-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gw7HVQoMl+5s7gdXITOGXAmf8E/+OmZtXZdBazWPE2NpvIyV+FqolnSd8jSWDiyV coI9Tzolk66xZ52vL9rznQ== 0000941548-08-000007.txt : 20080229 0000941548-08-000007.hdr.sgml : 20080229 20080228191234 ACCESSION NUMBER: 0000941548-08-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20080224 FILED AS OF DATE: 20080229 DATE AS OF CHANGE: 20080228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAMERON INTERNATIONAL CORP CENTRAL INDEX KEY: 0000941548 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 760451843 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13884 FILM NUMBER: 08652397 BUSINESS ADDRESS: STREET 1: 1333 WEST LOOP SOUTH STREET 2: STE 1700 CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7135133322 MAIL ADDRESS: STREET 1: 1333 WEST LOOP SOUTH STREET 2: STE 1700 CITY: HOUSTON STATE: TX ZIP: 77027 FORMER COMPANY: FORMER CONFORMED NAME: COOPER CAMERON CORP DATE OF NAME CHANGE: 19950315 10-K 1 form10-k.htm 10-K 2007 CAMERON form10-k.htm
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-K

 
R
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
OR
 
£
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
______________________
Commission File Number 1-13884
CAMERON INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
76-0451843
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1333 West Loop South
  
Suite 1700
  
Houston, Texas
77027
(Address of principal executive offices)
(Zip Code)

Registrant’s telephone number, including area code (713) 513-3300

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, Par Value $0.01 Per Share
New York Stock Exchange
Junior Participating Preferred Stock
New York Stock Exchange
Purchase Rights
  
Par Value $0.01 Per Share
  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes R                      No £
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes £                     No R 
 
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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
  YesR                       No £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
        Large accelerated filer R                                       Accelerated filer £                                    Non-accelerated filer £                 Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes £ No R

The aggregate market value of the Common Stock, par value $0.01 per share, held by non-affiliates of registrant as of June 30, 2007, our most recently completed second fiscal quarter, was approximately $6,624,507,112.  For the purposes of the determination of the above statement amount only, all directors and executive officers of the registrant are presumed to be affiliates. The number of shares of Common Stock, par value $.01 per share, outstanding as of February 15, 2008, was 218,305,027.
_____________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant’s Annual Report to Stockholders for the year ended December 31, 2007 are incorporated by reference into Parts I and II. Portions of the registrant’s 2008 Proxy Statement for the Annual Meeting of Stockholders to be held May 14, 2008 are incorporated by reference into Part III.



 
 
 
ITEM
 
 
 PAGE
 
PART I
  
1.
3
 
4
 
7
 
8
 
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11
 
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13
1A.
13
1B.
13
2.
13
3.
14
4.
16
   
5.
16
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7.
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7A.
18
8.
18
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18
9A.
18
9B.
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26



 


Cameron International Corporation (Cameron or the Company) is a leading provider of flow equipment products, systems and services to worldwide oil, gas and process industries.  See “Glossary of Terms” at the end of Item 1 for definitions of certain terms used in this section. Any reference to Cameron, its divisions or business units within this paragraph or elsewhere within this Form 10-K as being a leader, leading provider, leading manufacturer, or having a leading position is based on the amount of equipment installed worldwide and available industry data.

The Company’s operations are organized into three business segments – Drilling & Production Systems (DPS), Valves & Measurement (V&M) and Compression Systems (CS).  For additional business segment information for each of the three years in the period ended December 31, 2007, see Note 14 of the Notes to Consolidated Financial Statements, which Notes are incorporated herein by reference in Part II, Item 8 of this Annual Report on Form 10-K.

Cameron’s origin dates back to the mid-1800s with the manufacture of steam engines that provided power for plants and textile or rolling mills. By 1900, with the discovery of oil and gas, Cameron’s predecessors moved into the production of internal combustion engines and gas compressors. Product offerings were added by the Company’s predecessors through various acquisitions, in particular the acquisitions of The Bessemer Gas Engine Company (gas engines and compressors); Pennsylvania Pump and Compressor (reciprocating air and gas compressors); Ajax Iron Works (compressors); Superior (engines and compressors); Joy Petroleum Equipment Group (valves, couplings and wellheads); Joy Industrial Compressor Group (compressors); and Cameron Iron Works (blowout preventers, ball valves, control equipment and McEvoy-Willis wellhead equipment and choke valves).

Cameron, a Delaware corporation, was incorporated on November 10, 1994. The Company operated as a wholly-owned subsidiary of Cooper Industries, Inc. until June 30, 1995, the effective date of the completion of an exchange offer with Cooper Industries’ stockholders resulting in the Company becoming a separate stand-alone company. The common stock of Cameron trades on the New York Stock Exchange under the symbol “CAM”. The Company’s Internet address is www.c-a-m.com. General information about Cameron, including its Corporate Governance Principles, charters for the committees of the Company’s board of directors, Standards of Conduct, and Codes of Ethics for Management Personnel, including Senior Financial Officers and Directors, can be found in the Ethics and Governance section of the Company’s website. The Company makes available, free of charge, on its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the Exchange Act) as soon as reasonably practicable after the Company electronically files or furnishes them to the Securities and Exchange Commission (the SEC).  Information filed by the Company with the SEC is also available at www.sec.gov or may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  Information regarding operations of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Since its inception, the Company has completed several acquisitions, including the assets of Ingram Cactus Company in 1996, Orbit Valve International Inc. in 1998, Stewart and Stevenson’s Petroleum Equipment segment and Nutron Industries in 2002, Petreco International Inc. and the PCC Flow Technologies segment of Precision Castparts Corp. (PCC) in 2004, and NuFlo Technologies, Inc. and the On/Off Valve business unit of the Flow Control segment of Dresser, Inc. in 2005. In January 2006, the Company acquired the assets and liabilities of Caldon, Inc. which added a new ultrasonic measurement product line to the existing flow management product line in the V&M segment.  Additionally, during 2007, the Company acquired DES Operations Limited, certain assets of Prime Measurement Products, certain assets and liabilities of Paradigm Services, LP, and the Hydromation Deep Bed Filter product line from Filtra-Systems Company.

The Company also sold certain of its business operations, including its Wheeling Machine Products division in 1995, a rotating compressor product line in 1999 and certain Canadian aftermarket operations in 2000.


 

 


Drilling & Production Systems Segment

DPS is one of the world’s leading providers of systems and equipment used to control pressures, direct flows of oil and gas wells and separate oil and gas from impurities. Its products are employed in a wide variety of operating environments including basic onshore fields, highly complex onshore and offshore environments, deepwater subsea applications and ultra-high temperature geothermal operations.

DPS’s products include surface and subsea production systems, blowout preventers (BOPs), drilling and production control systems, oil and gas separation equipment, gate valves, actuators, chokes, wellheads, drilling riser and aftermarket parts and services. DPS’s products are marketed under the brand names CAMERON®, W-K-M®, MCEVOY® and WILLIS®. Additionally, DPS manufactures elastomers, which are used in pressure and flow control equipment and other petroleum industry applications, as well as in the petroleum, petrochemical, rubber molding and plastics industries.

DPS is one of the leading global suppliers of integrated drilling systems for land, offshore, platform and subsea applications. Drilling equipment designed and manufactured by DPS includes ram and annular BOPs, drilling risers, drilling valves, choke and kill manifolds, surface and subsea BOP control systems, multiplexed electro-hydraulic (MUX) control systems and diverter systems. DPS also provides services under CAMCHEC™, an inspection system that allows drilling contractors to inspect drilling riser on their rigs offline, saving time and money on maintenance and unnecessary transportation.
 
Although the pace of orders for new deepwater drilling rigs moderated in 2007 from the record levels of 2006, as did orders for jackups and land rigs, DPS still had the second largest bookings year ever for its drilling business in 2007.  The Company believes it maintained its traditional market share during 2007 and continues to be a primary supplier of BOP’s and related equipment to the drilling industry.  As a result of the record high order level during the last two years, the Company has upgraded its existing manufacturing facilities in Beziers, France and Berwick, Louisiana, including the addition of a state-of-the-art riser fabrication and assembly facility in Beziers.  The Company also opened a new 48,000-square foot aftermarket facility in Houston during 2007 to provide a full range of machining, welding and testing capabilities.

DPS is also a global market leader in supplying surface production equipment, from conventional to high-pressure, high temperature (HPHT) wellheads and API Christmas trees and chokes used on land or installed on offshore platforms.

The surface business, which has a global base of installed equipment and an aftermarket presence in virtually every major hydrocarbon-producing region around the world, remains the largest revenue contributor to the DPS segment.  This business saw increased order levels in 2007 primarily from customers in the European, African and Caspian sea regions, as well as from Asia Pacific and the Middle East.  In order to further expand its offerings to customers in the European, North African and Russian markets, the Company has started construction on a new facility in Ploiesti, Romania which is expected to begin operations in the third quarter of 2008 and become fully functional in 2009.  Also, additional locations are being added or existing facilities are being expanded in 2008 to address expected demand for surface products in the Caspian Sea region, Kazakhstan and in Mexico.

DPS continues to be a leading provider of subsea wellheads, Christmas trees, manifolds, and production controls to customers worldwide, from basic tree orders to integrated solutions that require systems engineering and project management as well as installation and aftermarket support. DPS’s Subsea Systems organization, created in 2005, has global responsibility for research and development, engineering, sales, manufacturing, installation and aftermarket support for subsea products and systems, and provides customers with integrated solutions to subsea field development requirements under engineering, procurement and construction contracts.

 

 
In order to address capacity needs, improve efficiency and lower manufacturing costs in the subsea product line, the Company completed a new state-of-the-art subsea manufacturing, assembly and test plant in Johor, Malaysia in mid-2007.  In addition, the Company made various capital investments in its Taubate, Brazil manufacturing facility in 2007 to accommodate increased and expected future project business in the Brazilian markets.  The Company also made investments in 2007 to expand capacity in its Leeds, England; Onne, Nigeria; and Berwick, Louisiana facilities.

