Unassociated Document
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the fiscal year ended December 31, 2007
or
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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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
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75-2993910
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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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
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Name
of each exchange on which registered
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Class
A Common Shares,
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New
York Stock Exchange
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Par
Value $1.00 per Share
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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, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company o
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(Do
not check if a smaller reporting
company)
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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, 2007
was approximately
$16,085,365,752 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 25, 2008
was
272,645,080.
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 4, 2008 are incorporated by reference
into Part II and Part III of this Form 10-K.
Form
10-K
For
the Fiscal Year Ended December 31, 2007
TABLE
OF CONTENTS
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Page
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Part
I
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Item
1.
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Business
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4
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Item
1A.
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Risk
Factors
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11
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Item
1B.
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Unresolved
Staff Comments
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16
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Item
2.
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Properties
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16
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Item
3.
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Legal
Proceedings
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18
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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19
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Part II
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Item
5.
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Market
for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
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21
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Item
6.
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Selected
Financial Data
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23
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Item
7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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24
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Item
7A.
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Quantitative
and Qualitative Disclosure About Market Risk
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52
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Item
8.
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Financial
Statements and Supplementary Data
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53
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Item
9.
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Changes
in and Disagreements with Independent Accountants on Accounting and
Financial Disclosure
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54
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Item
9A.
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Controls
and Procedures
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54
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Item
9B.
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Other
Information
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54
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Part III
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Item
14.
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Principal
Accountant Fees and Services
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55
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Part
IV
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Item
15.
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Exhibits
and Financial Statements Schedule
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56
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Signatures
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64
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CAUTIONARY
STATEMENT FOR FORWARD LOOKING STATEMENTS
Certain
statements in this report, other than purely historical information, are
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements generally are identified by the words “believe,”
“project,” “expect,” “anticipate,” “estimate,” “forecast,” “outlook,” “intend,”
“strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will
continue,” “will likely result,” or the negative thereof or variations thereon
or similar terminology generally intended to identify forward-looking
statements.
Forward-looking
statements may relate to such matters as projections of revenue, margins,
expenses, tax provisions, earnings, cash flows, benefit obligations, share
repurchases or other financial items; any statements of the plans, strategies
and objectives of management for future operations, including those relating
to
our proposed acquisition of Trane Inc.; any statements concerning expected
development, performance or market share relating to our products; any
statements regarding future economic conditions or performance; any statements
regarding pending investigations, claims or disputes, including those relating
to the Internal Revenue Service audit of our consolidated subsidiaries' tax
filings in 2001 and 2002; any statements of expectation or belief; and any
statements of assumptions underlying any of the foregoing. These statements
are
based on currently available information and our current assumptions,
expectations and projections about future events. While we believe that our
assumptions, expectations and projections are reasonable in view of the
currently available information, you are cautioned not to place undue reliance
on our forward-looking statements. These statements are not guarantees of future
performance. They are subject to future events, risks and uncertainties –
many of which are beyond our control – as well as potentially inaccurate
assumptions, that could cause actual results to differ materially from our
expectations and projections. Some of the material risks and uncertainties
that
could cause actual results to differ materially from our expectations and
projections are described in Item 1A. “Risk Factors.” You should read that
information in conjunction with “Management's Discussion and Analysis of
Financial Condition and Results of Operations” in Item 7 of this report and our
Consolidated Financial Statements and related notes in Item 8 of this report.
We
note such information for investors as permitted by the Private Securities
Litigation Reform Act of 1995. There also may be other factors that have not
been anticipated or that are not described in this report, generally because
we
do not perceive them to be material, that could cause results to differ
materially from our expectations.
Forward-looking
statements speak only as of the date they are made, and we do not undertake
to
update these forward-looking statements. You are advised, however, to review
any
further disclosures we make on related subjects in our periodic filings with
the
Securities and Exchange Commission.
Item
1. BUSINESS
Overview
Ingersoll-Rand
Company Limited (IR Limited), a Bermuda company, and its consolidated
subsidiaries (we, our, the Company) is a leading innovation and solutions
provider with strong brands and leading positions within our markets. Our
business segments consist of Climate Control Technologies, Industrial
Technologies and Security Technologies. We generate 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 Club Car®, Hussmann®, Ingersoll-Rand®, Schlage® and Thermo
King®.
We
seek
to drive shareholder value by achieving:
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·
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Dramatic
Growth,
by developing innovative products and solutions that improve our
customers’ operations, expanding highly profitable recurring revenues and
executing strategic acquisitions;
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Operational
Excellence,
by fostering a lean culture of continuous improvement and cost control;
and
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·
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Dual
Citizenship,
by encouraging our employees’ active collaboration with colleagues across
business units and geographic regions to achieve superior business
results.
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To
achieve these goals and to become a more diversified company with strong growth
prospects, we transformed our enterprise portfolio by divesting cyclical,
low-growth and asset-intensive businesses. We continue to focus on increasing
our recurring revenue stream, which includes revenues from parts, service,
used
equipment and rentals. We also intend to continuously improve the efficiencies,
capabilities, products and services of our high-potential businesses.
Recent
Acquisitions and Divestitures
On
December 17, 2007, we announced that we had executed a definitive agreement
to
acquire Trane Inc., formerly American Standard Companies Inc., in a transaction
currently valued at approximately $9.5 billion. This transaction, which is
expected to close during the second quarter of 2008, is subject to approval
by
Trane shareholders, regulatory approval and contractual closing conditions.
There can be no assurance that the acquisition will be consummated.
Trane
is
a global leader in indoor climate control systems, services and solutions and
provides systems and services that enhance the quality and comfort of the air
in
homes and buildings around the world. They offer customers a broad range of
energy-efficient heating, ventilation and air conditioning systems;
dehumidifying and air cleaning products; service and parts support; advanced
building controls; and financing solutions. Their systems and services have
leading positions in commercial, residential, institutional and industrial
markets; a reputation for reliability, high quality and product innovation;
and
a powerful distribution network. Trane has more than 29,000 employees and 34
production facilities worldwide, with 2007 annual revenues of $7.45 billion.
On
November 30, 2007, we completed the sale of our Bobcat, Utility Equipment and
Attachments business units (collectively, Compact Equipment) to Doosan Infracore
for cash proceeds of approximately $4.9 billion, subject to post-closing
purchase price adjustments. We recorded a gain on sale of $2,652.0 million
(net
of tax of $939.0 million). Compact Equipment manufactured and sold compact
equipment including skid-steer loaders, compact truck loaders, mini-excavators
and telescopic tool handlers; portable air compressors, generators, light
towers; general-purpose light construction equipment; and attachments.
On
April
30, 2007, we completed the sale of our Road Development business unit to AB
Volvo (publ) in all countries except for India, which closed on May 4, 2007,
for
cash proceeds of approximately $1.3 billion, subject to post-closing purchase
price adjustments. We recorded a gain on sale of $634.7 million (net of tax
of
$164.4 million). The Road Development business unit manufactures and sells
asphalt paving equipment, compaction equipment, milling machines and
construction-related material handling equipment.
2001
Reorganization
Our
predecessor company, 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.
We
are a
successor to IR-New Jersey following a corporate reorganization that became
effective on December 31, 2001. We believe that the reorganization has enabled
us to realize a variety of financial and strategic benefits, including
to:
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help
enhance business growth;
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create
a more favorable corporate structure for expansion of our
current business;
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improve
expected cash flow for use in investing in the development of
higher-growth product lines and
businesses;
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improve
expected cash flow for use in reducing the amount of our
debt;
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reduce
our
worldwide effective tax rate;
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enable
us
to
implement our business strategy more effectively;
and
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expand
our
investor base as our
shares may become more attractive to non-U.S.
investors.
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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,
refrigerated display merchandisers, beverage coolers, auxiliary power units
and
walk-in storage coolers and freezers. This segment includes the Thermo King,
Hussmann and Koxka brands.
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, golf
and
utility vehicles and energy generation systems. This segment includes the
Ingersoll Rand and Club Car brands.
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. This segment includes the Schlage, LCN,
Von Duprin and CISA brands.
Competitive
Conditions
Our
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. We believe that we are one of the leading manufacturers in the
world
of air compression systems, transport temperature control products, refrigerated
display merchandisers, refrigeration systems and controls, air tools, and golf
and utility vehicles. In addition, we believe we are a leading supplier in
U.S.
markets for architectural hardware products, mechanical locks and electronic
and
biometric access-control technologies.
Distribution
Our
products are distributed by a number of methods, which we believe are
appropriate to the type of product. U.S. sales are made through branch sales
offices and through distributors, dealers and large retailers across the
country. Non-U.S. sales are made through numerous subsidiary sales and service
companies with a supporting chain of distributors throughout the
world.
Products
Our
principal products by segment include the following:
Climate
Control Technologies
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Refrigerated
display cases
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Refrigeration
systems
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Transport
temperature control systems
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Industrial
Technologies
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Air
balancers
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Fluid-handling
equipment
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Air
compressors & accessories
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Golf
vehicles
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Air
treatment
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Lubrication
equipment
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Air
motors
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Material
handling equipment
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Air
and electric tools
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Microturbines
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Blowers
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Piston
pumps
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Diaphragm
pumps
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Utility
vehicles
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Engine-starting
systems
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Security
Technologies
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Automatic
doors
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Electrical
security products
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Biometric
access control systems
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Electronic
access-control systems
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Door
closers and controls
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Exit
devices
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Door
locks, latches and locksets
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Portable
security products
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Doors
and door frames (steel)
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These
products are sold primarily under our name and as well as under other names
including CISA®, Club Car®, Hussmann®, Koxka®, LCN®, Schlage®, Thermo King® and
Von Duprin®.
Working
Capital
We
manufacture products that usually must be readily available to meet our
customer’s rapid delivery requirements. Such working capital requirements are
not, however, in the opinion of management, materially different from those
experienced by our major competitors.
Customers
No
material part of our 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 our operations.
Operations
by Geographic Area
More
than
45% of our 2007 net revenues were derived outside the U.S. and sold 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 our non-U.S. operations.
Additional information concerning our operating segments is contained in Note
21, Business Segment Information, to the consolidated financial statements.
For
a discussion of risks attendant to our non-U.S. operations, see “Risk Factors –
Currency exchange rate and commodity price fluctuations may adversely
affect our results,” “Risk Factors – Our global operations subject us to
economic risks,” in Item 1A and “Quantitative and Qualitative Disclosure about
Market Risk” in Item 7A.
Raw
Materials
We
manufacture many of the components included in our products. The principal
raw
materials required are purchased from numerous suppliers. Although higher prices
for some raw materials, particularly steel and non-ferrous metals, have caused
pricing pressures to some of our businesses, we believe that available sources
of supply will generally be sufficient for the foreseeable future.
Backlog
Our
approximate backlog of orders, believed to be firm, at December 31, 2007 and
2006, were as follows:
Dollar
amounts in millions
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2007
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2006
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Climate
Control Technologies
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$
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507.2
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$
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435.8
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Industrial
Technologies
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429.8
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357.7
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Security
Technologies
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216.5
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182.8
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Total
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$
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1,153.5
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$
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976.3
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These
backlog figures are based on orders received. While the major portion of our
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. We expect to ship substantially the entire backlog
at December 31, 2007 during 2008.
Research
and Development
We
maintain research and development facilities for experimenting, testing and
developing high quality products. Research and development expenditures,
including qualifying engineering costs were $128.6 million in 2007, $126.7
million in 2006 and $120.4 million in 2005.
Patents
and Licenses
We
own
numerous patents and patent applications and are licensed under others. While
we
consider that in the aggregate our patents and licenses are valuable, we do
not
believe that our business is materially dependent on our patents or licenses
or
any group of them. In our opinion, engineering and production skills and
experience are more responsible for our market position than our patents and/or
licenses.
Environmental
Matters
We
continue 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, we are currently
engaged in site investigations and remediation activities to address
environmental cleanup from past operations at current and former manufacturing
facilities.
We
are
sometimes a party to environmental lawsuits and claims and have received notices
of potential violations of environmental laws and regulations from the
Environmental Protection Agency and similar state authorities. We have been
also
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 such sites, there are other PRPs and, in most instances, our involvement
is minimal.
In
estimating our liability, we have assumed we 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.
During
2007, we spent $5.6 million on capital projects for pollution abatement and
control, and an additional $11.1 million for environmental remediation
expenditures at sites presently or formerly owned or leased by us. As of
December 31, 2007, we have recorded reserves for environmental matters of $101.8
million. We believe that these expenditures and accrual 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.
For
a
further discussion of our potential environmental liabilities, see also
Part
II,
Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations, Environmental and Asbestos Matters and also Note 20, Commitments
and Contingencies, to the consolidated financial statements.
Asbestos
Matters
Certain
of our wholly owned subsidiaries 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 has been filed against our wholly owned subsidiary, IR-New
Jersey, and generally allege injury caused by exposure to asbestos contained
in
certain of IR-New Jersey’s products, primarily pumps and compressors. 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 and packings purchased from third-party suppliers.
Prior
to
the fourth quarter of 2007, we recorded a liability (which we periodically
updated) for our actual and anticipated future asbestos settlement costs
projected seven years into the future. We did not record a liability for future
asbestos settlement costs beyond the seven-year period covered by our reserve
because such costs previously were not reasonably estimable.
In
the
fourth quarter of 2007, we again reviewed our history and experience with
asbestos-related litigation and determined that it had now become possible
to
make a reasonable estimate of our total liability for pending and unasserted
potential future asbestos-related claims. This determination was based upon
our
analysis of developments in asbestos litigation, including the substantial
and
continuing decline in the filing of non-malignancy claims against us, the
establishment in many jurisdictions of inactive or deferral dockets for such
claims, the decreased value of non-malignancy claims because of changes in
the legal and judicial treatment of such claims, increasing focus of the
asbestos litigation upon malignancy claims, primarily those involving
mesothelioma, a cancer with a known historical and predictable future annual
incidence rate, and our substantial accumulated experience with respect to
the
resolution of malignancy claims, particularly mesothelioma claims, filed against
us. With
the
aid of an outside expert, we have estimated our total liability for pending
and
unasserted future asbestos-related claims through 2053 at $755
million.
As
a
result, we recorded a non-cash charge to earnings of discontinued operations
of
$449 million ($277 million after tax) which is the difference between
the amount by which we increased our total estimated liability for pending
and
projected future asbestos-related claims and the amount that we expect to
recover from insurers with respect to that increased liability.
For
a
further discussion of asbestos matters, see also Part
II,
Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations, Environmental and Asbestos Matters and also Note 20, Commitments
and Contingencies, to the consolidated financial statements.
Employees
We
have
approximately 35,560 employees throughout the world, of which approximately
49%
work in the U.S.
Available
Information
We
file
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 100 F Street, N.E., 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 us at
http://www.sec.gov.
In
addition, this Annual Report on Form 10-K, as well as our 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 our 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 our 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
us.
Certifications
New
York Stock Exchange Annual Chief Executive Officer
Certification
The
Company’s Chief Executive Officer submitted to the New York Stock Exchange the
Annual CEO Certification as the Company’s compliance with the New York Stock
Exchange’s corporate governance listing standards required by Section 303A.12 of
the New York Stock Exchange’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 and commodity price 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
45% of our 2007 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. 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. Because
we do
not hedge against all of our currency exposure, our business will continue
to be
susceptible to currency fluctuations.
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.
We
are
also 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.
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.
|
We
face continuing risks relating to settlements with the U.S. Securities and
Exchange Commission (SEC) and the U.S. Department of Justice (DOJ) arising
from
certain payments made in 2000-2003 by foreign subsidiaries in connection with
the United Nations’ Oil For Food Program.
On
November 10, 2004, the SEC issued an Order directing that a number of public
companies, including us, provide information relating to their participation
in
certain transactions under the United Nations’ Oil for Food Program. Upon
receipt of the Order, we undertook a thorough review of our participation in
the
Oil for Food Program and provided the SEC with information responsive to its
investigation of our participation in the program. On October 31, 2007, we
announced that we had reached settlements with the SEC and the DOJ relating
to
certain payments made by our foreign subsidiaries in 2000-2003 in connection
with the Oil For Food Program. Pursuant to the settlements with the SEC and
DOJ,
we have, among other things, (i) consented to the entry of a civil injunction
in
the SEC action, (ii) entered into a three-year deferred prosecution agreement
with the DOJ, and (iii) agreed to implement improvements to our compliance
program designed to enhance detection and prevention of violations of the
Foreign Corrupt Practices Act of 1977 (FCPA) and other applicable
anti-corruption laws. If the DOJ determines, in its sole discretion, that we
have committed a federal crime or have otherwise breached the deferred
prosecution agreement during its three-year term, we may be subject to
prosecution for any federal criminal violation of which the DOJ has knowledge,
including, without limitation, violations of the FCPA in connection with the
Oil
For Food Program. Breaches of the settlements with SEC and DOJ may also subject
us to, among other things, further enforcement actions by the SEC or the DOJ,
securities litigation and a general loss of investor confidence, any one of
which could adversely affect our business prospects and the market value of
our
stock. For a further discussion of the settlements with the SEC and DOJ, see
“Legal Proceedings.”
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
generally accepted accounting principles in the United States, 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 and we may be required 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 and higher energy prices
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.
Additionally,
we are exposed to large fluctuations for the price of petroleum-based fuel
due
to the instability of current market prices. 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 us to lose the ability to effectively manage
the risk of rising fuel prices and may have an adverse effect on our results
of
operations or financial condition.
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 strategic
acquisitions. Since 2000, we have completed approximately 65 acquisitions,
and
we recently announced that we had executed a definitive agreement to acquire
Trane Inc. in a transaction currently valued at approximately $9.5 billion.
We
may continue to actively pursue additional strategic 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;
|
|
·
|
competition
laws and regulations preventing us from making certain acquisitions;
and
|
|
·
|
the
ability to secure necessary
financing.
|
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.
Risks
Relating to Our Reorganization as a Bermuda Company
The
reorganization exposed us and 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. or other tax laws could increase our tax burden and affect
our
operating results, as well as subject our shareholders to additional taxes.
The
realization of any tax benefit related to our 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 (IRS) or any other tax
authority. From time to time, proposals have been made and/or legislation has
been introduced to change the U.S. tax law that if enacted could increase our
tax burden and could have a material adverse impact on our financial condition
and results of operations.
While
our
U.S. operations are subject to U.S. tax, we believe that a significant portion
of our non-U.S. operations are generally not subject to U.S. tax other than
withholding taxes. Our conclusions are based on, among other things, our
determination that we, and a significant portion of our foreign subsidiaries,
are not currently “controlled foreign corporations” (CFCs) within the meaning of
the U.S. tax laws, although the IRS or a court may not concur with our
conclusions. A non-U.S. corporation, such as us, will constitute a CFC for
U.S.
federal income tax purposes if certain ownership criteria are met. If the IRS
or
a court determined that we (or any of our non-U.S. subsidiaries) 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 (or the stock of any of our non-U.S. subsidiaries) on the last day
of
the applicable 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 and other similar types of income (and the subpart F
and
other similar types of income of any of 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
(or
any of our non-U.S. subsidiaries) are a CFC. Treatment of us or any of our
non-U.S. subsidiaries as a CFC could have a material adverse impact on our
financial condition and results of operations.
On
July
20, 2007, we, and our consolidated subsidiaries, received a notice from the
IRS
containing proposed adjustments to our consolidated subsidiaries’ tax filings in
connection with an audit of the 2001 and 2002 tax years. The IRS did not contest
the validity of our reincorporation in Bermuda. The most significant adjustments
proposed by the IRS involve treating the entire intercompany debt incurred
in
connection with our reincorporation in Bermuda as equity. As a result of this
recharacterization, the IRS has disallowed the deduction of interest paid on
the
debt and imposed dividend withholding taxes on the payments denominated as
interest. Proposed adjustments on this issue, if upheld in their entirety,
would
result in additional taxes with respect to the 2002 tax year of approximately
$190 million plus interest and would require us to record additional charges
associated with this matter. For
a
further discussion of the
IRS
audit,
see
“Legal Proceedings” and Note
18,
Income Taxes, to the consolidated financial statements.
We
strongly disagree with the view of the IRS and are vigorously contesting these
proposed adjustments. Although the outcome of this matter cannot be predicted
with certainty, based upon an analysis of the strength of our position, we
believe that we have adequately reserved for this matter. At this time, the
IRS
has not yet begun their examination of our consolidated subsidiaries’ tax
filings for years subsequent to the 2002 tax year. We believe it likely, if
the
above adjustments or a portion of such adjustments by the IRS are ultimately
sustained, that these adjustments will also affect subsequent tax
years.
As
noted
above, the IRS did not contest the validity of our reincorporation in Bermuda
in
the above-mentioned notice. We believe that neither we nor our consolidated
subsidiary IR-New Jersey will incur significant U.S. federal income or
withholding taxes as a result of the transfer of the shares of our subsidiaries
that occurred as part of the reorganization. However, we cannot give any
assurances that the IRS will agree with our determination.
The
inability to realize any anticipated tax benefits related to our reorganization,
discussed above in this section “Risks Relating to our Reorganization as a
Bermuda Company”, could have a material adverse impact on our financial
condition and results of operations.
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
As
of
December 31, 2007, we owned or leased a total of approximately 13.5 million
square feet of space worldwide. Manufacturing and assembly operations are
conducted in 29 plants in the United States; 31 plants in Europe; 14 plants
in
Asia; 6 plants in Latin America; and 1 plant in Canada. We also maintain various
warehouses, offices and repair centers throughout the world.
Substantially
all plant facilities are owned us with the remainder under long-term lease
arrangements. We believe that our plants have been well maintained, are
generally in good condition and are suitable for the conduct of our business.
At
December 31, 2007, we were productively utilizing the majority of the space
in
our facilities.
The
locations by segment of our major manufacturing facilities at December 31,
2007
were as follows:
Climate Control Technologies
|
Americas
|
|
Europe, Middle East, Africa
|
|
Asia Pacific
|
Londrina,
Brazil
|
|
Kolin,
Czech Republic
|
|
Luoyang,
China
|
Monterrey,
Mexico
|
|
Galway,
Ireland
|
|
Shenzen,
China
|
Mexico
City, Mexico
|
|
Barcelona,
Spain
|
|
Suzhou,
China
|
Arecibo,
Puerto Rico
|
|
Pamplona,
Spain
|
|
Tauranga,
New Zealand
|
Ciales,
Puerto Rico
|
|
Peralta,
Spain
|
|
|
Chino,
California
|
|
|
|
|
Louisville,
Georgia
|
|
|
|
|
Suwanee,
Georgia
|
|
|
|
|
Minneapolis,
Minnesota
|
|
|
|
|
Bridgeton,
Missouri
|
|
|
|
|
Hastings,
Nebraska
|
|
|
|
|
Gloversville,
New York
|
|
|
|
|
Industrial Technologies
|
Americas
|
|
Europe, Middle East, Africa
|
|
Asia Pacific
|
Montreal,
Canada
|
|
Douai,
France
|
|
Guanbxi,
China
|
Augusta,
Georgia
|
|
Wasquehal,
France
|
|
Changzhou,
China
|
Campbellsville,
Kentucky
|
|
Oberhausen,
Germany
|
|
Nanjing,
China
|
Rochester
Hills, Michigan
|
|
Fogliano
Redipuglia, Italy
|
|
Shanghai,
China
|
Madison
Heights, Michigan
|
|
Vignate,
Italy
|
|
Ahmadabad,
India
|
Davidson,
North Carolina
|
|
Pavlovo,
Russia
|
|
New
Delhi, India
|
Mocksville,
North Carolina
|
|
|
|
|
Athens,
Pennsylvania
|
|
|
|
|
West
Chester, Pennsylvania
|
|
|
|
|
Seattle,
Washington
|
|
|
|
|
Security Technologies
|
Americas
|
|
Europe, Middle East, Africa
|
|
Asia Pacific
|
Ensenada,
Mexico
|
|
Feuquieres,
France
|
|
Shanghai,
China
|
Tecate,
Mexico
|
|
Renchen,
Germany
|
|
Auckland,
New Zealand
|
San
Jose, California
|
|
Faenza,
Italy
|
|
|
Security,
Colorado
|
|
Monsampolo,
Italy
|
|
|
New
Haven, Connecticut
|
|
Duzce,
Turkey
|
|
|
Princeton,
Illinois
|
|
Birmingham,
UK
|
|
|
Indianapolis,
Indiana
|
|
|
|
|
Cincinnati,
Ohio
|
|
|
|
|
Caracas,
Venezuela
|
|
|
|
|
Item
3. LEGAL
PROCEEDINGS
In
the
normal course of business, we are 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 our opinion, pending legal matters are not expected
to have a material adverse effect on our results of operations, financial
condition, liquidity or cash flows.
As
previously reported, on November 10, 2004, the Securities and Exchange
Commission (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
Oil
for Food Program, provided the SEC with information responsive to the Order
and
provided additional information requested by the SEC. During a March 27, 2007
meeting with the SEC, at which a representative of the Department of Justice
(DOJ) was also present, the Company began discussions concerning the resolution
of this matter with both the SEC and DOJ. On October 31, 2007, the Company
announced it had reached settlements with the SEC and DOJ relating to this
matter. Under the terms of the settlements, the Company paid a total of $6.7
million in penalties, interest and disgorgement of profits. The Company
consented to the entry of a civil injunction in the SEC action and entered
into
a three-year deferred prosecution agreement with the DOJ. Under both
settlements, the Company has implemented, and will continue to implement,
improvements to its compliance program that are consistent with its longstanding
policy against improper payments. In the settlement documents, the Government
noted that the Company thoroughly cooperated with the investigation, that the
Company had conducted its own complete investigation of the conduct at issue,
promptly and thoroughly reported its findings to them, and took prompt remedial
measures. In a related matter, on July 10, 2007, representatives of the Italian
Guardia di Finanza (Financial Police) requested documents from Ingersoll-Rand
Italiana S.p.A pertaining to certain Oil for Food transactions undertaken by
that subsidiary of the Company. Such transactions have previously been reported
to the SEC and DOJ, and the Company will continue to cooperate fully with the
Italian authorities in this matter.
On
July
20, 2007, the Company and its consolidated subsidiaries 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 2001 and 2002 tax
years. The IRS did not contest the validity of the Company’s reincorporation in
Bermuda. The most significant adjustments proposed by the IRS involve treating
the entire intercompany debt incurred in connection with the Company’s
reincorporation in Bermuda as equity. As a result of this recharacterization,
the IRS has disallowed the deduction of interest paid on the debt and imposed
dividend withholding taxes on the payments denominated as interest. These
adjustments proposed by the IRS, if upheld in their entirety, would result
in
additional taxes with respect to 2002 of approximately $190 million plus
interest, and would require the Company to record additional charges associated
with this matter. At this time, the IRS has not yet begun their examination
of
the Company’s tax filings for years subsequent to 2002. However, if these
adjustments or a portion of these adjustments proposed by the IRS are ultimately
sustained, it is likely to also affect subsequent tax years.
The
Company strongly disagrees with the view of the IRS and filed a protest with
the
IRS in the third quarter of 2007. Going forward, the Company intends to
vigorously contest these proposed adjustments. The Company, in consultation
with
its outside advisors, carefully considered many factors in determining the
terms
of the intercompany debt, including the obligor’s ability to service the debt
and the availability of equivalent financing from unrelated parties, two factors
prominently cited by the IRS in denying debt treatment. The Company believes
that its characterization of that obligation as debt for tax purposes was
supported by the relevant facts and legal authorities at the time of its
creation. The subsequent financial results of the relevant companies, including
the actual cash flow generated by operations and the production of significant
additional cash flow from dispositions have confirmed the ability to service
this debt. Although the outcome of this matter cannot be predicted with
certainty, based upon an analysis of the strength of its position, the Company
believes that it is adequately reserved for this matter. As the Company moves
forward to resolve this matter with the IRS, it is reasonably possible that
the
reserves established may be adjusted within the next 12 months. However, the
Company does not expect that the ultimate resolution will have a material
adverse impact on its future results of operations or financial position.
See
Note
18, Income Taxes, to the consolidated financial statements for a further
discussion of tax matters.
Certain
of our wholly owned subsidiaries 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 has been filed against our wholly owned subsidiary,
Ingersoll-Rand Company (IR-New Jersey), and generally allege injury caused
by
exposure to asbestos contained in certain of IR-New Jersey’s products, primarily
pumps and compressors. 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 and packings purchased from
third-party suppliers.
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 20, Commitments and Contingencies, and Note 18, Income
Taxes, to the consolidated financial statements.
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, 2007.
Executive
Officers of the Registrant
Pursuant
to the General Instruction G(3) of Form 10-K, the following list of executive
officers of the Company as of February 25, 2008 is included as an unnumbered
item in Part I of this report in lieu of being included in the Company's Proxy
Statement for its 2008 Annual General Meeting of Shareholders.
Name and Age
|
|
Date of Service as
an Executive Officer
|
|
Principal Occupation and
Other Information for Past Five Years
|
Herbert
L. Henkel (59)
|
|
4/5/1999
|
|
Chairman
of Board and Chief Executive Officer, President and Director
|
|
|
|
|
|
James
V. Gelly (48)
|
|
10/6/2007
|
|
Senior
Vice President and Chief Financial Officer (since October 2007);
Rockwell
Automation, Chief Financial Officer, (2004-2007); Honeywell International,
Vice President and Treasurer (1999-2003)
|
|
|
|
|
|
Marcia
J. Avedon (46)
|
|
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 (50)
|
|
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
B. Gauld (54)
|
|
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 (44)
|
|
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 Manager,
Asia
2002-2003; Group Vice President and General Manager, Customer Business
Units, 1999-2002)
|
|
|
|
|
|
Patricia
Nachtigal (61)
|
|
11/2/1988
|
|
Director
(since January 1, 2002); Senior Vice President and General Counsel
|
|
|
|
|
|
Steven
R. Shawley (55)
|
|
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)
|
|
|
|
|
|
Richard
W. Randall (57)
|
|
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 our common shares and related shareholder
matters is as follows:
Our
Class
A common shares are traded on the New York Stock Exchange under the symbol
IR.
