UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-985
INGERSOLL-RAND COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 13-5156640
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Woodcliff Lake, New Jersey 07675
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(201)573-0123
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Series A Preference
Stock Purchase Rights New York, London and Amsterdam
Common Stock, $2 par value New York, London and Amsterdam
Income PRIDES New York
Growth PRIDES New York
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of common stock held by nonaffiliates
on February 27, 1999 was $7,838,722,194 based on the closing
price of such stock on the New York Stock Exchange. This
includes the shares owned by the Registrant's Leveraged Employee
Stock Ownership Plan.
The number of shares of common stock outstanding as of February
27,1999 was 164,889,619.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for fiscal year ended December
31, 1998. With the exception of those portions which are
incorporated by reference into Parts I, II and IV of this Form
10-K Annual Report, the 1998 Annual Report to Shareholders is not
to be deemed filed as part of this report.
Proxy Statement for Annual Meeting of Shareholders to be held
on May 5, 1999. See Part III of this Form 10-K Annual Report for
portions incorporated by reference. (A definitive proxy
statement has been filed with the Commission since the close of
the fiscal year).
PART I
Item 1. BUSINESS
Ingersoll-Rand Company (the company) was organized in 1905 under
the laws of the State of New Jersey as a consolidation of
Ingersoll-Sergeant Drill Company and the Rand Drill Company,
whose businesses were established in the early 1870's. Over the
years, the company has supplemented its original business, which
consisted primarily of the manufacture and sale of rock drilling
equipment, with additional products which have been developed
internally or obtained through acquisition.
The following acquisitions have been accounted for as purchases
and, accordingly, each purchase price was allocated to the
acquired assets and assumed liabilities based on their estimated
fair values. The results of operations since the dates of
acquisition are included in the consolidated financial
statements.
o In the first quarter of 1998, the company acquired for
approximately $15.4 million in cash, substantially all the
assets of Johnstone Pump Company (Johnstone). Johnstone
manufactures industrial piston pumps, automated dispensing
systems and related products for use primarily in the
automotive industry. The company also acquired for
approximately $18 million in cash, the door hardware technology
and intellectual property relating to residential door locksets
from the Master Lock unit of Fortune Brands, Inc. The Master
Lock transaction covers patents and certain manufacturing
assets used to produce residential locks, excluding padlocks.
In the third quarter of 1998, the company acquired full
ownership of GHH-RAND Schraubenkompressoren GmbH & Co. KG (GHH-
RAND), a manufacturer of air ends for air compressors. The
company previously owned 50 percent of GHH-RAND.
o On October 31, 1997, the company acquired Thermo King
Corporation (Thermo King) from Westinghouse Electric
Corporation, for an aggregate purchase price of approximately
$2.56 billion in cash. Thermo King designs, manufactures and
distributes transport temperature control systems and service
parts for a variety of mobile applications, including trailers,
truck bodies, seagoing containers, buses and light-rail cars.
o In April 1997, the company completed the acquisition of Newman
Tonks Group PLC (Newman Tonks), a United Kingdom-based
producer of architectural hardware products headquartered in
Birmingham, England. Newman Tonks is a leading manufacturer,
specifier and supplier of branded architectural hardware
products.
o On August 27, 1996, the company acquired for $34.3 million in
cash and the assumption of certain liabilities, substantially
all of the assets of Zimmerman International Corp. (Zimmerman).
Zimmerman manufactures equipment and systems that assist in
handling or lifting tools, components and materials for a
variety of industrial operations.
o On January 31, 1996, the company acquired for $95.4 million in
cash and the assumption of certain liabilities, the Steelcraft
Division of MascoTech, Inc. Steelcraft manufactures a wide
range of cold-rolled and galvanized steel doors for use
primarily in nonresidential construction.
Dispositions that the company has made in recent years are as
follows:
o In the first quarter of 1998, the company completed the sale of
Ing. G. Klemm Bohrtechnik GmbH. Also in 1998, the company sold
certain assets of Ingersoll-Rand Architectural Hardware Group
Limited (formerly Newman Tonks Group Limited). Sales proceeds
approximated the book value of these assets. In the third
quarter of 1998 the company sold the Spra-Coupe product line
which was reported as part of the Specialty Vehicle Segment.
The sale price of approximately $35 million resulted in a $9
million gain.
o On February 14, 1997, the company sold Clark-Hurth Components
Group (Clark-Hurth) to Dana Corporation for approximately
$241.5 million of net cash. This group's 1997 results,
inclusive of the sale transaction, produced operating income
for the first quarter of approximately $2.7 million, but on an
after-tax basis, reduced net earnings by approximately $3.6
million.
o During 1996, the company sold the Process Systems Group in two
separate transactions at a price of approximately $180.3
million. The company recorded a pretax gain of $55 million.
Products
The company manufactures and sells primarily nonelectrical
machinery and equipment. Principal products include the
following:
Air balancers
Air compressors & accessories
Air dryers
Air logic controls
Air motors
Air and electric tools
Architectural hardware trim
Asphalt compactors
Asphalt pavers
Automated dispensing systems
Automated production systems
Automotive components
Ball bearings
Blasthole drills
Blowers
Centrifugal pumps
Compact hydraulic excavators
Construction equipment
Diaphragm pumps
Door closers
Door control hardware
Door locks, latches & locksets
Doors and door frames (steel)
Drilling equipment and accessories
Electrical security systems
Engineered pumps
Engine-starting systems
Exit devices
Extrusion pump systems
Fastener-tightening systems
Fluid-handling equipment
Foundation drills
Golf cars
Hoists
Hydraulic breakers
Lubrication equipment
Material handling equipment
Mining equipment
Multistage pumps
Needle roller bearings
Parts-washing systems
Paving equipment
Piston pumps
Pneumatic breakers
Pneumatic cylinders
Pneumatic valves
Portable compressors
Portable generators
Portable light towers
Reciprocating pumps
Road-building machinery
Rock drills
Rock stabilizers
Roller bearings
Rotary drills
Rotary pumps
Rough-terrain forklifts
Skid-steer loaders
Soil compactors
Spray-coating systems
Submersible pumps
Transport temperature control systems
Utility vehicles
Vacuum pumps
Vertical turbine pumps
Waterjet-cutting systems
Water-well drills
Winches
These products are sold primarily under the company's name and
also under other names including ABG, Blaw-Knox, Bobcat, Charles
Maire, Club Car, Dixie-Pacific, Dor-O-Matic, Ecoair, Fafnir,
Falcon, Glynn-Johnson, Ingersoll-Dresser Pumps, Johnstone, LCN,
Legge, Monarch, Montabert, Normbau, Schlage, Steelcraft, Thermo
King, Torrington, Von Duprin and Zimmerman.
During the past three years, the division of the company's sales
between capital goods and expendables has been in the approximate
ratio of 63 percent and 37 percent, respectively. The company
generally defines as expendables those products which are not
capitalized by the ultimate user. Examples of such products are
parts sold for replacement purposes, power tools and needle
bearings.
Additional information on the company's business and financial
information about industry segments is presented in Note 17 to
the Consolidated Financial Statements included in the company's
Annual Report to Shareholders for 1998, incorporated by reference
in this Form 10-K Annual Report.
Distribution
The company's products are distributed by a number of methods
which the company believes are appropriate to the type of
product. Sales are made domestically through branch sales
offices and through distributorships and dealers across the
United States. International sales are made through
approximately 75 subsidiary sales and service companies with a
supporting chain of distributors in over 100 countries.
Working Capital
The working capital requirements of the company vary with respect
to the many products and industries in which it is involved. In
general, the requirements of its Engineered Products Segment,
which manufactures machinery for specialized customer needs,
involve a relatively long lead time and, at times, more
significant company investment with respect to the particular
product or order. Historically, these orders are generally
covered by progress payments, which reduce the company's
investment in the amount of inventory maintained by this segment.
The products manufactured by the company's Specialty Vehicles,
Air & Temperature Control and Hardware and Tools segments are
more in the nature of standard equipment. Consequently, a wider
variety of such products must usually be more readily available
to meet rapid delivery requirements. Such working capital
requirements are not, however, in the opinion of management,
materially different from those experienced by the company's
major competitors.
Customers
No material part of the company's business is dependent upon a
single customer or very few customers, the loss of any one of
which would have a material adverse effect on the company's
operations.
Competitive Conditions
The company's products are sold in highly competitive markets
throughout the world against products produced by both foreign
and domestic corporations. The principal methods of competition
in these markets relate to price, quality and service. The
company believes that it is one of the leading manufacturers in
the world of a broad line of air compression systems, anti-
friction bearings, construction equipment, transport temperature
control products, air tools, pumps, golf cars and utility
vehicles. In addition, the company believes it is a leading
supplier in domestic markets for locks, other door hardware
products, skid-steer loaders and asphalt paving equipment.
International Operations
Sales to customers outside the United States accounted for
approximately 38 percent of the consolidated net sales in 1998.
Sales outside of the United States are made in more than 100
countries; therefore, the attendant risks of manufacturing or
selling in a particular country, such as nationalization and
establishment of common markets, would not have a significant
effect on the company's international operations.
Raw Materials
The company manufactures many of the components included in its
products. The principal raw materials required for the
manufacture of the company's products are purchased from numerous
suppliers, and the company believes that available sources of
supply will generally be sufficient for its needs for the
foreseeable future.
