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INGERSOLL RAND CO LTD 10-Q 2005

Documents found in this filing:

  1. 10-Q
  2. Ex-3.(Ii)
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. Ex-32
Unassociated Document

FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005

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)

Bermuda
(State or other jurisdiction of
incorporation or organization)
 
75-2993910
(I.R.S. Employer
Identification No.)
Clarendon House
2 Church Street
Hamilton HM 11, Bermuda
(Address of principal executive offices)

(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 an accelerated filer (as defined in Rule12b-2 of the Exchange Act). Yes x  No o

The number of Class A common shares outstanding as of July 29, 2005 was 168,657,230.





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, 2005 and 2004
 
     
 
Condensed Consolidated Balance Sheet at June 30, 2005 and December 31,
 
 
2004
 
     
 
Condensed Consolidated Statement of Cash Flows for the six months
 
 
ended June 30, 2005 and 2004
 
     
 
Notes to Condensed Consolidated Financial Statements
 
     
     
 
Item 2 - Management's Discussion and Analysis of Financial Condition
 
 
and Results of Operations
 
     
 
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
 
     
 
Item 4 - Controls and Procedures
 
     
PART II
OTHER INFORMATION
 
     
 
Item 1 - Legal Proceedings
 
     
 
Item 2 - Unregistered Sales of Securities and Use of Proceeds
 
     
 
Item 4 - Submission of Matters to a Vote of Security Holders
 
     
 
Item 6 - Exhibits
 
     
SIGNATURES
 
     
CERTIFICATIONS
 
 
2

 
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements

INGERSOLL-RAND COMPANY LIMITED
CONDENSED CONSOLIDATED INCOME STATEMENT
                   
   
Three months ended
 
Six months ended
 
   
June 30,
 
June 30,
 
In millions, except per share amounts
 
2005
 
2004
 
2005
 
2004
 
Net revenues
 
$
2,759.5
 
$
2,444.4
 
$
5,218.3
 
$
4,566.6
 
Cost of goods sold
   
2,019.1
   
1,783.0
   
3,829.8
   
3,337.6
 
Selling and administrative expenses
   
361.3
   
342.7
   
712.5
   
684.9
 
Operating income
   
379.1
   
318.7
   
676.0
   
544.1
 
Interest expense
   
(37.7
)
 
(39.7
)
 
(74.2
)
 
(80.4
)
Other income (expense), net
   
10.2
   
(1.5
)
 
17.4
   
(4.9
)
Earnings before income taxes
   
351.6
   
277.5
   
619.2
   
458.8
 
Provision for income taxes
   
59.8
   
38.3
   
95.1
   
56.9
 
Earnings from continuing operations
   
291.8
   
239.2
   
524.1
   
401.9
 
Discontinued operations, net of tax
   
(6.4
)
 
47.0
   
(15.6
)
 
63.8
 
Net earnings
 
$
285.4
 
$
286.2
 
$
508.5
 
$
465.7
 
                           
Basic earnings per common share:
                         
Earnings from continuing operations
 
$
1.72
 
$
1.38
 
$
3.07
 
$
2.31
 
Discontinued operations, net of tax
   
(0.03
)
 
0.27
   
(0.09
)
 
0.37
 
Net earnings
 
$
1.69
 
$
1.65
 
$
2.98
 
$
2.68
 
                           
Diluted earnings per common share:
                         
Earnings from continuing operations
 
$
1.71
 
$
1.36
 
$
3.03
 
$
2.28
 
Discontinued operations, net of tax
   
(0.04
)
 
0.27
   
(0.09
)
 
0.36
 
Net earnings
 
$
1.67
 
$
1.63
 
$
2.94
 
$
2.64
 
                           
Dividends per common share
 
$
0.25
 
$
0.19
 
$
0.50
 
$
0.38
 
 
See accompanying notes to condensed consolidated financial statements.
 
3



INGERSOLL-RAND COMPANY LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET
           
In millions
 
June 30, 2005
 
December 31, 2004
 
ASSETS
             
Current assets:
             
Cash and cash equivalents
 
$
915.6
 
$
1,703.7
 
Accounts and notes receivable, net
   
1,786.1
   
1,498.4
 
Inventories
   
1,210.8
   
1,058.8
 
Prepaid expenses and deferred income taxes
   
360.2
   
348.8
 
Total current assets
   
4,272.7
   
4,609.7
 
               
Property, plant and equipment, net
   
1,073.0
   
1,013.2
 
Goodwill
   
4,464.3
   
4,211.0
 
Intangible assets, net
   
792.5
   
618.2
 
Other assets
   
950.3
   
962.5
 
Total assets
 
$
11,552.8
 
$
11,414.6
 
               
LIABILITIES AND EQUITY
             
Current liabilities:
             
Accounts payable
 
$
772.7
 
$
684.0
 
Accrued expenses and other current liabilities
   
1,076.2
   
1,146.6
 
Accrued compensation and benefits
   
364.8
   
433.5
 
Current maturities of long-term debt and loans payable
   
983.9
   
612.8
 
Total current liabilities
   
3,197.6
   
2,876.9
 
 
             
