Unassociated Document
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
|
SECURITIES
EXCHANGE ACT OF 1934
For
the quarterly period ended June 30, 2008
or
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
|
SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from __________ to __________
Commission
File Number 1-985
INGERSOLL-RAND
COMPANY LIMITED
(Exact
name of registrant as specified in its charter)
|
75-2993910
|
|
(I.R.S. Employer
|
incorporation or organization)
|
Identification No.)
|
Clarendon
House
2
Church Street
Hamilton
HM 11, Bermuda
(Address
of principal executive offices)
(441)
295-2838
(Registrant’s
telephone number, including area code)
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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer x Accelerated
filer o Non-accelerated
filer o Smaller reporting
company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES o NO x
The
number of Class A common shares outstanding as of July 31, 2008 was
318,526,858.
INGERSOLL-RAND
COMPANY LIMITED
FORM
10-Q
INDEX
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
Item
1
|
-
|
Financial
Statements
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Income Statement for the three and six months ended
June 30,
2008 and 2007
|
1
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheet at June 30, 2008 and December 31,
2007
|
2
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Cash Flows for the three and six months
ended
June 30, 2008 and 2007
|
3
|
|
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
4
|
|
|
|
|
|
|
Item
2
|
-
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
38
|
|
|
|
|
|
|
Item
3
|
-
|
Quantitative
and Qualitative Disclosures about Market Risk
|
59
|
|
|
|
|
|
|
Item
4
|
-
|
Controls
and Procedures
|
59
|
|
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
Item
1
|
-
|
Legal
Proceedings
|
59
|
|
|
|
|
|
|
Item 1A
|
-
|
Risk
Factors
|
61
|
|
|
|
|
|
|
Item 4
|
-
|
Submission
of Matters to a Vote of Security Holders
|
65
|
|
|
|
|
|
|
Item 6
|
-
|
Exhibits
|
65
|
|
|
|
|
|
SIGNATURES
|
|
|
|
70
|
|
|
|
|
|
CERTIFICATIONS
|
|
|
|
|
Item
1. Financial Statements
INGERSOLL-RAND
COMPANY LIMITED
CONDENSED
CONSOLIDATED INCOME STATEMENT
(Unaudited)
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions, except per share amounts
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
revenues
|
|
$
|
3,080.8
|
|
$
|
2,224.6
|
|
$
|
5,244.1
|
|
$
|
4,200.8
|
|
Cost
of goods sold
|
|
|
(2,196.1
|
)
|
|
(1,589.7
|
)
|
|
(3,737.1
|
)
|
|
(3,005.6
|
)
|
Selling
and administrative expenses
|
|
|
(523.1
|
)
|
|
(360.8
|
)
|
|
(898.4
|
)
|
|
(712.5
|
)
|
Operating
income
|
|
|
361.6
|
|
|
274.1
|
|
|
608.6
|
|
|
482.7
|
|
Interest
expense
|
|
|
(45.6
|
)
|
|
(30.8
|
)
|
|
(73.1
|
)
|
|
(66.5
|
)
|
Other,
net
|
|
|
26.2
|
|
|
8.6
|
|
|
65.5
|
|
|
8.5
|
|
Earnings
before income taxes
|
|
|
342.2
|
|
|
251.9
|
|
|
601.0
|
|
|
424.7
|
|
Provision
for income taxes
|
|
|
(79.7
|
)
|
|
(43.9
|
)
|
|
(126.8
|
)
|
|
(60.1
|
)
|
Earnings
from continuing operations
|
|
|
262.5
|
|
|
208.0
|
|
|
474.2
|
|
|
364.6
|
|
Discontinued
operations, net of tax
|
|
|
(6.4
|
)
|
|
756.1
|
|
|
(36.5
|
)
|
|
817.0
|
|
Net
earnings
|
|
$
|
256.1
|
|
$
|
964.1
|
|
$
|
437.7
|
|
$
|
1,181.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.91
|
|
$
|
0.69
|
|
$
|
1.69
|
|
$
|
1.20
|
|
Discontinued
operations
|
|
|
(0.02
|
)
|
|
2.52
|
|
|
(0.13
|
)
|
|
2.70
|
|
Net
earnings
|
|
$
|
0.89
|
|
$
|
3.21
|
|
$
|
1.56
|
|
$
|
3.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.90
|
|
$
|
0.68
|
|
$
|
1.67
|
|
$
|
1.19
|
|
Discontinued
operations
|
|
|
(0.02
|
)
|
|
2.49
|
|
|
(0.13
|
)
|
|
2.66
|
|
Net
earnings
|
|
$
|
0.88
|
|
$
|
3.17
|
|
$
|
1.54
|
|
$
|
3.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
per common share
|
|
$
|
0.18
|
|
$
|
0.18
|
|
$
|
0.36
|
|
$
|
0.36
|
|
See
accompanying notes to condensed consolidated financial
statements.
CONDENSED
CONSOLIDATED BALANCE SHEET
(Unaudited)
|
|
June 30,
|
|
December 31,
|
|
In
millions
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
787.3
|
|
$
|
4,735.3
|
|
Accounts
and notes receivable
|
|
|
3,072.0
|
|
|
1,660.7
|
|
Inventories
|
|
|
1,800.5
|
|
|
827.2
|
|
Other
current assets
|
|
|
915.2
|
|
|
477.5
|
|
Total
current assets
|
|
|
6,575.0
|
|
|
7,700.7
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
2,128.3
|
|
|
904.9
|
|
Goodwill
|
|
|
10,174.3
|
|
|
3,993.3
|
|
Intangible
assets, net
|
|
|
5,224.0
|
|
|
724.6
|
|
Other
noncurrent assets
|
|
|
1,782.1
|
|
|
1,052.7
|
|
Total
assets
|
|
$
|
25,883.7
|
|
$
|
14,376.2
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,348.5
|
|
$
|
721.2
|
|
Accrued
compensation and benefits
|
|
|
479.9
|
|
|
338.9
|
|
Accrued
expenses and other current liabilities
|
|
|
1,622.7
|
|
|
1,434.6
|
|
Short-term
borrowings and current maturities of long-term debt
|
|
|
4,768.8
|
|
|
741.0
|
|
Total
current liabilities
|
|
|
8,219.9
|
|
|
3,235.7
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
1,189.9
|
|
|
712.7
|
|
Postemployment
and other benefit liabilities
|
|
|
1,300.0
|
|
|
941.9
|
|
Deferred
income taxes
|
|
|
2,440.2
|
|
|
539.9
|
|
Other
noncurrent liabilities
|
|
|
1,837.7
|
|
|
940.6
|
|
Minority
interests
|
|
|
103.5
|
|
|
97.5
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Class
A common shares
|
|
|
318.5
|
|
|
272.6
|
|
Capital
in excess of par value
|
|
|
2,248.2
|
|
|
-
|
|
Retained
earnings
|
|
|
7,728.3
|
|
|
7,388.8
|
|
Accumulated
other comprehensive income (loss)
|
|
|
497.5
|
|
|
246.5
|
|
Total
shareholders' equity
|
|
|
10,792.5
|
|
|
7,907.9
|
|
Total
liabilities and shareholders' equity
|
|
$
|
25,883.7
|
|
$
|
14,376.2
|
|
See
accompanying notes to condensed consolidated financial
statements.
INGERSOLL-RAND
COMPANY LIMITED
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
|
|
Six months ended June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
437.7
|
|
$
|
1,181.6
|
|
(Income)
loss from discontinued operations, net of tax
|
|
|
36.5
|
|
|
(817.0
|
)
|
Adjustments
to arrive at net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
127.2
|
|
|
70.7
|
|
Stock
settled share-based compensation
|
|
|
26.4
|
|
|
17.8
|
|
Changes
in other assets and liabilities, net
|
|
|
(1,183.9
|
)
|
|
(250.1
|
)
|
Other,
net
|
|
|
50.8
|
|
|
0.5
|
|
Net
cash provided by (used in) continuing operating activities
|
|
|
(505.3
|
)
|
|
203.5
|
|
Net
cash provided by (used in) discontinued operating
activities
|
|
|
(20.0
|
)
|
|
8.0
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(104.7
|
)
|
|
(57.9
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
23.0
|
|
|
9.0
|
|
Acquisitions,
net of cash acquired ($320.4 in 2008)
|
|
|
(7,085.5
|
)
|
|
(3.7
|
)
|
Proceeds
from business dispositions, net of cash
|
|
|
9.7
|
|
|
1,291.7
|
|
Other,
net
|
|
|
(19.1
|
)
|
|
3.5
|
|
Net
cash provided by (used in) continuing investing activities
|
|
|
(7,176.6
|
)
|
|
1,242.6
|
|
Net
cash provided by (used in) discontinued investing
activities
|
|
|
-
|
|
|
(39.8
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Increase
(decrease) in short-term borrowings
|
|
|
3,901.0
|
|
|
(383.3
|
)
|
Payments
of long-term debt
|
|
|
(134.5
|
)
|
|
(11.2
|
)
|
Net
change in debt
|
|
|
3,766.5
|
|
|
(394.5
|
)
|
Debt
issuance costs
|
|
|
(11.4
|
)
|
|
-
|
|
Dividends
paid
|
|
|
(98.2
|
)
|
|
(109.6
|
)
|
Proceeds
from exercise of stock options
|
|
|
11.6
|
|
|
121.4
|
|
Repurchase
of common shares by subsidiary
|
|
|
(2.0
|
)
|
|
(846.5
|
)
|
Other,
net
|
|
|
18.5
|
|
|
-
|
|
Net
cash provided by (used in) continuing financing activities
|
|
|
3,685.0
|
|
|
(1,229.2
|
)
|
Net
cash provided by (used in) discontinued financing
activities
|
|
|
-
|
|
|
-
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
68.9
|
|
|
9.1
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(3,948.0
|
)
|
|
194.2
|
|
Cash
and cash equivalents - beginning of period
|
|
|
4,735.3
|
|
|
355.8
|
|
Cash
and cash equivalents - end of period
|
|
$
|
787.3
|
|
$
|
550.0
|
|
See
accompanying notes to condensed consolidated financial
statements.
INGERSOLL-RAND
COMPANY LIMITED
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 – Description of Company
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 its markets. The
Company operates in four business segments: Air Conditioning Systems and
Services, 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®, Thermo King® and
Trane®.
Note
2– Basis of Presentation
In
the
opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments, which include normal recurring adjustments,
necessary to present fairly the consolidated unaudited results for the interim
periods presented. Certain reclassifications of amounts reported in prior years
have been made to conform to the 2008 classification.
The
accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
Ingersoll-Rand Company Limited Annual Report on Form 10-K for the year ended
December 31, 2007.
As
discussed in Note 3, the Company acquired Trane Inc. (Trane) at the close of
business on June 5, 2008 (the Acquisition Date). As a result of the acquisition,
the results of the operations of Trane have been included in the statement
of
financial position at June 30, 2008 and the consolidated statements of
operations and cash flows since the Acquisition Date.
Note
3 – Acquisition of Trane Inc.
At
the
close of business on June 5, 2008, the Company completed its previously
announced acquisition of 100% of the outstanding common shares of Trane. Trane,
formerly American Standard Companies Inc., provides systems and services that
enhance the quality and comfort of the air in homes and buildings around the
world. Trane’s systems and services have leading positions in premium
commercial, residential, institutional and industrial markets, a reputation
for
reliability, high quality and product innovation and a powerful distribution
network. Trane’s 2007 annual revenues were $7.5 billion.
The
Company paid a combination of (i) 0.23 of an IR Limted Class A common share
and (ii) $36.50 in cash, without interest, for each outstanding share of Trane
common stock. The total cost of the acquisition was approximately $9.6 billion,
including change in control payments and direct costs of the transaction. The
Company financed the cash portion of the acquisition with a combination of
cash
on hand, commercial paper and a 364-day senior unsecured bridge loan facility.
The
components of the purchase price were as follows:
In
billions
|
|
|
|
Cash
consideration
|
|
$
|
7.3
|
|
Stock
consideration (Issuance of 45.4 million IR Limited Class A common
shares)
|
|
|
2.0
|
|
Estimated
fair value of Trane stock options converted to 7.9 million IR Limited
stock options
|
|
|
0.2
|
|
Transaction
costs
|
|
|
0.1
|
|
Total
|
|
$
|
9.6
|
|
The
following table summarizes the preliminary fair values of the Trane assets
acquired and liabilities assumed at the Acquisition Date. The Company is in
the
process of finalizing the preliminary fair values of certain assets and
liabilities, thus, the allocation of the purchase price is subject to
refinement.
|
|
June 5,
|
|
In
millions
|
|
2008
|
|
Current
assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
317.5
|
|
Accounts
and notes receivable
|
|
|
1,185.6
|
|
Inventories
|
|
|
944.2
|
|
Other
current assets
|
|
|
396.0
|
|
Total
current assets
|
|
|
2,843.3
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
1,174.9
|
|
Goodwill
|
|
|
6,062.4
|
|
Intangible
assets
|
|
|
4,520.0
|
|
Other
noncurrent assets
|
|
|
722.6
|
|
Total
assets
|
|
$
|
15,323.2
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
562.9
|
|
Accrued
compensation and benefits
|
|
|
212.7
|
|
Accrued
expenses and other current liabilities
|
|
|
1,030.4
|
|
Short-term
borrowings and current maturities of long-term debt
|
|
|
254.3
|
|
Total
current liabilities
|
|
|
2,060.3
|
|
|
|
|
|
|
Long-term
debt
|
|
|
476.3
|
|
Postemployment
and other benefit liabilities
|
|
|
310.3
|
|
Deferred
income taxes
|
|
|
1,681.9
|
|
Other
noncurrent liabilities
|
|
|
1,177.0
|
|
Minority
interests
|
|
|
7.7
|
|
Total
liabilities and minority interests
|
|
$
|
5,713.5
|
|
Net
assets acquired
|
|
$
|
9,609.7
|
|
Cash
and
cash equivalents, accounts and notes receivable, accounts payable and accrued
compensation and benefits were stated at their historical carrying values,
which
approximates their fair value, given the short-term nature of these assets
and
liabilities.
Inventories
were recorded at fair value, based on computations which considered many
factors, including the future estimated selling price of the inventory, the
cost
to dispose of the inventory, as well as the replacement cost of the inventory,
where applicable.
The
Company recorded property, plant and equipment at its preliminary estimated
fair
value, based on adjustments recorded in recent acquisitions of other companies
with assets similar to Trane.
The
Company recorded intangible assets based on their estimated fair value, and
consisted of the following:
In
millions
|
|
Useful life
|
|
Amount
|
|
Tradenames
|
|
|
Indefinite
|
|
$
|
1,644.0
|
|
Customer
relationships
|
|
|
25
Years
|
|
|
2,736.0
|
|
Completed
technology/patents
|
|
|
5
Years
|
|
|
95.0
|
|
In
process research and development
|
|
|
Expensed
|
|
|
23.0
|
|
Backlog
|
|
|
6
Months
|
|
|
22.0
|
|
Total
|
|
|
|
|
$
|
4,520.0
|
|
The
Company has allocated $1,644.0 million to tradenames, primarily related to
the
Trane brand. Management considered many factors in the determination that it
will account for the asset as an indefinite lived intangible asset, including
the current market leadership position of the brand as well as recognition
worldwide in the industry. Therefore, in accordance with Statement of Accounting
Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”, tradenames
will not be amortized but instead, will be tested for impairment at least
annually (more frequently if certain indicators are present).
The
Company will have a valuation performed on property, plant and equipment,
identified intangible assets, pension and post employment and other liabilities
and, as such, the fair value recorded for the assets above could change upon
the
conclusion of the valuation.
The
excess of the purchase price over the amounts allocated to specific assets
and
liabilities is included in goodwill, and amounted to $6,062.4 million. The
premium in the purchase price paid by the Company for the acquisition of Trane
reflects the establishment of $11 billion of businesses offering high value
equipment, systems and services necessary for delivering solutions across the
temperature spectrum for indoor, stationary and transport applications
worldwide. The Company anticipates realizing significant operational and cost
synergies. Anticipated synergies include purchase material savings through
supplier rationalization and procurement leverage, improvement in manufacturing
costs and lower general and administrative costs. Longer term, the Company
expects to benefit from synergies related to service revenue expansion, leverage
of distribution channels and cross selling through certain vertical
markets.
In
addition, Trane will be able to leverage the Company’s global footprint to
enhance their historically U.S. based revenue generation. Lastly, the combined
business will improve the Company’s highly regarded Hussmann and Thermo King
brands with Trane’s position as a leader in the commercial and residential
climate control industry. These combined factors primarily contributed to a
purchase price in excess of the fair value of the net tangible assets
acquired.
The
following unaudited pro forma information assumes the acquisition of Trane
occurred as of the beginning of the respective periods
presented.
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
4,506.7
|
|
$
|
4,262.3
|
|
$
|
8,381.4
|
|
$
|
7,846.0
|
|
Pre-tax
profit
|
|
|
374.3
|
|
|
354.4
|
|
|
649.9
|
|
|
533.8
|
|
Net
earnings
|
|
$
|
285.1
|
|
$
|
272.3
|
|
$
|
506.1
|
|
$
|
422.6
|
|
Basic
earnings per common share
|
|
$
|
0.89
|
|
$
|
0.79
|
|
$
|
1.58
|
|
$
|
1.21
|
|
Diluted
earnings per common share
|
|
$
|
0.88
|
|
$
|
0.77
|
|
$
|
1.56
|
|
$
|
1.19
|
|
The
unaudited pro forma financial information for the three months ended June 30,
2008 and 2007 include $55.9 million of non-recurring purchase accounting
charges associated with the fair value allocation of purchase price
to backlog, inventory and in-process research and development costs.
Comparative amounts for the six months ended June 30, 2008 and 2007 were $71.9
million.
In
addition, for the three months ended June 30, 2008 and 2007, the Company has
included $24.1 million and $34.0 million, respectively, as an increase to
interest expense associated with the borrowings to fund (a) the cash portion
of
the purchase price and (b) the out-of-pocket transaction costs associated with
the acquisition. Comparative amounts for the six months ended June 30, 2008
and
2007 were $58.2 million and $68.4 million, respectively.
The
unaudited pro forma information does not purport to be indicative of the results
that actually would have been achieved had the operations been combined during
the periods presented nor is it intended to be a projection of future results
or
trends.
Note
4 – Divestitures and Discontinued Operations
The
components of discontinued operations for the three and six months ended June
30
are as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenues
|
|
$
|
5.6
|
|
$
|
837.0
|
|
$
|
15.2
|
|
$
|
1,696.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
earnings (loss) from operations
|
|
|
(11.8
|
)
|
|
119.7
|
|
|
(23.0
|
)
|
|
201.5
|
|
Pre-tax
gain (loss) on sale
|
|
|
(1.5
|
)
|
|
804.5
|
|
|
(5.6
|
)
|
|
804.7
|
|
Tax
expense
|
|
|
6.9
|
|
|
(168.1
|
)
|
|
(7.9
|
)
|
|
(189.2
|
)
|
Discontinued
operations, net of tax
|
|
$
|
(6.4
|
)
|
$
|
756.1
|
|
$
|
(36.5
|
)
|
$
|
817.0
|
|
Discontinued
operations by business for the three and six months ended June 30 is as
follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Compact
Equipment, net of tax
|
|
$
|
1.5
|
|
$
|
81.7
|
|
$
|
(22.9
|
)
|
$
|
142.3
|
|
Road
Development, net of tax
|
|
|
(1.8
|
)
|
|
678.2
|
|
|
(1.8
|
)
|
|
694.1
|
|
Other
discontinued operations, net of tax
|
|
|
(6.1
|
)
|
|
(3.8
|
)
|
|
(11.8
|
)
|
|
(19.4
|
)
|
Total
discontinued operations, net of tax
|
|
$
|
(6.4
|
)
|
$
|
756.1
|
|
$
|
(36.5
|
)
|
$
|
817.0
|
|
Compact
Equipment Divestiture
On
July
29, 2007, the Company agreed to sell its Bobcat, Utility Equipment and
Attachments business units (collectively, Compact Equipment) to Doosan Infracore
for gross proceeds of approximately $4.9 billion. The sale was completed on
November 30, 2007. The purchase price is subject to post-closing adjustments
which could result in a favorable or unfavorable adjustment to the gain on
sale
when ultimately resolved.