Backlog
The company's approximate backlog of orders at December 31, 1998,
believed by it to be firm, was $248 million for the Specialty
Vehicles Segment, $304 million for the Air & Temperature Control
Segment, $189 million for the Hardware & Tools Segment and $743
million for the Engineered Products Segment as compared to $247
million, $323 million, $192 million and $783 million,
respectively, at December 31, 1997. These backlog figures are
based on orders received. While the major portion of the
company's products are built in advance of order and either
shipped or assembled from stock, orders for specialized machinery
or specific customer application are submitted with extensive
lead time and are often subject to revision, deferral,
cancellation or termination. The company estimates that
approximately 90 percent of the backlog will be shipped during
the next twelve months.
Research, Engineering and Development
The company maintains extensive research, engineering and
development facilities for experimenting, testing and developing
high quality products. The company employs approximately 1,821
professional employees for its research, engineering and
development activities. The company spent $259 million in 1998,
$216 million in 1997 and $209 million in 1996 on research,
engineering and development.
Patents and Licenses
The company owns numerous patents and patent applications and is
licensed under others. While it considers that in the aggregate
its patents and licenses are valuable, it does not believe that
its business is materially dependent on its patents or licenses
or any group of them. In the company's opinion, engineering and
production skills, and experience are more responsible for its
market position than patents or licenses.
Environmental Matters
The company has been and continues to be dedicated to an
environmental program to reduce the utilization and generation of
hazardous materials during the manufacturing process and to
remediate identified environmental concerns. As to the latter,
the company currently is engaged in site investigations and
remedial activities to address environmental cleanup from past
operations at current and former manufacturing facilities.
During 1998, the company spent approximately $8 million on
capital projects for pollution abatement and control and an
additional $6 million for environmental remediation expenditures
at sites presently or formerly owned or leased by the company.
It should be noted that these amounts are difficult to estimate
because environmental improvement costs are generally a part of
the overall improvement costs at a particular plant, and the
accurate estimate of which portion of an improvement or a capital
expenditure relates to an environmental improvement is difficult
to ascertain. The company believes that these expenditure levels
will continue and may increase over time. Given the evolving
nature of environmental laws, regulations and technology, the
ultimate cost of future compliance is uncertain.
The company is a party to environmental lawsuits and claims, and
has received notices of potential violations of environmental
laws and regulations from the Environmental Protection Agency and
similar state authorities. It is identified as a potentially
responsible party (PRP) for cleanup costs associated with off-
site waste disposal at approximately 32 federal Superfund and
state remediations sites, excluding sites as to which the
company's records disclose no involvement or as to which the
company's liability has been fully determined. For all sites
there are other PRPs and in most instances, the company's site
involvement is minimal. In estimating its liability, the company
has assumed it will not bear the entire cost of remediation of
any site to the exclusion of other PRPs who may be jointly and
severally liable. The ability of other PRPs to participate has
been taken into account, based generally on the parties'
financial condition and probable contribution on a per site
basis. Additional lawsuits and claims involving environmental
matters are likely to arise from time to time in the future.
Although uncertainties regarding environmental technology, state
and federal laws and regulations and individual site information
make estimating the liability difficult, management believes that
the total liability for the cost of remediation and environmental
lawsuits and claims will not have a material effect on the
financial condition, results of operations, liquidity or cash
flows of the company for any year. It should be noted that when
the company estimates its liability for environmental matters,
such estimates are based on current technologies and the company
does not discount its liability or assume any insurance
recoveries.
Employees
There are approximately 46,500 employees of the company
throughout the world, of whom approximately 29,000 work in the
United States and 17,500 in foreign countries. Approximately 38%
percent of the company's United States production and maintenance
employees, who work in 14 plants, are represented by 8 unions.
The company believes relations with its employees are good.
Item 2. PROPERTIES
The company's executive offices are located at Woodcliff Lake,
New Jersey. Manufacturing and assembly operations are conducted
in 60 plants in the United States; 5 plants in Canada; 39 plants
in Europe; 11 plants in Asia, and 7 plants in Latin America. The
company also maintains various warehouses, offices and repair
centers in the United States, Canada and abroad.
Substantially all plant facilities are owned by the company and
the remainder are under long-term lease. The company believes
that its plants and equipment have been well-maintained and are
generally in good condition. The company has several closed
facilities that it is actively marketing with the intent of
selling them at their net realizable value.
The reportable segments for which the facilities are primarily
used are as described below. Facilities under long-term lease are
included below and are not significant to each operating
segment's total number of plants or square footage.
Specialty Vehicles
The Specialty Vehicle Segment designs, manufactures and markets
powered vehicles that play a niche role in such fields as
infrastructure development, commercial construction and material
movement. This segment's products include machinery regularly
used in general manufacturing and in industries such as mining
and construction. This segment's branded products include Bobcat
skid-steer loaders and compact hydraulic excavators; Club Car
golf cars; Blaw-Knox pavers; and Ingersoll-Rand compactors,
drilling equipment and rough-terrain material handlers. The
segment's manufacturing locations are as follows:
Approximate
Number of Plants Square Footage
Domestic 7 2,299,000
International 3 547,000
Total 10 2,846,000
Air & Temperature Control
The Air and Temperature Control Segment focuses on markets
requiring air and refrigerant gas compression technology and
services. This segment's branded products include Thermo King
Transport Temperature-Control equipment, and Ingersoll-Rand air
compressors. The segment's manufacturing facilities are as
follows:
Approximate
Number of Plants Square Footage
Domestic 10 2,479,000
International 16 2,256,000
Total 26 4,735,000
Hardware and Tools
The Hardware and Tool Segment concentrates on manufacturing,
marketing, and managing the distribution channels required to
reach end user customers seeking products that enhance
productivity and security in the industrial, construction, and do-
it-yourself markets. This segment includes architectural
hardware products, such as Schlage locks, Von Duprin exit
devices, door-control hardware, steel doors, power operated doors
and architectural columns, and tools and related industrial-
production equipment. The segment's manufacturing facilities are
as follows:
Approximate
Number of Plants Square Footage
Domestic 20 3,495,000
International 20 1,542,000
Total 40 5,037,000
Engineered Products
The Engineered Products Segment is comprised of highly engineered
application products that are sold on a specific contract design
basis. This segment's products include Torrington and Fafnir
bearings and components, and pumps used in industrial, commercial
and municipal applications. The segment's manufacturing
facilities are as follows:
Approximate
Number of Plants Square Footage
Domestic 23 5,251,000
International 23 3,456,000
Total 46 8,707,000
Item 3. LEGAL PROCEEDINGS
In the normal course of business, the company is involved in a
variety of lawsuits, claims and legal proceedings, including
proceedings for off-site waste disposal cleanup of approximately
32 sites under federal Superfund and similar state laws. In the
opinion of the company, pending legal matters, including the one
discussed below, are not expected to have a material adverse
effect on the results of operations, financial condition,
liquidity or cash flows.
By letter dated February 4, 1999, the Michigan Department of
Environmental Quality ("DEQ") assessed a civil penalty in the
amount of $113,750 on the Company for an alleged violation of a
DEQ Administrative Order on Consent ("AOC"). The AOC governs the
Company's environmental investigation and cleanup obligations
related to the McCoy Creek Industrial Park, Buchanan, Michigan.
The Company contests the penalty and has invoked the dispute
resolution provisions of the AOC to resolve the matter.
See also the discussion under Item 1 - Environmental Matters.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the company's security
holders during the last quarter of its fiscal year ended December
31, 1998.
The following information is included in accordance with the
provision of Part III, Item 10.
Date of
Service as Principal Occupation and
an Executive Other Information
Name and Age Officer for Past Five Years
James E. Perrella(63) 5/4/77 Chairman of the Board,
President and Chief
Executive Officer,
Director
Brian D. Jellison(53) 2/7/96 Executive Vice President,
(Vice President and
President of the
Architectural Hardware
Group, 1995 - 1998;
President of the Door
Hardware Group, 1994 - 1995)
Steven T. Martin(58) 5/2/96 Executive Vice President
(Vice President and
President of Production
Equipment Group,1996 - 1998;
President of Production
Equipment Group 1995 - 1996,
Vice President and General
Manager Fafnir Bearings
Division of Torrington,
1986-1995)
David W. Devonshire(53) 1/12/98 Senior Vice President and
Chief Financial Officer,
(Senior Vice President and
Chief Financial Officer,
Owens Corning 1993 - 1997)
Patricia Nachtigal(52) 11/2/88 Vice President and General
Counsel
Nicholas J. Pishotti(58) 4/10/95 Vice President - Strategic
Technologies (General
Manager, Aircraft Engine
Sourcing Department,
General Electric Company,
1988 - 1995)
Steven R. Shawley(46) 6/1/98 Controller (Thermo King
Business Unit Controller
1994-1998; Controller -
Power Generation Projects
Division of Westinghouse
Electric Corporation 1993
-1994)
No family relationship exists between any of the above-listed
executive officers of the company. All officers are elected to
hold office for one year or until their successors are elected
and qualify.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information regarding the principal market for the company's
common stock and related stockholder matters are as follows:
Quarterly share prices and dividends for the common stock are
shown in the following tabulation. The common shares are listed
on the New York Stock Exchange and also on the London and
Amsterdam exchanges.
Common Stock
High Low Dividend
1998
First quarter 49 1/4 36 1/2 $0.150
Second quarter 54 41 0.150
Third quarter 47 5/8 34 7/8 0.150
Fourth quarter 52 1/8 34 0.150
1997
First quarter $32 7/8 $28 9/16 $0.137
Second quarter 41 3/4 27 13/16 0.137
Third quarter 45 9/16 37 1/2 0.150
Fourth quarter 46 1/4 34 11/16 0.150
The Bank of New York (Church Street Station, P.O. Box 11258, New
York, NY 10286-1258, (800)524-4458) is the transfer agent,
registrar and dividend reinvestment agent.
There are no significant restrictions on the payment of
dividends. The approximate number of record holders of common
stock as of February 27, 1999 was 11,190.
