Exhibit 13
Consolidated Statement of Income
In millions except per share amounts
For the years ended December 31 1998 1997 1996
Net sales $8,291.5 $7,103.3 $6,702.9
Cost of goods sold 6,046.6 5,263.7 5,029.9
Administrative, selling and
service engineering
expenses 1,200.5 1,079.3 989.5
Operating income 1,044.4 760.3 683.5
Interest expense (225.8) (136.6) (119.9)
Other income (expense), net (22.0) (21.5) (18.8)
Equity in earnings of
partially-owned affiliates 46.8 28.8 42.4
Minority interests (54.2) (17.3) (18.9)
Earnings before income taxes 789.2 613.7 568.3
Provision for income taxes 280.1 233.2 210.3
Net earnings $ 509.1 $ 380.5 $ 358.0
Basic earnings per share $3.11 $2.33 $2.22
Diluted earnings per share $3.08 $2.31 $2.21
See accompanying Notes to Consolidated Financial Statements.
Consolidated Balance Sheet
In millions except share amounts
December 31 1998 1997
Assets
Current assets:
Cash and cash equivalents $ 71.9 $ 104.9
Marketable securities 5.7 6.9
Accounts and notes receivable, less
allowance for doubtful accounts of
$42.0 in 1998 and $33.9 in 1997 1,177.1 1,281.5
Inventories 940.8 854.8
Prepaid expenses 88.7 136.0
Deferred income taxes 143.4 160.8
2,427.6 2,544.9
Investments in and advances with
partially-owned equity affiliates 344.7 328.0
Property, plant and equipment, at cost:
Land and buildings 683.3 682.7
Machinery and equipment 1,733.0 1,592.5
2,416.3 2,275.2
Less-accumulated depreciation 1,068.7 992.0
1,347.6 1,283.2
Intangible assets, net 3,774.3 3,833.0
Deferred income taxes 235.9 214.9
Other assets 179.4 211.6
$8,309.5 $8,415.6
Liabilities and Equity
Current liabilities:
Accounts payable and accruals $1,488.6 $1,370.5
Loans payable 318.7 925.1
Customers' advance payments 13.3 14.5
Income taxes 28.2 17.7
1,848.8 2,327.8
Long-term debt 2,166.0 2,528.0
Postemployment liabilities 897.1 937.1
Minority interests 133.6 127.9
Other liabilities 154.0 153.4
5,199.5 6,074.2
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the company 402.5 -
Shareholders' equity:
Common stock, $2 par value, authorized
600,000,000 shares; issued:
1998-168,883,779; 1997-167,410,183 337.8 334.8
Capital in excess of par value 133.4 92.4
Retained earnings 2,567.3 2,156.5
3,038.5 2,583.7
Unallocated LESOP shares, at cost (27.0) (41.4)
Treasury stock, at cost (150.9) (44.5)
Accumulated other comprehensive income (153.1) (156.4)
Shareholders' equity 2,707.5 2,341.4
$8,309.5 $8,415.6
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statement of Shareholders' Equity
In millions
Capital in Accumulated
Total excess other
shareholders' Common stock of par Retained Unallocated Treasury comprehensive Comprehensive
equity Amount Shares value earnings LESOP stock income income
Balance at December 31,
1995
$1,795.5 $219.4 109.7 $121.6 $1,595.5 $(70.2) $(11.5) $(59.3)
Net earnings 358.0 358.0 $358.0
Foreign currency translation (16.5) (16.5) (16.5)
Reclassification adjustment 6.3
Total comprehensive income $347.8
Exercise of stock options 18.6 1.1 0.5 17.5
Issuance of shares under
stock plans 1.9 0.1 0.1 1.8
Allocation of LESOP shares 17.2 2.6 14.6
Cash dividends (83.9) (83.9)
Balance at December 31,
1996 2,090.8 220.6 110.3 143.5 1,869.6 (55.6) (11.5) (75.8)
Net earnings 380.5 380.5 380.5
Foreign currency translation (80.6) (80.6) (80.6)
Reclassification adjustment 3.1
Total comprehensive income $303.0
Issuance of shares under
stock plans 2.8 0.1 0.1 2.7
Exercise of stock options 52.6 2.7 1.3 49.9
Stock split 3-for-2 - 111.4 55.7 (111.4)
Allocation of LESOP shares 21.9 7.7 14.2
Purchase of treasury shares (33.0) (33.0)
Cash dividends (93.6) (93.6)
Balance at December 31,
1997 2,341.4 334.8 167.4 92.4 2,156.5 (41.4) (44.5) (156.4)
Net earnings 509.1 509.1 509.1
Foreign currency translation 3.3 3.3 3.3
Total comprehensive income $512.4
Issuance of shares under
stock plans 2.2 0.1 0.1 2.1
Exercise of stock options 45.8 2.9 1.4 42.9
Issuance of equity-linked
securities (16.4) (16.4)
Allocation of LESOP shares 26.8 12.4 14.4
Purchase of treasury shares (106.4) (106.4)
Cash dividends (98.3) (98.3)
Balance at December 31,
1998 $2,707.5 $337.8 168.9 $133.4 $2,567.3 $(27.0) $(150.9) $(153.1)
Consolidated Statement of Cash Flows
In millions
For the years ended December 31 1998 1997 1996
Cash flows from operating activities:
Net earnings $ 509.1 $ 380.5 $ 358.0
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 282.6 212.3 202.6
Gain on sale of businesses (6.6) (7.7) (58.0)
Gain on sale of property, plant
and equipment (9.6) (3.2) (10.3)
Minority interests, net of dividends 31.4 14.9 18.0
Equity earnings/losses,
net of dividends (38.3) (19.9) (35.6)
Deferred income taxes 1.6 8.2 (4.5)
Other items 26.7 27.1 12.3
Restructure of operations - 38.7 42.4
Changes in assets and liabilities
(Decrease) increase in:
Accounts and notes receivable 98.2 (21.5) (1.0)
Inventories (76.8) 48.7 (5.3)
Other current and noncurrent
assets 22.7 (5.2) (36.8)
(Increase) decrease in:
Accounts payable and accruals 91.7 53.8 (17.8)
Other current and noncurrent
liabilities (33.7) (23.2) (78.3)
Net cash provided by operating
activities 899.0 703.5 385.7
Cash flows from investing activities:
Capital expenditures (221.0) (186.0) (195.0)
Proceeds from sales of property,
plant and equipment 24.6 34.8 33.3
Proceeds from business dispositions 58.0 252.8 183.8
Acquisitions, net of cash* (55.6) (2,891.3) (133.5)
Decrease (increase) in marketable
securities 1.4 (0.4) (3.6)
Cash (invested in) or advances (to)
from equity companies 9.2 47.6 (34.9)
Net cash used in investing
activities (183.4) (2,742.5) (149.9)
Cash flows from financing activities:
(Decrease) increase in short-term
borrowings (712.4) 685.8 (24.3)
Debt issuance costs - (19.1) -
Proceeds from long-term debt 0.2 1,508.6 0.1
Payments of long-term debt (261.2) (133.8) (104.7)
Net change in debt (973.4) 2,041.5 (128.9)
Issuance of equity-linked securities 402.5 - -
Equity-linked securities issuance costs
and fees (12.9) - -
Net proceeds from issuance of equity-
linked securities 389.6 - -
Proceeds from exercise of stock
options 36.1 43.3 16.3
Purchase of treasury stock (106.4) (33.0) -
Dividends paid (98.3) (93.6) (83.9)
Net cash (used in) provided by
financing activities (752.4) 1,958.2 (196.5)
Effect of exchange rate changes on cash
and cash equivalents 3.8 1.6 7.5
Net (decrease) increase in cash
and cash equivalents (33.0) (79.2) 46.8
Cash and cash equivalents-
beginning of year 104.9 184.1 137.3
Cash and cash equivalents-end of year $ 71.9 $ 104.9 $ 184.1
*Acquisitions:
Working capital, other than cash $ (13.5) $ (113.8) $ (22.1)
Property, plant and equipment (14.5) (186.6) (33.1)
Intangibles and other assets (34.9) (2,739.5) (81.7)
Long-term debt and other liabilitie 7.3 148.6 3.4
Net cash used to acquire businesses $ (55.6) $(2,891.3) $(133.5)
Cash paid during the year for:
Interest, net of amounts capitalized $ 207.4 $ 136.1 $ 120.2
Income taxes 272.0 227.0 262.3
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Ingersoll-Rand is a multinational manufacturer of primarily
nonelectrical industrial equipment and components. The company's
principal lines of business are air compressors, architectural