As of February 25, 2008, the approximate number of record holders of Class
A
common shares was 6,902. The high and low closing price per share and the
dividend paid per share for the following periods were as follows:
|
|
Common
shares
|
|
2007
|
|
High
|
|
Low
|
|
Dividend
|
|
First
quarter
|
|
$
|
45.42
|
|
$
|
38.75
|
|
$
|
0.18
|
|
Second
quarter
|
|
|
55.99
|
|
|
43.61
|
|
|
0.18
|
|
Third
quarter
|
|
|
55.99
|
|
|
47.21
|
|
|
0.18
|
|
Fourth
quarter
|
|
|
55.55
|
|
|
43.60
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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.
Information
regarding equity compensation plans required to be disclosed pursuant to this
Item is incorporated by reference from our definite Proxy Statement for the
Annual General Meeting of Shareholders.
Shares
of
IR-Limited owned by a subsidiary are treated as treasury stock and are recorded
at cost. During
2007, we repurchased 39.7 million Class A common shares at a cost $1,999.9
million under our existing $4 billion share repurchase program. This repurchase
program was originally authorized by the Board of Directors in December 2006
to
repurchase up to $2 billion and subsequently expanded to $4 billion in May
2007.
During
2006, we completed our original $2 billion share repurchase program by
repurchasing 27.7 million Class A common shares at a cost of $1,096.3 million.
This share repurchase program was originally authorized by the Board of
Directors in August 2004 and subsequently expanded in August 2005.
Total
share repurchases for the three months ended December 31, 2007 are as
follows:
|
|
|
|
|
|
Total number of
|
|
Approximate dollar
|
|
|
|
|
|
|
|
shares purchased
|
|
value of shares still
|
|
|
|
Total number
|
|
|
|
as part of the
|
|
available to be
|
|
|
|
of shares
|
|
Average
|
|
publicly announced
|
|
purchased under
|
|
|
|
purchased
|
|
price
paid
|
|
program
|
|
the program
|
|
Period
|
|
(000's)
|
|
per share
|
|
(000's)
|
|
($000's)
|
|
10/01/2007
- 10/31/2007
|
|
|
1,097.1
|
|
$
|
54.01
|
|
|
1,097.1
|
|
$
|
2,000,100
|
|
11/01/2007
- 11/30/2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,000,100
|
|
12/01/2007
- 12/31/2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,000,100
|
|
Total
|
|
|
1,097.1
|
|
|
|
|
|
1,097.1
|
|
|
|
|
Performance
Graph
The
following graph compares 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 for the
five years ended December 31, 2007. The graph assumes an investment of $100
in
our Class A common shares, the Standard & Poor’s 500 Stock Index and the
Standard & Poor’s Industrial Machinery Index on December 31, 2001 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,
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
8,763.1
|
|
$
|
8,033.7
|
|
$
|
7,263.7
|
|
$
|
6,663.2
|
|
$
|
6,083.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations
|
|
|
733.1
|
|
|
765.0
|
|
|
731.8
|
|
|
554.2
|
|
|
362.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from discontinued operations
|
|
|
3,233.6
|
|
|
267.5
|
|
|
322.4
|
|
|
664.5
|
|
|
282.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
14,376.2
|
|
|
12,145.9
|
|
|
11,756.4
|
|
|
11,414.6
|
|
|
10,664.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt
|
|
|
1,453.7
|
|
|
1,984.6
|
|
|
2,117.0
|
|
|
1,880.4
|
|
|
2,315.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
7,907.9
|
|
|
5,404.8
|
|
|
5,761.9
|
|
|
5,733.8
|
|
|
4,493.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
2.52
|
|
$
|
2.39
|
|
$
|
2.17
|
|
$
|
1.60
|
|
$
|
1.06
|
|
Discontinued
operations
|
|
|
11.12
|
|
|
0.84
|
|
|
0.95
|
|
|
1.92
|
|
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
2.48
|
|
$
|
2.37
|
|
$
|
2.14
|
|
$
|
1.58
|
|
$
|
1.05
|
|
Discontinued
operations
|
|
|
10.95
|
|
|
0.83
|
|
|
0.95
|
|
|
1.89
|
|
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
per common share
|
|
$
|
0.72
|
|
$
|
0.68
|
|
$
|
0.57
|
|
$
|
0.44
|
|
$
|
0.36
|
|
1. |
Earnings
and dividends per common share amounts have been restated to reflect
a
two-for-one stock split that occurred in August
2005.
|
2. |
2006 –
2003 amounts have been restated to reflect Compact Equipment and
the Road
Development business unit as discontinued operations.
|
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 (IR Limited), a Bermuda company, and its consolidated
subsidiaries (we, our or the Company) is a leading innovation and solutions
provider with strong brands and leading positions within our markets. Our
business segments consist of Climate Control Technologies, Industrial
Technologies and Security Technologies. We generate 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 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 strategic acquisitions;
|
· |
Operational
Excellence,
by fostering a lean 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 transformed our enterprise portfolio by divesting cyclical,
low-growth, and asset-intensive businesses. We continue to focus on increasing
our recurring revenue stream, which includes revenues from parts, service,
used
equipment and rentals. We also intend to continuously improve the efficiencies,
capabilities, and products and services of our high-potential businesses.
Acquisitions
and Divestitures
On
December 17, 2007, we announced that we had executed a definitive agreement
to
acquire Trane Inc., formerly American Standard Companies Inc., in a transaction
currently valued at approximately $9.5 billion. This transaction, which is
expected to close during the second quarter of 2008, is subject to approval
by
Trane shareholders, regulatory approval and contractual closing conditions.
There can be no assurance that the acquisition will be consummated.
Trane
is
a global leader in indoor climate control systems, services and solutions and
provides systems and services that enhance the quality and comfort of the air
in
homes and buildings around the world. They offer customers a broad range of
energy-efficient heating, ventilation and air conditioning systems;
dehumidifying and air cleaning products; service and parts support; advanced
building controls; and financing solutions. Their systems and services have
leading positions in commercial, residential, institutional and industrial
markets; a reputation for reliability, high quality and product innovation;
and
a powerful distribution network. Trane has more than 29,000 employees and 34
production facilities worldwide, with 2007 annual revenues of $7.45 billion.
On
November 30, 2007, we completed the sale of our Bobcat, Utility Equipment and
Attachments business units (collectively, Compact Equipment) to Doosan Infracore
for cash proceeds of approximately $4.9 billion, subject to post-closing
purchase price adjustments. We recorded a gain on sale of $2,652.0 million
(net
of tax of $939.0 million). Compact Equipment manufactures and sells compact
equipment including skid-steer loaders, compact track loaders, mini-excavators
and telescopic tool handlers; portable air compressors, generators, light
towers; general-purpose light construction equipment; and attachments.
On
April
30, 2007, we completed the sale of our Road Development business unit to AB
Volvo (publ) in all countries except for India, which closed on May 4, 2007,
for
cash proceeds of approximately $1.3 billion, subject to post-closing purchase
price adjustments. We recorded a gain on sale of $634.7 million (net of tax
of
$164.4 million). The Road Development business unit manufactures and sells
asphalt paving equipment, compaction equipment, milling machines and
construction-related material handling equipment.
Trends
and Economic Conditions
We
are a
global corporation with worldwide operations. More than 45% of our 2007 net
revenues are derived outside the U.S. 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. We monitor key
competitors and customers in order 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 from continuing operations for the full-year 2007 increased
approximately 9% compared with the same period of 2006. Strong international
markets, new product introductions, increased recurring revenue, higher volumes,
pricing improvements and a favorable currency impact drove this growth. Our
major end markets in Europe, Asia and Latin America experienced significant
growth. This growth helped to drive revenue increases in all three our operating
segments. We have also been able to increase prices and add surcharges to help
mitigate the impact of cost inflation during the year. We have generated
positive cash flows from operating activities during 2007 and expect to continue
to produce positive operating cash flows for the foreseeable
future.
For
2008,
we expect to see slower growth in North America and Western Europe offset by
the
activity levels in the developing economies of Eastern Europe, Asia and Latin
America. Additionally, we expect to see lower material cost inflation in 2008
relative to the past few years.
Significant
events in 2007
As
discussed in Acquisitions and Divestitures above, in 2007, we sold our Compact
Equipment and Road Development business unit for gross proceeds of approximately
$6.2 billion.
On
January 11, 2008 we announced that we had taken a non-cash charge in the fourth
quarter 2007 to earnings of discontinued operations of $449 million ($277
million after tax) relating to the company's liability for all pending and
estimated future asbestos claims through 2053. This charge results from an
increase in our recorded liability for asbestos claims by $538 million, from
$217 million to $755 million, offset by a corresponding $89 million increase
in
its assets for probable asbestos-related insurance recoveries, which now total
$250 million. For a further discussion of asbestos matters, see Note 20,
Commitments and Contingencies, to the consolidated financial
statements.
On
July
20, 2007, the Company and its consolidated subsidiaries received a notice from
the IRS containing proposed adjustments to the Company’s tax filings in
connection with an audit of the 2001 and 2002 tax years. The IRS did not contest
the validity of the Company’s reincorporation in Bermuda. The most significant
adjustments proposed by the IRS involve treating the entire intercompany debt
incurred in connection with the Company’s reincorporation in Bermuda as equity.
As a result of this recharacterization, the IRS has disallowed the deduction
of
interest paid on the debt and imposed dividend withholding taxes on the payments
denominated as interest. These adjustments proposed by the IRS, if upheld in
their entirety, would result in additional taxes with respect to 2002 of
approximately $190 million plus interest, and would require the Company to
record additional charges associated with this matter. At this time, the IRS
has
not yet begun their examination of the Company’s tax filings for years
subsequent to 2002. However, if these adjustments or a portion of these
adjustments proposed by the IRS are ultimately sustained, it is likely to also
affect subsequent tax years.
The
Company strongly disagrees with the view of the IRS and filed a protest with
the
IRS in the third quarter of 2007. Going forward, the Company intends to
vigorously contest these proposed adjustments. The Company, in consultation
with
its outside advisors, carefully considered many factors in determining the
terms
of the intercompany debt, including the obligor’s ability to service the debt
and the availability of equivalent financing from unrelated parties, two factors
prominently cited by the IRS in denying debt treatment. The Company believes
that its characterization of that obligation as debt for tax purposes was
supported by the relevant facts and legal authorities at the time of its
creation. The subsequent financial results of the relevant companies, including
the actual cash flow generated by operations and the production of significant
additional cash flow from dispositions have confirmed the ability to service
this debt. Although the outcome of this matter cannot be predicted with
certainty, based upon an analysis of the strength of its position, the Company
believes that it is adequately reserved for this matter. As the Company moves
forward to resolve this matter with the IRS, it is reasonably possible that
the
reserves established may be adjusted within the next 12 months. However, the
Company does not expect that the ultimate resolution will have a material
adverse impact on its future results of operations or financial position. See
Note 18, Income Taxes, to the consolidated financial statements for a further
discussion of tax matters.
During
2007, we repurchased 39.7 million Class A common shares at a cost $1,999.9
million under our existing $4 billion share repurchase program. This repurchase
program was originally authorized by the Board of Directors in December 2006
to
repurchase up to $2 billion and subsequently expanded to $4 billion in May
2007.
Significant
Events in 2006
During
2006, we completed our original $2 billion share repurchase program by
repurchasing 27.7 million Class A common shares at a cost of $1,096.3 million.
This share repurchase program was originally authorized by the Board of
Directors in August 2004 and subsequently 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
repurchased under the December 2006 authorization as of December 31,
2006.
On
October 6, 2006, we received a notice from the Internal Revenue Service (IRS)
containing proposed adjustments to our 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 our 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 a result, in the third quarter of 2006, we added
approximately $27 million ($0.08 per dilutive share) to previously established
reserves. In order to reduce the potential interest expense associated with
this
matter, we made a payment to the IRS of $217 million in the third quarter of
2007. See
Note
18, Income Taxes, to the consolidated financial statements for a further
discussion of tax matters.
Significant
Events in 2005
In
January, we 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
August, we 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. We have 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.
On
August
3, 2005, our Board of Directors declared a two-for-one stock split effected
in
the form of a stock distribution to shareholders on September 1, 2005. In
addition, they also expanded our share repurchase program, which was established
in August 2004, to $2 billion. During 2005, we repurchased 19.4 million Class
A
common shares at a cost of $763.6 million.
During
the second quarter of 2005, we issued $300 million aggregate principal amount
of
our 4.75% Senior Notes due in 2015. The notes are unconditionally guaranteed
by
IR-New Jersey.
Results
of Operations
|
|
|
|
%
of
|
|
|
|
%
of
|
|
|
|
%
of
|
|
Dollar amounts in millions, except per share data
|
|
2007
|
|
Revenues
|
|
2006
|
|
Revenues
|
|
2005
|
|
Revenues
|
|
Net
revenues
|
|
$
|
8,763.1
|
|
|
|
|
$
|
8,033.7
|
|
|
|
|
$
|
7,263.7
|
|
|
|
|
Cost
of goods sold
|
|
|
6,272.0
|
|
|
71.6%
|
|
|
5,768.4
|
|
|
71.8%
|
|
|
5,203.2
|
|
|
71.6%
|
|
Selling
and administrative expenses
|
|
|
1,433.3
|
|
|
16.3%
|
|
|
1,266.8
|
|
|
15.8%
|
|
|
1,172.7
|
|
|
16.2%
|
|
Operating
income
|
|
|
1,057.8
|
|
|
12.1%
|
|
|
998.5
|
|
|
12.4%
|
|
|
887.8
|
|
|
12.2%
|
|
Interest
expense
|
|
|
(136.2
|
)
|
|
|
|
|
(133.6
|
)
|
|
|
|
|
(145.1
|
)
|
|
|
|
Other
income, net
|
|
|
15.9
|
|
|
|
|
|
(7.3
|
)
|
|
|
|
|
50.1
|
|
|
|
|
Earnings
before income taxes
|
|
|
937.5
|
|
|
|
|
|
857.6
|
|
|
|
|
|
792.8
|
|
|
|
|
Provision
for income taxes
|
|
|
204.4
|
|
|
|
|
|
92.6
|
|
|
|
|
|
61.0
|
|
|
|
|
Earnings
from continuing operations
|
|
|
733.1
|
|
|
|
|
|
765.0
|
|
|
|
|
|
731.8
|
|
|
|
|
Discontinued
operations, net of tax
|
|
|
3,233.6
|
|
|
|
|
|
267.5
|
|
|
|
|
|
322.4
|
|
|
|
|
Net
earnings
|
|
$
|
3,966.7
|
|
|
|
|
$
|
1,032.5
|
|
|
|
|
$
|
1,054.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
2.48
|
|
|
|
|
$
|
2.37
|
|
|
|
|
$
|
2.14
|
|
|
|
|
Discontinued
operations
|
|
|
10.95
|
|
|
|
|
|
0.83
|
|
|
|
|
|
0.95
|
|
|
|
|
Net
earnings
|
|
$
|
13.43
|
|
|
|
|
$
|
3.20
|
|
|
|
|
$
|
3.09
|
|
|
|
|
Revenues
2007
vs. 2006:
Net
revenues increased by 9% in 2007, or $729.4 million, compared with 2006, which
primarily resulted from the following:
Volume/product
mix
|
|
|
4.0%
|
|
Pricing
|
|
|
2.0%
|
|
Currency
exchange rates
|
|
|
2.5%
|
|
Acquisitions
|
|
|
0.5%
|
|
Total
|
|
|
9.0%
|
|
Revenues
increased significantly in the European, Asian and Latin American regions as
volumes, product mix and pricing all improved during 2007. North American
revenues increased moderately compared to 2006. These increases occurred in
each
of our business segments. Recurring revenues continue to be a source of growth
as they improved 9% over the prior year and accounted for 18% of net revenues
in
2007.
2006
vs. 2005:
Net
revenues increased by 11% in 2006, or $770.0 million, compared with 2005, which
primarily resulted from the following:
Volume/product
mix
|
|
|
7.0%
|
|
Pricing
|
|
|
2.0%
|
|
Acquisitions
|
|
|
1.5%
|
|
Currency
exchange rates
|
|
|
0.5%
|
|
Total
|
|
|
11.0%
|
|
All
business segments experienced higher revenues on increased volumes created
by
favorable end markets and new product introductions. Revenues from all major
geographic regions also improved during 2006. Recurring revenues improved 10%
in
2006 over the prior year.
Cost
of Goods Sold
2007
vs. 2006:
In
2007, Cost of goods sold as a percentage of net revenues decreased slightly
compared with 2006. Increased leverage on higher revenues provided a benefit
which was offset by unfavorable mix and higher material costs. Restructuring
costs, which accounted for $25 million of the year-over-year increase, had
a
0.3% impact on Cost of goods sold as a percent of revenue.
2006
vs. 2005:
In
2006, Cost of goods sold as a percentage of net revenues increased slightly
compared with 2005. Increased leverage on higher revenues was more than offset
by higher material costs and investments in productivity programs.
Selling
and Administrative Expenses
2007
vs. 2006:
Selling
and administrative expenses as a percentage of net revenues increased compared
with 2006. This increase was primarily due to increased costs of $23 million
associated with the divestiture of Compact Equipment and the Road Development
business unit. In addition, share-based compensation expense of $20 million
and
the prior year adjustment of the allowance for doubtful accounts of $15 million
also contributed to the increase. These additional costs were partially offset
by better leverage from higher revenue.
2006
vs. 2005:
Selling
and administrative expenses as a percentage of net revenues decreased compared
with 2005. This decrease was primarily due to increased leverage from higher
revenues, partially offset by increased investments in new product development
of $30 million and lower productivity of $20 million. In addition, 2006 Selling
and administrative expenses were favorably impacted by a change in estimate
of
the allowance for doubtful accounts reserve during the first quarter of 2006,
which resulted in a $15 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 our business portfolio and historical
and expected write-off experience. In addition, we purchased a new insurance
policy, which limits our bad debt exposure. This benefit was more than offset
by
$20 million of additional share-based compensation costs, which includes $14
million associated with stock options from the adoption of Statement of
Financial Accounting Standard No. 123(R).
Operating
Income
2007
vs. 2006:
Operating income increased by $59.3 million or 5.9% in 2007, compared with
2006.
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, restructuring costs
and
unfavorable product mix.
2006
vs. 2005:
Operating income increased by $110.7 million or 12.5% in 2006, compared with
2005. The increase in Operating income was mainly attributable to improved
pricing and higher volumes. These benefits were partially offset by higher
material costs, investments in new product development and productivity programs
and restructuring costs.
Interest
Expense
2007
vs. 2006:
Interest expense increased by $2.6 million in 2007, compared with 2006. The
increase was mainly attributable to higher year-over-year average debt levels
due to the issuance and subsequent repayment of commercial paper during
2007.
2006
vs. 2005:
Interest expense decreased by $11.5 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.
Other
Income, Net
Other
income, net increased by $23.2 million in 2007 and decreased by $57.4 million
in
2006, which primarily resulted from the following:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Interest
income
|
|
$
|
36.2
|
|
$
|
15.9
|
|
$
|
29.1
|
|
Exchange
gain (loss)
|
|
|
(2.8
|
)
|
|
(21.3
|
)
|
|
6.8
|
|
Minority
interests
|
|
|
(14.3
|
)
|
|
(14.9
|
)
|
|
(12.7
|
)
|
Earnings
from equity investments
|
|
|
1.0
|
|
|
(0.1
|
)
|
|
4.1
|
|
Other
|
|
|
(4.2
|
)
|
|
13.1
|
|
|
22.8
|
|
Other
income, net
|
|
$
|
15.9
|
|
$
|
(7.3
|
)
|
$
|
50.1
|
|
2007
vs. 2006: Other
income, net increased in 2007 compared with 2006, mainly due to increased
interest income as result of higher average cash balances during 2007.
Additionally, Other income, net in 2006 included income from a reduction of
a
product liability reserve of approximately $9 million.
2006
vs. 2005: Other
income, net decreased in 2006 compared with 2005, mainly due to unfavorable
foreign exchange movement and lower earnings from equity investments. Also
interest income decreased as a result of lower average cash balances during
2006. These decreases were partially offset by a reduction of a $9 million
product liability reserve in 2006. In addition, Other income, net in 2005
included income of approximately $10 million from a reduction of a liability
for
a business previously divested.
Provision
for Income Taxes
Our
effective tax rate was 21.8%, 10.8% and 7.7% for 2007, 2006 and 2005
respectively. The table below highlights the major changes in our effective
tax
rate as well as provides a reconciliation to the statutory U.S. tax
rate:
|
|
Percent
of pretax income
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Statutory
U.S. rate
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Increase
(decrease) in rates resulting from:
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
operations
|
|
|
(21.0
|
)
|
|
(28.2
|
)
|
|
(26.4
|
)
|
Tax
reserves
|
|
|
8.0
|
|
|
4.8
|
|
|
2.2
|
|
Other
adjustments
|
|
|
(0.2
|
)
|
|
(0.8
|
)
|
|
(3.1
|
)
|
Effective
tax rate
|
|
|
21.8
|
%
|
|
10.8
|
%
|
|
7.7
|
%
|
2007
vs. 2006:
The
effective tax rate increased approximately 11% in 2007 compared with 2006.
The
increase in the effective tax rate during 2007 was primarily due to increased
earnings in higher tax jurisdictions (7.2%) and increased tax reserves (3.2%)
primarily associated with Financial Accounting Standard Board Interpretation
No.
48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB
Statement 109” (FIN 48), a new accounting standard that we adopted in 2007. FIN
48 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.
2006
vs. 2005:
The
effective tax rate increased approximately 3.1% in 2007 compared with 2006.
The
increase in the effective tax rate during 2006 primarily relates to the $27
million charge that we recorded in the third quarter of 2006 associated with
the
notice received from the IRS, as described under “Significant Events in
2006”.
Review
of Business Segments
We
classify our business into three reportable segments based on industry and
market focus: Climate Control 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,
refrigerated display merchandisers, beverage coolers, auxiliary power units
and
walk-in storage coolers and freezers. This segment includes the Thermo King,
Hussmann and Koxka brands.
Dollar
amounts in millions
|
|
2007
|
|
%
change
|
|
2006
|
|
%
change
|
|
2005
|
|
Net
revenues
|
|
$
|
3,372.4
|
|
|
6.4%
|
|
$
|
3,171.0
|
|
|
11.1%
|
|
$
|
2,853.6
|
|
Operating
income
|
|
|
382.6
|
|
|
7.5%
|
|
|
356.0
|
|
|
13.0%
|
|
|
315.1
|
|
Operating
margin
|
|
|
11.3
|
%
|
|
|
|
|
11.2
|
%
|
|
|
|
|
11.0
|
%
|
2007
vs. 2006:
Net
revenues increased by 6.4% in 2007, or $201.4 million, compared with 2006,
which
mainly resulted from favorable currency movement (4%), higher volumes and
product mix (2%) and improved product pricing. Operating income increased during
the year due to increased productivity ($68 million), improved product pricing
($44 million) and favorable currency movement ($15 million). These increases
were partially offset by higher material costs ($46 million), investments in
restructuring ($22 million), unfavorable product mix ($20 million) and new
product development ($8 million).
Net
revenues grew in the European, Asian and Latin American regions during the
year
ended 2007, benefiting from strong truck and trailer sales and year-over-year
gains in bus and marine containers. These gains were partially offset by lower
activity levels in the North American trailer markets. Revenues for service
and
installation increased with growth in the North American and Asian markets,
offsetting weakness in the European market for display cases.
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.
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, golf
and
utility vehicles and energy generation systems. This segment includes the
Ingersoll Rand and Club Car brands.
Dollar
amounts in millions
|
|
2007
|
|
%
change
|
|
2006
|
|
%
change
|
|
2005
|
|
Net
revenues
|
|
$
|
2,877.1
|
|
|
11.6%
|
|
$
|
2,577.7
|
|
|
11.6%
|
|
$
|
2,310.4
|
|
Operating
income
|
|
|
392.0
|
|
|
11.4%
|
|
|
351.8
|
|
|
16.6%
|
|
|
301.6
|
|
Operating
margin
|
|
|
13.6
|
%
|
|
|
|
|
13.6
|
%
|
|
|
|
|
13.1
|
%
|
2007
vs. 2006:
Net
revenues increased by 11.6% in 2007, or $299.4 million, compared with 2006,
mainly due to higher volumes and product mix (5%), a favorable currency impact
(2%), acquisitions (2%) and improved product pricing (2%). Operating income
for
the year ended 2007 was higher due to improved product pricing ($48 million),
increased productivity ($33 million) and higher volumes ($32 million). These
gains were partially offset by higher material costs ($63 million) and
investments in new product development and productivity programs ($13
million).
Air
Solutions revenues increased 16% compared with 2006, mainly driven by favorable
worldwide industrial markets and increased recurring revenues. Productivity
Solutions revenues increased moderately compared with 2006, mainly due to
non-U.S. growth in the industrial fluid and handling markets and higher service
revenues, partially offset by a weak domestic market for tools. Club Car
revenues increased 10% compared with 2006, mainly due to growth in the sales
of
utility, off-road and aftermarket vehicles and ongoing market share gains in
a
soft golf market.
2006
vs. 2005:
Net
revenues increased by 11.6% in 2006, or $267.3 million, compared with 2005,
mainly due to higher volumes and product mix (9%), improved product pricing
(2%)
and acquisitions. Operating income for the year ended 2006 was higher due to
increased productivity ($51 million), improved product pricing ($40 million)
and
higher volumes and product mix ($37 million). These gains were partially offset
by higher material costs ($59 million), investments in new product development
and productivity programs ($12 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, resulting in
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. Club Car revenues for the
year
ended 2006 increased by 11% compared with 2005, mainly due to higher sales
of
golf cars, transport and utility vehicles, as well as significant growth in
the
aftermarket and international markets.
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. This segment includes the Schlage, LCN,
Von Duprin and CISA brands.
Dollar
amounts in millions
|
|
2007
|
|
%
change
|
|
2006
|
|
%
change
|
|
2005
|
|
Net
revenues
|
|
$
|
2,513.6
|
|
|
10.0%
|
|
$
|
2,285.0
|
|
|
8.8%
|
|
$
|
2,099.7
|
|
Operating
income
|
|
|
433.5
|
|
|
8.3%
|
|
|
400.2
|
|
|
5.1%
|
|
|
380.7
|
|
Operating
margin
|
|
|
17.2
|
%
|
|
|
|
|
17.5
|
%
|
|
|
|
|
18.1
|
%
|
2007
vs. 2006:
Net
revenues increased by 10.0% in 2007, or $228.6 million, compared with 2006,
mainly due to higher volumes and product mix (5%) and improved product pricing
(4%). Operating income for the year ended 2007 increased due to improved product
pricing ($84 million) and increased productivity ($15 million). These gains
were
partially offset by higher material costs ($35 million), lower volumes ($16
million), new product development ($6 million) and investments in restructuring
($5 million).
Net
revenues grew in all regions during the year benefiting from strong worldwide
commercial construction markets, especially in schools, universities and
health-care facilities. Revenues from electronic access control and mechanical
products also increased year-over-year. Market share gains from both the new
home-builder channel and large retail customers increased revenue along with
the
introduction of residential electronic products and new product designs. These
increases helped offset the effects of a declining North American residential
market.
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
($30 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. Asian revenues were up sharply, primarily due to bolt-on
acquisitions.
Discontinued
Operations
The
components of discontinued operations for the years ended December 31 are as
follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
2,957.8
|
|
$
|
3,375.7
|
|
$
|
3,283.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
earnings (loss) from operations
|
|
|
(82.5
|
)
|
|
376.6
|
|
|
413.6
|
|
Pre-tax
gain on sale
|
|
|
4,382.6
|
|
|
1.1
|
|
|
4.4
|
|
Tax
expense
|
|
|
(1,066.5
|
)
|
|
(110.2
|
)
|
|
(95.6
|
)
|
Discontinued
operations, net
|
|
$
|
3,233.6
|
|
$
|
267.5
|
|
$
|
322.4
|
|
Pre-tax
loss from operations in 2007 includes a non-cash charge of $449.0 million
related to our liability for all pending and estimated future asbestos claims
through 2053 as discussed below in “Other Discontinued Operations”.
Discontinued
operations by business for the years ended December 31 are as
follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Compact
Equipment, net of tax
|
|
$
|
2,927.1
|
|
$
|
240.4
|
|
$
|
284.7
|
|
Road
Development, net of tax
|
|
|
672.5
|
|
|
62.9
|
|
|
36.6
|
|
Other
discontinued operations, net of tax
|
|
|
(366.0
|
)
|
|
(35.8
|
)
|
|
1.1
|
|
Total
discontinued operations, net of tax
|
|
$
|
3,233.6
|
|
$
|
267.5
|
|
$
|
322.4
|
|
Compact
Equipment Divestiture
On
July
29, 2007, we agreed to sell our Bobcat, Utility Equipment and Attachments
business units (collectively, Compact Equipment) to Doosan Infracore for gross
proceeds of approximately $4.9 billion, subject to post closing purchase price
adjustments. The sale was completed on November 30, 2007.
Compact
Equipment manufactures and sells compact equipment, including skid-steer
loaders, compact track loaders, mini-excavators and telescopic tool handlers;
portable air compressors, generators and light towers; general-purpose light
construction equipment; and attachments. We have accounted for Compact Equipment
as discontinued operations and classified the assets and liabilities as held
for
sale for all periods presented in accordance with Statement of Financial
Accounting Standard No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (SFAS 144).
Net
revenues and after-tax earnings of Compact Equipment for the years ended
December 31 were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Net
revenues
|
|
$
|
2,705.9
|
|
$
|
2,648.4
|
|
$
|
2,610.1
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
earnings from operations
|
|
$
|
275.1
|
|
$
|
240.4
|
|
$
|
284.7
|
|
Gain
on sale, net of tax of $939.0
|
|
|
2,652.0
|
|
|
-
|
|
|
-
|
|
Total
discontinued operations, net of tax
|
|
$
|
2,927.1
|
|
$
|
240.4
|
|
$
|
284.7
|
|
Road
Development Divestiture
On
February 27, 2007, we agreed to sell our Road Development business unit to
AB
Volvo (publ) for cash proceeds of approximately $1.3 billion, subject to post
closing purchase price adjustments. The sale was completed on April 30, 2007,
in
all countries except for India, which closed on May 4, 2007.