Item 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31,
1998, is as follows (in millions except per share amounts):
December 31 1998 1997 1996 1995 1994
Net sales $8,291.5 $7,103.3 $6,702.9 $5,729.0 $4,507.5
Net earnings 509.1 380.5 358.0 270.3 211.1
Total assets 8,309.3 8,415.6 5,621.6 5,563.3 3,596.9
Long-term debt 2,166.0 2,528.0 1,163.8 1,304.4 315.9
Shareholders'
equity 2,707.5 2,341.4 2,090.8 1,795.5 1,531.3
Basic earnings
per common share $3.11 $2.33 $2.22 $1.70 $1.33
Diluted earning
per common share 3.08 2.31 2.21 1.69 1.33
Dividends per
common share 0.60 0.57 0.52 0.49 0.48
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1998 Compared to 1997
The company reported a fifth consecutive year of record sales and
earnings for 1998. These financial achievements were the result
of a strong domestic economy, moderate economic growth in
selected international markets, and continued success of the
company's asset-management, strategic-sourcing and productivity-
improvement programs, despite depressed results in the company's
Asian markets.
Sales for 1998 totalled $8.3 billion, which generated $1,044.4
million of operating income and $509.1 million of net earnings
($3.08 diluted earnings per share). The company's results for
1998 included a full year's benefit from the October 31, 1997,
acquisition of Thermo King Corporation (Thermo King). Thermo
King reported 1998 sales of $1.2 billion with an operating
income contribution of $159.3 million and net earnings of $24.0
million or 15 cents diluted earnings per share after the
allocation of acquisition interest expense and the related tax
benefit.
The company's reported results for 1997 were sales of $7.1
billion, which generated $760.3 million of operating income and
produced net earnings for the year of $380.5 million ($2.31
diluted earnings per share). The 1997 noncomparable items
include the following:
o Thermo King's activity for the last two months of the year
generated $176.9 million of sales and produced an operating
loss of $0.2 million, after goodwill amortization and the
effect of estimated purchase accounting adjustments. Thermo
King's net loss for the two months ended December 31, 1997, was
$11.3 million (seven cents diluted earnings per share) after
the allocation of acquisition interest expense of $27.3
million.
o The equity in earnings of partially-owned affiliates in 1997
included a restructuring charge recorded by one of the
company's partially-owned affiliates. This charge reduced the
company's pretax earnings by $13.9 million and its after-tax
results by $11.6 million (seven cents diluted earnings per
share).
o During the fourth quarter of 1997, a consolidated (51-percent
owned) joint venture of the company recorded a $24 million
charge to operating income for costs to close and consolidate
underperforming operations. The effect of the restructure
charge, after taxes and minority interest, was $8.1 million
(five cents diluted earnings per share).
After considering the items listed above, adjusted 1997 net
sales, operating income and net earnings were approximately $6.9
billion, $784 million and $412 million ($2.50 diluted earnings
per share), respectively.
On an adjusted basis, 1998 sales increased modestly, with a 12.8-
percent increase in operating income resulting in a significant
increase of 18 percent in net earnings for 1998 over the adjusted
1997 results.
A comparison of key financial data between 1998 and 1997 follows:
o Net sales in 1998 established a record at $8.3 billion,
reflecting a 16.7-percent improvement over the 1997 total of
$7.1 billion. Excluding noncomparable units from both years,
adjusted sales for 1998 increased by 2.3 percent over the 1997
adjusted total.
o Cost of goods sold in 1998 was 72.9 percent of sales, compared
to 74.1 percent in 1997. There were no partial liquidations of
LIFO (last-in, first-out) inventory during 1998, but such
liquidations lowered 1997 costs by $4.1 million. Excluding the
effects of the LIFO liquidations, the 1997 cost of goods sold
relationship to sales would have been 74.2 percent versus 72.9
percent for 1998. Excluding noncomparable items from both
years, the adjusted ratio of cost of goods sold to sales
reflected a marked improvement in 1998, compared to 1997.
o Administrative, selling and service engineering expenses were
14.5 percent of sales in 1998, compared to 15.2 percent for
1997. This decrease is primarily attributable to the inclusion
of Thermo King, which traditionally had a ratio of selling and
administrative expenses to sales lower than the company's
historical lines of business.
o Operating income for the year totalled $1,044.4 million, a
37.4-percent increase over 1997 operating income of $760.3
million. The ratio of operating income to sales in 1998 was
12.6 percent, compared to 10.7 percent for the prior year.
After excluding the noncomparable items (previously
discussed) from both years, adjusted 1998 operating income
still reflects a double-digit improvement over the adjusted
1997 results. This improvement was the combined effect of
the company's aggressive productivity-improvement and
procurement programs, and the continued stability of domestic
markets.
o Interest expense for the year totalled $225.8 million versus
$136.6 million for 1997. Interest expense associated with the
debt incurred for the Thermo King acquisition totalled
approximately $129.3 million in 1998 (excluding costs related
to the company's equity-linked securities) and $27.3 million
for the last two months of 1997.
o Other income (expense), net, is the sum of foreign exchange
activities and other miscellaneous income and expense items.
In 1998, these activities resulted in a net expense of $22.0
million, an unfavorable change of $0.5 million compared to the
1997 net other expense of $21.5 million. This change was
caused by higher foreign exchange losses of $10.2 million in
1998, offset by lower net miscellaneous income and expense
items.
o The company's equity in earnings of partially-owned affiliates
includes its interest in several affiliates that operate in
similar lines of business and includes the company's 49-percent
interest in Dresser-Rand Company (Dresser-Rand). The combined
equity earnings for 1998 totalled $46.8 million compared to
$28.8 million for 1997. The year-over-year increase of $18.0
million reflects a $23.6 million improvement in the results
from Dresser-Rand. The Dresser-Rand improvement resulted from a
combination of stronger operating results in 1998 and a
nonrecurring charge of $11.6 million in 1997, which was
partially offset by lower earnings from the company's partially-
owned affiliates operating in Asian markets.
o The company's charges for minority interests are composed of
two items: (1) interests of minority owners (less than 50
percent) in a consolidated unit of the company which totalled
$34.5 million in 1998 and $17.3 million in 1997, and (2) $19.7
million of charges associated with the company's equity-linked
securities issued during the first quarter of 1998 as a
financing component of the Thermo King acquisition. The largest
minority interest relates to Ingersoll-Dresser Pump Company
(IDP), which represented $30.7 million of the 1998 balance,
compared to $13.7 million in 1997. IDP's change is due to
stronger operating results in 1998 and the 1997 pretax
restructuring charge of $24 million (discussed previously).
The remaining charges for minority interests during the two
periods were comparable.
o The company's effective tax rate for 1998 was 35.5 percent,
which improved from the 38.0 percent reported for the prior year
due to a full-year favorable tax benefit associated with the
Thermo King acquisition. The variance from the 35.0 percent
statutory rate primarily was due to the higher tax rates
associated with foreign earnings, the effect of state and local
taxes, the nondeductibility of a portion of the goodwill
associated with acquisitions and favorable tax benefits
associated with the Thermo King acquisition.
At December 31, 1998, employment totalled 46,525. This
represents a slight decrease from last year's level of 46,567.
Outlook
The company's outlook for 1999 is for steady improvement in
operating results based on continued stability and growth in
domestic markets, with no further deterioration in Asian
markets and some strengthening in European markets. These
expectations will be supported by aggressive asset-management,
strategic-sourcing and productivity-improvement programs.
Review of Business Segments
Specialty Vehicles
Specialty Vehicles Segment sales were $2.2 billion, an increase
of 8.4 percent over the $2.0 billion reported for 1997.
Operating income for 1998 totalled $333.3 million, representing
an increase of 47.0 percent over last year's total of $226.7
million. All major product lines reported improvements in sales,
operating income and operating margins for the year.
Air and Temperature Control
The Air and Temperature Control Segment reported sales and
operating income of $2.2 billion and $262.5 million,
respectively, compared with $1.3 billion and $133.7 million,
respectively, in 1997. The results for 1997 include only two
months of Thermo King, while the full year of 1998 produced
sales of $1.2 billion and operating income of $159.3 million.
Air compressor sales decreased by 4.3 percent, while
operating income decreased by 22.9 percent. This decline was
caused by continued weakness in the company's Asian markets.
Hardware and Tools
The Hardware and Tools Segment sales increased by 4.4 percent to
$1.7 billion. Operating income increased $33.5 million from
$254.8 million in 1997. Architectural hardware products reported
increases of 13.9 percent in sales and 26.9 percent in operating
income. Modest decreases in sales and operating income for
industrial-production equipment were attributable to continued
weakness in the automated production systems business.
Engineered Products
In 1998, the Engineered Products Segment reported a 1.5 percent
decrease in sales and a 9.4 percent increase in operating income
compared to 1997. The lower sales reflect weakness in the Fafnir
industrial bearings business. IDP's sales were up 4.9 percent
from 1997, and operating income increased $37.2 million, largely
due to the $24 million restructuring charge recorded in 1997.
Liquidity and Capital Resources
During 1998, the company made significant progress in improving
its liquidity and capital resources by (1) completing the
financing of the Thermo King acquisition with the issuance of
$402.5 million of equity-linked securities during the first
quarter of the year, and (2) reducing the company's debt by an
additional $570.9 million, which was generated from the company's
strong cash flow during the year. The proceeds from the equity-
linked securities were used to reduce the company's short-term
borrowings, which were originally issued to satisfy a portion of
the cash requirements for the acquisition of Thermo King on
October 31, 1997. These actions primarily contributed to the
company's reduction in its debt-to-total capital ratio from 58
percent at the end of last year to 43 percent at December 31,
1998.