Long-term debt
   
1,189.7
   
1,267.6
 
Postemployment and other benefit liabilities
   
1,036.3
   
1,018.1
 
Other noncurrent liabilities
   
570.9
   
518.2
 
Total liabilities
   
5,994.5
   
5,680.8
 
               
Shareholders' equity:
             
Class A common shares
   
168.6
   
173.1
 
Other shareholders' equity
   
5,539.8
   
5,497.9
 
Accumulated other comprehensive income
   
(150.1
)
 
62.8
 
Total shareholders' equity
   
5,558.3
   
5,733.8
 
Total liabilities and shareholders' equity
 
$
11,552.8
 
$
11,414.6
 

See accompanying notes to condensed consolidated financial statements.

4

 

INGERSOLL-RAND COMPANY LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
           
   
Six months ended June 30,
 
In millions
 
2005
 
2004
 
Cash flows from operating activities:
             
Earnings from continuing operations
   
524.1
   
401.9
 
Adjustments to arrive at net cash used in operating activities:
             
Depreciation and amortization
   
98.0
   
87.0
 
Changes in other assets and liabilities, net
   
(451.9
)
 
(271.2
)
Other, net
   
(45.8
)
 
33.3
 
Net cash provided by operating activities
   
124.4
   
251.0
 
               
Cash flows from investing activities:
             
Capital expenditures
   
(58.2
)
 
(43.8
)
Acquisitions, net of cash
   
(412.0
)
 
(21.2
)
Proceeds from business disposition
   
3.7
   
196.5
 
Proceeds from sale of property, plant and equipment
   
9.0
   
27.2
 
Other, net
   
4.5
   
2.3
 
Net cash (used in) provided by investing activities
   
(453.0
)
 
161.0
 
               
Cash flows from financing activities:
             
Decrease in short-term borrowings
   
(21.9
)
 
(6.1
)
Proceeds from long-term debt
   
300.4
   
1.1
 
Payments of long-term debt
   
(151.2
)
 
(252.0
)
Net change in debt
   
127.3
   
(257.0
)
Dividends paid
   
(85.3
)
 
(66.1
)
Proceeds from exercise of stock options
   
69.5
   
90.9
 
Redemption of preferred stock of subsidiary
   
(63.3
)
 
-
 
Purchase of treasury shares
   
(478.6
)
 
(215.8
)
Net cash used in financing activities
   
(430.4
)
 
(448.0
)
               
Net cash used in discontinued operations
   
(17.9
)
 
(5.1
)
               
Effect of exchange rate changes on cash and cash equivalents
   
(11.2
)
 
(1.9
)
               
Effect of change in fiscal year end of business
   
-
   
(23.8
)
               
Net decrease in cash and cash equivalents
   
(788.1
)
 
(66.8
)
Cash and cash equivalents - beginning of period
   
1,703.7
   
417.2
 
Cash and cash equivalents - end of period
 
$
915.6
 
$
350.4
 
 
See accompanying notes to condensed consolidated financial statements.
 
5


INGERSOLL-RAND COMPANY LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - 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 financial position, results of operations and cash flows for all periods presented.

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Ingersoll-Rand Company Limited (the Company or IR-Limited) Annual Report on Form 10-K for the year ended December 31, 2004. The accompanying condensed consolidated financial statements restate the three and six months ended June 30, 2004, previously presented in order to report the Company’s Dresser-Rand business unit as discontinued operations.

Note 2 - Incentive Stock Plans
Under the Company’s incentive stock plans, approved in 1995 and 1998, key employees have been granted options to purchase Class A common shares. The Company continues to account for these plans under the recognition and measurement principles of APB No. 25, “Accounting for Stock Issued to Employees.” Accordingly, no compensation expense is recognized for employee stock options since options granted are at prices not less than fair market value at the date of grant. The plans also authorize stock appreciation rights and stock awards, which result in compensation expense. Additionally, the Company maintains a shareholder-approved Management Incentive Unit Award Plan, which results in compensation expense. Compensation expense is recognized as a result of vesting and the Company’s Class A common share price. Fluctuations in the Company’s Class A common share price increase or decrease compensation expense.