The
Road
Development business unit manufactures and sells asphalt paving equipment,
compaction equipment, milling machines and construction-related material
handling equipment. We have accounted for the Road Development business unit
as
discontinued operations and classified the assets and liabilities sold to AB
Volvo as held for sale for all periods presented in accordance with SFAS 144.
Net
revenues and after-tax earnings of the Road Development business unit for
the
years ended December 31 were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Net
revenues
|
|
$
|
251.9
|
|
$
|
727.3
|
|
$
|
673.1
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
earnings from operations
|
|
$
|
37.8
|
|
$
|
62.9
|
|
$
|
36.6
|
|
Gain
on sale, net of tax of $164.4
|
|
|
634.7
|
|
|
-
|
|
|
-
|
|
Total
discontinued operations, net of tax
|
|
$
|
672.5
|
|
$
|
62.9
|
|
$
|
36.6
|
|
Other
Discontinued Operations
We
also
have retained costs from previously sold businesses that mainly include costs
related to postretirement benefits, product liability and legal costs (mostly
asbestos-related). The components of other discontinued operations for the
years
ended December 31 were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Retained
costs, net of tax
|
|
$
|
(340.9
|
)
|
$
|
(36.5
|
)
|
$
|
(34.1
|
)
|
Net
gain (loss) on disposals, net of tax
|
|
|
(25.1
|
)
|
|
0.7
|
|
|
35.2
|
|
Total
discontinued operations, net of tax
|
|
$
|
(366.0
|
)
|
$
|
(35.8
|
)
|
$
|
1.1
|
|
During
the fourth quarter of 2007, we recorded a non-cash charge of $449.0 million
($277 million after tax) related to our liability for all pending and estimated
future asbestos claims through 2053. Refer to Note 20, Commitments and
Contingencies, in the consolidated financial statements for further details
on
asbestos-related matters.
Liquidity
and Capital Resources
The
following table reflects the major categories of cash flows for the years ended
December 31, respectively. For additional details, please see the Consolidated
Statements of Cash Flows in the consolidated financial statements.
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Operating
cash flow provided by (used in) continuing operations
|
|
$
|
829.9
|
|
$
|
813.1
|
|
$
|
440.9
|
|
Investing
cash flow provided by (used in) continuing operations
|
|
|
6,052.4
|
|
|
(28.7
|
)
|
|
(688.6
|
)
|
Financing
cash flow provided by (used in) continuing operations
|
|
|
(2,563.1
|
)
|
|
(1,343.2
|
)
|
|
(875.7
|
)
|
Operating
Activities
2007
vs. 2006:
Our
primary source of liquidity is operating cash flows. Net cash provided by
operating activities from continuing operations increased to $829.9 million
in
2007 compared with $813.1 in 2006. The change was primarily due to higher
cash-based earnings in 2007, partially, offset by the $217 million payment
to
the IRS made during 2007. For further details regarding this tax payment, see
Note 18, Income Taxes in the consolidated financial statements.
2006
vs. 2005:
Net cash
provided by operating activities from continuing operations increased to $813.1
million in 2006 compared with $440.9 million in 2005. This change was mainly
due
to higher cash-based earnings and a lower investment in our working capital
in
2006 compared with 2005.
Investing
Activities
2007
vs. 2006:
Net cash
provided by investing activities from continuing operations in 2007 was $6,052.4
million, compared with net cash used in investing activities from continuing
operations of $28.7 million in 2006. The change in investing activities was
primarily attributable to the net proceeds of $6,154.3 million from the sale
of
Compact Equipment and the Road Development business unit in 2007.
2006
vs. 2005:
Net cash
used in investing activities from continuing operations in 2006 was $28.7
million compared with $688.6 million in 2005. The change was primarily
attributable to decreased acquisition activity in 2006. Cash used for
acquisitions in 2006 was $49.7 million compared with $484.7 million in 2005,
which included the purchase of CISA S.p.A. and Taiwan Fu Hsing Industrial
Company Ltd. The decrease was partially offset by increased capital expenditures
of $144.8 million in 2006 compared with $86.1 million in 2005. Additionally,
during 2006 we sold $155.8 million of marketable securities that were purchased
for $152.6 million in 2005.
Financing
Activities
2007
vs. 2006:
Net cash
used in financing activities from continuing operations in 2007 was $2,563.1
million compared with $1,343.2 million in 2006. The change in financing
activities was primarily due to the increase in repurchases of Class A common
shares and the repayment of $551.7 million of short-term and long-term debt.
During 2007, we repurchased approximately 39.7 million Class A common shares
at
a cost of $1,999.9 million. During 2006, we repurchased 27.7 million Class
A
common shares at a cost of $1,096.3 million.
2006
vs. 2005:
Net cash
used in financing activities from continuing operations in 2006 was $1,343.2
million compared with $875.7 million in 2005. The change in financing activities
is primarily due to the increase in repurchases of Class A common shares and
the
repayment of $513.7 million of long-term debt. During 2006, the Company
repurchased approximately 27.7 million Class A common shares at a cost of
$1,096.3 million. During 2005, the Company repurchased 19.4 million Class A
common shares at a cost of $763.6 million. 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.
Other
Liquidity Measures
The
following table contains several key measures to gauge our financial condition
and liquidity at the period ended December 31:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
and cash equivalents
|
|
$
|
4,735.3
|
|
$
|
355.8
|
|
$
|
876.0
|
|
Total
debt
|
|
|
1,453.7
|
|
|
1,984.6
|
|
|
2,117.0
|
|
Total
shareholders' equity
|
|
|
7,907.9
|
|
|
5,404.8
|
|
|
5,761.9
|
|
Debt-to-total
capital ratio
|
|
|
15.4
|
%
|
|
26.6
|
%
|
|
26.7
|
%
|
Cash
and
cash equivalents increased by $4,379.5 million during 2007. The increase is
mainly attributable to the sale of Compact Equipment and the Road Development
business unit, which generated proceeds of $6,154.3 million.
Total
debt levels declined by $530.9 million during 2007 as we repaid $141.8 million
of long-term debt and $378.0 million of commercial paper.
In
connection with the proposed Trane acquisition, each share of Trane’s common
stock (which approximated 195 million at December 31, 2007) will be exchanged
for a combination of (i) 0.23 of an Ingersoll Rand Class A common share and
(ii)
$36.50 in cash, without interest. We intend to use a combination of cash on
hand
and debt financing in order to pay for the cash portion of the consideration.
We
have secured commitments from JPMorgan Chase Bank, N.A., J.P. Morgan Securities
Inc., Credit Suisse, Cayman Islands Branch, Credit Suisse Securities (USA)
LLC,
Goldman Sachs Bank USA and Goldman Sachs Credit Partners L.P. to provide up
to
$3.9 billion in financing through a 364-day senior unsecured bridge facility.
If
unused, the debt commitments will expire on September 30, 2008.
In
2007,
there was significant volatility in the capital markets, which led to an overall
tightening of the credit markets. During 2008, we intend to refinance the bridge
financing primarily with a combination of short-term and long-term debt.
Financing terms will be determined by market conditions at the time of issuance.
As such, we cannot assess the impact of the financing on our future financial
results.
Our
debt-to-total capital ratio at December 31, 2007 decreased significantly
compared with 2006, due to a substantial increase in Shareholders’ equity as the
result of the $3,286.7 million gain from the sale of Compact Equipment and
the
Road Development business unit. Additionally, the debt-to-capital ratio was
affected by the repayment of $530.9 million of debt during 2007.
Capital
expenditures were $119.7 million, $144.8 million and $86.1 million for 2007,
2006 and 2005, respectively. Our investments continue to improve manufacturing
productivity, reduce costs and provide environmental enhancements and advanced
technologies for existing facilities. The capital expenditure program for 2008
is estimated to be approximately $150 million, including amounts approved in
prior periods. Many of these projects are subject to review and cancellation
at
our option without incurring substantial charges.
For
financial market risk impacting the Company, see Item 7A. Quantitative and
Qualitative Disclosure About Market Risk.
Capitalization
In
addition to operating cash flow, we maintain significant credit availability
under our commercial paper programs. Our ability to borrow at a cost-effective
rate under the commercial paper programs is contingent upon maintaining an
investment-grade credit rating. As of December 31, 2007, our credit ratings
were
as follows:
|
|
Short-term
|
|
Long-term
|
|
Moody's
|
|
|
P-2
|
|
|
A3
|
|
Standard
and Poor's
|
|
|
A-2
|
|
|
BBB+
|
|
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.
We
have
additional short-term borrowing alternatives, should the need arise. At December
31, 2007, our 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
our commercial paper program and indirectly provide support for other financing
instruments, such as letters of credit, as required in the normal course of
business. We compensate banks for these lines with fees equal to a weighted
average of .0775% per annum. Available non-U.S. lines of credit were
$756.9 million,
of which $620.5 million were unused at December 31, 2007. These lines provide
support for bank guarantees, letters of credit and other working capital
purposes.
In
2008,
we have long-term debt retirements of $681.1 million, which include $547.9
million in bonds that may require early repayment at the option of the holders.
We believe that our cash generation and large unused capacity under our
committed borrowing facilities provide sufficient capacity to cover all cash
requirements for capital expenditures, dividends, debt repayments, and operating
lease and purchase obligations in 2008.
In
August
2005, our 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 our 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 our
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 our Class A common
shares from 16 cents to 18 cents per share.
Contractual
Obligations
The
following table summarizes our contractual cash obligations by required payment
periods, in millions:
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
payments on
|
|
|
|
|
|
contractual
|
|
Payments
|
|
Short-term
|
|
Long-term
|
|
|
|
long-term
|
|
Purchase
|
|
Operating
|
|
cash
|
|
due
by period
|
|
debt
|
|
debt
|
|
|
|
debt
|
|
obligations
|
|
leases
|
|
obligations
|
|
Less
than 1 year
|
|
$
|
59.9
|
|
$
|
681.1
|
|
* |
|
|
$
|
84.4
|
|
$
|
639.0
|
|
$
|
54.2
|
|
$
|
1,518.6
|
|
1
-
3 years
|
|
|
-
|
|
|
18.3
|
|
|
|
|
|
89.1
|
|
|
187.5
|
|
|
81.0
|
|
|
375.9
|
|
3
-
5 years
|
|
|
-
|
|
|
18.1
|
|
|
|
|
|
86.1
|
|
|
-
|
|
|
43.8
|
|
|
148.0
|
|
More
than 5 years
|
|
|
-
|
|
|
676.3
|
|
|
|
|
|
316.6
|
|
|
-
|
|
|
24.8
|
|
|
1,017.7
|
|
Total
|
|
$
|
59.9
|
|
$
|
1,393.8
|
|
|
|
|
$
|
576.2
|
|
$
|
826.5
|
|
$
|
203.8
|
|
$
|
3,060.2
|
|
*
Includes $547.9 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 our pension and postretirement benefit plans, income
taxes, environmental and asbestos matters have not been included in the
contractual cash obligations table above.
Pensions
In
2006,
we adopted 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),
which requires us to record the funded status of our pension plans on the
balance sheet effective December 31, 2006.
As
of
December 31, 2007, we had net obligations on our balance sheet of $71.5 million,
which consist of long-term prepaid pension costs of $166.9 million and current
and non-current pension benefits liabilities of $238.4 million. It is our
objective to contribute to the 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, 2007,
approximately seven percent of our projected benefit obligation relates to
plans
that are unfunded.
Our
investment objectives in managing 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 our required 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, 2007, our strategic global asset
allocation for the pension plans was 55% in equity securities and 45% in debt
securities and cash. We set 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 the most recent ALM study, we have begun to
adjust our strategic global asset allocation for the pension plans to be
approximately 40% in equity securities and 60% in debt securities, real estate
and cash.
Contributions
to our pension plans were $25.5 million in 2007, $31.6 million in 2006, and
$119.4 million in 2005. Our policy allows us to fund an amount, which could
be
in excess of the pension cost expensed, subject to the limitations imposed
by
current tax regulations. We anticipate funding the plans in 2008 in accordance
with contributions required by funding regulations or the laws of each
jurisdiction and currently project that we will be required to contribute
approximately $30 million to our plans worldwide in 2008.
Our
pension plans for U.S. non-collectively bargained employees provide benefits
on
a final average pay formula. 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 us for officers and other key
employees. Pension benefit payments are expected to be paid as follows: $167.5
million in 2008, $168.1 million in 2009, $184.6 million in 2010, $163.4 million
in 2011, $171.1 million in 2012 and $912.0 million for the years 2013 to
2017.
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 2007,
2006 and 2005 were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Net
periodic pension benefit cost
|
|
$
|
11.5
|
|
$
|
32.7
|
|
$
|
32.4
|
|
Net
curtailment and settlement (gains) losses
|
|
|
63.5
|
|
|
-
|
|
|
4.0
|
|
Net
periodic pension benefit (income) cost after
|
|
|
|
|
|
|
|
|
|
|
net
curtailment and settlement (gains) losses
|
|
$
|
75.0
|
|
$
|
32.7
|
|
$
|
36.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recorded in continuing operations
|
|
$
|
20.6
|
|
$
|
38.3
|
|
$
|
45.8
|
|
Amounts
recorded in discontinued operations
|
|
|
54.4
|
|
|
(5.6
|
)
|
|
(9.4
|
)
|
Total
|
|
$
|
75.0
|
|
$
|
32.7
|
|
$
|
36.4
|
|
Net
periodic pension cost for 2008 is projected to be approximately $23 million.
Postretirement
Benefits Other Than Pensions
In
2006,
we adopted SFAS 158, which requires us to record the funded status of our
postretirement plans on the balance sheet effective December 31, 2006.
We
fund
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:
$51.1 million in 2008, $52.2 million in 2009, $55.2 million in 2010, $56.2
million in 2011, $56.3 million in 2012 and $280.4 million for the years 2013
to
2017.
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 2007, 2006 and 2005 were as
follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Net
periodic postretirement benefit cost
|
|
$
|
78.1
|
|
$
|
79.2
|
|
$
|
74.0
|
|
Net
curtailment and settlement (gains) losses
|
|
|
(265.9
|
)
|
|
-
|
|
|
-
|
|
Net
periodic postretirement benefit (income) cost
after
net curtailment and settlement (gains) losses
|
|
$
|
(187.8
|
)
|
$
|
79.2
|
|
$
|
74.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recorded in continuing operations
|
|
$
|
22.7
|
|
$
|
25.7
|
|
$
|
25.1
|
|
Amounts
recorded in discontinued operations
|
|
|
(210.5
|
)
|
|
53.5
|
|
|
48.9
|
|
Total
|
|
$
|
(187.8
|
)
|
$
|
79.2
|
|
$
|
74.0
|
|
Net
periodic postretirement benefit cost for 2008 is projected to be approximately
$53 million.
Income
Taxes
As
of
December 31, 2007, the Company has accrued current income taxes payable of
approximately $594 million, and expects to pay various taxing authorities a
substantial portion of the balance in the first quarter of 2008. These large
tax
payments are primarily associated with 2007 earnings from operations, as well
as
the large gain on the Compact Equipment divestiture during the fourth quarter
of
2007.
Effective
January 1, 2007, the Company adopted 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 recognition, classification, accounting in interim
periods and disclosure requirements for uncertain tax positions. As a result
of
adopting FIN 48, the company recorded additional liabilities to its previously
established reserves, and a corresponding decrease in retained earnings of
$145.6 million. The Company has total unrecognized tax benefits of $379.8
million as of December 31, 2007.
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. In the normal course of business the Company is
subject to examination by taxing authorities throughout the world, including
such major jurisdictions as Germany, Italy, the Netherlands Switzerland and
the
United States. In general, the examination of the Company’s material tax returns
is completed for the years prior to 2000.
The
Internal Revenue Service (IRS) has completed the examination of the Company’s
federal income tax returns through the 2000 tax year and has issued a notice
proposing adjustments. The principle proposed adjustment relates to the
disallowance of certain capital losses. The Company disputes the IRS position
and protests have been filed with the IRS Appeals Division. In order to reduce
the potential interest expense associated with this matter, the Company made
a
payment of $217 million in the third quarter of 2007, which reduced the
Company’s total liability for uncertain tax positions by $141 million. The
issues raised by the IRS associated with this payment are not related to
the
Company's reorganization in Bermuda, or the Company's intercompany debt
structure.
On
July
20, 2007, the Company and its consolidated subsidiaries received a notice
from
the IRS containing proposed adjustments to the Company’s tax filings in
connection with an audit of the 2001 and 2002 tax years. The IRS did not
contest
the validity of the Company’s reincorporation in Bermuda. The most significant
adjustments proposed by the IRS involve treating the entire intercompany
debt
incurred in connection with the Company’s reincorporation in Bermuda as equity.
As a result of this recharacterization, the IRS has disallowed the deduction
of
interest paid on the debt and imposed dividend withholding taxes on the payments
denominated as interest. These adjustments proposed by the IRS, if upheld
in
their entirety, would result in additional taxes with respect to 2002 of
approximately $190 million plus interest, and would require the Company to
record additional charges associated with this matter. At this time, the
IRS has
not yet begun their examination of the Company’s tax filings for years
subsequent to 2002. However, if these adjustments or a portion of these
adjustments proposed by the IRS are ultimately sustained, it is likely to
also
affect subsequent tax years.
The
Company strongly disagrees with the view of the IRS and filed a protest with
the
IRS in the third quarter of 2007. Going forward, the Company intends to
vigorously contest these proposed adjustments. The Company, in consultation
with
its outside advisors, carefully considered many factors in determining the
terms
of the intercompany debt, including the obligor’s ability to service the debt
and the availability of equivalent financing from unrelated parties, two
factors
prominently cited by the IRS in denying debt treatment. The Company believes
that its characterization of that obligation as debt for tax purposes was
supported by the relevant facts and legal authorities at the time of its
creation. The subsequent financial results of the relevant companies, including
the actual cash flow generated by operations and the production of significant
additional cash flow from dispositions have confirmed the ability to service
this debt. Although the outcome of this matter cannot be predicted with
certainty, based upon an analysis of the strength of its position, the Company
believes that it is adequately reserved for this matter. As the Company moves
forward to resolve this matter with the IRS, it is reasonably possible that
the
reserves established may be adjusted within the next 12 months. However,
the
Company does not expect that the ultimate resolution will have a material
adverse impact on its future results of operations or financial
position.
The
Company believes that it has adequately provided for any reasonably foreseeable
resolution of any tax disputes, but will adjust its reserves if events so
dictate in accordance with FIN 48. 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.
Commitments
and Contingencies
We
are
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.
Environmental
Matters
We
continue 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, we are currently
engaged in site investigations and remediation activities to address
environmental cleanup from past operations at current and former manufacturing
facilities.
We
are
sometimes a party to environmental lawsuits and claims and have received
notices
of potential violations of environmental laws and regulations from the
Environmental Protection Agency and similar state authorities. We have also
been
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 such sites, there are other PRPs and, in most instances, our involvement
is minimal.
In
estimating our liability, we have assumed we 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.
During
2007, we spent $5.6 million on capital projects for pollution abatement and
control, and an additional $11.1 million for environmental remediation
expenditures at sites presently or formerly owned or leased by us. As of
December 31, 2007, we have recorded reserves for environmental matters of
$101.8
million. We believe that these expenditures and accrual 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.
For
a
further discussion of our potential environmental liabilities, see Note
20,
Commitments and Contingencies, to the consolidated financial
statements.
Asbestos
Matters
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 has been filed against IR-New Jersey and generally
allege injury caused by exposure to asbestos contained in certain of IR-New
Jersey’s products, primarily pumps and compressors. 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
and packings purchased from third-party suppliers.
Prior
to
the fourth quarter of 2007, the Company recorded a liability (which it
periodically updated) for its actual and anticipated future asbestos settlement
costs projected seven years into the future. The Company did not record a
liability for future asbestos settlement costs beyond the seven-year period
covered by its reserve because such costs previously were not reasonably
estimable for the reasons detailed below.
In
the
fourth quarter of 2007, the Company again reviewed its history and experience
with asbestos-related litigation and determined that it had now become possible
to make a reasonable estimate of its total liability for pending and unasserted
potential future asbestos-related claims. This determination was based upon
the
Company’s analysis of developments in asbestos litigation, including the
substantial and continuing decline in the filing of non-malignancy claims
against the Company, the establishment in many jurisdictions of inactive
or
deferral dockets for such claims, the decreased value of non-malignancy
claims because of changes in the legal and judicial treatment of such claims,
increasing focus of the asbestos litigation upon malignancy claims, primarily
those involving mesothelioma, a cancer with a known historical and predictable
future annual incidence rate, and the Company’s substantial accumulated
experience with respect to the resolution of malignancy claims, particularly
mesothelioma claims, filed against it.
Accordingly,
in the fourth quarter of 2007, the Company retained Dr. Thomas Vasquez of
Analysis, Research & Planning Corporation (collectively, “ARPC”) to assist
it in calculating an estimate of the Company’s total liability for pending and
unasserted future asbestos-related claims. ARPC is a respected expert in
performing complex calculations such as this. ARPC has been involved in many
asbestos-related valuations of current and future liabilities, and its valuation
methodologies have been accepted by numerous courts.
The
methodology used by ARPC to project the Company’s total liability for pending
and unasserted potential future asbestos-related claims relied upon and included
the following factors, among others:
|
·
|
ARPC’s
interpretation of a widely accepted forecast of the population
likely to
have been occupationally exposed to
asbestos;
|
|
·
|
epidemiological
studies estimating the number of people likely to develop asbestos-related
diseases such as mesothelioma and lung
cancer;
|
|
·
|
the
Company’s historical experience with the filing of non-malignancy claims
against it and the historical ratio between the numbers of non-malignancy
and lung cancer claims filed against the
Company;
|
|
·
|
ARPC’s
analysis of the number of people likely to file an asbestos-related
personal injury claim against the Company based on such epidemiological
and historical data and the Company’s most recent three-year claims
history;
|
|
·
|
an
analysis of the Company’s pending cases, by type of disease
claimed;
|
|
·
|
an
analysis of the Company’s most recent three-year history to determine the
average settlement and resolution value of claims, by type of disease
claimed;
|
|
·
|
an
adjustment for inflation in the future average settlement value
of claims,
at a 2.5% annual inflation rate, adjusted downward to 1.5% to take
account
of the declining value of claims resulting from the aging of the
claimant
population;
|
|
·
|
an
analysis of the period over which the Company has and is likely
to resolve
asbestos-related claims against it in the
future.
|
Based
on
these factors, ARPC calculated a total estimated liability of $755 million
for the Company to resolve all pending and unasserted potential future claims
through 2053, which is ARPC’s reasonable best estimate of the time it will take
to resolve asbestos-related claims. This amount is on a pre-tax basis, not
discounted for the time-value of money, and excludes the Company’s defense fees
(which will continue to be expensed by the Company as they are incurred).
After
considering ARPC’s analysis and the factors listed above, in the fourth quarter
of 2007, the Company increased its recorded liability for asbestos claims
by
$538 million, from $217 million to $755 million.
In
addition, during the fourth quarter of 2007, the Company recorded an
$89 million increase in its assets for probable asbestos-related insurance
recoveries to $250 million. This represents amounts due to the Company for
previously paid and settled claims and the probable reimbursements relating
to
its estimated liability for pending and future claims. In calculating this
amount, the Company used the estimated asbestos liability for pending and
projected future claims calculated by ARPC. It also considered the amount
of
insurance available, gaps in coverage, allocation methodologies, solvency
ratings and creditworthiness of the insurers, the amounts already recovered
from
and the potential for settlements with insurers, and the terms of existing
settlement agreements with insurers.
During
the fourth quarter of 2007, the Company recorded a non-cash charge to earnings
of discontinued operations of $449 million ($277 million after tax),
which is the difference between the amount by which the Company increased
its
total estimated liability for pending and projected future asbestos-related
claims and the amount that the Company expects to recover from insurers with
respect to that increased liability.
The
amounts recorded by the Company for asbestos-related liabilities and
insurance-related assets are based on currently available information. The
Company’s actual liabilities or insurance recoveries could be significantly
higher or lower than those recorded if assumptions used in the Company’s or
ARPC’s calculations vary significantly from actual results. Key variables in
these assumptions are identified above and include the number and type of
new
claims to be filed each year, the average cost of resolution of each such
new
claim, the resolution of coverage issues with insurance carriers, and the
solvency risk with respect to the Company’s insurance carriers. Furthermore,
predictions with respect to these variables are subject to greater uncertainty
as the projection period lengthens. Other factors that may affect the Company’s
liability include uncertainties surrounding the litigation process from
jurisdiction to jurisdiction and from case to case, reforms that may be made
by
state and federal courts, and the passage of state or federal tort reform
legislation.
The
aggregate amount of the stated limits in insurance policies available to
the
Company for asbestos-related claims, acquired over many years and from many
different carriers, is substantial. However, limitations in that coverage,
primarily due to the considerations described above, are expected to result
in
the projected total liability to claimants substantially exceeding the probable
insurance recovery.
From
receipt of its first asbestos claims more than 25 years ago to December 31,
2007, the Company has resolved (by settlement or by dismissal) approximately
208,000 claims. The total amount of all settlements paid by the Company
(excluding insurance recoveries) and by its insurance carriers is approximately
$308 million, for an average payment per resolved claim of $1,480. The
average payment per claim resolved during the year ended December 31, 2007
was
$7,491. This amount reflects the Company’s emphasis on resolution of higher
value malignancy claims, particularly mesothelioma claims, rather than lower
value non-malignancy claims, which are more heavily represented in the Company’s
historical settlements. The table below provides additional information
regarding asbestos-related claims filed against the Company:
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Open
claims - January 1
|
|
|
77,675
|
|
|
96,294
|
|
|
104,513
|
|
|
105,811
|
|
|
102,968
|
|
|
101,709
|
|
New
claims filed
|
|
|
37,172
|
|
|
30,843
|
|
|
13,541
|
|
|
11,132
|
|
|
6,457
|
|
|
5,398
|
|
Claims
settled
|
|
|
(16,443
|
)
|
|
(21,096
|
)
|
|
(11,503
|
)
|
|
(12,505
|
)
|
|
(6,558
|
)
|
|
(5,005
|
)
|
Claims
dismissed
|
|
|
(2,110
|
)
|
|
(1,528
|
)
|
|
(740
|
)
|
|
(1,470
|
)
|
|
(1,158
|
)
|
|
(1,479
|
)
|
Open
claims - December 31
|
|
|
96,294
|
|
|
104,513
|
|
|
105,811
|
|
|
102,968
|
|
|
101,709
|
|
|
100,623
|
|
Over
90
percent of the open claims against the Company are non-malignancy claims,
many
of which have been placed on inactive or deferral dockets and the vast majority
of which have little or no settlement value against the Company, particularly
in
light of recent changes in the legal and judicial treatment of such claims.
Malignancy
claims accounted for: approximately 73 percent of the Company’s total
asbestos-related settlement payments during the three-year period ended December
31, 2004; approximately 87 percent during the three-year period ended December
31, 2007; and approximately 93 percent in 2007. Non-malignancy claims accounted
for: approximately 27 percent of the Company’s total asbestos-related settlement
payments during the three-year period ended December 31, 2004;
approximately 13 percent during the three-year period ended December 31,
2007; and approximately seven percent in 2007.
For
the
twelve-month period ended December 31, 2007, total costs for the settlement
and defense of asbestos claims after insurance recoveries and net of tax
were
approximately $37 million.
Other
Matters
As
previously reported, on November 10, 2004, the Securities and Exchange
Commission (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
Oil
for Food Program, provided the SEC with information responsive to the Order
and
provided additional information requested by the SEC. During a March 27,
2007
meeting with the SEC, at which a representative of the Department of Justice
(DOJ) was also present, the Company began discussions concerning the resolution
of this matter with both the SEC and DOJ. On October 31, 2007, the Company
announced it had reached settlements with the SEC and DOJ relating to this
matter. Under the terms of the settlements, the Company paid a total of $6.7
million in penalties, interest and disgorgement of profits. The Company
consented to the entry of a civil injunction in the SEC action and entered
into
a three-year deferred prosecution agreement with the DOJ. Under both
settlements, the Company has implemented, and will continue to implement,
improvements to its compliance program that are consistent with its longstanding
policy against improper payments. In the settlement documents, the Government
noted that the Company thoroughly cooperated with the investigation, that
the
Company had conducted its own complete investigation of the conduct at issue,
promptly and thoroughly reported its findings to them, and took prompt remedial
measures. In a related matter, on July 10, 2007, representatives of the Italian
Guardia di Finanza (Financial Police) requested documents from Ingersoll-Rand
Italiana S.p.A pertaining to certain Oil for Food transactions undertaken
by
that subsidiary of the Company. Such transactions have previously been reported
to the SEC and DOJ, and the Company will continue to cooperate fully with
the
Italian authorities in this matter.
We
sell
product on a continuous basis under various arrangements through institutions
that provide leasing and product financing alternatives to retail and wholesale
customers. Under these arrangements, we are contingently liable for loan
guarantees and residual values of equipment of $5.0 million, including
consideration of ultimate net loss provisions. The risk of loss to us 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. We believe
these
guarantees will not adversely affect the condensed consolidated financial
statements.
We
are
contingently liable for customs duties in certain non-U.S. countries which
totaled $11.9 million as of December 31, 2007. These amounts are not accrued
as
we intend on exporting the product to another country for final
sale.
We
also
have other contingent liabilities for $10.5 million. These liabilities primarily
result from performance bonds, guarantees and stand-by letters of credit
associated with the prior sale of products from divested
businesses.