The following table contains several key measures which the
company's management uses to gauge the company's financial
performance:
1998 1997 1996
Working capital (in millions) $579 $217 $1,245
Current ratio 1.3 1.1 2.0
Debt-to-total capital ratio 43% 58% 37%
Average working capital
to net sales 4.8% 10.3% 16.9%
Average days outstanding
in receivables 50.9 54.5 56.1
Average months' supply
of inventory 2.4 2.5 3.0
The company maintains significant operations in foreign
countries; therefore, the movement of the U.S. dollar against
foreign currencies has an impact on the company's financial
position. Generally, the functional currency of the company's
foreign subsidiaries is their local currency, the currency in
which they transact their business. 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 income of changes
in foreign exchange rates. Additionally, the company maintains
operations in countries where the company transacts business in
U.S. dollars. The functional currency of these operations is the
U.S. dollar. (Additional information on the company's use of
financial instruments can be found in Note 7 to the Consolidated
Financial Statements.)
The following points highlight the financial results and
financial condition of the company's operations, with the impact
of foreign currency translation where appropriate:
o Cash and cash equivalents totalled $71.9 million at December
31, 1998, a $33.0 million reduction from the prior year-end
balance of $104.9 million. In evaluating the net change in
cash and cash equivalents, cash flows from operating, investing
and financing activities, and the effect of exchange rate
changes should be considered. Cash flows from operating
activities provided $899.0 million, investing activities used
$183.4 million and financing activities used $752.4 million.
Exchange rate changes during 1998 increased cash and cash
equivalents by $3.8 million.
o Marketable securities totalled $5.7 million at the end of 1998,
$1.2 million below the balance at December 31, 1997. The net
reduction was due to maturities and exchange rate changes.
o Receivables totalled $1,177.1 million at December 31, 1998,
compared to $1,281.5 million at the prior year end, a net
decrease of $104.4 million. The decrease is attributable to
improved cash collections and reductions from dispositions.
The company focuses on decreasing its receivables base through
its asset-management program, which produced a reduction in the
average days outstanding in receivables to 50.9 days from the
1997 level of 54.5 days.
o Inventories amounted to $940.8 million at December 31, 1998, an
increase of $86.0 million from last year's level of $854.8
million. Inventory increases at year end in anticipation of
early 1999 shipments, were the primary reason for the increase.
The company's emphasis on inventory control was demonstrated by
the reduction of the average months' supply of inventory to 2.4
months at December 31, 1998, compared to 2.5 months at the
prior year end.
o Prepaid expenses totalled $88.7 million at the end of the year,
$47.3 million lower than the balance at December 31, 1997.
Dispositions associated with assets held for sale are the
primary reason for the reduction in the account balance.
o Deferred income taxes (current) of $143.4 million at December
31, 1998, represented the deferred tax benefit of the
difference between the book and tax values of various current
assets and liabilities. The components of the balance are
included in Note 14 to the Consolidated Financial Statements.
o Investments in and advances with partially-owned equity
affiliates at December 31, 1998, totalled $344.7 million, $16.7
million above the 1997 balance of $328.0 million. This category
includes the company's 49-percent investment in Dresser-Rand
Company, as well as its investments in other partially-owned
equity affiliates. The investment in Dresser-Rand increased by
approximately $33 million during the year, reflecting the
company's portion of Dresser-Rand's 1998 results. The effects
of translation offset the reduction in the advance account
between the company and Dresser-Rand. Income and dividends from
the investments in all of the other partially-owned equity
affiliates were $13.8 million and $6.7 million, respectively.
Amounts due from these units decreased $13.6 million from
December 31, 1997. Currency movements and capital infusions
were the primary cause of the remaining change in the account
balance.
o Net property, plant and equipment increased by $64.4 million in
1998 to a year-end balance of $1,347.6 million. Capital
expenditures in 1998 totalled $221.0 million, and acquisitions
(net of dispositions) added $13.0 million. Foreign exchange
fluctuations increased net fixed assets by approximately $4.6
million. The remaining net decrease was the result of
depreciation, and sales and retirements.
o Intangible assets, net, totalled $3,774.3 million at December
31, 1998, as compared to $3,833.0 million at December 31, 1997,
for a net decrease of $58.7 million. The amortization expense
for the current year was $110.5 million. Acquisition activity
and the effects of foreign currency translation accounted for
the balance of the change.
o Deferred income taxes (noncurrent) totalled $235.9 million at
December 31, 1998, which was $21.0 million higher than the 1997
balance. The components comprising the balance at December 31,
1998, can be found in Note 14 to the Consolidated Financial
Statements.
o Other assets totalled $179.4 million at year end, a decrease of
$32.2 million from the December 31, 1997, balance of $211.6
million. Other assets decreased by approximately $25 million
due to a decrease in prepaid pensions and a general reduction
in other noncurrent assets accounted for the balance of the
reductions. Foreign exchange activity in 1998 had a minimal
effect on the account balance during the year.
o Accounts payable and accruals totalled $1,488.6 million at
December 31, 1998, an increase of $118.1 million from last
year's balance of $1,370.5 million. Increased inventory levels
at year end and acquisitions, net of dispositions, along with
the timing of payrolls and benefits account for the increase in
1998.
o Loans payable were $318.7 million at the end of 1998, which
reflects a $606.4 million reduction from the $925.1 million
level at December 31, 1997. Proceeds of $389.6 million from
the issuance of the company's equity-linked securities, were
used to reduce short-term debt during the year. In addition, as
a result of the company's aggressive asset management policies,
the company also repaid an additional $468.4 million of short-
term debt during 1998. Current maturities of long-term debt
increased the account balance by an additional $251.8 million.
The effect of translation accounted for the remaining change in
the account balance from the previous year end.
o Long-term debt, excluding current maturities, totalled $2,166.0
million, a reduction of approximately $362.0 million from the
prior year's balance of $2,528.0 million. Reductions to long-
term debt of $251.8 million represent the reclassification of
the current maturities of long-term debt to loans payable. In
addition, the company also repaid $110.0 million of long-term
debt with accelerated payments during the year. Foreign
exchange activity had a minimal effect on the account balance
during the year.
o Postemployment liabilities at December 31, 1998, totalled
$897.1 million, a decrease of $40.0 million from the December
31, 1997, balance. Postemployment liabilities include medical
and life insurance postretirement benefits, long-term pension
and other noncurrent postemployment accruals. (See Notes 15 and
16 to the Consolidated Financial Statements for additional
information.)
o Minority interest liabilities at December 31, 1998, totalled
$133.6 million, which represents a net increase of $5.7 million
over the balance at the end of the prior year. This liability
represents the ownership interests of other entities in
selected consolidated subsidiaries of the company, the largest
being the 49-percent interest in IDP. IDP's minority interest
at December 31, 1997, was $104.3 million. This balance
increased by $30.7 million, based on IDP's 1998 earnings and
was reduced by $35.0 million, which represented increases in
advances to the minority partner and the effect of translation.
The liability for all other minority interests totalled $23.6
million at December 31, 1997, and increased to $33.6 million
during 1998 due to earnings, advances and changes in ownership
participation.
o Other liabilities (noncurrent) at December 31, 1998, totalled
$154.0 million, which approximated the balance at December 31,
1997. These obligations are not expected to be paid in the next
year. Generally, these accruals cover environmental, insurance,
legal and other contractual obligations.
Other information concerning the company's financial resources,
commitments and plans is as follows:
The average amount of short-term borrowings outstanding,
excluding current maturities of long-term debt, was $315.8
million in 1998, compared to $380.0 million in 1997. The
weighted average interest rate during 1998 was 6.3%, compared to
6.2% during the previous year. The maximum amounts outstanding
during 1998 and 1997, were $796.2 million and $2,434.1 million,
respectively.
The company had $1.0 billion in domestic short-term credit lines
at December 31, 1998, and $454.2 million of foreign credit lines
available for working capital purposes, $1.4 billion of which was
unused at the end of the year. These facilities exceed projected
requirements for 1999 and provide direct support for commercial
paper and indirect support for other financial instruments, such
as letters of credit and comfort letters.
In 1998, foreign currency translation adjustments increased
shareholders' equity by $3.3 million. This change was due to the
minor weakening of the U.S. dollar against other currencies in
countries where the company has significant operations and the
local currencies are the functional currencies. Currency changes
in France, Germany, and Japan accounted for nearly all of the
change.
During 1997, the company established two wholly-owned special
purpose subsidiaries to purchase accounts and notes receivable at
a discount from the company on a continuous basis. These special
purpose subsidiaries simultaneously sell an undivided interest in
these accounts and notes receivable to a financial institution up
to a maximum of $170 million. The agreements between the special
purpose corporations and the financial institution will expire in
one-year periods. The company intends to renew these agreements
at their expiration dates with either the current or another
financial institution. The company is retained as the servicer
of the pooled receivables. Prior to 1997, the company had sold
an undivided interest in the accounts and notes receivable
directly to financial institutions. At December 31, 1998 and
1997, $170 million and $150 million, respectively, of such
receivables remained uncollected.
Capital expenditures were $221.0 million and $186.0 million in
1998 and 1997, 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 1999 is
estimated at approximately $220 million, including amounts
approved in prior periods. There are no planned projects, either
individually or in the aggregate, that represent a material
commitment for the company. Many of these projects are subject
to review and cancellation at the option of the company without
incurring substantial charges.