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 for all periods presented in accordance
with SFAS 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 three and six
months ended June 30 are as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
revenues
|
|
$
|
5.6
|
|
$
|
759.8
|
|
$
|
15.2
|
|
$
|
1,452.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from operations, net of tax
|
|
|
(0.3
|
)
|
|
81.7
|
|
|
0.1
|
|
|
142.3
|
|
Gain
on sale, net of tax
|
|
|
1.8
|
|
|
-
|
|
|
(23.0
|
)
|
|
-
|
|
Total
discontinued operations, net of tax
|
|
$
|
1.5
|
|
$
|
81.7
|
|
$
|
(22.9
|
)
|
$
|
142.3
|
|
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. The sale
was
completed on April 30, 2007 in all countries except for India, which closed
on
May 4, 2007. The purchase price is subject to post-closing adjustments which
could result in a favorable or unfavorable adjustment to the gain on sale when
ultimately resolved.
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 for all periods presented in accordance with
SFAS 144.
Net
revenues and after-tax earnings of the Road Development business unit for the
three and six months ended June 30 are as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
77.2
|
|
$
|
-
|
|
$
|
244.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from operations, net of tax
|
|
|
(0.1
|
)
|
|
2.5
|
|
|
(0.1
|
)
|
|
18.4
|
|
Gain
on sale, net of tax
|
|
|
(1.7
|
)
|
|
675.7
|
|
|
(1.7
|
)
|
|
675.7
|
|
Total
discontinued operations, net of tax
|
|
$
|
(1.8
|
)
|
$
|
678.2
|
|
$
|
(1.8
|
)
|
$
|
694.1
|
|
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 three and six months ended June 30 are as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Retained
costs, net of tax
|
|
$
|
(6.1
|
)
|
$
|
(3.9
|
)
|
$
|
(11.8
|
)
|
$
|
(19.6
|
)
|
Net
gain on disposals, net of tax
|
|
|
-
|
|
|
0.1
|
|
|
-
|
|
|
0.2
|
|
Total
discontinued operations, net of tax
|
|
$
|
(6.1
|
)
|
$
|
(3.8
|
)
|
$
|
(11.8
|
)
|
$
|
(19.4
|
)
|
Retained
costs, net of tax for the six months ended June 30, 2008 includes $6.5 million
of after-tax costs related to an adverse verdict in a product liability lawsuit
associated with a previously divested business.
Note
5–
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.
The
major
classes of inventory are as follows:
|
|
June 30,
|
|
December 31,
|
|
In
millions
|
|
2008
|
|
2007
|
|
Raw
materials
|
|
$
|
477.7
|
|
$
|
323.2
|
|
Work-in-process
|
|
|
348.2
|
|
|
163.4
|
|
Finished
goods
|
|
|
1,111.3
|
|
|
424.9
|
|
Sub-total
|
|
|
1,937.2
|
|
|
911.5
|
|
LIFO
reserve
|
|
|
(136.7
|
)
|
|
(84.3
|
)
|
Total
|
|
$
|
1,800.5
|
|
$
|
827.2
|
|
At
June
30, 2008, approximately 50% of all inventory utilized the LIFO method compared
to 20% at December 31, 2007. The increase is primarily attributable to the
Company’s acquisition of Trane. See Note 3 for a further discussion on the
acquisition of Trane.
Note
6 –
Goodwill
The
changes in the carrying amount of goodwill are as follows:
|
|
Air
|
|
|
|
|
|
|
|
|
|
|
|
Conditioning
|
|
Climate
|
|
|
|
|
|
|
|
|
|
Systems
|
|
Control
|
|
Industrial
|
|
Security
|
|
|
|
In
millions
|
|
and Services
|
|
Technologies
|
|
Technologies
|
|
Technologies
|
|
Total
|
|
December
31, 2007
|
|
$
|
-
|
|
$
|
2,613.8
|
|
$
|
371.9
|
|
$
|
1,007.6
|
|
$
|
3,993.3
|
|
Acquisitions
and adjustments*
|
|
|
6,062.4
|
|
|
-
|
|
|
4.1
|
|
|
22.9
|
|
|
6,089.4
|
|
Translation
|
|
|
-
|
|
|
44.6
|
|
|
6.9
|
|
|
40.1
|
|
|
91.6
|
|
June
30, 3008
|
|
$
|
6,062.4
|
|
$
|
2,658.4
|
|
$
|
382.9
|
|
$
|
1,070.6
|
|
$
|
10,174.3
|
|
*
Includes current year adjustments related to final purchase price allocation
adjustments.
The
Company initially records as goodwill the excess of the purchase price over
the
preliminary fair value of the net assets acquired. Once the final valuation
has
been performed for each acquisition, adjustments may be recorded.
See
Note
3 for a further discussion regarding goodwill associated with the Trane
acquisition, which the Company recorded in the Air Conditioning Systems and
Services segment.
Note
7 – Intangible Assets
The
following table sets forth the gross amount and accumulated amortization of
the
Company’s intangible assets:
|
|
June 30,
|
|
December 31,
|
|
In
millions
|
|
2008
|
|
2007
|
|
Customer
relationships
|
|
$
|
3,246.7
|
|
$
|
502.4
|
|
Trademarks
|
|
|
1,938.4
|
|
|
283.8
|
|
Patents
|
|
|
140.7
|
|
|
38.2
|
|
Other
|
|
|
104.3
|
|
|
53.4
|
|
Total
gross intangible assets
|
|
|
5,430.1
|
|
|
877.8
|
|
Accumulated
amortization
|
|
|
(206.1
|
)
|
|
(153.2
|
)
|
Total
|
|
$
|
5,224.0
|
|
$
|
724.6
|
|
As
of
June 30, 2008 and December 31, 2007, the Company had $1,816.4 million and $169.3
million of indefinite lived intangible assets, which are not subject to
amortization in accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets.” The increase is attributable to the Company’s acquisition of Trane. See
Note 3 for a further discussion on the acquisition of Trane.
Intangible
asset amortization expense was $42.2 million and $6.1 million for the three
months ended June 30, 2008 and 2007, respectively. For the six months ended
June
30, 2008 and 2007, intangible asset amortization was $49.1 million and $12.2
million, respectively. Estimated amortization expense on existing intangible
assets is approximately $170 million for each of the next five fiscal
years.
Note
8 – Accounts Receivable Securitization Agreements
In
association with the acquisition of Trane, the consolidated financial statements
include Trane’s accounts receivable securitization agreement (the Facility) in
the U.S. As part of this Facility, Trane formed special-purpose entities (SPE’s)
that are included in the condensed consolidated financial statements for the
sole purpose of buying and selling receivables generated by Trane. Trane
irrevocably and without recourse, transfers all eligible accounts receivable
to
the SPE’s, which in turn, sell them, or undivided ownerships in them, to
conduits administered by the banks. The assets of the SPE’s are not available to
pay the claims of Trane or any of its subsidiaries.
The
receivables sold are removed from the balance sheet since they meet the
applicable criteria of SFAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities”. Trane’s retained interest
is recorded at fair value in the balance sheet. To the extent that the cash
received and value of the retained interest is less than the net book value
of
the receivable sold, losses are recognized at the time of sale. For the 25
days
ended June 30, 2008, the losses amounted to $0.3 million. The receivables
represented by the retained interest are exposed to the risk of loss for any
uncollectible amounts in the pool of receivables sold under this
arrangement.
The
following is a summary of receivables sold to the financing
facilities:
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
Outstanding
balance of receivables sold to SPE's
|
|
$
|
318.1
|
|
Net
retained interest
|
|
|
182.6
|
|
Advances
from conduits
|
|
|
121.7
|
|
The
advances from conduits include amounts due to the conduits for the collections
of receivables under the servicing agreement.
Note
9 – Debt and Credit Facilities
At
June
30, 2008 and December 31, 2007, short-term borrowings and current maturities
of
long-term debt consisted of the following:
|
|
June 30,
|
|
December 31,
|
|
In
millions
|
|
2008
|
|
2007
|
|
Commerical
paper program
|
|
$
|
925.9
|
|
$
|
-
|
|
Bridge
loan facility
|
|
|
2,950.0
|
|
|
-
|
|
Current
maturities of long-term debt
|
|
|
796.0
|
|
|
681.1
|
|
Other
short-term borrowings
|
|
|
96.9
|
|
|
59.9
|
|
Total
|
|
$
|
4,768.8
|
|
$
|
741.0
|
|
At
June
30, 2008 and December 31, 2007, long-term debt excluding current maturities
consisted of:
|
|
June 30,
|
|
December 31,
|
|
In
millions
|
|
2008
|
|
2007
|
|
7.625%
Senior notes due 2010
|
|
$
|
279.4
|
|
$
|
-
|
|
5.50%
Senior notes due 2015
|
|
|
188.7
|
|
|
-
|
|
4.75%
Senior notes due 2015
|
|
|
299.2
|
|
|
299.1
|
|
9.00%
Debentures due 2021
|
|
|
125.0
|
|
|
125.0
|
|
7.20%
Debentures due 2007 - 2025
|
|
|
120.0
|
|
|
127.5
|
|
6.48%
Debentures due 2025
|
|
|
149.7
|
|
|
149.7
|
|
Other
loans and notes, at end of year average interest rates of 4.32%
|
|
|
|
|
|
|
|
in
2008 and 4.32% in 2007, maturing in various amounts to 2016
|
|
|
27.9
|
|
|
11.4
|
|
Total
|
|
$
|
1,189.9
|
|
$
|
712.7
|
|
In
connection with the Trane acquisition, the Company entered into a new $3.9
billion senior unsecured bridge loan facility, with a term of 364 days.
Subsequently, the Company reduced the facility size by $0.5 billion. As of
June
30, 2008, the Company has drawn $2.95 billion against the bridge facility,
with
the remaining $0.45 billion available for future use. The proceeds of the
agreement were used to pay a portion of the cash component of the consideration
paid for the acquisition as well as to pay related fees and expenses incurred.
The
Company also entered into a new $1.0 billion senior unsecured revolving credit
agreement with a three year term. The credit facility will be used to support
working capital, the commercial paper programs and for other general corporate
purposes.
In
addition, 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 other financing instruments, such
as
letter of credit and comfort letters as required in the normal course of
business as well as support for the commercial paper program.
As
a
result of the Trane acquisition described in Note 3, the Company assumed a
cross
currency swap to fix the foreign currency cash flows on its £60.0 million 8.25%
senior notes due June 1, 2009, into the functional currency of the Company.
At
the inception of the cross currency swap, the swap qualified as a cash flow
hedging instrument under the guidelines of SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities.” As such the fair value of the
cross currency swap has been deferred in Other Comprehensive Income (OCI) until
the time the cash flows affect earnings. At June 30, 2008, the cross currency
swap had a loss of $5.7 million.
Note
10 –
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 provide benefits on a final average pay formula and for
U.S.
collectively bargained employees on a flat benefit formula. Non-U.S. plans
provide benefits based on earnings and years of service. The Company maintains
additional other supplemental benefit plans for officers and other key
employees.
The
components of the Company’s pension related costs for the three and six months
ended June 30 are as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Service
cost
|
|
$
|
13.3
|
|
$
|
14.3
|
|
$
|
24.7
|
|
$
|
29.2
|
|
Interest
cost
|
|
|
42.8
|
|
|
41.1
|
|
|
81.3
|
|
|
82.6
|
|
Expected
return on plan assets
|
|
|
(53.8
|
)
|
|
(57.7
|
)
|
|
(102.9
|
)
|
|
(115.9
|
)
|
Net
amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
service costs
|
|
|
2.1
|
|
|
2.3
|
|
|
4.2
|
|
|
4.7
|
|
Transition
amount
|
|
|
0.2
|
|
|
0.2
|
|
|
0.4
|
|
|
0.4
|
|
Plan
net actuarial losses
|
|
|
2.4
|
|
|
3.3
|
|
|
4.8
|
|
|
7.9
|
|
Net
periodic pension benefit cost
|
|
|
7.0
|
|
|
3.5
|
|
|
12.5
|
|
|
8.9
|
|
Net
curtailment and settlement (gains) losses
|
|
|
-
|
|
|
24.3
|
|
|
1.3
|
|
|
24.3
|
|
Net
periodic pension benefit cost after net curtailment and settlement
(gains)
losses
|
|
$
|
7.0
|
|
$
|
27.8
|
|
$
|
13.8
|
|
$
|
33.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recorded in continuing operations
|
|
$
|
10.6
|
|
$
|
6.7
|
|
$
|
21.1
|
|
$
|
15.0
|
|
Amounts
recorded in discontinued operations
|
|
|
(3.6
|
)
|
|
21.1
|
|
|
(7.3
|
)
|
|
18.2
|
|
Total
|
|
$
|
7.0
|
|
$
|
27.8
|
|
$
|
13.8
|
|
$
|
33.2
|
|
The
Company made employer contributions of $11.8 million and $13.0 million to its
pension plans during the six months ended June 30, 2008 and 2007,
respectively.
The
curtailment and settlement losses in 2008 are associated with lump sum
distributions under supplemental benefit plans for officers and other key
employees. The curtailment and settlement losses in 2007 are associated with
the
sale of the Road Development business unit on April 30, 2007. In addition,
certain of the Company’s pension plans, primarily in the U.S., were remeasured
as of the April 30, 2007 sale date and the discount rate used was increased
from
5.5% to 5.75%.
As
discussed in Note 3, the Company assumed obligations for pension benefits
associated with the acquisition of Trane. The Company is in the process of
measuring the pension plans as of the Acquisition Date. The preliminary estimate
of plan assets and projected benefit obligation is $719.0 million and $773.8
million, respectively.
Note
11 – Postretirement Benefits Other Than Pensions
The
Company sponsors several postretirement plans that cover certain eligible
employees. These plans provide for health-care benefits, and in some instances,
life insurance benefits. Postretirement health plans generally are contributory
and contributions are adjusted annually. Life insurance plans for retirees
are
primarily noncontributory. The Company funds the postretirement benefit costs
principally on a pay-as-you-go basis.
The
components of net periodic postretirement benefit cost for the three and six
months ended June 30 are as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Service
cost
|
|
$
|
2.0
|
|
$
|
3.0
|
|
$
|
3.0
|
|
$
|
6.2
|
|
Interest
cost
|
|
|
11.1
|
|
|
14.0
|
|
|
20.6
|
|
|
28.1
|
|
Net
amortization of prior service gains
|
|
|
(0.9
|
)
|
|
(1.0
|
)
|
|
(1.8
|
)
|
|
(2.1
|
)
|
Net
amortization of net actuarial losses
|
|
|
3.7
|
|
|
4.6
|
|
|
7.4
|
|
|
9.5
|
|
Net
periodic postretirement benefit cost
|
|
|
15.9
|
|
|
20.6
|
|
|
29.2
|
|
|
41.7
|
|
Net
curtailment and settlement (gains) losses
|
|
|
-
|
|
|
(23.4
|
)
|
|
-
|
|
|
(23.4
|
)
|
Net
periodic postretirement benefit (gains) costs after curtailment and
settlement gains
|
|
$
|
15.9
|
|
$
|
(2.8
|
)
|
$
|
29.2
|
|
$
|
18.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recorded in continuing operations
|
|
$
|
8.5
|
|
$
|
6.8
|
|
$
|
14.4
|
|
$
|
13.6
|
|
Amounts
recorded in discontinued operations
|
|
|
7.4
|
|
|
(9.6
|
)
|
|
14.8
|
|
|
4.7
|
|
Total
|
|
$
|
15.9
|
|
$
|
(2.8
|
)
|
$
|
29.2
|
|
$
|
18.3
|
|
The
curtailment and settlement gains in 2007 are associated with the sale of the
Road Development business unit on April 30, 2007. In addition, the Company’s
postretirement plan was remeasured as of the April 30, 2007 sale date and the
discount rate used was increased from 5.5% to 5.75%.
As
discussed in Note 3, the Company assumed unfunded obligations for postretirement
benefits other than pensions associated with the acquisition of Trane. The
Company is in the process of measuring the postretirement plans as of the
Acquisition Date. The preliminary estimate of the projected benefit obligation
is $267.1 million.
Note
12 – Stockholders Equity
At
June
30, 2008, the reconciliation of Class A common shares is as
follows:
In
millions
|
|
Total
|
|
December
31, 2007
|
|
|
272.6
|
|
Shares
issued under incentive plans
|
|
|
0.5
|
|
Merger
consideration (See Note 3)
|
|
|
45.4
|
|
June
30, 2008
|
|
|
318.5
|
|
The
components of comprehensive income for the three and six months ended June
30
are as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
earnings
|
|
$
|
256.1
|
|
$
|
964.1
|
|
$
|
437.7
|
|
$
|
1,181.6
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
9.4
|
|
|
32.2
|
|
|
240.5
|
|
|
67.8
|
|
Change
in fair value of derivatives qualifying as cash flow hedges, net
of
tax
|
|
|
(3.4
|
)
|
|
(5.8
|
)
|
|
3.7
|
|
|
(5.9
|
)
|
Unrealized
gain (loss) on marketable securities, net of tax
|
|
|
(0.8
|
)
|
|
0.8
|
|
|
(2.2
|
)
|
|
0.3
|
|
Pension
and other postretirement benefits liability adjustment, net of
tax
|
|
|
4.4
|
|
|
135.3
|
|
|
9.0
|
|
|
142.2
|
|
Comprehensive
income
|
|
$
|
265.7
|
|
$
|
1,126.6
|
|
$
|
688.7
|
|
$
|
1,386.0
|
|
Included
in accumulated other comprehensive income is the estimated value of the
Company’s currency and commodity hedges. At June 30, 2008 and 2007, the currency
hedges had a projected loss of $0.1 million and $4.1 million, net of tax,
respectively. At June 30, 2008 and 2007, the commodity hedges had a projected
gain of $0.6 million and a projected loss of $0.6 million, net of tax,
respectively. Also included in accumulated other comprehensive income are
projected losses of $8.1 million related to interest rate locks, all of which
qualified as cash flow hedges. The amounts expected to be reclassified to
earnings over the next twelve months for the currency hedges, commodity hedges
and interest rate locks is $0.1 million, $0.6 million and $1.0 million,
respectively. The actual amounts that will be reclassified to earnings may
vary
from this amount as a result of changes in market conditions. The projected
fair
value of all currency derivatives at June 30, 2008 and 2007 was a loss of $6.5
million and a gain of $2.5 million, respectively.
During
the first quarter of 2008, the Company determined that four of its forecasted
cash flow hedges were ineffective, as the underlying forecasted transactions
were no longer considered probable of occurring. The Company dedesignated these
hedges and recorded a gain of $0.3 million within Other, net.
As
a
result of the Trane acquisition described in Note 3, the Company assumed a
cross
currency swap to fix the foreign currency cash flows on its £60.0 million 8.25%
senior notes due June 1, 2009, into the functional currency of the Company.
At
the inception of the cross currency swap, the swap qualified as a cash flow
hedging instrument under the guidelines of SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities.” As such the fair value of the
cross currency swap has been deferred in OCI until the time the cash flows
effect earnings. At June 30, 2008, the cross currency swap had a loss of $5.7
million.