As petroleum exploration activities have increasingly focused on subsea locations, DPS has directed much of its new product development efforts toward this market. DPS’s patented SpoolTree™ horizontal subsea production system, which was introduced in 1993, is used in oil and gas fields with subsea completions that require frequent retrieval of downhole equipment. With the SpoolTree system, well completion and workover activities can be performed without a workover riser or removal of the Christmas tree and under conventional blowout preventer control, thereby reducing the time, equipment and expense needed to perform such activities.  DPS advanced its tradition of innovation with the introduction in 2004 of an all-electric, direct current powered subsea production system, CameronDC™, which is designed to offer greater reliability and provide substantial cost savings to customers.  Following intensive testing and review, the first commercial application of the CameronDC system is expected to be deployed in 2008.  In March 2007, Cameron acquired DES Operations Limited, an Aberdeen, Scotland-based supplier of production enhancement technology, and developer of the unique Multiple Application Re-injection System (MARS™), which enables the installation of multiple processing technologies directly onto a subsea completion without disrupting existing flowlines or infrastructure.
 
DPS’s Flow Control group was formed to focus resources on the choke product line with the goal of enhancing DPS’s performance in this product line. Flow Control manufactures Cameron and Willis brand chokes and Cameron brand actuators for the surface and subsea production and drilling markets as well as drilling choke control panels and surface wellhead safety systems. The Company’s primary choke manufacturing operations are located in Longford, Ireland, and its primary surface gate valve actuator manufacturing operations are located at the Flow Control plant in Houston, Texas.

During 2006, the Flow Control product line was expanded with the addition of the LEDEEN® quarter-turn actuator line, acquired as part of the Dresser On/Off Valve business unit acquisition in late 2005. This product line is manufactured at the Company’s newly acquired facility in Voghera, Italy. Also, during 2006, the surface choke product line was expanded as Flow Control began producing AOP® brand surface chokes in its Houston, Texas facility.  These initiatives, along with the introduction of a new generation compact subsea choke, all contributed to order and revenue gains in 2007 for the Flow Control business.

Petreco Processing Systems provides custom-engineered process packages to operators worldwide for separation of oil, gas, water and solids. Petreco’s products include electrostatic desalters and dehydrators, hydrocyclones, desanders, gas flotation systems, processing equipment, gas processing equipment and electrochlorinators. These products are marketed under the brand names PETRECO®, VORTOIL®, KREBS®, UNICEL®, WEMCO®, METROL™, KCC™, DEPURATOR® and BFCC™.

DPS’s worldwide aftermarket service program, CAMSERV™, provides replacement parts for equipment through a comprehensive global network. In recent years, DPS has continued to enhance its aftermarket presence worldwide with new or upgraded facilities in Brazil, Mexico, Angola, Newfoundland, and Onne Port, Nigeria.

DPS’s research center, located in Houston, Texas, has ten specially designed test bays to test and evaluate DPS’s products under realistic conditions. These include environmental test chambers to simulate extreme pressures and temperatures, high-strength fixtures for the application of multi-million pound tensile and bending loads, high-pressure gas compressors and test enclosures, a hyperbaric chamber to simulate the external pressures of deepwater environments, and two circulation loops for erosion and flow testing.

DPS primarily markets its products directly to end-users through a worldwide network of sales and marketing employees, supported by agents in some international locations. Due to the technical nature of many of the products, the marketing effort is further supported by a staff of engineering employees.

 
 
DPS’s primary customers include oil and gas majors, national oil companies, independent producers, engineering and construction companies, drilling contractors, rental companies and geothermal energy producers.

Valves & Measurement Segment

V&M is a leading provider of valves and measurement systems primarily used to control, direct and measure the flow of oil and gas as they are moved from individual wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centers for processing. Equipment used in these environments is generally required to meet demanding standards, including API 6D and the American Society of Mechanical Engineers (ASME).

V&M’s products include gate valves, ball valves, butterfly valves, Orbit® valves, double block & bleed valves, plug valves, globe valves, check valves, actuators, chokes and aftermarket parts and services. Measurement products include totalizers, turbine meters, flow computers, chart recorders, ultrasonic flow meters and sampling systems.

In November 2004, the Company acquired certain businesses of the PCC Flow Technologies segment of Precision Castparts Corporation.  Additionally, in November 2005, the Company completed the acquisition of the On/Off Valve business unit of the Flow Control segment of Dresser, Inc., except for a portion of the business which was acquired in January 2006.  These acquisitions significantly expanded the V&M segment, particularly the Engineered Valves and Distributed Valves product lines.

V&M’s Distributed Valves group manufactures valves which are sold through distributed networks, primarily in North America, for use in oil and gas applications and are marketed under the brand names WKM®, DEMCO®, NUTRON®, TBV®, AOP, THORNHILL CRAVER®, TEXSTEAM® and WHEATLEY®.
The Engineered Valves group of V&M provides large-diameter valves for use in natural gas, liquefied natural gas (LNG), crude oil and refined products transmission lines. Products are marketed under the brand names CAMERON®, GROVE®, RING-O® and TOM WHEATLEY®.

V&M’s Processed Valves group provides critical service valves for refinery, chemical and petrochemical processing businesses and for associated storage terminal applications, such as liquid products and LNG, through the ORBIT AND GENERAL® valve product lines. Other products include TK® and ENTECH® check valves and WKM® and FOSTER® gate valves.

The Measurement Systems group of V&M designs, manufactures and distributes instrumentation for the oil and gas and process control industries to be used for the measurement and control of pressures, temperatures, levels and flows. The four main product lines of this group are NUFLO™, BARTON®, CALDON® and CLIF MOCK™.

The V&M segment also provides aftermarket services including OEM parts, repair, field service, asset management and remanufactured product to customers, particularly in support of the installed base of equipment sold under the numerous brands within the expanded V&M businesses.  In 2007, V&M acquired Paradigm Services, LP, adding two new field service centers to the Company’s valve aftermarket business.

V&M markets its equipment and services through a worldwide network of combined sales and marketing employees, distributors and agents in selected international locations. Due to the technical nature of many of the products, the marketing effort is further supported by a staff of engineering employees.

V&M’s primary customers include oil and gas majors, independent producers, engineering and construction companies, pipeline operators, drilling contractors and major chemical, petrochemical and refining companies.

Compression Systems Segment

CS is a provider of reciprocating and integrally geared centrifugal compression equipment and aftermarket parts and services. Reciprocating compression equipment (Reciprocating Technology) is used throughout the energy industry by gas transmission companies, compression leasing companies, oil and gas producers and independent power producers. Integrally geared centrifugal compressors (Centrifugal Technology) are used by customers around the world in a variety of industries, including air separation, petrochemical and chemical. CS’s products include aftermarket parts and services, integral engine-compressors, separable compressors, turbochargers, integrally geared centrifugal compressors, compressor systems and controls. Its aftermarket services include spare parts, technical services, repairs, overhauls and upgrades.
 

 
The CS Reciprocating Technology group provides reciprocating compression equipment and related aftermarket parts and services for the oil and gas industry. Its products and services are marketed under the AJAX®, SUPERIOR®, COOPER-BESSEMER®, PENN™, ENTERPRISE™, TEXCENTRIC®, COMPRESSION SPECIALTIES™, and TURBINE SPECIALTIES™ brand names. CS provides global support for its products and maintains sales and/or service offices in key international locations. Ajax integral engine-compressors, which combine the engine and compressor on a single drive shaft, are used for gas re-injection and storage, as well as on smaller gathering and transmission lines. Superior-brand separable compressors are used primarily for natural gas applications, including production, storage, withdrawal, processing and transmission, as well as petrochemical processing. These high-speed separable compressor units can be matched with either natural gas engine drivers or electric motors.

For the year ended December 31, 2007, approximately 66% of the Reciprocating Technology revenues are generated by aftermarket parts and services in support of the Company’s worldwide installed base of compression equipment.

Customers for Reciprocating Technology products include gas transmission companies, compression leasing companies, oil and gas producers and processors and independent power producers.

The CS Centrifugal Technology group manufactures and supplies integrally geared centrifugal compressors and provides aftermarket services to customers worldwide. Centrifugal air compressors, used primarily in manufacturing processes (plant air), are sold under the trade name of Turbo-Air®, with specific models including the TA-2000, TAC-2000, TA-3000, TA-6000 and TA-9000.

Engineered compressors are used in the process air and gas industries and are identified by the MSG® trade name. The process and plant air centrifugal compressors deliver oil-free compressed air and other gases to customers, thus preventing oil contamination of the finished products.

CS provides installation and maintenance service, parts, repairs, overhauls and upgrades to its worldwide customers for plant air and process gas compressors. It also provides aftermarket service and repairs on all equipment it produces through a worldwide network of distributors, service centers and field service technicians utilizing an extensive inventory of parts.

Centrifugal Technology customers include petrochemical and refining companies, natural gas processing companies, durable goods manufacturers, utilities, air separation and chemical companies.


Cameron is one of the leaders in the global market for the supply of petroleum production equipment. Cameron believes that it is well-positioned to serve these markets. Plant and service center facilities around the world in major oil- and gas-producing regions provide a broad market coverage. Information relating to revenues generated from shipments to various geographic regions of the world is set forth on page 25 of “Management’s Discussion and Analysis of Operations and Financial Condition of Cameron International Corporation” incorporated by reference in Part II, Item 7 of this Annual Report on Form 10-K and incorporated herein by reference.

The international market continues to be a source of growth for Cameron.  This was particularly evident as revenues generated from shipments to customers outside of North America climbed from 55% of the Company’s revenues in 2006 to 63% of the Company’s revenues in 2007.  The desire to expand oil and gas resources and transmission capacity in developed and developing countries, for both economic and political reasons, continues to be a major factor affecting market demand. Additionally, establishment of industrial infrastructure in the developing countries will necessitate the growth of basic industries that require plant air and process compression equipment. Production and service facilities in North and South America, Europe, the Far and Middle East and West Africa provide the Company with the ability to serve the global marketplace.