Equity-linked Securities
In March 1998, the company, together with a statutory business
trust of the company (Finance Trust) issued an aggregate of (a)
16,100,000 equity-linked securities, and (b) 1,610,000 Finance
Trust 6.22% capital securities, each with a stated liquidation
amount. The equity-linked securities consisted of (a) 14,490,000
income equity-linked securities, and (b) 1,610,000 growth equity-
linked securities. Additional details about these equity-linked
securities are included in Note 10 to the Consolidated Financial
Statements.
Financial Market Risk
The company generates foreign currency exposures in the normal
course of business. To mitigate the risk from foreign currency
exchange rate fluctuations, the company will generally enter into
forward currency exchange contracts for the purchase or sale of a
currency in accordance with authorized levels pursuant to the
company's policies and procedures. The company applies
sensitivity analysis and value at risk (VAR) techniques when
measuring the company's exposure to currency fluctuations. VAR
is a measurement of the estimated loss in fair value until
currency positions can be neutralized, recessed or liquidated and
assumes a 95-percent confidence level with normal market
conditions. The potential one day loss, as of December 31, 1998,
was $2.8 million and it is considered insignificant in relation
to the company's results of operations and shareholders' equity.
With regard to interest rate risk, the effect of a hypothetical
one-percentage point increase in interest rates, across all
maturities, would increase the estimated fair value of the
company's long-term debt at December 31, 1998 from its carrying
value of $2,166.0 million to $2,188.8 million.
Year 2000
The company has in place a year 2000 compliance program to
address the issues raised by computer date programs using the
last two digits of a year. Pursuant to its year 2000 program,
the company reviewed its computer information systems, computer
hardware and embedded technology used in the company's products
and processes. This review was designed to identify which
computer systems and embedded technology might fail to correctly
process the year 2000. Based upon this review, which is now
complete, the company is replacing, modifying and/or upgrading
certain computer systems and embedded technology with the
objective being that no significant systems or devices will
malfunction as the result of failing to correctly process the
year 2000. The company, through the use of both internal
resources and outside consultants, has actively engaged in this
replacement, modification and upgrading and had substantially
completed its remediation program and testing by the end of 1998.
The review of company products revealed that all products
currently being produced are year 2000 compliant.
The total estimated cost of the year 2000 compliance program is
approximately $60 million. Management estimates that as of
December 31, 1998, total costs incurred to date have been
approximately $55 million. Approximately 45 percent of these
expenses were internal costs of the company. Although the
company has incurred expenses prior to 1997, these costs were not
separately identified. The company will continue to fund the cost
of the year 2000 compliance program through operating cash flow.
In addition to its internal review process, the company has
contacted suppliers and distributors on the year 2000 issue to
minimize problems in its supply and distribution chains. Most
major suppliers have given assurances that their ability to
supply the company will not be affected by the year 2000 issue;
however, the company cannot assure timely compliance of third
parties and may be adversely affected by failure of a significant
third party to become year 2000 compliant.
The company believes that the costs to address the issues raised
by the year 2000 problem will not have a material impact on the
company's financial condition, results of operations, liquidity
or cash flows for any year. The schedule for successful
completion of the year 2000 program and the estimated costs are
based upon certain assumptions by management on future events,
including the continued availability of qualified resources to
implement the program and current costs for such resources.
If the company fails to successfully complete a significant
portion of its year 2000 compliance program, such failure may
have a material adverse impact on the company's financial
condition. Currently management does not consider the
possibility of such a failure to be reasonably likely; however,
in the event management's assessment changes an appropriate
contingency plan will be developed.
Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of
the European Union established fixed conversion rates between
their existing sovereign currencies and the euro. The
participating countries agreed to adopt the euro as their
common legal currency on that date.
The company continues to identify and address all euro conversion
compliance issues. At this time, the company has not experienced
significant difficulties, but cannot predict the impact of the
euro conversion because of the numerous uncertainties associated
with noncompliance by third parties and the effect in the market
place on pricing due to currency transparency.
Environmental Matters
The company has been and continues to be dedicated to an
environmental program to reduce the utilization and generation of
hazardous materials during the manufacturing process and to
remediate identified environmental concerns. As to the latter,
the company currently is engaged in site investigations and
remedial activities to address environmental cleanup from past
operations at current and former manufacturing facilities.
During 1998, the company spent approximately $8 million on
capital projects for pollution abatement and control, and an
additional $6 million for environmental remediation expenditures
at sites presently or formerly owned or leased by the company. It
should be noted that these amounts are difficult to estimate
because environmental improvement costs are generally a part of
the overall improvement costs at a particular plant. Therefore,
the accurate estimate of which portion of an improvement or a
capital expenditure relates to an environmental improvement is
difficult to ascertain. The company believes that these
expenditure levels will continue and may increase over time.
Given the evolving nature of environmental laws, regulations and
technology, the ultimate cost of future compliance is uncertain.
The company is a party to environmental lawsuits and claims, and
has received notices of potential violations of environmental
laws and regulations from the Environmental Protection Agency and
similar state authorities. It is identified as a potentially
responsible party (PRP) for cleanup costs associated with off-
site waste disposal at approximately 32 federal Superfund and
state remediation sites, excluding sites as to which the
company's records disclose no involvement or as to which the
company's liability has been fully determined. For all sites
there are other PRPs and in most instances, the company's site
involvement is minimal. In estimating its liability, the company
has not assumed it will bear the entire cost of remediation of
any site to the exclusion of other PRPs who may be jointly and
severally liable. The ability of other PRPs to participate has
been taken into account, based generally on the parties'
financial condition and probable contributions on a per site
basis. Additional lawsuits and claims involving environmental
matters are likely to arise from time to time in the future.
Although uncertainties regarding environmental technology, state
and federal laws and regulations and individual site information
make estimating the liability difficult, management believes that
the total liability for the cost of remediation and environmental
lawsuits and claims will not have a material effect on the
financial condition, results of operations, liquidity or cash
flows of the company for any year. It should be noted that when
the company estimates its liability for environmental matters,
such estimates are based on current technologies, and the company
does not discount its liability or assume any insurance
recoveries.
Forward-looking Statements
Information provided by the company in this 1998 Annual Report on
Form 10-K, in periodic reports on Form 10-Q, in press releases
and in statements made by employees in oral discussions may
constitute or contain "forward-looking statements" as that term
is defined in the Private Securities Litigation Reform Act of
1995 or by the Securities and Exchange Commission in its rules,
regulations and releases. Forward-looking statements represent
the company's expectations concerning future events and, by their
nature, involve risk and uncertainty.
The company cautions investors that forward-looking statements
are not guarantees of future performance. A variety of factors
could cause business conditions and actual results to differ
materially from expected results contained in forward-looking
statements. The company includes among those factors the
following: changes in the rate of economic growth in the United
States and in other major international economies; impacts of
unusual items resulting from ongoing evaluations of
organizational structures, business strategies and acquisitions
and dispositions; significant changes in trade, monetary and
fiscal policies worldwide; currency fluctuations among the U.S.
dollar and other currencies; demand for company products;
distributor inventory levels; performance issues with key
suppliers and subcontractors; impact of the year 2000; failure to
achieve the company's productivity targets; costs and effects of
unanticipated legal and administrative proceedings; and,
competitor actions, such as unanticipated pricing actions or cost
reduction strategies and entry into direct product line
competition.
1997 Compared to 1996
Sales for 1997 totalled $7.1 billion, which generated $760.3
million of operating income and $380.5 million of net earnings
($2.33 basic earnings per share).
The company's results for 1997 reflect a more impressive increase
over 1996, considering the following noncomparable items:
o On October 31, 1997, the company completed its acquisition of
Thermo King Corporation (Thermo King) from Westinghouse
Electric Corporation. For the last two months of 1997, Thermo
King generated $176.9 million of sales and produced an
operating loss of approximately $0.2 million, after goodwill
amortization and the effect of estimated purchase accounting
adjustments. Thermo King's net loss for the two months ended
December 31, 1997, was approximately $11.3 million (seven cents
per share) after the allocation of acquisition interest expense
of approximately $27.3 million.
o At the beginning of April 1997, the company completed its
acquisition of Newman Tonks Group PLC (Newman Tonks). Since
its acquisition, Newman Tonks has generated approximately $230
million of sales, and produced approximately $15 million of
operating income, after the effect of goodwill amortization,
estimated purchase accounting adjustments and synergistic
benefits from group operations. Newman Tonks essentially
operated at the break-even level for 1997 after considering the
allocation of approximately $17.0 million of acquisition
interest expense and its related tax benefit.
o Dresser-Rand Company (Dresser-Rand) is a partnership that
manufactures reciprocating compressor and turbomachinery
products, in which the company owns a 49-percent interest. The
company accounts for its interest in Dresser-Rand under the
equity accounting method in which the company only records its
related ownership interest in the results of Dresser-Rand.
During the fourth quarter of 1997, Dresser-Rand recorded a $36
million restructuring charge to reduce its headcount and to
close underperforming operations. This charge reduced the
company's pretax earnings by $13.9 million and its after tax
results by $11.6 million (seven cents per share). Prior to the
restructuring charge, Dresser-Rand generated approximately $47.5
million of net earnings (after tax costs for international
subsidiaries) for 1997.
o Ingersoll-Dresser Pump Company (IDP) is a joint venture, in
which the company owns a 51-percent interest and, therefore,
it is consolidated into the company's financial statements.
During the fourth quarter of 1997, IDP recorded a $24 million
charge to operating income for costs to close and consolidate
underperforming operations. The effect of the restructure
charge, after taxes and minority interest, was $8.1 million.
After considering the items listed above, adjusted 1997 net
sales, operating income and net earnings were approximately $6.7
billion, $770 million and $412 million ($2.52 basic earnings per
share), respectively.