hardware products, automotive parts and components, construction
equipment, golf cars and utility vehicles, pumps, tools and
transport temperature control systems. The company's broad product
line has applications in numerous industries including automotive,
construction, utilities, housing, recreational and transportation,
as well as the general industrial market. A summary of significant
accounting policies used in the preparation of the accompanying
financial statements follows:
Principles of Consolidation: The consolidated financial statements
include the accounts of all wholly-owned and majority-owned
subsidiaries. Intercompany transactions and balances have been
eliminated. Partially-owned equity affiliates companiesare
accounted for under the equity method. In conformity with
generally accepted accounting principles, management has used
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and the disclosure of
contingent assets and liabilities. Actual results could differ
from those estimates.
Reclassifications: Certain amounts in the financial statements and
notes have been reclassified to conform to the 1998 presentation.
Cash Equivalents: The company considers all highly liquid
investments, consisting primarily of time deposits and commercial
paper with maturities of three months or less when purchased, to be
cash equivalents. Cash equivalents were $10.8 million and $16.2
million at December 31, 1998 and 1997, respectively.
Inventories: Inventories are generally stated at cost, which is
not in excess of market. Domestically manufactured inventories of
standard products are valued on the last-in, first-out (LIFO)
method and all other inventories are valued using the first-in,
first-out (FIFO) method.
Property and Depreciation: The company principally uses
accelerated depreciation methods for assets placed in service prior
to December 31, 1994, and the straight-line method for assets
acquired subsequent to that date.
Intangible Assets: Intangible assets primarily represent the
excess of the purchase price of acquisitions over the fair value of
the net assets acquired. Such excess costs are being amortized on
a straight-line basis generally over 40 years. Goodwill at
December 31, 1998 and 1997, was $3.7 billion and $3.8 billion,
respectively. Intangible assets are evaluated for impairment
whenever circumstances indicate that the carrying amounts may not
be recoverable. Intangible assets also represent costs allocated
to patents, tradenames and other specifically identifiable assets
arising from business acquisitions. These assets are amortized on
a straight-line basis over their estimated useful lives.
Accumulated amortization at December 31, 1998 and 1997, was $248.2
million and $137.7 million, respectively. Amortization of
intangible assets was $110.5 million, $54.7 million and $38.0
million in 1998, 1997 and 1996, respectively.
Income Taxes: Deferred taxes are provided on temporary differences
between assets and liabilities for financial reporting and tax
purposes as measured by enacted tax rates expected to apply when
temporary differences are settled or realized. A valuation
allowance is established for deferred tax assets for which
realization is not likely.
Environmental Costs: Environmental expenditures relating to
current operations are expensed or capitalized as appropriate.
Expenditures relating to existing conditions caused by past
operations, which do not contribute to current or future revenues,
are expensed. Costs to prepare environmental site evaluations and
feasibility studies are accrued when the company commits to perform
them. Liabilities for remediation costs are recorded when they are
probable and reasonably estimable, generally no later than the
completion of feasibility studies or the company's commitment to a
plan of action. The assessment of this liability is calculated
based on existing technology, does not reflect any offset for
possible recoveries from insurance companies and is not discounted.
There were no material changes in the liability for all periods
presented.
Revenue Recognition: Sales of products are recorded for financial
reporting purposes generally when the products are shipped.
Research, Engineering and Development Costs: Research and
development expenditures, including engineering costs, are expensed
when incurred and amounted to $258.6 million in 1998, $215.5
million in 1997 and $209.3 million in 1996.
Comprehensive Income: As of January 1, 1998, the company adopted
Statement of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income." The statement establishes new
rules for the reporting and display of comprehensive income and its
components. Comprehensive income includes net income, and
currently in the case of the company, only foreign currency
translation adjustments. The amounts shown as reclassification
adjustments relate to the accumulated foreign currency translation
adjustment of entities that had been sold, and thus included in net
earnings of the current period. Prior year financial statements
have been reclassified to conform with the requirements of SFAS
130. These disclosure requirements had no impact on financial
position or results of operations.
Foreign Currency: Assets and liabilities of foreign entities,
where the local currency is the functional currency, have been
translated at year-end exchange rates, and income and expenses have
been translated using weighted average-for-the-year exchange rates.
Adjustments resulting from translation have been recorded in
accumulated other comprehensive income and are included in net
earnings only upon sale or liquidation of the underlying foreign
investment.
For foreign entities where the U.S. dollar is the functional
currency, inventory and property balances and related income
statement accounts have been translated using historical exchange
rates, and resulting gains and losses have been credited or charged
to net earnings.
Foreign currency transactions and translations recorded in the
income statement decreased net earnings by $8.8 million, $0.5
million and $3.5 million in 1998, 1997 and 1996, respectively.
Accumulated other comprehensive income was increased in 1998 by
$3.3 million, and decreased in 1997 and 1996 by $80.6 million and
$16.5 million, respectively, due to foreign currency equity
adjustments related to translation and dispositions.
The company hedges certain foreign currency transactions and firm
foreign currency commitments by entering into forward exchange
contracts (forward contracts). Gains and losses associated with
currency rate changes on forward contracts hedging foreign currency
transactions are recorded currently in income. Gains and losses on
forward contracts hedging firm foreign currency commitments are
deferred off-balance sheet and included as a component of the
related transaction, when recorded; however, a loss is not deferred
if deferral would lead to the recognition of a loss in future
periods. Cash flows resulting from forward contracts accounted for
as hedges of identifiable transactions or events are classified in
the same category as the cash flows from the items being hedged.