 
 
In each of Cameron’s business segments, a large population of installed engines, compression equipment and oil and gas production equipment exists in the worldwide market. The long-lived nature of the equipment provides a relatively stable repair parts and service business. However, with respect to Compression Systems, approximately 31% of that segment’s 2007 revenues came from the sale of replacement parts for equipment that the Company no longer manufactures. Many of these units have been in service for long periods of time and are gradually being replaced. As this installed base of legacy equipment declines, the Company’s potential market for parts orders may also be reduced.

In recent years, DPS has been expanding into the deepwater subsea systems market. This market is significantly different from the Company’s other markets since deepwater subsea systems projects are significantly larger in scope and complexity, in terms of both technical and logistical requirements. Subsea projects (i) typically involve long lead times, (ii) typically are larger in financial scope, (iii) typically require substantial engineering resources to meet the technical requirements of the project and (iv) often involve the application of existing technology to new environments and in some cases, the application of new technology. These projects accounted for approximately 8.5% of the Company’s consolidated revenues for the year ended December 31, 2007. To the extent the Company experiences difficulties in meeting the technical and/or delivery requirements of the projects, the Company’s earnings or liquidity could be negatively impacted. As of December 31, 2007, the Company had a subsea systems project backlog of approximately $954.7 million.

Also, see Part I, Item 1A for a discussion of other risk factors, some of which are market related, that could affect the Company’s financial condition and future results.


Cameron introduced several drilling products during the last several years. These products include the 3.5 million-pound load capacity LoadKing™ riser system, used for drilling in up to 10,000-foot water depths; a lightweight and lower-cost locking mechanism for subsea BOPs; a new generation of variable-bore ram packers; a Freestanding Drilling Riser, and an Environmental Safe Guard system.

Other Cameron-developed products include the patented SpoolTree™ subsea production system; the CAMTROL™ system that includes all of Cameron’s controls capabilities of production, drilling and workover; the EVO™ blowout preventer, introduced in 2007, which is a compact, lighter version of Cameron’s traditional subsea BOP and is offered with a unique patent-pending locking system; and the CameronDC subsea production system, which is the world’s first all-electric direct current-powered subsea production system, designed for increased reliability and improved performance in deepwater applications.  Initial deployment of the CameronDC subsea production system is scheduled to occur in 2008.

During 2005, Cameron introduced a new subsea controls system that combines the traditional subsea control module and the subsea accumulator module in a single package, allowing for more efficient operation of the subsea tree and manifold valves. Additionally, a new state-of-the-art subsea test chamber in Cameron’s controls engineering facility in Celle, Germany facilitates testing of the Company’s control system.

Also in 2005, Cameron launched its updated CAMTROL subsea control module, which includes new electronics, lower power demand, a DC power option and fiber optic communications to further increase reliability and enable extended offset developments and high-bandwidth intelligent completions.

Cameron has also formed a joint venture with Curtiss-Wright EMD, with plans to combine Curtiss-Wright’s motor and pump expertise with Cameron’s subsea technologies to develop integrated subsea multiphase pumping systems.  As a result of this joint venture, as well as the separation technology available through Petreco, the Company was able to introduce in 2007 CAMFORCE™, a collection of subsea processing products and services designed to enhance production from deepwater fields.

 
 
In 2006, Subsea Systems and Petreco designed their two-phase and three-phase subsea separation systems through a joint technology team originally formed in 2005.

During 2005, DPS’s Flow Control group introduced a new three-inch underbalanced drilling choke, the DR30, in response to drilling customers’ increasing demand for higher-capacity chokes for use in underbalanced drilling applications.  During 2007, Flow Control also introduced a new subsea chemical injection metering valve as well as a multi-stage control choke with the SILENCER™ trim which is designed to address noise and velocity control issues in high pressure drop and surge control applications.

The CS product range was expanded through the addition of compressor frames (TAC-2000, TA-2020, TA-3000, TA-6000 and TA-9000) and the addition of trademarked accessories such as Dry Pak™ heat of compression dryers and Turboblend™, a hydro-cracked turbomachinery lubricating oil.  The Engineered Compressor product line was redefined and the MSG Renaissance program was introduced to update the MSG product line.

CS has focused product development resources to further expand its high-efficiency plant air compressor line and to provide engineered compressors matched to the requirements of its customers. The latter is being achieved by advances in aerodynamic and rotor dynamic analytical design capability and the addition of centrifugal gas applications.

Two new offerings were introduced in 2005 in the reciprocating product line. The AXIS™ reciprocating compressor is an all-new barrel-frame design targeted at the natural gas lease fleet markets. The new C-Force™ compressor was created through the addition of new tandem cylinders to a small Superior reciprocating frame, providing an offering ideally suited to compressed natural gas applications.  During 2007, the Company also reentered the separable engine market by reintroducing two models of Superior-brand legacy engines, designed to be packaged with Cameron’s Superior separable compressors.

During 2008, diversification efforts in the centrifugal product line will extend to the plastic bottle manufacturing market with the introduction of the Turbo-Air® 2040 compressor that has been designed and tested for this application.


Cameron competes in all areas of its operations with a number of other companies, some of which have financial and other resources comparable to or greater than those of Cameron.

Cameron has a leading position in the petroleum production equipment markets. In these markets, Cameron competes principally with Aker Kvaerner, Baker Hughes Centralift division of Baker Hughes, Inc., Balon Corporation, Circor International, Inc., Dover Corporation, Dril-Quip, Inc., Emerson Process Management, FlowServ Corp., FMC Technologies, Inc., GE Oil & Gas Group (including Vetco Gray), Hydril Company (in January 2008, it was announced that General Electric had reached an agreement to purchase the Hydril pressure control business from Tenaris), Masterflo (a division of Stream-Flo Industries Ltd. (i.e. Stream)), NATCO Group, Inc., National Oilwell Varco Inc., PBV-USA, Inc. (a Zy-Tech Global Industries company), Petrovalve (a Flotek Industries, Inc. company), Pibiviese, SPX Corporation’s Flow Technology Segment, T3 Energy Services Inc., Tyco International Ltd., the Weatherford Artificial Lift business of Weatherford, Inc. and Wood Group.

The principal competitive factors in the petroleum production equipment markets are technology, quality, service and price. Cameron believes several factors give it a strong competitive position in these markets. Most significant are Cameron’s broad product offering, its worldwide presence and reputation, its service and repair capabilities, its expertise in high-pressure technology and its experience in alliance and partnership arrangements with customers and other suppliers.

Cameron also has a strong position in the compression equipment markets. In these markets, Cameron competes principally with the Ariel Corporation, Atlas-Copco AB, CECO (a Compressor Engineering Corporation company), Demag, Dresser-Rand Company, FS-Elliott Company, LLC, Endyn Energy Dynamics, Hoerbiger Group and IR Air Solutions. The principal competitive factors in the compression equipment markets are engineering and design capabilities, product performance, reliability, quality, service and price. Cameron has a competent engineering staff and skilled technical and service representatives.

 
 

Cameron has manufacturing facilities worldwide that conduct a broad variety of processes, including machining, fabrication, assembly and testing, using a variety of forged and cast alloyed steels and stainless steel as the primary raw materials. In previous years, Cameron has rationalized plants and products, closed various manufacturing facilities, moved product lines to achieve economies of scale, and upgraded other facilities.  In more recent times, the Company has constructed or begun construction on new facilities mainly in certain international locations in order to meet current and expected future demand, particularly with regard to its surface and subsea product offerings.  This is an ongoing process as the Company seeks ways to improve delivery performance and reduce costs.  Cameron maintains advanced manufacturing, quality assurance and testing equipment geared to the specific products that it manufactures and uses process automation in its manufacturing operations.  Manufacturing facilities typically utilize computer-aided, numeric-controlled tools and manufacturing techniques that concentrate the equipment necessary to produce similar products in one area of the plant in a configuration commonly known as a manufacturing cell.  One operator in a manufacturing cell can monitor and operate several machines, as well as assemble and test products made by such machines, thereby improving operating efficiency and product quality.

Cameron’s test capabilities are critical to its overall processes. The Company has the capability to test most equipment at rated operating conditions, measuring all operating parameters, efficiency and emissions. All process compressors for air separation and all plant air compressors are given a mechanical and aerodynamic test in a dedicated test center prior to shipment.

All of Cameron’s Asian, European and Latin American manufacturing plants are ISO certified and API licensed, and most of the U.S. plants are ISO certified. ISO is an internationally recognized verification system for quality management.


Cameron’s backlog was approximately $4.3 billion at December 31, 2007 (approximately 80% of which is expected to be shipped during 2008), as compared to $3.5 billion at December 31, 2006, and $2.2 billion at December 31, 2005.  Backlog consists of customer orders for which a purchase order has been received, satisfactory credit or financing arrangements exist and delivery is scheduled.


As part of its ongoing research, development and manufacturing activities, Cameron has a policy of seeking patents when appropriate on inventions involving new products and product improvements. Cameron owns 307 unexpired United States patents and 630 unexpired foreign patents. During 2007, 43 new U.S. and 42 new foreign patent applications were filed.

Although in the aggregate these patents are of considerable importance to the manufacturing of many of its products, Cameron does not consider any single patent or group of patents to be material to its business as a whole.