The
following represents the changes in our product warranty liability for 2007
and
2006:
In
millions
|
|
2007
|
|
2006
|
|
Balance
at beginning of year
|
|
$
|
137.1
|
|
$
|
135.2
|
|
Reductions
for payments
|
|
|
(68.5
|
)
|
|
(61.7
|
)
|
Accruals
for warranties issued during the current period
|
|
|
80.1
|
|
|
66.1
|
|
Changes
for accruals related to preexisting warranties
|
|
|
(7.8
|
)
|
|
(6.9
|
)
|
Acquisitions
|
|
|
-
|
|
|
0.4
|
|
Translation
|
|
|
6.0
|
|
|
4.0
|
|
Balance
at end of the year
|
|
$
|
146.9
|
|
$
|
137.1
|
|
Certain
office and warehouse facilities, transportation vehicles and data processing
equipment are leased. Total rental expense was $72.2 million in 2007, $68.2
million in 2006 and $57.8 million in 2005. 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: $54.2 million in 2008, $46.2 million
in 2009, $34.8 million in 2010, $24.3 million in 2011, $19.5 million in 2012
and
$24.8 million thereafter.
Guarantees
As
part
of its reorganization in 2001, we have fully and unconditionally guaranteed
payment of all of the issued public debt securities of IR-New Jersey. No
other
subsidiary of ours guarantees these securities.
IR-New
Jersey has unconditionally guaranteed payment of the principal, premium,
if any,
and interest on our 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 consolidated 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 we believe are the
critical accounting policies and methods used by us:
·
|
Allowance
for doubtful accounts – The Company has provided an allowance for
doubtful accounts receivable which represents the best estimate
of
probable loss inherent in the Company’s accounts receivable portfolio.
This estimate is based upon the Company’s 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 $14.6 million, or $13.0 million after-tax, which increased first
quarter 2006 diluted earnings per share by $0.04.
·
|
Goodwill
and indefinite-lived 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
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 indefinite-lived 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 and finite-lived intangibles - Long-lived assets and finite-lived
intangibles 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.
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. 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.
|
·
|
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.
|
·
|
Asbestos
Matters - Certain wholly owned subsidiaries of the Company are
named as
defendants in asbestos-related lawsuits in state and federal courts.
The
Company records a liability for its actual and anticipated future
claims
as well as an asset for anticipated insurance settlements. Although
the
Company was neither a manufacturer or producer of asbestos, some
of its
formerly manufactured components from third party suppliers utilized
asbestos related components. As a result, amounts related to asbestos
are
recorded within Discontinued operations, net of tax. Refer to Note
20,
Commitments and Contingencies, in the consolidated financial statements
for further details of asbestos-related
matters.
|
·
|
Revenue
Recognition – Revenue is 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 of 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 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.
Actuarial
valuations are performed to determine expense in accordance with
generally
accepted accounting principles in the United States. 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 asset 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 fifteen-year period 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 benefit 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 $6.0 million; the rate
of
compensation increase would decrease expense by approximately $3.4 million;
and
the estimated return on assets assumption would increase expense by
approximately $6.1 million. A 0.25% rate decrease in the discount rate for
postretirement benefits would increase net periodic postretirement benefit
cost
by $0.8 million and a 1.0% increase in the health-care cost trend rate would
increase the cost by approximately $1.7 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 13 and 14 in the consolidated
financial statements and the Liquidity and Capital Resources section for
further
details of the impact of SFAS 158.
The
preparation of financial statements includes the use of estimates and
assumptions that affect a number of amounts included in the Company’s
consolidated 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 material impact on the consolidated financial
statements.
Recently
Adopted Accounting Pronouncements: In
May
2005, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error
Corrections” (SFAS 154) which replaces APB No. 20, “Accounting Changes,” and
SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements - An
Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting
for, and reporting of, accounting changes and error corrections. It establishes
a retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of
a
correction of an error. SFAS 154 was effective for the Company on January
1,
2006. The adoption of SFAS 154 did not have a material impact on its
consolidated financial position and results of operations.
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 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.
In
September 2006, the FASB issued 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.
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.
Effective
January 1, 2007, the Company adopted 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. As a result of adopting FIN 48 as of January 1, 2007,
the
Company recorded additional liabilities to its previously established reserves,
and corresponding decrease in Retained earnings of $145.6 million.
Recently
Issued Accounting Pronouncements: 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 of adopting SFAS 157 on its financial
statements.
In
February 2007, the FASB issued SFAS 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 of adopting SFAS 159 on its financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations,” (SFAS 141 (R)). This statement addresses financial accounting and
reporting for business combinations and supersedes SFAS 141, “Business
Combinations.” SFAS 141(R) retains the fundamental requirements set forth in
SFAS 141 regarding the purchase method of accounting, but expands the guidance
in order to properly recognize and measure, at fair value, the identifiable
assets acquired, liabilities assumed and any noncontrolling interest in the
acquired business. In addition, the statement introduces new accounting guidance
on how to recognize and measure contingent consideration, contingencies,
acquisition and restructuring costs. SFAS 141(R) is effective for acquisitions
occurring after January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No 51.” It clarifies
that a noncontrolling interest in a subsidiary represents an ownership interest
that should be reported as equity in the consolidated financial statements.
In
addition, the statement requires expanded income statement presentation and
disclosures that clearly identify and distinguish between the interests of
the
Company and the interests of the non-controlling owners of the subsidiary.
SFAS
160 is effective for the Company starting on January 1, 2009. The Company
is
currently evaluating the impact of adopting SFAS 160 on its financial
statements.
Item
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
We
are
exposed to fluctuations in non-U.S. currency exchange rates, interest rates
and
commodity prices which could impact our results of operations and financial
condition. To manage certain of those exposures, we use derivative instruments,
primarily forward contracts. Derivative instruments utilized by us in our
hedging activities are viewed as risk management tools, involve little
complexity and are not used for trading or speculative purposes. To minimize
the
risk of counter party non-performance, derivative instrument agreements are
made
only through major financial institutions with significant experience in
such
derivative instruments.
Foreign
Currency Exposures
We
have
operations throughout the world that manufacture and sell their products
in
various international markets. As a result, we are exposed to movements in
exchange rates of various currencies against the U.S. dollar as well as against
other currencies throughout the world. We actively manage the currency exposures
that are associated with non-U.S. currency purchases and sales and other
assets
and liabilities at the operating unit level. Exposures that cannot be naturally
offset within an operating unit to an insignificant amount are hedged with
foreign currency derivatives. We also have non-U.S. currency net asset
exposures, which we currently do not hedge with any derivative
instrument.
We
evaluate our exposure to changes in currency exchange rates using a sensitivity
analysis. The sensitivity analysis is a measurement of the potential gain
or
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, 2007, a hypothetical change in fair
value
of those derivative instruments assuming a 10% increase in exchange rates
against the U.S. dollar would result in an unrealized gain of approximately
$17.2 million, as compared with an unrealized loss of $27.7 million at December
31, 2006. These amounts would be offset by changes in the fair value of the
underlying currency transactions.
Commodity
Price Exposures
We
are
exposed to volatility in the prices of raw materials used in some of our
products and use both fixed price contracts and derivative contracts, in
limited
circumstances, to manage this exposure. We evaluate our exposure to changes
in
commodity prices using a sensitivity analysis. The sensitivity analysis is
a
measurement of the potential gain or loss in fair value based on a percentage
increase or decrease in commodity prices. Based on the firmly committed
commodity derivative instruments in place at December 31, 2007, a hypothetical
change in fair value of those derivative instruments assuming a 10% decrease
in
commodity prices would result in an unrealized loss of approximately $2.4
million. At December 31, 2006 we did not have any derivative instruments
hedging
our commodity exposure. These amounts would be offset by changes in the fair
value of underlying the commodity transactions.
Interest
Rate Exposure
Our
long-term debt portfolio mainly consists of fixed-rate instruments. From
time to
time we participate in the debt markets through the issuance of commercial
paper, which, by its terms, has a maturity of less than a year. As such,
we are
exposed to interest rate risk.
Item
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
(a) The
following consolidated financial statements and the report thereon of
PricewaterhouseCoopers LLP dated February 25, 2008, are presented following
Item
15 of this Annual Report on Form 10-K.
Consolidated
Financial Statements:
Report
of
independent registered public accounting firm
Consolidated
statements of income for the years ended December 31, 2007, 2006 and
2005
Consolidated
balance sheets at December 31, 2007 and 2006
For
the
years ended December 31, 2007, 2006 and 2005:
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, 2007, 2006 and 2005:
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
|
|
2007
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Net
revenues
|
|
$
|
1,976.2
|
|
$
|
2,224.6
|
|
$
|
2,239.0
|
|
$
|
2,323.3
|
|
Cost
of goods sold
|
|
|
1,416.0
|
|
|
1,589.7
|
|
|
1,608.2
|
|
|
1,658.1
|
|
Operating
income
|
|
|
208.6
|
|
|
274.1
|
|
|
276.3
|
|
|
298.8
|
|
Net
earnings
|
|
|
217.5
|
|
|
964.1
|
|
|
266.6
|
|
|
2,518.5
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.71
|
|
$
|
3.21
|
|
$
|
0.94
|
|
$
|
9.23
|
|
Diluted
|
|
$
|
0.70
|
|
$
|
3.17
|
|
$
|
0.92
|
|
$
|
9.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Net
revenues
|
|
$
|
1,804.6
|
|
$
|
2,048.1
|
|
$
|
2,038.0
|
|
$
|
2,143.0
|
|
Cost
of goods sold
|
|
|
1,300.7
|
|
|
1,463.1
|
|
|
1,465.3
|
|
|
1,539.3
|
|
Operating
income
|
|
|
197.9
|
|
|
252.5
|
|
|
269.0
|
|
|
279.1
|
|
Net
earnings
|
|
|
253.2
|
|
|
313.5
|
|
|
243.8
|
|
|
222.0
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.77
|
|
$
|
0.96
|
|
$
|
0.77
|
|
$
|
0.72
|
|
Diluted
|
|
$
|
0.76
|
|
$
|
0.95
|
|
$
|
0.76
|
|
$
|
0.72
|
|
1.
|
In
the second quarter of 2007, basic and diluted earnings per common
share
included $2.25 and $2.22, respectively, related to the gain on
sale of
discontinued operations. For a further discussion of discontinued
operations, see Footnote 4, Divestitures and Discontinued Operations,
to
the consolidated financial
statements.
|
2.
|
In
the fourth quarter of 2007, basic and diluted earnings per common
share
included $9.48 and $9.30, respectively, related to the gain on
sale of
discontinued operations. In addition, basic and diluted earnings
per
common share included a charge of $1.02 and $1.00, respectively
relating
to asbestos matters for a previously divested business of the Company.
For
a further description of discontinued operations and asbestos matters,
see
Footnote 4, Divestitures and Discontinued Operations, and Footnote
20,
Commitments and Contingencies, respectively, to the consolidated
financial
statements.
|
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, 2007, 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, 2007. 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, 2007.
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, 2007 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 2008 Annual
General Meeting of Shareholders, which the Company intends to file within
120
days after the close of its fiscal year ended December 31, 2007 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.
PART
IV
Item
15. EXHIBITS
AND FINANCIAL STATEMENTS SCHEDULE
|
Financial
statements and financial statement schedule
|
|
See
Item 8.
|
|
|
|
Exhibits
|
|
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
2.1
|
Agreement
and Plan of Merger, dated as of October 31, 2001, among Ingersoll-Rand
Company Limited, Ingersoll-Rand Company and IR Merger Corporation.
(Previously filed with the Securities and Exchange Commission as
an
exhibit to Amendment No. 1 to the Registration Statement on Form
S-4 (No.
333-71642), filed October 30, 2001, and incorporated herein by
reference.)
|
2.2
|
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. (Previously filed with the Securities and Exchange
Commission as an exhibit to Form 8-K dated October 16, 2002, filed
October
17, 2002, and incorporated herein by
reference.)
|
2.3
|
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. (Previously filed with the Securities and
Exchange
Commission as an exhibit to Form Schedule 13D, filed February 28,
2003 by
Ingersoll-Rand Company and incorporated herein by
reference.)
|
2.4
|
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. (Previously
filed with the Securities and Exchange Commission as an exhibit
to Form
8-K dated August 25, 2004, filed August 26, 2004, and incorporated
herein
by reference.)
|
2.5
|
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. (Previously filed with the Securities and
Exchange
Commission as an exhibit to Form 8-K dated May 24, 2005, filed
May 27,
2005, and incorporated herein by
reference.)
|
2.6
|
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. (Previously
filed with the Securities and Exchange Commission as an exhibit
to
Form 8-K dated February 27, 2007, filed February 28, 2007, and
incorporated herein by reference.)
|
2.7
|
Asset
and Stock Purchase Agreement, dated as of July 29, 2007, among
Ingersoll-Rand Company Limited, on behalf of itself and certain
of its
subsidiaries, and Doosan Infracore Co., Ltd. and Doosan Engine
Co.,
Ltd.,
on behalf of themselves and certain of their subsidiaries.
(Previously
filed with the Securities and Exchange Commission as an exhibit
to
Form 8-K dated July 29, 2007, filed July 31, 2007, and
incorporated herein by reference.)
|
2.8
|
Agreement
and Plan of Merger, dated as of December 15, 2007, among Ingersoll-Rand
Company Limited, Indian Merger Sub, Inc. and Trane Inc. (Previously
filed with the Securities and Exchange Commission as an exhibit
to
Form 8-K dated December 15, 2007, filed December 17, 2007, and
incorporated herein by reference.)
|
3.1
|
Memorandum
of Association of Ingersoll-Rand Company Limited. (Previously filed
with
the Securities and Exchange Commission as an exhibit to Amendment
No. 1 to
the Registration Statement on Form S-4 (No. 333-71642), filed October
30,
2001, and incorporated herein by
reference.)
|
3.2
|
Amended
and Restated Bye-Laws of Ingersoll-Rand Company Limited, dated
June 1,
2005. (Previously filed with the Securities and Exchange Commission
as an
exhibit to Form 10-Q for the quarter ended June 30, 2005, filed
August 5,
2005, and incorporated herein by
reference.)
|
4.1
|
Certificate
of Designation, Preferences and Rights of Series A Preference Shares
of
Ingersoll-Rand Company Limited. (Previously filed with the Securities
and
Exchange Commission as an exhibit to Amendment No. 1 to the Registration
Statement on Form S-4 (No. 333-71642), filed October 30, 2001,
and
incorporated herein by reference.)
|
4.2
|
Rights
Agreement between Ingersoll-Rand Company Limited and The Bank of
New York,
as Rights Agent. (Previously filed with the Securities and Exchange
Commission as an exhibit to Amendment No. 1 to the Registration
Statement
on Form S-4 (No. 333-71642), filed October 30, 2001, and incorporated
herein by reference.)
|
4.3
|
Voting
Agreement between Ingersoll-Rand Company Limited and Ingersoll-Rand
Company. (Previously filed with the Securities and Exchange Commission
as
an exhibit to Amendment No. 1 to the Registration Statement on
Form S-4
(No. 333-71642), filed October 30, 2001, and incorporated herein
by
reference.)
|
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. (Previously filed with the Securities
and
Exchange Commission as an exhibit to Ingersoll-Rand Company’s Registration
Statement on Form S-3 (No. 333-39474), filed March 18, 1991, and
incorporated herein by reference, and to Ingersoll-Rand Company’s
Registration Statement on Form S-3 (No. 333-50902), filed November
29,
2000, and incorporated herein by
reference.)
|
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. (Previously filed with the Securities and Exchange
Commission as an exhibit to Form 10-K for the year ended December
31,
2001, filed March 13, 2002, and incorporated herein by
reference.)
|
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. (Previously filed with the Securities
and
Exchange Commission as an exhibit to Form 10-K for the year ended
December
31, 2006, filed March 1, 2006,
and incorporated herein by reference.)
|
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. (Previously filed with the
Securities and Exchange Commission as an exhibit to Form 10-K for
the year
ended December 31, 2004, filed March 16, 2005, and incorporated
herein by
reference.)
|
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.
(Previously
filed with the Securities and Exchange Commission as an exhibit
to Form
8-K dated May 24, 2005, filed May 27, 2005, and incorporated herein
by
reference.)
|
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. (Previously
filed with the Securities and Exchange Commission as an exhibit
to Form
10-K of Ingersoll-Rand Company for the year ended December 31,
1993, filed
March 30, 1994, and incorporated herein by
reference.)
|
10.2
|
Reorganization
Amendment to Management Incentive Unit Plan, dated December 31,
2001.
(Previously filed with the Securities and Exchange Commission as
an
exhibit to Form 10-K for the year ended December 31, 2001, filed
March 13,
2002, and incorporated herein by
reference.)
|
10.3
|
Description
of Annual Incentive Arrangements for Chairman, President, Sector
Presidents and other Staff Officers of Ingersoll-Rand Company Limited.
(Previously filed with the Securities and Exchange Commission as
an
exhibit to Form 10-K for the year ended December 31, 2005, filed
March 1,
2006, and incorporated herein by
reference.)
|
10.4
|
Description
of Performance Share Program for Chairman, President and Chief
Executive
Officer and the other Participants of Ingersoll-Rand Company Limited.
Filed herewith.
|
10.5 |
Form
of Change in Control Agreement with Tier 1 Officers of Ingersoll-Rand
Company Limited, dated as of December 1, 2006. (Previously filed
with the
Securities and Exchange Commission as an exhibit to Form 8-K
dated
November 30, 2006, filed December 4, 2006, and incorporated herein
by
reference.)
|
10.6 |
Form
of Change in Control Agreement with Tier 2 Officers of Ingersoll-Rand
Company Limited, dated as of December 1, 2006. (Previously filed
with the
Securities and Exchange Commission as an exhibit to Form 8-K dated
November 30, 2006, filed December 4, 2006, and incorporated herein
by
reference.)
|
10.7
|
Executive
Supplementary Retirement Agreement for selected executive officers
of
Ingersoll- Rand Company. (Previously filed with the Securities
and
Exchange Commission as an exhibit to Form 10-K of Ingersoll-Rand
Company
for the year ended December 31, 1993, filed March 30, 1994, and
incorporated herein by reference.)
|
10.8 |
Executive
Supplementary Retirement Agreement for selected executive officers
of
Ingersoll-Rand Company. (Previously filed with the Securities and
Exchange
Commission as an exhibit to Form 10-K of Ingersoll-Rand Company
for the
year ended December 31, 1996, filed March 26, 1997, and incorporated
herein by reference.)
|
10.9
|
Forms
of insurance and related letter agreements with certain executive
officers
of Ingersoll-Rand Company. (Previously filed with the Securities
and
Exchange Commission as an exhibit to Form 10-K of Ingersoll-Rand
Company
for the year ended December 31, 1993, filed March 30, 1994, and
incorporated herein by reference.)
|
10.10
|
Amended
and Restated Supplemental Pension Plan, dated January 1, 2003.
(Previously
filed with the Securities and Exchange Commission as an exhibit
to Form
10-K for the year ended December 31, 2002, filed March 5, 2003,
and
incorporated herein by reference.)
|
10.11
|
First
Amendment to the Amended and Restated Supplemental Pension Plan,
dated
January 1, 2003. (Previously filed with the Securities and Exchange
Commission as an exhibit to Form 10-K for the year ended December
31,
2003, filed February 27, 2004, and incorporated herein by
reference.)
|
10.12
|
Amended
and Restated Supplemental Employee Savings Plan, dated January
1, 2003.
(Previously filed with the Securities and Exchange Commission as
an
exhibit to Form 10-K for the year ended December 31, 2002, filed
March 5,
2003, and incorporated herein by
reference.)
|
10.13 |
First
Amendment to the Amended and Restated Supplemental Employee Savings
Plan,
dated January
1, 2003. (Previously filed with the Securities and Exchange Commission
as
an exhibit to Form 10-K for the year ended December 31, 2003, filed
February 27, 2004, and incorporated herein by
reference.)
|
10.14 |
Incentive
Stock Plan of 1995. (Previously filed with the Securities and Exchange
Commission as Appendix A to the Notice of 1995 Annual Meeting of
Shareholders and Proxy Statement of Ingersoll-Rand Company dated
March 15,
1995, and incorporated herein by
reference.)
|
10.15 |
Reorganization
Amendment to Incentive Stock Plan of 1995, dated December 21, 2001.
(Previously filed with the Securities and Exchange Commission as
an
exhibit to Form 10-K for the year ended December 31, 2001, filed March 13,
2002, and incorporated herein by
reference.)
|
10.16 |
Senior
Executive Performance Plan. (Previously filed with the Securities
and
Exchange Commission as Appendix A to the Notice of 2000 Annual
Meeting of
Shareholders and Proxy Statement of Ingersoll-Rand Company, dated
March 7,
2000, and incorporated herein by
reference.)
|
10.17 |
Amended
and Restated Elected Officers Supplemental Plan, dated December
31, 2004.
(Previously filed with the Securities and Exchange Commission as
an
exhibit to Form 10-K for the year ended December 31, 2004, filed
March 16,
2005, and incorporated herein by
reference.)
|
10.18
|
Amendment,
dated February 1, 2006, to Amended and Restated Elected Officers
Supplemental Plan, dated December 31, 2004. (Previously filed with
the
Securities and Exchange Commission as an exhibit to Form 10-K for
the year
ended December 31, 2005, filed March 1, 2006, and incorporated
herein by
reference.)
|
10.19
|
Elected
Officers Supplemental Plan II, dated February 1, 2006. (Previously
filed
with the Securities and Exchange Commission as an exhibit to Form
10-K for
the year ended December 31, 2005, filed March 1, 2006, and incorporated
herein by reference.)
|
10.20 |
Amended
and Restated Incentive Stock Plan of 1998. (Previously filed
with the
Securities and Exchange Commission as an exhibit to the Registration
Statement on Form S-8 (No. 333-130047), filed December 1, 2005,
and
incorporated herein by
reference.)
|
10.21
|
Amendment
to the Ingersoll-Rand Company Limited Amended and Restated Incentive
Stock
Plan of 1998, dated December 7, 2005. (Previously filed with the
Securities and Exchange Commission as an exhibit to
Form 8-K dated December 7, 2005, filed December 9, 2005, and incorporated
herein by reference.)
|
10.22
|
Composite
Employment Agreement with Chief Executive Officer. (Previously
filed with the Securities and Exchange Commission as an
exhibit to
Form 10-K of Ingersoll-Rand Company for the year ended December
31, 1999,
filed March 30, 2000, and incorporated herein by
reference.)
|
10.23 |
Employment
Agreement with Michael Lamach, Senior Vice President. (Previously
filed
with the Securities and Exchange Commission as an exhibit to Form
10-K for
the year ended December 31, 2003, filed February 27, 2004, and
incorporated herein by reference.)
|
10.24
|
Employment
Agreement with James R. Bolch, Senior Vice President. (Previously
filed
with the Securities and Exchange Commission as an exhibit to Form
10-K for
the year ended December 31, 2005, filed March 1, 2006, and incorporated
herein by reference.)
|
10.25
|
Addendum,
dated December 8, 2005, to Employment Agreement with James R. Bolch.
(Previously filed with the Securities and Exchange Commission as
an
exhibit to Form 10-K for the year ended December 31, 2005, filed
March 1,
2006, and incorporated herein by
reference.)
|
10.26
|
Amended
and Restated Estate Enhancement Program, dated June 1, 1998, and
the
related form agreements. (Previously filed with the Securities
and
Exchange Commission as an exhibit to Form 10-Q for the quarter
ended March
31, 2006, filed May 5, 2006, and incorporated herein by
reference.)
|
10.27
|
First
Amendment to the Amended and Restated Estate Enhancement Program,
dated
December 31, 2001. (Previously filed with the Securities and Exchange
Commission as an exhibit to Form 10-Q for the quarter ended March
31,
2006, filed May 5, 2006, and incorporated herein by
reference.)
|
10.28 |
Employment
Agreement with William Gauld, Senior Vice President, dated September
7,
2006. (Previously filed with the Securities and Exchange Commission
as an
exhibit to Form 10-K for the year ended December 31, 2006, filed
March 1,
2007, and incorporated herein by reference.)
|
10.29 |
Employment
Agreement with Marcia J. Avedon, Senior Vice President, dated January
8,
2007. (Previously filed with the Securities and Exchange Commission
as an
exhibit to Form 10-K for the year ended December 31, 2006, filed
March 1,
2007, and incorporated herein by reference.)
|
10.30 |
Ingersoll-Rand
Company Limited Incentive Stock Plan of 2007. (Previously filed
with the
Securities and Exchange Commission as an exhibit to the Registration
Statement on Form S-8 (No. 333-143716), filed June 13, 2007, and
incorporated herein by reference.)
|
10.31 |
Director
Deferred Compensation Plan and Stock Award Plan, as amended and
restated
effective August 1, 2007. (Previously filed with the Securities
and
Exchange Commission as an exhibit to Form 8-K dated August 1, 2007,
filed
August 3, 2007, and incorporated herein by
reference.)
|
10.32 |
Director
Deferred Compensation Plan and Stock Award Plan II, as amended
and
restated effective August 1, 2007. (Previously filed with the Securities
and Exchange Commission as an exhibit to Form 8-K dated August
1, 2007,
filed August 3, 2007, and incorporated herein by
reference.)
|
10.33 |
Executive
Deferred Compensation Plan, as amended and restated effective August
1,
2007. (Previously filed with the Securities and Exchange Commission
as an
exhibit to Form 8-K dated August 1, 2007, filed August 3, 2007,
and
incorporated herein by reference.)
|
10.34 |
Executive
Deferred Compensation Plan II, as amended and restated effective
August 1,
2007. (Previously filed with the Securities and Exchange Commission
as an
exhibit to Form 8-K dated August 1, 2007, filed August 3, 2007,
and
incorporated herein by reference.)
|
10.35 |
Employment
Agreement with James V. Gelly dated September 24, 2007 and revised
September 28, 2007. (Previously filed with the Securities and Exchange
Commission as an exhibit to Form 8-K dated October 6, 2007, filed
October
9, 2007, and incorporated herein by
reference.)
|
10.36 |
Deferred
Prosecution Agreement between Ingersoll-Rand Company Limited and
the
United States Department of Justice, Criminal Division, Fraud Section
filed as of October 31, 2007. (Previously filed with the Securities
and
Exchange Commission as an exhibit to Form 8-K dated October 31,
2007,
filed November 1, 2007, and incorporated herein by
reference.)
|
10.37 |
Debt
Commitment Letter from JPMorgan Chase Bank, N.A., J.P. Morgan Securities
Inc., Credit Suisse, Cayman Islands Branch, Credit Suisse Securities
(USA)
LLC, Goldman Sachs Bank USA and Goldman Sachs Credit Partners L.P.,
dated
as of December 15, 2007. (Previously
filed with the Securities and Exchange Commission as an exhibit
to
Form 8-K dated December 15, 2007, filed December 17, 2007, and
incorporated herein by reference.)
|
12 |
Computations
of Ratios of Earnings to Fixed Charges. Filed
herewith.
|
21 |
List
of Subsidiaries of Ingersoll-Rand Company Limited. Filed
herewith.
|
23.1
|
Consent
of Independent Registered Public Accounting Firm. Filed
herewith.
|
23.2
|
Consent
of Analysis, Research & Planning Corporation. 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:
|
|
|
|
|
|
(Herbert
L. Henkel)
|
|
|
|
|
Chief Executive Officer
|
|
|
|
Date:
|
February 29, 2008
|
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
|
|
|
|
|
Executive
Officer and Director
|
|
|
(Herbert L. Henkel)
|
|
(Principal
Executive Officer)
|
|
February
29, 2008
|
|
|
|
|
|
|
|
Senior
Vice President and
|
|
|
|
|
Chief
Financial Officer
|
|
|
(James V. Gelly)
|
|
(Principal
Financial Officer)
|
|
February
29, 2008
|
|
|
|
|
|
|
|
Vice
President and Controller
|
|
|
(Richard W. Randall)
|
|
(Principal
Accounting Officer)
|
|
February
29, 2008
|
|
|
|
|
|
|
|
|
|
|
(Ann C. Berzin)
|
|
Director
|
|
February
29, 2008
|
|
|
|
|
|
|
|
|
|
|
(Gary D. Forsee)
|
|
Director
|
|
February
29, 2008
|
|
|
|
|
|
|
|
|
|
|
(Peter C. Godsoe)
|
|
Director
|
|
February
29, 2008
|
|
|
|
|
|
|
|
|
|
|
(Constance Horner)
|
|
Director
|
|
February
29, 2008
|
|
|
|
|
|
/S/
H. William Lichtenberger
|
|
|
|
|
(H. William Lichtenberger)
|
|
Director
|
|
February
29, 2008
|
|
|
|
|
|
|
|
|
|
|
(Theodore E. Martin)
|
|
Director
|
|
February
29, 2008
|
|
|
|
|
|
|
|
|
|
|
(Patricia Nachtigal)
|
|
Director
|
|
February
29, 2008
|
|
|
|
|
|
|
|
|
|
|
(Orin R. Smith)
|
|
Director
|
|
February
29, 2008
|
|
|
|
|
|
|
|
|
|
|
(Richard J. Swift)
|
|
Director
|
|
February
29, 2008
|
|
|
|
|
|
|
|
|
|
|
(Tony L. White)
|
|
Director
|
|
February
29, 2008
|
INGERSOLL-RAND
COMPANY LIMITED
Index
to Consolidated Financial Statements
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
66
|
|
|
Consolidated
Statements of Income
|
67
|
|
|
Consolidated
Balance Sheets
|
68
|
|
|
Consolidated
Statements of Shareholders' Equity
|
69
|
|
|
Consolidated
Statements of Cash Flows
|
70
|
|
|
Notes
to Consolidated Financial Statements
|
71
|
|
|
Schedule
II - Valuation and Qualifying Accounts
|
118
|
Report
of Independent Registered Public Accounting Firm
To the
Board
of Directors and Shareholders of Ingersoll-Rand Company Limited:
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,
2007 and 2006, and the results of their operations and their cash flows for
each
of the three years in the period ended December 31, 2007 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), present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2007, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is
responsible for these financial statements and financial statement schedule,
for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in Management's Report on Internal Control over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule and on the
Company's internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that
we plan and perform the audits to obtain reasonable assurance about whether
the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included 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.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable basis
for
our opinions.
As
discussed in Note 2 to the consolidated financial statements, the Company has
changed the manner in which it accounts for stock based compensation effective
January 1, 2006, the manner in which it accounts for defined benefit pension
and
other postretirement plans effective December 31, 2006, and the manner in which
it accounts for uncertainty in income taxes effective January 1,
2007.