Note
13 – Restructuring Activities
Restructuring
charges recorded during the three months ended June 30, 2008 were as
follows:
In
millions
|
|
Air
Conditioning
Systems
and Services
|
|
Climate
Control
Technologies
|
|
Industrial
Technologies
|
|
Security
Technologies
|
|
Corporate
and Other
|
|
Total
|
|
Cost
of goods sold
|
|
$
|
-
|
|
$
|
(0.9
|
)
|
$
|
0.5
|
|
$
|
2.0
|
|
$
|
-
|
|
$
|
1.6
|
|
Selling
and administrative
|
|
|
2.0
|
|
|
-
|
|
|
1.1
|
|
|
(0.2
|
)
|
|
2.0
|
|
|
4.9
|
|
Total
|
|
$
|
2.0
|
|
$
|
(0.9
|
)
|
$
|
1.6
|
|
$
|
1.8
|
|
$
|
2.0
|
|
$
|
6.5
|
|
Restructuring
charges recorded during the six months ended June 30, 2008 were as
follows:
In
millions
|
|
Air
Conditioning
Systems
and Services
|
|
Climate
Control
Technologies
|
|
Industrial
Technologies
|
|
Security
Technologies
|
|
Corporate
and Other
|
|
Total
|
|
Cost
of goods sold
|
|
$
|
-
|
|
$
|
(0.4
|
)
|
$
|
2.6
|
|
$
|
2.0
|
|
$
|
-
|
|
$
|
4.2
|
|
Selling
and administrative
|
|
|
2.0
|
|
|
0.5
|
|
|
1.8
|
|
|
(0.2
|
)
|
|
2.0
|
|
|
6.1
|
|
Total
|
|
$
|
2.0
|
|
$
|
0.1
|
|
$
|
4.4
|
|
$
|
1.8
|
|
$
|
2.0
|
|
$
|
10.3
|
|
The
changes in the restructuring reserve were as follows:
In
millions
|
|
Air
Conditioning
Systems
and Services
|
|
Climate
Control
Technologies
|
|
Industrial
Technologies
|
|
Security
Technologies
|
|
Corporate
and Other
|
|
Total
|
|
December
31, 2007
|
|
$
|
-
|
|
$
|
20.8
|
|
$
|
0.7
|
|
$
|
4.0
|
|
$
|
-
|
|
$
|
25.5
|
|
Additions
|
|
|
2.0
|
|
|
0.1
|
|
|
4.4
|
|
|
1.8
|
|
|
2.0
|
|
|
10.3
|
|
Purchase
accounting
|
|
|
11.5
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11.5
|
|
Cash
and non-cash uses
|
|
|
-
|
|
|
(18.2
|
)
|
|
(4.6
|
)
|
|
(2.4
|
)
|
|
-
|
|
|
(25.2
|
)
|
Currency
translation
|
|
|
-
|
|
|
1.0
|
|
|
(0.1
|
)
|
|
0.2
|
|
|
-
|
|
|
1.1
|
|
June
30, 2008
|
|
$
|
13.5
|
|
$
|
3.7
|
|
$
|
0.4
|
|
$
|
3.6
|
|
$
|
2.0
|
|
$
|
23.2
|
|
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 include a rationalization
of
manufacturing facilities in the U.S., Europe and Asia that resulted in the
closure of a U.S. plant, two European plants and a Japanese plant. Industrial
Technologies consolidated a manufacturing process at a U.S. plant in addition
to
other administrative functions within the sector. Security Technologies
conducted a consolidation of administrative functions throughout the European
sales area. Corporate costs related to workforce reductions.
In
connection with the acquisition, at the Acquisition Date, the Company began
formulating a plan to exit or restructure certain activities. The Company
recorded purchase accounting liabilities of $11.5 million primarily related
to
employee severance and related costs in connection with the preliminary plan
as
well as approving the continuation of all existing restructuring and exit
plans.
As
of
June 30, 2008, the Company had $23.2 million accrued for the workforce
reductions and consolidation of manufacturing facilities, of which a majority
will be paid throughout the remainder of 2008.
Note
14 –
Share-Based Compensation
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 8.5 million remains available for future incentive awards.
The
plan replaces the Incentive Stock Plan of 1998, which expired in May
2007.
Stock
Options
The
average fair value of the options granted for the six months ended June 30,
2008
and June 30, 2007 were $11.60 and $11.06, respectively, using the Black-Scholes
option-pricing model. The following weighted average assumptions were
used:
|
|
2008
|
|
2007
|
|
Dividend
yield
|
|
|
1.58
|
%
|
|
1.75
|
%
|
Volatility
|
|
|
31.50
|
%
|
|
26.10
|
%
|
Risk-free
rate of return
|
|
|
2.95
|
%
|
|
4.71
|
%
|
Expected
life
|
|
|
5.4
years
|
|
|
4.7
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 the options outstanding under the plans for the six months ended June 30,
2008 were as follows:
|
|
Shares
|
|
Weighted-
|
|
Aggregate
|
|
Weighted-
|
|
|
|
subject
|
|
average
|
|
intrinsic
|
|
average
|
|
|
|
to option
|
|
exercise price
|
|
value (millions)
|
|
remaining life
|
|
December
31, 2007
|
|
|
16,424,891
|
|
$
|
34.25
|
|
|
|
|
|
|
|
Granted
|
|
|
4,992,599
|
|
|
40.60
|
|
|
|
|
|
|
|
Trane
options exchanged for Ingersoll Rand options
|
|
|
7,907,176
|
|
|
17.97
|
|
|
|
|
|
|
|
Exercised
|
|
|
(376,505
|
)
|
|
30.06
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(348,855
|
)
|
|
40.54
|
|
|
|
|
|
|
|
Outstanding
June 30, 2008
|
|
|
28,599,306
|
|
$
|
30.84
|
|
$
|
232.1
|
|
|
5.9
|
|
Exercisable
June 30, 2008
|
|
|
21,053,612
|
|
$
|
27.04
|
|
$
|
232.1
|
|
|
4.8
|
|
As
part
of the acquisition of Trane, 7.9 million Trane options were converted at the
option of the holders into options to acquire shares of IR Limited Class A
common shares based on the option exchange ratio set forth in the merger
agreement.
SARs
SARs
generally vest ratably over a three-year period from the date of grant and
expire at the end of ten years. All exercised SARs are settled with the
Company’s Class A common shares.
The
following table summarizes the information for currently outstanding SARs for
the six months ended June 30, 2008:
|
|
Shares
|
|
Weighted-
|
|
Aggregate
|
|
Weighted-
|
|
|
|
subject
|
|
average
|
|
intrinsic
|
|
average
|
|
|
|
to option
|
|
exercise price
|
|
value (millions)
|
|
remaining life
|
|
December
31, 2007
|
|
|
1,169,977
|
|
$
|
33.99
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
(38,636
|
)
|
|
27.77
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(41,986
|
)
|
|
37.41
|
|
|
|
|
|
|
|
Outstanding
June 30, 2008
|
|
|
1,089,355
|
|
$
|
34.08
|
|
$
|
4.7
|
|
|
4.9
|
|
Exercisable
June 30, 2008
|
|
|
999,132
|
|
$
|
33.60
|
|
$
|
4.7
|
|
|
4.8
|
|
Note:
The
Company did not grant SARS during the six months ended June 30, 2008 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.
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 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.
Compensation
Expense
Share-based
compensation expense is included in Selling and administrative expenses. The
following table summarizes the expenses recognized for the three and six months
ended June 30:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Stock
options
|
|
$
|
10.4
|
|
$
|
4.3
|
|
$
|
23.7
|
|
$
|
15.7
|
|
SARs
|
|
|
0.1
|
|
|
0.1
|
|
|
(0.2
|
)
|
|
0.5
|
|
Performance
shares
|
|
|
1.6
|
|
|
1.6
|
|
|
2.4
|
|
|
5.8
|
|
Deferred
compensation
|
|
|
(0.6
|
)
|
|
1.5
|
|
|
0.6
|
|
|
2.5
|
|
Other
|
|
|
0.3
|
|
|
-
|
|
|
0.6
|
|
|
0.2
|
|
Pre-tax
expense
|
|
|
11.8
|
|
|
7.5
|
|
|
27.1
|
|
|
24.7
|
|
Tax
benefit
|
|
|
(4.5
|
)
|
|
(2.9
|
)
|
|
(10.4
|
)
|
|
(9.4
|
)
|
After
tax expense
|
|
$
|
7.3
|
|
$
|
4.6
|
|
$
|
16.7
|
|
$
|
15.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recorded in continuing operations
|
|
$
|
7.3
|
|
$
|
3.8
|
|
$
|
16.7
|
|
$
|
12.9
|
|
Amounts
recorded in discontinued operations
|
|
|
-
|
|
|
0.8
|
|
|
-
|
|
|
2.4
|
|
Total
|
|
$
|
7.3
|
|
$
|
4.6
|
|
$
|
16.7
|
|
$
|
15.3
|
|
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
six months ended June 30, 2007, the Company recorded a gain of $16.8 million
associated with the Swaps. The gains and losses associated with the Swaps are
recorded within Selling and administrative expenses.
Note
15 – Other, Net
The
components of Other, net for the three and six months ended June 30 are as
follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Interest
income
|
|
$
|
31.5
|
|
$
|
7.0
|
|
$
|
77.1
|
|
$
|
9.9
|
|
Exchange
gain (loss)
|
|
|
(2.9
|
)
|
|
8.5
|
|
|
(4.5
|
)
|
|
8.7
|
|
Minority
interests
|
|
|
(6.5
|
)
|
|
(3.8
|
)
|
|
(10.4
|
)
|
|
(7.1
|
)
|
Earnings
from equity investments
|
|
|
1.2
|
|
|
-
|
|
|
1.2
|
|
|
-
|
|
Other
|
|
|
2.9
|
|
|
(3.1
|
)
|
|
2.1
|
|
|
(3.0
|
)
|
Other,
net
|
|
$
|
26.2
|
|
$
|
8.6
|
|
$
|
65.5
|
|
$
|
8.5
|
|
For
the
three and six months ended June 30, 2008, the year-over-year increase is
primarily associated with higher interest income amounts, a result of larger
average cash balances during the first half of 2008. The large balance is
attributable to the sale of the Road Development business unit and Compact
Equipment during 2007.
Note
16 – Income Taxes
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. Total
unrecognized tax benefits as of June 30, 2008 and December 31, 2007 were $565.9
million and $379.8 million, respectively. The increase is primarily related
to
the inclusion of unrecognized tax positions attributable to the Trane
business.
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 disputed 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
17 –
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:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Weighted-average
number of basic shares
|
|
|
287.4
|
|
|
299.9
|
|
|
280.6
|
|
|
303.1
|
|
Shares
issuable under incentive stock plans
|
|
|
3.7
|
|
|
4.4
|
|
|
3.1
|
|
|
3.9
|
|
Weighted-average
number of diluted shares
|
|
|
291.1
|
|
|
304.3
|
|
|
283.7
|
|
|
307.0
|
|
Anti-dilutive
shares
|
|
|
5.6
|
|
|
2.6
|
|
|
7.1
|
|
|
2.0
|
|
Note
18 –Business
Segment Information
The
Company classifies its business into four reportable segments based on industry
and market focus: Air Conditioning Systems and Services, Climate Control
Technologies, Industrial Technologies and Security Technologies.
As
discussed in Note 3, the Company acquired Trane at the close of business on
June
5, 2008. As a result, the Company expanded its reportable segments to include
the Air Conditioning Systems and Services segment. The results of Trane’s
operations are presented within this segment. The reported results for revenue
and operating income reflect activity since the Acquisition Date (June 6, 2008
through June 30, 2008).
As
a
result of the divestitures of Compact Equipment and the Road Development
business unit during 2007, the Company realigned its operating and reporting
segments to better reflect its market focus. Segment information for all periods
has been revised to exclude the results of the Bobcat, Utility Equipment,
Attachments and Road Development business units.
A
summary
of operations by reportable segment as of June 30 is as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
Conditioning Systems and Services
|
|
$
|
697.9
|
|
$
|
-
|
|
$
|
697.9
|
|
$
|
-
|
|
Climate
Control Technologies
|
|
|
911.9
|
|
|
846.0
|
|
|
1,710.3
|
|
|
1,574.9
|
|
Industrial
Technologies
|
|
|
806.1
|
|
|
749.9
|
|
|
1,549.5
|
|
|
1,417.6
|
|
Security
Technologies
|
|
|
664.9
|
|
|
628.7
|
|
|
1,286.4
|
|
|
1,208.3
|
|
Total
|
|
$
|
3,080.8
|
|
$
|
2,224.6
|
|
$
|
5,244.1
|
|
$
|
4,200.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air
Conditioning Systems and Services
|
|
$
|
66.1
|
|
$
|
-
|
|
$
|
66.1
|
|
$
|
-
|
|
Climate
Control Technologies
|
|
|
114.7
|
|
|
99.8
|
|
|
194.9
|
|
|
169.2
|
|
Industrial
Technologies
|
|
|
104.4
|
|
|
109.3
|
|
|
202.0
|
|
|
200.9
|
|
Security
Technologies
|
|
|
122.4
|
|
|
108.3
|
|
|
227.3
|
|
|
199.0
|
|
Unallocated
corporate expense
|
|
|
(46.0
|
)
|
|
(43.3
|
)
|
|
(81.7
|
)
|
|
(86.4
|
)
|
Total
|
|
$
|
361.6
|
|
$
|
274.1
|
|
$
|
608.6
|
|
$
|
482.7
|
|
Long-lived
assets by geographic area at June 30, 2008 and December 31, 2007 were as
follows:
In
millions
|
|
2008
|
|
2007
|
|
United
States
|
|
$
|
4,722.0
|
|
$
|
820.5
|
|
Non-U.S.
|
|
|
813.9
|
|
|
639.6
|
|
Total
|
|
$
|
5,535.9
|
|
$
|
1,460.1
|
|
Note
19 – 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.
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
the three and six month periods ended June 30, 2008, the Company spent $3.4
million and $6.3 million, respectively, for environmental remediation
expenditures at sites presently or formerly owned or leased by us. As of June
30, 2008 and December 31, 2007, the Company has recorded reserves for
environmental matters of $106.1 million and $101.8 million, respectively. 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 either Ingersoll Rand
Company (IR-New Jersey) and Trane and generally allege injury caused by exposure
to asbestos contained in certain current and historical products sold by IR-New
Jersey and Trane, primarily pumps, boilers and railroad brake shoes. Neither
IR-New Jersey nor Trane was a producer or manufacturer of asbestos, however,
some 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.
In
connection with our acquisition of Trane, the Company requested ARPC to assist
in calculating Trane’s asbestos-related valuations of current and future
liabilities. As required by SFAS No. 141, “Business Combinations,” the Company
is required to record the assumed asbestos obligations and associated
insurance-related assets at their fair value at the Acquisition Date. The
Company preliminarily estimates that the assumed asbestos obligation and
associated insurance-related assets at the Acquisition Date to be $494 million
and $249 million, respectively. These amounts were estimated based on certain
assumptions and factors consistent with those described above.
Trane
continues to be in litigation against certain carriers whose policies it
believes provide coverage for asbestos claims. The insurance carriers named
in
this suit are challenging Trane’s right to recovery. Trane filed the action in
April 1999 in the Superior Court of New Jersey, Middlesex County, against
various primary and lower layer excess insurance carriers, seeking coverage
for
environmental claims (the “NJ Litigation”). The NJ Litigation was later expanded
to also seek coverage for asbestos related liabilities from twenty-one primary
and lower layer excess carriers and underwriting syndicates. On
September 19, 2005, the court granted Trane’s motion to add 16 additional
insurers and 117 new insurance policies to the NJ Litigation. The court also
required the parties to submit all contested matters to mediation. Trane engaged
in its first mediation session with the NJ Litigation defendants on
January 18, 2006 and has engaged in active discussions since that time.
During the mediation, the parties agreed to extensions of discovery deadlines
and stays of discovery except for discovery necessary to facilitate the
mediation process. The continued stay of discovery was confirmed by agreement
at
the most recent status conference with the court and mediator, which took place
on November 26, 2007. With the addition of the parties and policies
referred to above, the NJ Litigation would resolve the coverage issues with
respect to approximately 94 percent of the recorded receivable.
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:
|
|
2005
|
|
2006
|
|
2007
|
|
Open
claims - January 1
|
|
|
105,811
|
|
|
102,968
|
|
|
101,709
|
|
New
claims filed
|
|
|
11,132
|
|
|
6,457
|
|
|
5,398
|
|
Claims
settled
|
|
|
(12,505
|
)
|
|
(6,558
|
)
|
|
(5,005
|
)
|
Claims
dismissed
|
|
|
(1,470
|
)
|
|
(1,158
|
)
|
|
(1,479
|
)
|
Open
claims - December 31
|
|
|
102,968
|
|
|
101,709
|
|
|
100,623
|
|
From
receipt of the first asbestos claim more than twenty years ago through
December 31, 2007, Trane has resolved 61,002 (by settlement or dismissal)
claims. Trane and its insurance carriers have paid settlements of approximately
$109.0 million, which represents an average payment per resolved claim of
$1,786. During 2007, 3,019 new claims were filed against Trane, 1,826 claims
were dismissed and 740 claims were settled. At December 31, 2007, there are
105,023 open claims pending against Trane. Because claims are frequently filed
and settled in large groups, the amount and timing of settlements, as well
as
the number of open claims, can fluctuate significantly from period to
period.
The
table
below provides additional information regarding asbestos-related claims filed
against Trane, reflecting updated information for the last three years.
|
|
2005
|
|
2006
|
|
2007
|
|
Open
claims - January 1
|
|
|
118,381
|
|
|
113,730
|
|
|
104,570
|
|
New
claims filed
|
|
|
10,972
|
|
|
4,440
|
|
|
3,019
|
|
Claims
settled
|
|
|
(954
|
)
|
|
(848
|
)
|
|
(740
|
)
|
Claims
dismissed
|
|
|
(14,544
|
)
|
|
(12,751
|
)
|
|
(1,826
|
)
|
Inactive
claims
|
|
|
(125
|
)
|
|
(1
|
)
|
|
-
|
|
Open
claims - December 31
|
|
|
113,730
|
|
|
104,570
|
|
|
105,023
|
|
At
June
30, 2008, 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.
At
June
30, 2008, the Company's liability for asbestos related matters and the asset
for
probable asbestos-related insurance recoveries totaled $1,220.0 million and
$477.9 million, respectively, compared to $754.9 million and $249.8 million
at
December 31, 2007.
The
(costs) income associated with the settlement and defense of asbestos related
claims after insurance recoveries were as follows:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 30,
|
|
June 30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Continuing
operations
|
|
$
|
0.6
|
|
$
|
-
|
|
$
|
0.6
|
|
$
|
-
|
|
Discontinued
operations
|
|
|
(4.5
|
)
|
|
(8.1
|
)
|
|
0.1
|
|
|
(20.0
|
)
|
Total
|
|
$
|
(3.9
|
)
|
$
|
(8.1
|
)
|
$
|
0.7
|
|
$
|
(20.0
|
)
|
The
Company records certain income and expenses associated with its asbestos
liabilities and corresponding insurance recoveries within discontinued
operations, as they relate to previously divested businesses, primarily
Ingersoll-Dresser Pump, which was sold in 2000. Income and expenses associated
with Trane’s asbestos liabilities and corresponding insurance recoveries are
recorded within continuing operations.
Other
The
following table represents the changes in the product warranty liability for
the
six months ended June 30:
In
millions
|
|
2008
|
|
2007
|
|
Balance
at beginning of period
|
|
$
|
146.9
|
|
$
|
137.1
|
|
Reductions
for payments
|
|
|
(57.6
|
)
|
|
(35.6
|
)
|
Accruals
for warranties issued during the current period
|
|
|
57.3
|
|
|
42.8
|
|
Changes
to accruals related to preexisting warranties
|
|
|
(1.0
|
)
|
|
(1.0
|
)
|
Acquisitions
|
|
|
483.3
|
|
|
0.1
|
|
Translation
|
|
|
3.6
|
|
|
1.5
|
|
Balance
at end of period
|
|
$
|
632.5
|
|
$
|
144.9
|
|
The
Company has other contingent liabilities for $5.8 million. These liabilities
primarily result from performance bonds, guarantees and stand-by letters of
credit associated with the prior sale of products by divested businesses.