Trademarks are also of considerable importance to the marketing of Cameron’s products. Cameron considers the following trade names to be material to its business as a whole: CAMERON, COOPER-BESSEMER, AJAX, WILLIS and W-K-M. Other important trademarks used by Cameron include AOP, AXIS, BARTON, BFCC, C-B TURBOCHARGER, CALDON, CAMCHEC, CAMERONDC, CAMFORCE, CLIF MOCK, CONTROL SEAL, CSI, DEMCO, DEPURATOR, DRYPAK, DYNACENTRIC, DYNASEAL, EDGE, ENTECH, ENTERPRISE, EVO, FOSTER, GENERAL VALVE, GENUINE JOY, GROVE, H & H, IC, INTERNATIONAL VALVES LTD. (U.K.), KCC, KREBS, LEDEEN, MARS, MCEVOY, METROL, MSG, NAVCO, NORTH STAR, NUFLO, NICKLES INDUSTRIAL, NUTRON, ORBIT, PENN, PETRECO, POW-R-SEAL, QUAD 2000, RETSCO, RING-O, SAF-T-SEAL, SPOOLTREE, STEROM, SUPERIOR, TA, TBV, TECHNO, TEXCENTRIC, TEXSTEAM, THORNHILL CRAVER, TRUSEAL, TUNDRA, TURBINE SPECIALTIES (RECIPROCATING PRODUCTS), TK VALVE, TOM WHEATLEY, TSI, TURBO AIR, TWINSEAL, TXT, UNICEL, VALOR, VANTAGE, VORTOIL, WEMCO, WHEATLEY and others. Cameron has registered trademarks in countries where such registration is deemed important.

 
 
Cameron has the right to use the trademark Joy on aftermarket parts until November 2027.

Cameron also relies on trade secret protection for its confidential and proprietary information. Cameron routinely enters into confidentiality agreements with its employees, partners and suppliers. There can be no assurance, however, that others will not independently obtain similar information or otherwise gain access to Cameron’s trade secrets.


As of December 31, 2007, Cameron had approximately 15,400 employees, of which approximately 3,600 were represented by labor unions. Over 1,400 of these employees are covered by contracts expiring in 2008.  Approximately 500 employees at the Company’s plants in Italy are under contracts which expire in mid-2008.  In Brazil and Romania, the Company has approximately 125 and 550 employees, respectively, at its facilities with contracts expiring on various dates in the second half of 2008.

The Company also entered into three new one-year agreements during 2007, which will expire in the second half of 2008, two of which covered approximately 50 employees at our Nigeria facility and one of which covered approximately 80 employees at our City of Industry, California facility.


 
 
Executive Officers of the Registrant

Name and Age
 Present Principal Position and Other Material Positions Held During Last Five Years
Sheldon R. Erikson (66)
Chief Executive Officer since January 1995. President from January 1995 to December 2006. Chairman of the Board of Directors since May 1996. Chairman of the Board from 1988 to April 1995 and President and Chief Executive Officer from 1987 to April 1995 of The Western Company of North America.
   
Jack B. Moore (54)
President and Chief Operating Officer since January 2007. Senior Vice President since July 2005. Vice President from May 2003 to July 2005. President, Drilling and Production Systems from July 2002 to December 2006. Vice President and General Manager, Cameron Western Hemisphere from July 1999 to July 2002. Vice President Western Hemisphere Operations, Vice President Eastern Hemisphere, Vice President Latin American Operations, Director Human Resources, Director Market Research and Director Materials of Baker Hughes Incorporated from 1976 to July 1999.
   
Franklin Myers (55)
Senior Vice President and Chief Financial Officer since January 2003. Senior Vice President from July 2001 to January 2003, Senior Vice President and President of the Cooper Energy Services division from August 1998 to July 2001 and Senior Vice President, General Counsel and Secretary from April 1995 to July 1999.
   
John D. Carne (59)
Senior Vice President since February 2006. Vice President from May 2003 to February 2006. President, Drilling and Production Systems since January 2007. President, Valves and Measurement from April 2002 to December 2006. Director of Operations, Eastern Hemisphere, Cameron Division from 1999 to March 2002. Plant Manager, Leeds, England, Cameron Division from 1996 to 1999. Director of Operations, U.K. & Norway, Cooper Energy Services (U.K.) Ltd. from 1988 to 1996.
   
William C. Lemmer (63)
Senior Vice President, General Counsel and Secretary since July 2007. Vice President, General Counsel and Secretary from July 1999 to July 2007. Vice President, General Counsel and Secretary of Oryx Energy Company from 1994 to March 1999.
   
Joseph H. Mongrain (50)
Vice President, Human Resources since June 2006. Director Human Resources, Schlumberger, Data and Consulting from May 2004 to May 2006 and Director, Human Resources, Schlumberger, North and South America from January 2001 to April 2004.
   
Lorne E. Phillips (36)
Vice President and Treasurer since December 2006. Treasurer from July 2005 to December 2006. General Manager, Canadian Operations from March 2003 to July 2005, Vice President, Marketing and M & A for Cameron’s Valves & Measurement group from June 2002 to March 2003 and Manager, Business Development from July 1999 to June 2002.
   
Robert J. Rajeski (62)
Vice President since July 2000. President, Compression Systems since October 2002. President, Cooper Turbocompressor division from July 1999 to October 2002 and President, Cooper Energy Services division from July 2001 to October 2002. Vice President and General Manager of Ingersoll-Dresser Pump Co., Engineered Pump division from 1994 to July 1999.
   
Charles M. Sledge (42)
Vice President and Corporate Controller since July 2001. Senior Vice President, Finance and Treasurer from 1999 to June 2001, and Vice President, Controller from 1996 to 1999, of Stage Stores, Inc., a chain of family apparel stores.
   
James E. Wright (54)
Vice President and President, Valves and Measurement group since January 2007. President, Distributed and Process Valves divisions from December 2005 to December 2006. Vice President and General Manager, Distributed Products from August 2002 to December 2005. Vice President and General Manager, North America Pipeline and Distributor Products from June 2001 to August 2002 and Vice President Marketing and North American Sales for V&M from August 1998 to June 2001.


 
Glossary of Terms

Actuator. A hydraulic or electric motor used to open or close valves.

Blowout Preventer. A hydraulically operated system of safety valves installed at the wellhead during drilling and completion operations for the purpose of preventing an increase of high-pressure formation fluids — oil, gas or water — in the wellbore from turning into a “blowout” of the well.

Centrifugal compressor. A compressor with an impeller or rotor, a rotor shaft and a casing which discharges gases under pressure by centrifugal force.

Choke. A type of valve used to control the rate and pressure of the flow of production from a well or through flowlines.

Christmas tree. An assembly of valves, pipes and fittings used to control the flow of oil and gas from a well.

Compressor. A device used to create a pressure differential in order to move or compress a vapor or a gas.

Controls. A device which allows the remote triggering of an actuator to open or close a valve.

Elastomer. A rubberized pressure control sealing element used in drilling and wellhead applications.

Integral reciprocating engine-compressor. A compressor in which the crankshaft is shared by the engine and compressor, each having its own piston rods driven by the shared crankshaft.

Integrally geared centrifugal compressor. A compressor in which the motor is geared so that the compressor runs at higher rpms than the motor itself to gain efficiency.

Reciprocating compressor. A compressor in which the compression effect is produced by the reciprocating motion of pistons and plungers operating in cylinders.

Riser. Pipe used to connect the wellbore of offshore wells to drilling or production equipment on the surface, and through which drilling fluids or hydrocarbons travel.

Valve. A device used to control the rate of flow in a line, to open or shut off a line completely, or to serve as an automatic or semi-automatic safety device.

Wellhead. The equipment installed at the surface of a wellbore to maintain control of a well and including equipment such as the casing head, tubing head and Christmas tree.


The information set forth under the caption “Factors That May Affect Financial Condition and Future Results” on pages 37 to 39 in the 2007 Annual Report to Stockholders is incorporated herein by reference.


There were no unresolved comments from the SEC staff at the time of filing of this Form 10-K.


The Company currently operates facilities ranging in size from approximately 670 square feet to approximately 1,350,000 square feet.  In addition to its manufacturing facilities, the Company also owns and leases warehouses, distribution centers, aftermarket and storage facilities, sales and administrative offices. The Company leases its corporate headquarters office space and space for the DPS, V&M and CS division headquarters in Houston, Texas.

 
 
The Company manufactures, markets and sells its products and provides services throughout the world, operating facilities in numerous countries. At December 31, 2007, the significant facilities used by Cameron throughout the world for manufacturing, distribution, aftermarket services, machining, storage, warehousing, sales and administration contained an aggregate of approximately 11,505,000 square feet of space, of which approximately 6,844,000 square feet (59%) was owned and 4,661,000 (41%) was leased.  Of this total, approximately 6,189,000 square feet of space (54%) is located in the Western Hemisphere, 3,935,000 square feet of space (34%) is located in the Eastern Hemisphere, 1,023,000 square feet of space (9%) is located in Asia Pacific and the Middle East and 358,000 square feet of space (3%) is located in West Africa. The table below shows the number of significant operating manufacturing, warehouse, distribution and aftermarket facilities and sales and administrative offices by business segment and geographic area. DPS and V&M share space in certain facilities and, thus, are being reported together.

   
Western Hemisphere
    
Eastern
Hemisphere
    
Asia/Pacific
and
Middle East
    
West
Africa
    
Total
  
DPS and V&M
     127       34       43       12       216  
CS
     16       3       2       —       21  
Corporate
     1       2       —       —       3  
      144       39       45       12       240  

Taking into consideration the construction that is currently underway for a new surface products manufacturing facility in Romania that is scheduled to begin operations in 2008, Cameron believes its facilities are suitable for their present and intended purposes and are adequate for the Company’s current and anticipated level of operations.


The Company is subject to a number of contingencies, including environmental matters, litigation and tax contingencies.

Environmental Matters

The Company’s worldwide operations are subject to regulations with regard to air, soil and water quality as well as other environmental matters. The Company, through its environmental management system and active third-party audit program, believes it is in substantial compliance with these regulations.