During 1998, the company also purchased forward contracts to
mitigate the exposure of forecasted future cash flows of foreign
subsidiaries. These contracts range in duration from one to 12
months. Gains and losses associated with the change in fair market
value of these contracts are recorded in other income.
Earnings Per Share: Basic earnings per share is based on the
weighted average number of common shares outstanding. Diluted
earnings per share is based on the weighted average number of
common shares outstanding as well as dilutive potential common
shares, which in the company's case comprise shares issuable under
stock benefit plans. The weighted average number of common shares
outstanding for basic earnings per share calculations were
163,669,777, 163,206,932 and 161,238,547 for 1998, 1997 and 1996,
respectively. For diluted earnings per share purposes, these
balances increased by 1,812,035, 1,617,803 and 1,031,137 shares for
1998, 1997 and 1996, respectively, due to the effect of common
equivalent shares which were issuable under the company's stock
benefit plans.
Stock-based Compensation: SFAS No. 123, "Accounting for Stock-
Based Compensation," requires companies to measure employee stock
compensation plans based on the fair value method of accounting or
to continue to apply APB No. 25, "Accounting for Stock Issued to
Employees," and provide pro forma footnote disclosures under the
fair value method in SFAS No. 123. The company continues to apply
the principles of APB No. 25 and has provided pro forma fair value
disclosures in Note 13.
New Accounting Standard: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement will become
effective beginning January 1, 2000. The company is currently
evaluating the impact of adopting the standard and will comply as
required.
NOTE 2 - ACQUISITIONS OF BUSINESSES: In the first quarter of 1998,
the company acquired for approximately $15.4 million in cash,
substantially all the assets of Johnstone Pump Company (Johnstone).
Johnstone manufactures industrial piston pumps, automated
dispensing systems and related products for use primarily in the
automotive industry. Also in the first quarter of 1998, the
company acquired for approximately $18 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
Schraubenkompressoren GmbH & Co. KG (GHH-RAND). In addition,
during 1998, the company purchased several smaller businesses. Pro
forma results, assuming the acquisitions had occurred at the
beginning of the year, would not have been significantly different
than those reported.
On October 31, 1997, the company acquired Thermo King Corporation
(Thermo King), from Westinghouse Electric Corporation, for
approximately $2.56 billion in cash. Thermo King is the world
leader in the transport temperature-control business for trailers,
truck bodies, seagoing containers, buses and light-rail cars. The
following unaudited pro forma consolidated results of operations
for the years ended December 31, 1997 and 1996, reflect the
acquisition as though it occurred at the beginning of the periods
after adjustments for the impact of interest on acquisition debt,
depreciation and amortization of assets, including goodwill, to
reflect the purchase price allocation:
(Unaudited)
In millions except per share amounts 1997 1996
Sales $7,965.4 $7,698.4
Net earnings 390.1 342.2
Basic earnings per share $2.39 $2.12
Diluted earnings per share 2.37 2.11
The above pro forma results are not necessarily indicative of what
the actual results would have been had the acquisition occurred at
the beginning of the period. Further, the pro forma results are
not intended to be a projection of future results of the combined
companies.
On April 3, 1997, the company completed the acquisition of Newman
Tonks Group PLC (Newman Tonks), a producer of architectural
hardware, for approximately $370 million. Newman Tonks is a
leading manufacturer, specifier and supplier of branded
architectural hardware products.
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 Corporation (Zimmerman).
Zimmerman manufactures equipment and systems that assist in
handling or lifting tools, components and materials for a variety
of industrial operations. 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.
These transactions have been accounted for as purchases and
accordingly, each purchase price was allocated to the acquired
assets and assumed liabilities based on their estimated fair
values. The company has classified as intangible assets the costs
in excess of the fair value of the net assets of companies
acquired. The results of all acquired operations have been
included in the consolidated financial statements from their
respective acquisition dates.
NOTE 3 - DISPOSITIONS AND RESTRUCTURE OF OPERATIONS: In the first
quarter of 1998, the company completed the sale of Ing. G. Klemm
Bohrtechnik GmbH. Also, during 1998, the company sold certain
assets of Ingersoll-Rand Architectural Hardware Group Limited
(formerly Newman Tonks Group PLC). Sale proceeds approximated the
book value of these assets. In the third quarter of 1998, the
company sold the Spra-Coupe product line, which was reported as
part of the Specialty Vehicles Segment. The sale price of
approximately $35 million resulted in a $9 million gain.
On February 14, 1997, the company sold the 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.
In the fourth quarter of 1997, the company's 51-percent owned joint
venture, Ingersoll-Dresser Pump Company (IDP), recorded a
restructuring charge of $24 million. The charge included the costs
of personnel reductions in administrative and sales support and the
consolidation of repair and service operations. An additional
charge of $14.7 million was recorded in 1997 for the writedown of
assets held for sale by the Specialty Vehicles Segment.
During 1996, the company sold the assets of the Pulp Machinery
Division (the largest unit in the Process Systems Group) for
approximately $122.3 million for a pretax gain of $45 million.
Also, the company sold the remaining assets of the Process Systems
Group. The sale was completed during the fourth quarter of 1996 at
a price of approximately $58 million in cash for a pretax gain of
approximately $10 million.
In the first and fourth quarters of 1996, the company accrued for
the realignment of its foreign operations, principally in Europe.
These accruals were primarily for severance payments and pension
benefits associated with work force reductions. Also in the first
quarter of 1996, accruals were established for the exit or
abandonment of selected European product lines and the closing of a
steel foundry. These accruals totalled $42.4 million and were
charged to operating income.
NOTE 4 - INVENTORIES: At December 31, inventories were as follows:
In millions 1998 1997
Raw materials and supplies $ 186.2 $ 174.1
Work-in-process 246.5 218.6
Finished goods 653.5 613.8
1,086.2 1,006.5
Less-LIFO reserve 145.4 151.7
Total $ 940.8 $ 854.8
Work-in-process inventories are stated after deducting customer
progress payments of $17.8 million in both 1998 and 1997. At
December 31, 1998 and 1997, LIFO inventories comprised
approximately 43 percent and 40 percent, respectively, of
consolidated inventories.
During the current year, there were no liquidations of LIFO layers.
However, during 1997 and 1996 certain inventory quantities were
reduced, resulting in partial liquidations of LIFO layers. This
decreased cost of goods sold by $4.1 million in 1997 and $4.8
million in 1996. These liquidations increased net earnings in 1997
and 1996 by approximately $2.5 million and $2.9 million,
respectively.
NOTE 5 - INVESTMENTS IN PARTIALLY-OWNED EQUITY AFFILIATES: The
company has numerous investments, ranging from 20 percent to 50
percent, in companies that operate in similar lines of business.
The company's investments in and amounts due to partially-owned
equity affiliates amounted to $380.9 million and $36.2 million,
respectively, at December 31, 1998, and $354.2 million and $26.2
million, respectively, at December 31, 1997. The company's equity
in the net earnings of its partially-owned equity affiliates was
$46.8 million, $28.8 million and $42.4 million in 1998, 1997 and
1996, respectively. The company's 1997 earnings were reduced by
$13.9 million due to a restructuring charge at one of its partially-
owned equity affiliates.
