at December 31, 1995, have been consolidated. The company
funds the benefit costs principally on a pay-as-you-go basis.
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Summary information on the company's plans at December 31, was
as follows:
In millions 1995 1994
Financial status of plans:
Accumulated postretirement benefits
obligation (APBO):
Retirees $(462.9) $(251.3)
Active employees (150.0) (120.2)
(612.9) (371.5)
Plan assets at fair value -- --
Unfunded accumulated benefits
obligation in excess of plan assets (612.9) (371.5)
Unrecognized net gain (9.9) (9.7)
Unrecognized prior service benefits (84.8) (90.0)
Accrued postretirement benefits cost $(707.6) $(471.2)
The components of net periodic postretirement benefits cost
for the years ended December 31, were as follows:
In millions 1995 1994 1993
Service cost, benefits attributed to
employee service during the year $ 5.2 $ 8.5 $ 5.7
Interest cost on accumulated
postretirement benefit obligation 37.6 26.9 28.3
Net amortization and deferral (5.6) (5.2) (5.1)
Net periodic postretirement benefits cost $37.2 $30.2 $28.9
The 1994 service cost of net periodic postretirement benefits
cost includes a settlement charge of $3.2 million relating to
retired employees from a closed facility. The discount rates
used in determining the APBO were 7.25% and 8.0% at December 31,
1995 and 1994, respectively. The assumed health care cost trend
rates used in measuring the accumulated postretirement benefits
obligation were 10.35% in 1995 and 12.4% in 1994, respectively,
declining each year to an ultimate rate by 2003 of 4.75% in 1995
and 5.5% in 1994.
Increasing the health care cost trend rate by 1.0% as of
December 31, 1995, would increase the APBO by 10%. The effect of
this change on the sum of the service cost and interest cost
components of net periodic postretirement benefits cost for 1995
would be an increase of 13%. In 1993, the company made several
modifications to the cost-sharing provisions of the
postretirement plans.
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NOTE 18 - SUBSEQUENT EVENTS: On January 29, 1996, the company
signed a letter of intent to sell the assets of the Pulp
Machinery Division to Harnischfeger Industries, Inc. The sales
price is in excess of the book value of the assets and the sale
is subject to the execution of a definitive purchase agreement
and the approval by regulatory authorities.
In addition, on January 31, 1996, the company acquired the
Steelcraft Division of MascoTech, Inc. Steelcraft manufactures a
wide range of cold-rolled and galvanized steel doors for use
primarily in nonresidential construction.
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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/ Thomas F. McBride
Thomas F. McBride
Senior Vice President and
Chief Financial Officer
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Report of Independent Accountants
February 6, 1996
To the Board of Directors and
Shareowners of Ingersoll-Rand Company:
In our opinion, the accompanying consolidated balance sheet
and the related consolidated statements of income, of
shareowners' equity and of cash flows present fairly, in all
material respects, the financial position of Ingersoll-Rand
Company and its subsidiaries at December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of accounting for
postemployment benefits in 1993.
/S/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
175