The Company is currently identified as a potentially responsible party (PRP) with respect to two sites designated for cleanup under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or similar state laws. One of these sites is Osborne, Pennsylvania (a landfill into which a predecessor of the CS operation in Grove City, Pennsylvania deposited waste), where remediation is complete and remaining costs relate to ongoing ground water treatment and monitoring. The other is believed to be a de minimis exposure. The Company is also engaged in site cleanup under the Voluntary Cleanup Plan of the Texas Commission on Environmental Quality at former manufacturing locations in Houston and Missouri City, Texas. Additionally, the Company has discontinuted operations at a number of other sites which had been active for many years. The Company does not believe, based upon information currently available, that there are any material environmental liabilities existing at these locations. At December 31, 2007, the Company’s consolidated balance sheet included a noncurrent liability of approximately $7.5 million for environmental matters.

Legal Matters

In 2001, the Company discovered that contaminated underground water from the former manufacturing site in Houston referenced above had migrated under an adjacent residential area. Pursuant to applicable state regulations, the Company notified the affected homeowners. Concerns over the impact on property values of the underground water contamination and its public disclosure led to a number of claims by homeowners.

 
 
The Company has entered into a number of individual settlements and has settled a class action lawsuit. Twenty-one of the individual settlements were made in the form of agreements with homeowners that obligated the Company to reimburse them for any estimated decline in the value of their homes at time of sale due to potential buyers’ concerns over contamination or, in the case of some agreements, to purchase the property after an agreed marketing period. Three of these agreements have had no claims made under them yet. The Company has also settled ten other property claims by homeowners who have sold their properties. In addition, the Company has settled Valice v. Cameron Iron Works, Inc. (80th Jud. Dist. Ct., Harris County, filed June 21, 2002), which was filed and settled as a class action. Pursuant to the settlement, the homeowners who remained part of the class are entitled to receive a cash payment of approximately 3% of the 2006 appraised value of their property or reimbursement of any diminution in value of their property due to contamination concerns at the time of any sale. To date, 60 homeowners have elected the cash payment.

Of the 258 properties included in the Valice class, there were 21 homeowners who opted out of the class settlement. There are three suits currently pending regarding this matter filed by non-settling homeowners. Moldovan v. Cameron Iron Works, Inc. (165th Jud. Dist. Ct., Harris County, filed October 23, 2006), was filed by six such homeowners. The other suits were filed by individual homeowners, Tuma v. Cameron Iron Works, Inc. (334th Judicial District Court of Harris County, Texas, filed on November 27, 2006), and Rudelson v. Cooper Industries, Inc. (189th Judicial District Court of Harris County, Texas, filed on November 29, 2006). The complaints filed in these actions make the claim that the contaminated underground water has reduced property values and seek recovery of alleged actual and exemplary damages for the loss of property value.

While one suit related to this matter involving health risks has been filed, the Company is of the opinion that there is no health risk to area residents and that the suit is without merit.

The Company believes, based on its review of the facts and law, that any potential exposure from existing agreements, the class action settlement or other actions that have been or may be filed, will not have a material adverse effect on its financial position or results of operations.  The Company’s consolidated balance sheet included a liability of $13.5 million for these matters as of December 31, 2007.

The Company has been named as a defendant in a number of multi-defendant, multi-plaintiff tort lawsuits since 1995. At December 31, 2007, the Company’s consolidated balance sheet included a liability of approximately $2.9 million for such cases, including estimated legal costs.  The Company believes, based on its review of the facts and law, that the potential exposure from these suits will not have a material adverse effect on its consolidated results of operations, financial condition or liquidity.
 
Regulatory Contingencies

In January 2007, the Company underwent a Pre-Assessment Survey as part of a Focused Assessment initiated by the Regulatory Audit Division of the U.S. Customs and Border Protection, Department of Homeland Security.  The Pre-Assessment Survey resulted in a finding that the Company had deficiencies in its U.S. Customs compliance processes.  The Company is taking corrective action and will undergo Assessment Compliance Testing in the first half of 2008.  At December 31, 2007, the Company's consolidated balance sheet included a liability of $0.8 million for the estimated additional customs duties which may be due.

In July 2007, the Company was one of a number of companies to receive a letter from the Criminal Division of the U.S. Department of Justice (DOJ) requesting information on their use of a freight forwarder and customs clearance broker.  The DOJ is inquiring into whether certain of the services provided to the Company by the freight forwarder may have involved violations of the U.S. Foreign Corrupt Practices Act (FCPA).  The Company is conducting an internal investigation in response, as discussed below, and is providing the requested information to the DOJ.

The Company engaged special counsel reporting to the Audit Committee of the Board of Directors to conduct an investigation into its dealings with the freight forwarder to determine if any payment made to or by the freight forwarder and customs clearing broker on the Company's behalf constituted a violation of the FCPA.  The investigation is also looking into activities of Company employees and agents with respect to immigration matters and importation permitting.  To date, the special counsel has found that the Company utilized certain services in Nigeria offered by the customs broker that appear to be similar to services that have been under review by the DOJ.  Special counsel is reviewing these and other services and activities to determine whether they were conducted in compliance with all applicable laws and regulations.  Special counsel is also reviewing the extent, if any, of the Company’s knowledge, and its involvement in the performance, of these services and activities and whether the Company fulfilled its obligations under the FCPA.

 

 
In addition, the U.S. Securities and Exchange Commission (SEC) is conducting an informal inquiry into the same matters currently under review by the DOJ.  As part of this inquiry the SEC has requested that the Company provide to them the information and documents that have been requested by and are being provided to the DOJ.  The Company is cooperating fully with the SEC, as it is doing with the DOJ, and is providing the requested materials.  At this stage of the internal investigation, the Company cannot predict the ultimate outcome of either the internal investigation or the government inquiries.  The Company has also undertaken an enhanced compliance training effort for its personnel, including foreign operations personnel dealing with customs clearance regulations.

 
Tax Contingencies

The Company has legal entities in over 35 countries. As a result, the Company is subject to various tax filing requirements in these countries. The Company prepares its tax filings in a manner which it believes is consistent with such filing requirements. However, some of the tax laws and regulations which the Company is subject to are subject to interpretation and/or judgment. Although the Company believes that the tax liabilities for periods ending on or before the balance sheet date have been adequately provided for in the financial statements, to the extent that a taxing authority believes that the Company has not prepared its tax filings in accordance with the authority’s interpretation of the tax laws/regulations, the Company could be exposed to additional taxes.


A Special Meeting of Stockholders of the Company was held in Houston, Texas on December 7, 2007 for the purpose of approving an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 150,000,000 to 400,000,000.  Proxies for the meeting were solicited pursuant to Regulation 14 of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management’s solicitation.  Results of the stockholder voting were as follows:
  
 
  
For
    
Against
     Abstaining /Withheld 
                 
Increase the number of authorized shares of common stock to 400,000,000
  
87,080,658
    
10,987,871
    
124,077 

 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
The common stock of Cameron International Corporation, par value $.01 per share (together with the associated Rights to Purchase Series B Junior Participating Preferred Stock), is traded on the New York Stock Exchange (“NYSE”) under the symbol CAM. No dividends were paid during 2007 or 2006.


   
Price Range ($) 
   
High
    
Low
    
Last 
2007
                
First Quarter
   $
32.01
     $
24.30
     $
31.40 
Second Quarter
    
37.21
      
31.29
      
35.74 
Third Quarter
    
47.95
      
35.03
      
46.15 
Fourth Quarter
    
53.83
      
42.76
      
  48.13
  

 
 
 
  
Price Range ($)
  
   
High
    
Low
    
Last 
2006
                  
First Quarter
   $
25.30
     $
19.04
     $
22.04 
Second Quarter
    
28.04
      
21.05
      
23.89 
Third Quarter
    
26.03
      
21.39
      
24.16 
Fourth Quarter
    
28.90
      
22.30
      
  26.52
  


As of February 8, 2008, the approximate number of stockholders of record of Cameron common stock was 1,105.

Information concerning securities authorized for issuance under stock-based compensation plans is included in Note 8 of the Notes to Consolidated Financial Statements, which notes are incorporated herein by reference in Part II, Item 8 hereof.
 
In February 2006, the Company’s Board of Directors changed the number of shares of the Company’s common stock authorized for repurchase from the 5,000,000 shares authorized in August, 2004 to 10,000,000 shares in order to reflect the 2-for-1 stock split effective December 15, 2005.  This authorization was subsequently increased to 20,000,000 in connection with the 2-for-1 stock split effective December 28, 2007 and eventually to 30,000,000 by a resolution adopted by the Board of Directors on February 21, 2008.  Additionally, on May 22, 2006, the Company’s Board of Directors approved repurchasing shares of the Company’s common stock with the proceeds remaining from the Company’s 2.5% Convertible Debenture offering, after taking into account a planned repayment of $200,000,000 principal amount of the Company’s outstanding 2.65% Senior Notes due 2007.  This authorization is in addition to the 20,000,000 shares described above.

Purchases pursuant to the 30,000,000-share Board authorization may be made by way of open market purchases, directly or indirectly, for the Company’s own account or through commercial banks or financial institutions and by the use of derivatives such as a sale or put on the Company’s common stock or by forward or economically equivalent transactions. Shares of common stock purchased and placed in treasury during the three months ended December 31, 2007 under the Board’s two authorization programs described above are as follows (revised to reflect the 2-for-1 stock split effective December 28, 2007):

Period  
Total number of shares purchased  
Average price paid per
share  
Total number of shares
purchased as part of all repurchase programs (a)
Maximum number of shares that
may yet be purchased under all
repurchase programs (b)
10/1/07 - 10/31/07
—
$      —
17,328,627
5,217,917
11/1/07 - 11/30/07
—
$      —
17,328,627
 5,309,742
12/1/07 - 12/31/07
1,250,000
$ 47.48
18,578,627
3,991,604
Total
1,250,000
$ 47.48
18,578,627
3,991,604

(a)   All share purchases during the three months ended December 31, 2007 were done through open market transactions.

(b)  The information presented is based on programs approved by the Board of Directors as of December 31, 2007.  At December 31, 2007, 2,096,516 shares are yet to be purchased under the $250,000,000 Board authorization, based on the closing price of the Company’s common stock at that date of $48.13 per share.