Note
20 – Fair Value Measurement
Effective
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements,”
(SFAS 157). SFAS 157 establishes a framework for measuring fair value that
is
based on the inputs market participants use to determine the fair value of
an
asset or liability and establishes a fair value hierarchy to prioritize those
inputs. The fair value hierarchy outlined in SFAS 157 is comprised of three
levels that are described below:
|
·
|
Level
1 – Inputs based on quoted prices in active markets for identical
assets or liabilities.
|
|
·
|
Level
2 – Inputs other than Level 1 quoted prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not
active; or other inputs that are observable or can be corroborated
by
observable market data for substantially the full term of the asset
or
liability.
|
|
· |
Level
3 – Unobservable inputs based on little or no market activity and
that are significant to the fair value of the assets and
liabilities.
|
Effective
February 12, 2008, the Company adopted FSP SFAS 157-2, “Effective Date of FASB
Statement No. 157,” which defers the application date of the provisions of SFAS
157 for all nonfinancial assets and liabilities except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. Due to the deferral, the Company has delayed its implementation of the
SFAS 157 provisions on the fair value of goodwill, indefinite-lived intangible
assets and nonfinancial long-lived assets.
Assets
and liabilities measured at fair value on a recurring basis at June 30, 2008
are
as follows:
|
|
Fair value measurements
|
|
Total
|
|
In
millions
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
fair value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
787.3
|
|
$
|
-
|
|
$
|
-
|
|
$
|
787.3
|
|
Marketable
securities
|
|
|
10.3
|
|
|
-
|
|
|
-
|
|
|
10.3
|
|
Derivative
instruments
|
|
|
-
|
|
|
4.0
|
|
|
-
|
|
|
4.0
|
|
Securitization
|
|
|
-
|
|
|
-
|
|
|
182.6
|
|
|
182.6
|
|
Benefit
trust assets
|
|
|
-
|
|
|
155.2
|
|
|
-
|
|
|
155.2
|
|
Total
|
|
$
|
797.6
|
|
$
|
159.2
|
|
$
|
182.6
|
|
$
|
1,139.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
instruments
|
|
$
|
-
|
|
$
|
16.6
|
|
$
|
-
|
|
$
|
16.6
|
|
Benefit
liabilities
|
|
|
-
|
|
|
147.9
|
|
|
-
|
|
|
147.9
|
|
Total
|
|
$
|
-
|
|
$
|
164.5
|
|
$
|
-
|
|
$
|
164.5
|
|
SFAS
157
defines fair value as the exchange price that would be received to sell an
asset
or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The Company determines the fair
value of its financial assets and liabilities using the following
methodologies:
|
·
|
Cash
and cash equivalents –
These amounts include cash on hand, demand deposits and all highly
liquid
investments with original maturities at the time of purchase of three
months or less and are held in U.S and non-U.S.
currencies.
|
|
·
|
Marketable
securities –
These securities include investments in publically traded stock of
non-U.S. companies held by non-U.S. subsidiaries of the Company.
The fair
value is obtained for the securities based on observable market prices
quoted on public stock exchanges.
|
|
·
|
Derivatives
instruments –
These instruments include forward contracts related to non-U.S.
currencies, commodities and a cross-currency swap of foreign denominated
debt. The fair value of the derivative instruments are determined
based on
a pricing model that uses inputs from actively quoted currency and
commodity markets that are readily accessible and observable.
|
|
·
|
Benefit
trust assets –
These assets include money market funds and insurance contracts that
are
the underlying for the benefit assets. The fair value of the assets
is
based on observable market prices quoted in a readily accessible
and
observable market.
|
|
·
|
Securitization –
This asset is the interest that the Company retains in receivables
sold
into the banks conduit. The fair value of the asset is based on a
model
that requires unobservable inputs.
|
|
·
|
Benefit
liabilities –
These liabilities include benefits including deferred compensation
and
executive death benefits. The fair value is based on the underlying
investment portfolio of the deferred compensation and the specific
benefits guaranteed in a death benefit contract with each
executive.
|
Effective
January 1, 2008, the Company also adopted SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities - Including an amendment of
FASB
Statement No. 115,” (SFAS 159). SFAS 159 allows the Company the irrevocable
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. As of June 30, 2008, the
Company has not elected to utilize the fair value option on any of its financial
assets or liabilities.
Note
21 – Guarantor Financial Information
Ingersoll-Rand
Company Limited, a Bermuda company (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.
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.
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 June 30, 2008,
$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
Company has revised the guarantor financial statements for all periods presented
in order to reflect Ingersoll-Rand Global Holding Company Limited (IR Global
Holding) as a stand-alone subsidiary. IR Global Holding, a 100% owned subsidiary
of IR-Limited, is expected to issue public debt that will be guaranteed by
IR-Limited. As part of the process to revise the condensed financial statements,
the Company noted errors within the consolidation process of the subsidiaries.
Total consolidated results were not impacted by these revisions; however,
certain amounts reported within the IR-New Jersey and Other Subsidiary columns
have been corrected. The Company determined that these errors were immaterial
to
the Company’s financial statements. All periods have been revised in the current
presentation.
The
condensed consolidating financial statements present IR-Limited, IR Global
Holding 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 and included within Other 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.
The
following condensed consolidated financial information for IR-Limited, IR Global
Holding, IR-New Jersey, and all their other subsidiaries is included so that
separate financial statements of IR Global Holding and IR-New Jersey are not
required to be filed with the U.S. Securities and Exchange Commission.
For
the
three months ended June 30, 2008
|
|
IR
|
|
IR Global
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR Limited
|
|
In millions
|
|
Limited
|
|
Holding
|
|
New Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
227.6
|
|
$
|
2,853.2
|
|
$
|
-
|
|
$
|
3,080.8
|
|
Cost
of goods sold
|
|
|
-
|
|
|
-
|
|
|
(158.9
|
)
|
|
(2,037.2
|
)
|
|
-
|
|
|
(2,196.1
|
)
|
Selling
and administrative expenses
|
|
|
(11.9
|
)
|
|
(0.2
|
)
|
|
(81.9
|
)
|
|
(429.1
|
)
|
|
-
|
|
|
(523.1
|
)
|
Operating
(loss) income
|
|
|
(11.9
|
)
|
|
(0.2
|
)
|
|
(13.2
|
)
|
|
386.9
|
|
|
-
|
|
|
361.6
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
278.9
|
|
|
310.8
|
|
|
53.6
|
|
|
(6.8
|
)
|
|
(636.5
|
)
|
|
-
|
|
Interest
expense
|
|
|
(3.9
|
)
|
|
(10.7
|
)
|
|
(17.0
|
)
|
|
(14.0
|
)
|
|
-
|
|
|
(45.6
|
)
|
Intercompany
interest and fees
|
|
|
(22.6
|
)
|
|
(44.6
|
)
|
|
(67.6
|
)
|
|
134.8
|
|
|
-
|
|
|
-
|
|
Other,
net
|
|
|
15.6
|
|
|
8.5
|
|
|
1.0
|
|
|
1.1
|
|
|
-
|
|
|
26.2
|
|
Earnings
(loss) before income taxes
|
|
|
256.1
|
|
|
263.8
|
|
|
(43.2
|
)
|
|
502.0
|
|
|
(636.5
|
)
|
|
342.2
|
|
Benefit
(provision) for income taxes
|
|
|
-
|
|
|
-
|
|
|
43.4
|
|
|
(123.1
|
)
|
|
-
|
|
|
(79.7
|
)
|
Earnings
(loss) from continuing operations
|
|
|
256.1
|
|
|
263.8
|
|
|
0.2
|
|
|
378.9
|
|
|
(636.5
|
)
|
|
262.5
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
-
|
|
|
(7.0
|
)
|
|
0.6
|
|
|
-
|
|
|
(6.4
|
)
|
Net
earnings (loss)
|
|
$
|
256.1
|
|
$
|
263.8
|
|
$
|
(6.8
|
)
|
$
|
379.5
|
|
$
|
(636.5
|
)
|
$
|
256.1
|
|
Condensed
Consolidating Income Statement
For
the
six months ended June 30, 2008
|
|
IR
|
|
IR Global
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR Limited
|
|
In millions
|
|
Limited
|
|
Holding
|
|
New Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
449.5
|
|
$
|
4,794.6
|
|
$
|
-
|
|
$
|
5,244.1
|
|
Cost
of goods sold
|
|
|
-
|
|
|
-
|
|
|
(324.1
|
)
|
|
(3,413.0
|
)
|
|
-
|
|
|
(3,737.1
|
)
|
Selling
and administrative expenses
|
|
|
(26.4
|
)
|
|
(0.2
|
)
|
|
(156.6
|
)
|
|
(715.2
|
)
|
|
-
|
|
|
(898.4
|
)
|
Operating
(loss) income
|
|
|
(26.4
|
)
|
|
(0.2
|
)
|
|
(31.2
|
)
|
|
666.4
|
|
|
-
|
|
|
608.6
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
485.2
|
|
|
527.1
|
|
|
103.2
|
|
|
(41.2
|
)
|
|
(1,074.3
|
)
|
|
-
|
|
Interest
expense
|
|
|
(7.8
|
)
|
|
(10.7
|
)
|
|
(33.7
|
)
|
|
(20.9
|
)
|
|
-
|
|
|
(73.1
|
)
|
Intercompany
interest and fees
|
|
|
(44.6
|
)
|
|
(105.6
|
)
|
|
(128.7
|
)
|
|
278.9
|
|
|
-
|
|
|
-
|
|
Other,
net
|
|
|
31.3
|
|
|
26.7
|
|
|
7.5
|
|
|
-
|
|
|
-
|
|
|
65.5
|
|
Earnings
(loss) before income taxes
|
|
|
437.7
|
|
|
437.3
|
|
|
(82.9
|
)
|
|
883.2
|
|
|
(1,074.3
|
)
|
|
601.0
|
|
Benefit
(provision) for income taxes
|
|
|
-
|
|
|
-
|
|
|
63.8
|
|
|
(190.6
|
)
|
|
-
|
|
|
(126.8
|
)
|
Earnings
(loss) from continuing operations
|
|
|
437.7
|
|
|
437.3
|
|
|
(19.1
|
)
|
|
692.6
|
|
|
(1,074.3
|
)
|
|
474.2
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
-
|
|
|
(22.1
|
)
|
|
(14.4
|
)
|
|
-
|
|
|
(36.5
|
)
|
Net
earnings (loss)
|
|
$
|
437.7
|
|
$
|
437.3
|
|
$
|
(41.2
|
)
|
$
|
678.2
|
|
$
|
(1,074.3
|
)
|
$
|
437.7
|
|
Condensed
Consolidating Income Statement
For
the
three months ended June 30, 2007
|
|
IR
|
|
IR Global
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR Limited
|
|
In millions
|
|
Limited
|
|
Holding
|
|
New Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
231.9
|
|
$
|
1,992.7
|
|
$
|
-
|
|
$
|
2,224.6
|
|
Cost
of goods sold
|
|
|
-
|
|
|
-
|
|
|
(158.7
|
)
|
|
(1,431.0
|
)
|
|
-
|
|
|
(1,589.7
|
)
|
Selling
and administrative expenses
|
|
|
(4.5
|
)
|
|
(0.5
|
)
|
|
(77.3
|
)
|
|
(278.5
|
)
|
|
-
|
|
|
(360.8
|
)
|
Operating
(loss) income
|
|
|
(4.5
|
)
|
|
(0.5
|
)
|
|
(4.1
|
)
|
|
283.2
|
|
|
-
|
|
|
274.1
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
977.8
|
|
|
578.9
|
|
|
154.9
|
|
|
306.6
|
|
|
(2,018.2
|
)
|
|
-
|
|
Interest
expense
|
|
|
(6.6
|
)
|
|
-
|
|
|
(17.8
|
)
|
|
(6.4
|
)
|
|
-
|
|
|
(30.8
|
)
|
Intercompany
interest and fees
|
|
|
(15.2
|
)
|
|
(32.9
|
)
|
|
(117.5
|
)
|
|
165.6
|
|
|
-
|
|
|
-
|
|
Other,
net
|
|
|
12.6
|
|
|
(0.8
|
)
|
|
23.5
|
|
|
(26.7
|
)
|
|
-
|
|
|
8.6
|
|
Earnings
(loss) before income taxes
|
|
|
964.1
|
|
|
544.7
|
|
|
39.0
|
|
|
722.3
|
|
|
(2,018.2
|
)
|
|
251.9
|
|
Benefit
(provision) for income taxes
|
|
|
-
|
|
|
-
|
|
|
43.9
|
|
|
(87.8
|
)
|
|
-
|
|
|
(43.9
|
)
|
Earnings
(loss) from continuing operations
|
|
|
964.1
|
|
|
544.7
|
|
|
82.9
|
|
|
634.5
|
|
|
(2,018.2
|
)
|
|
208.0
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
-
|
|
|
223.7
|
|
|
532.4
|
|
|
-
|
|
|
756.1
|
|
Net
earnings (loss)
|
|
$
|
964.1
|
|
$
|
544.7
|
|
$
|
306.6
|
|
$
|
1,166.9
|
|
$
|
(2,018.2
|
)
|
$
|
964.1
|
|
Condensed
Consolidating Income Statement
For
the
six months ended June 30, 2007
|
|
IR
|
|
IR Global
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR Limited
|
|
In millions
|
|
Limited
|
|
Holding
|
|
New Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
450.6
|
|
$
|
3,750.2
|
|
$
|
-
|
|
$
|
4,200.8
|
|
Cost
of goods sold
|
|
|
-
|
|
|
-
|
|
|
(313.2
|
)
|
|
(2,692.4
|
)
|
|
-
|
|
|
(3,005.6
|
)
|
Selling
and administrative expenses
|
|
|
(16.0
|
)
|
|
(0.8
|
)
|
|
(160.7
|
)
|
|
(535.0
|
)
|
|
-
|
|
|
(712.5
|
)
|
Operating
(loss) income
|
|
|
(16.0
|
)
|
|
(0.8
|
)
|
|
(23.3
|
)
|
|
522.8
|
|
|
-
|
|
|
482.7
|
|
Equity
earnings in affiliates (net of tax)
|
|
|
1,212.5
|
|
|
809.1
|
|
|
244.4
|
|
|
283.4
|
|
|
(2,549.4
|
)
|
|
-
|
|
Interest
expense
|
|
|
(17.6
|
)
|
|
-
|
|
|
(35.0
|
)
|
|
(13.9
|
)
|
|
-
|
|
|
(66.5
|
)
|
Intercompany
interest and fees
|
|
|
(25.4
|
)
|
|
(56.0
|
)
|
|
(236.1
|
)
|
|
317.5
|
|
|
-
|
|
|
-
|
|
Other,
net
|
|
|
28.1
|
|
|
(1.2
|
)
|
|
23.1
|
|
|
(41.5
|
)
|
|
-
|
|
|
8.5
|
|
Earnings
(loss) before income taxes
|
|
|
1,181.6
|
|
|
751.1
|
|
|
(26.9
|
)
|
|
1,068.3
|
|
|
(2,549.4
|
)
|
|
424.7
|
|
Benefit
(provision) for income taxes
|
|
|
-
|
|
|
-
|
|
|
90.2
|
|
|
(150.3
|
)
|
|
-
|
|
|
(60.1
|
)
|
Earnings
(loss) from continuing operations
|
|
|
1,181.6
|
|
|
751.1
|
|
|
63.3
|
|
|
918.0
|
|
|
(2,549.4
|
)
|
|
364.6
|
|
Discontinued
operations, net of tax
|
|
|
-
|
|
|
-
|
|
|
220.1
|
|
|
596.9
|
|
|
-
|
|
|
817.0
|
|
Net
earnings (loss)
|
|
$
|
1,181.6
|
|
$
|
751.1
|
|
$
|
283.4
|
|
$
|
1,514.9
|
|
$
|
(2,549.4
|
)
|
$
|
1,181.6
|
|
Condensed
Consolidating Balance Sheet
June
30,
2008
|
|
IR
|
|
IR Global
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR Limited
|
|
In millions
|
|
Limited
|
|
Holding
|
|
New Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
0.1
|
|
$
|
0.5
|
|
$
|
150.9
|
|
$
|
635.8
|
|
$
|
-
|
|
$
|
787.3
|
|
Accounts
and notes receivable, net
|
|
|
0.1
|
|
|
-
|
|
|
299.9
|
|
|
2,772.0
|
|
|
-
|
|
|
3,072.0
|
|
Inventories,
net
|
|
|
-
|
|
|
-
|
|
|
73.6
|
|
|
1,726.9
|
|
|
-
|
|
|
1,800.5
|
|
Other
current assets
|
|
|
-
|
|
|
(4.3
|
)
|
|
119.4
|
|
|
800.1
|
|
|
-
|
|
|
915.2
|
|
Accounts
and notes receivable affiliates
|
|
|
490.3
|
|
|
1,019.2
|
|
|
4,127.5
|
|
|
37,216.4
|
|
|
(42,853.4
|
)
|
|
-
|
|
Total
current assets
|
|
|
490.5
|
|
|
1,015.4
|
|
|
4,771.3
|
|
|
43,151.2
|
|
|
(42,853.4
|
)
|
|
6,575.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in affiliates
|
|
|
12,712.4
|
|
|
14,409.1
|
|
|
9,601.8
|
|
|
68,023.4
|
|
|
(104,746.7
|
)
|
|
-
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
-
|
|
|
161.5
|
|
|
1,966.8
|
|
|
-
|
|
|
2,128.3
|
|
Intangible
assets, net
|
|
|
-
|
|
|
-
|
|
|
72.5
|
|
|
15,325.8
|
|
|
-
|
|
|
15,398.3
|
|
Other
noncurrent assets
|
|
|
1.4
|
|
|
10.7
|
|
|
621.9
|
|
|
1,148.1
|
|
|
-
|
|
|
1,782.1
|
|
Total
assets
|
|
$
|
13,204.3
|
|
$
|
15,435.2
|
|
$
|
15,229.0
|
|
$
|
129,615.3
|
|
$
|
(147,600.1
|
)
|
$
|
25,883.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accruals
|
|
$
|
7.3
|
|
$
|
2.3
|
|
$
|
411.8
|
|
$
|
3,029.7
|
|
$
|
-
|
|
$
|
3,451.1
|
|
Short
term borrowings and current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
maturities
of long-term debt
|
|
|
-
|
|
|
3,876.8
|
|
|
547.4
|
|
|
344.6
|
|
|
-
|
|
|
4,768.8
|
|
Accounts
and note payable affiliates
|
|
|
380.9
|
|
|
3,855.3
|
|
|
6,123.4
|
|
|
32,493.8
|
|
|
(42,853.4
|
)
|
|
-
|
|
Total
current liabilities
|
|
|
388.2
|
|
|
7,734.4
|
|
|
7,082.6
|
|
|
35,868.1
|
|
|
(42,853.4
|
)
|
|
8,219.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
299.2
|
|
|
-
|
|
|
403.2
|
|
|
487.5
|
|
|
-
|
|
|
1,189.9
|
|
Note
payable affiliate
|
|
|
1,550.0
|
|
|
-
|
|
|
2,097.4
|
|
|
-
|
|
|
(3,647.4
|
)
|
|
-
|
|
Other
noncurrent liabilities
|
|
|
174.4
|
|
|
0.4
|
|
|
1,895.0
|
|
|
3,611.6
|
|
|
-
|
|
|
5,681.4
|
|
Total
liabilities
|
|
|
2,411.8
|
|
|
7,734.8
|
|
|
11,478.2
|
|
|
39,967.2
|
|
|
(46,500.8
|
)
|
|
15,091.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A common shares
|
|
|
370.5
|
|
|
(52.0
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
318.5
|
|
Class
B common shares
|
|
|
270.6
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(270.6
|
)
|
|
-
|
|
Common
shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,362.8
|
|
|
(2,362.8
|
)
|
|
-
|
|
Other
shareholders' equity
|
|
|
13,546.6
|
|
|
7,556.2
|
|
|
4,526.5
|
|
|
90,487.0
|
|
|
(106,139.8
|
)
|
|
9,976.5
|
|
Accumulated
other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
(loss)
|
|
|
819.9
|
|
|
71.0
|
|
|
(368.7
|
)
|
|
731.4
|
|
|
(756.1
|
)
|
|
497.5
|
|
|
|
|
15,007.6
|
|
|
7,575.2
|
|
|
4,157.8
|
|
|
93,581.2
|
|
|
(109,529.3
|
)
|
|
10,792.5
|
|
Less:
Contra account
|
|
|
(4,215.1
|
)
|
|
125.2
|
|
|
(407.0
|
)
|
|
(3,933.1
|
)
|
|
8,430.0
|
|
|
-
|
|
Total
shareholders' equity
|
|
