Unassociated Document
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the fiscal year ended December 31, 2006
or
o
|
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 LIMITED
(Exact
name of registrant as specified in its charter)
Bermuda
(State
or other jurisdiction of
incorporation
or organization)
|
|
75-2993910
(I.R.S.
Employer
Identification
No.)
|
Clarendon
House
2
Church Street
Hamilton
HM 11, Bermuda
(Address
of principal executive offices)
|
Registrant’s
telephone number, including area code: (441)
295-2838
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each
class
|
Name
of each exchange on which
registered
|
Class
A Common Shares,
Par
Value $1.00 per Share
|
New
York Stock
Exchange
|
&a
mp;# 160;
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
YES
x
NO o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
YES o
NO x
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 o
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 o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer x
Accelerated
filer o
Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
YES o
NO x
The
aggregate market value of common stock held by nonaffiliates on June 30, 2006
was approximately
$13,896,126,182 based on the closing price of such stock on the New York Stock
Exchange.
The
number of Class A Common Shares outstanding as of February 21, 2007
was
307,801,047.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s proxy statement to be filed within 120 days of the close of
the registrant’s fiscal year in connection with the registrant’s Annual General
Meeting of Shareholders to be held June 6, 2007 are incorporated by reference
into Part III of this Form 10-K.
INGERSOLL-RAND
COMPANY LIMITED
|
Form
10-K
|
For
the Fiscal Year Ended December 31,
2006
|
TABLE
OF
CONTENTS
|
|
Page
|
Part
I
|
Item
1. Business
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3
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|
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|
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Item
1A. Risk Factors
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9
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|
|
|
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Item
1B. Unresolved Staff Comments
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13
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|
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Item
2. Properties
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13
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Item
3. Legal Proceedings
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15
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Item
4. Submission of Matters to a Vote of Security Holders
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15
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Part
II
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Item
5. Market for Registrant's Common Equity, Related Stockholder
Matters and
Issuer Purchases of Equity Securities
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17
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|
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|
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Item
6. Selected Financial Data
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19
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|
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|
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Item
7. Management's Discussion and Analysis of Financial Condition
and Results
of Operations
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20
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Item
7A. Quantitative and Qualitative Disclosure About Market
Risk
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40
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Item
8. Financial Statements and Supplementary Data
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41
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Item
9. Changes in and Disagreements with Independent Accountants
on Accounting
and Financial Disclosure
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42
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Item
9A. Controls and Procedures
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42
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Item
9B. Other Information
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43
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Part
III
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Item
14. Principal Accountant Fees and Services
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44
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Part
IV
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Item
15. Exhibits and Financial Statements Schedules
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45
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Signatures
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52
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PART
I
Item
1. BUSINESS
Overview
Ingersoll-Rand
Company Limited, a Bermuda company (we,
our,
IR-Limited
or the Company), is a
leading
provider of climate control, compact vehicle, construction, industrial and
security products. In
each
of these markets, we offer
a
diverse product portfolio that includes well-recognized industrial and
commercial brands.
Through
our business segments, we design, manufacture, sell and service:
· |
climate
control technologies, including transport temperature control units
and
refrigerated display merchandisers;
|
· |
compact
vehicle technologies, including skid-steer loaders, golf vehicles
and
utility vehicles;
|
· |
construction
technologies, including road construction and repair
equipment;
|
· |
industrial
technologies, including compressed air systems and tools;
and
|
· |
security
technologies, including mechanical and electronic security
products.
|
Ingersoll-Rand
Company (IR-New Jersey) 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.
IR-Limited
is the successor to IR-New
Jersey following a corporate reorganization (the reorganization) that became
effective on December 31, 2001. We
believe that the reorganization has enabled us
to begin
to realize a variety of financial and strategic benefits, including
to:
· |
help
enhance business growth;
|
· |
create
a more favorable corporate structure for expansion of our current
business;
|
· |
improve
expected cash flow for use in investing in the development of
higher-growth product lines and
businesses;
|
· |
improve
expected cash flow for use in reducing the amount of our
debt;
|
· |
reduce
our worldwide effective tax rate;
|
· |
enable
us to implement our business strategy more effectively;
and
|
· |
expand
our investor base as our shares may become more attractive to non-U.S.
investors.
|
To
consummate the reorganization, IR Merger Corporation, a New Jersey corporation,
merged into IR-New Jersey, with IR-New Jersey as the surviving company. Upon
the
merger, IR-New Jersey became a wholly owned, indirect subsidiary of IR-Limited,
and the outstanding shares of IR-New Jersey common stock were automatically
cancelled in exchange for the issue of our Class A common shares. The number
of
Class B common shares issued had an aggregate value equal to the fair market
value of the shares of the subsidiaries transferred (the transferred shares)
and
the amount of debt issued to us based on the market value of IR-New Jersey
common stock at the effective time of the merger. Prior to the reorganization,
neither IR-Limited nor IR-Merger Corporation had any significant assets or
capitalization or engaged in any business or other activities other than in
connection with formation and the merger and related reorganization
transactions. IR-Limited and its subsidiaries continue to conduct the businesses
previously conducted by IR-New Jersey and its subsidiaries. The reorganization
has been accounted for as a reorganization of entities under common control
and
accordingly did not result in any changes to the consolidated amounts of assets,
liabilities and shareholders’ equity.
Business
Segments
Climate
Control Technologies
Climate
Control Technologies provides solutions for customers to transport, preserve,
store and display temperature-sensitive products by engaging in the design,
manufacture, sale and service of transport temperature control units, HVAC
systems, refrigerated display merchandisers, beverage coolers, auxiliary power
units and walk-in storage coolers and freezers. This segment includes the Thermo
King and Hussmann brands.
Compact
Vehicle Technologies
Compact
Vehicle Technologies is engaged in the design, manufacture, sale and service
of
skid-steer loaders, all-wheel steer loaders, compact track loaders, compact
excavators, attachments, golf vehicles and utility vehicles. This segment
includes the Bobcat and Club Car brands.
Construction
Technologies
Construction
Technologies is engaged in the design, manufacture, sale and service of road
construction and repair equipment, portable power products, general-purpose
construction equipment, attachments and portable light towers and compressors.
This segment is comprised of the Utility Equipment, Road Development and
Attachments businesses.
Industrial
Technologies
Industrial
Technologies is focused on providing solutions to enhance customers’ industrial
and energy efficiency, mainly by engaging in the design, manufacture, sale
and
service of compressed air systems, tools, fluid and material handling and energy
generation systems. This segment includes the Air Solutions and Productivity
Solutions businesses.
Security
Technologies
Security
Technologies is engaged in the design, manufacture, sale and service of
mechanical and electronic security products, biometric access control systems,
and security and scheduling software. Security Technologies includes the
Schlage, LCN, Von Duprin and CISA brands.
Competitive
Conditions
The
Company's products are sold in highly competitive markets throughout the world
and compete against products produced by both U.S. and non-U.S. corporations.
The principal methods of competition in these markets relate to price, quality,
service and technology. The Company believes that it is one of the leading
manufacturers in the world of air compression systems, construction equipment,
transport temperature control products, refrigerated display merchandisers,
refrigeration systems and controls, air tools, golf vehicles and utility
vehicles. In addition, the Company believes it is a leading supplier in U.S.
markets for architectural hardware products, mechanical locks, and electronic
and biometric access-control technologies.
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 in the U.S.
through branch sales offices and through distributors and dealers across the
United States. Non-U.S. sales are made through numerous subsidiary sales and
service companies with a supporting chain of distributors in over 100
countries.
Products
|
|
|
|
|
|
Principal
products of the Company include the following:
|
|
|
|
|
|
Air
balancers
|
|
Golf
vehicles
|
Air
compressors & accessories
|
|
Hoists
|
Air
dryers
|
|
Hydraulic
breakers
|
Air
logic controls
|
|
Lubrication
equipment
|
Air
motors
|
|
Microturbines
|
Air
and electric tools
|
|
Material
handling equipment
|
Asphalt
compactors
|
|
Paving
equipment
|
Asphalt
pavers
|
|
Piston
pumps
|
Automated
dispensing systems
|
|
Pneumatic
breakers
|
Automatic
doors
|
|
Pneumatic
cylinders
|
Auxiliary
power unit
|
|
Pneumatic
valves
|
Biometric
access control systems
|
|
Portable
compressors
|
Compact
excavators
|
|
Portable
generators
|
Compact
track loaders
|
|
Portable
light towers
|
Compact
track-loader-backhoes
|
|
Portable
security products
|
Diaphragm
pumps
|
|
Refrigerated
display cases
|
Door
closers and controls
|
|
Refrigeration
systems
|
Door
locks, latches and locksets
|
|
Road-building
machinery
|
Doors
and door frames (steel)
|
|
Rough-terrain
material handlers
|
Electrical
security products
|
|
Skid-steer
loaders
|
Electronic
access-control systems
|
|
Soil
compactors
|
Engine-starting
systems
|
|
Spray-coating
systems
|
Exit
devices
|
|
Telescopic
material handlers
|
Extrusion
pump systems
|
|
Transport
temperature control systems
|
Fastener-tightening
systems
|
|
Utility
vehicles
|
Fluid-handling
equipment
|
|
Winches
|
These
products are sold primarily under the Company’s name and also under other names
including ABG®, Blaw-Knox®, Bobcat®, Bricard®, CISA®, Club Car®, Hussmann®,
Koxka®, LCN®, Montabert®, Schlage®, Thermo King®, and Von Duprin®.
Working
Capital
The
products manufactured by the Company must usually be 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 a
small group of customers. Therefore, the loss of any one customer would not
have
a material adverse effect on the Company's operations.
Operations
by Geographic Area
More
than
40% of our 2006 net revenues were derived outside the United States. 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 be expected
to
have a significant effect on the Company's non-U.S. operations. Additional
information concerning the Company’s operating segments is contained in Note 16,
Business Segment Information, to the consolidated financial statements contained
in this Annual Report on Form 10-K.
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. Although higher prices for some raw
materials important to some of the Company’s businesses, particularly steel and
non-ferrous metals, have caused pricing pressures, 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, believed to be firm, at December 31,
2006 and 2005, were as follows:
Dollar
amounts in millions
|
|
2006
|
|
2005
|
|
Climate
Control Technologies
|
|
$
|
435.8
|
|
$
|
331.0
|
|
Compact
Vehicle Technologies
|
|
|
234.3
|
|
|
162.6
|
|
Construction
Technologies
|
|
|
175.6
|
|
|
129.7
|
|
Industrial
Technologies
|
|
|
244.0
|
|
|
178.6
|
|
Security
Technologies
|
|
|
182.8
|
|
|
140.0
|
|
Total
|
|
$
|
1,272.5
|
|
$
|
941.9
|
|
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 times and are often subject to revision,
deferral, cancellation or termination. The Company expects to ship substantially
all of the backlog during 2007.
Research
and Development
The
Company maintains extensive research and development facilities for
experimenting, testing and developing high quality products. The Company spent
$175.5 million in 2006, $162.4 million in 2005 and $149.2 million in 2004 on
research and development expenditures, including qualifying engineering costs.
The Company also incurs engineering costs, which are not considered research
and
development expenditures.
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
and Asbestos Matters
The
Company 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 remediation
activities to address environmental cleanup from past operations at current
and
former manufacturing facilities.
During
2006, the Company spent approximately $5 million
on capital projects for pollution abatement and control, and an additional
$9.4
million for environmental remediation expenditures at sites presently or
formerly owned or leased by the Company. 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 federal Superfund and state remediation sites. For
all sites there are other PRPs and, in most instances, the Company's 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 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, U.S. federal and state 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.
Certain
wholly owned subsidiaries of the Company are named as defendants in
asbestos-related lawsuits in state and federal courts. In virtually all of
the
suits, a large number of other companies have also been named as defendants.
The
vast majority of those claims have been filed against IR-New Jersey and
generally allege injury caused by exposure to asbestos contained in certain
of
IR-New Jersey’s products. Although IR-New Jersey was neither a producer nor a
manufacturer of asbestos, some of its formerly manufactured products utilized
asbestos-containing components, such as gaskets purchased from third-party
suppliers.
All
asbestos-related claims resolved to date have been dismissed or settled. For
the
years ended December 31, 2006, 2005 and 2004, total costs for settlement and
defense of asbestos claims after insurance recoveries and net of tax were
approximately $31.6 million, $16.8 million and $16.5 million, respectively.
The
increase in asbestos-related costs in 2006 compared with 2005 and 2004 is
primarily attributable to revised estimates for future recoveries to be received
from the Company’s insurance carriers, as well as declining levels of insurance
coverage available for cost recoveries. With the assistance of independent
advisors, the Company performs a thorough analysis, updated periodically, of
its
actual and anticipated future asbestos liabilities projected seven years in
the
future. Based upon such analysis, the Company believes that its reserves and
insurance are adequate to cover its asbestos liabilities, and that these
asbestos liabilities are not likely to have a material adverse effect on its
financial position, results of operations, liquidity or cash flows.
Legislation
recently under consideration in Congress concerns pending and future
asbestos-related personal injury claims. Whether and when such legislation
will
become law, and the final provisions of such legislation, are unknown.
Consequently, the Company cannot predict with any reasonable degree of certainty
what effect, if any, such legislation would have upon the Company’s financial
position, results of operations or cash flows. See also the discussion under
Note 15, Commitments and Contingencies, to the consolidated financial statements
contained in this Annual Report on Form 10-K.
Employees
There
are
approximately 43,000 employees of the Company throughout the world, of whom
approximately 48% work in the United States. The Company believes relations
with
its employees are good.
Available
Information
The
Company files annual, quarterly, and current reports, proxy statements, and
other documents with the Securities and Exchange Commission (SEC) under the
Securities Exchange Act of 1934. The public may read and copy any materials
filed with the SEC at the SEC’s Public Reference Room at 405 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation
of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC
maintains an Internet website that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The public can obtain any documents that are filed by the Company
at http://www.sec.gov.
In
addition, this Annual Report on Form 10-K, as well as the Company’s quarterly
reports on Form 10-Q, current reports on Form 8-K and any amendments to all
of
the foregoing reports, are made available free of charge on the Company’s
Internet website (http://www.ingersollrand.com)
as soon
as reasonably practicable after such reports are electronically filed with
or
furnished to the SEC. The Board of Directors of the Company has also adopted
and
posted in the Investor Relations section of its website the Company’s Corporate
Governance Guidelines and charters for each of the Board’s standing committees.
A copy of the above filings will also be provided free of charge upon written
request to the Company.
Certifications
New
York Stock Exchange Annual Chief Executive Officer
Certification
The
Company’s Chief Executive Officer submitted to the New York Stock Exchange
(“NYSE”) the Annual CEO Certification as the Company’s compliance with the
NYSE’s corporate governance listing standards required by Section 303A.12 of the
NYSE’s listing standards.
Sarbanes-Oxley
Act Section 302 Certification
The
certifications of the Chief Executive Officer and Chief Financial Officer of
the
Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 have been
filed as exhibits to this Annual Report on Form 10-K.
Item
1A. RISK
FACTORS
The
following are certain risk factors that could affect our business, financial
condition, results of operations, and cash flows. These risk factors should
be
considered in connection with evaluating the forward-looking statements
contained in this Annual Report on Form 10-K because these factors could cause
the actual results and conditions to differ materially from those projected
in
forward-looking statements. Before you invest in our publicly traded securities,
you should know that making such an investment involves some risks, including
the risks described below. If any of the risks actually occur, our business,
financial condition or results of operations could be negatively affected.
In
that case, the trading price of our Class A common shares could decline, and
you
may lose all or part of your investment.
Risks
Relating to Our Businesses
Currency
exchange rate, commodity price and interest rate fluctuations may adversely
affect our results.
We
are
exposed to a variety of market risks, including the effects of changes in
non-U.S. currency exchange rates, commodity prices and interest rates. See
Part II Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
More
than
40% of our 2006 net revenues were derived outside the U.S., and we expect sales
to non-U.S. customers to continue to represent a significant portion of our
consolidated net revenues. Therefore, in the case where we manufacture our
products in the U.S. and the U.S. dollar strengthens in relation to the
currencies of the countries where we sell those products, such as the euro
and
Asian currencies, our U.S. dollar reported revenue and income will decrease.
Although we enter into currency exchange contracts to reduce our risk related
to
currency exchange fluctuations, changes in the relative values of currencies
occur from time to time and may, in some instances, have a significant effect
on
our results of operations. Furthermore, the reporting
currency
for our
financial statements is the U.S. dollar. We have assets, liabilities, revenues
and expenses denominated in currencies other than the U.S. dollar. To prepare
our consolidated financial statements, we must translate those assets,
liabilities, revenues and expenses into U.S. dollars at the applicable exchange
rates. Consequently, increases and decreases in the value of the U.S. dollar
versus other currencies will affect the amount of these items in our
consolidated financial statements, even if their value has not changed in their
original currency. Because we do not hedge against all of our currency exposure,
our business will continue to be susceptible to currency
fluctuations.
We
are a
large buyer of steel and non-ferrous metals, as well as other commodities
required for the manufacture of our products. Volatility in the prices of these
commodities could increase the costs of our products and services. We may not
be
able to pass on these costs to our customers and this could have a material
adverse effect on our results of operations and cash flows. On
a
limited basis,
we
purchase
commodity derivatives which reduce the volatility of the commodity prices for
supplier contracts where fixed pricing is not available.
Material
adverse legal judgments, fines, penalties or settlements could adversely affect
our financial health.
We
estimate that our available cash and our cash flow from operations will be
adequate to fund our operations for the foreseeable future. In making this
estimate, we have not assumed the need to make any material payments in
connection with any pending litigation or investigations. As required by U.S.
generally accepted accounting principles, we establish reserves based on our
assessment of contingencies. Subsequent developments in legal proceedings,
including current or future asbestos-related litigation, may affect our
assessment and estimates of the loss contingency recorded as a reserve requiring
us to make additional material payments, which could result in an adverse effect
on our results of operations.
Such
an
outcome could have important consequences. For example, it could:
· |
increase
our vulnerability to general adverse economic and industry conditions;
|
· |
limit
our flexibility in planning for, or reacting to, changes in our businesses
and the industries in which we operate;
|
· |
restrict
our ability to exploit business opportunities;
and
|
· |
make
it more difficult for us to satisfy our payment obligations with
respect
to our outstanding indebtedness.
|
Significant
shortages in the raw materials we use in our businesses could increase our
operating costs.
We
rely
on suppliers to secure raw materials, particularly steel and non-ferrous metals,
required for the manufacture of our products. A disruption in deliveries from
our suppliers or decreased availability of raw materials or commodities could
have an adverse effect on our ability to meet our commitments to customers
or
increase our operating costs. We believe that available sources of supply will
generally be sufficient for our needs for the foreseeable future. Nonetheless,
the unavailability of some raw materials may have an adverse effect on our
results of operations or financial condition.
Due
to
the instability of market prices, the Company is exposed to large fluctuations
for the price of petroleum-based fuel. Higher energy costs increase our
operating costs and the cost of shipping our products to customers around the
world. Consequently, sharp price increases, the imposition of taxes or an
interruption of supply, could cause the Company to lose the ability to
effectively manage the risk of rising fuel prices and our operating income
could
be further affected.
Our
global operations subject us to economic risks.
Our
global operations are dependent upon products manufactured, purchased and sold
in the U.S. and internationally, including China, Brazil, Africa and Eastern
Europe. These activities are subject to risks that are inherent in operating
globally, including the following:
· |
countries
could change regulations or impose currency restrictions and other
restraints;
|
· |
in
some countries, there is a risk that the government may expropriate
assets;
|
· |
some
countries impose burdensome tariffs and
quotas;
|
· |
national
and international conflict, including terrorist acts, could significantly
impact our financial condition and results of operations;
and
|
· |
economic
downturns, political instability and war or civil disturbances may
disrupt
production and distribution logistics or limit sales in individual
markets.
|
Implementing
our acquisition strategy involves risks and our failure to successfully
implement this strategy could have a material adverse effect on our
business.
One
of
our key strategies is to grow our business by selectively pursuing bolt-on
acquisitions. Since 2000, we have completed approximately 65 acquisitions,
and
we are continuing to actively pursue additional bolt-on acquisition
opportunities. Although we have been successful with this strategy in the past,
we may not be able to grow our business in the future through acquisitions
for a
number of reasons, including:
· |
encountering
difficulties identifying and executing
acquisitions;
|
· |
increased
competition for targets, which may increase acquisition
costs;
|
· |
consolidation
in our industries reducing the number of acquisition targets;
and
|
· |
competition
laws and regulations preventing us from making certain
acquisitions.
|
In
addition, there are potential risks associated with growing our business through
acquisitions, including the failure to successfully integrate and realize the
expected benefits of an acquisition. For example, with any past or future
acquisition, there is the possibility that:
· |
the
business culture of the acquired business may not match well with
our
culture;
|
· |
technological
and product synergies, economies of scale and cost reductions may
not
occur as expected;
|
· |
management
may be distracted from overseeing existing operations by the need
to
integrate acquired businesses;
|
· |
we
may acquire or assume unexpected
liabilities;
|
· |
unforeseen
difficulties may arise in integrating operations and
systems;
|
· |
we
may fail to retain and assimilate employees of the acquired business;
and
|
· |
we
may experience problems in retaining customers and integrating customer
bases.
|
Failure
to continue implementing our acquisition strategy, including successfully
integrating acquired businesses, could have a material adverse effect on our
business, financial condition and results of operations.
Our
reputation and our ability to do business may be impaired by improper conduct
by
any of our employees or agents.
We
do
business in many parts of the world that have experienced governmental
corruption. Our corporate policy requires strict compliance with the U.S.
Foreign
Corrupt Practices
Act and
with local laws prohibiting payments to government officials for the purpose
of
obtaining or keeping business or otherwise obtaining favorable treatment.
Improper actions by our employees or agents could subject us to civil or
criminal penalties, including substantial monetary fines, as well as
disgorgement, and could damage our reputation and, therefore, our ability to
do
business.
Risks
Relating to Our Reorganization as a Bermuda Company
The
reorganization exposed us or our shareholders to the risks described
below. In addition, we cannot be assured that the anticipated benefits of
the reorganization will be realized.
Changes
in tax laws, adverse determinations by taxing authorities and changes in our
status under U.S. tax laws could increase our tax burden and affect our
operating results, as well as subject our shareholders to additional taxes.
While
our
U.S. operations are subject to U.S. tax, we believe that our non-U.S. operations
are generally not subject to U.S. tax other than withholding taxes. The
realization of this or any other tax benefit of the reorganization could be
impacted by changes in tax laws, tax treaties or tax regulations or the
interpretation or enforcement thereof by the Internal Revenue Service or any
other tax authority. We believe that our
risks
have been diminished by the enactment of the American Jobs Creation Act of
2004.
The American Jobs Creation Act includes a provision that denies tax benefits
to
companies that have reincorporated after March 4, 2003. We completed our
reincorporation in Bermuda on December 31, 2001, and therefore our transaction
is grandfathered by the American Jobs Creation Act.
In
addition, we believe that neither we nor IR-New Jersey will incur significant
U.S. federal income or withholding taxes as a result of the transfer of the
transferred shares. However, we cannot give any assurances that anticipated
tax
costs with respect to the transferred shares will ultimately be
borne
out and that the Internal Revenue Service will not contest our determination
in
the course of its audit. The inability to realize any of these benefits could
have a material impact on our operating results.
A
non-U.S. corporation, such as the Company, will constitute a "controlled foreign
corporation" or "CFC" for U.S. federal income tax purposes if certain ownership
criteria are met. Although we believe that we and our non-U.S. subsidiaries
currently are not CFCs, the U.S. Internal Revenue Service or a court may not
concur with our conclusions. If the IRS or a court determined that we were
a
CFC, then each of our U.S. shareholders who own (directly, indirectly, or
constructively) 10% or more of the total combined voting power of all classes
of
our stock on the last day of our taxable year (a "10% U.S. Voting Shareholder")
would be required to include in gross income for U.S. federal income tax
purposes its pro rata share of our “subpart F income" (and the subpart F income
of any our subsidiaries determined to be a CFC) for the period during which
we
(and our non-U.S. subsidiaries) were a CFC. In addition, gain on the sale of
our
shares realized by such a shareholder may be treated as ordinary income to
the
extent of the shareholder's proportionate share of our and our CFC subsidiaries'
undistributed earnings and profits accumulated during the shareholder's holding
period of the shares while we are a CFC.
Legislation
regarding non-U.S. chartered companies could adversely affect us and our
subsidiaries.
The
U.S.
federal government and various other states and municipalities have proposed
or
may propose legislation intended to deny government contracts to U.S. companies
that reincorporate outside of the U.S. For instance, The
Homeland Security Appropriations Act, signed into law October 18, 2004, includes
a provision that prohibits reincorporated companies from entering into contracts
with the Department of Homeland Security for funds available under the Homeland
Security Appropriations Act. In addition, the
State
of California adopted legislation intended to limit the eligibility of certain
Bermuda and other non-U.S. chartered companies to participate in certain state
contracts and the State of North Carolina enacted a bill that provides a
preference for North Carolina or U.S. products and services. Generally, these
types of legislation relate to direct sales and distribution, while we typically
sell our products through distributors. However, we are unable to predict with
any level of certainty the likelihood or final form of these types of
legislation, the nature of regulations that may be promulgated thereunder,
or
the impact such enactments and increased regulatory scrutiny may have on our
business. We cannot provide any assurance that the impact on us of any adopted
or proposed legislation in this area will not be materially adverse to our
operations.
Bermuda
law differs from the laws in effect in the United States and may afford less
protection to holders of our securities.
We
are
organized under the laws of Bermuda. It may not be possible to enforce court
judgments in Bermuda that are obtained in the U.S. against us or our directors
or officers in Bermuda based on the civil liability provisions of the U.S.
federal or state securities laws. We have been advised that the U.S. and Bermuda
do not currently have a treaty providing for the reciprocal recognition and
enforcement of judgments in civil and commercial matters. Therefore, a final
judgment for the payment of money rendered by any U.S. federal or state court
based on civil liability, whether or not based solely on U.S. federal or state
securities laws, would not automatically be enforceable in Bermuda.
In
addition, as a result of Bermuda law, it would be difficult for a holder of
our
securities to effect service of process within the United States. However,
we
have irrevocably agreed that we may be served with process with respect to
actions based on offers and sales of securities made in the United States by
having Ingersoll-Rand Company, 155 Chestnut Ridge Road, Montvale, New Jersey
07645, be our U.S. agent appointed for that purpose.
Bermuda
companies are governed by the Companies Act 1981 of Bermuda, which differs
in
some material respects from laws generally applicable to U.S. corporations
and
shareholders, including, among others, differences relating to interested
director and officer transactions, shareholder lawsuits and indemnification.
Under Bermuda law, the duties of directors and officers of a Bermuda company
are
generally owed to the company only. Shareholders of Bermuda companies do not
generally have rights to take action against directors or officers of the
company, and may only do so in limited circumstances. Under Bermuda law, a
company may also agree to indemnify directors and officers for any personal
liability, not involving fraud or dishonesty, incurred in relation to the
company. Thus, our shareholders may have more difficulty protecting their
interests than would holders of securities of a corporation incorporated in
a
jurisdiction of the U.S.
Item
1B. UNRESOLVED
STAFF COMMENTS
None.
Item
2. PROPERTIES
Manufacturing
and assembly operations are conducted in 39 plants in the United States; 31
plants in Europe; 16 plants in Asia; 8 plants in Latin America; and 2 plants
in
Canada. The Company also maintains various warehouses, offices and repair
centers throughout the world.
Substantially
all plant facilities are owned by the Company and the remainder are under
long-term lease arrangements. The Company believes that its plants and equipment
have been well maintained and are generally in good condition.
Facilities
under long-term lease arrangements are included below and are not significant
to
each operating segment's total number of plants or square footage.
Climate
Control Technologies’ manufacturing locations are as follows:
|
|
Number
of
Plants
|
|
Approximate Square
Footage
|
|
United
States
|
|
|
10
|
|
|
3,874,000
|
|
Non
- U.S.
|
|
|
15
|
|
|
2,513,000
|
|
Total
|
|
|
25
|
|
|
6,387,000
|
|
Compact
Vehicle Technologies’ manufacturing facilities are as follows:
|
|
Number
of
Plants
|
|
Approximate Square
Footage
|
|
United
States
|
|
|
3
|
|
|
1,395,000
|
|
Non
- U.S.
|
|
|
2
|
|
|
254,000
|
|
Total
|
|
|
5
|
|
|
1,649,000
|
|
Construction
Technologies’ manufacturing facilities are as follows:
|
|
Number
of
Plants
|
|
Approximate Square
Footage
|
|
United
States
|
|
|
6
|
|
|
662,000
|
|
Non
- U.S.
|
|
|
5
|
|
|
568,000
|
|
Total
|
|
|
11
|
|
|
1,230,000
|
|
Industrial
Technologies’ manufacturing facilities are as follows:
|
|
Number
of
Plants
|
|
Approximate Square
Footage
|
|
United
States
|
|
|
9
|
|
|
1,359,000
|
|
Non
- U.S.
|
|
|
13
|
|
|
1,090,000
|
|
Total
|
|
|
22
|
|
|
2,449,000
|
|
Security
Technologies’ manufacturing
facilities are as follows:
|
|
Number
of
Plants
|
|
Approximate
Square
Footage
|
|
United
States
|
|
|
11
|
|
|
1,728,000
|
|
Non
- U.S.
|
|
|
22
|
|
|
2,338,000
|
|
Total
|
|
|
33
|
|
|
4,066,000
|
|
Item
3. LEGAL
PROCEEDINGS
In
the
normal course of business, the Company is involved in a variety of lawsuits,
claims and legal proceedings, including commercial and contract disputes,
employment matters, product liability claims, environmental liabilities and
intellectual property disputes. In the opinion of the Company, pending
legal matters are not expected to have a material adverse effect on the results
of operations, financial condition, liquidity or cash flows.
As
previously reported, on November 10, 2004, the SEC issued an Order directing
that a number of public companies, including the Company, provide information
relating to their participation in transactions under the United Nations’ Oil
For Food Program. Upon receipt of the Order, the Company undertook a
thorough review of its participation in the Program, provided the SEC with
information responsive to the Order and provided additional information
requested by the SEC. The Company will continue to cooperate fully with the
SEC
in this matter.
See
also
the discussion under Part II, Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, Environmental and Asbestos
Matters and also Note 15, Commitments and Contingencies, to the consolidated
financial statements contained in this Annual Report on Form 10-K.
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, 2006.
Executive
Officers of the Registrant
|
|
The
following information is included in accordance with the provision
of Part
III, Item 10.
|
|
|
|
|
|
Date
of Service as
|
|
Principal
Occupation and
|
Name
and Age
|
|
an
Executive Officer
|
|
Other
Information for Past Five Years
|
|
|
|
|
|
Herbert
L. Henkel (58)
|
|
4/5/1999
|
|
Chairman
of Board and Chief Executive Officer, President and Director
|
|
|
|
|
|
Timothy
R. McLevish (51)
|
|
5/1/2002
|
|
Senior
Vice President and Chief Financial Officer (since June 2002); (Mead
|
|
|
|
|
Corporation,
Vice President, Chief Financial Officer, 1999-2002)
|
|
|
|
|
|
Marcia
J. Avedon (45)
|
|
2/7/2007
|
|
Senior
Vice President, Human Resources and Communication (since
February
2007);
(Merck & Co., Inc., Senior Vice President, Human Resources 2003-2006;
Vice
President, Talent Management & Organizational Effectiveness 2002-2003;
Honeywell
International, Vice President, Corporate Human Resources, 2001-2002)
|
|
|
|
|
|
James
R. Bolch (49)
|
|
10/16/2005
|
|
Senior
Vice President and President, Industrial Technologies Sector (since
October
2005); (Schindler Elevator Corporation, Executive Vice
President,
Service
Business 2004-2005; United Technologies Corporation UTC
Power,
Vice President Operations,
2001-2003)
|
|
|
|
|
|
William
Gauld (53)
|
|
10/2/2006
|
|
Senior
Vice President, Enterprise Services (since October 2006);
(Principal,
|
|
|
|
|
The
W Group, 2005-2006; Pearson, plc, Chief Information Officer,
2001-2005)
|
|
|
|
|
|
Michael
W. Lamach (43)
|
|
2/16/2004
|
|
Senior
Vice President and President, Security Technologies (since February
|
|
|
|
|
2004);
(Johnson Controls, Inc., Group Vice President and
Managing
|
|
|
|
|
Director
Europe/Asia 2003-2004; Group Vice President and General
|
|
|
|
|
Asia
2002-2003; Group Vice President and General Manager,
Customer
|
|
|
|
|
Business
Units, 1999-2002)
|
|
|
|
|
|
Patricia
Nachtigal (60)
|
|
11/2/1988
|
|
Director
(since January 1, 2002); Senior Vice President and General Counsel
|
|
|
|
|
|
Richard
F. Pedtke (58)
|
|
5/1/2005
|
|
Senior
Vice President and President, Compact Vehicle Technologies
(since
|
|
|
|
|
May
2005); (President, ESA, Climate Control, 2003-2005; President,
|
|
|
|
|
Thermo
King International, 2000-2003)
|
|
|
|
|
|
Steven
R. Shawley (54)
|
|
8/1/2005
|
|
Senior
Vice President and President, Climate Control Technologies (since
|
|
|
|
|
August
2005); (President Climate Control Americas, 2003-2005; President,
|
|
|
|
|
Thermo
King North America 2002-2003, Vice President and Controller,
|
|
|
|
|
1998-2002)
|
|
|
|
|
|
Christopher
P. Vasiloff (55)
|
|
11/1/2001
|
|
Senior
Vice President and President, Construction Technologies
(since
|
|
|
|
|
November
2001); (President, Portable Power, Infrastructure Sector,
|
|
|
|
|
2000-2001)
|
|
|
|
|
|
Richard
W. Randall (56)
|
|
10/1/2002
|
|
Vice
President and Controller (since October 2002); (President,
Engineered
|
|
|
|
|
Solutions,
Industrial Solutions Sector, April 2002-September 2002;
|
|
|
|
|
Vice
President, Finance and Sector Controller, Industrial Solutions
Sector
|
|
|
|
|
2001-2002;
Vice President and Controller, Bearings and Components,
|
|
|
|
|
Industrial
Productivity Sector, 1999-2001)
|
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
qualified.