 

The information set forth under the caption “Selected Consolidated Historical Financial Data of Cameron International Corporation” on page 73 in the 2007 Annual Report to Stockholders is incorporated herein by reference.

 
 

The information set forth under the caption “Management’s Discussion and Analysis of Results of Operations and Financial Condition of Cameron International Corporation” on pages 25 to 41 in the 2007 Annual Report to Stockholders is incorporated herein by reference.


The information for this item is set forth in the section entitled “Market Risk Information” on pages 40 to 41 in the 2007 Annual Report to Stockholders and is incorporated herein by reference.


The following consolidated financial statements of the Company and the independent registered public accounting firm’s reports set forth on pages 42 to 72 in the 2007 Annual Report to Stockholders are incorporated herein by reference:

Management’s Report on Internal Control Over Financial Reporting.

Report of Independent Registered Public Accounting Firm.

Report of Independent Registered Public Accounting Firm.

Consolidated Results of Operations for each of the three years in the period ended December 31, 2007.

Consolidated Balance Sheets as of December 31, 2007 and 2006.

Consolidated Cash Flows for each of the three years in the period ended December 31, 2007.

Consolidated Changes in Stockholders’ Equity for each of the three years in the period ended December 31, 2007.

Notes to Consolidated Financial Statements.


None.

ITEM 9A. CONTROLS AND PROCEDURES  

(a) The Company carried out an evaluation, under the supervision and with the participation of the Company’s Disclosure Committee and the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2007.  In conducting management’s evaluation as described above, DES Operations Limited, Prime Measurement Products, Paradigm Services, LP, and Filtra-Systems Company, all acquired during 2007, were excluded. These operations, which are included in the 2007 consolidated financial statements of the Company, constituted less than 5% of the Company’s consolidated revenues, income before income taxes and total assets as of and for the year ended December 31, 2007. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2007 to ensure that information required to be disclosed by the Company that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 
 
(b) Management’s Report on Internal Control over Financial Reporting - The report of management of the Company regarding internal control over financial reporting is set forth in Part II, Item 8 of this Annual Report on Form 10-K under the caption “Management’s Report on Internal Control over Financial Reporting” and incorporated herein by reference.

(c) Attestation Report of Independent Registered Public Accounting Firm - The attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting is set forth in Part II, Item 8 of this Annual Report on Form 10-K under the caption “Report of Independent Registered Public Accounting Firm” and incorporated herein by reference.

(d) Changes in Internal Control over Financial Reporting – There were no changes made in the Company’s internal control over financial reporting during the fourth quarter of 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


None



Information regarding Section 16(a) compliance, the Audit Committee, the Company’s Code of Business Ethics and Ethics for Directors, shareholder nominating procedures and background of the directors appearing under the captions “Section 16(a) Beneficial Ownership Reporting Compliance”, “Corporate Governance and Board of Directors Matters”, and “Security Ownership of Management” in the Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders is incorporated herein by reference.

The Registrant has adopted a code of ethics that applies to all employees, including its principal executive officer, principal financial officer, principal accounting officer and its Board of Directors. A copy of the code of ethics is available on the Registrant’s Internet website at www.c-a-m.com and is available in print to any shareholder free of charge upon request. The Registrant intends to satisfy the disclosure requirements under Item 10 of Form 8-K regarding an amendment to, or a waiver from, a provision of its code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions, by posting such information on its website at the address set forth above.

The information under the heading “Executive Officers of the Registrant” in Part I, Item 1 of this Form 10-K is incorporated by reference in this section.


The information concerning "Executive Compensation" required by Item 11 shall be included in the Proxy Statement to be filed relating to our 2008 Annual Meeting of Stockholders and is incorporated herein by reference.


The information concerning "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" required by Item 12 shall be included in our Proxy Statement to be filed relating to the 2008 Annual Meeting of Stockholders and is incorporated herein by reference.

 
 

The information concerning the Company's "Policy on Related Person Transactions" and "Director Independence" required by Item 13 shall be included in our Proxy Statement to be filed relating to the 2008 Annual Meeting of Stockholders and is incorporated herein by reference.


The information concerning "Principal Accounting Firm Fees" required by Item 14 shall be included in the Proxy Statement to be filed relating to our 2008 Annual Meeting of Stockholders and is incorporated herein by reference.



 
(a)   The following documents are filed as part of this Report:  

 
(1)   Financial Statements:  

All financial statements of the Registrant as set forth under Part II, Item 8 of this Annual Report on Form 10-K.

 
(2)   Financial Statement Schedules:  


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
Cameron International Corporation

We have audited the consolidated financial statements of Cameron International Corporation (the Company) as of December 31, 2007 and 2006, and for each of the three years in the period ended December 31, 2007, and have issued our report thereon dated February 27, 2008 (incorporated by reference in this Form 10-K). Our audits also included the financial statement schedule included in Item 15(a)(2) of this Form 10-K. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

   
/s/ Ernst & Young LLP
     
                      
Houston, Texas
February 27, 2008

 

 
Schedule II - Valuation and Qualifying Accounts
(dollars in thousands)
     
 
Additions  
  
 
             
 
  
Balance at beginning
 of
period
  
  
Charged
to costs and 
expenses
    
Charged to 
other 
accounts
  
  
Deductions
(a)
  
   
Translation
    
 Balance at end of period
YEAR ENDED DECEMBER 31, 2007:
                                  
Allowance for doubtful accounts
 $
7,303
  
 $
3,180
  
 $
(1,562
)
 $
(889
)
 $
212
  
 $
8,244
Allowance for obsolete and excess inventory
 $
44,223
  
 $
13,361
  
 $
3,512
  
 $
(13,396
)
 $
2,355
  
 $
50,055
YEAR ENDED DECEMBER 31, 2006:
                                  
Allowance for doubtful accounts
 $
   9,775
  
 $
2,082
  
 $
(149
)
 $
(3,495
) 
 $
(910
)
 $
 7,303 
Allowance for obsolete and excess inventory
 $
48,305
  
 $
10,760
  
 $
   858
  
 $
(17,879
)
 $
2 ,179
  
 $
44,223
YEAR ENDED DECEMBER 31, 2005:
                                  
Allowance for doubtful accounts
 $
4,513
  
 $
1,583
  
 $
4,556
  
 $
(874
) 
 $
(3
)
 $
9,775
Allowance for obsolete and excess inventory
 $
47,778
  
 $
21,971
  
 $
7 ,755
  
 $
(28,084
)
 $
(1,115
)
 $
48,305
___________
 
(a)  Write-offs of uncollectible receivables, deductions for collections of previously reserved receivables and write-offs of obsolete inventory.

 
 
(3)   Exhibits:
3.1
Amended and Restated Certificate of Incorporation of Cameron International Corporation, dated June 30, 1995, filed as Exhibit 4.2 to the Registration Statement on Form S-8 filed on July 25, 2005 (Commission File No. 33-94948), and incorporated herein by reference.
   
3.2
Certificate of Amendment to the Restated Certificate of Incorporation of Cameron International Corporation, filed as Exhibit 4.3 to the Registration Statement on Form S-8 filed on May 19, 1998 (Commission File No. 333-57995), and incorporated herein by reference.
   
3.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Cameron International Corporation, dated May 5, 2006 (incorporated by reference, filed as Exhibit 3.1 to the Form 8-K filed on May 9, 2006).
   
3.4
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Cameron International Corporation, dated December 11, 2007, filed as Exhibit 3.1 to the Current Report on Form 8-K filed December 10, 2007, and incorporated herein by reference.
   
3.5
Second Amended and Restated Bylaws of the Company, filed as Exhibit 3.3 to the Annual Report on Form 10-K for 2002 of the Company, and incorporated herein by reference.
   
3.6*
First Amendment to Second Amended and Restated Bylaws of the Company, effective February 21, 2008.
   
3.7
Certificate of Elimination with Respect to Series A Junior Participating Preferred Stock, filed as Exhibit 3.1 to the Current Report on Form 8-K filed December 18, 2007, and incorporated herein by reference.

 

4.1
Form of Rights Agreement, dated as of October 1, 2007, between Cameron International Corporation and Computershare Trust Company, N.A., as Rights Agent, filed as Exhibit 4.1 to the Company’s Form 8-A filed on October 3, 2007, and incorporated herein by reference.
   
4.2
Registration Statement on Form S-3 filed with the Securities and Exchange Commission on May 4, 1998 (Registration Statement No. 333-51705), and incorporated herein by reference.
   
10.1
The Company's Broad Based 2000 Incentive Plan, filed as Exhibit 4.6 to the Registration Statement on Form S-8 of the Company (Commission File No. 333-46638), and incorporated herein by reference.
   
10.2
First Amendment to the Company's Broad Based 2000 Incentive Plan, filed as Exhibit 4.7 to the Registration Statement on Form S-8 filed with the SEC on May 29, 2001 (File No. 333-61820), and incorporated herein by reference.
   
10.3
Second Amendment to the Company's Broad Based 2000 Incentive Plan, filed as Exhibit 4.8 to the Registration Statement on Form S-8 filed with the SEC on February 4, 2002 (File No. 333-82082), and incorporated herein by reference.
   
10.4
Third Amendment to the Company's Broad Based 2000 Incentive Plan, filed as Exhibit 4.9 to the Registration Statement on Form S-8 filed with the SEC on February 4, 2002 (File No. 333-82082), and incorporated herein by reference.
   
10.5
Fourth Amendment to the Company's Broad Based 2000 Incentive Plan, filed as Exhibit 10.6 to the Annual Report on Form 10-K for 2002 of the Company, and incorporated herein by reference.
   