|
10,792.5
|
|
|
7,700.4
|
|
|
3,750.8
|
|
|
89,648.1
|
|
|
(101,099.3
|
)
|
|
10,792.5
|
|
Total
liabilities and equity
|
|
$
|
13,204.3
|
|
$
|
15,435.2
|
|
$
|
15,229.0
|
|
$
|
129,615.3
|
|
$
|
(147,600.1
|
)
|
$
|
25,883.7
|
|
Condensed
Consolidating Balance Sheet
December
31, 2007
|
|
IR
|
|
IR Global
|
|
IR
|
|
Other
|
|
Consolidating
|
|
IR Limited
|
|
In millions
|
|
Limited
|
|
Holding
|
|
New Jersey
|
|
Subsidiaries
|
|
Adjustments
|
|
Consolidated
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
0.6
|
|
$
|
1,979.1
|
|
$
|
545.4
|
|
$
|
2,210.2
|
|
$
|
-
|
|
$
|
4,735.3
|
|
Accounts
and notes receivable, net
|
|
|
0.4
|
|
|
-
|
|
|
263.8
|
|
|
1,396.5
|
|
|
-
|
|
|
1,660.7
|
|
Inventories
|
|
|
-
|
|
|
-
|
|
|
76.4
|
|
|
750.8
|
|
|
-
|
|
|
827.2
|
|
Other
current assets
|
|
|
-
|
|
|
0.2
|
|
|
136.7
|
|
|
340.6
|
|
|
-
|
|
|
477.5
|
|
Accounts
and notes receivable affiliates
|
|
|
252.6
|
|
|
916.2
|
|
|
5,150.6
|
|
|
27,478.5
|
|
|
(33,797.9
|
)
|
|
-
|
|
Total
current assets
|
|
|
253.6
|
|
|
2,895.5
|
|
|
6,172.9
|
|
|
32,176.6
|
|
|
(33,797.9
|
)
|
|
7,700.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in affiliates
|
|
|
9,794.6
|
|
|
8,050.3
|
|
|
9,487.9
|
|
|
35,264.8
|
|
|
(62,597.6
|
)
|
|
-
|
|
Property,
plant and equipment, net
|
|
|
-
|
|
|
-
|
|
|
151.1
|
|
|
753.8
|
|
|
-
|
|
|
904.9
|
|
Intangible
assets, net
|
|
|
-
|
|
|
-
|
|
|
72.5
|
|
|
4,645.4
|
|
|
-
|
|
|
4,717.9
|
|
Other
noncurrent assets
|
|
|
1.5
|
|
|
-
|
|
|
704.5
|
|
|
346.7
|
|
|
-
|
|
|
1,052.7
|
|
Total
assets
|
|
$
|
10,049.7
|
|
$
|
10,945.8
|
|
$
|
16,588.9
|
|
$
|
73,187.3
|
|
$
|
(96,395.5
|
)
|
$
|
14,376.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accruals
|
|
$
|
6.9
|
|
$
|
4.6
|
|
$
|
527.1
|
|
$
|
1,956.1
|
|
$
|
-
|
|
$
|
2,494.7
|
|
Short
term borrowings and current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
maturities
of long-term debt
|
|
|
-
|
|
|
-
|
|
|
555.4
|
|
|
185.6
|
|
|
-
|
|
|
741.0
|
|
Accounts
and note payable affiliates
|
|
|
89.1
|
|
|
5,779.7
|
|
|
7,001.7
|
|
|
20,927.4
|
|
|
(33,797.9
|
)
|
|
-
|
|
Total
current liabilities
|
|
|
96.0
|
|
|
5,784.3
|
|
|
8,084.2
|
|
|
23,069.1
|
|
|
(33,797.9
|
)
|
|
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
|
|
|
0.4
|
|
|
1,917.0
|
|
|
405.8
|
|
|
-
|
|
|
2,519.9
|
|
Total
liabilities
|
|
|
2,141.8
|
|
|
5,784.7
|
|
|
12,501.8
|
|
|
23,485.3
|
|
|
(37,445.3
|
)
|
|
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
|
|
|
5,115.6
|
|
|
4,900.3
|
|
|
50,833.6
|
|
|
(64,507.0
|
)
|
|
7,388.8
|
|
Accumulated
other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
(loss)
|
|
|
568.5
|
|
|
52.8
|
|
|
(398.0
|
)
|
|
527.8
|
|
|
(504.6
|
)
|
|
246.5
|
|
|
|
|
12,255.4
|
|
|
5,071.0
|
|
|
4,502.3
|
|
|
53,724.2
|
|
|
(67,645.0
|
)
|
|
7,907.9
|
|
Less:
Contra account
|
|
|
(4,347.5
|
)
|
|
90.1
|
|
|
(415.2
|
)
|
|
(4,022.2
|
)
|
|
8,694.8
|
|
|
-
|
|
Total
shareholders' equity
|
|
|
7,907.9
|
|
|
5,161.1
|
|
|
4,087.1
|
|
|
49,702.0
|
|
|
(58,950.2
|
)
|
|
7,907.9
|
|
Total
liabilities and equity
|
|
$
|
10,049.7
|
|
$
|
10,945.8
|
|
$
|
16,588.9
|
|
$
|
73,187.3
|
|
$
|
(96,395.5
|
)
|
$
|
14,376.2
|
|
For
the
six months ended June 30, 2008
|
|
IR
|
|
IR
Global
|
|
IR
|
|
Other
|
|
IR
Limited
|
|
In millions
|
|
Limited
|
|
Holding
|
|
New
Jersey
|
|
Subsidiaries
|
|
Consolidated
|
|
Net
cash provided by (used in) continuing operating activities
|
|
$
|
(2.9
|
)
|
$
|
15.8
|
|
$
|
(257.3
|
)
|
$
|
(260.9
|
)
|
$
|
(505.3
|
)
|
Net
cash provided by (used in) discontinued operating
activities
|
|
|
-
|
|
|
-
|
|
|
(0.7
|
)
|
|
(19.3
|
)
|
|
(20.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
-
|
|
|
-
|
|
|
(19.4
|
)
|
|
(85.3
|
)
|
|
(104.7
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
-
|
|
|
-
|
|
|
0.7
|
|
|
22.3
|
|
|
23.0
|
|
Acquisitions,
net of cash
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,085.5
|
)
|
|
(7,085.5
|
)
|
Proceeds
from business disposition, net of cash
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9.7
|
|
|
9.7
|
|
Other,
net
|
|
|
-
|
|
|
-
|
|
|
5.4
|
|
|
(24.5
|
)
|
|
(19.1
|
)
|
Net
cash provided by (used in) continuing investing activities
|
|
|
-
|
|
|
-
|
|
|
(13.3
|
)
|
|
(7,163.3
|
)
|
|
(7,176.6
|
)
|
Net
cash provided by (used in) discontinued investing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in debt
|
|
|
-
|
|
|
3,876.8
|
|
|
(8.0
|
)
|
|
(102.3
|
)
|
|
3,766.5
|
|
Debt
issue costs
|
|
|
-
|
|
|
(11.4
|
)
|
|
-
|
|
|
-
|
|
|
(11.4
|
)
|
Net
inter-company proceeds (payments)
|
|
|
221.4
|
|
|
(5,892.9
|
)
|
|
(142.0
|
)
|
|
5,813.5
|
|
|
-
|
|
Dividends
(paid) received
|
|
|
(230.6
|
)
|
|
35.1
|
|
|
8.2
|
|
|
89.1
|
|
|
(98.2
|
)
|
Proceeds
from the exercise of stock options
|
|
|
11.6
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11.6
|
|
Repurchase
of common shares by subsidiary
|
|
|
-
|
|
|
(2.0
|
)
|
|
-
|
|
|
-
|
|
|
(2.0
|
)
|
Other,
net
|
|
|
-
|
|
|
-
|
|
|
18.5
|
|
|
-
|
|
|
18.5
|
|
Net
cash provided by (used in) continuing financing activities
|
|
|
2.4
|
|
|
(1,994.4
|
)
|
|
(123.3
|
)
|
|
5,800.3
|
|
|
3,685.0
|
|
Net
cash provided by (used in) discontinued financing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
68.9
|
|
|
68.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(0.5
|
)
|
|
(1,978.6
|
)
|
|
(394.6
|
)
|
|
(1,574.3
|
)
|
|
(3,948.0
|
)
|
Cash
and cash equivalents - beginning of period
|
|
|
0.6
|
|
|
1,979.1
|
|
|
545.5
|
|
|
2,210.1
|
|
|
4,735.3
|
|
Cash
and cash equivalents - end of period
|
|
$
|
0.1
|
|
$
|
0.5
|
|
$
|
150.9
|
|
$
|
635.8
|
|
$
|
787.3
|
|
Condensed
Consolidating Statement of Cash Flows
For
the
six months ended June 30, 2007
|
|
IR
|
|
IR
Global
|
|
IR
|
|
Other
|
|
IR
Limited
|
|
In millions
|
|
Limited
|
|
Holding
|
|
New
Jersey
|
|
Subsidiaries
|
|
Consolidated
|
|
Net
cash provided by (used in) continuing operating activities
|
|
$
|
(5.5
|
)
|
$
|
(2.0
|
)
|
$
|
(466.8
|
)
|
$
|
677.8
|
|
$
|
203.5
|
|
Net
cash provided by (used in) discontinued operating
activities
|
|
|
-
|
|
|
-
|
|
|
(3.1
|
)
|
|
11.1
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
-
|
|
|
-
|
|
|
(12.2
|
)
|
|
(45.7
|
)
|
|
(57.9
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
-
|
|
|
-
|
|
|
3.1
|
|
|
5.9
|
|
|
9.0
|
|
Acquisitions,
net of cash
|
|
|
-
|
|
|
-
|
|
|
(0.6
|
)
|
|
(3.1
|
)
|
|
(3.7
|
)
|
Proceeds
from business disposition, net of cash
|
|
|
-
|
|
|
-
|
|
|
630.1
|
|
|
661.6
|
|
|
1,291.7
|
|
Other,
net
|
|
|
-
|
|
|
-
|
|
|
3.5
|
|
|
-
|
|
|
3.5
|
|
Net
cash provided by (used in) continuing investing activities
|
|
|
-
|
|
|
-
|
|
|
623.9
|
|
|
618.7
|
|
|
1,242.6
|
|
Net
cash provided by (used in) discontinued investing
activities
|
|
|
-
|
|
|
-
|
|
|
(0.2
|
)
|
|
(39.6
|
)
|
|
(39.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in debt
|
|
|
(378.0
|
)
|
|
-
|
|
|
(8.3
|
)
|
|
(8.2
|
)
|
|
(394.5
|
)
|
Net
inter-company proceeds (payments)
|
|
|
495.4
|
|
|
826.6
|
|
|
(61.6
|
)
|
|
(1,260.4
|
)
|
|
-
|
|
Dividends
(paid) received
|
|
|
(229.1
|
)
|
|
22.1
|
|
|
8.2
|
|
|
89.2
|
|
|
(109.6
|
)
|
Proceeds
from the exercise of stock options
|
|
|
121.4
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
121.4
|
|
Repurchase
of common shares by subsidiary
|
|
|
-
|
|
|
(846.5
|
)
|
|
-
|
|
|
-
|
|
|
(846.5
|
)
|
Net
cash provided by (used in) continuing financing activities
|
|
|
9.7
|
|
|
2.2
|
|
|
(61.7
|
)
|
|
(1,179.4
|
)
|
|
(1,229.2
|
)
|
Net
cash provided by (used in) discontinued financing
activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9.1
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
4.2
|
|
|
0.2
|
|
|
92.1
|
|
|
97.7
|
|
|
194.2
|
|
Cash
and cash equivalents - beginning of period
|
|
|
1.7
|
|
|
-
|
|
|
81.6
|
|
|
272.5
|
|
|
355.8
|
|
Cash
and cash equivalents - end of period
|
|
$
|
5.9
|
|
$
|
0.2
|
|
$
|
173.7
|
|
$
|
370.2
|
|
$
|
550.0
|
|
Item
2 – Management’s Discussion and Analysis of Financial Condition and Results
of Operations
INGERSOLL-RAND
COMPANY LIMITED
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 Part II,
Item
1A - Risk Factors in this Quarterly Report on Form 10-Q and under Part I, Item
1A - Risk Factors in the Annual Report on Form 10-K for the fiscal year ended
December 31, 2007. 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 Quarterly Report.
Overview
Organizational
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. We operate
in four business segments: Air Conditioning Systems and Services, 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®, Thermo King® and Trane®.
We
are
dedicated to inspiring progress for our Customers, Shareholders, Employees
and
Communities by achieving:
|
·
|
Dramatic
Growth, by focusing on innovative solutions for our
customers
|
|
·
|
Operational
Excellence, by pursuing continuous improvement in all of our
operations
|
|
·
|
Dual
Citizenship, by bringing together the talents of all Ingersoll Rand
people
to leverage the capabilities of our global
enterprise
|
To
achieve these goals and to become a more diversified company with strong growth
prospects, we have transformed our enterprise portfolio by divesting cyclical,
low-growth and asset-intensive businesses, in addition to strategic acquisitions
that enhance and broaden our value proposition to our customers. 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
Developments
Acquisitions
At
the
close of business on June 5, 2008 (the Acquisition Date), we completed our
previously announced acquisition of 100% of the outstanding common shares of
Trane Inc. (Trane). Trane, previously named American Standard Companies Inc.,
provides systems and services that enhance the quality and comfort of the air
in
homes and buildings around the world. Trane’s systems and services have leading
positions in premium commercial, residential, institutional and industrial
markets, a reputation for reliability, high quality and product innovation
and a
powerful distribution network. Trane’s 2007 annual revenues were $7.5
billion.
We
paid a
combination of (i) 0.23 of an IR Limited Class A common share and (ii)
$36.50 in cash, without interest, for each outstanding share of Trane common
stock. The total cost of the acquisition was approximately $9.6 billion,
including change in control payments and direct costs of the transaction. We
financed the cash portion of the acquisition with a combination of cash on
hand,
commercial paper and a 364-day senior unsecured bridge loan facility.
The
components of the purchase price were as follows:
In
billions
|
|
|
|
Cash
consideration
|
|
$
|
7.3
|
|
Stock
consideration (Issuance of 45.4 million IR Limited Class A common
shares)
|
|
|
2.0
|
|
Estimated
fair value of Trane stock options converted to 7.9 million IR Limited
stock options
|
|
|
0.2
|
|
Transaction
costs
|
|
|
0.1
|
|
Total
|
|
$
|
9.6
|
|
As
a
result of the acquisition, the results of the operations of Trane have been
included in the statement of financial position at June 30, 2008 and the
consolidated statements of operations and cash flows since the Acquisition
Date.
Divestitures
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 $2,629.0 million
(net
of tax of $959.2 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 $633.0 million (net of tax
of
$163.3 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 Events
We
are a
global corporation with worldwide operations. 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 first half of 2008 increased 24.8%
compared with the same period in 2007, primarily associated with the Trane
acquisition. Excluding the results of Trane, our revenues from continuing
operations for the first half of 2008 increased approximately 7.1% compared
with
the same period of 2007. Strong international markets, increased recurring
revenue, a favorable currency impact, pricing improvements and higher volumes
drove this growth. Our major non-U.S. end markets experienced significant
growth. This growth helped to drive revenue increases in all four of 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 the first half of 2008
and
expect to continue to produce positive operating cash flows for the foreseeable
future. For the rest of 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.
Results
of Operations – Three Months Ended June 30, 2008 and 2007
|
|
For
the three months ended June 30,
|
|
In
millions, except per share amounts
|
|
2008
|
|
%
of
revenues
|
|
2007
|
|
%
of
revenues
|
|
Net
revenues
|
|
$
|
3,080.8
|
|
|
|
|
$
|
2,224.6
|
|
|
|
|
Cost
of goods sold
|
|
|
(2,196.1
|
)
|
|
71.3
|
%
|
|
(1,589.7
|
)
|
|
71.5
|
%
|
Selling
and administrative expenses
|
|
|
(523.1
|
)
|
|
17.0
|
%
|
|
(360.8
|
)
|
|
16.2
|
%
|
Operating
income
|
|
|
361.6
|
|
|
11.7
|
%
|
|
274.1
|
|
|
12.3
|
%
|
Interest
expense
|
|
|
(45.6
|
)
|
|
|
|
|
(30.8
|
)
|
|
|
|
Other,
net
|
|
|
26.2
|
|
|
|
|
|
8.6
|
|
|
|
|
Earnings
before income taxes
|
|
|
342.2
|
|
|
|
|
|
251.9
|
|
|
|
|
Provision
for income taxes
|
|
|
(79.7
|
)
|
|
|
|
|
(43.9
|
)
|
|
|
|
Earnings
from continuing operations
|
|
|
262.5
|
|
|
|
|
|
208.0
|
|
|
|
|
Discontinued
operations, net of tax
|
|
|
(6.4
|
)
|
|
|
|
|
756.1
|
|
|
|
|
Net
earnings
|
|
$
|
256.1
|
|
|
|
|
$
|
964.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.90
|
|
|
|
|
$
|
0.68
|
|
|
|
|
Discontinued
operations
|
|
|
(0.02
|
)
|
|
|
|
|
2.49
|
|
|
|
|
Net
earnings
|
|
$
|
0.88
|
|
|
|
|
$
|
3.17
|
|
|
|
|
Net
Revenues
Net
revenues for the second quarter of 2008 increased by 38.5%, or $856.2 million,
compared with 2007, which primarily resulted from the following:
Volume/product
mix
|
|
|
-0.7
|
%
|
Pricing
|
|
|
2.5
|
%
|
Currency
exchange rates
|
|
|
4.3
|
%
|
Acquisitions
|
|
|
32.1
|
%
|
Other
|
|
|
0.3
|
%
|
Total
|
|
|
38.5
|
%
|
The
acquisition of Trane increased revenues $697.9 million. Excluding the results
of
Trane, revenues increased by 7.1%, or $158.3 million. Revenues increased in
all
operating segments mainly driven by non-U.S. operations. Additionally, we
continue to make progress in increasing recurring revenues, which improved
by 9%
over the second quarter of 2007 and accounted for 19% of net
revenues.
Cost
of Goods Sold
Cost
of
goods sold as a percentage of revenue decreased slightly in the second quarter
of 2008 to 71.3% compared with 71.5% for the same period of 2007. Excluding
the
results of Trane, Cost of goods sold as a percentage of revenue would have
been
71.2%. Increased leverage on higher revenues and price increases provided a
benefit which was slightly offset by unfavorable mix and higher material
costs.
Selling
and Administrative Expenses
Selling
and administrative expenses as a percentage of revenue increased to 17.0% in
the
second quarter of 2008 compared with 16.2% for the same period of 2007.
Excluding the results of Trane, Selling and administrative expenses as a
percentage of revenue would have been 16.4%. Increased leverage on higher
revenues and expense reduction were more than offset by one-time costs related
to the acquisition of Trane, an increase to a product liability reserve of
$8.0
million and investments in new product development of approximately $3.1
million.
Operating
Income
Operating
income for the second quarter of 2008 increased by 31.9% or $87.5 million,
compared with the same period of 2007, primarily related to the acquisition
of
Trane. Excluding the results of Trane, operating income increased by 7.8%,
or
$21.4 million, mainly due to leverage on revenue growth, expense reduction,
productivity actions and improved pricing. These increases were partially offset
by unfavorable business and product mix and higher commodity costs in addition
to one-time costs related to the acquisition of Trane.
Interest
Expense
Interest
expense for the second quarter of 2008 increased $14.8 million compared with
the
same period of 2007, primarily related to higher average debt balances used
to
fund the acquisition of Trane.