The following table is presented in accordance with Statement of Financial Accounting Standard (SFAS) No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure” and illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:


6


   
Three months
 
Six months
 
   
ended June 30,
 
ended June 30,
 
In millions, except per share amounts
 
2005
 
2004
 
2005
 
2004
 
Net earnings, as reported
 
$
285.4
 
$
286.2
 
$
508.5
 
$
465.7
 
Add (Deduct): Stock-based employee compensation
                         
(income) expense included in reported net
                         
income, net of tax
   
(4.4
)
 
0.7
   
(7.2
)
 
11.0
 
Deduct: Total stock-based employee compensation
                         
expense determined under fair value based
                         
method for all awards, net of tax
   
4.0
   
7.8
   
8.6
   
24.0
 
Pro forma net earnings
 
$
277.0
 
$
279.1
 
$
492.7
 
$
452.7
 
                           
Basic earnings per share:
                         
As reported
 
$
1.69
 
$
1.65
 
$
2.98
 
$
2.68
 
Pro forma
   
1.64
   
1.61
   
2.88
   
2.60
 
                           
Diluted earnings per share:
                         
As reported
 
$
1.67
 
$
1.63
 
$
2.94
 
$
2.64
 
Pro forma
   
1.62
   
1.59
   
2.85
   
2.56
 
 
Note 3 - Inventories
Inventories are stated at cost, which is not in excess of market. Most U.S. manufactured inventories, excluding the Climate Control Technologies segment, are valued on the last-in, first-out (LIFO) method. All other inventories are valued using the first-in, first-out (FIFO) method. The composition of inventories is as follows:

In millions
 
June 30, 2005
 
December 31, 2004
 
Raw materials and supplies
 
$
422.2
 
$
359.4
 
Work-in-process
   
223.9
   
190.1
 
Finished goods
   
668.8
   
612.3
 
     
1,314.9
   
1,161.8
 
Less - LIFO reserve
   
104.1
   
103.0
 
Total
 
$
1,210.8
 
$
1,058.8
 
 
Note 4 - Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the six months ended June 30, 2005, is as follows:

   
Climate
 
Compact
                 
   
Control
 
Vehicle
 
Construction
 
Industrial
 
Security
     
In millions
 
Technologies
 
Technologies
 
Technologies
 
Technologies
 
Technologies
 
Total
 
Balance at December 31, 2004
 
$
2,618.7
 
$
801.4
 
$
101.3
 
$
119.4
 
$
570.2
 
$
4,211.0
 
Acquisitions
   
0.6
   
1.1
   
14.0
   
20.9
   
340.5
   
377.1
 
Translation adjustments
   
(60.8
)
 
(3.5
)
 
(1.2
)
 
(4.4
)
 
(53.9
)
 
(123.8
)
Balance at June 30, 2005
 
$
2,558.5
 
$
799.0
 
$
114.1
 
$
135.9
 
$
856.8
 
$
4,464.3
 

7

 
In January 2005, the Company acquired the remaining 70% interest in CISA, S.p.A. for $267.3 million in cash and the assumption of $244.4 million of debt. The Company is commencing its acquisition integration plan, which will include such actions as facility closures and severance that will result in recording additional goodwill. This plan will be finalized during the third quarter of 2005. Additionally, the Company may record adjustments to goodwill from the finalization of estimates.

The following table sets forth the gross amount and accumulated amortization of the Company’s intangible assets:

   
June 30, 2005
 
December 31, 2004
 
   
Gross
 
Accumulated
 
Gross
 
Accumulated
 
In millions
 
amount
 
amortization
 
amount
 
amortization
 
Customer relationships
 
$
476.8
 
$
51.2
 
$
384.9
 
$
44.5
 
Software
   
146.4
   
73.9
   
141.6
   
61.3
 
Trademarks
   
93.0
   
3.3
   
12.1
   
6.5
 
Other
   
87.6
   
38.1
   
71.6
   
35.1
 
Total amortizable intangible assets
   
803.8
   
166.5
   
610.2
   
147.4
 
Total indefinite lived intangible assets - trademarks
   
155.2
   
-
   
155.4
   
-
 
Total
 
$
959.0
 
$
166.5
 
$
765.6
 
$
147.4
 
 
Intangible asset amortization expense for the three months ended June 30, 2005 and 2004 was $14.8 million and $7.4 million, respectively. Intangible asset amortization expense for the six months ended June 30, 2005 and 2004 was $26.6 million and $16.7 million, respectively. Estimated intangible asset amortization expense for each of the next five fiscal years is expected to be $48.9 million in 2006, $34.7 million in 2007, $29.3 million in 2008, $25.8 million in 2009, and $23.6 million in 2010.

Note 5 - Weighted-Average Common Shares
Information on basic and diluted shares is as follows:

   
Three months ended
 
Six months ended
 
   
June 30,
 
June 30,
 
In millions
 
2005
 
2004
 
2005
 
2004
 
Weighted-average number of basic shares
   
169.3
   
173.1
   
170.8
   
173.8
 
Shares issuable under incentive stock plans
   
1.8
   
2.2
   
2.0
   
2.3
 
Weighted-average number of diluted shares
   
171.1
   
175.3
   
172.8
   
176.1
 

Diluted earnings per share computations for the three months ended June 30, 2005 and 2004 excluded the weighted-average effect of the assumed exercise of approximately 2.9 million and 0.1 million shares issuable under stock benefit plans, respectively. Excluded for the six months ended June 30, 2004 were 0.1 million shares. These shares were excluded because the effect on the computation of earnings per share would be anti-dilutive.