PART
II
Item
5. |
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
Information
regarding the principal market for the Company's common shares and related
shareholder matters are as follows:
Quarterly
share prices and dividends for the Class A common shares are shown in the
following tabulation. The common shares are listed on the New York Stock
Exchange.
|
|
|
Common
shares
|
|
2006 |
|
|
High
|
|
|
Low
|
|
|
Dividend
|
|
First
quarter
|
|
$
|
43.65
|
|
$
|
38.15
|
|
$
|
0.16
|
|
Second
quarter
|
|
|
47.63
|
|
|
39.47
|
|
|
0.16
|
|
Third
quarter
|
|
|
43.25
|
|
|
35.29
|
|
|
0.18
|
|
Fourth
quarter
|
|
|
41.21
|
|
|
36.71
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
$
|
43.66
|
|
$
|
36.53
|
|
$
|
0.125
|
|
Second
quarter
|
|
|
41.18
|
|
|
35.40
|
|
|
0.125
|
|
Third
quarter
|
|
|
41.50
|
|
|
35.96
|
|
|
0.160
|
|
Fourth
quarter
|
|
|
41.23
|
|
|
36.35
|
|
|
0.160
|
|
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.
Future
dividends on our Class A common shares, if any, will be at the discretion of
our
Board of Directors and will depend on, among other things, our results of
operations, cash requirements and surplus, financial condition, contractual
restrictions and other factors that the Board of Directors may deem relevant,
as
well as our ability to pay dividends in compliance with the Bermuda Companies
Act. This Act regulates the payment of dividends and the making of distributions
from contributed surplus. We may not declare or pay a dividend, or make a
distribution out of contributed surplus, if there are reasonable grounds for
believing that: (i) we are, or would be after the payment, unable to pay our
liabilities as they become due; or (ii) the realizable value of our assets
would
thereby be less than the aggregate of our liabilities and issued share capital
and share premium accounts.
The
approximate number of record holders of Class A common shares as of February
21,
2007 was 7,221.
Information
regarding equity compensation plans required to be disclosed pursuant to this
Item is included elsewhere in this Annual Report on Form 10-K.
Shares
of
IR-Limited owned by its subsidiary are treated as treasury stock and are
recorded at cost. During 2006, the Company purchased 27.7 million Class A common
shares at a cost of $1,096.3 million, which completed the Company’s share
repurchases under the $2 billion plan that was authorized by the Board of
Directors in August 2004 and expanded in August 2005. In December 2006, the
Board of Directors authorized a new share repurchase program to repurchase
up to
$2 billion worth of Class A common shares. No amounts were purchased under
the
December 2006 authorization as of December 31, 2006.
Total
share repurchases for the three months ended December 31, 2006 are as
follows:
|
|
|
|
|
|
Total
number of
|
|
Approximate
dollar
value
of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
number
|
|
|
|
as
part of the
|
|
available
to be
|
|
|
|
|
|
Average
|
|
publicly
announced
|
|
|
|
|
|
purchased
|
|
price
paid
|
|
program
|
|
the
program
|
|
Period
|
|
(000's)
|
|
per
share
|
|
(000's)
|
|
($000's)
|
|
10/01/2006
- 10/31/2006
|
|
|
2,595.6
|
|
$
|
39.40
|
|
|
2,595.6
|
|
$
|
-
|
|
11/01/2006
- 11/30/2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
12/01/2006
- 12/31/2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
|
2,595.6
|
|
|
|
|
|
2,595.6
|
|
|
|
|
Performance
Graph
The
following graph compares for the five years ended December 31, 2006, the
cumulative total shareholder return on our Class A common shares with the
cumulative total return on the Standard & Poor’s 500 Stock Index and the
Standard & Poor’s 500 Industrial Machinery Index. The graph assumes that
$100 had been invested in our Class A common shares, the Standard & Poor’s
500 Stock Index and the Standard & Poor’s Industrial Machinery Index on
December 31, 2000 and assumes the reinvestment of dividends.
Item
6. SELECTED
FINANCIAL DATA
In
millions, except per share amounts:
At
and for the years ended December 31,
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
11,409.3
|
|
$
|
10,546.9
|
|
$
|
9,393.6
|
|
$
|
8,249.3
|
|
$
|
7,583.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
|
1,068.3
|
|
|
1,053.1
|
|
|
829.8
|
|
|
532.8
|
|
|
322.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
12,145.9
|
|
|
11,756.4
|
|
|
11,414.6
|
|
|
10,664.9
|
|
|
10,809.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
905.2
|
|
|
1,184.3
|
|
|
1,267.6
|
|
|
1,518.4
|
|
|
2,091.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
5,404.8
|
|
|
5,762.0
|
|
|
5,733.8
|
|
|
4,493.3
|
|
|
3,478.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share: *
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
3.34
|
|
$
|
3.12
|
|
$
|
2.40
|
|
$
|
1.56
|
|
$
|
0.96
|
|
Discontinued
operations
|
|
|
(0.11
|
)
|
|
-
|
|
|
1.12
|
|
|
0.32
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share: *
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
3.31
|
|
$
|
3.09
|
|
$
|
2.36
|
|
$
|
1.55
|
|
$
|
0.95
|
|
Discontinued
operations
|
|
|
(0.11
|
)
|
|
-
|
|
|
1.11
|
|
|
0.32
|
|
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
per common share*
|
|
$
|
0.68
|
|
$
|
0.57
|
|
$
|
0.44
|
|
$
|
0.36
|
|
$
|
0.34
|
|
*These
amounts have been restated to reflect a two-for-one stock split
that
occurred in August 2005.
|
|
Item
7. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks
and
uncertainties. Our actual results may differ materially from the results
discussed in the forward-looking statements. Factors that might cause a
difference include, but are not limited to, those discussed under Item 1A.
Risk
Factors in this Annual Report on Form 10-K. The following section is qualified
in its entirety by the more detailed information, including our financial
statements and the notes thereto, which appears elsewhere in this Annual
Report.
Overview
Organization
Ingersoll-Rand
Company Limited (we, our or the Company) is a leading innovation and solutions
provider with strong brands and leading positions within its markets. Our
business segments consist of Climate Control Technologies, Compact Vehicle
Technologies, Construction Technologies, Industrial Technologies and Security
Technologies. The Company generates revenue and cash primarily through the
design, manufacture, sale and service of a diverse portfolio of industrial
and
commercial products that include well-recognized, premium brand names such
as
Bobcat®, Club Car®, Hussmann®, Ingersoll Rand®, Schlage® and Thermo
King®.
We
seek
to drive shareholder value by achieving:
· |
Dramatic
Growth, by developing innovative products and solutions that improve
our
customers’ operations, expanding highly profitable recurring revenues and
executing low-risk, high-return bolt-on
acquisitions;
|
· |
Operational
Excellence, by fostering a culture of continuous improvement and
cost
control; and
|
· |
Dual
Citizenship, by encouraging our employees’ active collaboration with
colleagues across business units and geographic regions to achieve
superior business results.
|
To
achieve these goals and to become a more diversified company with strong growth
prospects, we have transformed our product portfolio by divesting cyclical,
low-growth, and asset-intensive businesses over the last few years. We continue
to focus on increasing our recurring revenue stream, which includes revenues
from parts, service, used equipment, rentals and attachments. We also intend
to
continuously improve the efficiencies, capabilities, and products and services
of our high-potential businesses. We expect to use our strong operating cash
flow for bolt-on acquisitions, share buybacks, capital expenditures and dividend
enhancements.
At
December 31, 2006, 2005 and 2004, employment was approximately 43,000, 40,000
and 36,000, respectively. The net increase during 2006 was primarily
attributable to the acquisitions made during 2006.
Trends
and Economic Conditions
We
are a
global corporation with worldwide operations. More than 40% of our 2006 net
revenues were derived outside the United States. As a global business, our
operations are affected by worldwide, regional and industry-specific economic
factors, as well as political factors, wherever we operate or do business.
However, our geographic and industry diversity, as well as the diversity of
our
product sales and services, has helped limit the impact of any one industry,
or
the economy of any single country, on the consolidated operating results. Given
the broad range of products manufactured and geographic markets served,
management uses a variety of factors to predict the outlook for the Company.
The
Company monitors key competitors and customers to gauge relative performance
and
the outlook for the future. In addition, our order rates are indicative of
future revenue and thus a key measure of anticipated performance. In those
industry segments where we are a capital equipment provider, revenues depend
on
the capital expenditure budgets and spending patterns of our customers, who
may
delay or accelerate purchases in reaction to changes in their businesses and
in
the economy.
Our
revenues for full-year 2006 increased by approximately 8% versus full-year
2005.
Improved markets, new product introductions, product mix and pricing
improvements drove this growth. The Company has been able to increase prices
and
add surcharges to help mitigate the impact of cost inflation during the year
ended December 31, 2006. We also expect to see continued high material costs
in
2007, which we plan to offset by increased productivity and pricing actions.
The
Company generated positive cash flows from operations during 2006 and expects
to
continue to produce positive annual operating cash flows for the foreseeable
future.
The
Company’s major end markets for commercial construction, general industrial,
refrigerated trucks and supermarkets remained firm during 2006. However, there
was a deterioration in the North American market for compact equipment, as
well
as a reduction in security sales related to residential
construction.
Significant
events in 2007
On
February 27, 2007, the Company agreed to sell its Road Development business
unit
to AB Volvo (publ) for cash proceeds of approximately $1.3 billion, subject
to
post closing adjustments. The sale, which is subject to government regulatory
approvals and other customary closing conditions, is targeted to close in the
second quarter of 2007. The Company’s Road Development business unit
manufactures and sells asphalt paving equipment, compaction equipment, milling
machines, and construction-related material handling equipment and has been
reported as part of the Company’s Construction Technologies sector.
The
Road
Development business unit had net revenues of approximately $700 million for
the
year ended December 31, 2006. The Company expects to record a gain on the
transaction when the sale is consummated.
Significant
Events in 2006
In
January 2006, the Company completed the acquisition of an 80% share of Shenzhen
Bocom Systems Engineering Co. Ltd. (Bocom). Bocom is the largest independent
security-systems integration company in China. The business supplies
security-systems design, engineering, installation and integration, including
expertise in video monitoring solutions for city and highway traffic, airports,
government buildings and general surveillance. Bocom generated revenues of
approximately $24 million for the year ended December 31, 2006.
In
October 2006, the Company completed the acquisition of Geith International,
a
leading provider of a wide range of attachments for the construction,
excavation, demolition and scrap handling industries. For its fiscal year end
March 31, 2006, Geith generated revenues of approximately $54 million.
During
2006, the Company purchased 27.7 million Class A common shares at a cost of
$1,096.3 million, which completed the Company’s share repurchases under the $2
billion plan that was authorized by the Board of Directors in August 2004 and
expanded in August 2005. In December 2006, the Board of Directors authorized
a
new share repurchase program to repurchase up to $2 billion worth of Class
A
common shares. No amounts were purchased under the December 2006 authorization
as of December 31, 2006.
On
October 6, 2006, the Company received a notice from the Internal Revenue Service
(IRS) containing proposed adjustments to the Company's tax filings in connection
with an audit of the 1998 through 2000 tax years. The principal proposed
adjustments consist of the disallowance of certain capital losses taken in
the
Company's tax returns in 1999 and 2000. The disallowance would result in
additional taxes and penalties of approximately $155 million, plus interest
through October 6, 2006 of approximately $62 million. As previously reported,
in
the third quarter of 2006 the Company added approximately $27 million ($0.08
per
dilutive share) to its previously established reserves.
Significant
Events in 2005
In
January, the Company completed the acquisition of the remaining 70% interest
in
Italy-based CISA S.p.A. (CISA) for approximately $267 million in cash and the
assumption of approximately $244 million of debt. CISA manufactures an array
of
security products, including electronic locking systems, cylinders, door
closers, and emergency exit hardware, and also markets safes and padlocks.
In
April, the Company acquired the remaining 20% interest in Shanghai
Ingersoll-Rand Compressor Company Limited (SIRC), a joint venture established
in
1987, for approximately $26 million. SIRC manufactures a wide range of air
compressors and components for the Company and provides a network of
company-owned distribution centers located in most major cities in China to
sell, install and service the Company’s products. In May, the Company acquired
Security One Systems, a security systems integrator located in Florida, for
approximately $31 million. Security One provides security design solutions
including access control, closed circuit TV, video surveillance and alarm
monitoring. In August, the Company established a joint venture with Taiwan
Fu
Hsing Industrial Company Ltd. (Taiwan Fu Hsing), a leading manufacturer of
mechanical locks based in Taiwan, for approximately $72 million. The Company
has
a majority interest in Taiwan Fu Hsing’s mechanical door lock manufacturing
subsidiaries in China and Malaysia, as well as a minority equity interest in
Taiwan Fu Hsing. The Company also made several other bolt-on acquisitions during
the year.
On
August
3, 2005, the Company’s Board of Directors declared a two-for-one stock split
effected in the form of a stock distribution to shareholders on September 1,
2005. The Board also declared a 28% increase in the quarterly dividend of the
Company’s Class A common shares to 16 cents per share and expanded the Company’s
share repurchase program, which was established in August 2004, to $2 billion.
During 2005, the Company repurchased 19.4 million Class A common shares at
a
cost of $763.6 million.
During
the second quarter of 2005, the Company issued $300 million aggregate principal
amount of its 4.75% Senior Notes due in 2015. The notes are unconditionally
guaranteed by IR-New Jersey.
Significant
Events in 2004
On
August
25, 2004, the Company agreed to sell its Dresser-Rand business unit
(Dresser-Rand) to a fund managed by First Reserve Corporation, a private-equity
firm, for cash proceeds of approximately $1.2 billion. The sale was completed
on
October 29, 2004. Dresser-Rand is included in “discontinued operations, net of
tax,” for all periods. The Company recorded an after-tax gain of $282.5 million
on the disposition.
On
February 19, 2004, the Company agreed to sell its Drilling Solutions business
unit (Drilling Solutions) to Atlas Copco AB, for approximately $225 million.
The
sale of the U.S. and most international operations was completed on June 30,
2004. The sale of Drilling Solutions assets held by Ingersoll-Rand (India)
Limited, which was subject to approval by the Indian company’s shareholders, was
completed in the third quarter of 2004. The Company recorded an after-tax gain
of $38.6 million on the disposition, which is included in “discontinued
operations, net of tax” for 2004.
During
2004, the Company recorded approximately $29.5 million of after-tax income
for
claims filed under the Continued Dumping and Subsidy Offset Act of 2000 on
behalf of a subsidiary included in the Engineered Solutions business (Engineered
Solutions), which was sold in 2003. The antidumping duty is levied when the
U.S.
Department of Commerce determines that imported products are being sold in
the
United States at less than fair value causing material injury to a United States
industry. These amounts are reflected in Discontinued operations, net of
tax.
During
2004, a subsidiary of the Company repurchased approximately 5.3 million Class
A
commons shares at a cost of $355.9 million. On August 4, 2004, the Company’s
board of directors authorized the repurchase of up to 10 million shares of
the
Company’s Class A common shares. Approximately 2.0 million of the above
mentioned 5.3 million shares were repurchased under this program, while the
remainder was repurchased under a plan approved in 1997. The Company’s board of
directors also authorized on August 4, 2004, an increase of the quarterly
dividend from 19 cents to 25 cents per Class A common share, effective for
dividends paid beginning September 1, 2004.
The
Company made discretionary cash contributions of $140.0 million to its pension
plans during the year ended December 31, 2004, as well as $30.1 million in
required employer contributions. This includes $20.0 million of discretionary
contributions to the Dresser-Rand pension plan.
Results
of Operations
Dollar
amounts in millions,
|
|
|
|
%
of
|
|
|
|
%
of
|
|
|
|
%
of
|
|
Except
per share data
|
|
2006
|
|
Revenues
|
|
2005
|
|
Revenues
|
|
2004
|
|
Revenues
|
|
Net
revenues
|
|
$
|
11,409.3
|
|
|
|
|
$
|
10,546.9
|
|
|
|
|
$
|
9,393.6
|
|
|
|
|
Cost
of goods sold
|
|
|
8,424.2
|
|
|
73.9%
|
|
|
7,744.1
|
|
|
73.4%
|
|
|
6,854.0
|
|
|
73.0%
|
|
Selling
and administrative expenses
|
|
|
1,544.3
|
|
|
13.5%
|
|
|
1,441.0
|
|
|
13.7%
|
|
|
1,419.3
|
|
|
15.1%
|
|
Operating
income
|
|
|
1,440.8
|
|
|
12.6%
|
|
|
1,361.8
|
|
|
12.9%
|
|
|
1,120.3
|
|
|
11.9%
|
|
Interest
expense
|
|
|
(131.8
|
)
|
|
|
|
|
(144.3
|
)
|
|
|
|
|
(153.1
|
)
|
|
|
|
Other
income, net
|
|
|
5.9
|
|
|
|
|
|
53.0
|
|
|
|
|
|
17.0
|
|
|
|
|
Minority
interests
|
|
|
(14.9
|
)
|
|
|
|
|
(12.7
|
)
|
|
|
|
|
(16.0
|
)
|
|
|
|
Earnings
before income taxes
|
|
|
1,300.0
|
|
|
|
|
|
1,257.8
|
|
|
|
|
|
968.2
|
|
|
|
|
Provision
for income taxes
|
|
|
231.7
|
|
|
|
|
|
204.7
|
|
|
|
|
|
138.4
|
|
|
|
|
Earnings
from continuing operations
|
|
|
1,068.3
|
|
|
|
|
|
1,053.1
|
|
|
|
|
|
829.8
|
|
|
|
|
Discontinued
operations, net of tax
|
|
|
(35.8
|
)
|
|
|
|
|
1.1
|
|
|
|
|
|
388.9
|
|
|
|
|
Net
earnings
|
|
$
|
1,032.5
|
|
|
|
|
$
|
1,054.2
|
|
|
|
|
$
|
1,218.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
3.31
|
|
|
|
|
$
|
3.09
|
|
|
|
|
$
|
2.36
|
|
|
|
|
Discontinued
operations
|
|
|
(0.11
|
)
|
|
|
|
|
-
|
|
|
|
|
|
1.11
|
|
|
|
|
Net
earnings
|
|
$
|
3.20
|
|
|
|
|
$
|
3.09
|
|
|
|
|
$
|
3.47
|
|
|
|
|
Revenues
2006
vs. 2005:
Net
revenues increased by 8.2% in 2006, or $862.4 million, compared with 2005,
which
primarily resulted from improved end markets and new product introductions
(5%),
improved pricing (2%), as well as acquisitions (1%), primarily in our Industrial
Technologies, Construction Technologies and Security Technologies segments.
Increased sales volumes were most prevalent in our Climate Control Technologies,
Construction Technologies and Industrial Technologies segments. The Company
continues to make progress in increasing recurring revenues, which improved
by
11% over the year ended December 31, 2005.
2005
vs. 2004:
Net
revenues increased by 12.3% in 2005, or $1,153.3 million, compared with 2004,
which primarily resulted from improved end markets, new product introductions
and product mix (7%), acquisitions (4%), mainly in our Security Technologies
and
Climate Control Technologies segments, as well as improved pricing in all our
segments. Increased sales volumes were most prevalent in our Compact Vehicle
Technologies, Construction Technologies and Industrial Technologies segments.
Cost
of Goods Sold
2006
vs. 2005:
Cost of
goods sold as a percentage of net revenues in 2006, increased to 73.9% compared
with 73.4% in 2005, as higher material costs were mostly offset by productivity
improvements in 2006.
2005
vs. 2004:
Cost of
goods sold as a percentage of net revenues in 2005, increased to 73.4% compared
with 73.0% in 2004, as higher material costs were mostly offset by cost benefits
from higher volumes and productivity improvements.
Selling
and Administrative Expenses
2006
vs. 2005:
Selling
and administrative expenses as a percentage of net revenues in 2006, decreased
slightly compared with 2005, mainly due to increased revenues in 2006. In
addition, 2006 selling and administrative expenses were favorably impacted
by a
change in estimate of the Company’s allowance for doubtful accounts reserve
during the first quarter of 2006, which resulted in a $20.5 million decrease
in
selling and administrative expenses. The change in estimate was made in light
of
various business and economic factors, including a significant change in the
Company’s business portfolio and historical and expected write-off experience.
In addition, the Company purchased a new insurance policy, which limits its
bad
debt exposure. This benefit was more than offset by $23.2 million of additional
share-based compensation costs, which includes $16.2 million associated with
stock options from the adoption of Statement of Financial Accounting Standard
No. 123(R).
2005
vs. 2004:
Selling
and administrative expenses were 13.7% of net revenues in 2005, compared with
15.1% for 2004. The decrease in the ratio is mainly due to higher revenues
in
2005. Selling and administrative expenses during 2005 were favorably impacted
by
lower share-based liability costs ($46 million), as well as the favorable
settlement of certain product-related litigation, an adjustment to the allowance
for doubtful accounts estimate and lower employee benefit costs. Acquisitions
increased the 2005 selling and administrative expenses ($64 million). Expenses
for 2004 included higher product and litigation expenses, offset by a gain
on
sale of corporate real estate.
Operating
Income
2006
vs. 2005:
Operating income increased by $79.0 million in 2006, compared with 2005. The
increase in operating income was mainly attributable to increased revenues,
productivity improvements, improved pricing and favorable volumes. These
benefits were partially offset by higher material costs and investments in
new
product development and productivity programs. The Company also recorded
expenses of $7.6 million for employee severance and termination benefits in
the
fourth quarter of 2006.
2005
vs. 2004:
Operating income increased by $241.5 million in 2005, compared with 2004. The
increase in operating income was mainly attributable to increased revenues
and
improved cost ratios for cost of goods sold and selling and administrative
expenses as previously discussed. Productivity improvements also favorably
impacted operating income for 2005.
Interest
Expense
2006
vs. 2005:
Interest expense decreased by $12.5 million in 2006, compared with 2005. The
decrease was mainly attributable to lower average interest rates and lower
year-over-year average debt levels resulting from the timing of borrowing and
repayments in 2006.
2005
vs. 2004:
Interest expense decreased by $8.8 million in 2005, compared with 2004. The
benefits of lower average interest rates were partially offset by higher
year-over-year average debt levels resulting from the issuance of $300 million
of debt in the second quarter of 2005.
Other
Income, Net
2006
vs. 2005: Other
income, net, decreased by $47.1 million in 2006, compared with 2005, mainly
due
to unfavorable foreign exchange losses ($21.4 million), decreased interest
income ($13.3 million) and lower earnings from equity investments ($4.1
million), partially offset by a reduction of a product liability reserve ($8.7
million). Other income, net in 2005 included income from a reduction of a
liability for a business previously divested ($10.4 million).
2005
vs. 2004: Other
income, net, increased by $36.0 million in 2005, compared with 2004, mainly
due
to increased interest income ($17.3 million), increased income from currency
exchange gains ($11.7 million) and income from a reduction of a liability for
a
business previously divested ($10.4 million). These increases were partially
offset by lower earnings from equity investments ($4.5 million).
Minority
Interests
2006
vs. 2005:
Minority interests expense increased by $2.2 million in 2006, compared with
2005. This increase resulted from increased earnings of majority-owned
subsidiaries purchased in 2005.
2005
vs. 2004:
Minority interests decreased by $3.3 million in 2005, compared with 2004. This
decrease resulted from the buyout of the minority interests of several
consolidated subsidiaries, partially offset by new minority interests of
majority-owned consolidated subsidiaries purchased in 2005.
Provision
for Income Taxes
2006
vs. 2005: The
effective tax rate for 2006 was 17.8%, compared with 16.3% for 2005. The
increase in the effective rate during 2006 primarily relates to the $27 million
charge the Company recorded in the third quarter of 2006 associated with the
notice received from the IRS as described under “Significant Events of
2006.”
2005
vs. 2004:
The
effective tax rate for 2005 was 16.3%, compared with 14.3% for 2004. The
increase in the tax provision and effective rate over 2004 relates to an
increase in earnings, especially in higher tax rate jurisdictions.
Discontinued
Operations
The
Company has continued its transition to become a more diversified company with
strong growth prospects by divesting cyclical, low-growth, asset intensive
businesses. The components of discontinued operations for 2006, 2005 and 2004
are as follows:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
882.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
(costs) income, net of tax
|
|
$
|
(36.5
|
)
|
$
|
(34.1
|
)
|
$
|
54.0
|
|
Net
gain on disposals, net of tax
|
|
|
0.7
|
|
|
35.2
|
|
|
334.9
|
|
Total
discontinued operations, net of tax
|
|
$
|
(35.8
|
)
|
$
|
1.1
|
|
$
|
388.9
|
|
2006
Retained
costs for discontinued operations mainly include costs related to postretirement
benefits and product and legal costs (mostly asbestos-related) from previously
sold businesses. Net gain on disposals represents additional gains from
previously sold businesses.
2005
Discontinued
operations for the year ended December 31, 2005, amounted to income of $1.1
million, net of tax benefits of $48.2 million. This total includes net after
tax
gains of $35.2 million, mainly due to divested businesses, primarily
Ingersoll-Dresser Pump Company (IDP) ($12.0 million), Dresser-Rand ($10.3
million) and Waterjet ($12.2 million), primarily from the resolution of tax
matters regarding these divestitures. The after-tax loss from retained costs
of
discontinued operations amounted to $34.1 million. These costs mainly include
costs related to postretirement benefits and product and legal costs (mostly
asbestos-related) from previously sold businesses.
2004
Discontinued
operations for the year ended December 31, 2004, amounted to income of $388.9
million, net of tax provisions of $343.5 million. This total includes net after
tax gains on disposals of $334.9 million, primarily comprised of gains from
the
sales of Dresser-Rand ($282.5 million) and Drilling Solutions ($38.6 million).
After-tax income from discontinued operations amounted to $54.0 million. This
income includes profits from divested businesses, primarily Dresser-Rand ($45.0
million) and Engineered Solutions ($20.9 million), which includes an antidumping
subsidy net of tax of $29.5 million. This income is partially offset by retained
costs related to IDP ($14.9 million), which mostly include product liability
costs primarily related to asbestos liability claims and employee benefit
costs.
Review
of Business Segments
The
Company classifies its business into five reportable segments based on industry
and market focus: Climate Control Technologies, Compact Vehicle Technologies,
Construction Technologies, Industrial Technologies and Security Technologies.
The segment discussions that follow describe the significant factors
contributing to the changes in results for each segment included in continuing
operations.
Climate
Control Technologies
Climate
Control Technologies provides solutions for customers to transport, preserve,
store and display temperature-sensitive products by engaging in the design,
manufacture, sale and service of transport temperature control units, HVAC
systems, refrigerated display merchandisers, beverage coolers, auxiliary power
units and walk-in storage coolers and freezers. This segment includes the Thermo
King and Hussmann brands.
Dollar
amounts in millions
|
|
2006
|
|
%
change
|
|
2005
|
|
%
change
|
|
2004
|
|
Net
revenues
|
|
$
|
3,171.0
|
|
|
11.1%
|
|
$
|
2,853.6
|
|
|
2.1%
|
|
$
|
2,793.7
|
|
Operating
income
|
|
|
356.0
|
|
|
13.0%
|
|
|
315.1
|
|
|
1.9%
|
|
|
309.1
|
|
Operating
margin
|
|
|
11.2
|
%
|
|
|
|
|
11.0
|
%
|
|
|
|
|
11.1
|
%
|
2006
vs. 2005:
Net
revenues increased by 11.1% in 2006, or $317.4 million, compared with 2005,
which mainly resulted from higher volumes and product mix (9%) and improved
product pricing (2%). Operating income increased during the year due to higher
volumes and product mix ($71 million) and improved product pricing ($46
million), partially offset by higher material costs ($70 million) and
investments in new product development and productivity programs ($10 million).
Revenues
from North American operations for the year ended 2006 increased by
approximately 13% compared with 2005, due to growth across all of our
businesses. Revenues were bolstered by the Tripac® auxiliary power unit and
increased display case sales and stationary refrigeration services revenue.
Non-U.S. revenues for the year ended 2006 increased 9% compared with 2005,
as
the increase in the sales of display cases and refrigerated trailers in Europe
more than offset the decline in refrigerated cases and the bus air conditioning
market in Asia Pacific.
2005
vs. 2004:
Net
revenues increased by 2.1% in 2005, or $59.9 million, compared with 2004, which
primarily resulted from acquisitions (2%) and improved product pricing (2%),
partially offset by lower volumes and product mix (2%). Operating income
increased slightly due to improved product pricing ($42 million) and increased
productivity ($15 million), offset by higher material costs ($51 million) and
product mix.
Net
revenue increases by Climate Control Americas (4%) and Climate Control Asia
Pacific (11%), more than offset a decline in Climate Control Europe (3%). Net
revenues and operating income benefited from strong worldwide market conditions
for the truck & trailer, aftermarket and container business lines. The
retail business declined in the Americas and Europe, but strengthened in Asia
Pacific.
Compact
Vehicle Technologies
Compact
Vehicle Technologies is engaged in the design, manufacture, sale and service
of
skid-steer loaders, all-wheel steer loaders, compact track loaders, compact
excavators, attachments, golf vehicles and utility vehicles. This segment
includes the Bobcat and Club Car brands.
Dollar
amounts in millions
|
|
2006
|
|
%
change
|
|
2005
|
|
%
change
|
|
2004
|
|
Net
revenues
|
|
$
|
2,641.2
|
|
|
-1.5%
|
|
$
|
2,681.1
|
|
|
18.5%
|
|
$
|
2,261.7
|
|
Operating
income
|
|
|
358.0
|
|
|
-13.8%
|
|
|
415.2
|
|
|
25.1%
|
|
|
332.0
|
|
Operating
margin
|
|
|
13.6
|
%
|
|
|
|
|
15.5
|
%
|
|
|
|
|
14.7
|
%
|
2006
vs. 2005:
Net
revenues decreased by 1.5% in 2006, or $39.9 million, compared with 2005, mainly
due to lower volumes and product mix (4%), partially offset by improved pricing
(2%). Operating income for the year ended 2006 decreased due to lower volumes
and product mix ($47 million), higher material costs ($34 million), higher
product related costs ($17 million) and investments in new product development
and productivity programs ($15 million), partially offset by improved product
pricing ($32 million) and increased productivity ($28 million).
Bobcat
revenues for the year ended 2006 decreased 5% compared with 2005, mainly due
to
a deterioration in the North American markets for compact equipment and a
related decline in shipments to third party dealers as they reduced their
inventory levels. In addition, the year ended 2005 results benefited from
equipment and attachment sales related to Gulf Coast hurricane clean up efforts.
Club Car revenues for the year ended 2006 increased by 11% compared with 2005,
mainly due to higher sales of golf cars and transport and utility vehicles,
as
well as significant growth in the aftermarket and international markets.
2005
vs. 2004:
Net
revenues increased by 18.5% in 2005, or $419.4 million, compared with 2004,
mainly due to higher volumes and product mix (17%) and improved pricing (2%).
Operating income for the year ended 2005 increased significantly, due to higher
volumes and product mix ($106 million) and improved pricing ($51 million).
Operating income and margins were negatively impacted by higher material costs
($53 million), investments in productivity improvements ($8 million) and
currency translation ($9 million).
Bobcat’s
revenue growth reflect higher volumes driven by improved markets, new products
and attachments introduced during the year and an increase in aftermarket parts
sales. Club Car’s business also had improvements in volume and pricing, with
growth in golf and utility vehicles due to increased market share and new
product launches.