Other,
Net
The
components of Other, net for the three months ended June 30 are as
follows:
|
|
Three
months ended
|
|
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
Interest
income
|
|
$
|
31.5
|
|
$
|
7.0
|
|
Exchange
gain (loss)
|
|
|
(2.9
|
)
|
|
8.5
|
|
Minority
interests
|
|
|
(6.5
|
)
|
|
(3.8
|
)
|
Earnings
from equity investments
|
|
|
1.2
|
|
|
-
|
|
Other
|
|
|
2.9
|
|
|
(3.1
|
)
|
Other,
net
|
|
$
|
26.2
|
|
$
|
8.6
|
|
The
year-over-year increase is primarily associated with higher interest income
as a
result of larger average cash balances at June 30, 2008. The large balance
is
attributable to the sale of both Compact Equipment and the Road Development
business unit during 2007, which generated proceeds of $6,154.3
million.
Provision
for Income Taxes
Our
second quarter 2008 effective tax rate was 23.3%, compared with 17.4% in the
second quarter of 2007, reflecting a 2008 expected annual rate of 21.5%,
increased by certain discrete costs of $6.1 million. The increase in 2008
expected annual tax rate versus last year’s expected annual rate as of June 30,
2007 is primarily attributable to an increase in income earned in higher tax
rate jurisdictions as a result of changes in the Company’s inter-company debt
structure.
Results
of Operations – Six Months Ended June 30, 2008 and 2007
|
|
For
the six months ended June,
|
|
In
millions, except per share amounts
|
|
2008
|
|
%
of
revenues
|
|
2007
|
|
%
of
revenues
|
|
Net
revenues
|
|
$
|
5,244.1
|
|
|
|
|
$
|
4,200.8
|
|
|
|
|
Cost
of goods sold
|
|
|
(3,737.1
|
)
|
|
71.3
|
%
|
|
(3,005.6
|
)
|
|
71.5
|
%
|
Selling
and administrative expenses
|
|
|
(898.4
|
)
|
|
17.1
|
%
|
|
(712.5
|
)
|
|
17.0
|
%
|
Operating
income
|
|
|
608.6
|
|
|
11.6
|
%
|
|
482.7
|
|
|
11.5
|
%
|
Interest
expense
|
|
|
(73.1
|
)
|
|
|
|
|
(66.5
|
)
|
|
|
|
Other,
net
|
|
|
65.5
|
|
|
|
|
|
8.5
|
|
|
|
|
Earnings
before income taxes
|
|
|
601.0
|
|
|
|
|
|
424.7
|
|
|
|
|
Provision
for income taxes
|
|
|
(126.8
|
)
|
|
|
|
|
(60.1
|
)
|
|
|
|
Earnings
from continuing operations
|
|
|
474.2
|
|
|
|
|
|
364.6
|
|
|
|
|
Discontinued
operations, net of tax
|
|
|
(36.5
|
)
|
|
|
|
|
817.0
|
|
|
|
|
Net
earnings
|
|
$
|
437.7
|
|
|
|
|
$
|
1,181.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
1.67
|
|
|
|
|
$
|
1.19
|
|
|
|
|
Discontinued
operations
|
|
|
(0.13
|
)
|
|
|
|
|
2.66
|
|
|
|
|
Net
earnings
|
|
$
|
1.54
|
|
|
|
|
$
|
3.85
|
|
|
|
|
Net
Revenues
Net
revenues for the first half of 2008 increased by 24.8%, or $1,043.3 million,
compared with 2007, which primarily resulted from the following:
Volume/product
mix
|
|
|
0.4
|
%
|
Pricing
|
|
|
2.5
|
%
|
Currency
exchange rates
|
|
|
4.3
|
%
|
Acquisitions
|
|
|
17.4
|
%
|
Other
|
|
|
0.2
|
%
|
Total
|
|
|
24.8
|
%
|
The
acquisition of Trane increased revenues by $697.9 million. Excluding the results
of Trane, revenues increased by 8.2%, or $345.4 million. Revenues increased
in
all operating segments mainly driven by non-U.S. operations. Additionally,
we
continue to make progress in increasing recurring revenues, which improved
by
11% over the first half of 2007 and accounted for 19% of net
revenues.
Cost
of Goods Sold
Cost
of
goods sold as a percentage of revenue decreased slightly to 71.3% in the first
half of 2008 compared with 71.5% the same period of 2007. Excluding the results
of Trane, Cost of goods sold as a percentage of revenue would have been 71.2%.
Increased leverage on higher revenues and price increases provided a benefit
which was partially offset by unfavorable mix and higher material costs.
Selling
and Administrative Expenses
Selling
and administrative expenses as a percentage of revenue increased slightly to
17.1% in the first half of 2008 compared with 17.0% for the same period of
2007.
Excluding the results of Trane, Selling and administrative expense as a
percentage of revenue would have been 16.8%. Increased leverage on higher
revenues and expense reduction was partially offset by one-time costs related
to
the acquisition of Trane, investments in new product development of
approximately $11 million, an increase to a product liability reserve of $8.0
million and increased regulatory and compliance costs of $3.3 million.
Operating
Income
Operating
income for the first half of 2008 increased by 26.1% or $125.9 million, compared
with the same period of 2007, primarily related to the acquisition of Trane.
Excluding the results of Trane, operating income increased by 12.4%, or $59.8
million, mainly due to leverage on revenue growth, expense reduction,
productivity actions and improved pricing. These increases were partially offset
by unfavorable business and product mix and higher commodity costs in addition
to one-time costs related to the acquisition of Trane.
Interest
Expense
Interest
expense for the first half of 2008 increased $6.6 million compared with the
same
period of 2007, primarily related to higher average debt balances used to fund
the acquisition of Trane.
Other,
Net
The
components of Other, net for the six months ended June 30 are as
follows:
|
|
Six
months ended
|
|
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
Interest
income
|
|
$
|
77.1
|
|
$
|
9.9
|
|
Exchange
gain (loss)
|
|
|
(4.5
|
)
|
|
8.7
|
|
Minority
interests
|
|
|
(10.4
|
)
|
|
(7.1
|
)
|
Earnings
from equity investments
|
|
|
1.2
|
|
|
-
|
|
Other
|
|
|
2.1
|
|
|
(3.0
|
)
|
Other,
net
|
|
$
|
65.5
|
|
$
|
8.5
|
|
The
year-over-year increase is primarily associated with higher interest income
as a
result of larger average cash balances at June 30, 2008. The large balance
is
attributable to the sale of both Compact Equipment and the Road Development
business unit during 2007, which generated proceeds of $6,154.3
million.
Provision
for Income Taxes
Our
effective tax rate for the first half of 2008 was 21.1%, compared with 14.2%
in
the first half of 2007, reflecting a 2008 expected annual rate of 21.5%, offset
by certain discrete benefits of $4.1 million. The increase in 2008 expected
annual tax rate versus last year’s expected annual rate as of June 30, 2007 is
primarily attributable to an increase in income earned in higher tax rate
jurisdictions as a result of changes in the Company’s inter-company debt
structure.
Review
of Business Segments
We
classify our businesses into four reportable segments based on industry and
market focus: Air Conditioning Systems and Services, 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.
Air
Conditioning Systems and Services
Air
Conditioning Systems and Services provide 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. This segment includes the
American Standard and Trane brands.
|
|
Three
months
|
|
Six
months
|
|
In
millions
|
|
ended
June 30
|
|
ended
June 30
|
|
Net
revenues
|
|
$
|
697.9
|
|
$
|
697.9
|
|
Operating
income
|
|
|
66.1
|
|
|
66.1
|
|
Operating
margin
|
|
|
9.5
|
%
|
|
9.5
|
%
|
Reported
results for revenues and operating income reflect activity since the Acquisition
Date (June 6, 2008 through June 30, 2008). Included in operating income is
$45.0
million of costs related to purchase accounting. The Company expects $9.6
million of these costs to be an incremental expense in future periods as they
primarily relate to the amortization of certain intangible assets that were
fair
valued as of the Acquisition Date. In addition, the Company recorded $10.3
million of severance and other business integration costs associated with the
acquisition.
Commercial
results were well balanced due to growth in both domestic and international
markets. Applied and unitary systems, in addition to parts, services and
solutions improvements were primary drivers. Residential results were impacted
by continued weakness in the U.S. housing market.
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.
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
%
change
|
|
2008
|
|
2007
|
|
%
change
|
|
Net
revenues
|
|
$
|
911.9
|
|
$
|
846.0
|
|
|
7.8
|
%
|
$
|
1,710.3
|
|
$
|
1,574.9
|
|
|
8.6
|
%
|
Operating
income
|
|
|
114.7
|
|
|
99.8
|
|
|
14.9
|
%
|
|
194.9
|
|
|
169.2
|
|
|
15.2
|
%
|
Operating
margin
|
|
|
12.6
|
%
|
|
11.8
|
%
|
|
|
|
|
11.4
|
%
|
|
10.7
|
%
|
|
|
|
Net
revenues for the second quarter of 2008 increased by 7.8% or $65.9 million,
compared with the same period of 2007, primarily resulting from a favorable
currency impact (6%) improved pricing (1%) and higher volumes. Operating income
increased during the second quarter of 2008, primarily due to increased net
productivity ($20 million), improved pricing ($11 million) and a favorable
currency impact ($4 million). These improvements were offset by higher material
costs ($11 million) and investments in new product development and productivity
improvements ($5 million).
Net
revenues for the first half of 2008 increased by 8.6% or $135.4 million,
compared with the same period of 2007, primarily resulting from a favorable
currency impact (6%) higher volumes (1%), and improved pricing (1%). Operating
income increased during the first half of 2008, primarily due to increased
net
productivity ($37 million), improved pricing ($22 million) and a favorable
currency impact ($9 million). These improvements were offset by higher material
costs ($17 million), investments in new product development and productivity
improvements ($15 million) and lower volumes.
Net
revenues for the segment increased during the second quarter of 2008, benefiting
from a worldwide increase in sea-going container, bus and aftermarket revenues
in addition to higher results from worldwide truck and the European trailer
market. These gains were partially offset by sharply lower activity levels
in
the North American trailer markets. Revenues for display cases and contracting
increased slightly worldwide as results in North America were partially offset
by weaker activity overseas. In addition, sales of the TriPac® auxiliary unit
increase during the quarter due to the escalating cost of diesel
fuel.
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.
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
%
change
|
|
2008
|
|
2007
|
|
%
change
|
|
Net
revenues
|
|
$
|
806.1
|
|
$
|
749.9
|
|
|
7.5
|
%
|
$
|
1,549.5
|
|
$
|
1,417.6
|
|
|
9.3
|
%
|
Operating
income
|
|
|
104.4
|
|
|
109.3
|
|
|
-4.5
|
%
|
|
202.0
|
|
|
200.9
|
|
|
0.5
|
%
|
Operating
margin
|
|
|
13.0
|
%
|
|
14.6
|
%
|
|
|
|
|
13.0
|
%
|
|
14.2
|
%
|
|
|
|
Net
revenues for the second quarter of 2008 increased by 7.5%, or $56.2 million,
compared with the same period of 2007, mainly resulting from a favorable
currency impact (4%), improved pricing (2%), acquisitions (1%) and product
mix.
Operating income decreased during the second quarter of 2008 primarily due
to
higher material costs ($17 million), product liability and restructuring costs
($10 million) and increased investment spending ($2 million). These costs were
partially offset by improved pricing ($14 million), a favorable currency
exchange ($4 million) and increased productivity.
Net
revenues for the first half of 2008 increased by 9.3%, or $131.9 million,
compared with the same period of 2007, mainly resulting from a favorable
currency impact (4%), improved pricing (2%), acquisitions (1%) and higher
volumes and product mix. Operating income increased during the first half of
2008 primarily due to improved pricing ($29 million), increased productivity
($19 million) and a favorable currency exchange ($8 million). These improvements
were partially offset by higher material costs ($30 million), increased
investment spending ($6 million) and product liability and restructuring costs
($12 million).
The
increase in segment revenue was driven by the worldwide increase in the Air
and
Productivity Solutions business. Year-over-year revenue growth in Europe, Asia
and India helped to mitigate a weakening North American market. International
gains were primarily due to strong industrial markets and aftermarket growth.
Club Car revenues declined compared with the second quarter of 2007 mainly
due
to the ongoing decline in the North American golf market. The decline was offset
by overall market share gains.
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.
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
%
change
|
|
2008
|
|
2007
|
|
%
change
|
|
Net
revenues
|
|
$
|
664.9
|
|
$
|
628.7
|
|
|
5.8
|
%
|
$
|
1,286.4
|
|
$
|
1,208.3
|
|
|
6.5
|
%
|
Operating
income
|
|
|
122.4
|
|
|
108.3
|
|
|
13.0
|
%
|
|
227.3
|
|
|
199.0
|
|
|
14.2
|
%
|
Operating
margin
|
|
|
18.4
|
%
|
|
17.2
|
%
|
|
|
|
|
17.7
|
%
|
|
16.5
|
%
|
|
|
|
Net
revenues for the second quarter of 2008 increased by 5.8%, or $36.2 million,
compared with the same period of 2007, mainly resulting from improved pricing
(5%) and a favorable currency impact (3%), partially offset by lower volumes
(2%). Operating income increased during the second quarter of 2008, primarily
due to improved pricing ($30 million) and productivity gains ($15 million),
partially offset by unfavorable product mix ($17 million).
Net
revenues for the first half of 2008 increased by 6.5%, or $78.1 million,
compared with the same period of 2007, mainly resulting from improved pricing
(5%) and a favorable currency impact (3%). Operating income increased during
the
first half of 2008, primarily due to improved pricing ($54 million) and
productivity gains ($31 million), partially offset by unfavorable product mix
($30 million).
Net
revenues grew in all regions during the quarter benefiting from strong
international growth in addition to moderate growth in the commercial
construction market. Residential revenues decreased modestly reflecting a
decline in same store sales at large customers as well as ongoing weakness
in
the new homebuilder channel in North America.
Discontinued
Operations
The
components of discontinued operations for the three and six months ended June
30
are as follows:
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenues
|
|
$
|
5.6
|
|
$
|
837.0
|
|
$
|
15.2
|
|
$
|
1,696.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
earnings (loss) from operations
|
|
|
(11.8
|
)
|
|
119.7
|
|
|
(23.0
|
)
|
|
201.5
|
|
Pre-tax
gain (loss) on sale
|
|
|
(1.5
|
)
|
|
804.5
|
|
|
(5.6
|
)
|
|
804.7
|
|
Tax
expense
|
|
|
6.9
|
|
|
(168.1
|
)
|
|
(7.9
|
)
|
|
(189.2
|
)
|
Discontinued
operations, net of tax
|
|
$
|
(6.4
|
)
|
$
|
756.1
|
|
$
|
(36.5
|
)
|
$
|
817.0
|
|
Discontinued
operations by business for the three and six months ended June 30 is as
follows:
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Compact
Equipment, net of tax
|
|
$
|
1.5
|
|
$
|
81.7
|
|
$
|
(22.9
|
)
|
$
|
142.3
|
|
Road
Development, net of tax
|
|
|
(1.8
|
)
|
|
678.2
|
|
|
(1.8
|
)
|
|
694.1
|
|
Other
discontinued operations, net of tax
|
|
|
(6.1
|
)
|
|
(3.8
|
)
|
|
(11.8
|
)
|
|
(19.4
|
)
|
Total
discontinued operations, net of tax
|
|
$
|
(6.4
|
)
|
$
|
756.1
|
|
$
|
(36.5
|
)
|
$
|
817.0
|
|
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. The sale was completed on November
30,
2007. The purchase price is subject to post-closing adjustments which could
result in a favorable or unfavorable adjustment to the gain on sale when
ultimately resolved.
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 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 three and six
months ended June 30 are as follows:
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
revenues
|
|
$
|
5.6
|
|
$
|
759.8
|
|
$
|
15.2
|
|
$
|
1,452.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from operations, net of tax
|
|
|
(0.3
|
)
|
|
81.7
|
|
|
0.1
|
|
|
142.3
|
|
Gain
on sale, net of tax
|
|
|
1.8
|
|
|
-
|
|
|
(23.0
|
)
|
|
-
|
|
Total
discontinued operations, net of tax
|
|
$
|
1.5
|
|
$
|
81.7
|
|
$
|
(22.9
|
)
|
$
|
142.3
|
|
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. The sale was
completed on April 30, 2007 in all countries except for India, which closed
on
May 4, 2007. The purchase price is subject to post-closing adjustments which
could result in a favorable or unfavorable adjustment to the gain on sale when
ultimately resolved.
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 for all periods presented in accordance with SFAS 144.
Net
revenues and after-tax earnings of the Road Development business unit for the
three and six months ended June 30, are as follows:
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net
revenues
|
|
$
|
-
|
|
$
|
77.2
|
|
$
|
-
|
|
$
|
244.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from operations, net of tax
|
|
|
(0.1
|
)
|
|
2.5
|
|
|
(0.1
|
)
|
|
18.4
|
|
Gain
on sale, net of tax
|
|
|
(1.7
|
)
|
|
675.7
|
|
|
(1.7
|
)
|
|
675.7
|
|
Total
discontinued operations, net of tax
|
|
$
|
(1.8
|
)
|
$
|
678.2
|
|
$
|
(1.8
|
)
|
$
|
694.1
|
|
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
three
and six months ended June 30 are as follows:
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Retained
costs, net of tax
|
|
$
|
(6.1
|
)
|
$
|
(3.9
|
)
|
$
|
(11.8
|
)
|
$
|
(19.6
|
)
|
Net
gain on disposals, net of tax
|
|
|
-
|
|
|
0.1
|
|
|
-
|
|
|
0.2
|
|
Total
discontinued operations, net of tax
|
|
$
|
(6.1
|
)
|
$
|
(3.8
|
)
|
$
|
(11.8
|
)
|
$
|
(19.4
|
)
|
Retained
costs, net of tax for the six months ended June 30, 2008 includes $6.5 million
of after-tax costs related to an adverse verdict in a product liability lawsuit
associated with a previously divested business.
Liquidity
and Capital Resources
We
generate significant cash flow from operating activities. We believe that we
will be able to meet our current and long-term liquidity and capital
requirements through our cash flow from operating activities, existing cash
and
cash equivalents, available borrowings under existing credit facilities and
our
ability to obtain future external financing.
Cash
Flows
The
following table reflects the major categories of cash flows for the six months
ended June 30, respectively. For additional details, see the Condensed
Consolidated Statement of Cash Flows in the condensed consolidated financial
statements.
In
millions
|
|
2008
|
|
2007
|
|
Operating
cash flow provided by (used in) continuing operations
|
|
$
|
(505.3
|
)
|
$
|
203.5
|
|
Investing
cash flow provided by (used in) continuing operations
|
|
|
(7,176.6
|
)
|
|
1,242.6
|
|
Financing
cash flow provided by (used in) continuing operations
|
|
|
3,685.0
|
|
|
(1,229.2
|
)
|
Operating
Activities
Net
cash
used by continuing operating activities during the six months ended June 30,
2008 was $505.3 million, compared with net cash provided by operating activities
of $203.5 million during the comparable period in 2007. The change in operating
cash flows is predominantly related to a tax payment of approximately $700
million in the first quarter of 2008 paid to various taxing authorities
primarily associated with the Compact Equipment divestiture.
Investing
Activities
Net
cash
used by investing activities during the six months ended June 30, 2008 was
$7,176.6 million, compared with $1,242.6 million of net cash provided by
investing activities during the comparable period of 2007. The change in
investing activities is primarily attributable to cash used for the acquisition
of Trane in 2008. In addition, during the six months ended June 30, 2007, net
cash proceeds of $1,291.7 million was received related to the sale of the Road
Development business unit.
Financing
Activities
Net
cash
provided by financing activities during the six months ended June 30, 2008
was
$3,685.0 million, compared with $1,229.2 million of net cash used in financing
activities during the comparable period in 2007. The change in financing
activities is primarily related to the proceeds received from the bridge
facility and commercial paper used to finance the acquisition of Trane.