The company received dividends based on its equity interests in
these companies of $8.5 million, $8.7 million and $6.8 million in
1998, 1997 and 1996, respectively.
Summarized financial information for these partially-owned equity
affiliates at December 31, and for the years then ended:
In millions 1998 1997
Current assets $ 985.1 $ 959.6
Property, plant and equipment, net 490.5 506.7
Other assets 57.7 73.7
Total assets $1,533.3 $1,540.0
Current liabilities $ 526.5 $ 610.8
Long-term debt 65.9 75.3
Other liabilities 170.0 227.1
Total shareholders' equity 770.9 626.8
Total liabilities and equity $1,533.3 $1,540.0
In millions 1998 1997 1996
Net sales $1,996.2 $2,048.4 $2,070.4
Gross profit 353.6 382.4 391.7
Net earnings 90.6 59.4 89.5
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUALS: Accounts payable and
accruals at December 31, were:
In millions 1998 1997
Accounts payable $ 470.2 $ 411.1
Accrued:
Payrolls and benefits 272.2 253.1
Taxes other than income 48.2 41.4
Insurance and claims 111.0 114.5
Postemployment benefits 70.2 68.7
Warranties 80.7 76.2
Interest 48.6 41.5
Other accruals 387.5 364.0
$1,488.6 $1,370.5
NOTE 7 - FINANCIAL INSTRUMENTS: The company, as a large
multinational company, maintains significant operations in foreign
countries. As a result of these global activities, the company is
exposed to changes in foreign currency exchange rates, which affect
the results of operations and financial condition. The company
manages exposure to changes in foreign currency exchange rates
through its normal operating and financing activities, as well as
through the use of financial instruments.
Generally, the only financial instruments the company utilizes are
forward exchange contracts.
The purpose of the company's hedging activities is to mitigate the
impact of changes in foreign currency exchange rates. The company
attempts to hedge transaction exposures through natural offsets. To
the extent that this is not practicable, major exposure areas
considered for hedging include foreign currency denominated
receivables and payables, intercompany loans, firm committed
transactions, anticipated sales and purchases, and dividends
relating to foreign subsidiaries. The following table summarizes
by major currency the contractual amounts of the company's forward
contracts in U.S. dollars. Foreign currency amounts are translated
at year-end rates at the respective reporting date. The "buy"
amounts represent the U.S. equivalent of commitments to purchase
foreign currencies, and the "sell" amounts represent the U.S.
equivalent of commitments to sell foreign currencies. Some of the
forward contracts involve the exchange of two foreign currencies
according to local needs in foreign subsidiaries.
At December 31, the contractual amounts were:
In millions 1998 1997
Buy Sell Buy Sell
Australian dollars $ 2.4 $ 11.5 $ 19.5 $ 0.5
Brazilian reais - 13.8 - -
British pounds 26.3 163.0 37.0 113.7
Canadian dollars 2.0 42.9 20.3 12.4
Czech koruna - 10.9 - 16.2
Danish krona 5.9 5.9 - -
Deutsche marks 17.6 216.4 27.1 194.0
Dutch guilders 1.0 10.3 - 0.8
French francs 7.8 64.9 2.7 64.0
Irish punts 7.6 0.2 71.7 -
Italian lire 68.6 33.9 47.0 32.9
Japanese yen 2.8 20.5 20.4 4.9
New Zealand dollars 3.0 6.4 - -
Singapore dollars - 12.0 4.3 -
Spanish pesetas 10.3 20.2 5.5 18.9
Other 6.0 9.1 6.0 7.5
Total $161.3 $641.9 $261.5 $465.8
Forward contracts utilized by the company have maturities of one to
12 months.
The company's forward contracts that hedge transactions or firm
commitments do not subject the company to risk due to foreign
exchange rate movement, since gains and losses on these contracts
generally offset losses and gains on the assets, liabilities or
other transactions being hedged. Contracts purchased to mitigate
the variability of future cash flows of foreign subsidiaries bear
market risk to the extent actual transacted amounts vary from the
forecasted amounts. All gains and losses on these contracts have
been included in earnings.
The counterparties to the company's forward contracts consist of a
number of major international financial institutions. The credit
ratings and concentration of risk of these financial institutions
are monitored on a continuing basis and present no significant
credit risk to the company.
The carrying value of cash and cash equivalents, marketable
securities, accounts receivable, short-term borrowings and accounts
payable are a reasonable estimate of their fair value due to the
short-term nature of these instruments. The following table
summarizes the estimated fair value of the company's remaining
financial instruments at December 31:
In millions 1998 1997
Long-term debt:
Carrying value $2,166.0 $2,528.0
Estimated fair value 2,299.7 2,587.4
Forward contracts:
Contract (notional) amounts:
Buy contracts $ 161.3 $ 261.5
Sell contracts 641.9 465.8
Fair (market) values:
Buy contracts 164.2 260.9
Sell contracts 649.8 461.6
Fair value of long-term debt was determined by reference to the
December 31, 1998 and 1997, market values of comparably rated debt
instruments. Fair values of forward contracts are based on dealer
quotes at the respective reporting dates.
NOTE 8 - LONG-TERM DEBT AND CREDIT FACILITIES:
At December 31, long-term debt consisted of:
In millions 1998 1997
6 7/8% Notes Due 2003 $100.0 $ 100.0
6.255% Notes Due 2001 400.0 400.0
9% Debentures Due 2021 125.0 125.0
7.20% Debentures Due 2025 150.0 150.0
6.48% Debentures Due 2025 150.0 150.0
6.391% Debentures Due 2027 200.0 200.0
6.443% Debentures Due 2027 200.0 200.0
Medium-term Notes Due 2000-2028, at
an average rate of 6.45% 679.9 1,039.9
9.75% Clark Debentures Due 2001 100.0 100.0
Clark Medium-term Notes Due 2023,
at an average rate of 8.22% 50.2 50.2
Other domestic and foreign
loans and notes, at end-
of-year average interest
rates of 6.278% in 1998
and 7.321% in 1997, maturing
in various amounts to 2013 10.9 12.9
$2,166.0 $2,528.0
Debt retirements for the next five years are as follows:
$251.8 million in 1999, $71.7 million in 2000, $734.8 million in
2001, $82.4 million in 2002 and $196.5 million in 2003.
In December 1998, the company repurchased $110.0 million of its
medium-term notes for $116.9 million including accrued interest.
The average coupon of the notes repurchased was 6.53% with
maturities ranging from 2000 to 2005.
In November 1997, the company issued $400.0 million of notes at
6.255% per annum due 2001. In addition, the company issued two
series of debentures for $200.0 million each at 6.391% per annum
and 6.443% per annum, respectively, due in 2027. The 6.391%
debentures and the 6.443% debentures may be repaid at the option of
the holder on November 15, 2004 and November 15, 2007,
respectively, and each November 15 thereafter. During November and
December 1997, the company also issued medium-term notes totalling
$706.4 million at an average annual rate of 6.30% with maturities
ranging from 1999 to 2028. Some of the medium-term notes may be
repaid at the option of the holder prior to the stated maturity.