Construction
Technologies
Construction
Technologies is engaged in the design, manufacture, sale and service of road
construction and repair equipment, portable power products, general-purpose
construction equipment, attachments and portable light towers and compressors.
This segment is comprised of the Utility Equipment, Road Development and
Attachments businesses.
Dollar
amounts in millions
|
|
2006
|
|
%
change
|
|
2005
|
|
%
change
|
|
2004
|
|
Net
revenues
|
|
$
|
1,362.3
|
|
|
16.6%
|
|
$
|
1,168.6
|
|
|
16.0%
|
|
$
|
1,007.1
|
|
Operating
income
|
|
|
148.0
|
|
|
42.6%
|
|
|
103.8
|
|
|
-1.3%
|
|
|
105.2
|
|
Operating
margin
|
|
|
10.9
|
%
|
|
|
|
|
8.9
|
%
|
|
|
|
|
10.4
|
%
|
2006
vs. 2005:
Net
revenues increased by 16.6% in 2006, or $193.7 million, compared with 2005,
primarily due to higher volumes and product mix (14%), improved product pricing
(2%) and acquisitions (1%). Operating income for the year ended 2006 increased
due to higher volumes and product mix ($36 million) and improved product pricing
($21 million) and increased productivity ($21 million). These increases in
operating income were partially offset by increases in product related costs
($13 million), investments in new product development and productivity programs
($13 million) and higher material costs ($10 million).
Road
Development revenues for the year ended 2006 increased 8% compared with 2005,
due to the strength in the international markets, offset by declines in the
U.S.
compaction market. The Utility Equipment and Attachments businesses had combined
revenue growth for the year ended 2006 of 28% compared with 2005, due to
acquisitions and growth in all major geographic regions.
2005
vs. 2004: Net
revenues increased by 16.0% in 2005, or $161.5 million, compared with 2004,
mainly due to higher volumes and product mix (12%) and improved product pricing
(3%). Operating income benefited from higher volumes and product mix ($20
million) and improved pricing ($34 million). However, higher material costs
($42
million), investments in productivity programs and new product development
($7
million) and manufacturing inefficiencies more than offset these gains and
reduced operating income for the segment.
All
businesses in the segment had significant revenue growth in 2005, despite a
decline in the Road Development business experienced at the end of the year
due
to the curtailment of construction investment by the Chinese government. The
product line also experienced operating margin pressure from high material
costs
and manufacturing inefficiencies throughout the year. Utility Equipment
continued to show significant growth as it launched new products, expanded
distribution and was in position to assist during the hurricane
season.
Industrial
Technologies
Industrial
Technologies is focused on providing solutions to enhance customers’ industrial
and energy efficiency, mainly by engaging in the design, manufacture, sale
and
service of compressed air systems, tools, fluid and material handling and energy
generation systems. This segment includes the Air Solutions and Productivity
Solutions businesses.
Dollar
amounts in millions
|
|
2006
|
|
%
change
|
|
2005
|
|
%
change
|
|
2004
|
|
Net
revenues
|
|
$
|
1,949.8
|
|
|
11.8%
|
|
$
|
1,743.9
|
|
|
12.3%
|
|
$
|
1,552.8
|
|
Operating
income
|
|
|
262.0
|
|
|
16.5%
|
|
|
224.9
|
|
|
24.6%
|
|
|
180.5
|
|
Operating
margin
|
|
|
13.4
|
%
|
|
|
|
|
12.9
|
%
|
|
|
|
|
11.6
|
%
|
2006
vs. 2005:
Net
revenues increased by 11.8% in 2006, or $205.9 million, compared with 2005,
mainly due to higher volumes and product mix (9%), improved product pricing
(2%)
and acquisitions (1%). Operating income for the year ended 2006 was higher
due
to increased productivity ($36 million), improved product pricing ($31 million)
and higher volumes and product mix ($23 million). These gains were partially
offset by higher material costs ($40 million), investments in new product
development and productivity programs ($8 million) and additional costs
associated with a labor dispute in India ($5 million).
Air
Solutions revenues for the year ended 2006 increased 13% compared with 2005,
driven by continued strength in worldwide industrial markets, supported by
higher revenues in all major geographic regions and growth in recurring
revenues. Productivity Solutions revenues for the year ended 2006 increased
by
9% compared with 2005, as a result of new product growth and increased recurring
revenues, as well as strong international growth.
2005
vs. 2004:
Net
revenues increased by 12.3% in 2005, or $191.1 million, compared with 2004,
mainly due to higher volumes and product mix (10%) and product pricing (2%).
Operating income for 2005 increased significantly due to higher volumes and
product mix ($37 million), improved product pricing ($29 million) and
productivity improvements ($12 million). Investments in productivity ($11
million) and higher material costs ($5 million) partially offset some of the
operating income gains.
Net
revenues and operating income increased substantially for all businesses in
the
segment, mainly due to new product launches and increased recurring revenues.
Net revenue increases by Air Solutions (14%) and Productivity Solutions (9%)
were also generated by geographic expansion, contributing to higher net revenues
in all regions.
Security
Technologies
Security
Technologies is engaged in the design, manufacture, sale and service of
mechanical and electronic security products, biometric access control systems,
and security and scheduling software. Security Technologies includes the
Schlage, LCN, Von Duprin and CISA brands.
Dollar
amounts in millions
|
|
2006
|
|
%
change
|
|
2005
|
|
%
change
|
|
2004
|
|
Net
revenues
|
|
$
|
2,285.0
|
|
|
8.8%
|
|
$
|
2,099.7
|
|
|
18.1%
|
|
$
|
1,778.3
|
|
Operating
income
|
|
|
400.2
|
|
|
5.1%
|
|
|
380.7
|
|
|
24.9%
|
|
|
304.8
|
|
Operating
margin
|
|
|
17.5
|
%
|
|
|
|
|
18.1
|
%
|
|
|
|
|
17.1
|
%
|
2006
vs. 2005:
Net
revenues increased by 8.8% in 2006, or $185.3 million, compared with 2005,
mainly due to higher volumes and product mix (4%), acquisitions (3%) and
improved product pricing (2%). Operating income for the year ended 2006
increased due to improved product pricing ($55 million), increased productivity
($29 million), favorable currency movement and higher volumes and product mix.
These gains were partially offset by higher material costs ($47 million) and
investments in new product development and productivity programs ($32
million).
Net
revenues grew in all major geographic regions during 2006. North American
revenues increased 4% due to strong commercial market gains. Revenues in Europe
increased 12% due to the acquisitions made in 2005, as well as increased pricing
and higher volumes. Asia Pacific revenues were up sharply, primarily due to
bolt-on acquisitions.
2005
vs. 2004:
Net
revenues increased by 18.1% in 2005, or $321.4 million, compared with 2004,
mainly due to acquisitions during the year (16%) and improved product pricing
(3%). Operating income also improved during 2005. Improved pricing ($54
million), productivity improvements ($29 million) and acquisitions ($23 million)
all had favorable impacts on operating income. Operating income was negatively
impacted by higher material costs ($29 million), unfavorable product mix and
volumes ($19 million) and productivity investment costs ($18 million). The
2004
operating income was also negatively impacted by one-time costs ($28 million)
related to a product warranty issue, a plant closing and the discontinuance
of a
plumbing fixture product line, and legal expenses.
Net
revenues in the segment benefited from strong growth in the electronic controls
and integrated solutions businesses in 2005. Increases in North American
revenues (6%) were the result of strong construction markets, especially
commercial, and recurring revenues. Non-U.S. revenues were helped by the 2005
acquisitions, which increased the breadth of products and customer base in
Europe and Asia Pacific.
Employee
Benefit Plans
Pensions
Net
pension cost is based on the weighted-average assumptions used at the end of
the
previous year to calculate the pension benefit obligation, adjusted for any
curtailment and settlement gains or losses. Net periodic pension cost for 2006,
2005 and 2004 was as follows:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Net
periodic pension cost
|
|
$
|
32.7
|
|
$
|
32.4
|
|
$
|
26.5
|
|
Curtailment/settlement
losses
|
|
|
-
|
|
|
4.0
|
|
|
41.1
|
* |
Net
periodic pension cost after curtailments/settlements
|
|
$
|
32.7
|
|
$
|
36.4
|
|
$
|
67.6
|
|
*The
curtailment and settlement losses in 2004 are associated primarily with the
sale
of Dresser-Rand and Drilling Solutions
Net
pension cost for 2007 is projected to be approximately $21.7 million. The
assumptions expected to be used to calculate the 2007 net periodic pension
cost
are as follows:
|
|
|
|
|
Discount
rate:
|
|
|
|
|
U.S.
plans
|
|
|
5.50%
|
|
Non-U.S.
plans
|
|
|
5.00%
|
|
Rate
of compensation increase:
|
|
|
|
|
U.S.
plans
|
|
|
4.00%
|
|
Non-U.S.
plans
|
|
|
4.25%
|
|
Expected
return on plan assets:
|
|
|
|
|
U.S.
plans
|
|
|
8.50%
|
|
Non-U.S.
plans
|
|
|
7.25%
|
|
The
Company’s pension plans for U.S. non-collectively bargained employees provide
benefits on a final average pay formula. The Company’s collectively bargained
pension plans principally provide benefits based on a flat benefit formula.
Non-U.S. plans usually provide benefits based on an earnings and years of
service formula. Additional supplemental benefit plans are maintained by the
Company for officers and other key employees. Pension benefit payments are
expected to be paid as follows: $192.1 million in 2007, $192.0 million in 2008,
$200.6 million in 2009, $227.3 million in 2010, $204.4 million in 2011 and
$1,089.7 million for the years 2012 to 2016.
The
Company’s investment objectives in managing its defined benefit plan assets are
to ensure that present and future benefit obligations to all participants and
beneficiaries are met as they become due; to provide a total return that, over
the long term, minimizes the present value of required Company contributions,
at
the appropriate levels of risk; and to meet any statutory requirements, laws
and
local regulatory agencies’ requirements. Key investment management decisions
reviewed regularly are asset allocations, investment manager performance,
investment advisors and trustees. An asset/liability modeling (ALM) study is
used as the basis for global asset allocation decisions and updated
approximately every five years or as required. As of December 31, 2006, the
Company’s strategic global asset allocation for its pension plans was 60% in
equity securities and 40% in debt securities and cash. The Company sets upper
limits and lower limits of plus or minus 5%. The asset allocations are reviewed
at least quarterly and appropriate adjustments are made. Based on its most
recent ALM study, the Company in 2007 has begun to adjust its strategic global
asset allocation for its pension plans to be approximately 40% in equity
securities and 60% in debt securities, real estate and cash.
The
Company made contributions to its pension plans of $31.7 million in 2006, $119.4
million in 2005, and $170.1 million in 2004. The Company currently projects
that
it will be required to contribute approximately $24 million to its plans
worldwide in 2007. The Company’s policy allows it to fund an amount, which could
be in excess of the pension cost expensed, subject to the limitations imposed
by
current tax regulations.
The
Company anticipates funding the plans in 2007 in accordance with contributions
required by funding regulations or the laws of each jurisdiction.
As
of
December 31, 2006, the Company has a net liability on its balance sheet of
$218.4 million, which consists of long-term prepaid pension costs of $119.3
million and current and non-current pension benefits liabilities of $337.7
million. It is the Company’s objective to contribute to its pension plans to
ensure adequate funds are available in the plans to make benefit payments to
plan participants when required. However, certain plans are not or cannot be
funded due to either legal or tax requirements in certain jurisdictions. As
of
December 31, 2006, approximately seven percent of the Company’s projected
benefit obligation relates to plans that are unfunded.
In
2006,
the Company adopted Statement of Financial Accounting Standard No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans - an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (SFAS 158),
which requires the Company to record the funded status of its pension plans
on
its balance sheet effective December 31, 2006. Refer to Note 9 in the Company’s
financial statements and the Liquidity and Capital Resources section for further
details of the impact of SFAS 158.
Postretirement
Benefits Other Than Pensions
Net
periodic postretirement benefit cost is based on the weighted-average
assumptions used at the end of the previous year to calculate the postretirement
benefit obligation, adjusted for any curtailment and settlement gains or losses,
if any. Net periodic postretirement cost for 2006, 2005 and 2004 was as follows:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Net
periodic postretirement benefit cost
|
|
$
|
79.2
|
|
$
|
74.0
|
|
$
|
76.9
|
|
Net
periodic postretirement benefit cost for 2007 is projected to be approximately
$84.5 million. The assumptions expected to be used to calculate the 2007 net
periodic postretirement benefit cost are the same as were used at the end of
2006 to calculate the postretirement benefit obligation.
The
Company funds postretirement benefit costs principally on a pay-as-you-go basis.
Benefit payments for postretirement benefits, which are net of expected plan
participant contributions and Medicare Part D subsidy, are expected to be paid
as follows: $72.0 million in 2007, $75.0 million in 2008, $76.1 million in
2009,
$77.1 million in 2010, $79.1 million in 2011 and $380.7 million for the years
2012 to 2016.
In
2006,
the Company adopted SFAS 158, which requires the Company to record the funded
status of its postretirement plans on its balance sheet effective December
31,
2006. Refer to Note 8 in the Company’s financial statements and the Liquidity
and Capital Resources section for further details of the impact of SFAS
158.
Liquidity
and Capital Resources
The
following table contains several key measures to gauge the Company’s financial
condition and liquidity:
Dollar
amounts in millions
|
|
2006
|
|
2005
|
|
2004
|
|
Cash
and cash equivalents
|
|
$
|
362.3
|
|
$
|
880.6
|
|
$
|
1,703.1
|
|
Marketable
securities
|
|
|
0.7
|
|
|
156.5
|
|
|
0.6
|
|
Working
capital
|
|
|
482.3
|
|
|
1,048.5
|
|
|
1,732.8
|
|
Total
debt
|
|
|
1,984.6
|
|
|
2,117.0
|
|
|
1,880.4
|
|
Total
stockholders' equity
|
|
|
5,404.8
|
|
|
5,762.0
|
|
|
5,733.8
|
|
Debt-to-total
capital ratio
|
|
|
26.6
|
%
|
|
26.7
|
%
|
|
24.3
|
%
|
Operating
cash flow from continuing operations
|
|
|
1,008.8
|
|
|
873.2
|
|
|
770.2
|
|
Average
days outstanding in receivables
|
|
|
63.0
|
|
|
56.5
|
|
|
55.6
|
|
Inventory
turnover
|
|
|
6.4
|
|
|
6.9
|
|
|
6.5
|
|
Capital
expenditures
|
|
|
212.3
|
|
|
141.8
|
|
|
125.6
|
|
Overview
of Cash Flows and Liquidity
Operating
Activities
2006
vs. 2005:
The
Company’s primary source of liquidity is operating cash flows. Net cash provided
by operating activities from continuing operations increased to $1,008.8 million
in 2006 compared with $873.2 in 2005. The change was primarily due to the
increases in accrued liabilities during the period offset by increases in
accounts receivable and inventories.
2005
vs. 2004:
Net cash
provided by operating activities from continuing operations increased to $873.2
million in 2005 compared with $770.2 million 2004. This change was mainly due
to
higher earnings from continuing operations of $1,053.1 million compared with
$829.8 million in 2004, and an increase in deferred income taxes, partially
offset by decreases in other current and noncurrent liabilities.
Investing
Activities
2006
vs. 2005:
Net cash
used in investing activities from continuing operations in 2006 was $161.2
million, compared with $771.7 million in 2005. The change in investing
activities was primarily attributable to lower cash payments for business
acquisitions and an increase in net proceeds from the sale and purchase of
marketable securities. For the years ended December 31, 2006 and 2005, cash
used
to purchase businesses was $121.5 million and $514.7 million, respectively.
The
Company had net proceeds from the sale of marketable securities of $155.8
million for the year ended December 31, 2006, compared with an outflow of $153.2
million from the net purchase of marketable securities for the year ended
December 31, 2005.
2005
vs. 2004:
Net cash
used in investing activities from continuing operations in 2005 was $771.7
million compared with net cash provided by investing activities of $1,312.2
million in 2004. The decrease was primarily attributable to the cash used for
the acquisitions of CISA S.p.A. and Taiwan Fu Hsing Industrial Company Ltd.
in
2005 and the significant decrease in proceeds received for business
divestitures, compared with 2004.
Financing
Activities
2006
vs. 2005:
Net cash
used in financing activities from continuing operations in 2006 was $1,358.7
million compared with $875.7 million in 2005. The increase reflects the 2006
repurchases of approximately 27.7 million Class A common shares at a cost of
$1,096.3 million, compared with 19.4 million Class A common shares at a cost
of
$763.6 million during 2005.
2005
vs. 2004:
Net cash
used in financing activities from continuing operations in 2005 was $875.7
million compared with $807.2 million in 2004. The increase reflects the 2005
repurchase of approximately 19.4 million Class A common shares for $763.6
million, partially offset by the higher debt repayments in 2004 and the issuance
of $300 million of debt during 2005. Also during 2005, the Company repurchased
the preferred shares of two subsidiaries for $73.6 million, from unrelated
third
party holders of the shares. The Company has fully consolidated these
subsidiaries since their initial purchase.
Certain
prior year amounts have been reclassified to conform to the current year
presentation. The Company has revised its December 31, 2004 consolidated
statement of cash flows to separately disclose the effects of discontinued
operations by cash flow activity. The Company had previously reported these
amounts on a combined basis. The Company also reclassified its presentation
of
capitalized software on its December 31, 2005 consolidated balance sheet from
intangible assets to property, plant and equipment to better depict the nature
and intent of the investment. Concurrently, the Company reclassified its
consolidated statement of cash flow for the years ended December 31, 2005 and
2004, respectively, in order to show capitalized software purchases as an
investing activity rather than an operating activity to be consistent with
the
Company’s balance sheet presentation.
Other
Liquidity Measures
At
December 31, 2006 the Company’s debt levels declined slightly from those at
December 31, 2005. During 2006, the Company repaid $513.7 million of long-term
debt, consisting primarily of $502.6 million associated with long-term debt
maturing in the second quarter. These payments were partially offset by net
short-term borrowings of $369.2 million, primarily consisting of commercial
paper issuances in the second half of 2006.
Capital
expenditures were $212.3 million, $141.8 million and $125.6 million for 2006,
2005 and 2004, respectively. The Company’s investments continue to improve
manufacturing productivity, reduce costs and provide environmental enhancements
and advanced technologies for existing facilities. The capital expenditure
program for 2007 is estimated to be approximately $220-$260 million, including
amounts approved in prior periods. Many of these projects are subject to review
and cancellation at the option of the Company without incurring substantial
charges. There are no planned projects, either individually or in the aggregate,
that represent a material commitment for the Company.
Capitalization
In
addition to operating cash flow, the Company maintains significant availability
under its commercial paper program. The Company’s ability to borrow at a
cost-effective rate under the commercial paper program is contingent upon
maintaining an investment-grade credit rating. As of December 31, 2006, the
Company’s credit ratings were as follows:
|
|
Short-term
|
|
Long-term
|
|
Moody's
|
|
|
P-2
|
|
|
A3
|
|
Standard
and Poor's
|
|
|
A-2
|
|
|
A-
|
|
Fitch
|
|
|
F2
|
|
|
A-
|
|
The
credit ratings set forth above are not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal by the assigning rating
organization. Each rating should be evaluated independently of any other
rating.
The
Company’s debt-to-total capital ratio at December 31, 2006 remained consistent
with 2005, as increased profits were more than offset by the reduction of
shareholders’ equity as a result of the Company’s adoption of SFAS 158 for its
pension and postretirement plans. SFAS 158 requires the Company to record the
funded status of its pension and postretirement plans on its balance sheet
effective December 31, 2006. The adoption of SFAS 158 resulted in a decrease
of
total assets of $476.0 million and shareholders’ equity of $472.8 million (net
of tax of $268.2 million) and an increase of total liabilities of $265.0
million. Refer to Notes 8 and 9 in the Company’s financial statements for
further details of the impact of SFAS 158.
The
Company has additional short-term borrowing alternatives, should the need arise.
At December 31, 2006, the Company’s committed revolving credit lines consisted
of two five-year lines totaling $2.0 billion of which $750 million expires
in
June 2009 and $1.25 billion expires in August 2010. These lines were unused
and
provide support for the Company’s commercial paper program 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
.0775% per annum. Available non-U.S. lines of credit were $786.9 million,
of which $612.0 million were unused at December 31, 2006. These lines provide
support for bank guarantees, letters of credit and other working capital
purposes.
In
2007,
the Company has debt retirements of $626.8 million, which includes $549.1
million in bonds that may require early repayment at the option of the holders.
The Company believes that its cash generation, large unused capacity under
its
committed borrowing facilities and the ability to obtain additional external
financing, if necessary, provide sufficient capacity to cover all cash
requirements for capital expenditures, dividends, debt repayments, and operating
lease and purchase obligations in 2007.
In
August
2005, the Company’s Board of Directors declared a two-for-one stock split
effected in the form of a stock distribution to shareholders on September 1,
2005. All references to the number of shares outstanding, per share amounts,
and
stock option data of the Company’s common shares were restated in 2005 to
reflect the effect of the stock split. Shareholders’ equity reflects the stock
split by reclassifying from “Retained earnings” to “Class A common shares” an
amount equal to the par value of the additional shares from the split as of
the
distribution date. The Board also authorized in August 2005, an increase of
the
quarterly dividend on the Company’s Class A common shares from 12.5 cents to 16
cents per share. In August 2006, the Board authorized an increase of the
quarterly dividend on the Company’s Class A common shares from 16 cents to 18
cents per share.
Contractual
Obligations
The
following table summarizes the Company’s contractual cash obligations by
required payment periods, in millions:
|
|
Long-term
debt
|
|
Interest
payments on
long-term debt
|
|
|
|
|
|
Total
contractual cash
obligations
|
|
Less
than 1 year
|
|
$
|
626.8*
|
|
$
|
97.3
|
|
$
|
643.2
|
|
$
|
57.7
|
|
$
|
1,425.0
|
|
1
-
3 years
|
|
|
148.5
|
|
|
105.5
|
|
|
45.0
|
|
|
75.0
|
|
|
374.0
|
|
3
-
5 years
|
|
|
20.9
|
|
|
99.2
|
|
|
6.6
|
|
|
32.1
|
|
|
158.8
|
|
More
than 5 years
|
|
|
735.8
|
|
|
431.6
|
|
|
-
|
|
|
20.6
|
|
|
1,188.0
|
|
Total
|
|
$
|
1,532.0
|
|
$
|
733.6
|
|
$
|
694.8
|
|
$
|
185.4
|
|
$
|
3,145.8
|
|
*Includes
$549.1 million of debt redeemable at the option of the holder. The scheduled
maturities of these bonds range between 2027 and 2028.
Future
expected obligations under the Company’s pension and postretirement benefit
plans and repayments of short-term borrowings have not been included in the
contractual cash obligations table above.
The
Company’s pension plan policy allows it to fund an amount, which could be in
excess of the pension cost expensed, subject to the limitations imposed by
current tax regulations. The Company anticipates funding the plans in 2007
in
accordance with contributions required by funding regulations or
laws
of each
jurisdiction. The
Company currently projects that it will be required to contribute approximately
$24 million to its pension plans worldwide in 2007. Postretirement benefit
plans, excluding pensions, are not required to be funded in advance and are
principally funded on a pay-as-you-go basis. The Company currently projects
that
it will make payments, net of plan participants’ contributions and Medicare Part
D subsidy, of approximately $72 million in 2007 for its postretirement benefit
plans.
The
short-term borrowings outstanding at December 31, 2006, were $452.6 million
compared with $76.1 million at December 31, 2005.
For
financial market risk impacting the Company, see Item 7A. Quantitative and
Qualitative Disclosure About Market Risk.
Environmental
and Asbestos Matters
The
Company 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 remediation
activities to address environmental cleanup from past operations at current
and
former manufacturing facilities.
During
2006, the Company spent approximately $5 million on capital projects for
pollution abatement and control, and an additional $9.4 million for
environmental remediation expenditures at sites presently or formerly owned
or
leased by the Company. 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 federal Superfund and state remediation sites. For
all sites there are other PRPs and, in most instances, the Company's 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 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, U.S. federal and state 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.
Certain
wholly owned subsidiaries of the Company are named as defendants in
asbestos-related lawsuits in state and federal courts. In virtually all of
the
suits, a large number of other companies have also been named as defendants.
The
vast majority of those claims have been filed against IR-New Jersey and allege
injury caused by exposure to asbestos contained in certain of IR-New Jersey’s
products. Although IR-New Jersey was neither a producer nor a manufacturer
of
asbestos, some of its formerly manufactured products utilized
asbestos-containing components, such as gaskets purchased from third-party
suppliers.
All
asbestos-related claims resolved to date have been dismissed or settled. For
the
years ended December 31, 2006, 2005 and 2004, total costs for settlement and
defense of asbestos claims after insurance recoveries and net of tax were
approximately $31.6 million, $16.8 million and $16.5 million, respectively.
The
increase in asbestos-related costs in 2006 compared with 2005 and 2004 is
primarily attributable to revised estimates for future recoveries to be received
from the Company’s insurance carriers, as well as declining levels of insurance
coverage available for cost recoveries. With the assistance of independent
advisors, the Company performs a thorough analysis, updated periodically, of
its
actual and anticipated future asbestos liabilities projected seven years in
the
future. Based upon such analysis, the Company believes that its reserves and
insurance are adequate to cover its asbestos liabilities, and that these
asbestos liabilities are not likely to have a material adverse effect on its
financial position, results of operations, liquidity or cash flows.
Legislation
recently under consideration in Congress concerns pending and future
asbestos-related personal injury claims. Whether and when such legislation
will
become law, and the final provisions of such legislation, are unknown.
Consequently, the Company cannot predict with any reasonable degree of certainty
what effect, if any, such legislation would have upon the Company’s financial
position, results of operations or cash flows. See also the discussion under
Note 15, Commitments and Contingencies, to the consolidated financial statements
contained in this Annual Report on Form 10-K.
Guarantees
As
part
of its reorganization in 2001, the Company has fully and unconditionally
guaranteed payment of all of the issued public debt securities of IR-New Jersey.
No other subsidiary of the Company guarantees these securities.
IR-New
Jersey has unconditionally guaranteed payment of the principal, premium, if
any,
and interest on the Company’s 4.75% Senior Notes due in 2015 in aggregate
principal amount of $300 million. The guarantee is unsecured and provided on
an
unsubordinated basis. The guarantee ranks equally in right of payment with
all
of the existing and future unsecured and unsubordinated debt of IR-New
Jersey.
Critical
Accounting Policies
The
notes
to the financial statements include a summary of significant accounting policies
and methods used in the preparation of the consolidated financial statements
and
the following summarizes what the Company believes are the critical accounting
policies and methods used by the Company:
· |
Allowance
for doubtful accounts - The Company has provided an allowance for
doubtful
accounts receivable using a Company policy formula based upon its
knowledge of its end markets, customer base and
products.
|
In
the
first quarter of 2006, the Company changed its estimate of the allowance for
doubtful accounts in light of various business and economic factors, including
a
significant change in its business portfolio and historical and expected
write-off experience. In addition, the Company signed a new insurance policy
which limits its bad debt exposure. As a result, the Company reduced its
allowance by $20.5 million, or $17.1 million after-tax, which increased first
quarter 2006 diluted earnings per share by $0.05.
· |
Goodwill
and other intangible assets - The Company has significant goodwill
and
other intangible assets on its balance sheet related to acquisitions.
The
valuation and classification of these assets and the assignment of
amortization lives involves significant judgments and the use of
estimates. The testing of these intangibles under established accounting
guidelines for impairment also requires significant use of judgment
and
assumptions, particularly as it relates to the determination of fair
market value. The Company’s goodwill and other intangible assets are
tested and reviewed annually for impairment or when there is a significant
change in circumstances. The Company believes that its use of estimates
and assumptions are reasonable and comply with generally accepted
accounting principles. Changes in business conditions could potentially
require future adjustments to these valuations.
|
· |
Long-lived
assets - Long-lived assets are reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying amount of an
asset may
not be recoverable. Assets are grouped with other assets and liabilities
at the lowest level for which identifiable cash flows can be generated.
An
impairment in the carrying value of an asset would be recognized
whenever
anticipated future undiscounted cash flows from an asset are less
than its
carrying value. The impairment is measured as the amount by which
the
carrying value exceeds the fair value of the asset as determined
by an
estimate of discounted cash flows.
|
· |
Loss
contingencies - Liabilities are recorded for various contingencies
arising
in the normal course of business, including litigation and administrative
proceedings, environmental and asbestos matters and product liability,
product warranty, worker’s compensation and other claims. The Company has
recorded reserves in the financial statements related to these matters,
which are developed using input derived from actuarial estimates
and
historical and anticipated experience data depending on the nature
of the
reserve, and in certain instances with consultation of legal counsel,
internal and external consultants and engineers. Subject to the
uncertainties inherent in estimating future costs for these types
of
liabilities, the Company believes its estimated reserves are reasonable
and does not believe the final determination of the liabilities with
respect to these matters would have a material effect on the financial
condition, results of operations, liquidity or cash flows of the
Company
for any year.
|
· |
Revenue
Recognition - Revenue is generally recognized and earned when all
of the
following criteria are satisfied: (a) persuasive evidence of a sales
arrangement exists; (b) price is fixed or determinable; (c) collectibility
is reasonably assured; and (d) delivery has occurred or service has
been
rendered. Delivery generally occurs when the title and the risks
and
rewards of ownership have substantially transferred to the customer.
Revenue from maintenance contracts or extended warranties is recognized
on
a straight-line basis over the life of the contract, unless another
method
is more representative of the costs incurred. The Company enters
into
agreements that contain multiple elements, such as equipment, installation
and service revenue. For multiple-element arrangements, the Company
recognizes revenue for delivered elements when the delivered item
has
stand-alone value to the customer, fair values or undelivered elements
are
known, customer acceptance has occurred, and there are only customary
refund or return rights related to the delivered elements.
|
· |
Income
taxes - Deferred tax assets and liabilities are determined based
on
temporary differences between financial reporting and tax bases of
assets
and liabilities, applying enacted tax rates expected to be in effect
for
the year in which the differences are expected to reverse. The Company
recognizes future tax benefits, such as net operating losses and
non-U.S.
tax credits, to the extent that realizing these benefits is considered
in
its judgment to be more likely than not. The Company regularly reviews
the
recoverability of its deferred tax assets considering its historic
profitability, projected future taxable income, timing of the reversals
of
existing temporary differences and the feasibility of its tax planning
strategies. Where appropriate, the Company records a valuation allowance
with respect to a future tax
benefit.
|
The
provision for income taxes involves a significant amount of management judgment
regarding interpretation of relevant facts and laws in the jurisdictions in
which the Company operates. Future changes in applicable laws, projected levels
of taxable income, and tax planning could change the effective tax rate and
tax
balances recorded by the Company. In addition, U.S. and non-U.S. tax authorities
periodically review income tax returns filed by the Company and can raise issues
regarding its filing positions, timing and amount of income or deductions,
and
the allocation of income among the jurisdictions in which the Company operates.
A significant period of time may elapse between the filing of an income tax
return and the ultimate resolution of an issue raised by a revenue authority
with respect to that return. The Company believes that it has adequately
provided for any reasonably foreseeable resolution of these matters. The Company
will adjust its estimate if significant events so dictate. To the extent that
the ultimate results differ from the original or adjusted estimates of the
Company, the effect will be recorded in the provision for income taxes in the
period that the matter is finally resolved.
· |
Employee
benefit plans - The Company provides a range of benefits to eligible
employees and retired employees, including pensions, postretirement
and
postemployment health-care benefits. Determining the cost associated
with
such benefits is dependent on various actuarial assumptions, including
discount rates, expected return on plan assets, compensation increases,
employee mortality and turnover rates, and health-care cost trend
rates.
Independent actuaries perform the required calculations to determine
expense in accordance with U.S. generally accepted accounting principles.