Other
Liquidity Measures
The
following table contains several key measures to gauge the Company’s financial
condition and liquidity at the period ended:
|
|
June
30
|
|
December
31,
|
|
In
millions
|
|
2008
|
|
2007
|
|
Cash
and cash equivalents
|
|
$
|
787.3
|
|
$
|
4,735.3
|
|
Total
debt
|
|
|
5,958.7
|
|
|
1,453.7
|
|
Total
shareholders' equity
|
|
|
10,792.5
|
|
|
7,907.9
|
|
Debt-to-total
capital ratio
|
|
|
35.4
|
%
|
|
15.4
|
%
|
The
large
cash and cash equivalents balance at December 31, 2007 is attributable to the
sale of both Compact Equipment and the Road Development business unit during
2007, which generated proceeds of $6,154.3 million. The reduction at June 30,
2008 is a result of acquisition of Trane
In
connection with the Trane acquisition, the Company entered into a new $3.9
billion senior unsecured bridge loan facility, with a term of 364 days.
Subsequently, the Company reduced the facility size by $0.5 billion. As of
June
30, 2008, the Company has drawn $2.95 billion against the bridge facility,
with
the remaining $0.45 billion available for future use. The proceeds of the
agreement were used to pay a portion of the cash component of the consideration
paid for the acquisition as well as to pay related fees and expenses incurred.
The
Company also entered into a new $1.0 billion senior unsecured revolving credit
agreement with a three year term. The credit facility will be used to support
working capital, the commercial paper programs and for other general corporate
purposes.
In
addition, 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 other financing instruments, such as letter of credit
and
comfort letters as required in the normal course of business as well as support
for the commercial paper program.
In
the
third quarter of 2008, we intend to refinance the bridge financing primarily
with a combination of short-term and long-term debt. In 2007, as well as in
the
first half of 2008, there was significant volatility in the capital markets,
which led to an overall tightening of the credit markets. Terms of the bridge
refinancing will be determined by market conditions at the time of debt
issuance. As such, we cannot assess the impact of the financing on our future
financial results.
For
a
further discussion of Liquidity and Capital Resources, refer to Part II, Item
7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” contained in the Company’s Annual Report on Form 10-K for the
period ended December 31, 2007.
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
the three and six month periods ended June 30, 2008, we spent $3.4 million
and
$6.3 million, respectively, for environmental remediation expenditures at sites
presently or formerly owned or leased by us. As of June 30, 2008 and December
31, 2007, we have recorded reserves for environmental matters of $106.1 million
and $101.8 million, respectively. 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.
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 either Ingersoll Rand
Company (IR-New Jersey) and Trane and generally allege injury caused by exposure
to asbestos contained in certain current and historical products sold by IR-New
Jersey and Trane, primarily pumps, boilers and railroad brake shoes. Neither
IR-New Jersey nor Trane was a producer or manufacturer of asbestos, however,
some 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.
In
connection with our acquisition of Trane, the Company requested ARPC to assist
in calculating Trane’s asbestos-related valuations of current and future
liabilities. As required by SFAS No. 141, “Business Combinations”, the Company
is required to record the assumed asbestos obligations and associated
insurance-related assets at their fair value at the acquisition date. The
Company preliminarily estimates that the assumed asbestos obligation and
associated insurance-related assets at the Acquisition Date to be $494 million
and $249 million, respectively. These amounts were estimated based on
assumptions and factors consistent with those described above.
Trane
continues to be in litigation against certain carriers whose policies it
believes provide coverage for asbestos claims.
The insurance carriers named in this suit are challenging Trane’s right to
recovery. Trane filed the action in April 1999 in the Superior Court of New
Jersey, Middlesex County, against various primary and lower layer excess
insurance carriers, seeking coverage for environmental claims (the “NJ
Litigation”). The NJ Litigation was later expanded to also seek coverage for
asbestos related liabilities from twenty-one primary and lower layer excess
carriers and underwriting syndicates. On September 19, 2005, the court
granted Trane’s motion to add 16 additional insurers and 117 new insurance
policies to the NJ Litigation. The court also required the parties to submit
all
contested matters to mediation. Trane engaged in its first mediation session
with the NJ Litigation defendants on January 18, 2006 and has engaged in
active discussions since that time. During the mediation, the parties agreed
to
extensions of discovery deadlines and stays of discovery except for discovery
necessary to facilitate the mediation process. The continued stay of discovery
was confirmed by agreement at the most recent status conference with the court
and mediator, which took place on November 26, 2007. With the addition of
the parties and policies referred to above, the NJ Litigation would resolve
the
coverage issues with respect to approximately 94 percent of the recorded
receivable.
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:
|
|
2005
|
|
2006
|
|
2007
|
|
Open
claims - January 1
|
|
|
105,811
|
|
|
102,968
|
|
|
101,709
|
|
New
claims filed
|
|
|
11,132
|
|
|
6,457
|
|
|
5,398
|
|
Claims
settled
|
|
|
(12,505
|
)
|
|
(6,558
|
)
|
|
(5,005
|
)
|
Claims
dismissed
|
|
|
(1,470
|
)
|
|
(1,158
|
)
|
|
(1,479
|
)
|
Open
claims - December 31
|
|
|
102,968
|
|
|
101,709
|
|
|
100,623
|
|
From
receipt of the first asbestos claim more than twenty years ago through
December 31, 2007, Trane has resolved 61,002 (by settlement or dismissal)
claims. Trane and its insurance carriers have paid settlements of approximately
$109.0 million, which represents an average payment per resolved claim of
$1,786. During 2007, 3,019 new claims were filed against Trane, 1,826 claims
were dismissed and 740 claims were settled. At December 31, 2007, there are
105,023 open claims pending against Trane. Because claims are frequently filed
and settled in large groups, the amount and timing of settlements, as well
as
the number of open claims, can fluctuate significantly from period to
period.
The
table
below provides additional information regarding asbestos-related claims filed
against Trane, reflecting updated information for the last three years.
|
|
2005
|
|
2006
|
|
2007
|
|
Open
claims - January 1
|
|
|
118,381
|
|
|
113,730
|
|
|
104,570
|
|
New
claims filed
|
|
|
10,972
|
|
|
4,440
|
|
|
3,019
|
|
Claims
settled
|
|
|
(954
|
)
|
|
(848
|
)
|
|
(740
|
)
|
Claims
dismissed
|
|
|
(14,544
|
)
|
|
(12,751
|
)
|
|
(1,826
|
)
|
Inactive
claims
|
|
|
(125
|
)
|
|
(1
|
)
|
|
-
|
|
Open
claims - December 31
|
|
|
113,730
|
|
|
104,570
|
|
|
105,023
|
|
At
June
30, 2008, 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.
At
June
30, 2008, our liability for asbestos related matters and the asset for probable
asbestos-related insurance recoveries totaled $1,220.0 million and $477.9
million, respectively, compared to $754.9 million and $249.8 million at December
31, 2007.
The
(costs) income associated with the settlement and defense of asbestos related
claims after insurance recoveries were as follows:
|
|
Three
months ended
|
|
Six
months ended
|
|
|
|
June
30,
|
|
June
30,
|
|
In
millions
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Continuing
operations
|
|
$
|
0.6
|
|
$
|
-
|
|
$
|
0.6
|
|
$
|
-
|
|
Discontinued
operations
|
|
|
(4.5
|
)
|
|
(8.1
|
)
|
|
0.1
|
|
|
(20.0
|
)
|
Total
|
|
$
|
(3.9
|
)
|
$
|
(8.1
|
)
|
$
|
0.7
|
|
$
|
(20.0
|
)
|
We
record
certain income and expenses associated with our asbestos liabilities and
corresponding insurance recoveries within discontinued operations, as they
relate to previously divested businesses, primarily Ingersoll-Dresser Pump,
which was sold in 2000. Income and expenses associated with Trane’s asbestos
liabilities and corresponding insurance recoveries are recorded within
continuing operations.
Other
The
following table represents the changes in the product warranty liability for
the
six months ended June 30:
In
millions
|
|
2008
|
|
2007
|
|
Balance
at beginning of period
|
|
$
|
146.9
|
|
$
|
137.1
|
|
Reductions
for payments
|
|
|
(57.6
|
)
|
|
(35.6
|
)
|
Accruals
for warranties issued during the current period
|
|
|
57.3
|
|
|
42.8
|
|
Changes
to accruals related to preexisting warranties
|
|
|
(1.0
|
)
|
|
(1.0
|
)
|
Acquisitions
|
|
|
483.3
|
|
|
0.1
|
|
Translation
|
|
|
3.6
|
|
|
1.5
|
|
Balance
at end of period
|
|
$
|
632.5
|
|
$
|
144.9
|
|
We
have
other contingent liabilities for $5.8 million. These liabilities primarily
result from performance bonds, guarantees and stand-by letters of credit
associated with the prior sale of products by divested businesses.
Critical
Accounting Policies
Management’s
discussion and analysis of the Company’s financial condition and results of
operations are based upon the Company’s consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure
of
contingent assets and liabilities. The Company bases these estimates on
historical experience and on various other assumptions that are believed to
be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are
not
readily apparent from other sources. Actual results may differ from these
estimates.
Management
believes there have been no significant changes during the six months ended
June
30, 2008, to the items that the Company disclosed as its critical accounting
policies and estimates in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2007.
Recently
Adopted Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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 net periodic 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.
SFAS
158
also requires an entity to measure its defined benefit plan assets and benefit
obligations as of the date of the employer’s fiscal year-end statement of
financial position. The measurement date provisions of SFAS 158 are effective
for the Company for the fiscal year ending December 31, 2008. The Company has
adopted the measurement provisions of SFAS 158 which did not have a material
impact on the condensed consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
157). SFAS 157 establishes a framework for measuring fair value that is based
on
the assumptions market participants would use when pricing an asset or liability
and establishes a fair value hierarchy that prioritizes the information to
develop those assumptions. Additionally, the standard expands the disclosures
about fair value measurements to include disclosing the fair value measurements
of assets or liabilities within each level of the fair value hierarchy. SFAS
157
is effective for the Company starting on January 1, 2008. Refer to Note 17,
Fair
Value Measurements to the condensed consolidated financial statements for a
full
discussion on SFAS 157.
Effective
February 12, 2008, the Company adopted FASB Staff Position (FSP) No. 157-2,
“Effective Date of FASB Statement No. 157” (FSP SFAS 157-2). This FSP delays the
effective date of SFAS 157 for nonfinancial assets and liabilities, except
for
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis. Due to the deferral, the Company has delayed its
implementation of SFAS 157 provisions on the fair value of goodwill,
indefinite-lived intangible assets and nonfinancial long-lived assets and
liabilities.
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 and did not have a material impact
to the condensed consolidated financial statements.
Recently
Issued Accounting Pronouncements
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.
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of SFAS No. 133. This statement amends and
expands the disclosure requirements of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities.” It requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of gains and losses on derivative instruments and disclosures
about credit-risk-related contingent features in derivative agreements. SFAS
161
is effective for the Company starting on January 1, 2009. The Company is
currently evaluating the impact of adopting SFAS 161 on its financial
statements.
In
May
2008 the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS 162) and SFAS No. 163, “Accounting for Financial
Guarantee Insurance Contracts-an interpretation of FASB No. 60” (SFAS 163). SFAS
162 identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements
of nongovernmental entities that are presented in conformity with generally
accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).
SFAS 163 clarifies practice in accounting for financial guarantee insurance
contracts by insurance enterprises under FASB Statement No. 60, “Accounting and
Reporting by Insurance Enterprises”.
The
Company does not believe these pronouncements will have a material impact on
its
financial statements.
Safe
Harbor Statement
Information
provided by the Company in reports such as this quarterly report on Form 10-Q,
in press releases and in statements made by employees in oral discussions,
to
the extent the information is not historical fact, may be deemed to be
“forward-looking statements” within the meaning of federal securities laws.
These statements are based on currently available information and are based
on
our current expectations and projections about future events. These statements
are subject to risks and uncertainties that could cause actual results,
performance or achievements to differ materially from anticipated results,
performance or achievements.
These
risks and uncertainties include, but are not limited to: fluctuations in
commodity prices and shortages of raw materials; changes in interest rates
and
non-U.S. exchange rates; changes in the condition of, and the overall political
landscape of, the economies in which we operate; our realization of expected
financial benefits from the acquisition of Trane Inc.; our ongoing compliance
with the Foreign Corrupt Practices Act and other applicable anti-corruption
laws; effect of legislation regarding U.S. companies which reincorporate outside
of the U.S.; potential liabilities arising from an European Commission
Investigation of European Union competition law; changes in the Internal Revenue
Service interpretation of tax-free distributions under Section 355 of the
Internal Revenue Code; unanticipated climatic changes and seasonal fluctuations;
the costs and effects of legal and administrative proceedings; changes in tax
laws, tax treaties or tax regulations or the interpretation or enforcement
thereof; currency fluctuations; our ability to complete acquisitions on
financially attractive terms and successfully integrate them with our other
businesses; and the impact of new accounting standards.
Undue
reliance should not be placed on such forward-looking statements as they speak
only as of the date made. Additional information regarding these and other
risks
and uncertainties is contained in our periodic filings with the Securities
and
Exchange Commission (SEC), including, but not limited to, our Annual Report
on
Form 10-K for the fiscal year ended December 31, 2007.
Item
3
- Quantitative and Qualitative Disclosures about Market Risk
There
has
been no significant change in our exposure to market risk during the second
quarter of 2008. For a discussion of the Company’s exposure to market risk,
refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About
Market Risk,” contained in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
Item
4
- 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 Quarterly Report on Form
10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded as of June 30, 2008, that the disclosure controls and
procedures are effective in ensuring that all material information required
to
be filed in this Quarterly Report on Form 10-Q 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.
There
has
been no change in the Company’s internal control over financial reporting that
occurred during the second quarter of 2008 that has materially affected, or
is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II - OTHER INFORMATION
Item
1
– Legal Proceedings
In
the
normal course of business, the Company is involved in a variety of lawsuits,
claims and legal proceedings, including commercial and contract disputes,
employment matters, product liability claims, environmental liabilities and
intellectual property disputes. In the opinion of the Company, pending
legal matters are not expected to have a material adverse effect on the results
of operations, financial condition, liquidity or cash flows.
Oil
for Food Program and FCPA matters
As
previously reported, on November 10, 2004, the SEC issued an Order directing
that a number of public companies, including the Company, provide information
relating to their participation in transactions under the United Nations’ Oil
for Food Program. Upon receipt of the Order, the Company undertook a thorough
review of its participation in the 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 has consented to the entry of a civil injunction in the
SEC
action and has entered into a three-year deferred prosecution agreement with
the
DOJ. Under both settlements, the Company will 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.
Additionally,
we have reported to the DOJ and SEC that we are currently investigating certain
matters involving Trane, including one relating to the Oil For Food Program,
and
which raise potential issues under the FCPA and other applicable anti-corruption
laws. We have indicated to the SEC and DOJ that we are conducting a thorough
investigation of these matters and that we would report back to them with our
findings. The investigation of these matters began in earnest promptly after
our
acquisition of Trane in June 2008 and is currently in its early stages.
Previously, we had reported to the SEC and DOJ potential FCPA issues relating
to
one of our businesses in China, and we have reported back to them and shared
our
audit report, which indicated no FCPA violations. These matters (and other
matters which may arise or of which we become aware in the future) may be deemed
to violate the FCPA and other applicable anti-corruption laws. Such
determinations could subject us to, among other things, further enforcement
actions by the SEC or the DOJ (if, for example, the DOJ deems us to have
violated the DPA), 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.
The
European Commission Investigation
In
November 2004, the Company was contacted by the European Commission as part
of a
multi-company investigation into possible infringement of European Union
competition law relating to the distribution of bathroom fixtures and fittings
in certain European countries. On March 28, 2007, the Company, along with a
number of other companies, received a Statement of Objections from the European
Commission. The Statement of Objections, an administrative complaint, alleges
infringements of European Union competition rules by numerous bathroom fixture
and fittings companies, including the Company and certain of its European
subsidiaries engaged in the Bath and Kitchen business. Certain of these legal
entities were transferred to WABCO as part of a legal reorganization in
connection with the spinoff of the Company’s Vehicle Control Systems business
that occurred on July 31, 2007. The Company and certain of its subsidiaries
and, in light of that legal reorganization, certain of WABCO’s subsidiaries will
be jointly and severally liable for any fines that result from the
investigation. However, pursuant to an Indemnification and Cooperation Agreement
among the Company and certain other parties (the “Indemnification Agreement”),
American Standard Europe BVBA (renamed WABCO Europe BVBA) (“ASE”), which is a
subsidiary of WABCO following the reorganization, will be responsible for,
and
will indemnify the Company and its subsidiaries (including certain subsidiaries
formerly engaged in the Bath and Kitchen business) and their respective
affiliates against, any fines related to this investigation. The Company and
the
charged subsidiaries responded to the European Commission on August 1, 2007
and July 31, 2007, respectively. A hearing with the European Commission
regarding the response to the Statement of Objections was conducted from
November 12-14, 2007, in Brussels. ASE and other former Company
subsidiaries participated in the hearing. The Company, however, did not
participate in the hearing.
In
2006,
the European Commission adopted new fining guidelines (the “2006 Guidelines”)
and stated its intention to apply these guidelines in all cases in which a
Statement of Objections is issued after September 2006. In applying the 2006
Guidelines, the Commission retains considerable discretion in calculating the
fine although the European Union regulations provide for a cap on the maximum
fine equal to ten percent of Trane’s worldwide revenue attributable to all of
its products for the fiscal year prior to the year in which the fine is imposed.
If the maximum fine is levied in 2008, the total liability could be
approximately $1.1 billion based on the Company’s worldwide revenue in 2007,
subject to a probable reduction for leniency of at least 20 percent provided
ASE, as the leniency applicant, fulfilled all conditions set forth in
the European Commission’s leniency notice. The Company is confident in
ASE’s ability to satisfy its obligations under the Indemnification Agreement
because WABCO’s capital structure includes sufficient funds available under its
existing credit facilities and only a minimal amount of debt at
December 31, 2007.
Item
1A – Risk Factors
There
have been no material changes to our risk factors and uncertainties during
the
second quarter of 2008, except as discussed below. For a discussion of the
Risk
Factors, refer to Part I, Item 1A - Risk Factors contained in the Company’s
Annual Report on Form 10-K for the period ended December 31, 2007.
We
may not realize the expected financial benefits from the acquisition of Trane
Inc.
On
June
5, 2008, we completed our acquisition of Trane Inc. (“Trane”). Achieving the
expected benefits of this acquisition will require us to increase the revenue
growth rate of Trane, retain key employees of Trane and realize certain
anticipated cost savings. If we are unable to integrate our businesses
successfully, then we may fail to realize the anticipated synergies and growth
opportunities or achieve the cost savings and revenue growth we expect from
the
acquisition.
We
face continuing risks relating to compliance with the Foreign Corrupt Practices
Act (“FCPA”).
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 (“DPA”) with the DOJ, and (iii)
agreed to implement improvements to our compliance program designed to enhance
detection and prevention of violations of the 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 DPA 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.”
Furthermore,
we have reported to the DOJ and SEC that we are currently investigating certain
matters involving Trane, including one relating to the Oil For Food Program,
and
which raise potential issues under the FCPA and other applicable anti-corruption
laws. We have indicated to the SEC and DOJ that we are conducting a thorough
investigation of these matters and that we would report back to them with our
findings. The investigation of these matters began in earnest promptly after
our
acquisition of Trane in June 2008 and is currently in its early stages.
Previously, we had reported to the SEC and DOJ potential FCPA issues relating
to
one of our businesses in China, and we have reported back to them and shared
with them our audit report, which indicated no FCPA violations. These matters
(and other matters which may arise or of which we become aware in the future)
may be deemed to violate the FCPA and other applicable anti-corruption laws.
Such determinations could subject us to, among other things, further enforcement
actions by the SEC or the DOJ (if, for example, the DOJ deems us to have
violated the DPA), 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.
Legislation
regarding U.S. companies which reincorporate outside the U.S. could adversely
affect us and our subsidiaries.
The
U.S.
federal government and various states and municipalities have enacted or may
enact legislation intended to deny government contracts to U.S. companies that
reincorporate outside of the U.S.