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
February
29, 2008
Consolidated
Statements of Income
In
millions, except per share amounts
For
the years ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
Net
revenues
|
|
$
|
8,763.1
|
|
$
|
8,033.7
|
|
$
|
7,263.7
|
|
Cost
of goods sold
|
|
|
6,272.0
|
|
|
5,768.4
|
|
|
5,203.2
|
|
Selling
and administrative expenses
|
|
|
1,433.3
|
|
|
1,266.8
|
|
|
1,172.7
|
|
Operating
income
|
|
|
1,057.8
|
|
|
998.5
|
|
|
887.8
|
|
Interest
expense
|
|
|
(136.2
|
)
|
|
(133.6
|
)
|
|
(145.1
|
)
|
Other
income, net
|
|
|
15.9
|
|
|
(7.3
|
)
|
|
50.1
|
|
Earnings
before income taxes
|
|
|
937.5
|
|
|
857.6
|
|
|
792.8
|
|
Provision
for income taxes
|
|
|
204.4
|
|
|
92.6
|
|
|
61.0
|
|
Earnings
from continuing operations
|
|
|
733.1
|
|
|
765.0
|
|
|
731.8
|
|
Discontinued
operations, net of tax
|
|
|
3,233.6
|
|
|
267.5
|
|
|
322.4
|
|
Net
earnings
|
|
$
|
3,966.7
|
|
$
|
1,032.5
|
|
$
|
1,054.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
2.52
|
|
$
|
2.39
|
|
$
|
2.17
|
|
Discontinued
operations
|
|
|
11.12
|
|
|
0.84
|
|
|
0.95
|
|
Net
earnings
|
|
$
|
13.64
|
|
$
|
3.23
|
|
$
|
3.12
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
2.48
|
|
$
|
2.37
|
|
$
|
2.14
|
|
Discontinued
operations
|
|
|
10.95
|
|
|
0.83
|
|
|
0.95
|
|
Net
earnings
|
|
$
|
13.43
|
|
$
|
3.20
|
|
$
|
3.09
|
|
See
accompanying notes to consolidated financial statements.
Consolidated
Balance Sheets
In
million, except share amounts
December
31,
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,735.3
|
|
$
|
355.8
|
|
Marketable
securities
|
|
|
0.1
|
|
|
0.7
|
|
Accounts
and notes receivable, less allowance of $12.2 and $8.3 at December
31,
2007 and 2006, respectively
|
|
|
1,660.7
|
|
|
1,481.7
|
|
Inventories
|
|
|
827.2
|
|
|
837.7
|
|
Other
current assets
|
|
|
477.4
|
|
|
355.8
|
|
Assets
held for sale
|
|
|
-
|
|
|
2,506.1
|
|
Total
current assets
|
|
|
7,700.7
|
|
|
5,537.8
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
904.9
|
|
|
868.2
|
|
Goodwill
|
|
|
3,993.3
|
|
|
3,837.2
|
|
Intangible
assets, net
|
|
|
724.6
|
|
|
712.8
|
|
Other
noncurrent assets
|
|
|
1,052.7
|
|
|
1,189.9
|
|
Total
assets
|
|
$
|
14,376.2
|
|
$
|
12,145.9
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
721.2
|
|
$
|
757.6
|
|
Accrued
compensation and benefits
|
|
|
338.9
|
|
|
306.4
|
|
Accrued
expenses and other current liabilities
|
|
|
1,434.6
|
|
|
794.1
|
|
Short-term
borrowings and current maturities of long-term debt
|
|
|
741.0
|
|
|
1,079.4
|
|
Liabilities
held for sale
|
|
|
-
|
|
|
1,174.9
|
|
Total
current liabilities
|
|
|
3,235.7
|
|
|
4,112.4
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
712.7
|
|
|
905.2
|
|
Postemployment
and other benefit liabilities
|
|
|
941.9
|
|
|
1,047.1
|
|
Other
noncurrent liabilities
|
|
|
1,480.5
|
|
|
602.8
|
|
Minority
interests
|
|
|
97.5
|
|
|
73.6
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Class
A common shares, $1 par value (370,035,087 and
|
|
|
|
|
|
|
|
364,426,276
shares issued at December 31, 2007 and
|
|
|
|
|
|
|
|
2006,
respectively, and net of 97,421,234 and 57,699,279
|
|
|
|
|
|
|
|
shares
owned by subsidiary at December 31, 2007 and 2006,
respectively)
|
|
|
272.6
|
|
|
306.8
|
|
Retained
earnings
|
|
|
7,388.8
|
|
|
5,456.1
|
|
Accumulated
other comprehensive income (loss)
|
|
|
246.5
|
|
|
(358.1
|
)
|
Total
shareholders' equity
|
|
|
7,907.9
|
|
|
5,404.8
|
|
Total
liabilities and shareholders' equity
|
|
$
|
14,376.2
|
|
$
|
12,145.9
|
|
See
accompanying notes to consolidated financial statements.
Consolidated
Statements of Shareholders' Equity
|
|
Total
|
|
|
|
Capital
in
|
|
|
|
Accumulated other
|
|
|
|
|
|
shareholders'
|
|
Common
stock
|
|
excess
of
|
|
Retained
|
|
comprehensive
|
|
Comprehensive
|
|
In
millions, except per share amounts
|
|
equity
|
|
Amount
|
|
Shares
|
|
par
value
|
|
earnings
|
|
income
(loss)
|
|
income
|
|
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 derivatives qualifying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
cash flow hedges, net of tax of $2.0
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.7
|
|
|
5.7
|
|
Minimum
pension liability adjustment, net of tax of $35.6
|
|
|
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)
|
|
|
(192.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(192.1
|
)
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
5,761.9
|
|
|
330.7
|
|
|
330.7
|
|
|
|
|
-
|
|
|
5,558.8
|
|
|
(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
|
|
|
111.2
|
|
|
3.8
|
|
|
3.8
|
|
|
|
|
107.4
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common shares by subsidiary
|
|
|
(1,096.3
|
)
|
|
(27.7
|
)
|
|
(27.7
|
)
|
|
|
|
(151.0
|
)
|
|
(917.6
|
)
|
|
|
|
|
|
|
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
|
)
|
|
|
|
Adoption
of FIN 48
|
|
|
(145.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(145.6
|
)
|
|
|
|
|
|
|
Net
earnings
|
|
|
3,966.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,966.7
|
|
|
|
|
$
|
3,966.7
|
|
Currency
translation
|
|
|
411.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
411.9
|
|
|
411.9
|
|
Change
in fair value of marketable securities and derivatives qualifying as
cash flow hedges, net of tax of $1.7
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.2
|
)
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
and OPEB adjustments, net of tax of $130.0
|
|
|
194.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194.9
|
|
|
194.9
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,571.3
|
|
Shares
issued under incentive stock plans
|
|
|
196.6
|
|
|
5.5
|
|
|
5.5
|
|
|
|
|
191.1
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common shares by subsidiary
|
|
|
(1,999.9
|
)
|
|
(39.7
|
)
|
|
(39.7
|
)
|
|
|
|
(281.6
|
)
|
|
(1,678.6
|
)
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
90.5
|
|
|
|
|
|
|
|
|
|
|
90.5
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends, declared and paid ($0.72 per share)
|
|
|
(209.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(209.8
|
)
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
$
|
7,907.9
|
|
$
|
272.6
|
|
|
272.6
|
|
|
|
$
|
-
|
|
$
|
7,388.8
|
|
$
|
246.5
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
Ingersoll-Rand
Company Limited
Consolidated
Statements of Cash Flows
In
millions
For
the years ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
3,966.7
|
|
$
|
1,032.5
|
|
$
|
1,054.2
|
|
Income
from discontinued operations, net of tax
|
|
|
(3,233.6
|
)
|
|
(267.5
|
)
|
|
(322.4
|
)
|
Adjustments
to arrive at net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
138.8
|
|
|
148.8
|
|
|
156.7
|
|
(Gain)/loss
on sale of businesses
|
|
|
-
|
|
|
-
|
|
|
(1.5
|
)
|
(Gain)/loss
on sale of property, plant and equipment
|
|
|
(0.7
|
)
|
|
0.2
|
|
|
(3.1
|
)
|
Minority
interests, net of dividends
|
|
|
17.9
|
|
|
9.2
|
|
|
(1.3
|
)
|
Equity
earnings, net of dividends
|
|
|
(1.0
|
)
|
|
0.1
|
|
|
0.4
|
|
Stock
settled share based compensation
|
|
|
31.0
|
|
|
20.7
|
|
|
-
|
|
Deferred
income taxes
|
|
|
146.6
|
|
|
27.8
|
|
|
26.2
|
|
Other
items
|
|
|
30.6
|
|
|
(12.2
|
)
|
|
(49.0
|
)
|
Changes
in other assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
(Increase)
decrease in:
|
|
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
46.2
|
|
|
(94.4
|
)
|
|
(115.1
|
)
|
Inventories
|
|
|
75.4
|
|
|
(21.4
|
)
|
|
20.6
|
|
Other
current and noncurrent assets
|
|
|
(32.3
|
)
|
|
(93.6
|
)
|
|
(222.4
|
)
|
Increase
(decrease) in:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(88.1
|
)
|
|
182.1
|
|
|
5.7
|
|
Other
current and noncurrent liabilities
|
|
|
(267.6
|
)
|
|
(119.2
|
)
|
|
(108.1
|
)
|
Net
cash (used in) provided by continuing operating activities
|
|
|
829.9
|
|
|
813.1
|
|
|
440.9
|
|
Net
cash (used in) provided by discontinued operating
activities
|
|
|
66.2
|
|
|
141.7
|
|
|
399.8
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(119.7
|
)
|
|
(144.8
|
)
|
|
(86.1
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
14.2
|
|
|
9.6
|
|
|
16.3
|
|
Acquisitions,
net of cash acquired
|
|
|
(25.7
|
)
|
|
(49.7
|
)
|
|
(484.7
|
)
|
Proceeds
from business dispositions, net of cash
|
|
|
6,154.3
|
|
|
-
|
|
|
11.4
|
|
Proceeds
from sales and maturities of marketable securities
|
|
|
0.7
|
|
|
155.8
|
|
|
-
|
|
Purchase
of marketable securities
|
|
|
-
|
|
|
-
|
|
|
(152.6
|
)
|
Other
|
|
|
28.6
|
|
|
0.4
|
|
|
7.1
|
|
Net
cash (used in) provided by continuing investing activities
|
|
|
6,052.4
|
|
|
(28.7
|
)
|
|
(688.6
|
)
|
Net
cash (used in) provided by discontinued investing
activities
|
|
|
(57.7
|
)
|
|
(132.5
|
)
|
|
(83.1
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in short-term borrowings
|
|
|
(409.9
|
)
|
|
369.2
|
|
|
(40.2
|
)
|
Proceeds
from long-term debt
|
|
|
2.0
|
|
|
4.0
|
|
|
301.7
|
|
Payments
of long-term debt
|
|
|
(141.8
|
)
|
|
(513.7
|
)
|
|
(198.8
|
)
|
Net
change in debt
|
|
|
(549.7
|
)
|
|
(140.5
|
)
|
|
62.7
|
|
Redemption
of preferred stock of subsidiaries
|
|
|
-
|
|
|
-
|
|
|
(73.6
|
)
|
Proceeds
from exercise of stock options
|
|
|
160.2
|
|
|
95.7
|
|
|
90.9
|
|
Excess
tax benefit from share based compensation
|
|
|
36.1
|
|
|
15.5
|
|
|
-
|
|
Dividends
paid
|
|
|
(209.8
|
)
|
|
(217.6
|
)
|
|
(192.1
|
)
|
Repurchase
of common shares by subsidiary
|
|
|
(1,999.9
|
)
|
|
(1,096.3
|
)
|
|
(763.6
|
)
|
Net
cash (used in) provided by continuing financing activities
|
|
|
(2,563.1
|
)
|
|
(1,343.2
|
)
|
|
(875.7
|
)
|
Net
cash (used in) provided by discontinued financing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Effect
of exchange rate changes on cash and cash
equivalents
|
|
|
51.8
|
|
|
29.4
|
|
|
(14.2
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
4,379.5
|
|
|
(520.2
|
)
|
|
(820.9
|
)
|
Cash
and cash equivalents - beginning of period
|
|
|
355.8
|
|
|
876.0
|
|
|
1,696.9
|
|
Cash
and cash equivalents - end of period
|
|
$
|
4,735.3
|
|
$
|
355.8
|
|
$
|
876.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest,
net of amounts capitalized
|
|
$
|
95.3
|
|
$
|
105.2
|
|
$
|
131.2
|
|
Income
taxes, net of refunds
|
|
$
|
470.1
|
|
$
|
195.3
|
|
$
|
270.0
|
|
See
accompanying notes to consolidated financial statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – DESCRIPTION OF COMPANY
Ingersoll-Rand
Company Limited (IR-Limited), a Bermuda company, and its consolidated
subsidiaries (the Company) is a leading innovation and solutions provider with
strong brands and leading positions within our markets. The Company’s business
segments consist of Climate Control 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 Club Car®, Hussmann®, Ingersoll-Rand®, Schlage® and Thermo
King®.
NOTE
2 – 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
financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States.
2001
Reorganization: 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.
Principles
of Consolidation:
The
consolidated financial statements include all majority-owned subsidiaries of
the
Company. 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
accounts and transactions have been eliminated. The assets, liabilities, results
of operations and cash flows of all discontinued operations have been separately
reported as discontinued operations and held for sale for all periods presented.
Certain prior year amounts have been reclassified to conform to the current
year
presentation.
Use
of Estimates:
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
the disclosures of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and expenses
during the reporting period. Estimates are based on several factors including
the facts and circumstances available at the time the estimates are made,
historical experience, risk of loss, general economic conditions and trends,
and
the assessment of the probable future outcome. Some of the more significant
estimates include accounting for doubtful accounts, useful lives of property,
plant and equipment and intangible assets, purchase price allocations of
acquired businesses, valuation of assets including goodwill and other intangible
assets, product warranties, sales allowances, pension plans, postretirement
benefits other than pensions, taxes, environmental costs, product liability,
asbestos matters and other contingencies. Actual results could differ from
those
estimates. Estimates and assumptions are reviewed periodically, and the effects
of changes, if any, are reflected in the statement of operations in the period
that they are determined.
Currency
Translation:
Assets
and liabilities of non-U.S. subsidiaries, where the functional currency is
not
the U.S. dollar, have been translated at year-end exchange rates, and income
and
expenses accounts have been translated using average exchange rates throughout
the year. Adjustments resulting from the process of translating an entity’s
financial statements into the U.S. dollar have been recorded in the equity
section of the balance sheet within Accumulated other comprehensive income
(loss). 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.
Cash
and Cash Equivalents: Cash
and
cash equivalents include cash on hand, demand deposits and all highly liquid
investments with original maturities at the time of purchase of three months
or
less.
Marketable
Securities: The
Company has classified its marketable securities as available-for-sale in
accordance with the guidance under Statement of Financial Accounting Standards
(SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity
Securities.” 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:
Depending
on the business, U.S. inventories are stated at the lower of cost or market
using the last-in, first-out (LIFO) method or the lower of cost or market using
the first-in, first-out (FIFO) method. Non-U.S. inventories are primarily stated
at the lower of cost or market using the FIFO method. At December 31, 2007
and
2006, approximately 20% of all inventory utilized the LIFO method.
Allowance
for Doubtful Accounts:
The
Company has provided an allowance for doubtful accounts reserve which represents
the best estimate of probable loss inherent in the Company’s account receivables
portfolio. This estimate is based upon company policy, derived from 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 $14.6 million, or $13.0 million after-tax, which increased first
quarter 2006 diluted earnings per share by $0.04.
Property,
Plant and Equipment: Property,
plant and equipment are stated at cost, less accumulated depreciation. Assets
placed in service are recorded at cost and depreciated using the straight-line
method over the estimated useful life of the asset except for leasehold
improvements, which are depreciated over the shorter of their economic useful
life or their lease term. The range of useful lives used to depreciate property,
plant and equipment is as follows:
|
|
|
|
|
Buildings
|
|
|
10 to 50
years
|
|
Machinery
and equipment
|
|
|
3
to 12 years
|
|
Software
|
|
|
2
to 7 years
|
|
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 that increase asset values and extend useful lives 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 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, adjustments may be recorded.
In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” 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. To the extent that the carrying value of the
reporting unit exceeds its estimated fair value, a second step is performed,
wherein the reporting unit’s carrying value of goodwill is compared to the
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.
Intangible
assets such as patents, customer-related intangible assets and other intangible
assets with finite useful lives are amortized on a straight-line basis over
their estimated economic lives. The range of useful lives is as
follows:
|
|
|
|
|
Customer
relationships
|
|
|
20
- 40 years
|
|
Trademarks
|
|
|
20
- 25 years
|
|
Patents
|
|
|
5
- 15 years
|
|
Other
|
|
|
5
- 20 years
|
|
Recoverability
of intangible assets with finite useful lives is assessed in the same manner
as
property, plant and equipment as described above.
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.
Product
Warranties: Warranty
accruals are recorded at the time of sale and are estimated based upon product
warranty terms and historical experience. The Company assesses the adequacy
of
its liabilities and will make adjustments as necessary based on known or
anticipated warranty claims, or as new information becomes
available.
Treasury
Stock: The
Company, through one of its consolidated subsidiaries, repurchases IR Limited’s
Class A common shares from time to time in the open market and in privately
negotiated transactions as authorized by the Board of Directors. These
repurchases are based upon current market conditions and the discretion of
management. Amounts are recorded at cost and included within the Shareholders’
equity section. For the year ended December 31, 2007 and 2006, Class A common
shares owned by the Company amounted to 97.4 million and 57.7 million,
respectively.
Revenue
Recognition:
Revenue
is 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 of undelivered elements are known, customer acceptance
has occurred, and there are only customary refund or return rights related
to
the delivered elements.
Environmental
Costs:
The
Company is subject to laws and regulations relating to protecting the
environment. 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. Liabilities for remediation costs are recorded
when they are probable and can be reasonably estimated, 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.
Asbestos
Matters:
Certain
wholly owned subsidiaries of the Company are named as defendants in
asbestos-related lawsuits in state and federal courts. The Company records
a
liability for its actual and anticipated future claims as well as an asset
for
anticipated insurance settlements. Although the Company was neither a
manufacturer nor producer of asbestos, some of its formerly manufactured
components from third party suppliers utilized asbestos related components.
As a
result, amounts related to asbestos are recorded within Discontinued operations,
net of tax. Refer to Note 20, Commitments and Contingencies, for further details
of asbestos related matters.
Research
and Development Costs:
The
Company conducts research and development activities for the purpose of
developing and improving new products and services. These expenditures,
including qualifying engineering costs, are expensed when incurred and included
in Cost of goods sold. For the years ended December 31, 2007, 2006 and 2005,
these expenditures amounted to $128.6 million, $126.7 million and $120.4
million, 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 2 to 7 years.
Employee
Benefit Plans:
The
Company provides a range of benefits to eligible employees and retired
employees, including pensions, postretirement and post-employment 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. Actuaries perform the required calculations to determine
expense in accordance with generally accepted accounting principles in the
United States. 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
Instruments: The
Company periodically enters into cash flow and other hedge transactions to
specifically hedge exposure to various risks related to interest rates, currency
rates and commodity 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 consolidated
statement of income.
Recently
Adopted Accounting Pronouncements: In
May
2005, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error
Corrections” (SFAS 154) which replaces APB No. 20, “Accounting Changes,” and
SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements - An
Amendment of APB Opinion No. 28.” SFAS 154 provides guidance on the accounting
for, and reporting of, accounting changes and error corrections. It establishes
a retrospective application, or the latest practicable date, as the required
method for reporting a change in accounting principle and the reporting of
a
correction of an error. SFAS 154 was effective for the Company on January 1,
2006. The adoption of SFAS 154 did not have a material impact on its
consolidated financial position and results of operations.
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 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.
In
September 2006, the FASB issued 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.
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.
Effective
January 1, 2007, the Company adopted 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. As a result of adopting FIN 48 as of January 1,
2007, the Company recorded additional liabilities to its previously established
reserves along with a corresponding decrease in Retained earnings of $145.6
million.
Recently
Issued Accounting Pronouncements: 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 of adopting SFAS 157 on its financial
statements.
In
February 2007, the FASB issued SFAS 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 of adopting SFAS 159 on its financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations,” (SFAS 141 (R)). This statement addresses financial accounting and
reporting for business combinations and supersedes SFAS 141, “Business
Combinations.” SFAS 141(R) retains the fundamental requirements set forth in
SFAS 141 regarding the purchase method of accounting, but expands the guidance
in order to properly recognize and measure, at fair value, the identifiable
assets acquired, liabilities assumed and any noncontrolling interest in the
acquired business. In addition, the statement introduces new accounting guidance
on how to recognize and measure contingent consideration, contingencies,
acquisition and restructuring costs. SFAS 141(R) is effective for acquisitions
occurring after January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No 51.” It clarifies
that a noncontrolling interest in a subsidiary represents an ownership interest
that should be reported as equity in the consolidated financial statements.
In
addition, the statement requires expanded income statement presentation and
disclosures that clearly identify and distinguish between the interests of
the
Company and the interests of the non-controlling owners of the subsidiary.
SFAS
160 is effective for the Company starting on January 1, 2009. The Company is
currently evaluating the impact of adopting SFAS 160 on its financial
statements.
NOTE
3 –
ANNOUNCED ACQUISITION OF TRANE INC.
On
December 17, 2007, the Company announced that it had executed a definitive
agreement to acquire Trane Inc. (Trane), formerly American Standard Companies
Inc., in a transaction currently valued at approximately $9.5 billion. Trane
is
a global leader in indoor climate control systems, services and solutions with
2007 annual revenues of $7.45 billion. The transaction is expected to close
in
the second quarter of 2008 and is subject to approval by Trane shareholders,
regulatory approvals and contractual closing conditions. There can be no
assurances that the acquisition will be consummated.
In
connection with the proposed Trane acquisition, each share of Trane’s common
stock (which approximated 195 million at December 31, 2007) will be exchanged
for a combination of (i) 0.23 of an Ingersoll Rand Class A common share and
(ii)
$36.50 in cash, without interest. The Company intends to use a combination
of
cash on hand and debt financing in order to pay for the cash portion of the
consideration. The Company has secured commitments from JPMorgan Chase Bank,
N.A., J.P. Morgan Securities Inc., Credit Suisse, Cayman Islands Branch, Credit
Suisse Securities (USA) LLC, Goldman Sachs Bank USA and Goldman Sachs Credit
Partners L.P. to provide up to $3.9 billion in financing through a 364-day
senior unsecured bridge facility. If unused, the debt commitments will expire
on
September 30, 2008.
NOTE
4 – DIVESTITURES AND DISCONTINUED OPERATIONS
The
components of discontinued operations for the years ended December 31 are as
follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
2,957.8
|
|
$
|
3,375.7
|
|
$
|
3,283.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
earnings (loss) from operations
|
|
|
(82.5
|
)
|
|
376.6
|
|
|
413.6
|
|
Pre-tax
gain on sale
|
|
|
4,382.6
|
|
|
1.1
|
|
|
4.4
|
|
Tax
expense
|
|
|
(1,066.5
|
)
|
|
(110.2
|
)
|
|
(95.6
|
)
|
Discontinued
operations, net
|
|
$
|
3,233.6
|
|
$
|
267.5
|
|
$
|
322.4
|
|
Pre-tax
loss from operations in 2007 includes a non-cash charge of $449.0 million
related to the Company’s liability for all pending and estimated future asbestos
claims through 2053 as discussed below in “Other Discontinued Operations”.
Discontinued
operations by business for the years ended December 31 are as
follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Compact
Equipment, net of tax
|
|
$
|
2,927.1
|
|
$
|
240.4
|
|
$
|
284.7
|
|
Road
Development, net of tax
|
|
|
672.5
|
|
|
62.9
|
|
|
36.6
|
|
Other
discontinued operations, net of tax
|
|
|
(366.0
|
)
|
|
(35.8
|
)
|
|
1.1
|
|
Total
discontinued operations, net of tax
|
|
$
|
3,233.6
|
|
$
|
267.5
|
|
$
|
322.4
|
|
Compact
Equipment Divestiture
On
July
29, 2007, the Company agreed to sell its Bobcat, Utility Equipment and
Attachments businesses (collectively, Compact Equipment) to Doosan Infracore
for
gross proceeds of approximately $4.9 billion, subject to post-closing purchase
price adjustments. The sale was completed on November 30, 2007.
Compact
Equipment manufactures and sells compact equipment, including skid-steer
loaders, compact track loaders, mini-excavators and telescopic tool handlers;
portable air compressors, generators and light towers; general-purpose light
construction equipment; and attachments. The Company has accounted for Compact
Equipment as discontinued operations and has classified the assets and
liabilities as held for sale for all periods presented in accordance with
Statement of Financial Accounting Standard No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (SFAS 144).
Net
revenues and after-tax earnings of Compact Equipment for the years ended
December 31 were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Net
revenues
|
|
$
|
2,705.9
|
|
$
|
2,648.4
|
|
$
|
2,610.1
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
earnings from operations
|
|
$
|
275.1
|
|
$
|
240.4
|
|
$
|
284.7
|
|
Gain
on sale, net of tax of $939.0
|
|
|
2,652.0
|
|
|
-
|
|
|
-
|
|
Total
discontinued operations, net of tax
|
|
$
|
2,927.1
|
|
$
|
240.4
|
|
$
|
284.7
|
|
Road
Development Divestiture
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 purchase price adjustments. The sale was completed on April 30,
2007, in all countries except for India, which closed on May 4, 2007.
The
Road
Development business unit manufactures and sells asphalt paving equipment,
compaction equipment, milling machines and construction-related material
handling equipment. The Company has accounted for the Road Development business
unit as discontinued operations and has classified the assets and liabilities
sold to AB Volvo as held for sale for all periods presented in accordance with
SFAS 144.
Net
revenues and after-tax earnings of the Road Development business unit for the
years ended December 31 were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Net
revenues
|
|
$
|
251.9
|
|
$
|
727.3
|
|
$
|
673.1
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
earnings from operations
|
|
$
|
37.8
|
|
$
|
62.9
|
|
$
|
36.6
|
|
Gain
on sale, net of tax of $164.4
|
|
|
634.7
|
|
|
-
|
|
|
-
|
|
Total
discontinued operations, net of tax
|
|
$
|
672.5
|
|
$
|
62.9
|
|
$
|
36.6
|
|
Other
Discontinued Operations
The
Company also has retained costs from previously sold businesses that mainly
include costs related to postretirement benefits, product liability and legal
costs (mostly asbestos-related). The components of other discontinued operations
for the years ended December 31 were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Retained
costs, net of tax
|
|
$
|
(340.9
|
)
|
$
|
(36.5
|
)
|
$
|
(34.1
|
)
|
Net
gain (loss) on disposals, net of tax
|
|
|
(25.1
|
)
|
|
0.7
|
|
|
35.2
|
|
Total
discontinued operations, net of tax
|
|
$
|
(366.0
|
)
|
$
|
(35.8
|
)
|
$
|
1.1
|
|
During
the fourth quarter of 2007, the Company recorded a non-cash charge of $449.0
million ($277 million after tax) related to the Company’s liability for all
pending and estimated future asbestos claims through 2053. Refer to Note 20,
Commitments and Contingencies, for further details on asbestos-related
matters.
Assets
and liabilities recorded as held for sale on the consolidated balance sheet
at
December 31 were as follows:
In
millions
|
|
2006
|
|
Assets
|
|
|
|
|
Current
assets
|
|
$
|
1,064.3
|
|
Property,
plant and equipment, net
|
|
|
408.1
|
|
Goodwill
and other intangible assets, net
|
|
|
791.0
|
|
Other
assets and deferred income taxes
|
|
|
242.7
|
|
Assets
held for sale
|
|
$
|
2,506.1
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
liabilities
|
|
$ |
676.1
|
|
Noncurrent
liabilities
|
|
|
498.8
|
|
Liabilities
held for sale
|
|
$
|
1,174.9
|
|
NOTE
5 – RESTRUCTURING ACTIVITIES
Restructuring
charges recorded during the year ended December 31, 2007 were as
follows:
|
|
Climate
|
|
|
|
|
|
|
|
|
|
Control
|
|
Industrial
|
|
Security
|
|
|
|
In
millions
|
|
Technologies
|
|
Technologies
|
|
Technologies
|
|
Total
|
|
Cost
of goods sold
|
|
$
|
22.3
|
|
$
|
0.6
|
|
$
|
1.9
|
|
$
|
24.8
|
|
Selling
and administrative
|
|
|
0.1
|
|
|
0.4
|
|
|
3.4
|
|
|
3.9
|
|
Total
|
|
$
|
22.4
|
|
$
|
1.0
|
|
$
|
5.3
|
|
$
|
28.7
|
|
The
changes in the restructuring reserve were as follows:
|
|
Climate
|
|
|
|
|
|
|
|
|
|
Control
|
|
Industrial
|
|
Security
|
|
|
|
In
millions
|
|
Technologies
|
|
Technologies
|
|
Technologies
|
|
Total
|
|
Balance
at December 31, 2006
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1.3
|
|
$
|
1.3
|
|
Additions
|
|
|
22.4
|
|
|
1.0
|
|
|
5.3
|
|
|
28.7
|
|
Cash
and non-cash uses
|
|
|
(3.0
|
)
|
|
(0.3
|
)
|
|
(2.7
|
)
|
|
(6.0
|
)
|
Currency
translation
|
|
|
1.4
|
|
|
-
|
|
|
0.1
|
|
|
1.5
|
|
Balance
at December 31, 2007
|
|
$
|
20.8
|
|
$
|
0.7
|
|
$
|
4.0
|
|
$
|
25.5
|
|
During
2007, the Company initiated restructuring actions relating to ongoing cost
reduction efforts across each of its sectors. These actions include both
workforce reductions as well as the consolidation of manufacturing
facilities.