Note 6 - Comprehensive Income
The components of comprehensive income are as follows:

8


   
Three months ended
 
Six months ended
 
   
June 30,
 
June 30,
 
In millions
 
2005
 
2004
 
2005
 
2004
 
Net earnings
 
$
285.4
 
$
286.2
 
$
508.5
 
$
465.7
 
Other comprehensive income:
                         
Foreign currency translation adjustment
   
(128.3
)
 
(21.1
)
 
(219.0
)
 
(26.3
)
Change in fair value of derivatives qualifying
                         
as cash flow hedges, net of tax
   
0.5
   
1.7
   
6.1
   
12.4
 
Comprehensive income
 
$
157.6
 
$
266.8
 
$
295.6
 
$
451.8
 
 
Included in accumulated other comprehensive income at June 30, 2005, is a $2.5 million gain related to the fair value of foreign currency derivatives qualifying as cash flow hedges, all of which is expected to be reclassified to earnings over the twelve-month period ending June 30, 2006. Additionally, an $8.6 million loss, related to an interest rate derivative qualified as a cash flow hedge of the forecasted issuance of debt, is included in accumulated other comprehensive income at June 30, 2005. During the next twelve months, $0.9 million is expected to be reclassified to earnings, with the total being reclassified over the next 10 years. The actual amounts that will be reclassified to earnings over the next twelve months may vary from these amounts as a result of changes in market conditions. No amounts were reclassified to earnings during the quarter in connection with forecasted transactions that were no longer considered probable of occurring.

Note 7 - Commitments and Contingencies
The Company is involved in various litigations, claims and administrative proceedings, including environmental and product liability matters. Amounts recorded for identified contingent liabilities are estimates, which are reviewed periodically and adjusted to reflect additional information when it becomes available. Subject to the uncertainties inherent in estimating future costs for contingent liabilities, management believes that the liability, which may result from these legal matters, would not have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.

In assessing its potential environmental liability, the Company bases its estimates on current laws and regulations and current remediation technologies. The Company does not discount its liability or assume any insurance recoveries.

Ingersoll-Rand Company (IR-New Jersey), a Company subsidiary, is a defendant in numerous 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 claims against IR-New Jersey generally allege injury caused by exposure to asbestos contained in certain of IR-New Jersey’s products. Although IR-New Jersey was neither a producer nor a manufacturer of asbestos, some of its formerly manufactured products utilized asbestos-containing components, such as gaskets, purchased from third-party suppliers.

All claims resolved to date have been dismissed or settled. For the six months ended June 30, 2005, total costs for settlement and defense of asbestos claims after insurance recoveries and net of tax were approximately $7.7 million as compared to $7.9 million for the six months ended June 30, 2004. The Company performs a thorough analysis, updated periodically, of its actual and potential asbestos liabilities projected seven years in the future. Based upon such analysis, the Company believes that its reserves and insurance are adequate to cover its asbestos liabilities, and that these liabilities are not likely to have a material effect on its financial position, results of operations, liquidity or cash flows.

9

 
Legislation currently under consideration in Congress concerns pending and future asbestos-related personal injury claims. It is uncertain what effect, if any, passage of such legislation would have upon the Company’s financial position, results of operations or cash flows.

The Company sells product on a continuous basis under various arrangements through institutions that provide leasing and product financing alternatives to retail and wholesale customers. Under these arrangements, the Company is contingently liable for loan guarantees and residual values of equipment of approximately $5.7 million, including consideration of ultimate net loss provisions. The risk of loss to the Company is minimal, and historically, only immaterial losses have been incurred relating to these arrangements since the fair value of the underlying equipment that serves as collateral is generally in excess of the contingent liability. Management believes these guarantees will not adversely affect the condensed consolidated financial statements.

The Company has remained contingently liable for approximately $25.7 million relating to performance bonds associated with prior sale of products of IDP, which the Company divested in 2000. The acquirer of IDP is the primary obligor under these performance bonds. However, should the acquirer default under these arrangements the Company would be required to satisfy these financial obligations. The Company estimates that $11.9 million of the obligation will expire during the second half of 2005. The remainder extends through 2008.

The Company is contingently liable for customs duties in certain non-U.S. countries which totaled $6.7 million at June 30, 2005. These amounts are not accrued as the Company intends on exporting the product to another country for final sale.

In connection with the disposition of certain businesses and facilities, the Company has indemnified the purchasers for the expected cost of remediation of environmental contamination, if any, existing on the date of disposition. Such expected costs are accrued when environmental assessments are made or remedial efforts are probable and the costs can be reasonably estimated.