For
instance, the Homeland Security Act of 2002 and later amended, included a
provision that prohibits “inverted domestic corporations” and their subsidiaries
from entering into contracts with the Department of Homeland Security under
the
Homeland Security Act. More recently, the 2008 Consolidated
Appropriations Act (“the 2008 Act”), which became effective in December 2007,
prohibits any federal government agency from using funds appropriated by
Congress for fiscal year 2008 to pay an inverted domestic corporation or any
of
its subsidiaries for work performed or products provided under certain federal
contracts (“Affected Contracts”). We may be deemed to be an inverted domestic
corporation. Therefore, the federal government may be prohibited from making
payments to us for work done under Affected Contracts. Consequently, we and
our
subsidiaries, including our recently acquired Trane subsidiaries, may not be
paid for work performed pursuant to Affected Contracts while remaining
contractually obligated to perform under those contracts. Although the amount
of
monies already paid to us or to be paid to us under the Affected Contracts
is
not material to the Company, legislation similar to the 2008 Act may be enacted
for fiscal years beyond 2008.
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 to federal and state
government agencies, while some of our businesses typically sell products to
third-party suppliers. However, we are unable to predict with any level of
certainty either the likelihood of additional legislation or the nature of
regulations that may be promulgated thereunder, or the impact such enactments
and increased regulatory scrutiny may have on our business. If
applicable to us, legislation of the type described in this risk factor may
impact our future ability to obtain and perform under certain government
contracts. Violations may give rise to civil or criminal penalties.
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.
We
are relying on an indemnification agreement with respect to any potential
liability arising from an European Commission Investigation into possible
infringement of European Union competition law by Trane and its subsidiaries.
If
we were unable to rely on the indemnification agreement for any reason, any
potential liability arising from the European Commission Investigation could
have a material adverse effect on the Company’s financial condition and results
of operations.
In
connection with Trane’s spinoff of the Vehicle Control Systems business into a
new publicly traded company called WABCO Holdings Inc. (“WABCO”) in July 31,
2007, Trane entered into an Indemnification and Cooperation Agreement (the
“Indemnification Agreement”) with, among others, American Standard Europe BVBA
(renamed WABCO Europe BVBA) (“WABCO Europe”), which became a subsidiary of WABCO
following the spinoff. Pursuant to the Indemnification Agreement, WABCO
Europe has agreed to indemnify Trane and its subsidiaries and their respective
affiliates against any fines related to the European Commission Investigation.
For
a
further discussion of European
Commission Investigation,
see
“Legal Proceedings.” If
the
European Commission were to impose in 2008 the maximum fine allowable pursuant
to applicable guidelines, the total liability to the Company could be
approximately $1.1 billion based on Trane’s worldwide revenue in 2007, subject
to a probable reduction for leniency of at least 20 percent (provided WABCO
Europe, as the leniency applicant, fulfilled all conditions set forth in
the European Commission’s leniency notice). We are confident in WABCO
Europe’s ability to satisfy its obligations under the Indemnification Agreement
because WABCO’s capital structure includes sufficient funds available under its
existing credit facilities and only a minimal amount of debt as of
December 31, 2007. However, if WABCO Europe were unable to satisfy its
obligations under the Indemnification Agreement or if we were unable to rely
on
the Indemnification Agreement for any reason, any potential liability arising
from the European Commission Investigation could have a material adverse effect
on our financial condition and results of operations.
If
the distribution of WABCO’s shares by Trane on July 31, 2007 were to fail to
qualify as tax-free for U.S. federal income tax purposes under Section 355
of the Internal Revenue Code (the “Code”), then Trane may be required to pay
U.S. federal income taxes as well as Trane’s shareholders who received WABCO
common stock in the transaction.
On
July
31, 2007, Trane (then known as American Standard Companies Inc.) completed
the
spinoff of its vehicle control systems business into a new publicly traded
company named WABCO Holdings Inc (“WABCO”). At the time, Trane received a
private letter ruling from the Internal Revenue Service (“IRS”) substantially to
the effect that the distribution qualified as tax-free for U.S. federal income
tax purposes under Section 355 of the Code. In addition, Trane received an
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to
Trane, substantially to the effect that the distribution will qualify as
tax-free to Trane, WABCO and Trane shareholders under Section 355 and
related provisions of the Code. The ruling and opinion were based on, among
other things, certain assumptions as well as on the accuracy of certain factual
representations and statements made by WABCO and Trane. In rendering its ruling,
the IRS also relied on certain covenants that Trane and WABCO entered into,
including the adherence to certain restrictions on WABCO’s and Trane’s future
actions.
In
connection with our acquisition of Trane in June 2008, we received an opinion
of
Simpson Thacher & Bartlett LLP, tax counsel to us, substantially to the
effect that the distribution should continue to qualify as tax-free to Trane,
WABCO and Trane shareholders under Section 355 and related provisions of
the Code. Notwithstanding receipt by Trane and us of the private letter ruling
as well as the opinions of counsel, there can be no assurance that the IRS
will
not later assert that the distribution should be treated as a taxable
transaction.
If
the
distribution fails to qualify for tax-free treatment, then Trane would recognize
a gain in an amount equal to the excess of (i) the fair market value of
WABCO’s common stock distributed to the Trane shareholders over
(ii) Trane’s tax basis in such common stock. Under the terms of the Tax
Sharing Agreement, in the event the distribution were to fail to qualify as
a
tax-free reorganization and such failure was not the result of actions taken
after the distribution by Trane or any of its subsidiaries or shareholders,
WABCO would be responsible for all taxes imposed on Trane as a result thereof.
In addition, each Trane shareholder who received WABCO common stock in the
distribution generally would be treated as having received a taxable
distribution in an amount equal to the fair market value of WABCO’s common stock
received (including any fractional share sold on behalf of the shareholder),
which would be taxable as a dividend to the extent of the shareholder’s ratable
share of Trane’s current and accumulated earnings and profits at the time (as
increased to reflect any current income including any gain recognized by Trane
on the taxable distribution). The balance, if any, of the distribution would
be
treated as a nontaxable return of capital to the extent of the Trane
shareholder’s tax basis in its Trane stock, with any remaining amount being
taxed as capital gain.
Changes
in weather patterns and seasonal fluctuations may adversely affect certain
segments of the Company’s business and impact overall results of
operations.
Demand
for certain segments for the Company’s products and services is influenced by
weather conditions. For instance, Trane’s sales have historically tended to be
seasonally higher in the second and third quarters of the year because, in
the
U.S. and other northern hemisphere markets, summer is the peak
season for sales of air conditioning systems and services. Additionally, while
there is demand for Trane’s products and services throughout the year, a
significant percentage of total sales are related to U.S. residential and
commercial construction activity, which is generally higher in the second and
third quarters of the year. Therefore, results of any quarterly period may
not
be indicative of expected results for a full year and unexpected cool trends
or
unseasonably warm trends during the summer season could negatively or positively
affect certain segments of the Company’s business and impact overall results of
operations.
Item
4
– Submission of Matters to a Vote of Security Holders
The
Annual General Meeting of Shareholders of the Company was held on June 4, 2008.
The items voted upon by the Company’s shareholders included nominations to elect
eleven members of the Company’s board of directors, approval of the Amended and
Restated Bye-laws of the Company, the appointment of independent auditors and
a
shareholder proposal requiring a shareholder vote on an advisory resolution
with
respect to executive compensation. The shareholders voted as follows on the
following matters:
The
elections of each of the following directors to hold office for a one-year
term
expiring in 2009 were approved by the following votes:
|
|
Votes
|
|
Votes
|
|
|
|
For
|
|
Withheld
|
|
A.C.
Berzin
|
|
|
238,319,602
|
|
|
5,695,393
|
|
G.D.
Forsee
|
|
|
237,233,457
|
|
|
6,781,538
|
|
P.C.
Godsoe
|
|
|
235,426,586
|
|
|
8,588,409
|
|
H.L.
Henkel
|
|
|
234,746,559
|
|
|
9,268,436
|
|
C.J.
Horner
|
|
|
226,689,439
|
|
|
17,325,556
|
|
H.
Lichtenberger
|
|
|
232,960,040
|
|
|
11,054,955
|
|
T.E.
Martin
|
|
|
224,719,373
|
|
|
19,295,622
|
|
P.
Nachtigal
|
|
|
238,138,095
|
|
|
5,876,900
|
|
O.R.
Smith
|
|
|
225,954,385
|
|
|
18,060,610
|
|
R.J.
Swift
|
|
|
237,315,914
|
|
|
6,699,081
|
|
T.L.
White
|
|
|
237,226,571
|
|
|
6,788,424
|
|
The
Amended and Restated Bye-laws of the Company was approved by a vote of
236,426,245 shares voting for, 5,037,819 shares voting against and 2,550,930
shares abstaining.
The
reappointment of the Company’s independent auditors, PricewaterhouseCoopers, was
approved by a vote of 236,537,884 shares voting for, 5,151,694 shares voting
against, and 2,325,416 shares abstaining.
The
shareholder proposal requiring a shareholder vote on an advisory resolution
with
respect to executive compensation was approved by a vote of 110,631,290 shares
voting for, 94,162,221 shares voting against, 13,426,719 shares abstaining
and
25,794,765 shares not voting.
Item
6
– Exhibits
Pursuant
to the rules and regulations of the SEC, the Company has filed certain
agreements as exhibits to this Quarterly Report on Form 10-Q. These
agreements may contain representations and warranties by the parties. These
representations and warranties have been made solely for the benefit of the
other party or parties to such agreements and (i) may have been qualified
by disclosures made to such other party or parties, (ii) were made only as
of the date of such agreements or such other date(s) as may be specified in
such
agreements and are subject to more recent developments, which may not be fully
reflected in our public disclosure, (iii) may reflect the allocation of
risk among the parties to such agreements and (iv) may apply materiality
standards different from what may be viewed as material to investors.
Accordingly, these representations and warranties may not describe our actual
state of affairs at the date hereof and should not be relied upon.
Exhibit
No.
|
|
Description
|
|
Method
of Filing
|
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger, dated as of December 15, 2007, among Ingersoll-Rand
Company Limited, Indian Merger Sub, Inc. and Trane Inc.
|
|
Incorporated
by reference to Exhibit 2.1 to the Company’s Form 8-K (File No. 001-16831)
filed with the SEC on 12/17/2007.
|
2.2
|
|
Separation
and Distribution Agreement, dated as of July 16, 2007, by and between
American Standard Companies Inc. and WABCO Holdings Inc.
|
|
Incorporated
by reference to Exhibit 2.1 to Trane Inc.’s Form 8-K (File No. 001-11415)
filed with the SEC on 07/20/2007.
|
4.1
|
|
None
of the instruments defining the rights of holders of long-term debt
represented long-term debt in excess of 10% of the total assets of
Ingersoll-Rand Company Limited as of June 30, 2008. Ingersoll-Rand
Company
Limited hereby agrees to furnish to the SEC, upon request, a copy
of any
such instrument.
|
|
|
10.1
|
|
Issuing
and Paying Agency Agreement among Ingersoll-Rand Global Holding Company
Limited, Ingersoll-Rand Company Limited and JPMorgan Chase Bank,
National
Association, dated as of May 22, 2008
|
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 05/29/2008.
|
10.2
|
|
Commercial
Paper Dealer Agreement among Ingersoll-Rand Global Holding Company
Limited, Ingersoll-Rand Company Limited and J.P. Morgan Securities
Inc.,
dated as of May 22, 2008
|
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 05/29/2008.
|
10.3
|
|
Commercial
Paper Dealer Agreement among Ingersoll-Rand Global Holding Company
Limited, Ingersoll-Rand Company Limited and Banc of America Securities
LLC, dated as of May 22, 2008
|
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 05/29/2008.
|
10.4
|
|
Commercial
Paper Dealer Agreement among Ingersoll-Rand Global Holding Company
Limited, Ingersoll-Rand Company Limited and Citigroup Global Markets
Inc.,
dated as of May 22, 2008
|
|
Incorporated
by reference to Exhibit 10.4 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 05/29/2008.
|
10.5
|
|
Commercial
Paper Dealer Agreement among Ingersoll-Rand Global Holding Company
Limited, Ingersoll-Rand Company Limited and Deutsche Bank Securities
Inc.,
dated as of May 22, 2008
|
|
Incorporated
by reference to Exhibit 10.5 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on
05/29/2008.
|
10.6
|
|
Credit
Agreement among Ingersoll-Rand Company Limited; Ingersoll-Rand Global
Holding Company Limited; JPMorgan Chase Bank, N.A., as administrative
agent; Credit Suisse Securities (USA) LLC and Goldman Sachs Credit
Partners L.P., as syndication agents; J.P. Morgan Securities Inc.,
Credit
Suisse Securities (USA) LLC and Goldman Sachs Credit Partners L.P.,
as
joint lead arrangers and joint bookrunners; and the lending institutions
from time to time parties thereto
|
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 06/05/2008.
|
10.7
|
|
Credit
Agreement among Ingersoll-Rand Company Limited; Ingersoll-Rand Global
Holding Company Limited; J.P. Morgan Chase Bank, N.A., as Administrative
Agent, Citibank, N.A., as Syndication Agent, Bank of America, N.A.,
Deutsche Bank Securities Inc., The Bank of Tokyo Mitsubishi, Ltd.,
New
York Branch, BNP Paribas and William Street LLC, as Documentation
Agents,
and J.P. Morgan Securities Inc. and Citigroup Global Markets Inc.,
as
joint lead arrangers and joint bookrunners; and certain lending
institutions from time to time parties thereto
|
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 06/30/2008.
|
10.8
|
|
Steven
R. Shawley Offer Letter, dated June 5, 2008
|
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 06/10/2008.
|
10.9
|
|
Addendum to
Steven R.
Shawley Offer Letter, dated August 7, 2008 |
|
Filed
herewith.
|
10.10
|
|
Michael
W. Lamach Addendum, dated June 4, 2008
|
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 06/10/2008.
|
10.11
|
|
David
R. Pannier Offer Letter, dated April 7, 2008
|
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 06/10/2008.
|
10.12
|
|
Didier
Teirlinck Offer Letter, dated June 5, 2008
|
|
Incorporated
by reference to Exhibit 10.4 to the Company’s Form 8-K (File No.
001-16831) filed with the SEC on 06/10/2008.
|
10.13
|
|
Addendum
to Didier Teirlinck Offer Letter, dated July 17, 2008
|
|
Filed
herewith.
|
10.14
|
|
Steven
B. Hochhauser Offer Letter, dated June 6, 2008 (as revised on June
10,
2008)
|
|
Filed
herewith.
|
10.15
|
|
Trane
Inc. 2002 Omnibus Incentive Plan
|
|
Incorporated
by reference to Exhibit 4.1 to the Company’s Post-Effective Amendment No.
1 on Form S-8 to the Registration Statement on Form S-4 (File No.
333-149537) filed with the SEC on 06/12/2008.
|
10.16
|
|
Trane
Inc. Stock Incentive Plan
|
|
Incorporated
by reference to Exhibit 4.2 to the Company’s Post-Effective Amendment No.
1 on Form S-8 to the Registration Statement on Form S-4 (File No.
333-149537) filed with the SEC on 06/12/2008.
|
10.17
|
|
Trane
Inc. Deferred Compensation Plan
|
|
Incorporated
by reference to Exhibit 4.5 to the Company’s Registration Statement on
Form S-8 (File No. 333-151607) filed with the SEC on
06/12/2008.
|
10.18
|
|
Trane
Inc. Supplemental Savings Plan (restated to include all amendments
through
June 5, 2008)
|
|
Filed
herewith.
|
10.19
|
|
Trane
Inc. Executive Supplemental Retirement Benefit Program (restated
to
include all amendments through December 6, 2007)
|
|
Incorporated
by reference to Exhibit 10.9 to Trane Inc.’s Form 10-K for the fiscal year
ended December 31, 2007 (File No. 001-11415) filed with the SEC on
02/20/2008.
|
10.20
|
|
Trane
Inc. Corporate Officer Severance Plan (restated to include all amendments
through December 6, 2007)
|
|
Incorporated
by reference to Exhibit 10.12 to Trane Inc.’s Form 10-K for the fiscal
year ended December 31, 2007 (File No. 001-11415) filed with the
SEC on
02/20/2008.
|
10.21
|
|
Addendum
to Stock Incentive Plan to comply with local regulations in the United
Kingdom with respect to options granted in that country
|
|
Incorporated
by reference to Exhibit (10)(xii) to Trane Inc.’s Form 10-K for
the fiscal year ended December 31, 1999 (File No. 001-11415) filed
with the SEC on 03/30/2000.
|
10.22
|
|
Addendum
to Stock Incentive Plan revised to comply with local regulations
in France
with respect to options granted in that country
|
|
Incorporated
by reference to Exhibit (10)(xiii) to Trane Inc.’s Form 10-K for
the fiscal year ended December 31, 1999 (File No. 001-11415) filed
with the SEC on 03/30/2000.
|
10.23
|
|
Second
Addendum for French Participants to Stock Incentive Plan in governing
options granted to participants in France on or after May 16, 2001
|
|
Incorporated
by reference to Exhibit (10)(xix) to Trane Inc.’s Form 10-K for
the fiscal year ended December 31, 2002 (File No. 001-11415) filed
with the SEC on 03/14/2003.
|
10.24
|
|
Addendum
to Stock Incentive Plan for Canadian participants to comply with
local
regulation in Canada with
respect to options granted in that country
|
|
Incorporated
by reference to Exhibit 10.2 to Trane Inc.’s Form 10-Q for the
period ended June 30, 2004 (File No. 001-11415) filed with the SEC on
07/29/2004.
|
10.25
|
|
Form
of Stock Option Agreement for U.S. Employees
|
|
Incorporated
by reference to Exhibit 10.39 to Trane Inc.’s Form 10-K for the fiscal
year ended December 31, 2005 (File No. 001-11415) filed with the
SEC on
02/24/2006.
|
10.26
|
|
Form
of Stock Option Agreement for Non-U.S. Employees
|
|
Incorporated
by reference to Exhibit 10.40 to Trane Inc.’s Form 10-K for the fiscal
year ended December 31, 2005 (File No. 001-11415) filed with the
SEC on
02/24/2006.
|
10.27
|
|
Tax
Sharing Agreement, dated as of July 16, 2007, by and among American
Standard Companies Inc. and certain of its subsidiaries and WABCO
Holdings
Inc. and certain of its subsidiaries
|
|
Incorporated
by reference to Exhibit 10.1 to Trane Inc.’s Form 8-K (File No. 001-11415)
filed with the SEC on 07/20/2007.
|
10.28
|
|
Transition
Services Agreement, dated as of July 16, 2007, by and between American
Standard Companies Inc. and WABCO Holdings Inc.
|
|
Incorporated
by reference to Exhibit 10.2 to Trane Inc.’s Form 8-K (File No. 001-11415)
filed with the SEC on 07/20/2007.
|
10.29
|
|
Employee
Matters Agreement, dated as of July 16, 2007, by and between American
Standard Companies Inc. and WABCO Holdings Inc.
|
|
Incorporated
by reference to Exhibit 10.3 to Trane Inc.’s Form 8-K (File No. 001-11415)
filed with the SEC on 07/20/2007.
|
10.30
|
|
Indemnification
and Cooperation Agreement, dated as of July 16, 2007, by and among
American Standard Companies Inc. and certain of its subsidiaries
and WABCO
Holdings Inc. and certain of its subsidiaries
|
|
Incorporated
by reference to Exhibit 10.4 to Trane Inc.’s Form 8-K (File No. 001-11415)
filed with the SEC on 07/20/2007.
|
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.
|
INGERSOLL-RAND
COMPANY LIMITED
SIGNATURES
Pursuant
to the requirements 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)
|
Date:
August 8, 2008
|
/s/
Steven R. Shawley
|
|
Steven
R. Shawley, Senior Vice President
|
|
and
Chief Financial Officer
|
|
|
|
Principal
Financial Officer
|
|
|
Date:
August 8, 2008
|
/s/
Richard W. Randall
|
|
Richard
W. Randall, Vice President and
|
|
Controller
|
|
|
|
Principal
Accounting Officer
|