Actual results may differ from the actuarial assumptions and are
generally
accumulated and amortized into earnings over future periods. Effective
December 31, 2006, these effects are generally recognized in shareholders’
equity on an annual basis, due to the adoption of SFAS 158. The Company
reviews its actuarial assumptions at each measurement date and makes
modifications to the assumptions based on current rates and trends,
if
appropriate. The discount rate, the rate of compensation increase
and the
expected long-term rates of return on plan assets are determined
as of the
measurement date. The discount rate reflects a rate at which pension
benefits could be effectively settled. It is established and based
primarily on the yields of high-quality fixed-income investments
available
and expected to be available during the life of the plans, a study
based
on the Citigroup Pension Liability index, and a review of the current
yields reported by Moody’s on AA corporate bonds. The rate of compensation
increase is dependent on expected future compensation levels. The
expected
long-term rates of return are projected to be the rates of return
to be
earned over the period until the benefits are paid, which should
reflect
the rates of return on present investments, and on reinvestments
over the
period. The expected long-term rate of return on plan assets is based
on
what is achievable given the plan’s investment policy and the types of
assets held. Historical assets return trends for the larger plans
are
reviewed over fifteen, ten and five-year periods. The actual rates
of
return for plan assets over the last ten and fifteen-year periods
have
exceeded the expected rates of return used. The Company believes
that the
assumptions utilized in recording its obligations under its plans
are
reasonable based on input from its actuaries, outside investment
advisors,
and information as to assumptions used by plan
sponsors.
|
Changes
in any of the assumptions can have an impact on the net periodic pension cost
or
postretirement cost. Estimated sensitivities to the net periodic pension cost
of
a 0.25% rate decrease in the three basic assumptions are as follows: the
discount rate would increase expense by approximately $5.7 million, the rate
of
compensation increase would decrease expense by approximately $4.7 million,
and
the estimated return on assets assumption would increase expense by
approximately $6.9 million. A 0.25% rate decrease in the discount rate for
postretirement benefits would increase net periodic postretirement benefit
cost
by $1.6 million and a 1.0% increase in the health care cost trend rate would
increase the cost by approximately $6.3 million.
In
2006,
the Company adopted SFAS 158, which requires the Company to record the funded
status of its pension and other postretirement plans on its balance sheet
effective December 31, 2006. Refer to Notes 8 and 9 in the Company’s financial
statements and the Liquidity and Capital Resources section for further details
of the impact of SFAS 158.
The
preparation of all financial statements includes the use of estimates and
assumptions that affect a number of amounts included in the Company’s financial
statements. If actual amounts are ultimately different from previous estimates,
the revisions are included in the Company’s results for the period in which the
actual amounts become known. Historically, the aggregate differences, if any,
between the Company’s estimates and actual amounts in any year have not had a
significant impact on the consolidated financial statements.
New
Accounting Standards
In
September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (SAB 108). SAB 108 provides interpretive guidance on how the effects
of the carryover or reversal of prior year misstatements should be considered
in
quantifying a current year misstatement. The SEC staff believes that registrants
should quantify errors using both a balance sheet and an income statement
approach and evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. SAB 108 is effective for the Company for the fiscal
year ended December 31, 2006. SAB 108 did not have a material impact on the
Company’s financial statements.
In
June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement 109” (FIN 48), which
prescribes a recognition threshold and measurement process for recording in
the
financial statements uncertain tax positions taken or expected to be taken
in a
tax return. Additionally, FIN 48 provides guidance on the derecognition,
classification, accounting in interim periods and disclosure requirements for
uncertain tax positions. The provisions of FIN 48 are effective for the Company
for the fiscal year beginning on January 1, 2007. The Company is still assessing
the impact of FIN 48 on its consolidated financial statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standard
No.
157, “Fair Value Measurements” (SFAS 157). SFAS 157 establishes a framework for
measuring fair value that is based on the assumptions market participants would
use when pricing an asset or liability and establishes a fair value hierarchy
that prioritizes the information to develop those assumptions. Additionally,
the
standard expands the disclosures about fair value measurements to include
disclosing the fair value measurements of assets or liabilities within each
level of the fair value hierarchy. SFAS 157 is effective for the Company
starting on January 1, 2008. The Company is currently evaluating the impact
on
its financial statements of adopting SFAS 157.
In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS 159). SFAS 159 permits companies the option, at specified election dates,
to measure financial assets and liabilities at their current fair value, with
the corresponding changes in fair value from period to period recognized in
the
income statement. Additionally, SFAS 159 establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar assets and liabilities. SFAS 159
is
effective for the Company starting on January 1, 2008. The Company is currently
evaluating the impact on its financial statements of adopting SFAS
159.
Item
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
The
Company is exposed to fluctuations in the price of major raw materials used
in
the manufacturing process, currency fluctuations and interest rate changes.
From
time to time, the Company enters into agreements to reduce its raw material,
currency and interest rate risks. To minimize the risk of counter party
non-performance, those agreements are made only through major financial
institutions with significant experience in such financial
instruments.
The
Company experiences currency exposures in the normal course of business. To
mitigate the risk from currency exchange rate fluctuations, the Company will
generally enter into forward currency exchange contracts for the purchase or
sale of a currency to hedge this exposure.
The
Company evaluates its exposure to changes in currency exchange rates using
a
sensitivity analysis. The sensitivity analysis is a measurement of the potential
loss in fair value based on a percentage increase or decrease in exchange rates
against the U.S. dollar. Based on the firmly committed currency derivative
instruments in place at December 31, 2006, a hypothetical change in fair value
of those financial instruments assuming a 10% increase in exchange rates against
the U.S. dollar would result in an unrealized loss of approximately $32.5
million, as compared with $16.0 million at December 31, 2005. These amounts
would be offset by changes in the fair value of underlying currency
transactions.
The
Company entered into two total return swaps (the Swaps) which are derivative
instruments used to hedge the Company's exposure to changes in its share-based
compensation expense. The Swaps are benchmarked to the Company’s Class A common
share price and therefore, are exposed to the variations in the market price
of
our Class A common shares. Assuming a 10% decrease in our share price at
December 31, 2006, the Swaps would have an unrealized loss of approximately
$3.3
million. This
amount would be offset by changes in the fair value of underlying share-based
compensation expense.
From
time
to time the Company participates in the debt markets through the issuance of
commercial paper, which, by its terms, has a maturity of less than a year.
In
managing its portfolio the Company issues and reissues commercial paper, thus
exposing it to interest rate risk in a market environment of rising interest
rates.
Item
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
(a) |
The
following consolidated financial statements and the report thereon
of
PricewaterhouseCoopers LLP dated March 1, 2007, are presented following
Item 15 of this Annual Report on Form
10-K.
|
Consolidated
Financial Statements:
|
|
Report
of independent registered public accounting firm
|
|
Consolidated
balance sheets at December 31, 2006 and 2005
|
|
For
the years ended December 31, 2006, 2005 and 2004:
|
|
Consolidated
statements of income
|
|
Consolidated
statements of shareholders’ equity
|
|
Consolidated
statements of cash flows
|
|
Notes
to consolidated financial statements
|
|
|
|
Financial
Statement Schedule:
|
|
Consolidated
schedule for the years ended December 31, 2006, 2005 and
2004:
|
|
Schedule
II —
Valuation and Qualifying Accounts
|
|
(b) |
The
unaudited quarterly financial data for the two years ended December
31, is
as follows:
|
In
millions, except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
Diluted
|
|
|
|
|
|
Cost
of
|
|
|
|
|
|
earnings
|
|
earnings
|
|
|
|
Net
|
|
goods
|
|
Operating
|
|
Net
|
|
per
common
|
|
per
common
|
|
2006
|
|
revenues
|
|
sold
|
|
income
|
|
earnings
|
|
share*
|
|
share*
|
|
First
quarter
|
|
$
|
2,711.0
|
|
$
|
1,998.0
|
|
$
|
341.1
|
|
$
|
253.2
|
|
$
|
0.77
|
|
$
|
0.76
|
|
Second
quarter
|
|
|
3,041.9
|
|
|
2,215.4
|
|
|
416.5
|
|
|
313.5
|
|
|
0.96
|
|
|
0.95
|
|
Third
quarter
|
|
|
2,765.9
|
|
|
2,043.8
|
|
|
357.7
|
|
|
243.8
|
|
|
0.77
|
|
|
0.76
|
|
Fourth
quarter
|
|
|
2,890.5
|
|
|
2,167.0
|
|
|
325.5
|
|
|
222.0
|
|
|
0.72
|
|
|
0.72
|
|
Year
2006
|
|
$
|
11,409.3
|
|
$
|
8,424.2
|
|
$
|
1,440.8
|
|
$
|
1,032.5
|
|
$
|
3.23
|
|
$
|
3.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter
|
|
$
|
2,458.8
|
|
$
|
1,810.6
|
|
$
|
297.0
|
|
$
|
223.0
|
|
$
|
0.64
|
|
$
|
0.64
|
|
Second
quarter
|
|
|
2,759.5
|
|
|
2,019.1
|
|
|
379.1
|
|
|
285.4
|
|
|
0.84
|
|
|
0.83
|
|
Third
quarter
|
|
|
2,615.3
|
|
|
1,920.7
|
|
|
340.0
|
|
|
254.2
|
|
|
0.76
|
|
|
0.75
|
|
Fourth
quarter
|
|
|
2,713.3
|
|
|
1,993.7
|
|
|
345.7
|
|
|
291.6
|
|
|
0.88
|
|
|
0.87
|
|
Year
2005
|
|
$
|
10,546.9
|
|
$
|
7,744.1
|
|
$
|
1,361.8
|
|
$
|
1,054.2
|
|
$
|
3.12
|
|
$
|
3.09
|
|
*The
amounts have been restated to reflect a two-for-one stock split that occurred
in
August 2005.
Item
9. CHANGES
IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item
9A CONTROLS
AND PROCEDURES
Disclosure
Controls and Procedures
The
Company’s management, including its Chief Executive Officer and Chief Financial
Officer, have conducted an evaluation of the effectiveness of disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)), as of the end of the period covered by this Annual Report on Form 10-K.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded as of December 31, 2006, that the disclosure controls and
procedures are effective in ensuring that all material information required
to
be filed in this Annual Report on Form 10-K has been recorded, processed,
summarized and reported when required and the information is accumulated and
communicated, as appropriate, to allow timely decisions regarding required
disclosure.
Management’s
Report on Internal Control Over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting as such term is defined under Exchange
Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting
is
a process designed to provide reasonable assurance regarding the reliability
of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.
Management
has assessed the effectiveness of internal control over financial reporting
as
of December 31, 2006. In making its assessment, management has utilized the
criteria set forth by the Committee of Sponsoring Organizations (COSO) of the
Treadway Commission in Internal
Control - Integrated Framework.
Management concluded that based on its assessment, the Company’s internal
control over financial reporting was effective as of December 31, 2006.
Management’s assessment of the effectiveness of internal control over financial
reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated in their
report.
Changes
in Internal Control Over Financial Reporting
There
has
been no change in the Company's internal controls over financial reporting
during the quarter ended December 31, 2006 that has materially affected, or
is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Item
9B. OTHER
INFORMATION
None.
PART
III
The
information called for by Part III (Items 10, 11, 12, and 13) of Form 10-K
will
be included in the Company’s Proxy Statement for the Company’s 2007 Annual
General Meeting of Shareholders, which the Company intends to file within 120
days after the close of its fiscal year ended December 31, 2006 and is hereby
incorporated by reference to such Proxy Statement, except that the information
as to the Company’s executive officers which follows Item 4 in this Annual
Report on Form 10-K, is incorporated by reference into Items 10 and 12,
respectively, of this Report.
Item
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The
information required by this item is incorporated herein by reference to the
information contained under the caption “Audit and Non-Audit Fees” in our 2007
Proxy Statement.
In
early
2005, our registered public accounting firm, PricewaterhouseCoopers LLP (PwC),
informed the Securities Exchange Commission (the SEC), the Public Company
Accounting Oversight Board and our Audit Committee that certain non-audit work
that PwC previously performed in China and Taiwan has raised questions regarding
PwC’s independence with respect to its performance of audit services for
us.
During
the fiscal years 2004, 2003, 2002 and 2001, certain PwC affiliates, in
connection with the preparation of local tax returns, made payments to local
tax
authorities with respect to individual employee tax liabilities. As a result,
PwC’s non-U.S. affiliates had temporary custody of small amounts of our
corporate funds. The fees we paid to PwC’s non-U.S. affiliates in China and
Taiwan for the preparation of these tax returns, including the services
mentioned above, were $433, $14,765, $24,849 and $18,767 for the years 2004,
2003, 2002 and 2001, respectively. These services were discontinued in
2004.
Our
Audit
Committee has reviewed the facts surrounding these services provided by PwC.
PwC
has informed the Audit Committee that it does not believe that the performance
of the tax services described above has impaired PwC’s independence. In light of
the de minimis fees paid to PwC, the ministerial nature of the actions performed
and the fact that the services have been discontinued, neither our Audit
Committee nor PwC believes that PwC’s independence was impaired by the
performance of these services.
PART
IV
Item
15. EXHIBITS
AND FINANCIAL STATEMENTS SCHEDULE
(a)
1. and 2.
|
Financial
statements and financial statement
schedule
|
|
The
exhibits listed on the accompanying index to exhibits are filed as
part of
this Annual Report on Form 10-K.
|
INGERSOLL-RAND
COMPANY LIMITED
INDEX
TO EXHIBITS
(Item
15(a))
Description
2
|
Agreement
and Plan of Merger, dated as of October 31, 2001, among Ingersoll-Rand
Company Limited, Ingersoll-Rand Company and IR Merger Corporation.
Incorporated by reference to Amendment No. 1 to Form S-4. Registration
Statement No, 333-71642, filed October 30,
2001.
|
2.1
|
Stock
and Asset Purchase Agreement, dated as of October 16, 2002, between
Ingersoll-Rand Company Limited, on behalf of itself and certain of
its
subsidiaries and The Timken Company, on behalf of itself and certain
of
its subsidiaries. Incorporated by reference to Form 8-K dated October
16,
2002.
|
2.2
|
Amendment
to the Stock and Asset Purchase Agreement, dated as of February 18,
2003,
amending the Stock Purchase Agreement, dated as of October 16, 2002,
between Ingersoll-Rand Company Limited, on behalf of itself and certain
of
its subsidiaries and The Timken Company, on behalf of itself and
certain
of its subsidiaries. Incorporated by reference to Form Schedule 13D,
filed
March 5, 2003 by Ingersoll-Rand
Company.
|
2.3
|
Equity
Purchase Agreement between FRC Acquisition LLC, on behalf of itself
and
the other buyers named therein, and Ingersoll-Rand Company Limited,
on
behalf of itself and the other sellers named therein, dated August
25,
2004, in connection with the divestiture of Dresser-Rand. Incorporated
by
reference to Form 8-K dated August 25,
2004.
|
2.4
|
Pricing
Agreement, dated as of May 24, 2005 among Ingersoll-Rand Company
Limited,
Banc of America Securities, LLC, Deutsche Bank Securities Inc. and
Ingersoll-Rand Company. Incorporated by reference to Form 8-K for
Ingersoll-Rand Company Limited, dated May 24, 2005, filed May 27,
2005.
|
2.5
|
Asset
and Stock Purchase Agreement, dated as of February 27, 2007, among
Ingersoll-Rand Company limited, on behalf of itself and the other
sellers
named therein, and AB Volvo (publ), on behalf of itself and the other
buyers named therein. Incorporated by reference to Form 8-K for
Ingersoll-Rand Company Limited dated February 27, 2007, filed February
28,
2007.
|
3.1 |
Memorandum
of
Association of Ingersoll-Rand Company Limited. Incorporated by
reference
to Amendment No. 1 to Form S-4 Registration Statement No. 333-71642,
filed
October 30, 2001.
|
3.2
|
Amended
and Restated Bye-Laws of Ingersoll-Rand Company Limited, dated June
1,
2005. Incorporated by reference to Form 10-Q for the quarter ended
June
30, 2005, of Ingersoll-Rand Company Limited, filed August 5,
2005.
|
4.1
|
Certificate
of Designation, Preferences and Rights of Series A Preference Shares
of
Ingersoll-Rand Company Limited. Incorporated by reference to Amendment
No.
1 to Form S-4 Registration Statement No. 333-71642, filed October
30,
2001.
|
4.2 |
Rights
Agreement between Ingersoll-Rand Company Limited and The Bank of
New York,
as Rights Agent. Incorporated by reference to Amendment No. 1 to
Form S-4
Registration Statement No. 333-71642, filed October 30,
2001.
|
4.3
|
Voting
Agreement between Ingersoll-Rand Company Limited and Ingersoll-Rand
Company. Incorporated by reference to Amendment No. 1 to Form S-4
Registration Statement No. 333-71642, filed October 30,
2001.
|
4.4
|
Indenture
dated as of August 1, 1986, between Ingersoll-Rand Company and The
Bank of
New York, as Trustee, as supplemented by first, second and third
supplemental indentures. Incorporated by reference to Ingersoll-Rand
Company’s Form S-3 Registration Statement No. 333-39474 as filed March 18,
1991 and to Form S-3 Registration Statement No. 333-50902 as filed
November 29, 2000.
|
4.5
|
Fourth
Supplemental Indenture, dated as of December 31, 2001, among
Ingersoll-Rand Company Limited, Ingersoll-Rand Company and The Bank
of New
York, as trustee. Incorporated by reference to Form 10-K of Ingersoll-Rand
Company Limited for the year ended December 31, 2001, filed March
13,
2002.
|
4.6 |
Credit
Agreement dated as of August 12, 2005, among Ingersoll-Rand Company
and
Ingersoll-Rand Company Limited, the banks listed therein, and Citicorp
USA, Inc., as Syndication Agent, and Bank of America, N.A., Deutsche
Bank
Securities Inc., The Bank of Tokyo-Mitsubishi, Ltd., New York Branch
and
UBS Securities LLC, as Documentation Agents, and JPMorgan Chase Bank,
N.A., as Administrative Agent, and J.P. Morgan Securities Inc. and
Citigroup Global Markets Inc., as Lead Arrangers and Bookrunners.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2006, filed March 1,
2006.
|
4.7
|
Credit
Agreement, dated as of June 25, 2004, among Ingersoll-Rand Company
and
Ingersoll-Rand Company Limited, the banks listed therein, The JPMorgan
Chase Bank, as Administrative Agent, Citibank N.A., and Deutsche
Bank
Securities Inc., as Co-Syndication Agents, and The Bank of
Tokyo-Mitsubishi, Ltd, as Documentation Agent, and J.P. Morgan Securities
Inc., as Lead Arranger and Bookrunner. Incorporated by reference
to Form
10-K of Ingersoll-Rand Company Limited for the year ended December
31,
2004, filed March 16, 2005.
|
4.8 |
Ingersoll-Rand
Company Limited and its subsidiaries are parties 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 Limited and its subsidiaries on a consolidated basis. Pursuant
to
paragraph 4(iii) of Item 601(b) of Regulation S-K, Ingersoll-Rand
Company
Limited agrees to furnish a copy of such instruments to the Securities
and
Exchange Commission upon
request.
|
4.9
|
Indenture
dated as of May 24, 2005 among Ingersoll-Rand Company Limited,
Ingersoll-Rand Company and Wells Fargo Bank, N.A., as trustee.
Incorporated by reference to Form 8-K for Ingersoll-Rand Company
Limited,
dated May 24, 2005, filed May 27, 2005.
|
10.1 |
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.
|
10.2 |
Reorganization
Amendment to Management Incentive Unit Plan, dated December 31, 2001.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2001, filed March 13,
2002.
|
10.3 |
Amended
and Restated Director Deferred Compensation and Stock Award Plan.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
for the
year ended December 31, 2000, filed March 20,
2001.
|
10.4 |
First
Amendment to Director Deferred Compensation and Stock Award Plan.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2001, filed March 13,
2002.
|
10.5 |
Second
Amendment to Director Deferred Compensation and Stock Award Plan.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2003, filed February 27,
2004.
|
10.6 |
Third
Amendment to Director Deferred Compensation and Stock Award Plan,
dated
December 31, 2004. Incorporated by reference to Form 8-K of Ingersoll-Rand
Company Limited, dated December 31, 2004, filed January 6,
2005.
|
10.7 |
Fourth
Amendment to Director Deferred Compensation and Stock Award Plan,
dated
March 10, 2005. Incorporated by reference to Form 10-K of Ingersoll-Rand
Company Limited for the year ended December 31, 2004, filed March
16,
2005.
|
10.8 |
Director
Deferred Compensation and Stock Award Plan II, dated December 31,
2004.
Incorporated by reference to Form 8-K of Ingersoll-Rand Company Limited,
dated December 31, 2004, filed January 6,
2005.
|
10.9 |
First
Amendment to Director Deferred Compensation and Stock Award Plan
II, dated
March 10, 2005. Incorporated
by reference to Form 10-K of Ingersoll-Rand Company Limited for the
year
ended December 31, 2004, filed March 16, 2005.
|
10.10 |
Description
of Annual Incentive Arrangements for Chairman, President, Sector
Presidents and other Staff Officers of Ingersoll-Rand Company
Limited.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2006, filed March 1,
2006.
|
10.11
|
Description
of Performance Share Program for Chairman, President and Chief Executive
Officer and the other Participants of Ingersoll-Rand Company Limited.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2006, filed March 1,
2006.
|
10.12 |
Form
of
Change in Control Agreement with Tier 1 Officers of Ingersoll-Rand
Company
Limited, dated as of December 1, 2006. Incorporated by reference
to
Exhibit 99.1 in Form 8-K of Ingersoll-Rand Company Limited,
dated November
30, 2006, filed December 4,
2006.
|
10.13 |
Form
of Change in Control Agreement with Tier 2 Officers of Ingersoll-Rand
Company Limited, dated as of December 1, 2006. Incorporated by reference
to Exhibit 99.2 in Form 8-K of Ingersoll-Rand Company Limited, dated
November 30, 2006, filed December 4,
2006.
|
10.14
|
Executive
Supplementary Retirement Agreement for selected executive officers
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.
|
10.15 |
Executive
Supplementary Retirement Agreement for selected executive officers
of
Ingersoll-Rand Company. Incorporated by reference to Form 10-K for
the
year ended December 31, 1996, filed March 26,
1997.
|
10.16
|
Forms
of insurance and related letter agreements with certain executive
officers
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.
|
10.17
|
Amended
and Restated Supplemental Pension Plan, dated January 1, 2003.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2002, filed March 5,
2003.
|
10.18
|
First
Amendment to the Amended and Restated Supplemental Pension Plan,
dated
January 1, 2003. Incorporated by reference to Form 10-K of Ingersoll-Rand
Company Limited for the year ended December 31, 2003, filed February
27,
2004.
|
10.19
|
Amended
and Restated Supplemental Employee Savings Plan, dated January 1,
2003.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2002, filed March 5,
2003.
|
10.20 |
First
Amendment to the Amended and Restated Supplemental Employee Savings
Plan,
dated January
1, 2003. Incorporated by reference to Form 10-K of Ingersoll-Rand
Company
Limited for the year ended December 31, 2003, filed February 27,
2004.
|
10.21 |
Incentive
Stock Plan of 1995. 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.
|
10.22 |
Reorganization
Amendment to Incentive Stock Plan of 1995, dated December 21, 2001.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2001, filed March 13,
2002.
|
10.23 |
Senior
Executive Performance Plan. Incorporated by
reference to the Notice of 2000 Annual Meeting of Shareholders and
Proxy
Statement of Ingersoll-Rand Company, dated March 7, 2000. See Appendix
A
of the Proxy Statement, dated March 7,
2000.
|
10.24 |
Amended
and Restated Elected Officers Supplemental Plan, dated December
31, 2004.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2004, filed March 16,
2005.
|
10.25 |
Amendment,
dated February 1, 2006, to Amended and Restated Elected Officers
Supplemental Plan, dated December 31, 2004. Incorporated by reference
to
Form 10-K of Ingersoll-Rand Company Limited for the year ended
December
31, 2006, filed March 1,
2006.
|
10.26 |
Elected
Officers Supplemental Plan II, dated February 1, 2006. Incorporated
by
reference to Form 10-K of Ingersoll-Rand Company Limited for the
year
ended December 31, 2006, filed March 1, 2006.
|
10.27 |
Amended
and Restated Executive Deferred Compensation Plan. Incorporated by
reference to Form 10-K of Ingersoll-Rand Company for the year ended
December 31, 2000, filed March 20, 2001.
|
10.28 |
First
Amendment to Executive Deferred Compensation Plan, dated December
31,
2001. Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited for the year ended December 31, 2001, filed March 13,
2002.
|
10.29 |
Second
Amendment to Executive Deferred Compensation Plan, dated February
24,
2004. Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited for the year ended December 31, 2003, filed February 27,
2004.
|
10.30 |
Third
Amendment to Executive Deferred Compensation Plan, dated December
31,
2004. Incorporated by reference to Form 8-K of Ingersoll-Rand Company
Limited dated December 31, 2004, filed January 6,
2005.
|
10.31 |
Fourth
Amendment to Executive Deferred Compensation Plan, dated March 10,
2005.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2004, filed March 16,
2005.
|
10.32
|
Executive
Deferred Compensation Plan II, dated December 31, 2004. Incorporated
by
reference to Form 8-K of Ingersoll-Rand Company Limited dated December
31,
2004, filed January 6, 2005.
|
10.33 |
First
Amendment to Executive Deferred Compensation Plan II, dated March
10,
2005. Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited for the year ended December 31, 2004, filed March 16,
2005.
|
10.34
|
|
Amended
and Restated Incentive Stock Plan of 1998. Incorporated by reference
to
Ingersoll-Rand Company Limited’s Form S-8 Registration Statement, filed
December 1, 2005.
|
10.35
|
Amendment
to the Ingersoll-Rand Company Limited Amended and Restated Incentive
Stock
Plan of 1998, dated December 7, 2005. Incorporated by reference to
Form
8-K of Ingersoll-Rand Company Limited, dated December 7, 2005, filed
December 9, 2005.
|
10.36
|
Composite
Employment Agreement with Chief Executive Officer. Incorporated
by reference to Form 10-K of Ingersoll-Rand Company for the year
ended
December 31, 1999, filed March 30,
2000.
|
10.37 |
Employment
Agreement with Timothy McLevish, Senior Vice President and Chief
Financial
Officer. Incorporated by reference to Form 10-K of Ingersoll-Rand
Company
Limited for the year ended December 31, 2002, filed March 5,
2003.
|
10.38 |
Employment
Agreement with Michael Lamach, Senior Vice President. Incorporated
by
reference to Form 10-K of Ingersoll-Rand Company Limited
for the year ended December 31, 2003, filed February 27,
2004.
|
10.39 |
Addendum,
dated June 3, 2005, to Employment Agreement with Timothy R. McLevish.
Incorporated by reference to Form 8-K of Ingersoll-Rand Company Limited,
dated June 1, 2005, filed June 6,
2005.
|
10.40
|
Employment
Agreement with James R. Bolch, Senior Vice President. Incorporated
by
reference to Form 10-K of Ingersoll-Rand Company Limited for the
year
ended December 31, 2006, filed March 1,
2006.
|
10.41
|
Addendum,
dated December 8, 2005, to Employment Agreement with James R. Bolch.
Incorporated by reference to Form 10-K of Ingersoll-Rand Company
Limited
for the year ended December 31, 2006, filed March 1,
2006.
|
10.42
|
Amended
and Restated Estate Enhancement Program, dated June 1, 1998, and
the
related form agreements. Incorporated by reference to Form 10-Q of
Ingersoll-Rand Company Limited for the quarter ended March 31, 2006,
filed
May 5, 2006.
|
10.43
|
First
Amendment to the Amended and Restated Estate Enhancement Program,
dated
December 31, 2001. Incorporated by reference to Form 10-Q of
Ingersoll-Rand Company Limited for the quarter ended March 31, 2006,
filed
May 5, 2006.
|
10.44 |
Employment
Agreement with William Gauld, Senior Vice President, dated September
7,
2006. Filed herewith.
|
10.45 |
Employment
Agreement with Marcia J. Avedon, Senior Vice President, dated January
8,
2007. Filed herewith.
|
12 |
Computations
of Ratios of Earnings to Fixed Charges. Filed
herewith.
|
14
|
|
Ingersoll-Rand
Company Limited Code of Ethics. Incorporated by reference to Form
10-K of
Ingersoll-Rand Company Limited for the year ended December 31, 2006,
filed
March 1, 2006.
|
21 |
List
of Subsidiaries of Ingersoll-Rand Company Limited. Filed
herewith.
|
23
|
Consent
of Independent Registered Public Accounting Firm. Filed
herewith.
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
|
32
|
Certifications
of Chief Executive Officer and Chief Financial Officer Pursuant to
Rule
13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed
herewith.
|
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 LIMITED
(Registrant)
|
|
|
|
|
By: |
/S/ Herbert
L. Henkel |
|
(Herbert
L. Henkel)
Chief
Executive Officer
Date: March
1,
2007
|
Pursuant
to the requirement of the Securities Exchange Act of 1934, this report has
been
signed by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
Chairman,
President, Chief
|
|
|
/S/
Herbert L. Henkel
|
|
Executive
Officer and Director
|
|
|
(Herbert
L. Henkel)
|
|
(Principal
Executive Officer)
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
Vice President and
|
|
|
/S/
Timothy R. McLevish
|
|
Chief
Financial Officer
|
|
|
(Timothy
R. McLevish)
|
|
(Principal
Financial Officer)
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
/S/
Richard W. Randall
|
|
Vice
President and Controller
|
|
|
(Richard
W. Randall)
|
|
(Principal
Accounting Officer)
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
/S/
Ann C. Berzin
|
|
|
|
|
(Ann
C. Berzin)
|
|
Director
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
/S/
Peter C. Godsoe
|
|
|
|
|
(Peter
C. Godsoe)
|
|
Director
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
/S/
Constance Horner
|
|
|
|
|
(Constance
Horner)
|
|
Director
|
|
March
1, 2007
|
|
|
|
|
|
/S/
H. William Lichtenberger
|
|
|
|
|
(H.
William Lichtenberger)
|
|
Director
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
/S/
Theodore E. Martin
|
|
|
|
|
(Theodore
E. Martin)
|
|
Director
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
/S/
Patricia Nachtigal
|
|
|
|
|
(Patricia
Nachtigal)
|
|
Director
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
/S/
Orin R. Smith
|
|
|
|
|
(Orin
R. Smith)
|
|
Director
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
/S/
Richard J. Swift
|
|
|
|
|
(Richard
J. Swift)
|
|
Director
|
|
March
1, 2007
|
|
|
|
|
|
|
|
|
|
|
/S/
Tony L. White
|
|
|
|
|
(Tony
L. White)
|
|
Director
|
|
March
1, 2007
|
INGERSOLL-RAND
COMPANY LIMITED
Index
to Consolidated Financial Statements
|
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
|
54
|
|
|
|
Consolidated
Statements of Income
|
|
56
|
|
|
|
Consolidated
Balance Sheets
|
|
57
|
|
|
|
Consolidated
Statements of Shareholders' Equity
|
|
58
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
59
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
60
|
|
|
|
Schedule
II - Valuation and Qualifying Accounts
|
|
98
|
Report
of Independent Registered Public Accounting Firm
To the
Board
of Directors and Shareholders of Ingersoll-Rand Company Limited:
We
have
completed integrated audits of Ingersoll-Rand Company Limited’s (successor
company to Ingersoll-Rand Company) consolidated financial statements and of
its
internal control over financial reporting as of December 31, 2006, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Our opinions, based on our audits, are presented below.
Consolidated
financial statements and financial statement schedule
In
our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Ingersoll-Rand Company Limited and its subsidiaries at December
31,
2006 and 2005, and the results of their operations and their cash flows for
each
of the three years in the period ended December 31, 2006 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 15(a)(2), presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial
statements. These financial statements and financial statement schedule are
the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based
on
our audits. We conducted our audits of these statements in accordance with
the
standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit of financial statements 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 our
opinion.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standard No. 123(R), Share-Based
Payment,
as of
January 1, 2006, using the modified prospective method.
As
discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standard No. 158, Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans - an
Amendment to FASB Statements No. 87, 88, 106, and 132(R),
as of
December 31, 2006.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management's Report on
Internal Control Over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as of
December 31, 2006 based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal
Control - Integrated Framework
issued
by the COSO. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on the effectiveness
of the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit
to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding
of
internal control over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
Florham
Park, New Jersey
March
1,
2007
Ingersoll-Rand
Company Limited
Consolidated
Statements of Income
In
millions, except per share amounts
For
the years ended December 31,
|
|
2006
|
|
2005
|
|
2004
|
|
Net
revenues
|
|
$
|
11,409.3
|
|
$
|
10,546.9
|
|
$
|
9,393.6
|
|
Cost
of goods sold
|
|
|
8,424.2
|
|
|
7,744.1
|
|
|
6,854.0
|
|
Selling
and administrative expenses
|
|
|
1,544.3
|
|
|
1,441.0
|
|
|
1,419.3
|
|
Operating
income
|
|
|
1,440.8
|
|
|
1,361.8
|
|
|
1,120.3
|
|
Interest
expense
|
|
|
(131.8
|
)
|
|
(144.3
|
)
|
|
(153.1
|
)
|
Other
income, net
|
|
|
5.9
|
|
|
53.0
|
|
|
17.0
|
|
Minority
interests
|
|
|
(14.9
|
)
|
|
(12.7
|
)
|
|
(16.0
|
)
|
Earnings
before income taxes
|
|
|
1,300.0
|
|
|
1,257.8
|
|
|
968.2
|
|
Provision
for income taxes
|
|
|
231.7
|
|
|
204.7
|
|
|
138.4
|
|
Earnings
from continuing operations
|
|
|
1,068.3
|
|
|
1,053.1
|
|
|
829.8
|
|
Discontinued
operations, net of tax
|
|
|
(35.8
|
)
|
|
1.1
|
|
|
388.9
|
|
Net
earnings
|
|
$
|
1,032.5
|
|
$
|
1,054.2
|
|
$
|
1,218.7
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$
|
3.34
|
|
$
|
3.12
|
|
$
|
2.40
|
|
Discontinued
operations, net of tax
|
|
|
(0.11
|
)
|
|
-
|
|
|
1.12
|
|
Net
earnings
|
|
$
|
3.23
|
|
$
|
3.12
|
|
$
|
3.52
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
$
|
3.31
|
|
$
|
3.09
|
|
$
|
2.36
|
|
Discontinued
operations, net of tax
|
|
|
(0.11
|
)
|
|
-
|
|
|
1.11
|
|
Net
earnings
|
|
$
|
3.20
|
|
$
|
3.09
|
|
$
|
3.47
|
|
See
accompanying Notes to Consolidated Financial Statements.