The company reported sales of $6.7 billion in 1996, which
generated $683.5 million of operating income and $358.0 million
of net earnings ($2.22 basic earnings per share). The company's
1996 results also included the following noncomparable items:
o During 1996, the company sold the Process Systems Group in two
transactions, which generated a combined pretax gain of $55.0
million and benefitted net earnings by $34.7 million (21 cents
per share).
o Other noncomparable items in 1996, which caused a net reduction
to the company's operating income, were a $37 million
restructure charge (principally for European operations) and a
$5.4 million charge for the closure of a foundry at IDP. These
charges were reduced by a gain on the sale of an investment
during the 1996 first quarter of $4.8 million, which was
recorded as other income. The after-tax effect of these items
reduced net earnings by $22.5 million (14 cents per share).
After considering the effect of these items, adjusted 1996 net
sales, operating income and net earnings were $6.7 billion,
$670.9 million and $345.8 million ($2.15 basic earnings per
share), respectively.
A comparison of key financial data between 1997 and 1996 follows:
o Net sales in 1997 established a record at $7.1 billion,
reflecting a six-percent improvement over the 1996 total of
$6.7 billion. Excluding noncomparable units from both years,
adjusted sales for 1997 increased by a comparable percent over
the 1996 adjusted total.
o Cost of goods sold in 1997 was 74.1 percent of sales, compared
to 75.0 percent in 1996. Partial liquidations of LIFO (last-
in, first-out) inventory lowered 1997 costs by $4.1 million as
compared to a $4.8 million liquidation in 1996. Excluding the
effects of the LIFO liquidations, the 1997 cost of goods sold
relationship to sales would have been 74.2 percent versus 75.1
percent for 1996. Excluding noncomparable items from both
years, the adjusted ratio of cost of goods sold to sales
reflected a marked improvement in 1997, compared to 1996.
o Administrative, selling and service engineering expenses were
15.2 percent of sales in 1997, compared to 14.8 percent for
1996. This increase is primarily attributable to the inclusion
of Newman Tonks, which traditionally had a ratio of selling and
administrative expenses to sales higher than the company's
historical lines and the divestment of Clark-Hurth, which had a
lower ratio than that of the overall company.
o Operating income for the year totalled $760.3 million, an
11.2-percent increase over 1996 operating income of $683.5
million. The ratio of operating income to sales in 1997 was
10.7 percent, as compared to 10.2 percent for the prior year.
After excluding the noncomparable items (previously
discussed) from both years, adjusted 1997 operating income
reflects a significant improvement over the adjusted 1996
results. This improvement was the combined effect of the
company's aggressive productivity-improvement and procurement
programs and the continued stability of domestic markets.
o Interest expense for 1997 totalled $136.6 million versus $119.9
million for 1996. Interest expense associated with the debt
incurred for the Thermo King acquisition totalled approximately
$27.3 million.
o Other income (expense), net, is the sum of foreign exchange
activities, and other miscellaneous income and expense items.
In 1997, these activities resulted in a net expense of $21.5
million, an unfavorable change of $2.7 million compared to the
1996 net other expense of $18.8 million. This change was
caused by lower foreign exchange losses of approximately $4.6
million in 1997, the absence of the 1996 gain of $4.8 million
from the sale of an investment and higher net miscellaneous
expense items of approximately $2.5 million.
o The company's equity in earnings of partially-owned affiliates,
including Dresser-Rand results, for 1997 was $28.8 million as
compared to $42.4 million in 1996. This decrease is mainly due
to the Dresser-Rand restructuring charges, previously discussed.
o The company's charges for minority interests totalled $17.3
million in 1997 versus $18.9 million in 1996. These charges
represent the interests of minority owners (less than 50
percent) in a consolidated unit of the company. The largest
minority interest relates to IDP, which represents $13.7
million of the 1997 balance, compared to $17.3 million in 1996.
IDP's change is due to the 1997 pretax restructuring charge of
$24 million (discussed previously). The remaining charges
represent minority interests in the company's operations
principally located in India and China.
o The company's effective tax rate for 1997 was 38.0 percent,
which represented a slight increase over the 37.0 percent
reported for the prior year. The variance from the 35.0
percent statutory rate primarily was due to the higher tax
rates associated with foreign earnings, the effect of state and
local taxes, the nondeductibility of a portion of the goodwill
associated with acquisitions and favorable tax benefits
associated with the Thermo King acquisition.
At December 31, 1997, employment totalled 46,567. This
represents a net increase of 4,693 employees over the 1996 level
of 41,874. This increase principally results from 1997
acquisition activity, partially offset by a reduction resulting
from the Clark-Hurth disposition.
The most significant event affecting the company's liquidity
during 1997 was the acquisition of Thermo King on October
31,1997. The total purchase price paid for Thermo King was
approximately $2.56 billion in cash, which was financed mainly by
the issuance of both long-term and short-term debt. The effects
of this transaction are discussed throughout this report,
including in Note 2 to the Consolidated Financial Statements.
The following points highlight 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 $104.9 million at December
31, 1997, a $79.2 million reduction from the prior year-end
balance of $184.1 million. These funds were used to reduce a
portion of the company's outstanding short-term debt incurred
in connection with the Thermo King acquisition. 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 provided $703.5 million, investing
activities used $2.7 billion and financing activities provided
approximately $2.0 billion. Exchange rate changes during 1997
increased cash and cash equivalents by $1.6 million.
o Marketable securities totalled $6.9 million at the end of 1997,
$1.1 million below the balance at December 31, 1996. The net
reduction was due mainly to exchange rate changes.
o Receivables totalled $1,281.5 million at December 31, 1997,
compared to $1,066.2 million at the prior year end, a net
increase of $215.3 million. The increase is attributable to
the acquisitions of Thermo King and Newman Tonks, which added
approximately $228.2 million. This increase was partially
offset by currency translation, dispositions and
reclassifications to assets held for sale, which caused net
reductions of $34.5 million. The timing of the company's strong
fourth quarter sales also increased the year-end receivables
balance. The company focuses on decreasing its receivables
base through its asset-management program, which produced a
reduction in the average days outstanding in receivables to
54.5 days from the 1996 level of 56.1 days.
o Inventories amounted to $854.8 million at December 31, 1997, an
increase of $79.7 million from the prior year's level of $775.1
million. The acquisitions of Thermo King and Newman Tonks
accounted for increases of approximately $185.6 million, while
dispositions, reclassifications to assets held for sale and the
effects of currency fluctuations reduced inventories by $57.2
million. The company's emphasis on inventory control was
demonstrated by the reduction of the average months' supply of
inventory to 2.5 months at December 31, 1997, compared to 3.0
months at the prior year end.
o Prepaid expenses, including assets held for sale, totalled
$136.0 million at the end of the year, $203.8 million lower
than the balance at December 31, 1996. Assets held for sale
totalled $46.5 million at December 31, 1997, and principally
represented the net book value of selected operations from the
Newman Tonks acquisition that did not meet the company's long-
term objectives and certain European assets of the Specialty
Vehicles Segment. Assets held for sale at December 31, 1996,
comprised the net assets of Clark-Hurth, which were sold on
February 14, 1997. Foreign exchange activity had a minimal
effect on the remaining prepaid expenses, while acquisitions
accounted for $14.2 million of the increase.
o Deferred income taxes (current) of $160.8 million at December
31, 1997, represented the deferred tax benefit of the
difference between the book and tax values of various current
assets and liabilities. The components of the balance are
included in Note 14 to the Consolidated Financial Statements.
o Investments in partially-owned equity affiliates at December
31, 1997, totalled $328.0 million, $48.2 million below the 1996
balance of $376.2 million. Included in this account is the
investment in Dresser-Rand, which totalled $115.0 million at
December 31, 1997. Dresser-Rand's investment decreased $37.6
million from the 1996 balance of $152.6 million. The
components of the Dresser-Rand change for 1997 consisted of
income for the year of $9.4 million, a $42.9 million change in
the company's advance account and a $4.1 million reduction due
to foreign currency movements. Income and dividends from other
investments in partially-owned equity affiliates were $19.2
million and $8.7 million, respectively. Amounts due from
partially-owned affiliates excluding Dresser-Rand decreased
from $18.3 million to $13.5 million at December 31, 1997.
Currency movements were the primary cause of the remaining
$16.3 million reduction.
o Net property, plant and equipment increased by $137.8 million in
1997 to a December 31, 1997, balance of $1,283.2 million. Fixed
assets from acquisitions added $186.6 million. Capital
expenditures in 1997 totalled $186.0 million. Business
dispositions and reclassifications to assets held for sale
reduced the balance by $20.9 million. In addition, foreign
exchange fluctuations decreased net fixed assets by
approximately $24.5 million. The remaining net decrease was the
result of depreciation and sales and retirements.
o Intangible assets, net, totalled $3,833.0 million at December
31, 1997, as compared to $1,178.0 million at December 31, 1996,
for a net increase of approximately $2.7 billion. Goodwill
from the Thermo King and Newman Tonks acquisitions, net of
amortization expense of $54.7 million during 1997 accounted for
the change.
o Deferred income taxes (noncurrent) totalled $214.9 million at
December 31, 1997, which was $52.3 million higher than the 1996
balance. The components comprising the balance at December 31,
1997, can be found in Note 14 to the Consolidated Financial
Statements.
o Other assets totalled $211.6 million at December 31, 1997, a
decrease of $12.2 million from the December 31, 1996, balance
of $223.8 million. Other assets decreased by approximately $20
million due to prepaid pensions, an amount that was partially
offset by increases due to acquisitions. Foreign exchange
activity in 1997 had a minimal effect on the account balance
during the year.