The following table represents the changes in the product warranty liability for the six months ended June 30, 2005:

In millions
     
Beginning balance
 
$
190.5
 
Reductions for payments
   
(45.2
)
Accruals for warranties issued during the period
   
39.4
 
Changes to accruals related to preexisting warranties
   
4.3
 
Acquisitions
   
0.5
 
Translation
   
(4.0
)
Ending balance
 
$
185.5
 

Note 8 - Postretirement Benefits Other Than Pensions
The Company sponsors several postretirement plans that cover certain eligible employees. These plans provide for health care benefits, and in some instances, life insurance benefits. Postretirement health plans generally are contributory and contributions are adjusted annually. Life insurance plans for retirees are primarily noncontributory. The Company funds the postretirement benefit costs principally on a pay-as-you-go basis. The components of net periodic postretirement benefits cost for the three and six months ended June 30, were as follows:

10


   
Three months ended
 
Six months ended
 
   
June 30,
 
June 30,
 
In millions
 
2005
 
2004
 
2005
 
2004
 
Service cost
 
$
2.5
 
$
2.6
 
$
4.9
 
$
5.3
 
Interest cost
   
13.5
   
14.1
   
27.0
   
29.0
 
Net amortization and deferral losses
   
2.6
   
2.2
   
5.1
   
5.9
 
Net postretirement benefit expense
 
$
18.6
 
$
18.9
 
$
37.0
 
$
40.2
 
 
Note 9 - Pension Plans
The Company has noncontributory pension plans covering substantially all U.S. employees. In addition, certain non-U.S. employees in other countries are covered by pension plans. The Company’s pension plans for U.S. non-collectively bargained employees provide benefits on a modest final average pay formula. The Company’s U.S. collectively bargained pension plans principally provide benefits based on a flat benefit formula. Non-U.S. plans provide benefits based on an earnings formula and years of service. In addition, the Company maintains 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, include the following:

   
June 30,
 
June 30,
 
In millions
 
2005
 
2004
 
2005
 
2004
 
Service cost
 
$
13.3
 
$
12.7
 
$
26.0
 
$
26.3
 
Interest cost
   
40.3
   
44.9
   
80.4
   
89.9
 
Expected return on plan assets
   
(53.0
)
 
(56.0
)
 
(107.6
)
 
(111.9
)
Net amortization of unrecognized:
                         
Prior service costs
   
2.0
   
2.1
   
4.2
   
4.3
 
Transition amount
   
0.3
   
0.2
   
0.5
   
0.4
 
Plan net losses
   
6.2
   
5.5
   
11.1
   
10.9
 
Net pension cost
   
9.1
   
9.4
   
14.6
   
19.9
 
Curtailment/settlement losses
   
-
   
0.6
   
2.1
   
0.6
 
Net pension cost after curtailments/settlements
 
$
9.1
 
$
10.0
 
$
16.7
 
$
20.5
 

A settlement loss was recorded in the first quarter of 2005 as a result of lump sum distributions under supplemental benefit plans for officers and other key employees. The curtailment loss in the second quarter of 2004 relates to a non-U.S. location included in the sale of Drilling Solutions.

The Company made required contributions of $15.9 million to its pension plans during the six months ended June 30, 2005. The Company contributed $17.0 million in required contributions and $40.0 million in discretionary contributions to its pension plans during the six months ended June 30, 2004.

Note 10 - Business Segment Information
During the first quarter of 2005, the Company realigned its internal organization and operating segments to reflect its diversified structure and to promote greater transparency of results. The former Infrastructure segment has been disaggregated into two segments - the Compact Vehicle Technologies segment (formerly named the Bobcat and Club Car segment in the first quarter) and the Construction Technologies segment. Dresser-Rand (formerly its own reportable segment), which was sold in 2004, is now shown in discontinued operations. The prior year segment results have been presented to conform to these changes.

11

 
A summary of operations by reportable segment is as follow:

   
Three months ended
 
Six months ended
 
   
June 30,
 
June 30,
 
In millions
 
2005
 
2004
 
2005
 
2004
 
Net revenues
                         
Climate Control Technologies
 
$
728.0
 
$
727.3
 
$
1,367.4
 
$
1,364.8
 
Compact Vehicle Technologies
   
726.7
   
604.1
   
1,387.3
   
1,110.6
 
Construction Technologies
   
343.1
   
282.4
   
612.6
   
502.5
 
Industrial Technologies
   
432.2
   
388.0
   
835.7
   
731.4
 
Security Technologies
   
529.5
   
442.6
   
1,015.3
   
857.3
 
Total
 
$
2,759.5
 
$
2,444.4
 
$
5,218.3
 
$
4,566.6
 
                           
Operating income (loss)
                         
Climate Control Technologies
 
$
83.7
 
$
91.5
 
$
143.9
 
$
149.5
 
Compact Vehicle Technologies
   
117.2
   
98.6
   
225.7
   
171.7
 
Construction Technologies
   
41.8
   
37.1
   
67.5
   
55.6
 
Industrial Technologies
   
59.1
   
43.3
   
106.4
   
77.1
 
Security Technologies
   
94.9
   
62.6
   
163.9
   
134.7
 
Unallocated corporate expense
   
(17.6
)
 
(14.4
)
 
(31.4
)
 
(44.5
)
Total
 
$
379.1
 
$
318.7
 
$
676.0
 
$
544.1
 

No significant changes in long-lived assets by geographic area have occurred since December 31, 2004.