Ingersoll-Rand
Company Limited
Consolidated
Balance Sheets
In
millions
December
31,
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
362.3
|
|
$
|
880.6
|
|
Marketable
securities
|
|
|
0.7
|
|
|
156.5
|
|
Accounts
and notes receivable, less allowance of
|
|
|
|
|
|
|
|
$17.8
in 2006 and $47.6 in 2005
|
|
|
1,996.2
|
|
|
1,679.0
|
|
Inventories
|
|
|
1,320.3
|
|
|
1,128.8
|
|
Prepaid
expenses and deferred income taxes
|
|
|
416.4
|
|
|
403.3
|
|
Total
current assets
|
|
|
4,095.9
|
|
|
4,248.2
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
1,276.3
|
|
|
1,157.5
|
|
Goodwill
|
|
|
4,604.8
|
|
|
4,433.4
|
|
Intangible
assets, net
|
|
|
736.2
|
|
|
717.0
|
|
Other
assets
|
|
|
1,432.7
|
|
|
1,200.3
|
|
Total
assets
|
|
$
|
12,145.9
|
|
$
|
11,756.4
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,026.8
|
|
$
|
812.5
|
|
Accrued
compensation and benefits
|
|
|
383.8
|
|
|
401.4
|
|
Accrued
expenses and other current liabilities
|
|
|
1,123.6
|
|
|
1,053.1
|
|
Loans
payable and current maturities of long-term debt
|
|
|
1,079.4
|
|
|
932.7
|
|
Total
current liabilities
|
|
|
3,613.6
|
|
|
3,199.7
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
905.2
|
|
|
1,184.3
|
|
Postemployment
and other benefit liabilities
|
|
|
1,428.8
|
|
|
1,000.9
|
|
Other
noncurrent liabilities
|
|
|
793.5
|
|
|
609.5
|
|
Total
liabilities
|
|
|
6,741.1
|
|
|
5,994.4
|
|
Commitments
and contingencies (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Class
A common shares, $1 par value (364,462,276 and
|
|
|
|
|
|
|
|
360,740,316
shares issued at December 31, 2006 and
|
|
|
|
|
|
|
|
2005,
respectively, and net of 57,699,279 and 30,032,378
|
|
|
|
|
|
|
|
shares
owned by subsidiary at December 31, 2006 and
|
|
|
|
|
|
|
|
2005,
respectively)
|
|
|
306.8 |
|
|
330.7 |
|
Retained
earnings
|
|
|
5,456.1
|
|
|
5,558.9
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(358.1
|
)
|
|
(127.6
|
)
|
Total
shareholders' equity
|
|
|
5,404.8
|
|
|
5,762.0
|
|
Total
liabilities and shareholders' equity
|
|
$
|
12,145.9
|
|
$
|
11,756.4
|
|
See
accompanying Notes to Consolidated Financial Statements.
Ingersoll-Rand
Company Limited
Consolidated
Statements of Shareholders' Equity
In millions, except per share amounts
|
|
Total
shareholders'
|
|
Common
stock
|
|
Capital
in excess of par
|
|
Retained
|
|
Accumulated
other
comprehensive
income
|
|
Comprehensive
|
|
|
|
equity
|
|
Amount
|
|
Shares
|
|
value
|
|
earnings
|
|
(loss)
|
|
income
|
|
Balance
at December 31, 2003
|
|
$
|
4,493.3
|
|
$
|
174.5
|
|
|
174.5
|
|
$
|
610.6
|
|
$
|
3,978.7
|
|
$
|
(270.5
|
)
|
|
|
|
Net
earnings
|
|
|
1,218.7
|
|
|
|
|
|
|
|
|
|
|
|
1,218.7
|
|
|
|
|
$
|
1,218.7
|
|
Currency
translation
|
|
|
168.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168.7
|
|
|
168.7
|
|
Change
in fair value of derivatives qualifying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
cash flow hedges, net of tax of $0.4
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
3.1
|
|
Minimum
pension liability adjustment, net of tax of $103.7
|
|
|
161.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161.5
|
|
|
161.5
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,552.0
|
|
Shares
issued under incentive stock plans
|
|
|
213.5
|
|
|
3.9
|
|
|
3.9
|
|
|
209.6
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common shares by subsidiary
|
|
|
(355.9
|
)
|
|
(5.3
|
)
|
|
(5.3
|
)
|
|
(350.6
|
)
|
|
|
|
|
|
|
|
|
|
Change
in fiscal year end of subsidiary, net of tax of $7.3
|
|
|
(16.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(16.5
|
)
|
|
|
|
|
|
|
Cash
dividends, declared and paid ($0.44 per share)
|
|
|
(152.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(152.6
|
)
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
5,733.8
|
|
|
173.1
|
|
|
173.1
|
|
|
469.6
|
|
|
5,028.3
|
|
|
62.8
|
|
|
|
|
Net
earnings
|
|
|
1,054.2
|
|
|
|
|
|
|
|
|
|
|
|
1,054.2
|
|
|
|
|
$
|
1,054.2
|
|
Currency
translation
|
|
|
(267.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(267.7
|
)
|
|
(267.7
|
)
|
Change
in fair value of marketable securities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
qualifying as cash flow hedges,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of tax of $0.3
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.7
|
|
|
5.7
|
|
Minimum
pension liability adjustment, net of tax of $60.5
|
|
|
71.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71.6
|
|
|
71.6
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
863.8
|
|
Shares
issued under incentive stock plans
|
|
|
120.0
|
|
|
2.3
|
|
|
2.3
|
|
|
117.7
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common shares by subsidiary
|
|
|
(763.6
|
)
|
|
(19.4
|
)
|
|
(19.4
|
)
|
|
(587.3
|
)
|
|
(156.9
|
)
|
|
|
|
|
|
|
Stock
split
|
|
|
-
|
|
|
174.7
|
|
|
174.7
|
|
|
|
|
|
(174.7
|
)
|
|
|
|
|
|
|
Cash
dividends, declared and paid ($0.57 per share)
|
|
|
(192.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(192.0
|
)
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
5,762.0
|
|
|
330.7
|
|
|
330.7
|
|
|
-
|
|
|
5,558.9
|
|
|
(127.6
|
)
|
|
|
|
Net
earnings
|
|
|
1,032.5
|
|
|
|
|
|
|
|
|
|
|
|
1,032.5
|
|
|
|
|
$
|
1,032.5
|
|
Currency
translation
|
|
|
258.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258.8
|
|
|
258.8
|
|
Change
in fair value of marketable securities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
qualifying as cash flow hedges,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of tax of $0.8
|
|
|
(7.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.3
|
)
|
|
(7.3
|
)
|
Minimum
pension liability adjustment, net of tax of $3.2
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.2
|
)
|
|
(9.2
|
)
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,274.8
|
|
Adoption
of FASB Statement No. 158, net of tax of $268.2
|
|
|
(472.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(472.8
|
)
|
|
|
|
Shares
issued under incentive stock plans
|
|
|
111.1
|
|
|
3.8
|
|
|
3.8
|
|
|
107.3
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common shares by subsidiary
|
|
|
(1,096.3
|
)
|
|
(27.7
|
)
|
|
(27.7
|
)
|
|
(150.9
|
)
|
|
(917.7
|
)
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
43.6
|
|
|
|
|
|
|
|
|
43.6
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends, declared and paid ($0.68 per share)
|
|
|
(217.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(217.6
|
)
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
$
|
5,404.8
|
|
$
|
306.8
|
|
|
306.8
|
|
$
|
-
|
|
$
|
5,456.1
|
|
|
($358.1
|
)
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements.
Ingersoll-Rand
Company Limited
Consolidated
Statements of Cash Flows
In
millions
For
the years ended December 31,
|
|
2006
|
|
2005
|
|
2004
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
1,032.5
|
|
$
|
1,054.2
|
|
$
|
1,218.7
|
|
Loss
(income) from discontinued operations, net of tax
|
|
|
35.8
|
|
|
(1.1
|
)
|
|
(388.9
|
)
|
Adjustments
to arrive at net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
190.7
|
|
|
195.7
|
|
|
174.4
|
|
Gain
on sale of businesses
|
|
|
-
|
|
|
(1.5
|
)
|
|
-
|
|
Gain
on sale of property, plant and equipment
|
|
|
(5.7
|
)
|
|
(2.4
|
)
|
|
(8.9
|
)
|
Minority
interests, net of dividends
|
|
|
9.2
|
|
|
(1.3
|
)
|
|
6.3
|
|
Equity
earnings, net of dividends
|
|
|
0.1
|
|
|
0.4
|
|
|
(8.6
|
)
|
Stock
settled share based compensation
|
|
|
23.4
|
|
|
-
|
|
|
-
|
|
Deferred
income taxes
|
|
|
(59.3
|
)
|
|
64.0
|
|
|
(59.2
|
)
|
Other
items
|
|
|
(31.1
|
)
|
|
(42.0
|
)
|
|
(16.6
|
)
|
Changes
in other assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
(204.7
|
)
|
|
(128.5
|
)
|
|
(70.1
|
)
|
Inventories
|
|
|
(116.1
|
)
|
|
0.6
|
|
|
(174.8
|
)
|
Other
current and noncurrent assets
|
|
|
(91.7
|
)
|
|
(189.1
|
)
|
|
(139.2
|
)
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
|
|
Accounts
and notes payable
|
|
|
169.2
|
|
|
87.8
|
|
|
91.5
|
|
Other
current and noncurrent liabilities
|
|
|
56.5
|
|
|
(163.6
|
)
|
|
145.6
|
|
Net
cash (used in) provided by continuing operating activities
|
|
|
1,008.8
|
|
|
873.2
|
|
|
770.2
|
|
Net
cash (used in) provided by discontinued operating
activities
|
|
|
(36.6
|
)
|
|
(34.1
|
)
|
|
27.3
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(212.3
|
)
|
|
(141.8
|
)
|
|
(125.6
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
16.4
|
|
|
19.0
|
|
|
50.4
|
|
Acquisitions,
net of cash acquired
|
|
|
(121.5
|
)
|
|
(514.7
|
)
|
|
(33.7
|
)
|
Proceeds
from business dispositions
|
|
|
-
|
|
|
11.4
|
|
|
1,413.2
|
|
Proceeds
from sales and maturities of marketable securities
|
|
|
155.8
|
|
|
-
|
|
|
0.3
|
|
Purchase
of marketable securities
|
|
|
-
|
|
|
(153.2
|
)
|
|
-
|
|
Cash
provided by equity companies, net
|
|
|
0.4
|
|
|
7.6
|
|
|
7.6
|
|
Net
cash (used in) provided by continuing investing activities
|
|
|
(161.2
|
)
|
|
(771.7
|
)
|
|
1,312.2
|
|
Net
cash (used in) provided by discontinued investing
activities
|
|
|
-
|
|
|
-
|
|
|
(7.4
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in short-term borrowings
|
|
|
369.2
|
|
|
(40.2
|
)
|
|
(16.3
|
)
|
Proceeds
from long-term debt
|
|
|
4.0
|
|
|
301.7
|
|
|
-
|
|
Payments
of long-term debt
|
|
|
(513.7
|
)
|
|
(198.8
|
)
|
|
(453.1
|
)
|
Net
change in debt
|
|
|
(140.5
|
)
|
|
62.7
|
|
|
(469.4
|
)
|
Redemption
of preferred stock of subsidiaries
|
|
|
-
|
|
|
(73.6
|
)
|
|
-
|
|
Proceeds
from exercise of stock options
|
|
|
95.7
|
|
|
90.9
|
|
|
170.7
|
|
Dividends
paid
|
|
|
(217.6
|
)
|
|
(192.1
|
)
|
|
(152.6
|
)
|
Repurchase
of common shares by subsidiary
|
|
|
(1,096.3
|
)
|
|
(763.6
|
)
|
|
(355.9
|
)
|
Net
cash (used in) provided by continuing financing activities
|
|
|
(1,358.7
|
)
|
|
(875.7
|
)
|
|
(807.2
|
)
|
Net
cash (used in) provided by discontinued financing
activities
|
|
|
-
|
|
|
-
|
|
|
(1.0
|
)
|
Effect
of change in fiscal year end of businesses
|
|
|
-
|
|
|
-
|
|
|
(23.8
|
)
|
Effect
of exchange rate changes on cash and cash
equivalents
|
|
|
29.4
|
|
|
(14.2
|
)
|
|
16.5
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(518.3
|
)
|
|
(822.5
|
)
|
|
1,286.8
|
|
Cash
and cash equivalents - beginning of period
|
|
|
880.6
|
|
|
1,703.1
|
|
|
416.3
|
|
Cash
and cash equivalents - end of period
|
|
$
|
362.3
|
|
$
|
880.6
|
|
$
|
1,703.1
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest,
net of amounts capitalized
|
|
$
|
105.2
|
|
$
|
131.2
|
|
$
|
124.2
|
|
Income
taxes, net of refunds
|
|
$
|
195.3
|
|
$
|
270.0
|
|
$
|
170.8
|
|
See
accompanying Notes to Consolidated Financial Statements.
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary
of significant accounting policies used in the preparation of the accompanying
financial statements follows:
Basis
of Presentation: The
consolidated financial statements of Ingersoll-Rand Company Limited, a Bermuda
company (IR-Limited or the Company), have been prepared in accordance with
generally accepted accounting principles in the United States. IR-Limited is
the
successor to Ingersoll-Rand Company, a New Jersey corporation (IR-New Jersey),
following a corporate reorganization (the reorganization) that became effective
on December 31, 2001. The reorganization was accomplished through a merger
of a
newly formed merger subsidiary of IR-Limited. IR-Limited and its subsidiaries
continue to conduct the businesses previously conducted by IR-New Jersey and
its
subsidiaries. The reorganization has been accounted for as a reorganization
of
entities under common control and accordingly, did not result in any changes
to
the consolidated amounts of assets, liabilities and shareholders’
equity.
The
results for Hussmann International, Inc. and its majority-owned affiliates
had
been on a 15-day lag for U.S. operations and a one-month lag for non-U.S.
operations, since its acquisition in 2000. During the first quarter of 2004,
these lags were eliminated, and the financial results were recorded on a current
basis. The result of this action was a net loss of $16.5 million, which was
recorded directly to retained earnings on the Consolidated Balance Sheet, and
a
resulting cash outflow of $23.8 million, which was shown as a separate line
item
on the Consolidated Statement of Cash Flows.
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106 and 132(R)” (SFAS 158). SFAS 158 requires an entity
to recognize in its balance sheet the funded status of its defined benefit
pension and postretirement plans. The standard also requires an entity to
recognize changes in the funded status within accumulated other comprehensive
income, net of tax, to the extent such changes are not recognized in earnings
as
components of periodic net benefit cost. At December 31, 2006, the Company
adopted the provisions of SFAS 158 for its postretirement and pension plans.
The
adoption of SFAS 158 resulted in a decrease of total assets of $476.0 million
and shareholders’ equity of $472.8 million (net of tax of $268.2 million) and an
increase of total liabilities of $265.0 million. Refer to Note 8 and 9 for
further details of the impact of SFAS 158.
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment,” (SFAS 123(R)) using the modified
prospective method of adoption. SFAS 123(R) requires companies to recognize
compensation expense for an amount equal to the fair value of the share-based
payment issued. Under the modified prospective method, financial statement
amounts for prior periods have not been restated to reflect the fair value
method of recognizing compensation cost relating to stock options. Refer
to
Note 11 for further details of the impact of SFAS 123(R).
Use
of Estimates:
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. Some of the more significant estimates include accounting for
doubtful accounts, useful lives of property, plant and equipment and intangible
assets, purchase price allocation of acquired businesses, valuation of assets,
including goodwill and other intangible assets, product warranties, sales
allowances, taxes, environmental, product liability, asbestos and other
contingencies. Actual results could differ from those estimates.
Principles
of Consolidation:
The
Company’s consolidated financial statements include all wholly owned and
majority-owned subsidiaries. Partially owned equity affiliates are accounted
for
under the equity method. The Company is also required to consolidate variable
interest entities in which it bears a majority of the risk to the entities’
potential losses or stands to gain from a majority of the entities’ expected
returns. Intercompany transactions and balances have been eliminated.
Cash
and 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.
Marketable
Securities: The
Company invests in marketable securities and classifies the securities as
available-for-sale under SFAS No. 115, “Accounting for Certain Investments in
Debt and Equity Securities.” In accordance with SFAS 115, available-for-sale
marketable securities are accounted for at market prices, with the unrealized
gain or loss, less applicable deferred income taxes, recorded within accumulated
other comprehensive income (loss).
Inventories:
Inventories
are stated at the lower of cost or market. Most U.S. manufactured inventories,
excluding the Climate Control Technologies segment, are valued using the
last-in, first-out (LIFO) method. All other inventories are valued using the
first-in, first-out (FIFO) method. At December 31, 2006 and 2005, inventories
on
LIFO were approximately 40% of the company’s total inventory.
Allowance
for Doubtful Accounts:
The
Company has provided an allowance for doubtful accounts receivable using a
formula based upon company policy, derived from its knowledge of its end
markets, customer base and products.
In
the
first quarter of 2006, the Company changed its estimate of the allowance for
doubtful accounts in light of various business and economic factors, including
a
significant change in its business portfolio and historical and expected
write-off experience. In addition, the Company signed a new insurance policy
which limits its bad debt exposure. As a result, the Company reduced its
allowance by $20.5 million, or $17.1 million after-tax, which increased first
quarter 2006 diluted earnings per share by $0.05.
Property,
Plant and Equipment: Property,
plant and equipment are stated at cost, less accumulated depreciation. For
assets placed in service prior to December 31, 1994, the Company principally
uses accelerated depreciation methods. Assets placed in service subsequent
to
that date, excluding leasehold improvements, are depreciated using the
straight-line method over the estimated useful life of the asset. Leasehold
improvements are depreciated over the shorter of their economic useful life
or
their lease term. Useful lives range from 10 to 50 years for buildings and
improvements and from 3 to 12 years for machinery and equipment.
Repair
and maintenance costs that do not extend the useful life of the asset are
charged against earnings as incurred. Major replacements and significant
improvements are capitalized.
The
Company assesses the recoverability of the carrying value of its property,
plant
and equipment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Recoverability is measured
by a comparison of the carrying amount of an asset to the future net
undiscounted cash flows expected to be generated by the asset. If the
undiscounted cash flows are less than the carrying amount of the asset, an
impairment loss is recognized for the amount by which the carrying value of
the
asset exceeds the fair value of the assets.
Goodwill
and Intangible Assets:
The
Company records goodwill as the excess of the purchase price over the fair
value
of net identifiable assets and liabilities of an acquired business.
Goodwill
and other intangible assets with indefinite useful lives are not amortized,
but
instead are tested for impairment at least annually or whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not
be recoverable. The Company tests for impairment during the fourth quarter
of
its fiscal year using September 30th balances. Recoverability of goodwill is
measured at the reporting unit level and determined using a two step process.
The first step compares the carrying amount of the reporting unit to its
estimated fair value. The fair value of each reporting unit is determined by
an
estimate of its discounted cash flows. To the extent that the carrying value
of
the reporting unit exceeds its estimated fair value, a second step is performed,
wherein the reporting units carrying value of goodwill is compared to its
implied fair value of goodwill. To the extent that the carrying value exceeds
the fair value, impairment exists and an impairment loss must be recognized.
Recoverability
of other intangible assets with indefinite useful lives is measured by a
comparison of the carrying amount of the intangible assets to the fair value
of
the respective intangible assets. Any excess of the carrying value over the
fair
value is recognized as an impairment loss. Other intangible assets such as
patents, customer-related intangible assets and other intangible assets with
finite lives are amortized on a straight-line basis over their estimated
economic lives. Recoverability of intangible assets with finite lives is
assessed in the same manner as for property, plant and equipment.
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.
Product
Warranties: Warranty
accruals are recorded at the time of sale and are estimated based upon product
warranty terms and historical experience. These accruals are adjusted for known
or anticipated warranty claims as new information becomes
available.
Treasury
Stock: The
Company repurchases its Class A common shares from time to time in the open
market and in privately negotiated transactions based upon market conditions
and
the discretion of management. These long-term repurchase programs are authorized
by the Board of Directors and serve in part to offset dilution from the
Company’s incentive stock plan. These acquired Class A common shares owned by a
subsidiary of the Company are recorded at cost and amounted to $2,215.8 million
and $1,119.5 million at December 31, 2006 and 2005, respectively.
Revenue
Recognition:
Revenue
is generally recognized and earned when all of the following criteria are
satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price
is
fixed or determinable; (c) collectibility is reasonably assured; and (d)
delivery has occurred or service has been rendered. Delivery generally occurs
when the title and the risks and rewards of ownership have substantially
transferred to the customer. Revenue from maintenance contracts or extended
warranties is recognized on a straight-line basis over the life of the contract,
unless another method is more representative of the costs incurred. The Company
enters into agreements that contain multiple elements, such as equipment,
installation and service. For multiple-element arrangements, the Company
recognizes revenue for delivered elements when the delivered item has
stand-alone value to the customer, fair values or undelivered elements are
known, customer acceptance has occurred, and there are only customary refund
or
return rights related to the delivered elements.
Environmental
Costs:
Environmental expenditures relating to current operations are expensed or
capitalized as appropriate. Expenditures relating to existing conditions caused
by past operations, which do not contribute to current or future revenues,
are
expensed. Costs to prepare environmental site evaluations and feasibility
studies are accrued when the Company commits to perform them. Liabilities for
remediation costs are recorded when they are probable and reasonably estimable,
generally no later than the completion of feasibility studies or the Company's
commitment to a plan of action. The assessment of this liability, which is
calculated based on existing technology, does not reflect any offset for
possible recoveries from insurance companies, and is not discounted.
Research
and Development Costs:
Research
and development expenditures, including qualifying engineering costs, are
expensed when incurred and amounted to $175.5 million, $162.4 million and $149.2
million in 2006, 2005 and 2004, respectively. The Company also incurs
engineering costs that are not considered research and development
expenditures.
Software
Costs: The
Company follows the guidance outlined in Statement of Position 98-1, “Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use” for
all software developed or obtained for internal use, which requires companies
to
capitalize certain internal-use software costs once specific criteria are met
and subsequently amortize these costs over the software’s useful life, which
ranges from 3 to 7 years.
In
the
fourth quarter of 2006, the Company adjusted its estimated useful life of
certain of its capitalized software from 5 to 7 years due to the length of
time
that the Company expects to utilize these software platforms. The impact in
the
fourth quarter of 2006 for this adjustment was a reduction of amortization
expense of $1.8 million.
Employee
Benefit Plans:
The
Company provides a range of benefits to eligible employees and retired
employees, including pensions, postretirement and post-employment health-care
benefits. Determining the cost associated with such benefits is dependent on
various actuarial assumptions, including discount rates, expected return on
plan
assets, compensation increases, employee mortality and turnover rates, and
health-care cost trend rates. Independent actuaries perform the required
calculations to determine expense in accordance with U.S. generally accepted
accounting principles. Actual results may differ from the actuarial assumptions
and are generally accumulated and amortized into earnings over future periods.
Effective December 31, 2006, these amounts are generally recognized into
shareholders’ equity on an annual basis, due to the adoption of SFAS 158. The
Company reviews its actuarial assumptions at each measurement date, which is
November 30 for its plans, and makes modifications to the assumptions based
on
current rates and trends, if appropriate.
Loss
Contingencies: Liabilities
are recorded for various contingencies arising in the normal course of business,
including litigation and administrative proceedings, environmental matters,
product liability, product warranty, worker’s compensation and other claims. The
Company has recorded reserves in the financial statements related to these
matters, which are developed using input derived from actuarial estimates and
historical and anticipated experience data depending on the nature of the
reserve, and in certain instances with consultation of legal counsel, internal
and external consultants and engineers. Subject to the uncertainties inherent
in
estimating future costs for these types of liabilities, the Company believes
its
estimated reserves are reasonable and does not believe the final determination
of the liabilities with respect to these matters would have a material effect
on
the financial condition, results of operations, liquidity or cash flows of
the
Company for any year.
Derivative
Financial Instruments: The
Company periodically enters into cash flow and other hedge transactions
specifically to hedge its exposure to various risks related to interest rates,
foreign exchange rates and securities pricing. The Company recognizes all
derivatives on the consolidated balance sheet at their fair value as either
assets or liabilities. For cash flow designated hedges, the effective portion
of
the changes in fair value of the derivative contract are recorded in other
comprehensive income, net of taxes, and are recognized in the income statement
at the time earnings are affected by the hedged transaction. For other hedge
transactions, the changes in the fair value of the derivative contract are
recognized in the income statement.
Currency
Translation:
For the
Company’s entities where the functional currency is other than the U.S. dollar,
assets and liabilities have been translated at year-end exchange rates, and
income and expenses translated using average exchange rates for the respective
periods. Adjustments resulting from the process of translating an entity’s
financial statements into the U.S. dollar have been recorded in accumulated
other comprehensive income and are included in net earnings only upon sale
or
liquidation of the underlying investment.
Transactions
that are denominated in a currency other than an entity’s functional currency
are subject to changes in exchange rates with the resulting gains and losses
recorded within net earnings. Net currency transaction gains (losses) which
the
Company records within Other income, net were $(19.3) million, $2.2 million
and
$(9.6) million in 2006, 2005 and 2004, respectively.
Reclassifications:
Certain
prior year amounts have been reclassified to conform to the current year
presentation. The Company has revised its December 31, 2004 consolidated
statement of cash flows to separately disclose the effects of discontinued
operations by cash flow activity. The Company had previously reported these
amounts on a combined basis. The Company also reclassified its presentation
of
capitalized software on its December 31, 2005 consolidated balance sheet from
intangible assets to property, plant and equipment to better depict the nature
and intent of the investment. Concurrently, the Company reclassified its
consolidated statement of cash flow for the years ended December 31, 2005 and
2004 in order to show capitalized software purchases as an investing activity
rather than an operating activity to be consistent with the Company’s balance
sheet presentation.
New
Accounting Standards: In
September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements” (SAB 108). SAB 108 provides interpretive guidance on how the effects
of the carryover or reversal of prior year misstatements should be considered
in
quantifying a current year misstatement. The SEC staff believes that registrants
should quantify errors using both a balance sheet and an income statement
approach and evaluate whether either approach results in quantifying a
misstatement that, when all relevant quantitative and qualitative factors are
considered, is material. SAB 108 is effective for the Company for the fiscal
year ended December 31, 2006. SAB 108 did not have a material impact on the
Company’s financial statements.
In
June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement 109” (FIN 48), which
prescribes a recognition threshold and measurement process for recording in
the
financial statements uncertain tax positions taken or expected to be taken
in a
tax return. Additionally, FIN 48 provides guidance on the derecognition,
classification, accounting in interim periods and disclosure requirements for
uncertain tax positions. The provisions of FIN 48 are effective for the
Company’s fiscal year beginning January 1, 2007. The Company is still assessing
the impact of FIN 48 on its consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
157). SFAS 157 establishes a framework for measuring fair value that is based
on
the assumptions market participants would use when pricing an asset or liability
and establishes a fair value hierarchy that prioritizes the information to
develop those assumptions. Additionally, the standard expands the disclosures
about fair value measurements to include disclosing the fair value measurements
of assets or liabilities within each level of the fair value hierarchy. SFAS
157
is effective for the Company starting on January 1, 2008. The Company is
currently evaluating the impact on its financial statements of adopting SFAS
157.
In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS 159). SFAS 159 permits companies the option, at specified election dates,
to measure financial assets and liabilities at their current fair value, with
the corresponding changes in fair value from period to period recognized in
the
income statement. Additionally, SFAS 159 establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar assets and liabilities. SFAS 159
is
effective for the Company starting on January 1, 2008. The Company is currently
evaluating the impact on its financial statements of adopting SFAS
159.
NOTE
2 - MARKETABLE SECURITIES
At
December 31, marketable securities were as follows:
|
|
2006
|
|
2005
|
|
In
millions
|
|
Amortized
cost or cost
|
|
Unrealized
losses
|
|
Fair
value
|
|
Amortized
cost or cost
|
|
Unrealized
gains
|
|
Fair
value
|
|
Short-term
marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
0.7
|
|
$
|
-
|
|
$
|
0.7
|
|
$
|
0.6
|
|
$
|
-
|
|
$
|
0.6
|
|
Commercial
paper
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4.5
|
|
|
-
|
|
|
4.5
|
|
Municipal
bonds
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
151.4
|
|
|
-
|
|
|
151.4
|
|
Total
|
|
$
|
0.7
|
|
$
|
-
|
|
$
|
0.7
|
|
$
|
156.5
|
|
$
|
-
|
|
$
|
156.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
18.7
|
|
$
|
(4.4
|
)
|
$
|
14.3
|
|
$
|
20.6
|
|
$
|
0.3
|
|
$
|
20.9
|
|
Total
|
|
$
|
18.7
|
|
$
|
(4.4
|
)
|
$
|
14.3
|
|
$
|
20.6
|
|
$
|
0.3
|
|
$
|
20.9
|
|
Long-term
marketable securities are included within Other assets on the Consolidated
Balance Sheet.
NOTE
3 - INVENTORIES
At
December 31, inventories were as follows:
In
millions
|
|
2006
|
|
2005
|
|
Raw
materials and supplies
|
|
$
|
496.5
|
|
$
|
436.3
|
|
Work-in-process
|
|
|
220.1
|
|
|
193.4
|
|
Finished
goods
|
|
|
762.3
|
|
|
622.4
|
|
|
|
|
1,478.9
|
|
|
1,252.1
|
|
Less
- LIFO reserve
|
|
|
158.6
|
|
|
123.3
|
|
Total
|
|
$
|
1,320.3
|
|
$
|
1,128.8
|
|
NOTE
4 - PROPERTY, PLANT AND EQUIPMENT
At
December 31, property, plant and equipment were as follows:
In
millions
|
|
2006
|
|
2005
|
|
Land
|
|
$
|
72.3
|
|
$
|
66.6
|
|
Buildings
|
|
|
605.7
|
|
|
536.7
|
|
Machinery
and equipment
|
|
|
1,555.4
|
|
|
1,391.5
|
|
Software
|
|
|
215.1
|
|
|
169.5
|
|
|
|
|
2,448.5
|
|
|
2,164.3
|
|
Accumulated
depreciation
|
|
|
1,172.2
|
|
|
1,006.8
|
|
Total
|
|
$
|
1,276.3
|
|
$
|
1,157.5
|
|
Depreciation
expense for 2006, 2005 and 2004 was $163.5 million, 164.2 million and $159.2
million, which include amounts for software amortization of $33.7 million,
$28.5
million and $25.0 million, respectively. Capitalized interest on construction
and other capital projects amounted to $5.8 million, $2.9 million and $2.2
million in 2006, 2005 and 2004, respectively.
NOTE
5 - GOODWILL AND OTHER INTANGIBLE ASSETS
The
changes in the carrying amount of goodwill are as follows:
|
|
Climate
|
|
Compact
|
|
|
|
|
|
|
|
|
|
|
|
Control
|
|
Vehicle
|
|
Construction
|
|
Industrial
|
|
Security
|
|
|
|
In
millions
|
|
Technologies
|
|
Technologies
|
|
Technologies
|
|
Technologies
|
|
Technologies
|
|
Total
|
|
Balance
at December 31, 2004
|
|
$
|
2,618.7
|
|
$
|
801.4
|
|
$
|
101.3
|
|
$
|
119.4
|
|
$
|
570.2
|
|
$
|
4,211.0
|
|
Acquisitions
and adjustments*
|
|
|
(35.7
|
)
|
|
(3.6
|
)
|
|
10.8
|
|
|
23.0
|
|
|
368.6
|
|
|
363.1
|
|
Dispositions
|
|
|
(0.3
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(0.3
|
)
|
Translation
|
|
|
(68.5
|
)
|
|
(3.3
|
)
|
|
(0.4
|
)
|
|
(5.0
|
)
|
|
(63.2
|
)
|
|
(140.4
|
)
|
Balance
at December 31, 2005
|
|
|
2,514.2
|
|
|
794.5
|
|
|
111.7
|
|
|
137.4
|
|
|
875.6
|
|
|
4,433.4
|
|
Acquisitions
and adjustments*
|
|
|
(22.2
|
)
|
|
(1.0
|
)
|
|
40.9
|
|
|
14.3
|
|
|
17.9
|
|
|
49.9
|
|
Dispositions
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Translation
|
|
|
53.1
|
|
|
4.4
|
|
|
1.1
|
|
|
5.5
|
|
|
57.4
|
|
|
121.5
|
|
Balance
at December 31, 2006
|
|
$
|
2,545.1
|
|
$
|
797.9
|
|
$
|
153.7
|
|
$
|
157.2
|
|
$
|
950.9
|
|
$
|
4,604.8
|
|
*
Includes
current year adjustments related to final purchase price allocation adjustments.