o Accounts payable and accruals totalled $1,370.5 million at
December 31, 1997, an increase of $275.1 million from the 1996
balance of $1,095.4 million. Acquisition activity during 1997
accounted for $259.4 million of the increase, while
dispositions and currency fluctuations decreased accounts
payable and accruals by $36.3 million. Additionally, accruals
increased by $17 million due to IDP's restructure charge.
o Loans payable were $925.1 million at the end of 1997, which
reflects a $762.8 million increase over the $162.3 million at
December 31, 1996. Short-term debt assumed from companies
acquired during 1997 added $69.4 million and current maturities
of long-term debt increased the balance by an additional $145.4
million. The effects of translation, dispositions and
reclassifications to assets held for sale caused a $4.4 million
reduction. The remaining increase is primarily due to higher
short-term borrowings to finance Thermo King and other
acquisitions.
o Long-term debt, excluding current maturities, totalled $2,528.0
million, an increase of approximately $1.4 billion over the
prior year's balance of $1,163.8 million. Proceeds from the
issuance of long-term debt of $1,508.6 million were primarily
used for the Thermo King acquisition. Reductions to long-term
debt of $145.4 million represent the reclassification of the
current maturities of long-term debt to loans payable. Foreign
exchange activity had a minimal effect on the account balance
during the year.
o Postemployment liabilities at December 31, 1997, totalled
$937.1 million, an increase of $122.4 million from the December
31, 1996, balance. Postemployment liabilities include medical
and life insurance postretirement benefits, long-term pension
and other noncurrent postemployment accruals. The increase in
the liability during 1997 is almost exclusively related to the
acquisitions of Thermo King and Newman Tonks. (See Notes 15
and 16 to the Consolidated Financial Statements for additional
information.)
o Minority interest liabilities at December 31, 1997, totalled
$127.9 million, which also represented the balance at the end
of the prior year. This liability represents the ownership
interests of other entities in selected consolidated
subsidiaries of the company, the largest being Dresser
Industries' 49-percent interest in IDP. The other minority
interests relate primarily to joint ventures in India and
China. IDP's minority interest at December 31, 1996, was $113.4
million. It increased by $13.7 million, based on IDP's 1997
earnings and was reduced by $22.7 million, which represented
increases in advances to Dresser Industries and the effect of
translation. The liability for all other minority interests
totalled $14.5 million at December 31, 1996, and increased to
$23.5 million during 1997 due to earnings, acquisitions and
advances.
o Other liabilities (noncurrent) at December 31, 1997, totalled
$153.4 million, which were $19.2 million higher than the
balance at December 31, 1996. The net increase is primarily
related to the Thermo King acquisition. These obligations are
not expected to be paid in the next year. Generally, these
accruals cover environmental, insurance, legal and other
contractual obligations.
Other information concerning the company's financial resources,
commitments and plans is as follows:
The average amount of short-term borrowings outstanding,
excluding current maturities of long-term debt, was $380 million
in 1997, compared to $58.0 million in 1996. The weighted average
interest rate during 1997 was 6.2%, compared to 7.8% during 1996.
The maximum amounts outstanding during 1997 and 1996, were $2.4
billion and $181.7 million, respectively.
The company had $1.5 billion in domestic short-term credit lines
at December 31, 1997, and $509.4 million of foreign credit lines
available for working capital purposes, $2.0 billion of which was
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, 1997, the debt-to-total capital ratio was 58
percent, as compared to 37 percent at the prior year end. This
substantial increase resulted from debt issued in connection with
the Thermo King acquisition.
In 1997, foreign currency translation adjustments decreased
shareholders' equity by $80.6 million. This change was due to
the strengthening 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 changes
in Australia, Canada, Belgium, France, Germany, India, Italy,
Japan, the Netherlands, Singapore and Spain accounted for nearly
all of the change.
Stock Split
In August 1997, the board of directors declared a three-for-two
stock split on the company's common stock. The stock split was
made in the form of a stock dividend, and was paid on September
2, 1997, to shareholders of record on August 19, 1997. All prior
year per share amounts have been restated to reflect the stock
split.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
The information required by Item 7A is provided under the caption
"Financial Market Risk" in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary financial
information included in the accompanying Annual Report to
Shareholders for 1998 are incorporated by reference in this Form
10-K Annual Report:
(a) The consolidated financial statements and the report thereon
of PricewaterhouseCoopers LLP dated February 2, 1999, are
included as Exhibit 13 - the Annual Report to Shareholders for
1998.
(b) The unaudited quarterly financial data for the two-year
period ended December 31, 1998, is as follows (in millions except
per share amounts):
Net Cost of Operating Net
1998 sales goods sold income earnings
First quarter $2,002.9 $1,484.1 $ 213.6 $ 99.1
Second quarter 2,186.2 1,596.7 286.3 140.9
Third quarter 2,020.0 1,484.1 250.2 119.4
Fourth quarter 2,082.4 1,481.7 294.3 149.7
Year 1998 $8,291.5 $6,046.6 $1,044.4 $509.1
Net Cost of Operating Net
1997 sales goods sold income earnings
First quarter $1,639.4 $1,228.4 $166.6 $ 77.8
Second quarter 1,837.4 1,355.5 209.6 111.6
Third quarter 1,694.0 1,250.8 179.7 97.1
Fourth quarter 1,932.5 1,429.0 204.4 94.0
Year 1997 $7,103.3 $5,263.7 $760.3 $380.5
1998 1997
Basic Diluted Basic Diluted
earnings earnings earnings earnings
per per per per
common common common common
share share share share
First quarter $0.60 $0.60 $0.48 $0.48
Second quarter 0.86 0.85 0.68 0.68
Third quarter 0.73 0.72 0.60 0.58
Fourth quarter 0.92 0.91 0.57 0.57
Year $3.11 $3.08 $2.33 $2.31
Item 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is (i) incorporated by
reference in this Form 10-K Annual Report from pages 1 through 5,
17 and 18 of the company's definitive proxy statement for the
Annual Meeting of Shareholders to be held on May 5, 1999, and
(ii) included after Item 4 in Part I of this Form 10-K Annual
Report.
Item 11. EXECUTIVE COMPENSATION
Information on executive compensation is incorporated by
reference in this Form 10-K Annual Report from pages 7 through 17
of the company's definitive proxy statement for the Annual
Meeting of Shareholders to be held on May 5, 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information on security ownership of directors and nominees,
directors and officers as a group and certain beneficial owners
is incorporated by reference in this Form 10-K Annual Report on
pages 4 and 5 of the company's definitive proxy statement for the
Annual Meeting of Shareholders to be held on May 5, 1999.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is incorporated by reference in
this Form 10-K Annual Report from page 17 of the company's
definitive proxy statement for the Annual Meeting of Shareholders
to be held on May 5, 1999.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. and 2. Financial statements and financial statement
schedules
The financial statements, together with the
report thereon of PricewaterhouseCoopers LLP
dated February 2, 1999, included as Exhibit 13
and the unaudited quarterly financial data
included in Part II Item 8(b) are incorporated
by reference in this Form 10-K Annual Report.
The financial statement schedule listed in the
accompanying index should be read in conjunction
with the financial statements in such Annual
Report to Shareholders for 1998.
Separate financial statements for all 50 percent
or less owned companies, accounted for by the
equity method have been omitted because no
individual entity constitutes a significant
subsidiary.
3. Exhibits
The exhibits listed on the accompanying index to
exhibits are filed as part of this Form 10-K
Annual Report.
(b) Reports on Form 8-K
A Current Report on Form 8-K (Item 5) dated
November 4, 1998 reporting on the adoption of
a Shareholder Rights Plane effective December
22, 1998.
A Current Report on Form 8-K/A (Item 5) dated
November 4, 1998 amending the reporting on the
Shareholer Rights Plan.
INGERSOLL-RAND COMPANY
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14 (a) 1 and 2)
Form
10-K
Consolidated Financial Statements:
Report of independent accountants *
Consolidated balance sheet at
December 31, 1998 and 1997 *
For the years ended December 31, 1998, 1997
and 1996:
Consolidated statement of income *
Consolidated statement of shareholders'
equity *
Consolidated statement of cash flows *
Notes to consolidated financial statements *
Selected unaudited quarterly financial data **
Financial Statement Schedule:
Report of independent accountants on
financial statement schedule See below
Consolidated schedule for the years ended
December 31, 1998, 1997 and 1996:
Schedule II -- Valuation and Qualifying
Accounts See below
* See Exhibit 13 - Ingersoll-Rand Company Annual Report to
Shareholders for 1998.
** See Item 8 Financial Statements and Supplementary Data.
Financial statement schedules not included in this Form 10-K
Annual Report have been omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
Financial statements of the company's 50 percent or less owned
companies, are omitted because individually they do not meet the
significant subsidiary test of Rule 3-09 of Regulation S-X.
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Ingersoll-Rand Company:
Our audits of the consolidated financial statements referred to
in our report dated February 2, 1999, which is included as part
of Exhibit 13 - the Annual Report to Shareholders for 1998 of
Ingersoll-Rand Company, (which report and consolidated financial
statements are incorporated by reference in this Annual Report on
Form 10-K), also included an audit of the Financial Statement
Schedule listed in Item 14(a) of this Form 10-K. In our opinion,
this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/S/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
February 2, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus constituting part of the Registration Statements on
Form S-3 (No. 333-38367, No. 333-37019, and No. 333-34029) and to
the incorporation by reference in the Registration Statements on
Form S-8 (No. 333-42133, No. 333-19445, No. 333-67257, No. 333-
00829, No. 33-35229, and No. 2-98258) of Ingersoll-Rand Company
of our report dated February 2, 1999, which is included as part
of Exhibit 13 - the Annual Report to Shareholders for 1998, which
is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on this page.