The proceeds from these financings were used to refinance short-
term borrowings related to the acquisition of Thermo King.
At December 31, 1998, the company had a 364-day and a five-year
committed revolving credit line totalling $1.0 billion, both of
which were unused. These lines provide support for commercial
paper and indirectly provide support for other financing
instruments, such as letters of credit and comfort letters, as
required in the normal course of business. The company compensates
banks for these lines with fees equal to a weighted average of
0.065% per annum. Available foreign lines of credit were $454.2
million, of which $395.8 million were unused at December 31, 1998.
No major cash balances were subject to withdrawal restrictions. At
December 31, 1998, the average rate of interest for loans payable,
excluding the current portion of long-term debt, was 8.306%.
Capitalized interest on construction and other capital projects
amounted to $4.0 million, $3.2 million and $4.6 million in 1998,
1997 and 1996, respectively. Interest income, included in other
income (expense), net, was $11.8 million, $14.9 million and $10.3
million in 1998, 1997 and 1996, respectively.
NOTE 9 - COMMITMENTS AND CONTINGENCIES: The company is involved in
various litigations, claims and administrative proceedings,
including environmental matters, arising in the normal course of
business. In assessing its potential environmental liability, the
company bases its estimates on current technologies and does not
discount its liability or assume any insurance recoveries. Amounts
recorded for identified contingent liabilities are estimates, which
are reviewed periodically and adjusted to reflect additional
information when it becomes available. Subject to the
uncertainties inherent in estimating future costs for contingent
liabilities, management believes that recovery or liability with
respect to these matters would not have a material effect on the
financial condition, results of operations, liquidity or cash flows
of the company for any year.
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. These agreements will be renewed 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. During 1998, 1997
and 1996, such sales of receivables amounted to $723.7 million,
$614.0 million and $593.7 million, respectively. At December 31,
1998 and 1997, $170 million and $150 million, respectively, of such
sold receivables remained uncollected.
Receivables, excluding the designated pool of accounts and notes
receivable, sold during 1998, 1997 and 1996 with recourse, amounted
to $63.2 million, $56.9 million and $147.4 million, respectively.
At December 31, 1998 and 1997, $13.1 million and $13.3 million,
respectively, of such receivables sold remained uncollected.
As of December 31, 1998, the company had no significant
concentrations of credit risk in trade receivables due to the large
number of customers which comprised its receivables base and their
dispersion across different industries and countries.
In the normal course of business, the company has issued several
direct and indirect guarantees, including performance letters of
credit, totalling approximately $91.7 million at December 31, 1998.
The company has also guaranteed the residual value of leased
product in the aggregate amount of $28.9 million. Upon the
termination of a dealer, a newly selected dealer generally acquires
the assets of the prior dealer and assumes any related financial
obligation. Accordingly, the risk of loss to the company is
minimal, and historically, only immaterial losses have been
incurred relating to these arrangements. Management believes these
guarantees will not adversely affect the consolidated financial
statements.
Certain office and warehouse facilities, transportation vehicles
and data processing equipment are leased. Total rental expense was
$75.0 million in 1998, $76.2 million in 1997 and $66.9 million in
1996. Minimum lease payments required under noncancellable
operating leases with terms in excess of one year
for the next five years and thereafter, are as follows: $42.9
million in 1999, $31.1 million in 2000, $19.0 million in 2001,
$11.8 million in 2002, $8.6 million in 2003 and $6.6 million
thereafter.
NOTE 10 - EQUITY-LINKED SECURITIES: In March 1998, the company,
together with Ingersoll Financing I, a Delaware statutory business
trust of the company (Finance Trust), issued an aggregate of (a)
16,100,000 equity-linked securities, and (b) 1,610,000 Finance
Trust 6.22% capital securities, each with a $25 stated liquidation
amount (the capital securities). The equity-linked securities
consisted of (a) 14,490,000 income equity-linked securities (income
securities), and (b) 1,610,000 growth equity-linked securities
(growth securities).
Each equity-linked security consists of a unit comprised of (a) a
contract to purchase from the company no later than May 16, 2001, a
number of shares of the company's common stock determined in
accordance with a specified formula and to receive an annual
contract adjustment payment until May 15, 2001 of 0.53%, (in the
case of an income security), or 0.78% (in the case of a growth
security), and (b) either beneficial ownership of a capital
security (in the case of an income security), or a 1/40 undivided
beneficial interest in a zero coupon U.S. Treasury Security
maturing May 15, 2001 (in the case of a growth security). Under the
terms of the stock purchase contracts, the company will issue
between 6.9 million and 8.3 million common shares by May 16, 2001.
The capital securities associated with the income securities and
the U.S. Treasury Securities associated with the growth securities
have been pledged as collateral to secure the holders' obligations
in respect of the common stock purchase contracts.
The capital securities were issued by the Finance Trust and are
entitled to a distribution rate of 6.22% per annum of their $25
stated liquidation amount. The Finance Trust utilized the proceeds
from the issuance of the equity-linked and capital securities to
purchase $402.5 million of the company's 6.22% Debentures due May
16, 2003. The Debentures are the sole asset of the Finance Trust.
The interest rate on the 6.22% Debentures and the distribution rate
on the capital securities and common securities of the Finance
Trust are to be reset, subject to certain limitations, effective
May 16, 2001.
The company has recorded the present value of the contract
adjustment payments, totalling $6.4 million, as a liability and a
reduction of shareholders' equity. The liability will be reduced
as the contract adjustment payments are made. The company has the
right to defer the contract adjustment payments and the payment of
interest on the 6.22% Debentures, but any such election will
subject the company to restrictions on the payment of dividends on,
and redemption of, its outstanding shares of common stock, and on
the payment of interest on, or redemption of, debt securities of
the company junior in rank to the 6.22% Debentures.
The company paid costs of approximately $12.9 million in connection
with the issuance of the equity-linked securities and the capital
securities. The portion of such costs which relate to the issuance
of the stock purchase contracts has been recorded as a reduction of
shareholders' equity.
NOTE 11 - COMMON STOCK: In May 1997, the board of directors
authorized the repurchase of up to 15.0 million shares of the
company's common stock at management's discretion. Shares
repurchased will be used to replenish the company's treasury
shares, which were substantially depleted by a transfer of shares
to the Leveraged Employee Stock Ownership Plan, and for general
corporate purposes. The number of treasury shares at December 31,
1998, and December 31, 1997, were 4,494,930 and 2,001,432,
respectively.
In August 1997, the board of directors declared a three-for-two
stock split of the company's common stock. The stock split was
made in the form of a stock dividend, and was paid on September 2,
1997, to shareholders of record on August 19, 1997. All prior year
per share amounts have been restated to reflect the stock split.
In November 1998, the company adopted a new shareholder rights plan
to replace the plan which expired on December 22, 1998. Under the
new plan, one right was distributed for each share of Ingersoll-
Rand common stock outstanding at the close of business on December
22, 1998.