The
Company initially records as goodwill the excess of the purchase price over
the
preliminary fair value of the net assets acquired. Once the final valuation
has
been performed for each acquisition, there may be adjustments recorded to
goodwill.
During
2006, the Company made several bolt-on acquisitions for an aggregate purchase
price of approximately $120 million, which resulted in additional goodwill
of
$75.3 million. In January 2005, the Company completed the acquisition of the
remaining 70% interest in Italy-based CISA S.p.A for approximately $267 million
in cash and the assumption of approximately $244 million of debt. The Company
also made several other bolt-on acquisitions during 2005. The Company recorded
approximately $405 million of goodwill associated with these businesses acquired
during 2005.
The
following table sets forth the gross amount and accumulated amortization of
the
Company’s intangible assets at December 31:
|
|
2006
|
|
2005
|
|
|
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
|
In
millions
|
|
amount
|
|
amortization
|
|
amount
|
|
amortization
|
|
Customer
relationships
|
|
$
|
510.6
|
|
$
|
73.0
|
|
$
|
484.0
|
|
$
|
58.6
|
|
Trademarks
|
|
|
105.0
|
|
|
10.0
|
|
|
93.7
|
|
|
5.3
|
|
Patents
|
|
|
38.4
|
|
|
25.9
|
|
|
36.6
|
|
|
23.5
|
|
Other
|
|
|
50.6
|
|
|
24.3
|
|
|
55.4
|
|
|
20.7
|
|
Total
amortizable intangible assets
|
|
|
704.6
|
|
|
133.2
|
|
|
669.7
|
|
|
108.1
|
|
Indefinite-lived
intangible assets
|
|
|
164.8
|
|
|
-
|
|
|
155.4
|
|
|
-
|
|
Total
|
|
$
|
869.4
|
|
$
|
133.2
|
|
$
|
825.1
|
|
$
|
108.1
|
|
Intangible
asset amortization expense for 2006, 2005 and 2004 was $25.9 million, $30.1
million and $14.5 million, respectively. Estimated amortization expense on
existing intangible assets is approximately $20 million for each of the next
five fiscal years.
NOTE
6 - DEBT AND CREDIT FACILITIES
At
December 31, loans payable and the current maturities of long-term debt
consisted of the following:
In
millions
|
|
2006
|
|
2005
|
|
Current maturities
of long-term debt
|
|
$
|
626.8
|
|
$
|
856.6
|
|
Other
short-term borrowings
|
|
|
452.6
|
|
|
76.1
|
|
Total
|
|
$
|
1,079.4
|
|
$
|
932.7
|
|
The
weighted-average interest rate for total short-term debt at December 31, 2006
and 2005, was 6.3% and 6.8%, respectively.
As
of
December 31, 2006, the Company had $378.0 million outstanding under its
commercial paper program, which is included in Other short-term borrowings
above.
At
December 31, long-term debt consisted of:
In
millions
|
|
2006
|
|
2005
|
|
6.57%
Medium-term Note Due 2007
|
|
$
|
-
|
|
$
|
40.0
|
|
6.75%
Senior Notes Due 2008
|
|
|
124.9
|
|
|
124.8
|
|
4.75%
Senior Notes Due 2015
|
|
|
299.0
|
|
|
298.9
|
|
9.00%
Debentures Due 2021
|
|
|
125.0
|
|
|
125.0
|
|
7.20%
Debentures Due 2007-2025
|
|
|
135.0
|
|
|
142.5
|
|
6.48%
Debentures Due 2025
|
|
|
149.7
|
|
|
149.7
|
|
6.44%
Debentures Due 2027
|
|
|
-
|
|
|
200.0
|
|
Medium-term
Notes Due 2023, at an average rate of 8.22%
|
|
|
50.3
|
|
|
50.3
|
|
Other
loans and notes, at end-of-year average interest rates of
4.73%
|
|
|
|
|
|
|
|
in
2006 and 3.06% in 2005, maturing in various amounts to
2016
|
|
|
21.3
|
|
|
53.1
|
|
Total
|
|
$
|
905.2
|
|
$
|
1,184.3
|
|
The
fair
value of long-term debt, including current maturities of long-term debt, at
December 31, 2006 and 2005, was $1,593.2 million and $2,191.5 million,
respectively. The fair value of long-term debt was based upon quoted market
values.
Long-term
debt retirements are as follows: $626.8 million in 2007, $138.0 million in
2008,
$10.5 million in 2009, $10.5 million in 2010, $10.4 million in 2011 and $735.8
million thereafter. Long-term debt retirements for 2007 include $549.1 million
which only requires repayment at the option of the holder. If these options
are
not exercised, the final maturity dates of these instruments would range between
2027 and 2028. During the second quarter of 2005, the Company issued $300
million aggregate principal amount of its 4.75% Senior Notes due in 2015. The
notes are unconditionally guaranteed by IR-New Jersey.
The
Company's public debt has no financial covenants and its $2.0 billion revolving
credit lines have a debt-to-total capital covenant of 65%. As of December 31,
2006, the Company’s debt-to-total capital ratio was significantly beneath this
limit.
At
December 31, 2006, the Company’s committed revolving credit lines consisted of
two five-year lines totaling $2.0 billion, of which $750 million expires in
June
2009 and $1.25 billion expires in August 2010. These lines were unused and
provide support for the Company’s commercial paper program 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 unused lines with fees equal to a weighted average of
.0775% per annum. Available non-U.S. lines of credit were $786.9 million, of
which $612.0 million were unused at December 31, 2006. These lines provide
support for bank guarantees, letters of credit and other working capital
purposes.
Interest
income, included in Other income, net, was $16.3 million, $29.6 million and
$12.3 million for 2006, 2005 and 2004, respectively.
NOTE
7 - FINANCIAL INSTRUMENTS
The
Company also assesses both at the inception and at least quarterly thereafter,
whether the derivatives used in hedging transactions are highly effective in
offsetting the changes in the cash flows of the hedged item. Any ineffective
portion of a derivative instrument’s change in fair value is recorded directly
in Other income, net, in the period of change. There were no material
adjustments as a result of ineffectiveness to the results of operations for
the
years ended December 31, 2006, 2005 and 2004. If the hedging relationship ceases
to be highly effective, or it becomes probable that a forecasted transaction
is
no longer expected to occur, the hedging relationship will be undesignated
and
any future gains and losses on the derivative instrument would be recorded
in
Other income, net.
The
fair
market value of derivative financial instruments is determined through
market-based valuations and may not be representative of the actual gains or
losses that will be recorded when these instruments mature due to future
fluctuations in the markets in which they are traded.
Currency
and Commodity Hedging Instruments
The
estimated fair value of currency hedges outstanding at December 31, 2006 and
2005, was a projected loss of $1.6 million and projected gain of $1.6 million,
respectively. The notional amount of the currency hedges was $559.2 million
and
$252.1 million at December 31, 2006 and 2005, respectively. At December 31,
2006
and 2005, $1.1 million and $3.4 million, net of tax, respectively, was included
in accumulated other comprehensive income related to the fair value of currency
hedges. The amount expected to be reclassified to earnings over the next twelve
months is $1.1 million. The actual amounts that will be reclassified to earnings
may vary from this amount as a result of changes in market conditions. At
December 31, 2006, the maximum term of the Company’s currency hedges was 12
months.
During
2006, the Company did not purchase any commodity derivatives. However, it has
used fixed-priced supplier agreements, when available, to replace matured
commodity forward contracts. The estimated fair value of outstanding commodity
contracts at December 31, 2005, was minimal. The notional amount of the
outstanding commodity contracts was $0.7 million at December 31,
2005.
Other
Hedging Instruments
In
August
2006, the Company entered into two total return swaps (the Swaps) which are
derivative instruments used to hedge the Company's exposure to changes in its
share-based compensation expense. The aggregate notional amount of the Swaps
is
approximately $52.6 million, and the fair value of the Swaps was a gain of
$2.1
million as of December 31, 2006, which was recorded within Selling and
administrative expenses.
In
March
2005, the Company entered into interest rate locks for the forecasted issuance
of $300 million of Senior Notes due 2015. These interest rate locks met the
criteria to be accounted for as cash flow hedges of a forecasted transaction.
Consequently, the changes in fair value of the interest rate locks were deferred
in accumulated other comprehensive income and will be recognized into interest
expense over the life of the debt. At December 31, 2006, $9.5 million of
deferred losses was included in accumulated other comprehensive income related
to the interest rate locks and $0.9 million is expected to be reclassified
to
earnings over the next twelve months.
Concentration
of Credit Risk
The
counterparties to the Company's forward contracts consist of a number of highly
rated major international financial institutions. The Company could be exposed
to losses in the event of nonperformance by the counterparties. However, credit
ratings and concentration of risk of these financial institutions are monitored
on a continuous basis and present no significant credit risk to the Company.
Fair
Value of Financial Instruments
The
carrying value of cash and cash equivalents, 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.
NOTE
8 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The
Company sponsors several postretirement plans that cover certain eligible
employees. These plans provide for health-care benefits, and in some instances,
life insurance benefits. Postretirement health plans generally are contributory
and contributions are adjusted annually. Life insurance plans for retirees
are
primarily noncontributory. The Company funds the postretirement benefit costs
principally on a pay-as-you-go basis.
The
following table details information regarding the Company’s postretirement plans
at December 31:
In
millions
|
|
2006
|
|
2005
|
|
Change
in benefit obligations:
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
1,009.3
|
|
$
|
964.6
|
|
Service
cost
|
|
|
11.8
|
|
|
9.3
|
|
Interest
cost
|
|
|
55.0
|
|
|
54.9
|
|
Plan
participants' contributions
|
|
|
12.9
|
|
|
10.2
|
|
Actuarial
losses
|
|
|
43.4
|
|
|
52.4
|
|
Benefits
paid, net of Medicare Part D subsidy *
|
|
|
(97.0
|
)
|
|
(81.7
|
)
|
Other
|
|
|
(0.2
|
)
|
|
(0.4
|
)
|
Benefit
obligations at end of year
|
|
$
|
1,035.2
|
|
$
|
1,009.3
|
|
*
Amounts are net of Medicare Part D subsidy of $7.1 million in
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status:
|
|
|
|
|
|
|
|
Plan
assets less than benefit obligations
|
|
$
|
(1,035.2
|
)
|
$
|
(1,009.3
|
)
|
Unrecognized:
|
|
|
|
|
|
|
|
Prior
service gains
|
|
|
-
|
|
|
(26.4
|
)
|
Plan
net actuarial losses
|
|
|
-
|
|
|
295.4
|
|
Net
amount recognized
|
|
$
|
(1,035.2
|
)
|
$
|
(740.3
|
)
|
|
|
|
|
|
|
|
|
Amounts
included in the balance sheet:
|
|
|
|
|
|
|
|
Accrued
compensation and benefits
|
|
$
|
(79.0
|
)
|
$
|
(78.5
|
)
|
Postemployment
and other benefit liabilities
|
|
|
(956.2
|
)
|
|
(661.8
|
)
|
Net
amount recognized
|
|
$
|
(1,035.2
|
)
|
$
|
(740.3
|
)
|
As
explained further in Note 1, in 2006, the Company adopted SFAS 158, which
requires the Company to record the funded status of its postretirement plans
on
its balance sheet effective December 31, 2006. The adoption of SFAS 158 for
the
Company’s postretirement plans other than pensions resulted in an increase of
total liabilities of $300.4 million and a decrease of shareholders’ equity of
$135.7 million (net of tax of $164.7 million).
The
pretax amounts recognized in accumulated other comprehensive loss were as
follows:
In
millions
|
|
2006
|
|
2005
|
|
Prior
service gains
|
|
$
|
(21.8
|
)
|
|
-
|
|
Plan
net actuarial losses
|
|
|
322.2
|
|
|
-
|
|
Total
|
|
$
|
300.4
|
|
|
-
|
|
The
amounts expected to be recognized in net periodic postretirement benefits cost
in 2007 for prior service gains and plan net actuarial losses are $4.2 million
and $19.8 million, respectively.
The
components of net periodic postretirement benefit cost for the years ended
December 31, were as follows:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Service
cost
|
|
$
|
11.8
|
|
$
|
9.3
|
|
$
|
10.2
|
|
Interest
cost
|
|
|
55.0
|
|
|
54.9
|
|
|
57.3
|
|
Net
amortization of prior service gains
|
|
|
(4.2
|
)
|
|
(4.2
|
)
|
|
(7.2
|
)
|
Net
amortization of net actuarial losses
|
|
|
16.6
|
|
|
14.0
|
|
|
16.6
|
|
Net
periodic postretirement benefit cost
|
|
$
|
79.2
|
|
$
|
74.0
|
|
$
|
76.9
|
|
Assumptions:
|
|
2006
|
|
2005
|
|
2004
|
|
Weighted-average
discount rate assumption used to determine:
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligations at December 31
|
|
|
5.50%
|
|
|
5.50%
|
|
|
5.75%
|
|
Net
periodic benefit cost
|
|
|
5.50%
|
|
|
5.75%
|
|
|
6.00%
|
|
Assumed
health care cost trend rates at December 31:
|
|
|
|
|
|
|
|
|
|
|
Current
year medical inflation
|
|
|
11.00%
|
|
|
11.00%
|
|
|
11.00%
|
|
Ultimate
inflation rate
|
|
|
5.25%
|
|
|
5.25%
|
|
|
5.25%
|
|
Year
that the rate reaches the ultimate trend rate
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
A
1%
change in the medical trend rate assumed for postretirement benefits would
have
the following effects at December 31, 2006:
In
millions
|
|
1%
Increase
|
|
1%
Decrease
|
|
Effect
on total of service and interest cost components
|
|
$
|
6.3
|
|
$
|
5.0
|
|
Effect
on postretirement benefit obligation
|
|
|
81.0
|
|
|
68.4
|
|
Benefit
payments for postretirement benefits, which are net of expected plan participant
contributions and Medicare Part D subsidy, are expected to be paid as follows:
$72.0 million in 2007, $75.0 million in 2008, $76.1 million in 2009, $77.1
million in 2010, $79.1 million in 2011 and $380.7 million for the years 2012
to
2016.
NOTE
9 - PENSION PLANS
The
Company has noncontributory pension plans covering substantially all U.S.
employees. In addition, certain non-U.S. employees in other countries are
covered by pension plans. The Company’s pension plans for U.S. non-collectively
bargained employees provided benefits on a modest final average pay formula.
The
Company’s U.S. collectively bargained pension plans principally provide benefits
based on a flat benefit formula. Non-U.S. plans provide benefits based on
earnings and years of service. The Company maintains additional other
supplemental benefit plans for officers and other key employees.
The
following table details information regarding the Company’s pension plans at
December 31:
In
millions
|
|
2006
|
|
2005
|
|
Change
in benefit obligations:
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
3,033.2
|
|
$
|
2,942.4
|
|
Service
cost
|
|
|
54.6
|
|
|
52.9
|
|
Interest
cost
|
|
|
161.3
|
|
|
161.3
|
|
Employee
contributions
|
|
|
2.8
|
|
|
2.8
|
|
Acquisitions
|
|
|
-
|
|
|
18.4
|
|
Amendments
|
|
|
19.8
|
|
|
(2.0
|
)
|
Expenses
paid
|
|
|
(3.6
|
)
|
|
(2.7
|
)
|
Actuarial
losses
|
|
|
7.4
|
|
|
121.7
|
|
Benefits
paid
|
|
|
(205.8
|
)
|
|
(208.0
|
)
|
Currency
exchange impact
|
|
|
101.1
|
|
|
(87.0
|
)
|
Curtailments
and settlements
|
|
|
(7.6
|
)
|
|
(3.3
|
)
|
Other
|
|
|
12.5
|
|
|
36.7
|
|
Benefit
obligation at end of year
|
|
$
|
3,175.7
|
|
$
|
3,033.2
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
Fair
value at beginning of year
|
|
$
|
2,727.0
|
|
$
|
2,647.5
|
|
Actual
return on assets
|
|
|
325.7
|
|
|
232.3
|
|
Company
contributions
|
|
|
31.6
|
|
|
119.4
|
|
Employee
contributions
|
|
|
2.8
|
|
|
2.8
|
|
Expenses
paid
|
|
|
(3.6
|
)
|
|
(2.7
|
)
|
Benefits
paid
|
|
|
(205.8
|
)
|
|
(208.0
|
)
|
Currency
exchange impact
|
|
|
85.2
|
|
|
(68.0
|
)
|
Settlements
|
|
|
(8.0
|
)
|
|
(3.2
|
)
|
Other
|
|
|
2.4
|
|
|
6.9
|
|
Fair
value of assets end of year
|
|
$
|
2,957.3
|
|
$
|
2,727.0
|
|
In
millions
|
|
2006
|
|
2005
|
|
Funded
status:
|
|
|
|
|
|
|
|
Plan
assets less than the benefit obligations
|
|
$
|
(218.4
|
)
|
$
|
(306.2
|
)
|
Unrecognized:
|
|
|
|
|
|
|
|
Net
transition asset
|
|
|
-
|
|
|
2.9
|
|
Prior
service costs
|
|
|
-
|
|
|
53.5
|
|
Plan
net actuarial losses
|
|
|
-
|
|
|
672.1
|
|
Net
amount recognized
|
|
$
|
(218.4
|
)
|
$
|
422.3
|
|
|
|
|
|
|
|
|
|
Amounts
included in the balance sheet:
|
|
|
|
|
|
|
|
Long-term
prepaid expenses in other assets
|
|
$
|
119.3
|
|
$
|
435.1
|
|
Accrued
compensation and benefits
|
|
|
(12.6
|
)
|
|
(20.4
|
)
|
Postemployment
and other benefit liabilities
|
|
|
(325.1
|
)
|
|
(192.2
|
)
|
Pension
intangible included in other assets *
|
|
|
-
|
|
|
13.2
|
|
Accumulated
other comprehensive income *
|
|
|
-
|
|
|
186.6
|
|
Net
amount recognized
|
|
$
|
(218.4
|
)
|
$
|
422.3
|
|
*
Amounts
represent the impact of recording additional minimum liabilities (AMLs). Upon
the adoption of SFAS 158 AMLs are no longer required, as the funded status
of
the pension plans is recorded on the balance sheet.
As
explained further in Note 1, the Company adopted SFAS 158, which requires the
Company to record the funded status of its pension plans on its balance sheet
effective December 31, 2006. The adoption of FAS 158 resulted in a decrease
of
total assets of $476.0 million, total liabilities of $35.4 million and total
shareholders’ equity of $337.1 million (net of tax of $103.5 million).
The
pretax amounts recognized in accumulated other comprehensive loss were as
follows:
In
millions
|
|
2006
|
|
2005
|
|
Net
transition asset
|
|
$
|
2.1
|
|
|
-
|
|
Prior
service costs
|
|
|
63.0
|
|
|
-
|
|
Plan
net actuarial losses
|
|
|
574.5
|
|
|
-
|
|
Total
|
|
$
|
639.6
|
|
|
-
|
|
Weighted-average
assumptions used:
Benefit
obligations at December 31,
|
|
2006
|
|
2005
|
|
Discount
rate:
|
|
|
|
|
|
|
|
U.S.
plans
|
|
|
5.50%
|
|
|
5.50%
|
|
Non-U.S.
plans
|
|
|
5.00%
|
|
|
5.00%
|
|
Rate
of compensation increase:
|
|
|
|
|
|
|
|
U.S.
plans
|
|
|
4.00%
|
|
|
4.00%
|
|
Non-U.S.
plans
|
|
|
4.25%
|
|
|
4.00%
|
|
The
amounts expected to be recognized in net periodic pension cost during the year
ended 2007 for the net transition asset, prior service costs and plan net
actuarial losses are $0.9 million, $9.5 million and $18.4 million, respectively.
The Company does not expect to receive any plan assets during 2007.
The
accumulated benefit obligation for all defined benefit pension plans was
$3,005.3 million and $2,868.6 million at December 31, 2006 and 2005,
respectively. 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 $1,198.4 million, $1,101.5 million and
$861.9 million respectively, as of December 31, 2006 and $1,053.4 million,
$953.1 million and $746.6 million respectively, as of December 31,
2005.
Pension
benefit payments, are expected to be paid as follows: $192.1 million in 2007,
$192.0 million in 2008, $200.6 million in 2009, $227.3 million in 2010, $204.4
million in 2011 and $1,089.7 million for the years 2012 to 2016.
The
components of the Company’s pension related costs for the years ended December
31, include the following:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Service
cost
|
|
$
|
54.6
|
|
$
|
52.9
|
|
$
|
46.7
|
|
Interest
cost
|
|
|
161.3
|
|
|
161.3
|
|
|
173.0
|
|
Expected
return on plan assets
|
|
|
(218.9
|
)
|
|
(213.9
|
)
|
|
(221.1
|
)
|
Net
amortization of:
|
|
|
|
|
|
|
|
|
|
|
Prior
service costs
|
|
|
9.4
|
|
|
8.8
|
|
|
8.8
|
|
Transition
amount
|
|
|
0.9
|
|
|
0.9
|
|
|
0.9
|
|
Plan
net actual losses
|
|
|
25.4
|
|
|
22.4
|
|
|
18.2
|
|
Net
periodic pension cost
|
|
|
32.7
|
|
|
32.4
|
|
|
26.5
|
|
Curtailment/settlement
losses
|
|
|
-
|
|
|
4.0
|
|
|
41.1
|
* |
Net
periodic pension cost after curtailments/settlements
|
|
$
|
32.7
|
|
$
|
36.4
|
|
$
|
67.6
|
|
*
The
curtailment and settlement losses in 2004 are associated primarily with the
sale
of Dresser-Rand and Drilling Solutions.
Pension
expense for 2007 is projected to be approximately $21.7 million, utilizing
the
assumptions for calculating the pension benefit obligations at the end of
2006.
Weighted-average
assumptions used:
Net
periodic pension cost for the year ended December 31,
|
|
2006
|
|
2005
|
|
2004
|
Discount
rate:
|
|
|
|
|
|
|
|
|
|
U.S.
plans
|
|
|
5.50%
|
|
|
5.75%
|
|
|
6.00%
|
Non-U.S.
plans
|
|
|
5.00%
|
|
|
5.25%
|
|
|
5.75%
|
Rate
of compensation increase:
|
|
|
|
|
|
|
|
|
|
U.S.
plans
|
|
|
4.00%
|
|
|
4.00%
|
|
|
4.00%
|
Non-U.S.
plans
|
|
|
4.00%
|
|
|
4.00%
|
|
|
3.75%
|
Expected
return on plan assets:
|
|
|
|
|
|
|
|
|
|
U.S.
plans
|
|
|
8.50%
|
|
|
8.75%
|
|
|
8.75%
|
Non-U.S.
plans
|
|
|
7.25%
|
|
|
7.50%
|
|
|
7.50%
|
The
expected long-term rates of return on plan assets are determined as of the
measurement date. The expected long-term rates of return are projected to be
the
rates of return to be earned over the period until the benefits are paid.
Accordingly, the long-term rates of return should reflect the rates of return
on
present investments, expected contributions to be received during the current
year and on reinvestments over the period. The rates of return utilized reflect
the expected rates of return during the periods for which the payment of
benefits is deferred. The expected long-term rate of return on plan assets
is
based on what is achievable given the plan’s investment policy and the types of
assets held. Historical asset return trends for the larger plans are reviewed
over fifteen, ten and five-year periods. The actual rate of return for plan
assets over the last ten- and fifteen-year periods has exceeded the expected
rate of return used. The Company reviews each plan and its historical returns
and asset allocations to determine the appropriate expected long-term rate
of
return on plan assets to be used.
The
Company’s pension plans weighted-average asset allocations at December 31, 2006
and 2005, by asset category are as follows:
Asset
category
|
|
2006
|
|
2005
|
|
Equity
securities
|
|
|
62.0%
|
|
|
58.4%
|
|
Debt
securities
|
|
|
33.1%
|
|
|
33.5%
|
|
Real
estate
|
|
|
0.3%
|
|
|
0.3%
|
|
Other
(including cash)
|
|
|
4.6%
|
|
|
7.8%
|
|
Total
|
|
|
100.0%
|
|
|
100.0%
|
|
The
Company’s investment objectives in managing its defined benefit plan assets are
to ensure that present and future benefit obligations to all participants and
beneficiaries are met as they become due; to provide a total return that, over
the long term, minimizes the present value of required company contributions,
at
the appropriate levels of risk; and meet any statutory requirements, laws and
local regulatory agencies’ requirements. Key investment management decisions
reviewed regularly are asset allocations, investment manager performance,
investment advisors and trustees or custodians. An asset/liability modeling
(ALM) study is used as the basis for global asset allocation decisions and
updated approximately every five years or as required. As of December 31, 2006,
the Company’s strategic global asset allocation for its pension plans was 60% in
equity securities and 40% in debt securities and cash. The Company sets upper
limits and lower limits of plus or minus 5%. The asset allocations are reviewed
at least quarterly and any appropriate adjustments are made. Based on its most
recent ALM study, the Company in 2007 has begun to adjust its strategic global
asset allocation for its plans to be approximately 40% in equity securities
and
60% in debt securities, real estate and cash.
The
Company made contributions to its pension plans of $31.7 million in 2006, $119.4
million in 2005, and $170.1 million in 2004, respectively. The Company currently
projects that it will be required to contribute approximately $24 million to
its
plans worldwide in 2007. The Company’s policy allows it to fund an amount, which
could be in excess of the pension cost expensed, subject to the limitations
imposed by current tax regulations.
The
Company anticipates funding the plans in 2007 in accordance with contributions
required by funding regulations or the laws of each jurisdiction.
Most
of
the Company’s U.S. employees are covered by savings and other defined
contribution plans. Employer contributions are determined based on criteria
specific to the individual plans and amounted to approximately $48.6 million,
$46.8 million and $52.6 million in 2006, 2005 and 2004, respectively. The
Company's contributions relating to non-U.S. defined contribution plans and
other non-U.S. benefit plans were $8.8 million, $8.1 million and $11.1 million
in 2006, 2005 and 2004, respectively.
NOTE
10 - SHAREHOLDERS’ EQUITY
Common
Stock
On
August
3, 2005, the Company’s Board of Directors declared a two-for-one stock split,
effected in the form of a stock distribution on September 1, 2005. The Company
retained the current par value of $1.00 per share for all common shares. All
references in the financial statements and notes to the number of shares
outstanding, per share amounts, and stock option data of the Company’s common
shares were restated in 2005 to reflect the effect of the stock split.
Shareholders’ equity reflects the stock split by reclassifying from “retained
earnings” to “Class A common shares” an amount equal to the par value of the
additional shares arising from the split as of the distribution
date.
Also
in
August 2005, the Board of Directors of the Company expanded the Company’s
existing share repurchase program to allow the repurchase of up to a total
of $2
billion worth of Class A common shares. The plan was established on August
4,
2004, and initially authorized the Company to repurchase up to 20 million Class
A common shares. During 2006, the Company repurchased 27.7 million Class A
common shares at a total cost of $1,096.3 million, which completed the Company’s
share repurchases under the $2 billion plan. In December 2006, the Board of
Directors authorized a new share repurchase program for the repurchase of up
to
$2 billion worth of Class A common shares. No amounts were purchased under
the
December 2006 authorization as of December 31, 2006.
Effective
December 31, 2001, IR-Limited became the successor to IR-New Jersey, following
the reorganization. The reorganization was accomplished through a merger of
a
newly formed merger subsidiary into IR-New Jersey. Upon consummation of the
merger the shares of IR-New Jersey common stock automatically became IR-Limited
Class A common shares. As part of the reorganization, IR-New Jersey and certain
of its subsidiaries, immediately prior to the merger, transferred shares of
certain IR-New Jersey subsidiaries and issued certain debt in exchange for
which
IR-Limited issued 270,500,006 Class B common shares. The Class B common shares
are non-voting and pay comparable dividends to the Class A common shares. The
authorized share capital of IR-Limited is $1,175,010,000, consisting of (1)
1,175,000,000 common shares, par value $1.00 per share, which common shares
consist of (a) 600,000,000 Class A common shares and (b) 575,000,000 Class
B
common shares, and (2) 10,000,000 preference shares, par value $0.001 per share.
Class A common shares (and associated preference share purchase rights) were
issued to holders of IR-New Jersey common stock in the merger. No preference
shares were outstanding at December 31, 2006 or 2005.
The
Company has adopted a shareholder rights plan to protect shareholders from
attempts to acquire control of the Company at an inadequate price. The plan
will
expire on December 22, 2008, unless redeemed or exchanged earlier by the
Company, as provided in the rights plan. Under the rights plan, one preference
share purchase right was distributed for each Class A common share. As a result
of the two-for-one stock split in September 2005, the rights were adjusted
so
that each issued share of Class A common share now has associated with it
one-half of a right. The rights only become exercisable, and will trade
separately from the Class A common shares, 10 days after the first public
announcement that any person or group has acquired at least 15% of the Company’s
outstanding Class A common shares 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 a beneficial
ownership of at least 15% of the outstanding Class A common shares. Each right
entitles a holder to purchase one-thousandth of a share of Series A preferred
stock at an exercise price of $200.
If
any
person or group acquires 15% or more of the Company’s Class A common shares, the
rights not held by the 15% shareholder would become exercisable to purchase
the
Company’s Class A common shares at a 50% discount. The plan provides that, at
any time after a person or group becomes an acquiring person and prior to the
acquisition by that person or group of 50% or more of the outstanding Class
A
common shares, 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
Class A common share per two rights. The Company may elect to redeem the rights
at $0.01 per right.
Accumulated
Other Comprehensive (Loss) Income
The
components of accumulated comprehensive loss are as follows:
In
millions
|
|
2006
|
|
2005
|
|
Foreign
currency translation adjustment
|
|
$
|
263.9
|
|
$
|
5.1
|
|
Fair
value of derivatives qualifying
|
|
|
|
|
|
|
|
as
cash flow hedges, net of tax
|
|
|
(10.5
|
)
|
|
(6.7
|
)
|
Unrealized
gain (loss) on marketable securities,
|
|
|
|
|
|
|
|
net
of tax
|
|
|
(3.3
|
)
|
|
0.2
|
|
Pension
and postretirement obligation adjustments, net of tax
|
|
|
(608.2
|
)
|
|
(126.2
|
)
|
Accumulated
other comprehensive loss
|
|
$
|
(358.1
|
)
|
$
|
(127.6
|
)
|
NOTE
11 - SHARE-BASED COMPENSATION
Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
Payment,” (SFAS 123(R)) using the modified prospective method of adoption. SFAS
123(R) requires companies to recognize compensation expense for an amount equal
to the fair value of the share-based award issued. Under the modified
prospective method, financial statement amounts for prior periods have not
been
restated to reflect the fair value method of recognizing compensation cost
relating to stock options.
Prior
to
the adoption, the Company had accounted for stock option plans under the
recognition and measurement principles of Accounting Principles Board No. 25
“Accounting for Stock Issued to Employees” (APB 25). Compensation expense was
not recognized for employee stock options because they were granted with strike
prices that were not less than the fair market value of the Company’s stock on
the date of the grant. Compensation expense was recorded for other share-based
payments primarily including stock appreciation rights (SARs), performance
shares, deferred compensation and management incentive units awards. The
Company’s Incentive Stock Plans authorize the Company to issue stock options and
other share-based incentives. The total shares authorized by the shareholders
was 60.0 million (after adjustment for the 2005 stock split), of which 17.2
million remained available for future incentive awards at December 31, 2006.
Stock
Options
On
December 7, 2005, the Compensation Committee of the Company’s board of directors
approved the acceleration of the vesting of all outstanding and unvested stock
options under the Company’s stock plan for active employees, effective December
31, 2005. As a result of the acceleration, 9.7 million stock options became
exercisable, with exercise prices ranging from $19.53 to $39.85, and a
weighted-average exercise price of $34.95. In addition to the acceleration
of
the vesting date, the terms and conditions of the stock option agreements
governing the stock options were changed to prohibit transfers of any shares
acquired through the exercise of these accelerated options until the earlier
of
(i) the original vesting date of the option or (ii) termination of employment,
retirement, death or disability. The charge associated with the acceleration
of
vesting was approximately $1 million, which was recorded in the fourth quarter
of 2005 and represents the intrinsic value for the estimated number of stock
options that would have been forfeited had the acceleration not occurred. Stock
options issued after January 1, 2006, generally vest ratably over a three-year
period from their date of grant and expire at the end of 10 years.