Actions
taken in the Climate Control Technologies sector included a rationalization
of
manufacturing facilities in the U.S., Europe and Asia that resulted in the
closure of a U.S. plant, 2 European plants and a Japanese plant. Security
Technologies conducted a consolidation of administrative functions throughout
the European sales area.
At
December 31, 2007, the Company has $25.5 million accrued for the workforce
reductions and consolidation of manufacturing facilities, of which a majority
is
expected to be paid in the first quarter of 2008, with the remainder paid
throughout the rest of the year.
NOTE
6 – MARKETABLE SECURITIES
At
December 31, marketable securities were as follows:
|
|
2007
|
|
2006
|
|
In
millions
|
|
Amortized
cost
or
cost
|
|
Unrealized losses
|
|
Fair
value
|
|
Amortized
cost
or
cost
|
|
Unrealized
losses
|
|
Fair
value
|
|
Short-term
marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
0.1
|
|
$
|
-
|
|
$
|
0.1
|
|
$
|
0.7
|
|
$
|
-
|
|
$
|
0.7
|
|
Total
|
|
$
|
0.1
|
|
$
|
-
|
|
$
|
0.1
|
|
$
|
0.7
|
|
$
|
-
|
|
$
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
$
|
17.3
|
|
$
|
(4.9
|
)
|
$
|
12.4
|
|
$
|
18.7
|
|
$
|
(4.4
|
)
|
$
|
14.3
|
|
Total
|
|
$
|
17.3
|
|
$
|
(4.9
|
)
|
$
|
12.4
|
|
$
|
18.7
|
|
$
|
(4.4
|
)
|
$
|
14.3
|
|
Long-term
marketable securities are included within Other assets on the Consolidated
Balance Sheet.
NOTE
7 – INVENTORIES
At
December 31, the major classes of inventory were as follows:
In
millions
|
|
2007
|
|
2006
|
|
Raw
materials
|
|
$
|
323.2
|
|
$
|
353.8
|
|
Work-in-process
|
|
|
163.4
|
|
|
186.3
|
|
Finished
goods
|
|
|
424.9
|
|
|
393.0
|
|
|
|
|
911.5
|
|
|
933.1
|
|
LIFO
reserve
|
|
|
(84.3
|
)
|
|
(95.4
|
)
|
Total
|
|
$
|
827.2
|
|
$
|
837.7
|
|
NOTE
8 – PROPERTY, PLANT AND EQUIPMENT
At
December 31, the major classes of property, plant and equipment were as
follows:
In
millions
|
|
2007
|
|
2006
|
|
Land
|
|
$
|
65.4
|
|
$
|
59.1
|
|
Buildings
|
|
|
485.7
|
|
|
438.7
|
|
Machinery
and equipment
|
|
|
1,056.6
|
|
|
999.7
|
|
Software
|
|
|
174.5
|
|
|
154.2
|
|
|
|
|
1,782.2
|
|
|
1,651.7
|
|
Accumulated
depreciation
|
|
|
(877.3
|
)
|
|
(783.5
|
)
|
Total
|
|
$
|
904.9
|
|
$
|
868.2
|
|
Depreciation
expense for the years ended December 31, 2007, 2006 and 2005 was $112.3 million,
$122.7 million and $125.7 million, which include amounts for software
amortization of $17.5 million, $23.1 million and $27.8 million, respectively.
NOTE
9 – GOODWILL
The
changes in the carrying amount of goodwill are as follows:
|
|
Climate
|
|
|
|
|
|
|
|
|
|
Control
|
|
Industrial
|
|
Security
|
|
|
|
In
millions
|
|
Technologies
|
|
Technologies
|
|
Technologies
|
|
Total
|
|
Balance
at December 31, 2005
|
|
$
|
2,514.2
|
|
$
|
321.5
|
|
$
|
875.6
|
|
$
|
3,711.3
|
|
Acquisitions
and adjustments*
|
|
|
(22.2
|
)
|
|
14.3
|
|
|
17.9
|
|
|
10.0
|
|
Currency
translation
|
|
|
53.1
|
|
|
5.4
|
|
|
57.4
|
|
|
115.9
|
|
Balance
at December 31, 2006
|
|
|
2,545.1
|
|
|
341.2
|
|
|
950.9
|
|
|
3,837.2
|
|
Acquisitions
and adjustments*
|
|
|
-
|
|
|
22.0
|
|
|
(6.1
|
)
|
|
15.9
|
|
Currency
translation
|
|
|
68.7
|
|
|
8.7
|
|
|
62.8
|
|
|
140.2
|
|
Balance
at December 31, 2007
|
|
$
|
2,613.8
|
|
$
|
371.9
|
|
$
|
1,007.6
|
|
$
|
3,993.3
|
|
*
Includes current year adjustments related to final purchase price allocation
adjustments.
NOTE
10 –INTANGIBLE ASSETS
The
following table sets forth the gross amount and accumulated amortization of
the
Company’s intangible assets at December 31:
|
|
2007
|
|
2006
|
|
|
|
Gross
|
|
Accumulated
|
|
Gross
|
|
Accumulated
|
|
In
millions
|
|
amount
|
|
amortization
|
|
amount
|
|
amortization
|
|
Customer
relationships
|
|
$
|
502.4
|
|
$
|
87.4
|
|
$
|
489.6
|
|
$
|
71.8
|
|
Trademarks
|
|
|
114.5
|
|
|
15.6
|
|
|
102.6
|
|
|
9.8
|
|
Patents
|
|
|
38.2
|
|
|
21.2
|
|
|
30.5
|
|
|
18.2
|
|
Other
|
|
|
53.4
|
|
|
29.0
|
|
|
48.9
|
|
|
23.7
|
|
Total
amortizable intangible assets
|
|
|
708.5
|
|
|
153.2
|
|
|
671.6
|
|
|
123.5
|
|
Indefinite-lived
intangible assets
|
|
|
169.3
|
|
|
-
|
|
|
164.7
|
|
|
-
|
|
Total
|
|
$
|
877.8
|
|
$
|
153.2
|
|
$
|
836.3
|
|
$
|
123.5
|
|
Intangible
asset amortization expense for 2007, 2006 and 2005 was $25.2 million, $24.8
million and $29.6 million, respectively. Estimated amortization expense on
existing intangible assets is approximately $30 million for each of the next
five fiscal years.
NOTE
11 – DEBT AND CREDIT FACILITIES
At
December 31, short-term borrowings and current maturities of long-term debt
consisted of the following:
In
millions
|
|
2007
|
|
2006
|
|
Current
maturities of long-term debt
|
|
$
|
681.1
|
|
$
|
626.7
|
|
Other
short-term borrowings
|
|
|
59.9
|
|
|
452.7
|
|
Total
|
|
$
|
741.0
|
|
$
|
1,079.4
|
|
The
weighted-average interest rate for total short-term borrowings at December
31,
2007 and 2006 was 6.9% and 6.3%, respectively.
At
December 31, 2007, the Company had no debt outstanding under its commercial
paper program, compared to $378.0 million outstanding at December 31, 2006.
Commercial paper is included in other short-term borrowings in the table
above.
At
December 31, long-term debt excluding current maturities consisted
of:
In
millions
|
|
2007
|
|
2006
|
|
6.75%
Senior Notes Due 2008
|
|
$
|
-
|
|
$
|
124.9
|
|
4.75%
Senior Notes Due 2015
|
|
|
299.1
|
|
|
299.0
|
|
9.00%
Debentures Due 2021
|
|
|
125.0
|
|
|
125.0
|
|
7.20%
Debentures Due 2007-2025
|
|
|
127.5
|
|
|
135.0
|
|
6.48%
Debentures Due 2025
|
|
|
149.7
|
|
|
149.7
|
|
Medium-term
Notes Due 2023, at an average rate of 8.22%
|
|
|
-
|
|
|
50.3
|
|
Other
loans and notes, at end-of-year average interest rates of
4.32%
|
|
|
|
|
|
|
|
in
2007 and 4.73% in 2006, maturing in various amounts to
2016
|
|
|
11.4
|
|
|
21.3
|
|
Total
|
|
$
|
712.7
|
|
$
|
905.2
|
|
The
fair
value of long-term debt, including current maturities of long-term debt, at
December 31, 2007 and 2006, was $1,336.7 million and $1,524.7 million,
respectively. The fair value of long-term debt was based upon quoted market
values.
At
December 31, 2007, long-term debt retirements are as follows:
|
|
Debt
|
|
In
millions
|
|
retirements
|
|
2008
|
|
$
|
681.1
|
|
2009
|
|
|
9.4
|
|
2010
|
|
|
8.9
|
|
2011
|
|
|
8.9
|
|
2012
|
|
|
9.2
|
|
Thereafter
|
|
|
676.3
|
|
Total
|
|
$
|
1,393.8
|
|
Long-term
debt retirements for 2008 include $547.9 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.
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,
2007, the Company’s debt-to-total capital ratio was significantly beneath this
limit.
At
December 31, 2007, the Company’s committed revolving credit facilities 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 $756.9 million, of
which $620.5 million were unused at December 31, 2007. These lines provide
support for bank guarantees, letters of credit and other working capital
purposes.
NOTE
12 – 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, 2007, 2006 and 2005. 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 instruments are 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, 2007 and
2006, was a projected loss of $5.2 million and $3.5 million, respectively.
The
notional amounts of the currency hedges were $355.5 million and $514.0 million
at December 31, 2007 and 2006, respectively. At December 31, 2007 and 2006,
$2.4
million and $1.1 million, net of tax, respectively, was included in Accumulated
other comprehensive income (loss) related to the fair value of currency hedges.
The amount expected to be reclassified to earnings over the next twelve months
is $2.4 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, 2007, the maximum term of the Company’s currency hedges was 12
months.
The
estimated fair value of commodity hedges outstanding at December 31, 2007,
was a
projected loss of $2.4 million. The notional amount of the commodity hedges
was
$22.2 million at December 31, 2007. At December 31, 2007, $1.4 million, net
of
tax, was included in Accumulated other comprehensive income (loss) related
to
the fair value of commodity hedges. The amount expected to be reclassified
to
earnings over the next twelve months is $1.4 million. The actual amounts that
will be reclassified to earnings may vary from this amount as a result of
changes in market conditions. During 2006, the Company did not enter into any
commodity hedges. However, it used fixed-priced supplier agreements, when
available, to minimize the risk of fluctuating commodity prices.
Other
Hedging Instruments
In
August
2006, the Company entered into two total return swaps (the Swaps) which were
derivative instruments used to hedge the Company's exposure to changes in its
share-based compensation expense. The aggregate notional amount of the Swaps
was
approximately $52.6 million. On June 11, 2007, the Company terminated a portion
of the Swaps for net cash proceeds of $3.8 million. The Company settled the
remaining portion of the Swaps on August 6, 2007, for net cash proceeds of
$13.8
million. For the year ended December 31, 2007 and 2006, the Company recorded
a
gain of $15.5 million and $2.1 million, respectively, associated with the Swaps.
The gains and losses associated with the Swaps are 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 (loss) and will be recognized into
interest expense over the life of the debt. At December 31, 2007, $8.5 million
of deferred losses was included in Accumulated other comprehensive income (loss)
related to the interest rate locks, of which $1.0 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
13 – 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.
In
2006,
the Company adopted SFAS 158, which required 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). See Note 2, Summary of Significant Accounting Policies, for further
details.
In
connection with the sale of Compact Equipment and the Road Development business
unit during 2007, the Company settled its obligation for postretirement benefits
for all current and former employees related to these divestitures. In addition,
the Company’s U.S. postretirement plan was remeasured as of the sale
dates.
The
following table details information regarding the Company’s postretirement plans
at December 31:
In
millions
|
|
2007
|
|
2006
|
|
Change
in benefit obligations:
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
1,035.2
|
|
$
|
1,009.3
|
|
Service
cost
|
|
|
11.8
|
|
|
11.8
|
|
Interest
cost
|
|
|
54.2
|
|
|
55.0
|
|
Plan
participants' contributions
|
|
|
13.4
|
|
|
12.9
|
|
Actuarial
(gains) losses
|
|
|
(1.7
|
)
|
|
43.4
|
|
Benefits
paid, net of Medicare Part D subsidy *
|
|
|
(88.9
|
)
|
|
(97.0
|
)
|
Settlements/curtailments
|
|
|
(375.8
|
)
|
|
-
|
|
Other
|
|
|
1.6
|
|
|
(0.2
|
)
|
Benefit
obligations at end of year
|
|
$
|
649.8
|
|
$
|
1,035.2
|
|
*
Amounts are net of Medicare Part D subsidy of $1.9 and $7.1 million
in
2007 and 2006, respectively
|
|
|
|
|
|
|
|
|
Funded
status:
|
|
|
|
|
|
|
|
Plan
assets less than benefit obligations
|
|
$
|
(649.8
|
)
|
$
|
(1,035.2
|
)
|
|
|
|
|
|
|
|
|
Amounts
included in the balance sheet:
|
|
|
|
|
|
|
|
Accrued
compensation and benefits
|
|
$
|
(51.1
|
)
|
$
|
(60.1
|
)
|
Liabilities
held for sale
|
|
|
-
|
|
|
(331.7
|
)
|
Postemployment
and other benefit liabilities
|
|
|
(598.7
|
)
|
|
(643.4
|
)
|
Total
|
|
$
|
(649.8
|
)
|
$
|
(1,035.2
|
)
|
The
pretax amounts recognized in Accumulated other comprehensive income (loss)
were
as follows:
In
millions
|
|
Prior
service
gains
|
|
Net
actuarial
losses
|
|
Total
|
|
Balance
at December 31, 2006
|
|
$
|
21.8
|
|
$
|
(322.2
|
)
|
$
|
(300.4
|
)
|
Current
year changes recorded to Accumulated
|
|
|
|
|
|
|
|
|
|
|
other
comprehensive income (loss)
|
|
|
-
|
|
|
1.5
|
|
|
1.5
|
|
Amortization
reclassified to earnings
|
|
|
(3.8
|
)
|
|
15.9
|
|
|
12.1
|
|
Settlements/curtailments
reclassified to earnings
|
|
|
(3.5
|
)
|
|
113.4
|
|
|
109.9
|
|
Balance
at December 31, 2007
|
|
$
|
14.5
|
|
$
|
(191.4
|
)
|
$
|
(176.9
|
)
|
The
components of net periodic postretirement benefit (income) cost for the years
ended December 31, were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Service
cost
|
|
$
|
11.8
|
|
$
|
11.8
|
|
$
|
9.3
|
|
Interest
cost
|
|
|
54.2
|
|
|
55.0
|
|
|
54.9
|
|
Net
amortization of prior service gains
|
|
|
(3.8
|
)
|
|
(4.2
|
)
|
|
(4.2
|
)
|
Net
amortization of net actuarial losses
|
|
|
15.9
|
|
|
16.6
|
|
|
14.0
|
|
Net
periodic postretirement benefit cost
|
|
|
78.1
|
|
|
79.2
|
|
|
74.0
|
|
Net
curtailment and settlement (gains) losses
|
|
|
(265.9
|
)
|
|
-
|
|
|
-
|
|
Net
periodic postretirement benefit (income) cost
|
|
|
|
|
|
|
|
|
|
|
after
net curtailment and settlement (gains) losses
|
|
$
|
(187.8
|
)
|
$
|
79.2
|
|
$
|
74.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recorded in continuing operations
|
|
$
|
22.7
|
|
$
|
25.7
|
|
$
|
25.1
|
|
Amounts
recorded in discontinued operations
|
|
|
(210.5
|
)
|
|
53.5
|
|
|
48.9
|
|
Total
|
|
$
|
(187.8
|
)
|
$
|
79.2
|
|
$
|
74.0
|
|
The
curtailment and settlement gains and losses in 2007 are associated with the
divestiture of Compact Equipment and the Road Development business unit. Amounts
expected to be recognized in net periodic postretirement benefits cost in 2008
for prior service gains and plan net actuarial losses are $3.5 million and
$14.9
million, respectively.
Assumptions:
|
|
2007
|
|
2006
|
|
2005
|
|
Weighted-average
discount rate assumption to determine:
|
|
|
|
|
|
|
|
Benefit
obligations at December 31
|
|
|
6.00
|
%
|
|
5.50
|
%
|
|
5.50
|
%
|
Net
periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
For
the period January 1 to April 30
|
|
|
5.50
|
%
|
|
5.50
|
%
|
|
5.75
|
%
|
For
the period May 1 to November 30
|
|
|
5.75
|
%
|
|
5.50
|
%
|
|
5.75
|
%
|
For
the period December 1 to December 31
|
|
|
6.00
|
%
|
|
5.50
|
%
|
|
5.75
|
%
|
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
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
A
1%
change in the medical trend rate assumed for postretirement benefits would
have
the following effects at December 31, 2007:
|
|
1%
|
|
1%
|
|
In
millions
|
|
Increase
|
|
Decrease
|
|
Effect
on total of service and interest cost components
|
|
$
|
1.7
|
|
$
|
1.5
|
|
Effect
on postretirement benefit obligation
|
|
|
30.1
|
|
|
26.2
|
|
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:
|
|
Benefit
|
|
In
millions
|
|
payments
|
|
2008
|
|
$
|
51.1 |
|
2009
|
|
52.2
|
|
2010
|
|
55.2
|
|
2011
|
|
56.2
|
|
2012
|
|
56.3
|
|
2013
- 2017
|
|
280.4
|
|
NOTE
14 – 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 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.
In
2006,
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 SFAS 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). See Note 2, Summary of
Significant Accounting Policies, for further details.
In
connection with the sale of Compact Equipment and the Road Development business
unit during 2007, the Company settled its obligation for pension benefits for
all current and former employees related to these divestitures. In addition,
certain of the Company’s U.S. plans and the U.K. plan were remeasured as of the
sale dates.
The
following table details information regarding the Company’s pension plans at
December 31:
In
millions
|
|
2007
|
|
2006
|
|
Change
in benefit obligations:
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
3,175.7
|
|
$
|
3,033.2
|
|
Service
cost
|
|
|
52.0
|
|
|
54.6
|
|
Interest
cost
|
|
|
164.3
|
|
|
161.3
|
|
Employee
contributions
|
|
|
2.3
|
|
|
2.8
|
|
Acquisitions
|
|
|
0.7
|
|
|
-
|
|
Amendments
|
|
|
3.1
|
|
|
19.8
|
|
Expenses
paid
|
|
|
(4.2
|
)
|
|
(3.6
|
)
|
Actuarial
(gains) losses
|
|
|
(83.6
|
)
|
|
7.4
|
|
Benefits
paid
|
|
|
(202.4
|
)
|
|
(205.8
|
)
|
Currency
translation
|
|
|
26.0
|
|
|
101.1
|
|
Curtailments
|
|
|
(22.2
|
)
|
|
0.6
|
|
Settlements
|
|
|
(539.3
|
)
|
|
(8.2
|
)
|
Other
|
|
|
-
|
|
|
12.5
|
|
Benefit
obligation at end of year
|
|
$
|
2,572.4
|
|
$
|
3,175.7
|
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
Fair
value at beginning of year
|
|
$
|
2,957.3
|
|
$
|
2,727.0
|
|
Actual
return on assets
|
|
|
211.1
|
|
|
325.7
|
|
Company
contributions
|
|
|
25.5
|
|
|
31.6
|
|
Employee
contributions
|
|
|
2.3
|
|
|
2.8
|
|
Expenses
paid
|
|
|
(4.2
|
)
|
|
(3.6
|
)
|
Benefits
paid
|
|
|
(202.4
|
)
|
|
(205.8
|
)
|
Currency
translation
|
|
|
17.6
|
|
|
85.2
|
|
Settlements
|
|
|
(506.3
|
)
|
|
(8.0
|
)
|
Other
|
|
|
-
|
|
|
2.4
|
|
Fair
value of assets end of year
|
|
$
|
2,500.9
|
|
$
|
2,957.3
|
|
|
|
|
|
|
|
|
|
Funded
status:
|
|
|
|
|
|
|
|
Plan
assets less than the benefit obligations
|
|
$
|
(71.5
|
)
|
$
|
(218.4
|
)
|
|
|
|
|
|
|
|
|
Amounts
included in the balance sheet:
|
|
|
|
|
|
|
|
Long-term
prepaid expenses in other assets
|
|
$
|
166.9
|
|
$
|
95.8
|
|
Assets
held for sale
|
|
|
-
|
|
|
23.5
|
|
Accrued
compensation and benefits
|
|
|
(24.5
|
)
|
|
(10.0
|
)
|
Liabilities
held for sale
|
|
|
-
|
|
|
(67.7
|
)
|
Postemployment
and other benefit liabilities
|
|
|
(213.9
|
)
|
|
(260.0
|
)
|
Net
amount recognized
|
|
$
|
(71.5
|
)
|
$
|
(218.4
|
)
|
The
pretax amounts recognized in Accumulated other comprehensive income (loss)
were
as follows:
In
millions
|
|
Net
transition
obligation
|
|
Prior
service
cost
|
|
Net
actuarial
losses
|
|
Total
|
|
Balance
at December 31, 2006
|
|
$
|
(2.1
|
)
|
$
|
(63.0
|
)
|
$
|
(574.5
|
)
|
$
|
(639.6
|
)
|
Current
year changes recorded to Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
comprehensive income (loss)
|
|
|
-
|
|
|
(3.1
|
)
|
|
66.0
|
|
|
62.9
|
|
Amortization
reclassified to earnings
|
|
|
0.9
|
|
|
9.2
|
|
|
13.8
|
|
|
23.9
|
|
Settlements/curtailments
reclassified to earnings
|
|
|
0.2
|
|
|
12.4
|
|
|
106.1
|
|
|
118.7
|
|
Currency
translation
|
|
|
-
|
|
|
-
|
|
|
(4.1
|
)
|
|
(4.1
|
)
|
Balance
at December 31, 2007
|
|
$
|
(1.0
|
)
|
$
|
(44.5
|
)
|
$
|
(392.7
|
)
|
$
|
(438.2
|
)
|
Weighted-average
assumptions used:
|
|
|
|
|
|
Benefit
obligations at December 31,
|
|
2007
|
|
2006
|
|
Discount
rate:
|
|
|
|
|
|
U.S.
plans
|
|
|
6.25
|
%
|
|
5.50
|
%
|
Non-U.S.
plans
|
|
|
6.00
|
%
|
|
5.00
|
%
|
Rate
of compensation increase:
|
|
|
|
|
|
|
|
U.S.
plans
|
|
|
4.00
|
%
|
|
4.00
|
%
|
Non-U.S.
plans
|
|
|
4.50
|
%
|
|
4.25
|
%
|
The
accumulated benefit obligation for all defined benefit pension plans was
$2,439.9 million and $3,005.3 million at December 31, 2007 and 2006,
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 $955.9 million, $884.1 million and $716.0
million, respectively, as of December 31, 2007, and $1,198.4 million, $1,101.5
million and $861.9 million, respectively, as of December 31, 2006.
Pension
benefit payments are expected to be paid as follows:
|
|
Benefit
|
|
In
millions
|
|
payments
|
|
2008
|
|
$
|
167.5
|
|
2009
|
|
168.1
|
|
2010
|
|
184.6
|
|
2011
|
|
163.4
|
|
2012
|
|
171.1
|
|
2013
- 2017
|
|
912.0
|
|
The
components of the Company’s pension related costs for the years ended December
31, include the following:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Service
cost
|
|
$
|
52.0
|
|
$
|
54.6
|
|
$
|
52.9
|
|
Interest
cost
|
|
|
164.3
|
|
|
161.3
|
|
|
161.3
|
|
Expected
return on plan assets
|
|
|
(228.7
|
)
|
|
(218.9
|
)
|
|
(213.9
|
)
|
Net
amortization of:
|
|
|
|
|
|
|
|
|
|
|
Prior
service costs
|
|
|
9.2
|
|
|
9.4
|
|
|
8.8
|
|
Transition
amount
|
|
|
0.9
|
|
|
0.9
|
|
|
0.9
|
|
Plan
net actuarial losses
|
|
|
13.8
|
|
|
25.4
|
|
|
22.4
|
|
Net
periodic pension benefit cost
|
|
|
11.5
|
|
|
32.7
|
|
|
32.4
|
|
Net
curtailment and settlement (gains) losses
|
|
|
63.5
|
|
|
-
|
|
|
4.0
|
|
Net
periodic pension benefit cost after net
|
|
|
|
|
|
|
|
|
|
|
curtailment
and settlement (gains) losses
|
|
$
|
75.0
|
|
$
|
32.7
|
|
$
|
36.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recorded in continuing operations
|
|
$
|
20.6
|
|
$
|
38.3
|
|
$
|
45.8
|
|
Amounts
recorded in discontinued operations
|
|
|
54.4
|
|
|
(5.6
|
)
|
|
(9.4
|
)
|
Total
|
|
$
|
75.0
|
|
$
|
32.7
|
|
$
|
36.4
|
|
The
curtailment and settlement gains and losses in 2007 are associated with the
divestiture of Compact Equipment and the Road Development business unit. Pension
expense for 2008 is projected to be approximately $23 million, utilizing the
assumptions for calculating the pension benefit obligations at the end of 2007.
The amounts expected to be recognized in net periodic pension cost during the
year ended 2008 for the net transition obligation, prior service cost and plan
net actuarial losses are $0.7 million, $8.4 million and $9.6 million,
respectively.
Weighted-average
assumptions used:
|
|
|
|
|
|
|
|
Net
periodic pension cost for the year ended December 31,
|
|
2007
|
|
2006
|
|
2005
|
|
Discount
rate:
|
|
|
|
|
|
|
|
U.S.
plans
|
|
|
|
|
|
|
|
For
the period January 1 to April 30
|
|
|
5.50
|
%
|
|
5.50
|
%
|
|
5.75
|
%
|
For
the period May 1 to November 30
|
|
|
5.75
|
%
|
|
5.50
|
%
|
|
5.75
|
%
|
For
the period December 1 to December 31
|
|
|
6.25
|
%
|
|
5.50
|
%
|
|
5.75
|
%
|
Non-U.S.
plans
|
|
|
|
|
|
|
|
|
|
|
For
the period January 1 to April 30
|
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.25
|
%
|
For
the period May 1 to November 30
|
|
|
5.50
|
%
|
|
5.00
|
%
|
|
5.25
|
%
|
For
the period December 1 to December 31
|
|
|
6.00
|
%
|
|
5.00
|
%
|
|
5.25
|
%
|
Rate
of compensation increase:
|
|
|
|
|
|
|
|
|
|
|
U.S.
plans
|
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
Non-U.S.
plans
|
|
|
|
|
|
|
|
|
|
|
For
the period January 1 to April 30
|
|
|
4.25
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
For
the period May 1 to November 30
|
|
|
4.35
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
For
the period December 1 to December 31
|
|
|
4.50
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
Expected
return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
U.S.
plans
|
|
|
8.50
|
%
|
|
8.50
|
%
|
|
8.75
|
%
|
Non-U.S.
plans
|
|
|
7.25
|
%
|
|
7.25
|
%
|
|
7.50
|
%
|
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 and are determined as of
the
measurement date. 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 U.S. plan assets over the last fifteen-year period 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, 2007
and 2006, by asset category are as follows:
Asset
category
|
|
2007
|
|
2006
|
|
Equity
securities
|
|
|
54.0
|
%
|
|
62.0
|
%
|
Debt
securities
|
|
|
38.4
|
%
|
|
33.1
|
%
|
Real
estate
|
|
|
0.4
|
%
|
|
0.3
|
%
|
Other
(including cash)
|
|
|
7.2
|
%
|
|
4.6
|
%
|
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 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 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, 2007,
the Company’s strategic global asset allocation for its pension plans was 55% in
equity securities and 45% 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 $25.5 million in 2007, $31.6
million in 2006, and $119.4 million in 2005. The Company currently projects
that
it will be required to contribute approximately $30 million to its plans
worldwide in 2008. 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 2008
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 $47.8 million,
$48.6 million and $46.8 million in 2007, 2006 and 2005, respectively. The
Company's contributions relating to non-U.S. defined contribution plans and
other non-U.S. benefit plans were $11.4 million, $8.8 million and $8.1 million
in 2007, 2006 and 2005, respectively.
NOTE
15 – SHAREHOLDERS’ EQUITY
Common
Stock
During
2007, the Company repurchased 39.7 million Class A common shares at a cost
of
$1,999.9 million under the $4 billion share repurchase program originally
authorized by the Board of Directors in December 2006 and expanded in May 2007.
During 2006, the Company repurchased 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 program that was authorized by the Board of Directors in August
2004 and expanded in August 2005.
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.
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, 2007 or 2006. As the Class B common
shares are owned by a consolidated subsidiary, the cost basis of the shares
are
eliminated in consolidation.
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 Income (Loss)
The
components of Accumulated other comprehensive income (loss) are as
follows:
In
millions
|
|
2007
|
|
2006
|
|
Currency
translation
|
|
$
|
675.8
|
|
$
|
263.9
|
|
Fair
value of derivatives qualifying
|
|
|
|
|
|
|
|
as
cash flow hedges, net of tax
|
|
|
(12.3
|
)
|
|
(10.5
|
)
|
Unrealized
gain (loss) on marketable securities,
|
|
|
|
|
|
|
|
net
of tax
|
|
|
(3.7
|
)
|
|
(3.3
|
)
|
Pension
and postretirement obligation adjustments, net of tax
|
|
|
(413.3
|
)
|
|
(608.2
|
)
|
Accumulated
other comprehensive income (loss)
|
|
$
|
246.5
|
|
$
|
(358.1
|
)
|
NOTE
16 – 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 equal to the fair market value of the Company’s stock on the
date of the grant. Compensation expense was recorded for other share-based
payments including stock appreciation rights (SARs), performance shares,
deferred compensation and management incentive units awards.
On
June
6, 2007, the shareholders of the Company approved the Incentive Stock Plan
of
2007, which authorizes the Company to issue stock options and other share-based
incentives. The total number of shares authorized by the shareholders is 14.0
million, of which 13.8 million remains available for future incentive awards.
The plan replaces the Incentive Stock Plan of 1998 which terminated in May
2007.