Initially, the rights are attached to the common stock and are not
exercisable. The rights become exercisable and will trade
separately from the common stock 10 days following the first
public announcement that any person or group has acquired at least
15 percent of the company's outstanding common stock, or on the
10th day following the commencement or the announcement of an
intention to commence a tender offer, which would result in that
person or group acquiring beneficial ownership of att least 15
percent of the outstanding shares of common stock. Each right
would entitle the holder to purchase one-thousandth of a share of
Series A Preference Stock at an exercise price of $200.
If any person or group acquires 15 percent or more of the company's
common stock, the rights not held by the 15-percent shareholder
would become exercisable to purchase the company's common stock at
a 50-percent discount. The plan provides that, at any time after a
person or group becomes an acquiring person and prior to the
acquisition by that person or group of 50 percent or more of the
outstanding common stock, the board may exchange the rights (other
than the rights held by the acquiring person, which will have
become void), at an exchange ratio of one share of common stock per
right.
The new rights will expire on December 22, 2008, unless earlier
redeemed or exchanged by the company, as provided in the rights
plan. The company may elect to redeem the rights at $0.01 per
right.
NOTE 12 - LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN: The company's
sponsors a Leveraged Employee Stock Ownership Plan (LESOP) for
eligible employees. The LESOP is used to fund certain employee
benefit plans. At December 31, 1998, and December 31, 1997, the
LESOP held approximately 1.1 million and 1.7 million shares,
respectively, which are unallocated. The carrying value0 offor the
unallocated shares was $27.0 million and $41.4 million at December
31, 1998, and December 31, 1997, respectively, and is classified as
a reduction of shareholders' equity pending allocation to
participants. At December 31, 1998, the LESOP owed the company
$15.6 million payable in monthly installments through 2001.
Company contributions to the LESOP and dividends on unallocated
shares are used to make loan principal and interest payments. With
each principal and interest payment, the LESOP allocates a portion
of the common stock to participating employees.
NOTE 13 - INCENTIVE STOCK PLANS: Under the company's Incentive
Stock Plans, key employees have been granted options to purchase
common shares at prices not less than the fair market value at the
date of the grant. Options become exercisable one year after the
date of the grant and expire at the end of ten years. The plans,
approved in 1985, 1990, 1995 and 1998, also authorize stock
appreciation rights (SARs) and stock awards.
As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," the company continues to account for its stock plans
in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and its related
interpretations. Accordingly, compensation expense has been
recognized for SARs (which were generally settled for cash) and for
stock awards. Under SFAS No. 123, compensation cost for the
applicable provisions of the company's incentive stock plans would
be determined based upon the fair value at the grant date for
awards issued since 1996. Applying this methodology would have
reduced net earnings and diluted earnings per share by
approximately $14.7 million and nine cents per share for 1998;
$10.0 million and six cents per share for 1997 and $6.7 million and
four cents per share for 1996. On December 15, 1996, the company
cancelled SARs which were previously attached to 2,758,500 stock
options. Included in the SFAS No. 123 expense figures for 1997 and
1996 were approximately $1.5 million (or one cent per share) and
$2.9 million (or two cents per share), respectively, for the cost
of this revocation. The average fair values of the options granted
during 1998, 1997 and 1996, were estimated at $8.06, $8.55 and
$7.31, respectively, on the date of grant, using the Black-Scholes
option-pricing model, which included the following assumptions:
1998 1997 1996
Dividend yield 1.42% 1.61% 1.86%
Volatility 25.76% 22.59% 22.52%
Risk-free interest rate 5.39% 6.52% 6.17%
Forfeiture rate -- -- --
Expected life 4 years 4 years 4 years
Changes in options outstanding under the plans were as follows:
Shares subject Option price
to option range per share
January 1, 1997 5,955,150 $13.83-31.13
Granted 2,031,000 30.33-41.28
Exercised (1,905,250) 13.83-28.54
Cancelled (37,500) 26.21-26.63
December 31, 1997 6,043,400 $13.83-41.28
Granted 2,280,250 37.03-47.03
Exercised (1,419,525) 13.83-40.47
Cancelled (69,600) 24.08-41.28
December 31, 1998 6,834,525 $13.83-47.03
At December 31, 1998, there were 387,800 SARs outstanding with no
stock options attached. The company has reserved 13,320,672 shares
for future awards at December 31, 1998. In addition, 554,875
654,875 shares of common stock were reserved for future issue,
contingent upon attainment of certain performance goals and future
service.
The following table summarizes information concerning currently outstanding
and exercisable options:
Options Options
outstanding exercisable
Weighted Weighted Weighted
Number average average Number average
Range of outstanding remaining exercise exercisable exercise
exercise price at 12/31/98 life price at 12/31/98 price
$14.77-$15.00 15,750 0.4 $14.77 15,750 $14.77
15.01- 20.00 166,275 2.3 16.32 166,275 16.32
20.01- 25.00 1,749,700 5.2 22.91 1,749,700 22.91
25.01- 30.00 982,500 7.3 26.31 982,500 26.31
30.01- 35.00 1,515,800 8.3 33.62 1,515,800 33.62
35.01- 40.00 30,000 9.0 37.03 - -
40.01- 45.00 2,264,100 9.1 42.23 131,000 40.51
45.01- 47.03 110,400 9.4 46.18 - -
$14.77-$47.03 6,834,525 4,561,025
The company also maintains a shareholder-approved Management
Incentive Unit Award Plan. Under the plan, qualifying executives
are awarded incentive units. When dividends are paid on common
stock, dividends are awarded to unit holders, one-half of which is
paid in cash, the remaining half of which is credited to the
participant's account in the form of so-called common stock
equivalents. The fair value of accumulated common stock
equivalents is paid in cash upon the participant's retirement. The
number of common stock equivalents credited to participants'
accounts at December 31, 1998 and 1997, are 513,470 and
552,828 respectively.