The
average fair value of stock options granted during the year ended December
31,
2006, was $10.42, using the Black-Scholes option-pricing model, with the
following assumptions at the grant date:
|
|
|
|
|
Dividend
yield
|
|
|
1.49%
|
|
Volatility
|
|
|
27.70%
|
|
Risk-free
rate of return
|
|
|
4.47%
|
|
Expected
life
|
|
|
4.42
years
|
|
The
fair
value of each of the Company’s stock option awards is expensed on a
straight-line basis over the required service period, which is generally the
three-year vesting period of the options. For options granted to retirement
eligible employees, the Company recognized expense for the fair value of the
options at the grant date. Expected volatility is based on the implied
historical volatility from traded options on the Company’s stock. The risk-free
rate of interest for periods within the contractual life of the stock option
award is based on the yield curve of a zero-coupon U.S. Treasury bond on the
date the award is granted with a maturity equal to the expected term of the
award. The Company uses historical data to estimate forfeitures within its
valuation model. The Company’s expected life of the stock option awards is
derived from historical experience and represents the period of time that awards
are expected to be outstanding.
Changes
in options outstanding under the plans for the years 2004, 2005 and 2006 are
as
follows:
|
|
Shares
|
|
Weighted-
|
|
Aggregate
|
|
Weighted-
|
|
|
|
subject
|
|
average
|
|
intrinsic
|
|
average
|
|
|
|
to
option
|
|
exercise
price
|
|
value
(millions)
|
|
remaining
life
|
|
December
31, 2003
|
|
|
21,296,994
|
|
$
|
21.77
|
|
|
|
|
|
|
|
Granted
|
|
|
6,555,680
|
|
|
32.24
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7,847,656
|
)
|
|
21.85
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,151,544
|
)
|
|
25.38
|
|
|
|
|
|
|
|
December
31, 2004
|
|
|
18,853,474
|
|
|
25.19
|
|
|
|
|
|
|
|
Granted
|
|
|
6,091,600
|
|
|
38.70
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,921,949
|
)
|
|
23.10
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(1,140,649
|
)
|
|
33.77
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
19,882,476
|
|
|
29.26
|
|
|
|
|
|
|
|
Granted
|
|
|
3,305,190
|
|
|
39.33
|
|
|
|
|
|
|
|
Exercised
|
|
|
(3,707,839
|
)
|
|
25.77
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(314,885
|
)
|
|
38.82
|
|
|
|
|
|
|
|
Outstanding
December 31, 2006
|
|
|
19,164,942
|
|
$
|
31.53
|
|
$
|
146.6
|
|
|
6.2
|
|
Exercisable
December 31, 2006
|
|
|
16,109,612
|
|
$
|
30.03
|
|
$
|
146.6
|
|
|
5.7
|
|
The
following table summarizes information concerning currently outstanding and
exercisable options:
|
|
|
|
|
|
Options
outstanding
|
|
Options
exercisable
|
|
Range
of exercise price
|
|
Number
outstanding
at
December
31,
2006
|
|
Weighted-
average
remaining
life
|
|
Weighted-
average
exercise
price
|
|
Number
exercisable
at
December
31,
2006
|
|
Weighted-
average
remaining
life
|
|
Weighted-
average
exercise
price
|
|
$
|
15.00
|
|
-
|
|
$
|
20.00
|
|
|
2,069,652
|
|
|
5.5
|
|
$
|
19.50
|
|
|
2,069,652
|
|
|
5.5
|
|
$
|
19.50
|
|
|
20.01
|
|
-
|
|
|
25.00
|
|
|
3,009,224
|
|
|
3.8
|
|
|
21.54
|
|
|
3,009,224
|
|
|
3.8
|
|
|
21.54
|
|
|
25.01
|
|
-
|
|
|
30.00
|
|
|
1,597,081
|
|
|
2.4
|
|
|
26.16
|
|
|
1,597,081
|
|
|
2.4
|
|
|
26.16
|
|
|
30.01
|
|
-
|
|
|
35.00
|
|
|
4,401,706
|
|
|
6.1
|
|
|
32.26
|
|
|
4,401,706
|
|
|
6.1
|
|
|
32.26
|
|
|
35.01
|
|
-
|
|
|
40.00
|
|
|
8,059,279
|
|
|
8.1
|
|
|
38.97
|
|
|
5,031,949
|
|
|
7.6
|
|
|
38.70
|
|
|
40.01
|
|
-
|
|
|
45.00
|
|
|
28,000
|
|
|
9.4
|
|
|
41.80
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
16.83
|
|
-
|
|
$
|
43.16
|
|
|
19,164,942
|
|
|
6.2
|
|
$
|
31.53
|
|
|
16,109,612
|
|
|
5.7
|
|
$
|
30.03
|
|
At
December 31, 2006, there was $15.3 million of total unrecognized compensation
cost from stock option arrangements granted under the plan, which is related
to
unvested shares of non-retirement eligible employees. This compensation will
be
recognized over the required service period, which is generally the three-year
vesting period. The aggregate intrinsic value of options exercised during the
year ended December 31, 2006 and 2005 was $63.3 million and $69.5 million,
respectively.
SARs
SARs
generally vest ratably over a three-year period from the date of grant and
expire at the end of ten years. Effective August 2, 2006, all exercised SARs
are
settled with the Company’s Class A common shares. Previously, exercised SARs
were paid in cash. The following table summarizes the information for currently
outstanding SARs:
|
|
Shares
|
|
Weighted-
|
|
Aggregate
|
|
Weighted-
|
|
|
|
subject
|
|
average
|
|
intrinsic
|
|
average
|
|
|
|
to
exercise
|
|
exercise
price
|
|
value
(millions)
|
|
remaining
life
|
|
December
31, 2003
|
|
|
1,779,804
|
|
$
|
21.72
|
|
|
|
|
|
|
|
Granted
|
|
|
627,340
|
|
|
32.22
|
|
|
|
|
|
|
|
Exercised
|
|
|
(671,256
|
)
|
|
22.50
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(126,090
|
)
|
|
26.12
|
|
|
|
|
|
|
|
December
31, 2004
|
|
|
1,609,798
|
|
|
25.12
|
|
|
|
|
|
|
|
Granted
|
|
|
617,700
|
|
|
38.69
|
|
|
|
|
|
|
|
Exercised
|
|
|
(345,556
|
)
|
|
23.15
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(112,808
|
)
|
|
29.95
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
1,769,134
|
|
|
30.05
|
|
|
|
|
|
|
|
Granted
|
|
|
395,020
|
|
|
39.12
|
|
|
|
|
|
|
|
Exercised
|
|
|
(327,717
|
)
|
|
24.49
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(142,683
|
)
|
|
32.18
|
|
|
|
|
|
|
|
Outstanding
December 31, 2006
|
|
|
1,693,754
|
|
$
|
33.11
|
|
$
|
10.2
|
|
|
6.9
|
|
Exercisable
December 31, 2006
|
|
|
834,304
|
|
$
|
28.17
|
|
$
|
9.1
|
|
|
5.6
|
|
Performance
Shares
The
Company has a performance share program for key employees. The
program provides annual awards for the achievement of pre-established long-term
strategic initiatives and annual financial performance of the Company. The
annual target award level is expressed as a number of the Company’s Class A
common shares and the award is paid in cash.
Deferred
Compensation
The
Company allows key employees and non-employee directors to defer a portion
of
their eligible compensation into a number of investment choices, including
Class
A common share equivalents. The portion deferred into Class A common share
equivalents is currently subject to market fluctuations based on the Company’s
share price. Effective
August 2, 2006, the Compensation Committee eliminated the provision in the
deferred compensation plans making plan participants eligible to receive a
20%
supplemental amount on deferrals invested for five years in the Company's Class
A common share equivalents. In addition, effective August 2, 2006, the
Compensation Committee vested the previously awarded, but unvested, portions
of
the 20% supplemental amount awarded under the deferred compensation
plans.
The
Company reversed $0.4 million of expense in the third quarter of 2006 as a
result of the changes to the deferred compensation plans.
Other
Plans
The
Company maintains a shareholder-approved Management Incentive Unit Award Plan.
Under the plan, participating key employees were awarded incentive units. When
dividends are paid on Class A common shares, phantom dividends are awarded
to
unit holders, one-half of which is paid in cash, the remaining half of which
is
credited to the participants’ account in the form of Class A common share
equivalents. The value of the actual incentive units is never paid to
participants, and only the fair value of accumulated common share equivalents
is
paid in cash upon the participants’ retirement. The number of common share
equivalents credited to participants’ accounts at December 31, 2006 is 271,040.
Stock
grants were issued prior to February 2000 as an incentive plan for certain
key
employees, with varying vesting periods. At December 31, 2006, there were
272,678 stock grants outstanding, all of which were vested. Effective August
2,
2006, all remaining stock grants will be settled with the Company’s Class A
common shares.
Compensation
Expense
Share-based
compensation expense is included in Selling and administrative expenses. The
following table summarizes the expenses recognized:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Stock
options
|
|
$
|
16.2
|
|
$
|
1.0
|
|
$
|
-
|
|
SARs
|
|
|
5.6
|
|
|
2.4
|
|
|
9.1
|
|
Performance
shares
|
|
|
11.2
|
|
|
6.8
|
|
|
24.9
|
|
Deferred
compensation
|
|
|
(0.4
|
)
|
|
(0.9
|
)
|
|
10.9
|
|
Other
|
|
|
-
|
|
|
0.1
|
|
|
10.4
|
|
Pre-tax
expense
|
|
|
32.6
|
|
|
9.4
|
|
|
55.3
|
|
Tax
benefit
|
|
|
12.5
|
|
|
3.6
|
|
|
21.2
|
|
After
tax expense
|
|
$
|
20.1
|
|
$
|
5.8
|
|
$
|
34.1
|
|
Compensation
expense was recognized during the year ended December 31, 2006, for all
share-based option awards granted since January 1, 2006, based on the grant
date
fair value in accordance with the provisions of SFAS 123(R). The Company
recorded additional stock-option expense of $16.2 million in 2006 associated
with the adoption of SFAS 123(R).
The
following table illustrates the effect on net earnings and earnings per share
had the Company applied the fair value recognition provisions of SFAS 123,
“Accounting for Stock-Based Compensation,” for the year ended December 31, 2005
and 2004:
In
millions, except per share amounts
|
|
2005
|
|
2004
|
|
Net
earnings, as reported
|
|
$
|
1,054.2
|
|
$
|
1,218.7
|
|
Add
(Deduct): Stock-based employee compensation
|
|
|
|
|
|
|
|
(income)
expense included in reported net
|
|
|
|
|
|
|
|
income,
net of tax
|
|
|
5.8
|
|
|
34.1
|
|
Deduct:
Total stock-based employee compensation
|
|
|
|
|
|
|
|
expense
determined under fair value based
|
|
|
|
|
|
|
|
method
for all awards, net of tax
|
|
|
79.7
|
|
|
63.9
|
|
Pro
forma net earnings
|
|
$
|
980.3
|
|
$
|
1,188.9
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
3.12
|
|
$
|
3.52
|
|
Pro
forma
|
|
|
2.90
|
|
|
3.43
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
3.09
|
|
$
|
3.47
|
|
Pro
forma
|
|
|
2.87
|
|
|
3.39
|
|
The
average fair value of stock options granted during the years ended December
31,
2005 and 2004 was $12.67 and $11.39 respectively, using the Black-Scholes
option-pricing model, with the following assumptions at the grant
date:
|
|
2005
|
|
2004
|
|
Dividend
yield
|
|
|
1.30%
|
|
|
1.19%
|
|
Volatility
|
|
|
35.57%
|
|
|
39.31%
|
|
Risk-free
rate of return
|
|
|
3.60%
|
|
|
3.29%
|
|
Expected
life
|
|
|
5
years
|
|
|
5
years
|
|
NOTE
12 - INCOME TAXES
Earnings
before income taxes for the years ended December 31, were taxed within the
following jurisdictions:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
United
States
|
|
$
|
303.9
|
|
$
|
337.2
|
|
$
|
199.9
|
|
Non-U.S.
|
|
|
996.1
|
|
|
920.6
|
|
|
768.3
|
|
Total
|
|
$
|
1,300.0
|
|
$
|
1,257.8
|
|
$
|
968.2
|
|
The
provision was as follows:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Current
tax expense:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
161.8
|
|
$
|
63.8
|
|
$
|
132.6
|
|
Non-U.S.
|
|
|
129.2
|
|
|
76.9
|
|
|
65.0
|
|
Total
current
|
|
|
291.0
|
|
|
140.7
|
|
|
197.6
|
|
Deferred
tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
(111.7
|
)
|
|
23.7
|
|
|
(78.9
|
)
|
Non-U.S.
|
|
|
52.4
|
|
|
40.3
|
|
|
19.7
|
|
Total
deferred
|
|
|
(59.3
|
)
|
|
64.0
|
|
|
(59.2
|
)
|
Total
provision for income taxes
|
|
$
|
231.7
|
|
$
|
204.7
|
|
$
|
138.4
|
|
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
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Statutory
U.S. rate
|
|
|
35.0%
|
|
|
35.0%
|
|
|
35.0%
|
|
Increase
(decrease) in rates resulting from:
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
operations
|
|
|
(19.3)
|
|
|
(17.6)
|
|
|
(19.0)
|
|
Manufacturing
exemption / Extraterritorial income
|
|
|
(0.3)
|
|
|
(0.7)
|
|
|
(2.4)
|
|
State
and local income taxes, net of U.S. tax
|
|
|
0.4
|
|
|
0.7
|
|
|
0.7
|
|
Puerto
Rico - Sec 936 Credit
|
|
|
-
|
|
|
(0.9)
|
|
|
(1.2)
|
|
Other
|
|
|
2.0
|
|
|
(0.2)
|
|
|
1.2
|
|
Effective
tax rate
|
|
|
17.8%
|
|
|
16.3%
|
|
|
14.3%
|
|
At
December 31, a summary of the deferred tax accounts follows:
In
millions
|
|
2006
|
|
2005
|
|
Current
deferred assets and (liabilities)
|
|
|
|
|
|
|
|
Difference
between book and tax bases
|
|
|
|
|
|
|
|
of
inventories and receivables
|
|
$
|
(6.7
|
)
|
$
|
23.4
|
|
Difference
between book and tax expense for
|
|
|
|
|
|
|
|
other
employee-related benefits and allowances
|
|
|
32.8
|
|
|
70.6
|
|
Other
reserves and valuation allowances
|
|
|
|
|
|
|
|
in
excess of tax deductions
|
|
|
158.4
|
|
|
233.3
|
|
Other
differences between tax and
|
|
|
|
|
|
|
|
financial
statement values
|
|
|
72.0
|
|
|
(14.8
|
)
|
Gross
current deferred net tax assets
|
|
|
256.5
|
|
|
312.5
|
|
|
|
|
|
|
|
|
|
Noncurrent
deferred assets and (liabilities)
|
|
|
|
|
|
|
|
Postretirement
and postemployment benefits
|
|
|
|
|
|
|
|
other
than pensions in excess of tax deductions
|
|
|
452.7
|
|
|
321.1
|
|
Tax
benefit of operating losses and credit
|
|
|
|
|
|
|
|
carryforwards
|
|
|
633.8
|
|
|
484.1
|
|
Other
reserves in excess of tax expense
|
|
|
93.1
|
|
|
77.7
|
|
Tax
depreciation / amortization in excess of
|
|
|
|
|
|
|
|
book
depreciation / amortization
|
|
|
(428.6
|
)
|
|
(408.4
|
)
|
Pension
contributions in excess of book expense
|
|
|
43.5
|
|
|
(148.5
|
)
|
Gross
noncurrent deferred net tax assets
|
|
|
794.5
|
|
|
326.0
|
|
Less:
deferred tax valuation allowances
|
|
|
(184.9
|
)
|
|
(107.9
|
)
|
Total
net deferred tax assets
|
|
$
|
866.1
|
|
$
|
530.6
|
|
Included
in Accrued expenses and other current liabilities on the Consolidated Balance
Sheet are $389.0 million and $376.8 million of current income taxes payable
at
December 31, 2006 and 2005, respectively. Included in Prepaid expenses and
deferred income taxes on the Consolidated Balance Sheet are $287.9 million
and
$309.3 million of current deferred tax assets at December 31, 2006 and 2005,
respectively.
At
December 31, 2006, net U.S and non-U.S. federal operating loss carryforwards
of
$1,232.8 million are available to offset taxable income in future years. The
U.S. federal carryforwards will begin to expire in 2022, while a significant
portion of the non-U.S. net operating losses generally have unlimited
carryforward periods. The net operating loss carryforwards were incurred in
various jurisdictions, predominantly the United States, the United Kingdom,
Brazil, Germany and Switzerland. State net operating loss carryforwards at
December 31, 2006 of $6,089.4 million are available to offset taxable income
in
future periods. The state carryforwards will expire in future years generally
through 2026. A valuation allowance of $184.9 million has been recorded for
certain state and non-U.S. carryforwards, which will likely not be realized.
The
change in the valuation allowance is predominantly attributable to increases
in
foreign net operating loss carryforwards and other foreign deferred tax assets.
Approximately $11 million of the valuation allowance was acquired in prior
year
business combination transactions and any tax benefit, when realized, will
reduce goodwill rather than the income tax provision.
At
December 31, 2006, no deferred taxes have been provided for any portion of
the
$5.4 billion of undistributed earnings of the Company’s subsidiaries, since
these earnings have been, and under current plans will continue to be,
permanently reinvested in these subsidiaries, and it is not practicable to
estimate the amount of additional taxes which may be payable upon distribution.
Tax
incentives, in the form of tax holidays, have been granted in certain
jurisdictions to encourage industrial development. The expiration of these
tax
holidays varies by country. The most significant tax holidays relate to the
Company’s locations in China, which have generally received a 2-year full
holiday followed by a 3-year 50% exemption, and the Company’s qualifying
locations in Ireland, which were granted a 10% tax rate through 2010. The 2006
benefit for all tax holidays was approximately $5.1 million, or $0.02 of income
per dilutive share. The American Jobs Creation Act (the AJCA) replaced an export
incentive with a deduction from U.S. domestic manufacturing income. This
provision of the AJCA did not have a material impact on the Company's income
tax
provision for 2006 or 2005.
On
October 6, 2006, the Company received a notice from the Internal Revenue Service
(IRS) containing proposed adjustments to the Company's tax filings in connection
with an audit of the 1998 through 2000 tax years. The principal proposed
adjustments consist of the disallowance of certain capital losses taken in
the
Company's tax returns in 1999 and 2000. The disallowance would result in
additional taxes and penalties of approximately $155 million, plus interest
through October 6, 2006 of approximately $62 million. The Company disputes
the
IRS's position and intends to contest the proposed disallowance. The Company
added approximately $27 million ($0.08 per dilutive share) to its previously
established reserves, as a charge in the third quarter of 2006. After taking
this charge into account, the Company believes that it has adequately reserved
for the ultimate resolution of this issue. Should the IRS prevail in its
disallowance of the capital losses and imposition of penalties and interest,
it
would result in a cash outflow of approximately $155 million, plus interest
through the payment date. The issues raised in the notice are not related to
the
Company's reorganization in Bermuda, which was effective December 31,
2001.
As
part
of the audit of the tax years 2000-2002, the Company is actively engaged in
discussion with the Internal Revenue Service regarding issues related to its
reincorporation in Bermuda in 2001. The Company has provided for reasonably
foreseeable resolution of all tax disputes, but
will
adjust its estimate if significant events so dictate. In the event that the
ultimate resolution of an issue differs materially from the original or adjusted
estimate of the Company, the effect will be recorded in the provision for income
taxes in the period that the matter is finally resolved.
NOTE
13
-
DISCONTINUED
OPERATIONS
The
Company has continued its transition to become a more diversified company with
strong growth prospects by divesting cyclical, low-growth, asset intensive
businesses. The components of discontinued operations for 2006, 2005 and 2004
are as follows:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
882.0
|
|
Retained
(costs) income, net of tax
|
|
$
|
(36.5
|
)
|
$
|
(34.1
|
)
|
$
|
54.0
|
|
Net
gain on disposals, net of tax
|
|
|
0.7
|
|
|
35.2
|
|
|
334.9
|
|
Total
discontinued operations, net of tax
|
|
$
|
(35.8
|
)
|
$
|
1.1
|
|
$
|
388.9
|
|
2006
Retained
costs for discontinued operations mainly include costs related to postretirement
benefits and product and legal costs (mostly asbestos-related) from previously
sold businesses. Net gain on disposals represents additional gains from
previously sold businesses.
2005
Discontinued
operations for the year ended December 31, 2005, amounted to income of $1.1
million, net of tax benefits of $48.2 million. This total includes net after
tax
gains of $35.2 million, mainly due to divested businesses, primarily
Ingersoll-Dresser Pump Company (IDP) ($12.0 million), Dresser-Rand ($10.3
million) and Waterjet ($12.2 million), primarily from the resolution of tax
matters regarding these divestitures. The after-tax loss from retained costs
of
discontinued operations amounted to $34.1 million. These costs mainly include
costs related to postretirement benefits and product and legal costs (mostly
asbestos-related) from previously sold businesses.
2004
Discontinued
operations for the year ended December 31, 2004, amounted to income of $388.9
million, net of tax provisions of $343.5 million. This total includes net after
tax gains on disposals of $334.9 million, primarily comprised of gains from
the
sales of Dresser-Rand ($282.5 million) and Drilling Solutions ($38.6 million).
After-tax income from discontinued operations amounted to $54.0 million. This
income includes profits from divested businesses, primarily Dresser-Rand ($45.0
million) and Engineered Solutions ($20.9 million), which includes an antidumping
subsidy net of tax of $29.5 million. This income is partially offset by retained
costs related to IDP ($14.9 million), which mostly include product liability
costs primarily related to asbestos liability claims and employee benefit
costs.
NOTE
14 - EARNINGS PER SHARE
Basic
earnings per share is computed by dividing net earnings by the weighted-average
number of Class A common shares outstanding. Diluted earnings per share is
based
on the weighted-average number of Class A common shares outstanding, as well
as
potentially dilutive common shares, which in the Company’s case, includes shares
issuable under share-based compensation plans. The following table details
the
weighted-average number of Class A common shares outstanding for basic and
diluted earnings per share calculations at December 31:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Weighted-average
number of basic shares
|
|
|
319.9
|
|
|
337.6
|
|
|
346.5
|
|
Shares
issuable under incentive stock plans
|
|
|
3.2
|
|
|
3.7
|
|
|
4.4
|
|
Weighted-average
number of diluted shares
|
|
|
323.1
|
|
|
341.3
|
|
|
350.9
|
|
Anti-dilutive
shares
|
|
|
3.2
|
|
|
0.1
|
|
|
-
|
|
NOTE
15 - COMMITMENTS AND CONTINGENCIES
The
Company is involved in various litigations, claims and administrative
proceedings, including environmental and product liability matters. 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 the liability which may result
from these legal matters would not have a material adverse effect on the
financial condition, results of operations, liquidity or cash flows of the
Company.
Environmental
remediation costs are determined on a site-by-site basis and accruals are made
when it is probable a liability exists and the cost can be estimated reasonably.
The Company estimates the amount of recurring and non-recurring costs at each
site using internal and external experts. In arriving at cost estimates the
following factors are considered: the type of contaminant, the stage of the
clean-up, applicable law and existing technology. These estimates, and the
resultant accruals, are reviewed and updated quarterly to reflect changes in
facts and law. The Company does not discount its liability or assume any
insurance recoveries when environmental liabilities are recorded.
Certain
wholly owned subsidiaries of the Company are named as defendants in
asbestos-related lawsuits in state and federal courts. In virtually all of
the
suits, a large number of other companies have also been named as defendants.
The
vast majority of those claims have been filed against IR-New Jersey and
generally allege injury caused by exposure to asbestos contained in certain
of
IR-New Jersey’s products. Although IR-New Jersey was neither a producer nor a
manufacturer of asbestos, some of its formerly manufactured products utilized
asbestos-containing components, such as gaskets purchased from third-party
suppliers.
All
asbestos-related claims resolved to date have been dismissed or settled. For
the
years ended December 31, 2006, 2005 and 2004, total costs for settlement and
defense of asbestos claims after insurance recoveries and net of tax were
approximately $31.6 million, $16.8 million and $16.5 million, respectively.
The
increase in asbestos-related costs in 2006 compared with 2005 and 2004 is
primarily attributable to revised estimates for future recoveries to be received
from the Company’s insurance carriers, as well as declining levels of insurance
coverage available for cost recoveries. With the assistance of independent
advisors, the Company performs a thorough analysis, updated periodically, of
its
actual and anticipated future asbestos liabilities projected seven years in
the
future. Based upon such analysis, the Company believes that its reserves and
insurance are adequate to cover its asbestos liabilities, and that these
asbestos liabilities are not likely to have a material adverse effect on its
financial position, results of operations, liquidity or cash flows.
Legislation
recently under consideration in Congress concerns pending and future
asbestos-related personal injury claims. Whether and when such legislation
will
become law, and the final provisions of such legislation, are unknown.
Consequently, the Company cannot predict with any reasonable degree of certainty
what effect, if any, such legislation would have upon the Company’s financial
position, results of operations or cash flows.
The
Company sells products on a continuous basis under various arrangements through
institutions that provide leasing and product financing alternatives to retail
and wholesale customers. Under these arrangements, the Company is contingently
liable for loan guarantees and residual values of equipment of approximately
$18.8 million, including consideration of ultimate net loss provisions. The
risk
of loss to the Company is minimal, and historically, only immaterial losses
have
been incurred relating to these arrangements since the fair value of the
underlying equipment that serves as collateral is generally in excess of the
contingent liability. Management believes these guarantees will not adversely
affect the consolidated financial statements.
The
Company has remained contingently liable for approximately $13.8 million
relating to performance bonds associated with prior sale of products of IDP,
which the Company divested in 2000. The acquirer of IDP is the primary obligor
under these performance bonds; however, should the acquirer default under these
arrangements the Company would be required to satisfy these financial
obligations. The Company estimates that $12.7 million of the obligation will
expire during 2007. The remainder extends through 2008.
The
Company is contingently liable for customs duties in certain non-U.S. countries
which totaled $5.8 million at December 31, 2006. These amounts are not accrued
as the Company intends on exporting the product to another country for final
sale.
In
connection with the disposition of certain businesses and facilities, the
Company has indemnified the purchasers for the expected cost of remediation
of
environmental contamination, if any, existing on the date of disposition. Such
expected costs are accrued when environmental assessments are made or
remediation efforts are probable and the costs can be reasonably
estimated.
The
following represents the changes in the Company’s product warranty liability for
2006 and 2005:
In
millions
|
|
2006
|
|
2005
|
|
Balance
at beginning of year
|
|
$
|
183.5
|
|
$
|
190.5
|
|
Reductions
for payments
|
|
|
(99.8
|
)
|
|
(85.4
|
)
|
Accruals
for warranties issued during the current period
|
|
|
108.0
|
|
|
70.2
|
|
Changes
for accruals related to preexisting warranties
|
|
|
(2.0
|
)
|
|
11.9
|
|
Acquisitions
|
|
|
0.4
|
|
|
1.1
|
|
Translation
|
|
|
5.1
|
|
|
(4.8
|
)
|
Balance
at end of the year
|
|
$
|
195.2
|
|
$
|
183.5
|
|
Certain
office and warehouse facilities, transportation vehicles and data processing
equipment are leased. Total rental expense was $73.8 million in 2006, $61.9
million in 2005 and $62.7 million in 2004. Minimum lease payments required
under
non-cancelable operating leases with terms in excess of one year for the next
five years and thereafter, are as follows: $57.7 million in 2007, $43.7 million
in 2008, $31.3 million in 2009, $18.3 million in 2010, $13.8 million in 2011
and
$20.6 million thereafter.
NOTE
16 - BUSINESS SEGMENT INFORMATION
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 and operating margins. Intercompany sales between segments are considered
immaterial.
The
Company has divested various businesses over the past few years as it moves
to
being a leading global diversified industrial enterprise. During 2004, the
Company sold its Drilling Solutions and Dresser-Rand businesses. The results
of
these divested businesses have been excluded from the previous reportable
segments for business segment reporting and has been shown separately in
“Discontinued operations, net of tax” in the financial statements.
During
the first quarter of 2005, the Company realigned its internal organization
and
operating segments to reflect its market focus and to promote greater
transparency of results. The former Infrastructure segment was disaggregated
into two segments - the Compact Vehicle Technologies segment and the
Construction Technologies segment. The 2004 segment results have been restated
to conform to this change.
Each
reportable segment is based primarily on the types of products it generates.
The
operating segments have been aggregated based on the aggregation criteria and
quantitative thresholds as required by SFAS No. 131, “Disclosures About Segments
of an Enterprise and Related Information.” A description of the Company’s
reportable segments is as follows:
Climate
Control Technologies provides solutions to transport, preserve, store and
display temperature-sensitive products by engaging in the design, manufacture,
sale and service of transport temperature control units, HVAC systems,
refrigerated display merchandisers, beverage coolers, auxiliary power units
and
walk-in storage coolers and freezers. The segment includes the Thermo King
and
Hussmann brands.
The
Compact Vehicle Technologies segment is engaged in the design, manufacture,
sale
and service of skid-steer loaders, all-wheel steer loaders, compact track
loaders, compact excavators, attachments, golf vehicles and utility vehicles.
The segment includes the Bobcat and Club Car brands.
Construction
Technologies is engaged in the design, manufacture, sale and service of road
construction and repair equipment, portable power products, general-purpose
construction equipment, attachments and portable light towers and compressors.
The segment is comprised of the Utility Equipment, Road Development and
Attachments businesses.
Industrial
Technologies is focused on providing solutions to enhance customers’ industrial
and energy efficiency, mainly by engaging in the design, manufacture, sale
and
service of compressed air systems, tools, fluid and material handling and energy
generation systems. The segment includes the Air Solutions and Productivity
Solutions businesses.
Security
Technologies is engaged in the design, manufacture, sale and service of
mechanical and electronic security products, biometric access control systems,
and security and scheduling software. The segment includes the Schlage, LCN,
Von
Duprin and CISA brands.