10.6
Cameron International Corporation Retirement Savings Plan, as Amended and Restated, effective May 1, 2003, filed as Exhibit 10.8 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
10.7
First through Third Amendments to the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.9 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
10.8
Fourth and Fifth Amendments to the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.8 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
   
10.9
Merger of the Petreco International, Inc. 401(k) Profit Sharing Plan with and into the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.10 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
10.10
Merger of the Company's Savings-Investment Plan for Hourly Employees with and into the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.11 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
10.11
Amendment to the NuFlo Technologies, Inc. 401(K) Plan and Merger of the NuFlo Technologies, Inc. 401(K) Plan with and into the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.11 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
   
10.12
The Company's 2005 Equity Incentive Plan, incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 5, 2005.

 
 
  
10.13
First Amendment to the Company's 2005 Equity Incentive Plan, filed as Exhibit 10.13 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
   
10.14
The Company's Supplemental Excess Defined Benefit Plan, filed as Exhibit 10.4 to the Registration Statement on Form S-4 of the Company (Commission File No. 33-90288), and incorporated herein by reference.
   
10.15
First Amendment to Cameron International Corporation Supplemental Excess Defined Benefit Plan, effective as of January 1, 1996, filed as Exhibit 10.7 to the Annual Report on Form 10-K for 1996 of the Company, and incorporated herein by reference.
   
10.16
The Company's 2003 Supplemental Excess Defined Contribution Plan, filed as Exhibit 4.13 to the Registration Statement on Form S-8 filed with the SEC on June 18, 2003, of the Company (Commission File No. 333-106225), and incorporated herein by reference.
   
10.17
First Amendment to Cameron International Corporation 2003 Supplemental Excess Defined Contribution Plan filed as Exhibit 4.14 to the Registration Statement on Form S-8, filed with the SEC on June 18, 2003, of the Company (Commission File No. 333-106225), and incorporated herein by reference.
   
10.18
Employment Agreement by and between Franklin Myers and the Company, effective as of September 1, 1999, filed as Exhibit 10.18 to the Annual Report on Form 10-K for 1999 of the Company, and incorporated herein by reference.
   
10.19
Amendment to the Employment Agreement between the Company and Franklin Myers, dated August 16, 2004, filed as Exhibit 10.47 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
10.20*
Form of Change of Control Agreement, effective August 13, 2007, by and between the Company and William C. Lemmer.
   
10.21*
Form of Change of Control Agreements, effective December 19, 2007, by and between the Company and Scott Amann, John D. Carne, Jack B. Moore, Charles M. Sledge, and Robert J. Rajeski.
   
10.22
Form of Change in Control Agreement, effective October 10, 2002, by and between the Company and Charles M. Sledge, filed as Exhibit 10.23 to the Annual Report on Form 10-K for 2002 of the Company, and incorporated herein by reference.
   
10.23
Amended and Restated Management Incentive Compensation Plan of the Company, incorporated herein by reference to the Company 2005 Proxy Statement for the Annual Meeting of Stockholders held on May 5, 2005.
   
10.24
Change in Control Policy of the Company, approved February 19, 1996, filed as Exhibit 10.18 to the Annual Report on Form 10-K for 1996 of the Company, and incorporated herein by reference.
   
10.25
Form of Executive Severance Program of the Company, effective July 1, 2000, and reissued January 1, 2004, filed as Exhibit 10.29 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
   
10.26
Credit Agreement, dated as of October 12, 2005, among the Company and certain of its subsidiaries and the banks named therein and JPMorgan Chase Bank, N.A., as agent, filed as Exhibit 10.1 to the Current Report on Form 8-K dated October 12, 2005, of the Company, and incorporated herein by reference.

 

 

10.27
Individual Account Retirement Plan for Bargaining Unit Employees at the Company's Buffalo, New York Plant, filed as Exhibit 4.6 to the Registration Statement on Form S-8 (Registration No. 333-57991), incorporated herein by reference.
   
10.28
First through Eighth Amendments to the Individual Account Retirement Plan for Bargaining Unit Employees at the Company's Buffalo, New York Plant, filed as Exhibit 10.36 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
10.29
Ninth Amendment to the Individual Account Retirement Plan for Bargaining Unit Employees at the Cameron International Corporation Buffalo, New York Plant, filed as Exhibit 10.33 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
   
10.30
Form of Indemnification Agreement, effective February 20, 2003, by and between the Company and Nathan M. Avery, C. Baker Cunningham, Sheldon R. Erikson, Michael E. Patrick, David Ross and Bruce W. Wilkinson, filed as Exhibit 10.32 to the Annual Report on Form 10-K/A for 2002 of the Company, and incorporated herein by reference.
   
10.31
Form of Indemnification Agreement, effective February 20, 2003, by and between the Company and Mr. Jeff Altamari, Mr. Steve P. Beatty, Mr. John Carne, Mr. Hal Goldie, Mr. William C. Lemmer, Mr. Jack B. Moore, Mr. Franklin Myers, Mr. Robert Rajeski, Mr. Charles M. Sledge, and Mr. Rick Steans, filed as Exhibit 10.36 to the Annual Report on Form 10-K for 2003 of the Company, and incorporated herein by reference.
   
10.32
Form of Stock Option Agreement for grants dated November 22, 2004, under the Company's Long-Term Incentive Plan, filed as an exhibit to a Form 8-K filed on January 18, 2005, and incorporated herein by reference.
   
10.33
Form of Restricted Stock Agreement for Restricted Stock Units granted on January 1, 2005, filed as Exhibit 10.50 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
10.34
Form of Restricted Stock Agreement for Restricted Stock Units granted on January 1, 2006, filed as Exhibit 10.39 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
   
10.35
Form of Stock Option Agreement for grants dated November 22, 2004, under the Company's Long-Term Incentive Plan, filed as an exhibit to a Form 8-K filed on January 18, 2005, and incorporated herein by reference.
   
10.36
The Company's Deferred Compensation Plan for Non-Employee Directors, filed as Exhibit 10.41 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
   
10.37
The Company's Long-Term Incentive Plan, as Amended and Restated as of November 2002, incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 8, 2003.
   
10.38
Sixth Amendment to the Company's Long-Term Incentive Plan, as Amended and Restated as of November 2002, incorporated by reference to the Company's Proxy Statement for the annual meeting of Stockholders held on May 8, 2003.
   
10.39
Seventh Amendment to the Company's Long-Term Incentive Plan, filed as Exhibit 10.44 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
10.40
The Company's Second Amended and Restated 1995 Stock Option Plan for Non-Employee Directors (Registration Statement on Form S-8 No. 333-79787), incorporated herein by reference.


 

10.41
First Amendment to the Company's Second Amended and Restated 1995 Stock Option Plan for Non-Employee Directors, filed as Exhibit 10.43 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
10.42
Form of Stock Option Agreement for stock options granted on November 10, 2005, filed as Exhibit 10.47 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
   
10.43
Third Amendment to the Company's 2005 Equity Incentive Plan, filed as Exhibit "A" of the Cameron International Corporation 2006 Proxy Statement.
   
10.44
Fourth Amendment to the Company's 2005 Equity Incentive Plan filed as Exhibit 10.49 to the Annual Report on Form 10-K for 2006 of the Company, and incorporated herein by reference. 
   
10.45
Change of Control Agreement, dated August 10, 2006, by and between Joseph H. Mongrain and Cameron International Corporation filed as Exhibit 10.50 to the Annual Report on Form 10-K for 2006 of the Company, and incorporated herein by reference.
   
13.1*
Portions of the 2007 Annual Report to Stockholders are included as an exhibit to this report.
   
14.1
Code of Business Conduct and Ethics for Directors incorporated by reference to the Company's Proxy Statement for the annual meeting of Stockholders held on May 8, 2003.
   
14.2
Code of Ethics for Management Personnel, filed as Exhibit 14.2 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
14.3
Standards of Conduct, filed as Exhibit 14.3 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
   
21.1*
Subsidiaries of registrant.
   
23.1*
Consent of Independent Registered Public Accounting Firm.
   
31.1*
Certification.
   
31.2*
Certification.


 
 

   
32.1*
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
____________
*   Filed herewith
 

Pursuant to the requirements of Section 13 or 15(d) of the Securities   Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
CAMERON INTERNATIONAL CORPORATION
 
  Registrant  
     
 
 By:
/s/ Charles M. Sledge 
   
(Charles M. Sledge)  
   
Vice President and Corporate Controller
   
(Principal Accounting Officer)
   
 
  Date: February 28, 2008
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on this 28th day of February, 2008, by the following persons on behalf of the Registrant and in the capacities indicated.

 Signature  
 Title  
   
/s/ Nathan M. Avery  
  
(Nathan M. Avery)
Director
   
/s/ C. Baker Cunningham  
  
(C. Baker Cunningham)
Director
   
/s/ Sheldon R. Erikson  
Chairman and Chief Executive Officer
(Sheldon R. Erikson)
(principal executive officer)
   
/s/ Peter J. Fluor  
  
(Peter J. Fluor)
Director
   
/s/ Jack B. Moore
  
(Jack B. Moore)
President and Chief Operating Officer
   
/s/ Michael E. Patrick  
  
(Michael E. Patrick)
Director
   
/s/ David Ross III  
  
(David Ross III)
Director
   
/s/ Bruce W. Wilkinson  
  
(Bruce W. Wilkinson)
Director
   
/s/ Franklin Myers  
Senior Vice President and Chief Financial Officer
(Franklin Myers)
( principal financial officer)

 
26
 
 

EXHIBIT INDEX

 
Exhibit
Number
 
Description
Sequential Page Number
     
3.1
Amended and Restated Certificate of Incorporation of Cameron International Corporation, dated June 30, 1995, filed as Exhibit 4.2 to the Registration Statement on Form S-8 filed on July 25, 2005 (Commission File No. 33-94948), and incorporated herein by reference.
  
     
3.2
Certificate of Amendment to the Restated Certificate of Incorporation of Cameron International Corporation, filed as Exhibit 4.3 to the Registration Statement on Form S-8 filed on May 19, 1998 (Commission File No. 333-57995), and incorporated herein by reference.
  
     
3.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Cameron International Corporation, dated May 5, 2006 (incorporated by reference, filed as Exhibit 3.1 to the Form 8-K filed on May 9, 2006).
  