Stock
Options
The
average fair value of the stock options granted for the year ended December
31,
2007 and 2006 was estimated to be $11.06 per share and $10.42 per share,
respectively, using the Black-Scholes option-pricing model. The following
assumptions were used:
|
|
2007
|
|
2006
|
|
Dividend
yield
|
|
|
1.75
|
%
|
|
1.49
|
%
|
Volatility
|
|
|
26.10
|
%
|
|
27.70
|
%
|
Risk-free
rate of return
|
|
|
4.71
|
%
|
|
4.47
|
%
|
Expected
life
|
|
|
4.70
years
|
|
|
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. However, for options granted to
retirement eligible employees, the Company recognizes expense for the fair
value
of the options at the grant date. Expected volatility is based on the historical
volatility from traded options on the Company’s stock. The risk-free rate of
return 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. Historical data is used to estimate forfeitures within the Company’s
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 2005, 2006 and 2007 are
as
follows:
|
|
Shares
|
|
Weighted-
|
|
Aggregate
|
|
Weighted-
|
|
|
|
subject
|
|
average
|
|
intrinsic
|
|
average
|
|
|
|
to
option
|
|
exercise
price
|
|
value (millions)
|
|
remaining
life
|
|
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
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
19,164,942
|
|
|
31.54
|
|
|
|
|
|
|
|
Granted
|
|
|
3,528,225
|
|
|
43.77
|
|
|
|
|
|
|
|
Exercised
|
|
|
(5,386,093
|
)
|
|
29.70
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(882,183
|
)
|
|
41.16
|
|
|
|
|
|
|
|
Outstanding
December 31, 2007
|
|
|
16,424,891
|
|
$
|
34.25
|
|
$
|
202.2
|
|
|
5.9
|
|
Exercisable
December 31, 2007
|
|
|
11,874,003
|
|
$
|
31.16
|
|
$
|
181.8
|
|
|
4.9
|
|
The
following table summarizes information concerning currently outstanding and
exercisable options:
|
|
|
|
Options
outstanding
|
|
Options
exercisable
|
|
|
|
|
Number
|
|
Weighted-
|
|
Weighted-
|
|
Number
|
|
Weighted-
|
|
Weighted-
|
|
|
|
|
outstanding
at
|
|
average
|
|
average
|
|
exercisable
at
|
|
average
|
|
average
|
Range
of
|
|
December
31,
|
|
remaining
|
|
exercise
|
|
December
31,
|
|
remaining
|
|
exercise
|
exercise
price
|
|
2007
|
|
life
|
|
price
|
|
2007
|
|
life
|
|
price
|
$
15.00
|
-
|
$
20.00
|
|
|
1,369,234
|
|
4.6
|
|
$
|
19.52
|
|
1,369,234
|
|
4.6
|
|
$
|
19.52
|
20.01
|
-
|
25.00
|
|
|
1,761,071
|
|
3.2
|
|
21.24
|
|
1,761,071
|
|
3.2
|
|
21.24
|
25.01
|
-
|
30.00
|
|
|
1,234,616
|
|
1.6
|
|
26.07
|
|
1,234,616
|
|
1.6
|
|
26.07
|
30.01
|
-
|
35.00
|
|
|
2,802,177
|
|
5.3
|
|
32.30
|
|
2,802,177
|
|
5.3
|
|
32.30
|
35.01
|
-
|
40.00
|
|
|
6,221,198
|
|
6.6
|
|
38.99
|
|
4,619,495
|
|
6.3
|
|
38.84
|
40.01
|
-
|
45.00
|
|
|
2,809,095
|
|
8.7
|
|
43.19
|
|
87,410
|
|
2.8
|
|
43.13
|
45.01
|
-
|
50.00
|
|
|
4,500
|
|
9.6
|
|
49.90
|
|
-
|
|
-
|
|
-
|
50.01
|
-
|
55.00
|
|
|
107,000
|
|
9.6
|
|
51.04
|
|
-
|
|
-
|
|
-
|
55.01
|
-
|
60.00
|
|
|
116,000
|
|
9.8
|
|
55.22
|
|
-
|
|
-
|
|
-
|
$
16.83
|
-
|
$
43.16
|
|
|
16,424,891
|
|
5.9
|
|
$
|
34.25
|
|
11,874,003
|
|
4.9
|
|
$
|
31.16
|
At
December 31, 2007, there was $23.4 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, 2007 and 2006 was $103.4 million and $63.3 million,
respectively.
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 ten years.
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, 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
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
1,693,754
|
|
|
33.11
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
(476,400
|
)
|
|
30.31
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(47,377
|
)
|
|
34.72
|
|
|
|
|
|
|
|
Outstanding
December 31, 2007
|
|
|
1,169,977
|
|
$
|
33.99
|
|
$
|
14.6
|
|
|
5.8
|
|
Exercisable
December 31, 2007
|
|
|
814,707
|
|
$
|
31.76
|
|
$
|
12.0
|
|
|
5.2
|
|
Note:
The
Company did not grant SARS during 2007 and does not anticipate further granting
in the future.
Performance
Shares
The
Company has a Performance Share Program (PSP) 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. For performance year 2006 the award was paid in cash.
On
April
17, 2007, and effective for the performance year 2007, the Compensation
Committee of the Company’s board of directors approved a revision to the PSP
program such that all
PSP
awards will be paid in Class A common shares rather than in cash. In addition,
all shares will vest one year after the date of grant except for
retirement-eligible employees which vest immediately. As a result of these
changes, a larger portion of the Company’s executive compensation program will
be directly linked to the performance of the Company’s Class A common shares,
thus further aligning the interests of executives with those of the Company’s
shareholders.
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. Effective
August 2, 2006, the Company eliminated the provision in the deferred
compensation plans making plan participants eligible to receive a 20%
supplemental amount on deferrals in the Company's Class A common share
equivalents. In addition, the Company vested the previously awarded, but
unvested, portions of the 20% supplemental amount awarded under the deferred
compensation plans.
Effective
August 1, 2007, the deferred compensation plans were amended to provide that
any
amounts invested in the Class A common share equivalents will be settled in
Class A common shares at the time of distribution. Previously, these amounts
were settled in cash.
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, 2007 is 203,620.
The
Company has issued stock grants as an incentive plan for certain key employees,
with varying vesting periods. At December 31, 2007, there were 275,914 stock
grants outstanding, all of which were vested. Effective August 2, 2006, all
stock grants are settled with the Company’s Class A common shares rather than
cash.
Compensation
Expense
Share-based
compensation expense is included in Selling and administrative expenses. The
following table summarizes the expenses recognized:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Stock
options
|
|
$
|
21.4
|
|
$
|
13.6
|
|
$
|
1.0
|
|
SARs
|
|
|
1.0
|
|
|
4.6
|
|
|
2.0
|
|
Performance
shares
|
|
|
11.3
|
|
|
10.4
|
|
|
5.8
|
|
Deferred
compensation
|
|
|
1.8
|
|
|
(0.6
|
)
|
|
(1.0
|
)
|
Other
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
Pre-tax
expense
|
|
|
35.5
|
|
|
28.0
|
|
|
7.9
|
|
Tax
benefit
|
|
|
13.6
|
|
|
10.7
|
|
|
3.0
|
|
After
tax expense
|
|
$
|
21.9
|
|
$
|
17.3
|
|
$
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recorded in continuing operations
|
|
$
|
21.9
|
|
$
|
17.3
|
|
$
|
4.9
|
|
Amounts
recorded in discontinued operations
|
|
|
3.9
|
|
|
2.8
|
|
|
0.9
|
|
Total
|
|
$
|
25.8
|
|
$
|
20.1
|
|
$
|
5.8
|
|
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 $13.6 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:
In
millions, except per share amounts
|
|
2005
|
|
Net
earnings, as reported
|
|
$
|
1,054.2
|
|
Add:
Stock-based employee compensation expense
|
|
|
|
|
included
in reported net income, net of tax
|
|
|
5.8
|
|
Deduct:
Total stock-based employee compensation
|
|
|
|
|
expense
determined under fair value based
|
|
|
|
|
method
for all awards, net of tax
|
|
|
79.7
|
|
Pro
forma net earnings
|
|
$
|
980.3
|
|
|
|
|
|
|
Basic
earnings per share:
|
|
|
|
|
As
reported
|
|
$
|
3.12
|
|
Pro
forma
|
|
|
2.90
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
As
reported
|
|
$
|
3.09
|
|
Pro
forma
|
|
|
2.87
|
|
The
average fair value of stock options granted during the year ended December
31,
2005 was $12.67 using the Black-Scholes option-pricing model, with the following
assumptions at the grant date:
|
|
2005
|
|
Dividend
yield
|
|
|
1.30%
|
|
Volatility
|
|
|
35.57%
|
|
Risk-free
rate of return
|
|
|
3.60%
|
|
Expected
life
|
|
|
5
years
|
|
NOTE
17 – OTHER INCOME, NET
At
December 31, the components of Other income, net were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Interest
income
|
|
$
|
36.2
|
|
$
|
15.9
|
|
$
|
29.1
|
|
Exchange
gain (loss)
|
|
|
(2.8
|
)
|
|
(21.3
|
)
|
|
6.8
|
|
Minority
interests
|
|
|
(14.3
|
)
|
|
(14.9
|
)
|
|
(12.7
|
)
|
Earnings
from equity investments
|
|
|
1.0
|
|
|
(0.1
|
)
|
|
4.1
|
|
Other
|
|
|
(4.2
|
)
|
|
13.1
|
|
|
22.8
|
|
Other
income, net
|
|
$
|
15.9
|
|
$
|
(7.3
|
)
|
$
|
50.1
|
|
NOTE
18 – INCOME TAXES
Earnings
before income taxes for the years ended December 31 were taxed within the
following jurisdictions:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
United
States
|
|
$
|
(140.4
|
)
|
$
|
35.2
|
|
$
|
9.2
|
|
Non-U.S.
|
|
|
1,077.9
|
|
|
822.4
|
|
|
783.6
|
|
Total
|
|
$
|
937.5
|
|
$
|
857.6
|
|
$
|
792.8
|
|
Provision
for income taxes by jurisdiction for the years ended December 31 was as
follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
United
States
|
|
$
|
52.8
|
|
$
|
(32.7
|
)
|
$
|
(41.0
|
)
|
Non-U.S.
|
|
|
151.6
|
|
|
125.3
|
|
|
102.0
|
|
Total
|
|
$
|
204.4
|
|
$
|
92.6
|
|
$
|
61.0
|
|
The
components of Provision for income taxes for the years ended December 31 were
as
follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Current
tax expense
|
|
$
|
57.8
|
|
$
|
64.8
|
|
$
|
34.8
|
|
Deferred
tax expense
|
|
|
146.6
|
|
|
27.8
|
|
|
26.2
|
|
Total
provision for income taxes
|
|
$
|
204.4
|
|
$
|
92.6
|
|
$
|
61.0
|
|
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
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Statutory
U.S. rate
|
|
|
35.0
%
|
|
|
35.0%
|
|
|
35.0%
|
|
Increase
(decrease) in rates resulting from:
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
operations
|
|
|
(21.0)
|
|
|
(28.2)
|
|
|
(26.4)
|
|
Manufacturing
exemption / ETI / FSC
|
|
|
(0.9)
|
|
|
(0.5)
|
|
|
(0.7)
|
|
State
and local income taxes, net of U.S. tax
|
|
|
(0.1)
|
|
|
(0.5)
|
|
|
(0.2)
|
|
Puerto
Rico - Sec 936 Credit
|
|
|
-
|
|
|
-
|
|
|
(1.4)
|
|
Tax
reserves (including uncertain tax position reserves)*
|
|
|
8.0
|
|
|
4.8
|
|
|
2.2
|
|
Other
adjustments
|
|
|
0.8
|
|
|
0.2
|
|
|
(0.8)
|
|
Effective
tax rate
|
|
|
21.8%
|
|
|
10.8%
|
|
|
7.7%
|
|
*
Includes interest and penalties on reserves of 4.2%, 3.1% and 3.1%
for
2007, 2006 and 2005, respectively
|
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
benefit for all tax holidays for the year ended December 31, 2007 and 2006
was
$4.9 million and $5.1 million, respectively.
At
December 31, a summary of the deferred tax accounts were as
follows:
In
millions
|
|
2007
|
|
2006
|
|
Deferred
tax assets:
|
|
|
|
|
|
Inventory
and accounts receivable
|
|
$
|
24.0
|
|
$
|
23.2
|
|
Depreciation
and amortization
|
|
|
11.4
|
|
|
50.2
|
|
Postemployment
and other benefit liabilities
|
|
|
468.5
|
|
|
486.2
|
|
Other
reserves and accruals
|
|
|
334.9
|
|
|
325.2
|
|
Net
operating losses and credit carryforwards
|
|
|
445.7
|
|
|
615.3
|
|
Other
|
|
|
46.6
|
|
|
26.8
|
|
Gross
deferred tax assets
|
|
|
1,331.1
|
|
|
1,526.9
|
|
Less:
deferred tax valuation allowances
|
|
|
(207.4
|
)
|
|
(184.2
|
)
|
Deferred
tax assets net of valuation allowances
|
|
|
1,123.7
|
|
|
1,342.7
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Inventory
and accounts receivable
|
|
$
|
(11.6
|
)
|
$
|
(18.8
|
)
|
Depreciation
and amortization
|
|
|
(511.4
|
)
|
|
(444.6
|
)
|
Postemployment
and other benefit liabilities
|
|
|
(39.0
|
)
|
|
(41.3
|
)
|
Other
reserves and accruals
|
|
|
(11.7
|
)
|
|
(28.4
|
)
|
Other
|
|
|
(8.3
|
)
|
|
(39.8
|
)
|
Gross
deferred tax assets
|
|
|
(582.0
|
)
|
|
(572.9
|
)
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
541.7
|
|
$
|
769.8
|
|
The
increase in the valuation allowance of $23.2 million was recorded for U.S.
federal tax credit carryforwards, U.S. state net operating loss carryforwards,
non-U.S net operating loss and credit carryforwards and other non-US deferred
tax assets. Approximately $8.8 million of the valuation allowance for deferred
tax assets at December 31, 2007, was acquired in business combination
transactions and any tax benefit, when realized, will reduce goodwill rather
than the income tax provision.
At
December 31, 2007, no deferred taxes have been provided for any portion of
the
$7.9 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.
At
December 31, 2007, the Company had the following operating loss and tax credit
carryforwards available to offset taxable income in future years:
|
|
|
|
Expiration
|
|
In
millions
|
|
Amount
|
|
Period
|
|
U.S.
Federal net operating loss carryforwards
|
|
$
|
608.4
|
|
|
2022-2027
|
|
U.S.
Federal credit carryforwards
|
|
|
130.5
|
|
|
2012-2027
|
|
U.S.
State net operating loss carryforwards
|
|
|
1,879.0
|
|
|
2008-2027
|
|
Non-U.S.
net operating loss carryforwards
|
|
|
731.9
|
|
|
2008-Unlimited
|
|
Non-U.S.
credit carryforwards
|
|
|
13.4
|
|
|
Unlimited
|
|
The
U.S.
state net operating loss carryforwards were incurred in various jurisdictions.
The non-U.S. net operating loss carryforwards were incurred in various
jurisdictions, predominately in Brazil, Germany, Switzerland and the United
Kingdom.
Effective
January 1, 2007, the Company adopted 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
recognition, classification, accounting in interim periods and disclosure
requirements for uncertain tax positions. As a result of adopting FIN 48, the
company recorded additional liabilities to its previously established reserves,
and a corresponding decrease in retained earnings of $145.6
million.
The
Company has total unrecognized tax benefits of $379.8 million and $457.0 million
as of December 31, 2007, and January 1, 2007, respectively. The amount of
unrecognized tax benefits that, if recognized, would affect the effective tax
rate are $287.4 million as of December 31, 2007. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as
follows:
In
millions
|
|
2007
|
|
Balance
at January 1, 2007
|
|
$
|
457.0
|
|
Additions
based on tax positions related to the current year
|
|
|
22.5
|
|
Additions
based on tax positions related to prior years
|
|
|
75.5
|
|
Reductions
based on tax positions related to prior years
|
|
|
(33.6
|
)
|
Reductions
related to settlements with tax authorities
|
|
|
(141.0
|
)
|
Reductions
related to lapses of statute of limitations
|
|
|
(0.6
|
)
|
Balance
at December 31, 2007
|
|
$
|
379.8
|
|
The
Company records interest and penalties associated with the uncertain tax
positions within its Provision for income taxes. The Company had reserves
associated with interest and penalties, net of tax, of $93.1 million and $88.0
million at December 31, 2007, and January 1, 2007, respectively. For the year
ended December 31, 2007, the Company recognized $40.8 million and $11.0 million,
respectively, in interest and penalties net of tax related to these uncertain
tax positions.
It
is
reasonably possible that the total amount of unrecognized tax benefits could
change within 12 months as a result of settlements of ongoing tax examinations
resulting in a decrease of approximately $26.4 million in the unrecognized
tax
benefits.
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. In the normal course of business the Company is
subject to examination by taxing authorities throughout the world, including
such major jurisdictions as Germany, Italy, the Netherlands, Switzerland and
the
United States. In general, the examination of the Company’s material tax returns
is completed for the years prior to 2000, with certain matters being resolved
through appeals and litigation.
The
Internal Revenue Service (IRS) has completed the examination of the Company’s
federal income tax returns through the 2000 tax year and has issued a notice
proposing adjustments. The principle proposed adjustment relates to the
disallowance of certain capital losses. The Company disputes the IRS position
and protests have been filed with the IRS Appeals Division. In order to reduce
the potential interest expense associated with this matter, the Company made
a
payment of $217 million in the third quarter of 2007, which reduced the
Company’s total liability for uncertain tax positions by $141 million.
The
issues raised by the IRS associated with this payment are not related to the
Company's reorganization in Bermuda, or the Company's intercompany debt
structure.
On
July
20, 2007, the Company and its consolidated subsidiaries received a notice from
the IRS containing proposed adjustments to the Company’s tax filings in
connection with an audit of the 2001 and 2002 tax years. The IRS did not contest
the validity of the Company’s reincorporation in Bermuda. The most significant
adjustments proposed by the IRS involve treating the entire intercompany debt
incurred in connection with the Company’s reincorporation in Bermuda as equity.
As a result of this recharacterization, the IRS has disallowed the deduction
of
interest paid on the debt and imposed dividend withholding taxes on the payments
denominated as interest. These adjustments proposed by the IRS, if upheld in
their entirety, would result in additional taxes with respect to 2002 of
approximately $190 million plus interest, and would require the Company to
record additional charges associated with this matter. At this time, the IRS
has
not yet begun their examination of the Company’s tax filings for years
subsequent to 2002. However, if these adjustments or a portion of these
adjustments proposed by the IRS are ultimately sustained, it is likely to also
affect subsequent tax years.
The
Company strongly disagrees with the view of the IRS and filed a protest with
the
IRS in the third quarter of 2007. Going forward, the Company intends to
vigorously contest these proposed adjustments. The Company, in consultation
with
its outside advisors, carefully considered many factors in determining the
terms
of the intercompany debt, including the obligor’s ability to service the debt
and the availability of equivalent financing from unrelated parties, two factors
prominently cited by the IRS in denying debt treatment. The Company believes
that its characterization of that obligation as debt for tax purposes was
supported by the relevant facts and legal authorities at the time of its
creation. The subsequent financial results of the relevant companies, including
the actual cash flow generated by operations and the production of significant
additional cash flow from dispositions, have confirmed the ability to service
this debt. Although the outcome of this matter cannot be predicted with
certainty, based upon an analysis of the strength of its position, the Company
believes that it is adequately reserved for this matter. As the Company moves
forward to resolve this matter with the IRS, it is reasonably possible that
the
reserves established may be adjusted within the next 12 months. However, the
Company does not expect that the ultimate resolution will have a material
adverse impact on its future results of operations or financial
position.
The
Company believes that it has adequately provided for any reasonably foreseeable
resolution of any tax disputes, but will adjust its reserves if events so
dictate in accordance with FIN 48. 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.
NOTE
19 – EARNINGS PER SHARE (EPS)
Basic
EPS
is calculated by dividing net earnings (income available to common shareholders)
by the weighted-average number of Class A common shares outstanding for the
applicable period. Diluted EPS is calculated after adjusting the denominator
of
the basic EPS calculation for the effect of all potentially dilutive common
shares, which in the Company’s case, includes shares issuable under share-based
compensation plans. The following table summarizes the weighted-average number
of Class A common shares outstanding for basic and diluted earnings per share
calculations:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Weighted-average
number of basic shares
|
|
|
290.7
|
|
|
319.9
|
|
|
337.6
|
|
Shares
issuable under incentive stock plans
|
|
|
4.6
|
|
|
3.2
|
|
|
3.7
|
|
Weighted-average
number of diluted shares
|
|
|
295.3
|
|
|
323.1
|
|
|
341.3
|
|
Anti-dilutive
shares
|
|
|
0.2
|
|
|
3.2
|
|
|
0.1
|
|
NOTE
20 – 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
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 is currently engaged in site investigations and remediation
activities to address environmental cleanup from past operations at current
and
former manufacturing facilities.
The
Company is sometimes 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
has
also been 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 such 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.
During
2007, the Company spent $5.6 million on capital projects for pollution abatement
and control, and an additional $11.1 million for environmental remediation
expenditures at sites presently or formerly owned or leased by us. As of
December 31, 2007, the Company has recorded reserves for environmental matters
of $101.8 million. The Company believes that these expenditures and accrual
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.
Asbestos
Matters
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 has been filed against IR-New Jersey and generally
allege injury caused by exposure to asbestos contained in certain of IR-New
Jersey’s products, primarily pumps and compressors. 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
and packings purchased from third-party suppliers.
Prior
to
the fourth quarter of 2007, the Company recorded a liability (which it
periodically updated) for its actual and anticipated future asbestos settlement
costs projected seven years into the future. The Company did not record a
liability for future asbestos settlement costs beyond the seven-year period
covered by its reserve because such costs previously were not reasonably
estimable for the reasons detailed below.
In
the
fourth quarter of 2007, the Company again reviewed its history and experience
with asbestos-related litigation and determined that it had now become possible
to make a reasonable estimate of its total liability for pending and unasserted
potential future asbestos-related claims. This determination was based upon
the
Company’s analysis of developments in asbestos litigation, including the
substantial and continuing decline in the filing of non-malignancy claims
against the Company, the establishment in many jurisdictions of inactive or
deferral dockets for such claims, the decreased value of non-malignancy
claims because of changes in the legal and judicial treatment of such claims,
increasing focus of the asbestos litigation upon malignancy claims, primarily
those involving mesothelioma, a cancer with a known historical and predictable
future annual incidence rate, and the Company’s substantial accumulated
experience with respect to the resolution of malignancy claims, particularly
mesothelioma claims, filed against it.
Accordingly,
in the fourth quarter of 2007, the Company retained Dr. Thomas Vasquez of
Analysis, Research & Planning Corporation (collectively, “ARPC”) to assist
it in calculating an estimate of the Company’s total liability for pending and
unasserted future asbestos-related claims. ARPC is a respected expert in
performing complex calculations such as this. ARPC has been involved in many
asbestos-related valuations of current and future liabilities, and its valuation
methodologies have been accepted by numerous courts.
The
methodology used by ARPC to project the Company’s total liability for pending
and unasserted potential future asbestos-related claims relied upon and included
the following factors, among others:
|
·
|
ARPC’s
interpretation of a widely accepted forecast of the population likely
to
have been occupationally exposed to
asbestos;
|
|
·
|
epidemiological
studies estimating the number of people likely to develop asbestos-related
diseases such as mesothelioma and lung
cancer;
|
|
·
|
the
Company’s historical experience with the filing of non-malignancy claims
against it and the historical ratio between the numbers of non-malignancy
and lung cancer claims filed against the
Company;
|
|
·
|
ARPC’s
analysis of the number of people likely to file an asbestos-related
personal injury claim against the Company based on such epidemiological
and historical data and the Company’s most recent three-year claims
history;
|
|
·
|
an
analysis of the Company’s pending cases, by type of disease
claimed;
|
|
·
|
an
analysis of the Company’s most recent three-year history to determine the
average settlement and resolution value of claims, by type of disease
claimed;
|
|
·
|
an
adjustment for inflation in the future average settlement value of
claims,
at a 2.5% annual inflation rate, adjusted downward to 1.5% to take
account
of the declining value of claims resulting from the aging of the
claimant
population;
|
|
·
|
an
analysis of the period over which the Company has and is likely to
resolve
asbestos-related claims against it in the
future.
|
Based
on
these factors, ARPC calculated a total estimated liability of $755 million
for the Company to resolve all pending and unasserted potential future claims
through 2053, which is ARPC’s reasonable best estimate of the time it will take
to resolve asbestos-related claims. This amount is on a pre-tax basis, not
discounted for the time-value of money, and excludes the Company’s defense fees
(which will continue to be expensed by the Company as they are incurred). After
considering ARPC’s analysis and the factors listed above, in the fourth quarter
of 2007, the Company increased its recorded liability for asbestos claims by
$538 million, from $217 million to $755 million.
In
addition, during the fourth quarter of 2007, the Company recorded an
$89 million increase in its assets for probable asbestos-related insurance
recoveries to $250 million. This represents amounts due to the Company for
previously paid and settled claims and the probable reimbursements relating
to
its estimated liability for pending and future claims. In calculating this
amount, the Company used the estimated asbestos liability for pending and
projected future claims calculated by ARPC. It also considered the amount of
insurance available, gaps in coverage, allocation methodologies, solvency
ratings and creditworthiness of the insurers, the amounts already recovered
from
and the potential for settlements with insurers, and the terms of existing
settlement agreements with insurers.
During
the fourth quarter of 2007, the Company recorded a non-cash charge to earnings
of discontinued operations of $449 million ($277 million after tax),
which is the difference between the amount by which the Company increased its
total estimated liability for pending and projected future asbestos-related
claims and the amount that the Company expects to recover from insurers with
respect to that increased liability.
The
amounts recorded by the Company for asbestos-related liabilities and
insurance-related assets are based on currently available information. The
Company’s actual liabilities or insurance recoveries could be significantly
higher or lower than those recorded if assumptions used in the Company’s or
ARPC’s calculations vary significantly from actual results. Key variables in
these assumptions are identified above and include the number and type of new
claims to be filed each year, the average cost of resolution of each such new
claim, the resolution of coverage issues with insurance carriers, and the
solvency risk with respect to the Company’s insurance carriers. Furthermore,
predictions with respect to these variables are subject to greater uncertainty
as the projection period lengthens. Other factors that may affect the Company’s
liability include uncertainties surrounding the litigation process from
jurisdiction to jurisdiction and from case to case, reforms that may be made
by
state and federal courts, and the passage of state or federal tort reform
legislation.
The
aggregate amount of the stated limits in insurance policies available to the
Company for asbestos-related claims, acquired over many years and from many
different carriers, is substantial. However, limitations in that coverage,
primarily due to the considerations described above, are expected to result
in
the projected total liability to claimants substantially exceeding the probable
insurance recovery.
From
receipt of its first asbestos claims more than 25 years ago to December 31,
2007, the Company has resolved (by settlement or by dismissal) approximately
208,000 claims. The total amount of all settlements paid by the Company
(excluding insurance recoveries) and by its insurance carriers is approximately
$308 million, for an average payment per resolved claim of $1,480. The
average payment per claim resolved during the year ended December 31, 2007
was
$7,491. This amount reflects the Company’s emphasis on resolution of higher
value malignancy claims, particularly mesothelioma claims, rather than lower
value non-malignancy claims, which are more heavily represented in the Company’s
historical settlements. The table below provides additional information
regarding asbestos-related claims filed against the Company:
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Open
claims - January 1
|
|
|
77,675
|
|
|
96,294
|
|
|
104,513
|
|
|
105,811
|
|
|
102,968
|
|
|
101,709
|
|
New
claims filed
|
|
|
37,172
|
|
|
30,843
|
|
|
13,541
|
|
|
11,132
|
|
|
6,457
|
|
|
5,398
|
|
Claims
settled
|
|
|
(16,443
|
)
|
|
(21,096
|
)
|
|
(11,503
|
)
|
|
(12,505
|
)
|
|
(6,558
|
)
|
|
(5,005
|
)
|
Claims
dismissed
|
|
|
(2,110
|
)
|
|
(1,528
|
)
|
|
(740
|
)
|
|
(1,470
|
)
|
|
(1,158
|
)
|
|
(1,479
|
)
|
Open
claims - December 31
|
|
|
96,294
|
|
|
104,513
|
|
|
105,811
|
|
|
102,968
|
|
|
101,709
|
|
|
100,623
|
|
Over
90
percent of the open claims against the Company are non-malignancy claims, many
of which have been placed on inactive or deferral dockets and the vast majority
of which have little or no settlement value against the Company, particularly
in
light of recent changes in the legal and judicial treatment of such claims.
Malignancy
claims accounted for: approximately 73 percent of the Company’s total
asbestos-related settlement payments during the three-year period ended December
31, 2004; approximately 87 percent during the three-year period ended December
31, 2007; and approximately 93 percent in 2007. Non-malignancy claims accounted
for: approximately 27 percent of the Company’s total asbestos-related settlement
payments during the three-year period ended December 31, 2004;
approximately 13 percent during the three-year period ended December 31,
2007; and approximately seven percent in 2007.
For
the
twelve-month period ended December 31, 2007, total costs for the settlement
and defense of asbestos claims after insurance recoveries and net of tax were
approximately $37 million.