/S/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
March 26, 1999
SCHEDULE II
INGERSOLL-RAND COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(Amounts in millions)
Additions
charged to
Balance at costs and Balance
beginning expenses Deductions at end
Description of year (*) (**) of year
1998
Doubtful accounts $33.9 $13.3 $ 5.2 $42.0
1997
Doubtful accounts $34.3 $11.7 $12.1 $33.9
1996
Doubtful accounts $38.3 $ 8.6 $12.6 $34.3
(*) "Additions" include foreign currency translation.
(**) "Deductions" include accounts and advances written off,
less recoveries.
INGERSOLL-RAND COMPANY
INDEX TO EXHIBITS
(Item 14(a))
Description
3 (i) Restated Certificate of Incorporation of Ingersoll-Rand
Company, as amended through May 28, 1992. Incorporated by
reference to Form 10-K of Ingersoll-Rand Company for the year
ended December 31, 1993, filed March 30, 1994.
3 (ii) Amendment to Restated Certificate of Incorporation of
Ingersoll-Rand Company filed May 28, 1992. Incorporated by
reference to Form 10-K of Ingersoll-Rand Company for the year
ended December 31, 1993, filed March 30, 1994.
3 (iii) Amendment to Restated Certificate of Incorporation of
Ingersoll-Rand Company filed August 20, 1997. Incorporated by
reference to Form S-3 filed October 2, 1997.
3 (iv) By-Laws of Ingersoll-Rand Company, as amended through
January 5, 1999. Filed herewith.
4 (i) Rights Agreement, dated as of November 9, 1998.
Incorporated by reference from Form 8-A/A of Ingersoll-
Rand Company filed on November 13, 1998.
4 (ii) Indenture, dated as of August 1, 1986 between Ingersoll-
Rand Company and The Bank of New York, as Trustee, as
supplemented. Incorporated by reference to Exhibits 4.1, 4.2 and
4.3 of the company's Form S-3 Registration Statement
No. 33-39474.
4(iii) Purchase Contract Agreement dated as of March 23, 1998
between Ingersoll-Rand Company and The Bank of New York, as
Purchase Contract Agent. Filed herewith.
4(iv) Pledge Agreement dated as of March 23, 1998 between
Ingersoll-Rand Company and The Chase Manhattan Bank, as
Collateral Agent, Custodial Agent and Securities Intermediary.
Filed herewith.
4(v) Indenture dated as of March 23, 1998 between Ingersoll-Rand
Company and The Bank of New York, as trustee. Filed herewith.
4(vi) First Supplemental Indenture dated as of March 23, 1998
between Ingersoll-Rand Company and The Bank of New York, as
trustee. Filed herewith.
4(vii) Amended and Restated Declaration of Trust for Ingersoll-
Rand Financing I, a Delaware statutory business trust, dated
March 23, 1998. Filed herewith.
4(viii) Guarantee Agreement dated as of March 23, 1998, between
Ingersoll-Rand Company and The First National Bank of Chicago, as
trustee. Filed herewith.
4 (ix) (a) Ingersoll-Rand Company is a party to several long-term
debt instruments under which in each case the total amount of
securities authorized does not exceed 10% of the total assets of
Ingersoll-Rand Company and its subsidiaries on a consolidated
basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of
Regulation S-K, Ingersoll-Rand Company agrees to furnish a copy
of such instruments to the Securities and Exchange Commission
upon request.
10 (iii) The following exhibits constitute management contracts
or compensatory plans or arrangements required by Item 601 of
Regulation S-K.
10 (iii) (a) Management Incentive Unit Plan of Ingersoll- Rand
Company. Amendment to the Management Incentive Unit Plan,
effective January 1, 1982. Amendment to the Management
Incentive Unit Plan, effective January 1, 1987. Amendment to the
Management Incentive Unit Plan, effective June 3, 1987.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
for the year ended December 31, 1993, filed March 30, 1994.
10 (iii) (b) Ingersoll-Rand Company Directors Deferred
Compensation and Stock Award Plan. Incorporated by reference to
Form 10-K for the year ended December 31, 1996, filed March 26,
1997.
10 (iii) (c) Forms of Contingent Compensation Agreements with
Vice Presidents and/or Group Presidents of Ingersoll-Rand
Company. Filed herewith.
10 (iii) (d) Description of Bonus Arrangements for Executive Vice
President of Ingersoll-Rand Company. Filed herewith.
10 (iii) (e) Description of Bonus Arrangements for Chairman,
President and Staff Officers. Incorporated by reference to Form
10-K of Ingersoll-Rand Company for the year ended December 31,
1993, filed March 30, 1994.
10 (iii) (f) Amended and Restated Form of Change of Control
Agreement as of March 1, 1999 with Chairman and Chief Executive
Officer of Ingersoll-Rand Company. Filed herewith.
10 (iii) (g) Amended and Restated Form of Change of Control
Agreement as of March 1, 1999, with selected executive officers
other than Chairman of Ingersoll-Rand Company. Filed herewith.
10 (iii) (h) Executive Supplementary Retirement Agreement for
selected executive officers. Incorporated by reference to Form 10-
K of Ingersoll-Rand Company for the year ended December 31, 1993,
filed March 30, 1994.
10 (iii) (i) Executive Supplementary Retirement Agreement for
selected executive officers. Incorporated by reference to Form 10-
K for the year ended December 31, 1996, filed March 26, 1997.
10 (iii) (j) Incentive Stock Plan of 1985 of Ingersoll-Rand
Company. Incorporated by reference to Form 10-K of Ingersoll-
Rand Company for the year ended December 31, 1993, filed March
30, 1994.
10 (iii) (k) Forms of insurance and related letter agreements
with certain executive officers. Incorporated by reference to
Form 10-K of Ingersoll-Rand Company for the year ended December
31, 1993, filed March 30, 1994.
10 (iii) (l) Incentive Stock Plan of 1990 of Ingersoll-Rand
Company. Incorporated by reference to Form 10-K of Ingersoll-
Rand Company for the year ended December 31, 1993, filed March
30, 1994.
10 (iii) (m) Restated Supplemental Pension Plan. Incorporated
by reference to Form 10-K of Ingersoll-Rand Company for the year
ended December 31, 1995, filed March 29, 1996.
10 (iii) (n) Supplemental Stock and Savings Investment Plan
effective as of January 1, 1989. Incorporated by reference to
Form 10-K of Ingersoll-Rand Company for the year ended December
31, 1993, filed March 30, 1994.
10 (iii) (o) Supplemental Retirement Account Plan effective
as of January 1, 1989. Incorporated by reference to Form
10-K of Ingersoll-Rand Company for the year ended December 31,
1993, filed March 30, 1994.
10 (iii) (p) Incentive Stock Plan of 1995 of Ingersoll-Rand
Company. Incorporated by reference to the Notice of 1995 Annual
Meeting of Shareholders and Proxy Statement dated March 15, 1995.
See Appendix A of the Proxy Statement dated March 15, 1995.
10 (iii) (q) Senior Executive Performance Plan. Incorporated
by reference to the Notice of 1995 Annual Meeting of Shareholders
and Proxy Statement dated March 15, 1995. See Appendix B of the
Proxy Statement dated March 15, 1995.
10 (iii) (r) Amended and Restated Elected Officers Supplemental
Plan. Filed herewith.
10 (iii) (s) Selected Executive Officer Employment Agreement.
Incorporated by reference to Form 10-K of Ingersoll-Rand
Company for the year ended December 31, 1995, filed
March 29, 1996.
10 (iii) (t) Executive Deferred Compensation and Stock Award
Plan. Incorporated by reference to Form 10-K for the year ended
December 31, 1996, filed March 26, 1997.
10 (iii) (u) Senior Vice President and Chief Financial
Officer Employment Agreement. Incorporated by reference to Form
10-k for the year ended December 31, 1997, filed March 6, 1998.
10 (iii) (v) Incentive Stock Plan of 1998 of Ingersoll-Rand
Company. Incorporated by reference to Appendix A to the Notice
of 1998 Annual Meeting of Shareholders and Proxy Statement dated
March 17, 1998.
11 Computation of Earnings Per Share. Filed herewith.
12 Computations of Ratios of Earnings to Fixed Charges.
Filed herewith.
13 Ingersoll-Rand Company Annual Report to Shareholders
for 1998. Not deemed to be filed as part of this report
except to the extent incorporated by reference. Filed herewith.
21 List of Subsidiaries of Ingersoll-Rand Company.
Filed herewith.
27 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
INGERSOLL-RAND COMPANY
(Registrant)
By /S/ David W. Devonshire
Date March 29, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
Chairman, President,
Chief Executive Officer
and Director (Principal
/S/ James E. Perrella Executive Officer) March 29, 1999
(James E. Perrella)
Senior Vice President
Chief Financial Officer
(Principal Financial
/S/ David W. Devonshire and Accounting Officer) March 29, 1999
(David W. Devonshire)
Controller (Principal
/S/ Steven R. Shawley Accounting Officer) March 29, 1999
(Steven R. Shawley)
/S/ Joseph P. Flannery Director March 29, 1999
(Joseph P. Flannery)
/S/ Peter C. Godsoe Director March 29, 1999
(Peter C. Godsoe)
/S/ Constance J. Horner Director March 29, 1999
(Constance J. Horner)
/S/ H. William Lichtenberger Director March 29, 1999
(H. William Lichtenberger)
/S/ Theodore E. Martin Director March 29, 1999
(Theodore E. Martin)
/S/ Orin R. Smith Director March 29, 1999
(Orin R. Smith)
/S/ Richard J. Swift Director March 29, 1999
(Richard J. Swift)
/S/ Tony L. White Director March 29, 1999
(Tony L. White)