NOTE 14 - INCOME TAXES: Earnings before income taxes for the years
ended December 31, were taxed within the following jurisdictions:
In millions 1998 1997 1996
United States $593.8 $463.2 $467.3
Foreign 195.4 150.5 101.0
Total $789.2 $613.7 $568.3
The provision for income taxes was as follows:
In millions 1998 1997 1996
Current tax expense:
United States $194.0 $179.2 $186.6
Foreign 78.2 66.3 49.5
Total current 272.2 245.5 236.1
Deferred tax expense:
United States 13.1 (0.9) (16.4)
Foreign (5.2) (11.4) (9.4)
Total deferred 7.9 (12.3) (25.8)
Total provision for
income taxes $280.1 $233.2 $210.3
The provision for income taxes differs from the amount of income
taxes determined by applying the applicable U.S. statutory income
tax rate to pretax income, as a result of the following differences:
Percent of pretax income
1998 1997 1996
Statutory U.S. rates 35.0% 35.0% 35.0%
Increase (decrease) in rates
resulting from:
Amortization of goodwill 2.2 2.0 1.7
Foreign operations 0.6 0.4 0.8
Foreign sales corporation (1.8) (0.9) (0.8)
Earnings/losses of equity
companies (0.7) (0.5) (0.8)
State and local income taxes,
net of U.S. tax 2.0 1.3 1.5
Puerto Rico - Sec 936 Credit (2.0) (0.5) --
Other (0.2) 1.2 (0.4)
Effective tax rate 35.5% 38.0% 37.0%
A summary of the deferred tax accounts at December 31, follows:
In millions 1998 1997 1996
Current deferred assets and (liabilities):
Differences between book and tax bases
of inventories and receivables $ 37.8 $ 35.7 $ 37.9
Differences between book and tax
expense for other employee related
benefits and allowances 57.0 44.2 39.3
Provisions for restructure of
operations and plant closings
not yet deductible for tax purposes - 12.5 11.1
Other reserves and valuation
allowances in excess of tax deductions 38.9 60.4 61.6
Other differences between tax and
financial statement values 9.7 8.0 12.5
Gross current deferred net tax assets 143.4 160.8 162.4
Noncurrent deferred tax assets and
(liabilities):
Tax items associated with equity companies 13.0 10.9 10.7
Postretirement and postemployment
benefits other than pensions in
excess of tax deductions 267.0 266.1 246.7
Other reserves in excess of tax expense 106.3 112.2 80.5
Tax depreciation in excess of book
depreciation (67.2) (66.8) (60.2)
Pension contributions in excess of
book expense (35.8) (36.9) (52.0)
Taxes provided for unrepatriated
foreign earnings (22.5) (28.5) (28.5)
Gross noncurrent deferred net tax
assets 260.8 257.0 197.2
Less: deferred tax valuation
allowances (24.9) (42.1) (34.6)
Total net deferred tax assets $379.3 $375.7 $325.0
A total of $22.5 million of deferred taxes have been provided for a portion
of the undistributed earnings of subsidiaries operating outside of the
United States. As to the remainder, these earnings have been, and under
current plans, will continue to be reinvested. Therefore, it is not
practicable to estimate the amount of additional taxes which may be payable
upon repatriation.
NOTE 15 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: The company
sponsors several postretirement plans that cover most domestic
employees. These plans provide for health care benefits and in some
instances, life insurance benefits. Postretirement health plans
are contributory and are adjusted annually. Life insurance plans
are noncontributory. When full-time employees retire from the
company between age 55 and 65, most are eligible to receive, at a
cost to the retiree, certain health care benefits identical to
those available to active employees. After attaining age 65, an
eligible retiree's health care benefit coverage becomes coordinated
with Medicare. The company funds the benefit costs principally on
a pay-as-you-go basis. The following disclosure is provided in
accordance with SFAS No. 132 "Employers Disclosure about Pensions
and other Postretirement Benefits", which was adopted January 1,
1998.
Summary information on the company's plans at December 31, was as
follows:
In millions 1998 1997
Change in benefit obligations:
Benefit obligation at beginning of year $ 597.5 $ 588.3
Service cost 10.4 7.9
Interest cost 41.4 38.3
Plan participants' contributions 3.4 2.8
Acquisitions - 30.0
Actuarial losses/(gains) 36.2 (21.3)
Benefits paid (50.2) (49.0)
Other 9.6 0.5
Benefit obligation at end of year $ 648.3 $ 597.5
Funded status:
Plan assets less than benefit
obligations $(648.3) $(597.5)
Unrecognized:
Prior service gains (66.7) (71.8)
Plan net gains (25.6) (62.0)
Accrued costs in the balance sheet $(740.6) $(731.3)
Weighted-average assumptions:
Discount rate 6.75% 7.00%
Current year medical inflation 7.60% 8.30%
Ultimate inflation rate (2003) 4.50% 4.50%
The components of net periodic postretirement benefits cost for the
years ended December 31, were as follows:
In millions 1998 1997 1996
Service cost $10.4 $ 7.9 $ 6.4
Interest cost 41.4 38.3 40.6
Net amortization of
unrecognized:
Prior service gains (5.1) (5.1) (5.3)
Plan net gains (0.2) (1.6) (0.4)
Net periodic postretirement
benefits cost $46.5 $39.5 $41.3
A 1% change in the medical trend rate assumed for postretirement
benefits would have the following effects at December 31, 1998:
In millions 1% Increase 1% Decrease
Effect on total of service and
interest cost components $ 3.8 $ (3.5)
Effect on postretirement
benefit obligation 49.8 (46.7)
NOTE 16 - PENSION PLANS: The company has noncontributory
pension plans covering substantially all domestic employees. In
addition, certain employees in other countries are covered by
pension plans. The company's domestic salaried plans principally
provide benefits based on a career average earnings formula.
The company's hourly pension plans provide benefits under flat
benefit formulas. Foreign plans provide benefits based on
earnings and years of service. Most of the foreign plans
require employee contributions based on the employee's earnings.
In addition, the company maintains other supplemental benefit
plans for officers and other key employees. The company's
policy is to fund an amount which could be in excess of the
pension cost expensed, subject to the limitations imposed by
current statutes or tax regulations.
Information regarding the company's pension plans in accordance
with SFAS No. 132 is as follows:
In millions 1998 1997
Change in benefit obligations:
Benefit obligation at beginning of year $1,929.3 $1,633.7
Service cost 44.3 39.7
Interest cost 136.3 123.1
Employee contributions 6.3 4.9
Amendments 20.2 3.8
Acquisitions 5.6 215.6
Expenses paid (2.9) (5.0)
Actuarial losses 89.5 50.2
Benefits paid (147.4) (128.9)
Foreign exchange impact (3.4) (8.0)
Other 0.5 0.2
Benefit obligation at end of year $2,078.3 $1,929.3
In millions 1998 1997
Change in plan assets:
Fair value at beginning of year $2,031.5 $1,689.4
Actual return on assets 285.8 316.0
Company contributions 30.1 21.0
Employee contributions 6.3 4.9
Acquisitions 0.8 132.7
Expenses paid (2.9) (5.0)
Benefits paid (143.0) (125.9)
Foreign exchange impact (7.3) (1.6)
Fair value of assets at end of year $2,201.3 $2,031.5
Funded status:
Plan assets in excess of benefit
obligations $ 123.0 $ 102.2
Unrecognized:
Net transition asset 11.8 12.7
Prior service costs 62.9 47.4
Plan net gains (194.3) (170.6)
Net amount recognized $ 3.4 $ (8.3)
Prepaid/(accrued) costs included
in the balance sheet:
Prepaid benefit cost $ 92.8 $ 64.4
Accrued benefit liability (91.0) (75.1)
Intangible asset 1.6 2.4
Net amount recognized $ 3.4 $ (8.3)
Weighted-average assumptions:
Discount rate:
U.S. plans 6.75% 7.00%
International plans 6.75% 8.00%
Rate of compensation increase:
U.S. plans 4.50% 4.75%
International plans 4.50% 5.50%
Expected return on plan assets:
U.S. plans 9.00% 9.00%
International plans 8.00% 8.75%
The components of the company's pension costs for the years ended
December 31, include the following:
In millions 1998 1997 1996
Service cost $ 44.3 $ 39.7 $ 38.7
Interest cost 136.3 123.1 113.5
Expected return on plan assets (175.4) (152.2) (134.3)
Net amortization of unrecognized:
Prior service costs 4.8 4.6 3.5
Transition amount 1.4 1.4 1.4
Plan net losses 2.1 0.8 1.5
Net pension cost $ 13.5 $ 17.4 $ 24.3
The projected benefit obligation, accumulated benefit obligation,
and fair value of plan assets for pension plans with accumulated
benefit obligations more than plan assets were $239.2 million,
$196.7 million and $101.0 million, respectively, as of December 31,
1998, and $286.3 million, $234.7 million and $105.5 million,
respectively, as of December 31, 1997.