Note 11 - IR New Jersey
IR-Limited has guaranteed all of the issued public debt securities of a wholly owned subsidiary, IR-New Jersey, while certain debt of IR-Limited is guaranteed by IR-New Jersey. The guarantees are full and unconditional, and no other subsidiary of the Company guarantees the securities. The following condensed consolidated financial information for IR-Limited, IR-New Jersey, and all their other subsidiaries is included so that separate financial statements of IR-New Jersey are not required to be filed with the U.S. Securities and Exchange Commission.

The condensed consolidating financial statements present IR-Limited and IR-New Jersey investments in their subsidiaries using the equity method of accounting. Intercompany investments in the non-voting Class B common shares are accounted for on the cost method and are reduced by intercompany dividends.

12


Condensed Consolidating Income Statement
For the three months ended June 30, 2005
 
   
IR-
 
IR-
 
Other
 
Consolidating
 
IR-Limited
 
In millions
 
Limited
 
New Jersey
 
Subsidiaries
 
Adjustments
 
Consolidated
 
Net revenues
 
$
-
 
$
440.5
 
$
2,319.0
 
$
-
 
$
2,759.5
 
Cost of goods sold
   
-
   
334.5
   
1,684.6
   
-
   
2,019.1
 
Selling and administrative expenses
   
-
   
76.5
   
284.8
   
-
   
361.3
 
Operating income
   
-
   
29.5
   
349.6
   
-
   
379.1
 
Equity earnings in affiliates (net of tax)
   
289.9
   
158.8
   
98.0
   
(546.7
)
 
-
 
Interest expense
   
(1.9
)
 
(26.6
)
 
(9.2
)
 
-
   
(37.7
)
Intercompany interest and fees
   
(2.3
)
 
(93.6
)
 
95.9
   
-
   
-
 
Other income (expense), net
   
(0.3
)
 
7.7
   
2.8
   
-
   
10.2
 
Earnings before income taxes
   
285.4
   
75.8
   
537.1
   
(546.7
)
 
351.6
 
(Benefit) provision for income taxes
   
-
   
(26.0
)
 
85.8
   
-
   
59.8
 
Earnings (loss) from continuing operations
   
285.4
   
101.8
   
451.3
   
(546.7
)
 
291.8
 
Discontinued operations, net of tax
   
-
   
(4.0
)
 
(2.4
)
 
-
   
(6.4
)
Net earnings
 
$
285.4
 
$
97.8
 
$
448.9
 
$
(546.7
)
$
285.4
 

Condensed Consolidating Income Statement
For the six months ended June 30, 2005
 
   
IR-
 
IR-
 
Other
 
Consolidating
 
IR-Limited
 
In millions
 
Limited
 
New Jersey
 
Subsidiaries
 
Adjustments
 
Consolidated
 
Net revenues
 
$
-
 
$
811.0
 
$
4,407.3
 
$
-
 
$
5,218.3
 
Cost of goods sold
   
-
   
628.0
   
3,201.8
   
-
   
3,829.8
 
Selling and administrative expenses
   
-
   
151.2
   
561.3
   
-
   
712.5
 
Operating income
   
-
   
31.8
   
644.2
   
-
   
676.0
 
Equity earnings in affiliates (net of tax)
   
530.2
   
275.2
   
138.1
   
(943.5
)
 
-
 
Interest expense
   
(1.9
)
 
(54.4
)
 
(17.9
)
 
-
   
(74.2
)
Intercompany interest and fees
   
(20.5
)
 
(192.0
)
 
212.5
   
-
   
-
 
Other income (expense), net
   
0.7
   
27.7
   
(11.0
)
 
-
   
17.4
 
Earnings before income taxes
   
508.5
   
88.3
   
965.9
   
(943.5
)
 
619.2
 
(Benefit) provision for income taxes
   
-
   
(58.1
)
 
153.2
   
-
   
95.1
 
Earnings (loss) from continuing operations
   
508.5
   
146.4
   
812.7
   
(943.5
)
 
524.1
 
Discontinued operations, net of tax
   
-
   
(8.4
)
 
(7.2
)
 
-
   
(15.6
)
Net earnings
 
$
508.5
 
$
138.0
 
$
805.5
 
$
(943.5
)
$
508.5
 
 
13

 
Condensed Consolidating Income Statement
 
For the three months ended June 30, 2004
 
                       
   
IR-
 
IR-
 
Other
 
Consolidating
 
IR-Limited
 
In millions
 
Limited
 
New Jersey
 
Subsidiaries
 
Adjustments
 
Consolidated
 
Net revenues
 
$
-
 
$
362.6
 
$
2,081.8
 
$
-
 
$
2,444.4
 
Cost of goods sold
   
-
   
280.9
   
1,502.1
   
-
   
1,783.0
 
Selling and administrative expenses
   
(0.1
) 
 
76.5
   
266.3
   
-
   
342.7
 
Operating income
   
0.1
   
5.2
   
313.4
   
-
   
318.7
 
Equity earnings in affiliates (net of tax)
   
288.3
   
185.2
   
153.4
   
(626.9
)
 
-
 
Interest expense
   
(0.2
)
 
(31.7
)
 
(7.8
)
 
-
   
(39.7
)
Intercompany interest and fees
   
(1.0
)
 
(89.4
)
 
90.4
   
-
   
-
 
Other income (expense), net
   
(1.0
)
 
29.5
   
(30.0
)
 
-
   
(1.5
)
Earnings before income taxes
   
286.2
   
98.8
   
519.4
   
(626.9
)
 
277.5
 
(Benefit) provision for income taxes
   
-
   
(29.4
)
 
67.7
   
-
   
38.3
 
Earnings (loss) from continuing operations
   
286.2
   
128.2
   
451.7
   
(626.9
)
 
239.2
 
Discontinued operations, net of tax
   
-
   
25.2
   
21.8
   
-
   
47.0
 
Net earnings
 
$
286.2
 
$
153.4
 
$
473.5
 
$
(626.9
)
$
286.2
 


Condensed Consolidating Income Statement
For the six months ended June 30, 2004
                       
   
IR-
 
IR-
 
Other
 
Consolidating
 
IR-Limited
 
In millions
 
Limited
 
New Jersey
 
Subsidiaries
 
Adjustments
 
Consolidated
 
Net revenues
 
$
-
 
$
662.6
 
$
3,904.0
 
$
-
 
$
4,566.6
 
Cost of goods sold
   
-
   
520.9
   
2,816.7
   
-
   
3,337.6
 
Selling and administrative expenses
   
-
   
162.7
   
522.2
   
-
   
684.9
 
Operating income
   
-
 
 
(21.0
)
 
565.1
   
-
   
544.1
 
Equity earnings in affiliates (net of tax)
   
471.0
   
288.9
   
166.9
   
(926.8
)
 
-
 
Interest expense
   
(0.2
)
 
(64.9
)
 
(15.3
)
 
-
   
(80.4
)
Intercompany interest and fees
   
(2.7
)
 
(182.2
)
 
184.9
   
-
   
-
 
Other income (expense), net
   
(2.4
)
 
36.0
   
(38.5
)
 
-
   
(4.9
)
Earnings before income taxes
   
465.7
   
56.8
   
863.1
   
(926.8
)
 
458.8
 
(Benefit) provision for income taxes
   
-
   
(89.9
)
 
146.8
   
-
   
56.9
 
Earnings (loss) from continuing operations
   
465.7
   
146.7
   
716.3
   
(926.8
)
 
401.9
 
Discontinued operations, net of tax
   
-
   
20.2
   
43.6
   
-
   
63.8
 
Net earnings
 
$
465.7
 
$
166.9
 
$
759.9
 
$
(926.8
)
$
465.7
 

14


Condensed Consolidating Balance Sheet
June 30, 2005
                       
           
Other
 
Consolidating
 
IR-Limited
 
In millions
 
IR-Limited
 
IR-New Jersey
 
Subsidiaries
 
Adjustments
 
Consolidated
 
Current assets:
                               
Cash and cash equivalents
 
$
6.7
 
$
203.9
 
$
705.0
 
$
-
 
$
915.6
 
Accounts and notes receivable, net
   
0.2
   
344.6
   
1,441.3
   
-
   
1,786.1
 
Inventories, net
   
-
   
203.3
   
1,007.5
   
-
   
1,210.8
 
Prepaid expenses and deferred income taxes
   
-
   
89.5
   
270.7
   
-
   
360.2
 
Accounts and notes receivable affiliates
   
50.3
   
4,196.0
   
19,213.6
   
(23,459.9
)
 
-
 
Total current assets
   
57.2
   
5,037.3
   
22,638.1
   
(23,459.9
)
 
4,272.7
 
                                 
Investment in affiliates
   
6,736.9
   
11,165.5
   
24,129.4
   
(42,031.8
)
 
-
 
Property, plant and equipment, net
   
-
   
236.9
   
836.1
   
-
   
1,073.0
 
Intangible assets, net
   
-
   
157.3
   
5,099.5
   
-
   
5,256.8
 
Other assets
   
2.0
   
660.5
   
287.8
   
-
   
950.3
 
Total assets
 
$
6,796.1
 
$
17,257.5
 
$
52,990.9
 
$
(65,491.7
)
$
11,552.8
 
                                 
Current liabilities:
                               
Accounts payable and accruals
 
$
6.1
 
$
604.2
 
$
1,603.4
 
$
-
 
$
2,213.7
 
Current maturities of long-term debt and loans payable
   
-
   
893.9
   
90.0
   
-
   
983.9
 
Accounts and note payable affiliates
   
928.6
   
5,226.7
   
17,304.6
   
(23,459.9
)
 
-
 
Total current liabilities
   
934.7
   
6,724.8
   
18,998.0
   
(23,459.9
)
 
3,197.6
 
                                 
Long-term debt
   
298.9
   
660.6
   
230.2
   
-
   
1,189.7
 
Notes payable affiliates
   
-
   
3,647.4
   
-
   
(3,647.4
)
 
-
 
Other noncurrent liabilities
   
4.2
   
1,119.1
   
483.9
   
-
   
1,607.2
 
Total liabilities
   
1,237.8
   
12,151.9
   
19,712.1
   
(27,107.3
)
 
5,994.5
 
                                 
Shareholders' equity:
                               
Class A common shares
   
179.9
   
-
   
(11.3
)
 
-
   
168.6
 
Class B common shares
   
135.3
   
-
   
-
   
(135.3
)
 
-
 
Common shares
   
-
   
-
   
2,362.8
   
(2,362.8
)
 
-
 
Other shareholders' equity
   
9,974.7
   
5,785.8
   
35,364.2
   
(45,584.9
)
 
5,539.8
 
Accumulated other comprehensive income
   
171.4
   
(225.6
)
 
11.3
   
(107.2
)
 
(150.1
)
     
10,461.3
   
5,560.2
   
37,727.0
   
(48,190.2
)
 
5,558.3
 
Less: Contra account
   
(4,903.0
)
 
(454.6
)
 
(4,448.2
)
 
9,805.8
   
-
 
Total shareholders' equity
   
5,558.3
   
5,105.6
   
33,278.8
   
(38,384.4
)
 
5,558.3
 
Total liabilities and equity
 
$
6,796.1
 
$
17,257.5
 
$
52,990.9
 
$
(65,491.7
)
$
11,552.8
 

 
15


Condensed Consolidating Balance Sheet
                     
December 31, 2004
                     
                       
           
Other
 
Consolidating
 
IR-Limited
 
In millions
 
IR-Limited
 
IR-New Jersey
 
Subsidiaries
 
Adjustments
 
Consolidated
 
Current assets:
                               
Cash and cash equivalents
 
$
236.8
 
$
844.1
 
$
622.8
 
$
-
 
$
1,703.7
 
Accounts and notes receivable, net
   
1.1
   
265.3
   
1,232.0
   
-
   
1,498.4
 
Inventories, net
   
-
   
152.7
   
906.1
   
-
   
1,058.8
 
Prepaid expenses and deferred income taxes
   
0.2
   
88.9
   
259.7
   
-
   
348.8
 
Accounts and notes receivable affiliates
   
51.7
   
1,757.7
   
17,064.3
   
(18,873.7
)
 
-
 
Total current assets
   
289.8
   
3,108.7
   
20,084.9
   
(18,873.7
)
 
4,609.7
 
                                 
Investment in affiliates
   
6,759.6
   
10,938.1
   
15,773.8
   
(33,471.5
)
 
-
 
Property, plant and equipment, net
   
-
   
239.4
   
773.8
   
-
   
1,013.2
 
Intangible assets, net
   
-
   
151.4
   
4,677.8
   
-
   
4,829.2
 
Other assets
   
-
   
649.5
   
313.0
   
-
   
962.5
 
Total assets
 
$
7,049.4
 
$
15,087.1
 
$
41,623.3
 
$
(52,345.2
)
$
11,414.6
 
                                 
Current liabilities:
                               
Accounts payable and accruals
 
$
5.0
 
$
481.1
 
$
1,778.0
 
$
-
 
$
2,264.1
 
Current maturities of long-term debt and loans payable
   
-
   
546.3
   
66.5
   
-
   
612.8
 
Accounts and note payable affiliates
   
1,310.6
   
3,525.0
   
14,038.1
   
(18,873.7
)
 
-
 
Total current liabilities
   
1,315.6
   
4,552.4
   
15,882.6
   
(18,873.7
)
 
2,876.9
 
                                 
Long-term debt
   
-
   
1,048.3
   
219.3
   
-
   
1,267.6
 
Notes payable affiliates
   
-
   
3,647.4
   
-
   
(3,647.4
)
 
-
 
Other noncurrent liabilities
   
-
   
434.5
   
1,101.8
   
-
   
1,536.3
 
Total liabilities
   
1,315.6
   
9,682.6
   
17,203.7
   
(22,521.1
)
 
5,680.8
 
                                 
Shareholders' equity:
                               
Class A common shares
   
178.4
   
-
   
(5.3
)
 
-
   
173.1
 
Class B common shares
   
135.3
   
-
   
-
   
(135.3
)
 
-
 
Common shares
   
-
   
-
   
2,362.8
   
(2,362.8
)
 
-
 
Other shareholders' equity
   
10,006.3
   
6,051.6
   
26,386.6
   
(36,946.6
)
 
5,497.9
 
Accumulated other comprehensive income
   
384.2
   
(186.5
)
 
185.5
   
(320.4
)
 
62.8
 
     
10,704.2
   
5,865.1
   
28,929.6
   
(39,765.1
)
 
5,733.8