Other
Matters
As
previously reported, on November 10, 2004, the Securities and Exchange
Commission (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
Oil
for Food Program, provided the SEC with information responsive to the Order
and
provided additional information requested by the SEC. During a March 27, 2007
meeting with the SEC, at which a representative of the Department of Justice
(DOJ) was also present, the Company began discussions concerning the resolution
of this matter with both the SEC and DOJ. On October 31, 2007, the Company
announced it had reached settlements with the SEC and DOJ relating to this
matter. Under the terms of the settlements, the Company paid a total of $6.7
million in penalties, interest and disgorgement of profits. The Company
consented to the entry of a civil injunction in the SEC action and entered
into
a three-year deferred prosecution agreement with the DOJ. Under both
settlements, the Company has implemented, and will continue to implement
improvements to its compliance program that are consistent with its longstanding
policy against improper payments. In the settlement documents, the Government
noted that the Company thoroughly cooperated with the investigation, that the
Company had conducted its own complete investigation of the conduct at issue,
promptly and thoroughly reported its findings to them, and took prompt remedial
measures. In a related matter, on July 10, 2007, representatives of the Italian
Guardia di Finanza (Financial Police) requested documents from Ingersoll-Rand
Italiana S.p.A pertaining to certain Oil for Food transactions undertaken by
that subsidiary of the Company. Such transactions have previously been reported
to the SEC and DOJ, and the Company will continue to cooperate fully with the
Italian authorities in this matter.
The
Company sells product 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 $5.0 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 condensed
consolidated financial statements.
The
Company is contingently liable for customs duties in certain non-U.S. countries
which totaled $11.9 million as of December 31, 2007. These amounts are not
accrued as the Company intends on exporting the product to another country
for
final sale.
The
Company also has other contingent liabilities for $10.5 million. These
liabilities primarily result from performance bonds, guarantees and stand-by
letters of credit associated with the prior sale of products from divested
businesses.
The
following represents the changes in the Company’s product warranty liability for
2007 and 2006:
In
millions
|
|
2007
|
|
2006
|
|
Balance
at beginning of year
|
|
$
|
137.1
|
|
$
|
135.2
|
|
Reductions
for payments
|
|
|
(68.5
|
)
|
|
(61.7
|
)
|
Accruals
for warranties issued during the current period
|
|
|
80.1
|
|
|
66.1
|
|
Changes
for accruals related to preexisting warranties
|
|
|
(7.8
|
)
|
|
(6.9
|
)
|
Acquisitions
|
|
|
-
|
|
|
0.4
|
|
Translation
|
|
|
6.0
|
|
|
4.0
|
|
Balance
at end of the year
|
|
$
|
146.9
|
|
$
|
137.1
|
|
Certain
office and warehouse facilities, transportation vehicles and data processing
equipment are leased. Total rental expense was $72.2 million in 2007, $68.2
million in 2006 and $57.8 million in 2005. 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: $54.2 million in 2008, $46.2 million
in 2009, $34.8 million in 2010, $24.3 million in 2011, $19.5 million in 2012
and
$24.8 million thereafter.
NOTE
21 – 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 largely 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 2007, the
Company sold its Bobcat, Utility Equipment and Attachments business units as
well as its Road Development business unit. Segment information for all years
has been revised to exclude the results of these divestitures.
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 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,
refrigerated display merchandisers, beverage coolers, auxiliary power units
and
walk-in storage coolers and freezers. This segment includes the Thermo King,
Hussmann and Koxka brands.
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, golf
and
utility vehicles and energy generation systems. The segment includes the
Ingersoll Rand and Club Car brands.
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. This 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
|
|
2007
|
|
2006
|
|
2005
|
|
Climate
Control Technologies
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,372.4
|
|
$
|
3,171.0
|
|
$
|
2,853.6
|
|
Operating
income
|
|
|
382.6
|
|
|
356.0
|
|
|
315.1
|
|
Operating
income as a percentage of revenues
|
|
|
11.3
|
%
|
|
11.2
|
%
|
|
11.0
|
%
|
Depreciation
and amortization
|
|
|
48.9
|
|
|
52.1
|
|
|
53.7
|
|
Capital
expenditures
|
|
|
38.9
|
|
|
25.6
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
Technologies
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2,877.1
|
|
|
2,577.7
|
|
|
2,310.4
|
|
Operating
income
|
|
|
392.0
|
|
|
351.8
|
|
|
301.6
|
|
Operating
income as a percentage of revenues
|
|
|
13.6
|
%
|
|
13.6
|
%
|
|
13.1
|
%
|
Depreciation
and amortization
|
|
|
36.2
|
|
|
32.4
|
|
|
26.8
|
|
Capital
expenditures
|
|
|
41.2
|
|
|
55.6
|
|
|
35.1
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
Technologies
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
2,513.6
|
|
|
2,285.0
|
|
|
2,099.7
|
|
Operating
income
|
|
|
433.5
|
|
|
400.2
|
|
|
380.7
|
|
Operating
income as a percentage of revenues
|
|
|
17.2
|
%
|
|
17.5
|
%
|
|
18.1
|
%
|
Depreciation
and amortization
|
|
|
46.6
|
|
|
42.6
|
|
|
44.6
|
|
Capital
expenditures
|
|
|
34.4
|
|
|
43.6
|
|
|
22.8
|
|
Total
revenues
|
|
$
|
8,763.1
|
|
$
|
8,033.7
|
|
$
|
7,263.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income from reportable segments
|
|
|
1,208.1
|
|
|
1,108.0
|
|
|
997.4
|
|
Unallocated
corporate expense
|
|
|
(150.3
|
)
|
|
(109.5
|
)
|
|
(109.6
|
)
|
Total
operating income
|
|
$
|
1,057.8
|
|
$
|
998.5
|
|
$
|
887.8
|
|
Total
operating income as a percentage of revenues
|
|
|
12.1
|
%
|
|
12.4
|
%
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization from reportable segments
|
|
|
131.7
|
|
|
127.1
|
|
|
125.1
|
|
Unallocated
depreciation and amortization
|
|
|
7.1
|
|
|
21.7
|
|
|
31.6
|
|
Total
depreciation and amortization
|
|
$
|
138.8
|
|
$
|
148.8
|
|
$
|
156.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures from reportable segments
|
|
|
114.5
|
|
|
124.8
|
|
|
68.3
|
|
Corporate
capital expenditures
|
|
|
5.2
|
|
|
20.0
|
|
|
17.8
|
|
Total
capital expenditures
|
|
$
|
119.7
|
|
$
|
144.8
|
|
$
|
86.1
|
|
Revenues
by destination and long-lived assets by geographic area for the years ended
December 31 were as follows:
In
millions
|
|
2007
|
|
2006
|
|
2005
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
4,756.0
|
|
$
|
4,570.9
|
|
$
|
4,221.5
|
|
Non-U.S.
|
|
|
4,007.1
|
|
|
3,462.8
|
|
|
3,042.2
|
|
Total
|
|
$
|
8,763.1
|
|
$
|
8,033.7
|
|
$
|
7,263.7
|
|
In
millions
|
|
|
2007
|
|
|
2006
|
|
Long-lived
assets
|
|
|
|
|
|
|
|
United
States
|
|
$
|
820.5
|
|
$
|
841.3
|
|
Non-U.S.
|
|
|
639.6
|
|
|
574.9
|
|
Total
|
|
$
|
1,460.1
|
|
$
|
1,416.2
|
|
NOTE
22 – 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. At December 31, 2007, $2.1 billion
of
the original $3.6 billion note remains outstanding. 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, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IR
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
932.2
|
|
$
|
7,830.9
|
|
$
|
-
|
|
$
|
8,763.1
|
|
Cost
of goods sold
|
|
|
-
|
|
|
644.1
|
|
|
5,627.9
|
|
|
-
|
|
|
6,272.0
|
|
Selling
and administrative expenses
|
|
|
32.7
|
|
|
304.6
|
|
|
1,096.0
|
|
|
-
|
|
|
1,433.3
|
|
Operating
(loss) income
|
|
|
(32.7
|
)
|
|
(16.5
|
)
|
|
1,107.0
|
|
|
-
|
|
|
1,057.8
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
4,101.0
|
|
|
197.6
|
|
|
2,563.1
|
|
|
(6,861.7
|
)
|
|
-
|
|
Interest
expense
|
|
|
(39.8
|
)
|
|
(69.9
|
)
|
|
(26.5
|
)
|
|
-
|
|
|
(136.2
|
)
|
Intercompany
interest and fees
|
|
|
(53.8
|
)
|
|
(684.0
|
)
|
|
737.8
|
|
|
-
|
|
|
-
|
|
Other
income, net
|
|
|
(8.0
|
)
|
|
71.4
|
|
|
(47.5
|
)
|
|
-
|
|
|
15.9
|
|
Earnings
(loss) before income taxes
|
|
|
3,966.7
|
|
|
(501.4
|
)
|
|
4,333.9
|
|
|
(6,861.7
|
)
|
|
937.5
|
|
(Benefit)
provision for income taxes
|
|
|
-
|
|
|
(167.8
|
)
|
|
372.2
|
|
|
-
|
|
|
204.4
|
|
Earnings
(loss) from continuing operations
|
|
|
3,966.7
|
|
|
(333.6
|
)
|
|
3,961.7
|
|
|
(6,861.7
|
)
|
|
733.1
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
2,896.7
|
|
|
336.9
|
|
|
-
|
|
|
3,233.6
|
|
Net
earnings (loss)
|
|
$
|
3,966.7
|
|
$
|
2,563.1
|
|
$
|
4,298.6
|
|
$
|
(6,861.7
|
)
|
$
|
3,966.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
-
|
|
$
|
928.2
|
|
$
|
7,105.5
|
|
$
|
-
|
|
$
|
8,033.7
|
|
Cost
of goods sold
|
|
|
-
|
|
|
663.8
|
|
|
5,104.6
|
|
|
-
|
|
|
5,768.4
|
|
Selling
and administrative expenses
|
|
|
16.3
|
|
|
253.2
|
|
|
997.3
|
|
|
-
|
|
|
1,266.8
|
|
Operating
(loss) income
|
|
|
(16.3
|
)
|
|
11.2
|
|
|
1,003.6
|
|
|
-
|
|
|
998.5
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
1,116.6
|
|
|
607.4
|
|
|
159.3
|
|
|
(1,883.3
|
)
|
|
-
|
|
Interest
expense
|
|
|
(30.3
|
)
|
|
(77.6
|
)
|
|
(25.7
|
)
|
|
-
|
|
|
(133.6
|
)
|
Intercompany
interest and fees
|
|
|
(32.9
|
)
|
|
(645.0
|
)
|
|
677.9
|
|
|
-
|
|
|
-
|
|
Other
income, net
|
|
|
(4.6
|
)
|
|
64.9
|
|
|
(67.6
|
)
|
|
-
|
|
|
(7.3
|
)
|
Earnings
(loss) before income taxes
|
|
|
1,032.5
|
|
|
(39.1
|
)
|
|
1,747.5
|
|
|
(1,883.3
|
)
|
|
857.6
|
|
(Benefit)
provision for income taxes
|
|
|
-
|
|
|
(192.1
|
)
|
|
284.7
|
|
|
-
|
|
|
92.6
|
|
Earnings
(loss) from continuing operations
|
|
|
1,032.5
|
|
|
153.0
|
|
|
1,462.8
|
|
|
(1,883.3
|
)
|
|
765.0
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
6.3
|
|
|
261.2
|
|
|
-
|
|
|
267.5
|
|
Net
earnings (loss)
|
|
$
|
1,032.5
|
|
$
|
159.3
|
|
$
|
1,724.0
|
|
$
|
(1,883.3
|
)
|
$
|
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
|
|
$
|
-
|
|
$
|
1,008.1
|
|
$
|
6,255.6
|
|
$
|
-
|
|
$
|
7,263.7
|
|
Cost
of goods sold
|
|
|
-
|
|
|
754.8
|
|
|
4,448.4
|
|
|
-
|
|
|
5,203.2
|
|
Selling
and administrative expenses
|
|
|
1.2
|
|
|
264.2
|
|
|
907.3
|
|
|
-
|
|
|
1,172.7
|
|
Operating
(loss) income
|
|
|
(1.2
|
)
|
|
(10.9
|
)
|
|
899.9
|
|
|
-
|
|
|
887.8
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
1,104.8
|
|
|
487.1
|
|
|
268.9
|
|
|
(1,860.8
|
)
|
|
-
|
|
Interest
expense
|
|
|
(9.1
|
)
|
|
(106.3
|
)
|
|
(29.7
|
)
|
|
-
|
|
|
(145.1
|
)
|
Intercompany
interest and fees
|
|
|
(38.4
|
)
|
|
(425.8
|
)
|
|
464.2
|
|
|
-
|
|
|
-
|
|
Other
income, net
|
|
|
(1.9
|
)
|
|
108.8
|
|
|
(56.8
|
)
|
|
-
|
|
|
50.1
|
|
Earnings
(loss) before income taxes
|
|
|
1,054.2
|
|
|
52.9
|
|
|
1,546.5
|
|
|
(1,860.8
|
)
|
|
792.8
|
|
(Benefit)
provision for income taxes
|
|
|
-
|
|
|
(185.4
|
)
|
|
246.4
|
|
|
-
|
|
|
61.0
|
|
Earnings
(loss) from continuing operations
|
|
|
1,054.2
|
|
|
238.3
|
|
|
1,300.1
|
|
|
(1,860.8
|
)
|
|
731.8
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
30.6
|
|
|
291.8
|
|
|
-
|
|
|
322.4
|
|
Net
earnings (loss)
|
|
$
|
1,054.2
|
|
$
|
268.9
|
|
$
|
1,591.9
|
|
$
|
(1,860.8
|
)
|
$
|
1,054.2
|
|
Condensed
Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IR
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
0.6
|
|
$
|
545.5
|
|
$
|
4,189.2
|
|
$
|
-
|
|
$
|
4,735.3
|
|
Marketable
securities
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
|
-
|
|
|
0.1
|
|
Accounts
and notes receivable, net
|
|
|
0.4
|
|
|
266.4
|
|
|
1,393.9
|
|
|
-
|
|
|
1,660.7
|
|
Inventories,
net
|
|
|
-
|
|
|
78.7
|
|
|
748.5
|
|
|
-
|
|
|
827.2
|
|
Prepaid
expenses and deferred income taxes
|
|
|
-
|
|
|
137.2
|
|
|
340.2
|
|
|
-
|
|
|
477.4
|
|
Assets
held for sale
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Accounts
and notes receivable affiliates
|
|
|
13.5
|
|
|
7,630.2
|
|
|
25,528.6
|
|
|
(33,172.3
|
)
|
|
-
|
|
Total
current assets
|
|
|
14.5
|
|
|
8,658.0
|
|
|
32,200.5
|
|
|
(33,172.3
|
)
|
|
7,700.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in affiliates
|
|
|
10,033.7
|
|
|
9,221.1
|
|
|
40,217.2
|
|
|
(59,472.0
|
)
|
|
-
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
152.9
|
|
|
752.0
|
|
|
-
|
|
|
904.9
|
|
Intangible
assets, net
|
|
|
-
|
|
|
79.9
|
|
|
4,638.0
|
|
|
-
|
|
|
4,717.9
|
|
Other
assets
|
|
|
1.5
|
|
|
704.6
|
|
|
346.6
|
|
|
-
|
|
|
1,052.7
|
|
Total
assets
|
|
$
|
10,049.7
|
|
$
|
18,816.5
|
|
$
|
78,154.3
|
|
$
|
(92,644.3
|
)
|
$
|
14,376.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accruals
|
|
$
|
6.9
|
|
$
|
529.7
|
|
$
|
1,958.1
|
|
$
|
-
|
|
$
|
2,494.7
|
|
Loans
payable and current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
long-term debt
|
|
|
-
|
|
|
555.4
|
|
|
185.6
|
|
|
-
|
|
|
741.0
|
|
Liabilities
held for sale
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Accounts
and note payable affiliates
|
|
|
89.1
|
|
|
7,010.2
|
|
|
26,073.0
|
|
|
(33,172.3
|
)
|
|
-
|
|
Total
current liabilities
|
|
|
96.0
|
|
|
8,095.3
|
|
|
28,216.7
|
|
|
(33,172.3
|
)
|
|
3,235.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
299.1
|
|
|
403.2
|
|
|
10.4
|
|
|
-
|
|
|
712.7
|
|
Note
payable affiliate
|
|
|
1,550.0
|
|
|
2,097.4
|
|
|
-
|
|
|
(3,647.4
|
)
|
|
-
|
|
Other
noncurrent liabilities
|
|
|
196.7
|
|
|
1,917.0
|
|
|
406.2
|
|
|
-
|
|
|
2,519.9
|
|
Total
liabilities
|
|
|
2,141.8
|
|
|
12,512.9
|
|
|
28,633.3
|
|
|
(36,819.7
|
)
|
|
6,468.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A common shares
|
|
|
370.0
|
|
|
-
|
|
|
(97.4
|
)
|
|
-
|
|
|
272.6
|
|
Class
B common shares
|
|
|
270.6
|
|
|
-
|
|
|
-
|
|
|
(270.6
|
)
|
|
-
|
|
Common
shares
|
|
|
-
|
|
|
-
|
|
|
2,362.8
|
|
|
(2,362.8
|
)
|
|
-
|
|
Other
shareholders' equity
|
|
|
11,046.3
|
|
|
7,039.7
|
|
|
50,533.8
|
|
|
(61,231.0
|
)
|
|
7,388.8
|
|
Accumulated
other comprehensive income (loss)
|
|
|
568.5
|
|
|
(320.9
|
)
|
|
503.5
|
|
|
(504.6
|
)
|
|
246.5
|
|
|
|
|
12,255.4
|
|
|
6,718.8
|
|
|
53,302.7
|
|
|
(64,369.0
|
)
|
|
7,907.9
|
|
Less:
Contra account
|
|
|
(4,347.5
|
)
|
|
(415.2
|
)
|
|
(3,781.7
|
)
|
|
8,544.4
|
|
|
-
|
|
Total
shareholders' equity
|
|
|
7,907.9
|
|
|
6,303.6
|
|
|
49,521.0
|
|
|
(55,824.6
|
)
|
|
7,907.9
|
|
Total
liabilities and equity
|
|
$
|
10,049.7
|
|
$
|
18,816.5
|
|
$
|
78,154.3
|
|
$
|
(92,644.3
|
)
|
$
|
14,376.2
|
|
Condensed
Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IR
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1.7
|
|
$
|
81.6
|
|
$
|
272.5
|
|
$
|
-
|
|
$
|
355.8
|
|
Marketable
securities
|
|
|
-
|
|
|
-
|
|
|
0.7
|
|
|
-
|
|
|
0.7
|
|
Accounts
and notes receivable, net
|
|
|
0.3
|
|
|
177.6
|
|
|
1,303.8
|
|
|
-
|
|
|
1,481.7
|
|
Inventories,
net
|
|
|
-
|
|
|
92.6
|
|
|
745.1
|
|
|
-
|
|
|
837.7
|
|
Prepaid
expenses and deferred income taxes
|
|
|
0.4
|
|
|
374.8
|
|
|
(19.4
|
)
|
|
-
|
|
|
355.8
|
|
Assets
held for sale
|
|
|
-
|
|
|
500.1
|
|
|
2,006.0
|
|
|
-
|
|
|
2,506.1
|
|
Accounts
and notes receivable affiliates
|
|
|
921.4
|
|
|
2,662.1
|
|
|
26,537.6
|
|
|
(30,121.1
|
)
|
|
-
|
|
Total
current assets
|
|
|
923.8
|
|
|
3,888.8
|
|
|
30,846.3
|
|
|
(30,121.1
|
)
|
|
5,537.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in affiliates
|
|
|
7,130.9
|
|
|
11,565.2
|
|
|
31,009.6
|
|
|
(49,705.7
|
)
|
|
-
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
170.0
|
|
|
698.2
|
|
|
-
|
|
|
868.2
|
|
Intangible
assets, net
|
|
|
-
|
|
|
78.4
|
|
|
4,471.6
|
|
|
-
|
|
|
4,550.0
|
|
Other
assets
|
|
|
1.7
|
|
|
1,129.8
|
|
|
58.4
|
|
|
-
|
|
|
1,189.9
|
|
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
|
|
$
|
361.3
|
|
$
|
1,490.5
|
|
$
|
-
|
|
$
|
1,858.1
|
|
Loans
payable and current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
long-term debt
|
|
|
378.0
|
|
|
596.8
|
|
|
104.6
|
|
|
-
|
|
|
1,079.4
|
|
Liabilities
held for sale
|
|
|
-
|
|
|
536.4
|
|
|
638.5
|
|
|
-
|
|
|
1,174.9
|
|
Accounts
and note payable affiliates
|
|
|
779.0
|
|
|
7,035.7
|
|
|
22,306.4
|
|
|
(30,121.1
|
)
|
|
-
|
|
Total
current liabilities
|
|
|
1,163.3
|
|
|
8,530.2
|
|
|
24,540.0
|
|
|
(30,121.1
|
)
|
|
4,112.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,437.5
|
|
|
46.7
|
|
|
-
|
|
|
1,723.5
|
|
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 Statement of Cash Flows
|
|
|
|
|
|
For
the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IR
|
|
IR
|
|
Other
|
|
IR
Limited
|
|
In
millions
|
|
Limited
|
|
New
Jersey
|
|
Subsidiaries
|
|
Consolidated
|
|
Net
cash (used in) provided by continuing operating activities
|
|
$
|
(100.0
|
)
|
$
|
(458.1
|
)
|
$
|
1,388.0
|
|
$
|
829.9
|
|
Net
cash (used in) provided by discontinued operating
activities
|
|
|
-
|
|
|
(37.0
|
)
|
|
103.2
|
|
|
66.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
-
|
|
|
(25.0
|
)
|
|
(94.7
|
)
|
|
(119.7
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
-
|
|
|
4.6
|
|
|
9.6
|
|
|
14.2
|
|
Acquisitions,
net of cash
|
|
|
-
|
|
|
(0.6
|
)
|
|
(25.1
|
)
|
|
(25.7
|
)
|
Proceeds
from business dispositions
|
|
|
-
|
|
|
3,076.7
|
|
|
3,077.6
|
|
|
6,154.3
|
|
Proceedes
from the sale of marketable securities
|
|
|
-
|
|
|
-
|
|
|
0.7
|
|
|
0.7
|
|
Cash
provided by equity companies, net
|
|
|
-
|
|
|
(0.3
|
)
|
|
28.9
|
|
|
28.6
|
|
Net
cash (used in) provided by continuing investing activities
|
|
|
-
|
|
|
3,055.4
|
|
|
2,997.0
|
|
|
6,052.4
|
|
Net
cash (used in) provided by discontinued investing
activities
|
|
|
-
|
|
|
(4.7
|
)
|
|
(53.0
|
)
|
|
(57.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in debt
|
|
|
(378.0
|
)
|
|
(49.4
|
)
|
|
(122.3
|
)
|
|
(549.7
|
)
|
Net
inter-company (payments) proceeds
|
|
|
776.2
|
|
|
(2,087.8
|
)
|
|
1,311.6
|
|
|
-
|
|
Proceeds
from the exercise of stock options
|
|
|
160.2
|
|
|
-
|
|
|
-
|
|
|
160.2
|
|
Excess
tax benefit from stock-based compensation
|
|
|
-
|
|
|
29.1
|
|
|
7.0
|
|
|
36.1
|
|
Dividends
(paid) received
|
|
|
(459.5
|
)
|
|
16.4
|
|
|
233.3
|
|
|
(209.8
|
)
|
Repurchase
of common shares by subsidiary
|
|
|
-
|
|
|
-
|
|
|
(1,999.9
|
)
|
|
(1,999.9
|
)
|
Net
cash (used in) provided by continuing financing activities
|
|
|
98.9
|
|
|
(2,091.7
|
)
|
|
(570.3
|
)
|
|
(2,563.1
|
)
|
Net
cash (used in) provided by discontinued financing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash
equivalents
|
|
|
-
|
|
|
-
|
|
|
51.8
|
|
|
51.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(1.1
|
)
|
|
463.9
|
|
|
3,916.7
|
|
|
4,379.5
|
|
Cash
and cash equivalents - beginning of period
|
|
|
1.7
|
|
|
81.6
|
|
|
272.5
|
|
|
355.8
|
|
Cash
and cash equivalents - end of period
|
|
$
|
0.6
|
|
$
|
545.5
|
|
$
|
4,189.2
|
|
$
|
4,735.3
|
|
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
|
)
|
$
|
(83.1
|
)
|
$
|
963.6
|
|
$
|
813.1
|
|
Net
cash (used in) provided by discontinued operating
activities
|
|
|
-
|
|
|
173.4
|
|
|
(31.7
|
)
|
|
141.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
-
|
|
|
(44.0
|
)
|
|
(100.8
|
)
|
|
(144.8
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
-
|
|
|
0.9
|
|
|
8.7
|
|
|
9.6
|
|
Acquisitions,
net of cash
|
|
|
-
|
|
|
(11.8
|
)
|
|
(37.9
|
)
|
|
(49.7
|
)
|
Proceeds
from business dispositions
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Proceedes
from the sale 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
|
|
|
-
|
|
|
(54.9
|
)
|
|
26.2
|
|
|
(28.7
|
)
|
Net
cash (used in) provided by discontinued investing
activities
|
|
|
-
|
|
|
(8.7
|
)
|
|
(123.8
|
)
|
|
(132.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in debt
|
|
|
379.1
|
|
|
(499.7
|
)
|
|
(19.9
|
)
|
|
(140.5
|
)
|
Net
inter-company (payments) proceeds
|
|
|
(7.3
|
)
|
|
323.0
|
|
|
(315.7
|
)
|
|
-
|
|
Proceeds
from the exercise of stock options
|
|
|
95.7
|
|
|
-
|
|
|
-
|
|
|
95.7
|
|
Excess
tax benefit from stock-based compensation
|
|
|
-
|
|
|
8.9
|
|
|
6.6
|
|
|
15.5
|
|
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
|
|
|
(152.2
|
)
|
|
(1,234.6
|
)
|
|
(1,343.2
|
)
|
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
|
)
|
|
(370.9
|
)
|
|
(520.2
|
)
|
Cash
and cash equivalents - beginning of period
|
|
|
25.5
|
|
|
207.1
|
|
|
643.4
|
|
|
876.0
|
|
Cash
and cash equivalents - end of period
|
|
$
|
1.7
|
|
$
|
81.6
|
|
$
|
272.5
|
|
$
|
355.8
|
|
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
|
)
|
$
|
(381.3
|
)
|
$
|
854.2
|
|
$
|
440.9
|
|
Net
cash (used in) provided by discontinued operating
activities
|
|
|
-
|
|
|
(111.0
|
)
|
|
510.8
|
|
|
399.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
-
|
|
|
(38.0
|
)
|
|
(48.1
|
)
|
|
(86.1
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
-
|
|
|
2.1
|
|
|
14.2
|
|
|
16.3
|
|
Acquisitions,
net of cash
|
|
|
-
|
|
|
-
|
|
|
(484.7
|
)
|
|
(484.7
|
)
|
Proceeds
from business dispositions
|
|
|
-
|
|
|
3.7
|
|
|
7.7
|
|
|
11.4
|
|
Purchase
of marketable securities
|
|
|
-
|
|
|
-
|
|
|
(152.6
|
)
|
|
(152.6
|
)
|
Cash
provided by equity companies, net
|
|
|
-
|
|
|
-
|
|
|
7.1
|
|
|
7.1
|
|
Net
cash (used in) provided by continuing investing activities
|
|
|
-
|
|
|
(32.2
|
)
|
|
(656.4
|
)
|
|
(688.6
|
)
|
Net
cash (used in) provided by discontinued investing
activities
|
|
|
-
|
|
|
(11.3
|
)
|
|
(71.8
|
)
|
|
(83.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
Repurchase
of common shares by subsidiary
|
|
|
-
|
|
|
-
|
|
|
(763.6
|
)
|
|
(763.6
|
)
|
Redemption
of preferred stock of subsidiary
|
|
|
(73.6
|
)
|
|
-
|
|
|
-
|
|
|
(73.6
|
)
|
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
increase in cash and cash equivalents
|
|
|
(211.3
|
)
|
|
(635.1
|
)
|
|
25.5
|
|
|
(820.9
|
)
|
Cash
and cash equivalents - beginning of period
|
|
|
236.8
|
|
|
842.2
|
|
|
617.9
|
|
|
1,696.9
|
|
Cash
and cash equivalents - end of period
|
|
$
|
25.5
|
|
$
|
207.1
|
|
$
|
643.4
|
|
$
|
876.0
|
|
SCHEDULE
II
INGERSOLL-RAND
COMPANY LIMITED
VALUATION
AND QUALIFYING ACCOUNTS
FOR
THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Amounts
in millions)
Allowances
for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
Balance
December 31, 2004
|
|
$
|
45.0
|
|
Net
reductions in costs and expenses
|
|
|
(6.6
|
)
|
Deductions
*
|
|
|
(13.6
|
)
|
Business
acquisitions and divestitures, net
|
|
|
4.6
|
|
Currency
translation
|
|
|
(1.1
|
)
|
|
|
|
|
|
Balance
December 31, 2005
|
|
|
28.3
|
|
Net
reductions in costs and expenses
|
|
|
(11.4
|
)
|
Deductions
*
|
|
|
(11.4
|
)
|
Business
acquisitions and divestitures, net
|
|
|
1.4
|
|
Currency
translation
|
|
|
1.4
|
|
|
|
|
|
|
Balance
December 31, 2006
|
|
|
8.3
|
|
Additions
charged to costs and expenses
|
|
|
9.8
|
|
Deductions
*
|
|
|
(7.2
|
)
|
Business
acquisitions and divestitures, net
|
|
|
0.4
|
|
Currency
translation
|
|
|
0.9
|
|
|
|
|
|
|
Balance
December 31, 2007
|
|
$
|
12.2
|
|
(*)
"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, 2007, 2006 AND 2005
(Amounts
in millions)
Reserve
for LIFO:
|
|
|
|
|
|
|
|
Balance
December 31, 2004
|
|
$
|
77.2
|
|
Additions
|
|
|
2.6
|
|
Reductions
|
|
|
(1.9
|
)
|
|
|
|
|
|
Balance
December 31, 2005
|
|
|
77.9
|
|
Additions
|
|
|
19.7
|
|
Reductions
|
|
|
(2.2
|
)
|
|
|
|
|
|
Balance
December 31, 2006
|
|
|
95.4
|
|
Additions
|
|
|
-
|
|
Reductions
|
|
|
(11.1
|
)
|
|
|
|
|
|
Balance
December 31, 2007
|
|
$
|
84.3
|
|