Plan investment assets of domestic plans are balanced between
equity securities and cash equivalents or debt securities. Assets
of foreign plans are invested principally in equity securities.
Most of the company's domestic employees are covered by savings and
other defined contribution plans. Employer contributions and costs
are determined based on criteria specific to the individual plans
and amounted to approximately $32.4 million, $28.3 million and
$27.4 million in 1998, 1997, and 1996, respectively.
The company's costs relating to foreign defined contribution plans,
insured plans and other foreign benefit plans were $7.8 million,
$11.0 million and $8.2 million in 1998, 1997 and 1996,
respectively.
NOTE 17 - BUSINESS SEGMENT INFORMATION: Effective January 1, 1998,
the company adopted SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 requires
disclosure of certain financial and descriptive information about
operating segments. In addition, SFAS No. 131 requires disclosures
about products and services, and geographic areas. Operating
segments are defined as components of a company engaging in
business activities for which separate financial information is
available and evaluated regularly by the chief operating decision
maker in assessing performance and allocating resources.
The accounting policies of the operating segments are the same as
those described in the summary of significant accounting policies
except that the operating segments results are prepared on a
management basis that is consistent with the manner in which the
company disaggregates financial information for internal review and
decision making. The company evaluates performance based on
operating income contribution rates. Intercompany sales
transactions are entirely contained within each segment and are
eliminated at the segment level. Segment information from previous
years has been restated to conform to the current year
presentation.
A description of the company's reportable segments and operations
by reportable segment and geographic area for the three years ended
December 31, 1998, follows:
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. Specialty Vehicles includes 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.
Air and Temperature Control
The Air and Temperature Control Segment focuses on markets
requiring air and refrigerant-gas compression technology and
services to provide gas pressure for distribution to end users or
to maintain a refrigeration cycle. Air and Temperature Control
includes Thermo King transport temperature-control equipment and
Ingersoll-Rand air compressors.
Hardware and Tools
The Hardware and Tools Segment concentrates on manufacturing,
marketing, and managing the distribution channels required to reach
end user customers seeking products that enhance productivity and
security in the industrial, construction, and do-it-yourself
markets. Hardware and Tools includes architectural hardware
products, such as Schlage locks, Von Duprin exit devices, door-
control hardware, steel doors, power-operated doors and
architectural columns, and tools and related industrial-production
equipment.
Engineered Products
The Engineered Products Segment is composed of highly engineered
specific application products that are sold on a contract basis.
Engineered Products includes Torrington and Fafnir bearings and
components, and pumps used in industrial, commercial and municipal
applications.
Geographic sales by destination for the years ended December 31
were as follows:
In millions 1998 1997
Sales
United States $5,114.5 $4,295.6
Foreign 3,177.0 2,807.7
Total $8,291.5 $7,103.3
Prior to 1997, sales information by geographic area was maintained
only on an origination basis, whereas management now reviews
geographic sales on a destination basis. Foreign sales on an
origination basis for 1998, 1997 and 1996 were $2,782.9 million,
$2,483.9 million and $2,468.4 million, respectively.
Long-lived asset information by geographic area as of December 31
was as follows:
In millions 1998 1997
Long-lived assets
United States $4,271.9 $4,252.0
Foreign 1,029.4 1,075.8
Total $5,301.3 $5,327.8
A summary of operation by reportable segments for the years ended
December 31, was as follows:
Dollar amounts in millions 1998 1997 1996
Specialty Vehicles
Sales $2,180.4 $2,011.8 $1,883.7
Operating income 333.3 226.7 183.8
Operating income as %
of sales 15.3% 11.3% 9.8%
Depreciation and
amortization 59.7 63.3 63.5
Air and Temperature Control
Sales 2,236.0 1,256.6 1,042.3
Operating income 262.5 133.7 114.3
Operating income as %
of sales 11.7% 10.6% 11.0%
Depreciation and
amortization 105.4 35.7 18.6
Hardware and Tools
Sales 1,724.2 1,652.1 1,245.0
Operating income 288.3 254.8 189.4
Operating income as %
of sales 16.7% 15.4% 15.2%
Depreciation and
amortization 44.8 39.7 28.6
Engineered Products
Sales 2,150.9 2,182.8 2,531.9
Operating income 212.2 193.9 239.8
Operating income as %
of sales 9.9% 8.9% 9.5%
Depreciation and
amortization 70.1 72.2 89.5
Total
Sales $8,291.5 $7,103.3 $6,702.9
Operating income from
reportable segments 1,096.3 809.1 727.3
Unallocated corporate
expenses (51.9) (48.8) (43.8)
Total operating income $1,044.4 $ 760.3 $ 683.5
Total operating income as
% of sales 12.6% 10.7% 10.2%
Depreciation and
amortization from
reportable segments 280.0 210.9 200.2
Unallocated depreciation
and amortization 2.6 1.4 2.4
Total depreciation and
amortization $ 282.6 $ 212.3 $ 202.6
Report of Management
The accompanying consolidated financial statements have been
prepared by the company. They conform with generally accepted
accounting principles and reflect judgments and estimates as to the
expected effects of incomplete transactions and events being
accounted for currently. The company believes that the accounting
systems and related controls that it maintains are sufficient to
provide reasonable assurance that assets are safeguarded,
transactions are appropriately authorized and recorded, and the
financial records are reliable for preparing such financial
statements. The concept of reasonable assurance is based on the
recognition that the cost of a system of internal accounting
controls must be related to the benefits derived. The company
maintains an internal audit function that is responsible for
evaluating the adequacy and application of financial and operating
controls, and for testing compliance with company policies and
procedures.
The Audit Committee of the board of directors is comprised entirely
of individuals who are not employees of the company. This committee
meets periodically with the independent accountants, the internal
auditors and management to consider audit results and to discuss
significant internal accounting controls, auditing and financial
reporting matters. The Audit Committee recommends the selection of
the independent accountants, who are then appointed by the board of
directors, subject to ratification by the shareholders.
The independent accountants are engaged to perform an audit of the
consolidated financial statements in accordance with generally
accepted auditing standards. Their report follows.
/S/ David W. Devonshire
David W. Devonshire
Senior Vice President and Chief Financial Officer
Report of Independent Accountants
PricewaterhouseCoopers LLP
400 Campus Drive
Florham Park, NJ 07932
February 2, 1999
To the Board of Directors and
Shareholders of Ingersoll-Rand Company:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of shareholders' equity
and of cash flows present fairly, in all material respects, the
financial position of Ingersoll-Rand Company and its subsidiaries
at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP