Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15 (d) of the Securities Exchange Act of
1934
Date
of Report - January 10, 2008
(Date
of
earliest event reported)
INGERSOLL-RAND
COMPANY LIMITED
(Exact
name of registrant as specified in its charter)
|
Bermuda
(State
or other jurisdiction of incorporation)
|
1-985
(Commission
File Number)
|
75-2993910
(I.R.S.
Employer Identification No.)
|
Clarendon
House
2
Church Street
Hamilton
HM 11, Bermuda
(Address
of principal executive offices, including zip code)
(441)
295-2838
(Registrant's
phone number, including area code)
N/A
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
8.01. Other Events.
Asbestos
On
January 11, 2008, Ingersoll-Rand Company Limited (the “Company”) issued a press
release announcing that it has taken a non-cash charge to earnings of
discontinued operations in respect of the Company’s liability for all pending
and estimated future asbestos claims through 2053 of $449 million
($277 million after tax). This charge results from an increase in the
Company’s recorded liability for asbestos claims by $538 million, from
$217 million to $755 million, and a corresponding $89 million
increase in its assets for probable asbestos-related insurance recoveries to
$250 million. A copy of the press release announcing this charge is filed
with this report as Exhibit 99.1 and is incorporated herein by
reference.
Asbestos
Reserve and Asbestos-Related Insurance
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 Ingersoll-Rand Company
(IR-New Jersey) and generally allege injury caused by exposure to asbestos
contained in certain of IR-New Jersey’s products, primarily pumps and
compressors. Although IR-New Jersey was neither a producer nor a manufacturer
of
asbestos, some of its formerly manufactured products utilized
asbestos-containing components, such as gaskets and packings purchased from
third-party suppliers.
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:
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·
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ARPC’s
interpretation of a widely accepted forecast of the population likely
to
have been occupationally exposed to
asbestos;
|
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·
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epidemiological
studies estimating the number of people likely to develop asbestos-related
diseases such as mesothelioma and lung
cancer;
|
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·
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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;
|
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·
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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;
|
| |
·
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an
analysis of the Company’s pending cases, by type of disease
claimed;
|
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·
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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;
|
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·
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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 a
$89 million increase in its assets for probable asbestos-related insurance
recoveries to $250 million. This represents amounts due to the Company for
previously paid and settled claims and the probable reimbursements relating
to
its estimated liability for pending and future claims. In calculating this
amount, the Company used the estimated asbestos liability for pending and
projected future claims calculated by ARPC. It also considered the amount of
insurance available, gaps in coverage, allocation methodologies, solvency
ratings and creditworthiness of the insurers, the amounts already recovered
from
and the potential for settlements with insurers, and the terms of existing
settlement agreements with insurers.
During
the fourth quarter of 2007, the Company recorded a non-cash charge to earnings
of discontinued operations of $449 million ($277 million after tax),
which is the difference between the amount by which the Company increased its
total estimated liability for pending and projected future asbestos-related
claims and the amount that the Company expects to recover from insurers with
respect to that increased liability.
The
amounts recorded by the Company for asbestos-related liabilities and
insurance-related assets are based on currently available information. The
Company’s actual liabilities or insurance recoveries could be significantly
higher or lower than those recorded if assumptions used in the Company’s or
ARPC’s calculations vary significantly from actual results. Key variables in
these assumptions are identified above and include the number and type of new
claims to be filed each year, the average cost of resolution of each such new
claim, the resolution of coverage issues with insurance carriers, and the
solvency risk with respect to the Company’s insurance carriers. Furthermore,
predictions with respect to these variables are subject to greater uncertainty
as the projection period lengthens. Other factors that may affect the Company’s
liability include uncertainties surrounding the litigation process from
jurisdiction to jurisdiction and from case to case, reforms that may be made
by
state and federal courts, and the passage of state or federal tort reform
legislation.
The
aggregate amount of the stated limits in insurance policies available to the
Company for asbestos-related claims, acquired over many years and from many
different carriers, is substantial. However, limitations in that coverage,
primarily due to the considerations described above, are expected to result
in
the projected total liability to claimants substantially exceeding the probable
insurance recovery.
Asbestos
Claims Activity
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:
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2002
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2003
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2004
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2005
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2006
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2007
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|
Open
claims - January 1
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77,675
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96,294
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104,513
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105,811
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102,968
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101,709
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New
Claims filed
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37,172
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30,843
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13,541
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11,132
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6,457
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5,398
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Claims
settled
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16,443
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21,096
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11,503
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12,505
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6,558
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5,005
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Claims
dismissed
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2,110
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1,528
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740
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1,470
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1,158
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1,479
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Open
claims - December 31
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96,294
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104,513
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105,811
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102,968
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101,709
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100,623
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Over
90
percent of the open claims against the Company are non-malignancy claims, many
of which have been placed on inactive or deferral dockets and the vast majority
of which have little or no settlement value against the Company, particularly
in
light of recent changes in the legal and judicial treatment of such claims.
Malignancy
claims accounted for: approximately 73 percent of the Company’s total
asbestos-related settlement payments during the three-year period ended December
31, 2004; approximately 87 percent during the three-year period ended December
31, 2007; and approximately 93 percent in 2007. Non-malignancy claims accounted
for: approximately 27 percent of the Company’s total asbestos-related settlement
payments during the three-year period ended December 31, 2004;
approximately 13 percent during the three-year period ended December 31,
2007; and approximately seven percent in 2007.
For
the
three- and 12-month periods ended December 31, 2007, total costs for
settlement and defense of asbestos claims after insurance recoveries and net
of
tax were approximately $10 million and $37 million, respectively.
Item
9.01. Financial Statements and Exhibits.
(d)
Exhibits
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Description
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99.1
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Press
Release of Ingersoll-Rand Company Limited dated January 11, 2008.
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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 hereunto
duly authorized.
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INGERSOLL-RAND
COMPANY LIMITED
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(Registrant)
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Date:
January 11, 2008
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/s/
James V. Gelly
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James
V. Gelly
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Senior
Vice President and
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Chief
Financial Officer
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