A
summary
of operations by reportable segments for the years ended December 31, were
as
follows:
Dollar
amounts in millions
|
|
2006
|
|
2005
|
|
2004
|
|
Climate
Control Technologies
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,171.0
|
|
$
|
2,853.6
|
|
$
|
2,793.7
|
|
Operating
income
|
|
|
356.0
|
|
|
315.1
|
|
|
309.1
|
|
Operating
income as a percentage of revenues
|
|
|
11.2
|
%
|
|
11.0
|
%
|
|
11.1
|
%
|
Depreciation
and amortization
|
|
|
52.1
|
|
|
53.7
|
|
|
59.2
|
|
Capital
expenditures
|
|
|
25.6
|
|
|
10.4
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Compact
Vehicle Technologies
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2,641.2
|
|
|
2,681.1
|
|
|
2,261.7
|
|
Operating
income
|
|
|
358.0
|
|
|
415.2
|
|
|
332.0
|
|
Operating
income as a percentage of revenues
|
|
|
13.6
|
%
|
|
15.5
|
%
|
|
14.7
|
%
|
Depreciation
and amortization
|
|
|
28.0
|
|
|
31.8
|
|
|
28.1
|
|
Capital
expenditures
|
|
|
47.6
|
|
|
41.8
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
Technologies
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
1,362.3
|
|
|
1,168.6
|
|
|
1,007.1
|
|
Operating
income
|
|
|
148.0
|
|
|
103.8
|
|
|
105.2
|
|
Operating
income as a percentage of revenues
|
|
|
10.9
|
%
|
|
8.9
|
%
|
|
10.4
|
%
|
Depreciation
and amortization
|
|
|
12.9
|
|
|
14.3
|
|
|
15.5
|
|
Capital
expenditures
|
|
|
18.5
|
|
|
19.3
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Technologies
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
1,949.8
|
|
|
1,743.9
|
|
|
1,552.8
|
|
Operating
income
|
|
|
262.0
|
|
|
224.9
|
|
|
180.5
|
|
Operating
income as a percentage of revenues
|
|
|
13.4
|
%
|
|
12.9
|
%
|
|
11.6
|
%
|
Depreciation
and amortization
|
|
|
25.2
|
|
|
19.6
|
|
|
23.2
|
|
Capital
expenditures
|
|
|
51.7
|
|
|
30.5
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Technologies
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2,285.0
|
|
|
2,099.7
|
|
|
1,778.3
|
|
Operating
income
|
|
|
400.2
|
|
|
380.7
|
|
|
304.8
|
|
Operating
income as a percentage of revenues
|
|
|
17.5
|
%
|
|
18.1
|
%
|
|
17.1
|
%
|
Depreciation
and amortization
|
|
|
42.6
|
|
|
44.6
|
|
|
21.9
|
|
Capital
expenditures
|
|
|
43.6
|
|
|
22.8
|
|
|
12.0
|
|
Total
revenues
|
|
$
|
11,409.3
|
|
$
|
10,546.9
|
|
$
|
9,393.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income from reportable segments
|
|
|
1,524.2
|
|
|
1,439.7
|
|
|
1,231.6
|
|
Unallocated
corporate expense
|
|
|
(83.4
|
)
|
|
(77.9
|
)
|
|
(111.3
|
)
|
Total
operating income
|
|
$
|
1,440.8
|
|
$
|
1,361.8
|
|
$
|
1,120.3
|
|
Total
operating income as a percentage of revenues
|
|
|
12.6
|
%
|
|
12.9
|
%
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization from reportable segments
|
|
|
160.8
|
|
|
164.0
|
|
|
147.9
|
|
Unallocated
depreciation and amortization
|
|
|
29.9
|
|
|
31.7
|
|
|
26.5
|
|
Total
depreciation and amortization
|
|
$
|
190.7
|
|
$
|
195.7
|
|
$
|
174.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures from reportable segments
|
|
|
187.0
|
|
|
124.8
|
|
|
77.9
|
|
Corporate
capital expenditures
|
|
|
25.3
|
|
|
17.0
|
|
|
47.7
|
|
Total
capital expenditures
|
|
$
|
212.3
|
|
$
|
141.8
|
|
$
|
125.6
|
|
Revenues
by destination and long-lived assets by geographic area for the years ended
December 31 were as follows:
In
millions
|
|
2006
|
|
2005
|
|
2004
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
6,438.7
|
|
$
|
6,305.7
|
|
$
|
5,775.1
|
|
Non-U.S.
|
|
|
4,970.6
|
|
|
4,241.2
|
|
|
3,618.5
|
|
Total
|
|
$
|
11,409.3
|
|
$
|
10,546.9
|
|
$
|
9,393.6
|
|
In
millions
|
|
2006
|
|
2005
|
|
Long-lived
assets
|
|
|
|
|
|
|
|
United
States
|
|
$
|
1,159.9
|
|
$
|
1,376.2
|
|
Non-U.S.
|
|
|
623.8
|
|
|
509.1
|
|
Total
|
|
$
|
1,783.7
|
|
$
|
1,885.3
|
|
NOTE
17 - IR-NEW JERSEY
As
part
of the reorganization, IR-Limited guaranteed all of the issued public debt
securities of IR-New Jersey. The subsidiary issuer, IR-New Jersey, is 100%
owned
by the parent, IR-Limited, the guarantees are full and unconditional, and no
other subsidiary of the Company guarantees the securities. The following
condensed consolidated financial information for IR-Limited, IR-New Jersey,
and
all their other subsidiaries is included so that separate financial statements
of IR-New Jersey are not required to be filed with the U.S. Securities and
Exchange Commission.
As
part
of the reorganization of December 31, 2001, IR-Limited issued Class B common
shares to IR-New Jersey in exchange for a $3.6 billion note and shares of
certain IR-New Jersey subsidiaries. The note, which is due in 2011, has a fixed
rate of interest of 11% per annum payable semi-annually and imposes certain
restrictive covenants upon IR-New Jersey. The Class B common shares are
non-voting and pay dividends comparable to the Class A common shares. In 2002,
IR-Limited contributed the note to a wholly owned subsidiary, which subsequently
transferred portions of the note to several other subsidiaries, all of which
are
included in the “Other Subsidiaries” below. Accordingly, the subsidiaries of
IR-Limited remain creditors of IR-New Jersey.
IR-New
Jersey has unconditionally guaranteed payment of the principal, premium, if
any,
and interest on the Company’s 4.75% Senior Notes due in 2015 in the aggregate
principal amount of $300 million. The guarantee is unsecured and provided on
an
unsubordinated basis. The guarantee ranks equally in right of payment with
all
of the existing and future unsecured and unsubordinated debt of IR-New
Jersey.
The
condensed consolidating financial statements present IR-Limited and IR-New
Jersey investments in their subsidiaries using the equity method of accounting.
Intercompany investments in the non-voting Class B common shares are accounted
for on the cost method and are reduced by intercompany dividends. In accordance
with generally accepted accounting principles, the amounts related to the
issuance of the Class B shares have been presented as contra accounts in
Shareholders’ Equity since the Class B issuance on December 31, 2001. The notes
payable continue to be reflected as a liability on the balance sheet of IR-New
Jersey and are enforceable in accordance with their terms.
Condensed
Consolidating Income Statement
For
the
year ended December 31, 2006
|
|
IR
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
1,582.4
|
|
$
|
9,826.9
|
|
$
|
-
|
|
$
|
11,409.3
|
|
Cost
of goods sold
|
|
|
-
|
|
|
1,181.5
|
|
|
7,242.7
|
|
|
-
|
|
|
8,424.2
|
|
Selling
and administrative expenses
|
|
|
16.3
|
|
|
341.9
|
|
|
1,186.1
|
|
|
-
|
|
|
1,544.3
|
|
Operating
(loss) income
|
|
|
(16.3
|
)
|
|
59.0
|
|
|
1,398.1
|
|
|
-
|
|
|
1,440.8
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
1,116.6
|
|
|
607.4
|
|
|
156.7
|
|
|
(1,880.7
|
)
|
|
-
|
|
Interest
expense
|
|
|
(30.3
|
)
|
|
(75.1
|
)
|
|
(26.4
|
)
|
|
-
|
|
|
(131.8
|
)
|
Intercompany
interest and fees
|
|
|
(32.9
|
)
|
|
(645.0
|
)
|
|
677.9
|
|
|
-
|
|
|
-
|
|
Other
income (expense), net
|
|
|
(4.6
|
)
|
|
63.9
|
|
|
(68.3
|
)
|
|
-
|
|
|
(9.0
|
)
|
Earnings
(loss) before income taxes
|
|
|
1,032.5
|
|
|
10.2
|
|
|
2,138.0
|
|
|
(1,880.7
|
)
|
|
1,300.0
|
|
(Benefit)
provision for income taxes
|
|
|
-
|
|
|
(177.5
|
)
|
|
409.2
|
|
|
-
|
|
|
231.7
|
|
Earnings
(loss) from continuing operations
|
|
|
1,032.5
|
|
|
187.7
|
|
|
1,728.8
|
|
|
(1,880.7
|
)
|
|
1,068.3
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
(31.0
|
)
|
|
(4.8
|
)
|
|
-
|
|
|
(35.8
|
)
|
Net
earnings (loss)
|
|
$
|
1,032.5
|
|
$
|
156.7
|
|
$
|
1,724.0
|
|
$
|
(1,880.7
|
)
|
$
|
1,032.5
|
|
Condensed
Consolidating Income Statement
For
the
year ended December 31, 2005
|
|
IR
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
1,638.3
|
|
$
|
8,908.6
|
|
$
|
-
|
|
$
|
10,546.9
|
|
Cost
of goods sold
|
|
|
-
|
|
|
1,271.4
|
|
|
6,472.7
|
|
|
-
|
|
|
7,744.1
|
|
Selling
and administrative expenses
|
|
|
1.2
|
|
|
338.7
|
|
|
1,101.1
|
|
|
-
|
|
|
1,441.0
|
|
Operating
(loss) income
|
|
|
(1.2
|
)
|
|
28.2
|
|
|
1,334.8
|
|
|
-
|
|
|
1,361.8
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
1,104.8
|
|
|
487.1
|
|
|
197.7
|
|
|
(1,789.6
|
)
|
|
-
|
|
Interest
expense
|
|
|
(9.1
|
)
|
|
(104.7
|
)
|
|
(30.5
|
)
|
|
-
|
|
|
(144.3
|
)
|
Intercompany
interest and fees
|
|
|
(38.4
|
)
|
|
(425.8
|
)
|
|
464.2
|
|
|
-
|
|
|
-
|
|
Other
income (expense), net
|
|
|
(1.9
|
)
|
|
104.7
|
|
|
(62.5
|
)
|
|
-
|
|
|
40.3
|
|
Earnings
(loss) before income taxes
|
|
|
1,054.2
|
|
|
89.5
|
|
|
1,903.7
|
|
|
(1,789.6
|
)
|
|
1,257.8
|
|
(Benefit)
provision for income taxes
|
|
|
-
|
|
|
(112.7
|
)
|
|
317.4
|
|
|
-
|
|
|
204.7
|
|
Earnings
(loss) from continuing operations
|
|
|
1,054.2
|
|
|
202.2
|
|
|
1,586.3
|
|
|
(1,789.6
|
)
|
|
1,053.1
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
(4.5
|
)
|
|
5.6
|
|
|
-
|
|
|
1.1
|
|
Net
earnings (loss)
|
|
$
|
1,054.2
|
|
$
|
197.7
|
|
$
|
1,591.9
|
|
$
|
(1,789.6
|
)
|
$
|
1,054.2
|
|
Condensed
Consolidating Income Statement
For
the
year ended December 31, 2004
|
|
IR
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
1,390.2
|
|
$
|
8,003.4
|
|
$
|
-
|
|
$
|
9,393.6
|
|
Cost
of goods sold
|
|
|
-
|
|
|
1,071.5
|
|
|
5,782.5
|
|
|
-
|
|
|
6,854.0
|
|
Selling
and administrative expenses
|
|
|
0.1
|
|
|
354.5
|
|
|
1,064.7
|
|
|
-
|
|
|
1,419.3
|
|
Operating
income
|
|
|
(0.1
|
)
|
|
(35.8
|
)
|
|
1,156.2
|
|
|
-
|
|
|
1,120.3
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
1,231.6
|
|
|
956.3
|
|
|
576.2
|
|
|
(2,764.1
|
)
|
|
-
|
|
Interest
expense
|
|
|
(0.2
|
)
|
|
(122.2
|
)
|
|
(30.7
|
)
|
|
-
|
|
|
(153.1
|
)
|
Intercompany
interest and fees
|
|
|
(7.5
|
)
|
|
(538.4
|
)
|
|
545.9
|
|
|
-
|
|
|
-
|
|
Other
income (expense), net
|
|
|
(5.1
|
)
|
|
87.3
|
|
|
(81.2
|
)
|
|
-
|
|
|
1.0
|
|
Earnings
(loss) before income taxes
|
|
|
1,218.7
|
|
|
347.2
|
|
|
2,166.4
|
|
|
(2,764.1
|
)
|
|
968.2
|
|
(Benefit)
provision for income taxes
|
|
|
-
|
|
|
(219.5
|
)
|
|
357.9
|
|
|
-
|
|
|
138.4
|
|
Earnings
(loss) from continuing operations
|
|
|
1,218.7
|
|
|
566.7
|
|
|
1,808.5
|
|
|
(2,764.1
|
)
|
|
829.8
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
9.5
|
|
|
379.4
|
|
|
-
|
|
|
388.9
|
|
Net
earnings (loss)
|
|
$
|
1,218.7
|
|
$
|
576.2
|
|
$
|
2,187.9
|
|
$
|
(2,764.1
|
)
|
$
|
1,218.7
|
|
Condensed
Consolidating Balance Sheet
|
|
IR
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1.7
|
|
$
|
81.6
|
|
$
|
279.0
|
|
$
|
-
|
|
$
|
362.3
|
|
Marketable
securities
|
|
|
-
|
|
|
-
|
|
|
0.7
|
|
|
-
|
|
|
0.7
|
|
Accounts
and notes receivable, net
|
|
|
0.3
|
|
|
283.7
|
|
|
1,712.2
|
|
|
-
|
|
|
1,996.2
|
|
Inventories,
net
|
|
|
-
|
|
|
204.5
|
|
|
1,115.8
|
|
|
-
|
|
|
1,320.3
|
|
Prepaid
expenses and deferred income taxes
|
|
|
0.4
|
|
|
389.4
|
|
|
26.6
|
|
|
-
|
|
|
416.4
|
|
Accounts
and notes receivable affiliates
|
|
|
921.4
|
|
|
2,662.1
|
|
|
26,537.6
|
|
|
(30,121.1
|
)
|
|
-
|
|
Total
current assets
|
|
|
923.8
|
|
|
3,621.3
|
|
|
29,671.9
|
|
|
(30,121.1
|
)
|
|
4,095.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in affiliates
|
|
|
7,130.9
|
|
|
11,565.2
|
|
|
31,009.6
|
|
|
(49,705.7
|
)
|
|
-
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
280.8
|
|
|
995.5
|
|
|
-
|
|
|
1,276.3
|
|
Intangible
assets, net
|
|
|
-
|
|
|
81.1
|
|
|
5,259.9
|
|
|
-
|
|
|
5,341.0
|
|
Other
assets
|
|
|
1.7
|
|
|
1,283.8
|
|
|
147.2
|
|
|
-
|
|
|
1,432.7
|
|
Total
assets
|
|
$
|
8,056.4
|
|
$
|
16,832.2
|
|
$
|
67,084.1
|
|
$
|
(79,826.8
|
)
|
$
|
12,145.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accruals
|
|
$
|
6.3
|
|
$
|
487.7
|
|
$
|
2,040.2
|
|
$
|
-
|
|
$
|
2,534.2
|
|
Loans
payable and current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
long-term debt
|
|
|
378.0
|
|
|
596.8
|
|
|
104.6
|
|
|
-
|
|
|
1,079.4
|
|
Accounts
and note payable affiliates
|
|
|
779.0
|
|
|
7,035.7
|
|
|
22,306.4
|
|
|
(30,121.1
|
)
|
|
-
|
|
Total
current liabilities
|
|
|
1,163.3
|
|
|
8,120.2
|
|
|
24,451.2
|
|
|
(30,121.1
|
)
|
|
3,613.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
299.0
|
|
|
411.3
|
|
|
194.9
|
|
|
-
|
|
|
905.2
|
|
Note
payable affiliate
|
|
|
950.0
|
|
|
2,697.4
|
|
|
-
|
|
|
(3,647.4
|
)
|
|
-
|
|
Other
noncurrent liabilities
|
|
|
239.3
|
|
|
1,847.5
|
|
|
135.5
|
|
|
-
|
|
|
2,222.3
|
|
Total
liabilities
|
|
|
2,651.6
|
|
|
13,076.4
|
|
|
24,781.6
|
|
|
(33,768.5
|
)
|
|
6,741.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A common shares
|
|
|
364.5
|
|
|
-
|
|
|
(57.7
|
)
|
|
-
|
|
|
306.8
|
|
Class
B common shares
|
|
|
270.6
|
|
|
-
|
|
|
-
|
|
|
(270.6
|
)
|
|
-
|
|
Common
shares
|
|
|
-
|
|
|
-
|
|
|
2,362.8
|
|
|
(2,362.8
|
)
|
|
-
|
|
Other
shareholders' equity
|
|
|
9,403.3
|
|
|
4,815.3
|
|
|
43,957.1
|
|
|
(52,719.6
|
)
|
|
5,456.1
|
|
Accumulated
other comprehensive income (loss)
|
|
|
(36.4
|
)
|
|
(627.9
|
)
|
|
205.7
|
|
|
100.5
|
|
|
(358.1
|
)
|
|
|
|
10,002.0
|
|
|
4,187.4
|
|
|
46,467.9
|
|
|
(55,252.5
|
)
|
|
5,404.8
|
|
Less:
Contra account
|
|
|
(4,597.2
|
)
|
|
(431.6
|
)
|
|
(4,165.4
|
)
|
|
9,194.2
|
|
|
-
|
|
Total
shareholders' equity
|
|
|
5,404.8
|
|
|
3,755.8
|
|
|
42,302.5
|
|
|
(46,058.3
|
)
|
|
5,404.8
|
|
Total
liabilities and equity
|
|
$
|
8,056.4
|
|
$
|
16,832.2
|
|
$
|
67,084.1
|
|
$
|
(79,826.8
|
)
|
$
|
12,145.9
|
|
Condensed
Consolidating Balance Sheet
December
31, 2005
|
|
IR
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
25.5
|
|
$
|
207.1
|
|
$
|
648.0
|
|
$
|
-
|
|
$
|
880.6
|
|
Marketable
securities
|
|
|
-
|
|
|
-
|
|
|
156.5
|
|
|
-
|
|
|
156.5
|
|
Accounts
and notes receivable, net
|
|
|
1.3
|
|
|
311.8
|
|
|
1,365.9
|
|
|
-
|
|
|
1,679.0
|
|
Inventories,
net
|
|
|
-
|
|
|
188.9
|
|
|
939.9
|
|
|
-
|
|
|
1,128.8
|
|
Prepaid
expenses and deferred income taxes
|
|
|
-
|
|
|
62.1
|
|
|
341.2
|
|
|
-
|
|
|
403.3
|
|
Accounts
and notes receivable affiliates
|
|
|
299.6
|
|
|
3,660.9
|
|
|
22,687.9
|
|
|
(26,648.4
|
)
|
|
-
|
|
Total
current assets
|
|
|
326.4
|
|
|
4,430.8
|
|
|
26,139.4
|
|
|
(26,648.4
|
)
|
|
4,248.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in affiliates
|
|
|
7,092.7
|
|
|
11,440.6
|
|
|
29,894.4
|
|
|
(48,427.7
|
)
|
|
-
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
291.6
|
|
|
865.9
|
|
|
-
|
|
|
1,157.5
|
|
Intangible
assets, net
|
|
|
-
|
|
|
118.9
|
|
|
5,031.5
|
|
|
-
|
|
|
5,150.4
|
|
Other
assets
|
|
|
1.9
|
|
|
854.0
|
|
|
344.4
|
|
|
-
|
|
|
1,200.3
|
|
Total
assets
|
|
$
|
7,421.0
|
|
$
|
17,135.9
|
|
$
|
62,275.6
|
|
$
|
(75,076.1
|
)
|
$
|
11,756.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accruals
|
|
$
|
5.8
|
|
$
|
561.2
|
|
$
|
1,700.0
|
|
$
|
-
|
|
$
|
2,267.0
|
|
Loans
payable and current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
long-term debt
|
|
|
-
|
|
|
849.4
|
|
|
83.3
|
|
|
-
|
|
|
932.7
|
|
Accounts
and note payable affiliates
|
|
|
956.6
|
|
|
5,870.1
|
|
|
19,821.7
|
|
|
(26,648.4
|
)
|
|
-
|
|
Total
current liabilities
|
|
|
962.4
|
|
|
7,280.7
|
|
|
21,605.0
|
|
|
(26,648.4
|
)
|
|
3,199.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
298.9
|
|
|
658.1
|
|
|
227.3
|
|
|
-
|
|
|
1,184.3
|
|
Note
payable affiliate
|
|
|
300.0
|
|
|
3,347.4
|
|
|
-
|
|
|
(3,647.4
|
)
|
|
-
|
|
Other
noncurrent liabilities
|
|
|
97.7
|
|
|
1,389.0
|
|
|
123.7
|
|
|
-
|
|
|
1,610.4
|
|
Total
liabilities
|
|
|
1,659.0
|
|
|
12,675.2
|
|
|
21,956.0
|
|
|
(30,295.8
|
)
|
|
5,994.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A common shares
|
|
|
360.8
|
|
|
-
|
|
|
(30.1
|
)
|
|
-
|
|
|
330.7
|
|
Class
B common shares
|
|
|
270.6
|
|
|
-
|
|
|
-
|
|
|
(270.6
|
)
|
|
-
|
|
Common
shares
|
|
|
-
|
|
|
-
|
|
|
2,362.8
|
|
|
(2,362.8
|
)
|
|
-
|
|
Other
shareholders' equity
|
|
|
9,740.2
|
|
|
5,066.6
|
|
|
42,376.2
|
|
|
(51,624.1
|
)
|
|
5,558.9
|
|
Accumulated
other comprehensive income (loss)
|
|
|
193.9
|
|
|
(158.7
|
)
|
|
(33.2
|
)
|
|
(129.6
|
)
|
|
(127.6
|
)
|
|
|
|
10,565.5
|
|
|
4,907.9
|
|
|
44,675.7
|
|
|
(54,387.1
|
)
|
|
5,762.0
|
|
Less:
Contra account
|
|
|
(4,803.5
|
)
|
|
(447.2
|
)
|
|
(4,356.1
|
)
|
|
9,606.8
|
|
|
-
|
|
Total
shareholders' equity
|
|
|
5,762.0
|
|
|
4,460.7
|
|
|
40,319.6
|
|
|
(44,780.3
|
)
|
|
5,762.0
|
|
Total
liabilities and equity
|
|
$
|
7,421.0
|
|
$
|
17,135.9
|
|
$
|
62,275.6
|
|
$
|
(75,076.1
|
)
|
$
|
11,756.4
|
|
Condensed
Consolidating Statement of Cash Flows
For
the
year ended December 31, 2006
|
|
IR
|
|
IR
|
|
Other
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Consolidated
|
|
Net
cash (used in) provided by continuing operating activities
|
|
$
|
(67.4
|
)
|
$
|
(918.9
|
)
|
$
|
1,995.1
|
|
$
|
1,008.8
|
|
Net
cash (used in) provided by discontinued operating
activities
|
|
|
-
|
|
|
(31.2
|
)
|
|
(5.4
|
)
|
|
(36.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
-
|
|
|
(52.8
|
)
|
|
(159.5
|
)
|
|
(212.3
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
-
|
|
|
1.0
|
|
|
15.4
|
|
|
16.4
|
|
Acquisitions,
net of cash
|
|
|
-
|
|
|
(11.8
|
)
|
|
(109.7
|
)
|
|
(121.5
|
)
|
Proceeds
from business dispositions
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Purchase
of marketable securities
|
|
|
-
|
|
|
-
|
|
|
155.8
|
|
|
155.8
|
|
Cash
provided by equity companies, net
|
|
|
-
|
|
|
-
|
|
|
0.4
|
|
|
0.4
|
|
Net
cash (used in) provided by continuing investing activities
|
|
|
-
|
|
|
(63.6
|
)
|
|
(97.6
|
)
|
|
(161.2
|
)
|
Net
cash (used in) provided by discontinued investing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in debt
|
|
|
379.1
|
|
|
(499.7
|
)
|
|
(19.9
|
)
|
|
(140.5
|
)
|
Net
inter-company (payments) proceeds
|
|
|
(7.3
|
)
|
|
1,372.3
|
|
|
(1,365.0
|
)
|
|
-
|
|
Proceeds
from the exercise of stock options
|
|
|
95.7
|
|
|
-
|
|
|
-
|
|
|
95.7
|
|
Dividends
(paid) received
|
|
|
(423.9
|
)
|
|
15.6
|
|
|
190.7
|
|
|
(217.6
|
)
|
Repurchase
of common shares by subsidiary
|
|
|
-
|
|
|
-
|
|
|
(1,096.3
|
)
|
|
(1,096.3
|
)
|
Net
cash (used in) provided by continuing financing activities
|
|
|
43.6
|
|
|
888.2
|
|
|
(2,290.5
|
)
|
|
(1,358.7
|
)
|
Net
cash (used in) provided by discontinued financing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
|
-
|
|
|
-
|
|
|
29.4
|
|
|
29.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(23.8
|
)
|
|
(125.5
|
)
|
|
(369.0
|
)
|
|
(518.3
|
)
|
Cash
and cash equivalents - beginning of period
|
|
|
25.5
|
|
|
207.1
|
|
|
648.0
|
|
|
880.6
|
|
Cash
and cash equivalents - end of period
|
|
$
|
1.7
|
|
$
|
81.6
|
|
$
|
279.0
|
|
$
|
362.3
|
|
Condensed
Consolidating Statement of Cash Flows
For
the
year ended December 31, 2005
|
|
IR
|
|
IR
|
|
Other
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Consolidated
|
|
Net
cash (used in) provided by continuing operating activities
|
|
$
|
(32.0
|
)
|
$
|
(475.7
|
)
|
$
|
1,380.9
|
|
$
|
873.2
|
|
Net
cash (used in) provided by discontinued operating
activities
|
|
|
-
|
|
|
(18.5
|
)
|
|
(15.6
|
)
|
|
(34.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
-
|
|
|
(49.4
|
)
|
|
(92.4
|
)
|
|
(141.8
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
-
|
|
|
2.2
|
|
|
16.8
|
|
|
19.0
|
|
Acquisitions,
net of cash
|
|
|
-
|
|
|
-
|
|
|
(514.7
|
)
|
|
(514.7
|
)
|
Proceeds
from business dispositions
|
|
|
-
|
|
|
3.7
|
|
|
7.7
|
|
|
11.4
|
|
Purchase
of marketable securities
|
|
|
-
|
|
|
-
|
|
|
(153.2
|
)
|
|
(153.2
|
)
|
Cash
provided by equity companies
|
|
|
-
|
|
|
-
|
|
|
7.6
|
|
|
7.6
|
|
Net
cash (used in) provided by continuing investing activities
|
|
|
-
|
|
|
(43.5
|
)
|
|
(728.2
|
)
|
|
(771.7
|
)
|
Net
cash (used in) provided by discontinued investing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in debt
|
|
|
297.4
|
|
|
(87.3
|
)
|
|
(147.4
|
)
|
|
62.7
|
|
Net
inter-company (payments) proceeds
|
|
|
(134.8
|
)
|
|
(25.2
|
)
|
|
160.0
|
|
|
-
|
|
Proceeds
from the exercise of stock options
|
|
|
90.9
|
|
|
-
|
|
|
-
|
|
|
90.9
|
|
Dividends
(paid) received
|
|
|
(359.2
|
)
|
|
13.2
|
|
|
153.9
|
|
|
(192.1
|
)
|
Redemption
of preferred stock of subsidiary
|
|
|
(73.6
|
)
|
|
-
|
|
|
-
|
|
|
(73.6
|
)
|
Repurchase
of common shares by subsidiary
|
|
|
-
|
|
|
-
|
|
|
(763.6
|
)
|
|
(763.6
|
)
|
Net
cash (used in) provided by continuing financing activities
|
|
|
(179.3
|
)
|
|
(99.3
|
)
|
|
(597.1
|
)
|
|
(875.7
|
)
|
Net
cash (used in) provided by discontinued financing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
|
-
|
|
|
-
|
|
|
(14.2
|
)
|
|
(14.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(211.3
|
)
|
|
(637.0
|
)
|
|
25.8
|
|
|
(822.5
|
)
|
Cash
and cash equivalents - beginning of period
|
|
|
236.8
|
|
|
844.1
|
|
|
622.2
|
|
|
1,703.1
|
|
Cash
and cash equivalents - end of period
|
|
$
|
25.5
|
|
$
|
207.1
|
|
$
|
648.0
|
|
$
|
880.6
|
|
Condensed
Consolidating Statement of Cash Flows
For
the
year ended December 31, 2004
|
|
IR
|
|
IR
|
|
Other
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Consolidated
|
|
Net
cash (used in) provided by continuing operating activities
|
|
$
|
(14.5
|
)
|
$
|
(574.2
|
)
|
$
|
1,358.9
|
|
$
|
770.2
|
|
Net
cash (used in) provided by discontinued operating
activities
|
|
|
-
|
|
|
(13.5
|
)
|
|
40.8
|
|
|
27.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
-
|
|
|
(42.1
|
)
|
|
(83.5
|
)
|
|
(125.6
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
-
|
|
|
17.7
|
|
|
32.7
|
|
|
50.4
|
|
Acquisitions,
net of cash
|
|
|
-
|
|
|
-
|
|
|
(33.7
|
)
|
|
(33.7
|
)
|
Proceeds
from the sale of marketable securities
|
|
|
-
|
|
|
-
|
|
|
0.3
|
|
|
0.3
|
|
Proceeds
from business dispositions
|
|
|
-
|
|
|
189.0
|
|
|
1,224.2
|
|
|
1,413.2
|
|
Cash
provided by equity companies
|
|
|
-
|
|
|
-
|
|
|
7.6
|
|
|
7.6
|
|
Net
cash (used in) provided by continuing investing activities
|
|
|
-
|
|
|
164.6
|
|
|
1,147.6
|
|
|
1,312.2
|
|
Net
cash (used in) provided by discontinued investing
activities
|
|
|
-
|
|
|
-
|
|
|
(7.4
|
)
|
|
(7.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in debt
|
|
|
-
|
|
|
(409.5
|
)
|
|
(59.9
|
)
|
|
(469.4
|
)
|
Net
inter-company (payments) proceeds
|
|
|
191.4
|
|
|
1,562.4
|
|
|
(1,753.8
|
)
|
|
-
|
|
Proceeds
from the exercise of stock options
|
|
|
170.7
|
|
|
-
|
|
|
-
|
|
|
170.7
|
|
Dividends
(paid) received
|
|
|
(271.3
|
)
|
|
10.2
|
|
|
108.5
|
|
|
(152.6
|
)
|
Repurchase
of common shares by subsidiary
|
|
|
-
|
|
|
-
|
|
|
(355.9
|
)
|
|
(355.9
|
)
|
Net
cash (used in) provided by continuing financing activities
|
|
|
90.8
|
|
|
1,163.1
|
|
|
(2,061.1
|
)
|
|
(807.2
|
)
|
Net
cash (used in) provided by discontinued financing
activities
|
|
|
-
|
|
|
-
|
|
|
(1.0
|
)
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of change in fiscal year end of business
|
|
|
-
|
|
|
-
|
|
|
(23.8
|
)
|
|
(23.8
|
)
|
Effect
of exchange rate changes on cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
|
-
|
|
|
-
|
|
|
16.5
|
|
|
16.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
76.3
|
|
|
740.0
|
|
|
470.5
|
|
|
1,286.8
|
|
Cash
and cash equivalents - beginning of period
|
|
|
160.5
|
|
|
104.1
|
|
|
151.7
|
|
|
416.3
|
|
Cash
and cash equivalents - end of period
|
|
$
|
236.8
|
|
$
|
844.1
|
|
$
|
622.2
|
|
$
|
1,703.1
|
|
NOTE
18- SUBSEQUENT EVENTS (UNAUDITED)
On
February 27, 2007, the Company agreed to sell its Road Development business
unit
to AB Volvo (publ) for cash proceeds of approximately $1.3 billion, subject
to
post closing adjustments. The sale, which is subject to government regulatory
approvals and other customary closing conditions, is targeted to close in the
second quarter of 2007. The Company’s Road Development business unit
manufactures and sells asphalt paving equipment, compaction equipment, milling
machines, and construction-related material handling equipment and has been
reported as part of the Company’s Construction Technologies sector.
The
Road
Development business unit had net revenues of approximately $700 million for
the
year ended December 31, 2006. The Company expects to record a gain on the
transaction when the sale is consummated.
SCHEDULE
II
INGERSOLL
RAND COMPANY LIMITED
VALUATION
AND QUALIFYING ACCOUNTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
Allowances
for Doubtful Accounts:
|
|
|
|
Balance
December 31, 2003
|
|
$
|
58.7
|
|
Additions
charged to costs and expenses
|
|
|
21.0
|
|
Deductions
*
|
|
|
(11.9
|
)
|
Business
acquisitions and divestitures, net
|
|
|
(1.2
|
)
|
Currency
translation
|
|
|
3.5
|
|
Balance
December 31, 2004
|
|
|
70.1
|
|
Net
reductions in costs and expenses
|
|
|
(4.3
|
)
|
Deductions
*
|
|
|
(21.0
|
)
|
Business
acquisitions and divestitures, net
|
|
|
5.1
|
|
Currency
translation
|
|
|
(2.3
|
)
|
Balance
December 31, 2005
|
|
|
47.6
|
|
Net
reductions in costs and expenses
|
|
|
(16.3
|
)
|
Deductions
*
|
|
|
(17.3
|
)
|
Business
acquisitions and divestitures, net
|
|
|
1.6
|
|
Currency
translation
|
|
|
2.2
|
|
Balance
December 31, 2006
|
|
$
|
17.8
|
|
(*)
"Deductions" include accounts and advances written off, less
recoveries.
SCHEDULE
II
INGERSOLL
RAND COMPANY LIMITED
VALUATION
AND QUALIFYING ACCOUNTS
FOR
THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Amounts
in millions)
Reserve
for LIFO:
|
|
|
|
Balance
December 31, 2003
|
|
$
|
69.4
|
|
Additions
|
|
|
40.8
|
|
Reductions
|
|
|
(7.2
|
)
|
Balance
December 31, 2004
|
|
|
103.0
|
|
Additions
|
|
|
23.3
|
|
Reductions
|
|
|
(3.0
|
)
|
Balance
December 31, 2005
|
|
|
123.3
|
|
Additions
|
|
|
36.0
|
|
Reductions
|
|
|
(0.7
|
)
|
Balance
December 31, 2006
|
|
$
|
158.6
|
|