     
3.4
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Cameron International Corporation, dated December 11, 2007, filed as Exhibit 3.1 to the Current Report on Form 8-K filed December 10, 2007, and incorporated herein by reference.
  
     
3.5
Second Amended and Restated Bylaws of the Company, filed as Exhibit 3.3 to the Annual Report on Form 10-K for 2002 of the Company, and incorporated herein by reference.
  
     
3.6*
First Amendment to Second Amended and Restated Bylaws of the Company, effective February 21, 2008.
  
     
3.7
Certificate of Elimination with Respect to Series A Junior Participating Preferred Stock, filed as Exhibit 3.1 to the Current Report on Form 8-K filed December 18, 2007, and incorporated herein by reference.
  
     
 4.1
Form of Rights Agreement, dated as of October 1, 2007, between Cameron International Corporation and Computershare Trust Company, N.A., as Rights Agent, filed as Exhibit 4.1 to the Company’s Form 8-A filed on October 3, 2007, and incorporated herein by reference.
  
     
4.2
Registration Statement on Form S-3 filed with the Securities and Exchange Commission on May 4, 1998 (Registration Statement No. 333-51705), and incorporated herein by reference.
  
     
10.1
The Company's Broad Based 2000 Incentive Plan, filed as Exhibit 4.6 to the Registration Statement on Form S-8 of the Company (Commission File No. 333-46638), and incorporated herein by reference.
  
     

 
27

 
 
 

Exhibit
Number
 
Description
Sequential Page Number
     
10.2
First Amendment to the Company's Broad Based 2000 Incentive Plan, filed as Exhibit 4.7 to the Registration Statement on Form S-8 filed with the SEC on May 29, 2001 (File No. 333-61820), and incorporated herein by reference.
  
     
10.3
Second Amendment to the Company's Broad Based 2000 Incentive Plan, filed as Exhibit 4.8 to the Registration Statement on Form S-8 filed with the SEC on February 4, 2002 (File No. 333-82082), and incorporated herein by reference.
  
     
10.4
Third Amendment to the Company's Broad Based 2000 Incentive Plan, filed as Exhibit 4.9 to the Registration Statement on Form S-8 filed with the SEC on February 4, 2002 (File No. 333-82082), and incorporated herein by reference.
  
     
10.5
Fourth Amendment to the Company's Broad Based 2000 Incentive Plan, filed as Exhibit 10.6 to the Annual Report on Form 10-K for 2002 of the Company, and incorporated herein by reference.
  
     
10.6
Cameron International Corporation Retirement Savings Plan, as Amended and Restated, effective May 1, 2003, filed as Exhibit 10.8 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
10.7
First through Third Amendments to the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.9 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
10.8
Fourth and Fifth Amendments to the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.8 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
  
     
10.9
Merger of the Petreco International, Inc. 401(k) Profit Sharing Plan with and into the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.10 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
10.10
Merger of the Company's Savings-Investment Plan for Hourly Employees with and into the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.11 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
10.11
Amendment to the NuFlo Technologies, Inc. 401(K) Plan and Merger of the NuFlo Technologies, Inc. 401(K) Plan with and into the Cameron International Corporation Retirement Savings Plan, filed as Exhibit 10.11 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
  
     
10.12
The Company's 2005 Equity Incentive Plan, incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 5, 2005.
  

 
 
 
28

 

Exhibit
Number
 
Description
Sequential Page Number
     
10.13
First Amendment to the Company's 2005 Equity Incentive Plan, filed as Exhibit 10.13 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
  
     
10.14
The Company's Supplemental Excess Defined Benefit Plan, filed as Exhibit 10.4 to the Registration Statement on Form S-4 of the Company (Commission File No. 33-90288), and incorporated herein by reference.
  
     
10.15
First Amendment to Cameron International Corporation Supplemental Excess Defined Benefit Plan, effective as of January 1, 1996, filed as Exhibit 10.7 to the Annual Report on Form 10-K for 1996 of the Company, and incorporated herein by reference.
  
     
10.16
The Company's 2003 Supplemental Excess Defined Contribution Plan, filed as Exhibit 4.13 to the Registration Statement on Form S-8 filed with the SEC on June 18, 2003, of the Company (Commission File No. 333-106225), and incorporated herein by reference.
  
     
10.17
First Amendment to Cameron International Corporation 2003 Supplemental Excess Defined Contribution Plan filed as Exhibit 4.14 to the Registration Statement on Form S-8, filed with the SEC on June 18, 2003, of the Company (Commission File No. 333-106225), and incorporated herein by reference.
  
     
10.18
Employment Agreement by and between Franklin Myers and the Company, effective as of September 1, 1999, filed as Exhibit 10.18 to the Annual Report on Form 10-K for 1999 of the Company, and incorporated herein by reference.
  
     
10.19
Amendment to the Employment Agreement between the Company and Franklin Myers, dated August 16, 2004, filed as Exhibit 10.47 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
10.20*
Form of Change of Control Agreement, effective August 13, 2007, by and between the Company and William C. Lemmer.
  
     
10.21*
Form of Change of Control Agreements, effective December 19, 2007, by and between the Company and Scott Amann, John D. Carne, Jack B. Moore, Charles M. Sledge, and Robert J. Rajeski.
  
     
10.22
Form of Change in Control Agreement, effective October 10, 2002, by and between the Company and Charles M. Sledge, filed as Exhibit 10.23 to the Annual Report on Form 10-K for 2002 of the Company, and incorporated herein by reference.
  
     
10.23
Amended and Restated Management Incentive Compensation Plan of the Company, incorporated herein by reference to the Company 2005 Proxy Statement for the Annual Meeting of Stockholders held on May 5, 2005.
  
     
10.24
Change in Control Policy of the Company, approved February 19, 1996, filed as Exhibit 10.18 to the Annual Report on Form 10-K for 1996 of the Company, and incorporated herein by reference.
  

 
29

 
 

Exhibit
Number
 
Description
Sequential Page Number
     
10.25
Form of Executive Severance Program of the Company, effective July 1, 2000, and reissued January 1, 2004, filed as Exhibit 10.29 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
  
     
10.26
Credit Agreement, dated as of October 12, 2005, among the Company and certain of its subsidiaries and the banks named therein and JPMorgan Chase Bank, N.A., as agent, filed as Exhibit 10.1 to the Current Report on Form 8-K dated October 12, 2005, of the Company, and incorporated herein by reference.
  
     
10.27
Individual Account Retirement Plan for Bargaining Unit Employees at the Company's Buffalo, New York Plant, filed as Exhibit 4.6 to the Registration Statement on Form S-8 (Registration No. 333-57991), incorporated herein by reference.
  
     
10.28
First through Eighth Amendments to the Individual Account Retirement Plan for Bargaining Unit Employees at the Company's Buffalo, New York Plant, filed as Exhibit 10.36 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
10.29
Ninth Amendment to the Individual Account Retirement Plan for Bargaining Unit Employees at the Cameron International Corporation Buffalo, New York Plant, filed as Exhibit 10.33 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
  
     
10.30
Form of Indemnification Agreement, effective February 20, 2003, by and between the Company and Nathan M. Avery, C. Baker Cunningham, Sheldon R. Erikson, Michael E. Patrick, David Ross and Bruce W. Wilkinson, filed as Exhibit 10.32 to the Annual Report on Form 10-K/A for 2002 of the Company, and incorporated herein by reference.
  
     
10.31
Form of Indemnification Agreement, effective February 20, 2003, by and between the Company and Mr. Jeff Altamari, Mr. Steve P. Beatty, Mr. John Carne, Mr. Hal Goldie, Mr. William C. Lemmer, Mr. Jack B. Moore, Mr. Franklin Myers, Mr. Robert Rajeski, Mr. Charles M. Sledge, and Mr. Rick Steans, filed as Exhibit 10.36 to the Annual Report on Form 10-K for 2003 of the Company, and incorporated herein by reference.
  
     
10.32
Form of Stock Option Agreement for grants dated November 22, 2004, under the Company's Long-Term Incentive Plan, filed as an exhibit to a Form 8-K filed on January 18, 2005, and incorporated herein by reference.
  
     
10.33
Form of Restricted Stock Agreement for Restricted Stock Units granted on January 1, 2005, filed as Exhibit 10.50 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
10.34
Form of Restricted Stock Agreement for Restricted Stock Units granted on January 1, 2006, filed as Exhibit 10.39 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
  

 
30
 
 
 

Exhibit
Number
 
Description
Sequential Page Number
     
10.35
Form of Stock Option Agreement for grants dated November 22, 2004, under the Company's Long-Term Incentive Plan, filed as an exhibit to a Form 8-K filed on January 18, 2005, and incorporated herein by reference.
  
     
10.36
The Company's Deferred Compensation Plan for Non-Employee Directors, filed as Exhibit 10.41 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
  
     
10.37
The Company's Long-Term Incentive Plan, as Amended and Restated as of November 2002, incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 8, 2003.
  
     
10.38
Sixth Amendment to the Company's Long-Term Incentive Plan, as Amended and Restated as of November 2002, incorporated by reference to the Company's Proxy Statement for the annual meeting of Stockholders held on May 8, 2003.
  
     
10.39
Seventh Amendment to the Company's Long-Term Incentive Plan, filed as Exhibit 10.44 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
10.40
The Company's Second Amended and Restated 1995 Stock Option Plan for Non-Employee Directors (Registration Statement on Form S-8 No. 333-79787), incorporated herein by reference.
  
     
10.41
First Amendment to the Company's Second Amended and Restated 1995 Stock Option Plan for Non-Employee Directors, filed as Exhibit 10.43 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
10.42
Form of Stock Option Agreement for stock options granted on November 10, 2005, filed as Exhibit 10.47 to the Annual Report on Form 10-K for 2005 of the Company, and incorporated herein by reference.
  
     
10.43
Third Amendment to the Company's 2005 Equity Incentive Plan, filed as Exhibit "A" of the Cameron International Corporation 2006 Proxy Statement.
  
     
10.44
Fourth Amendment to the Company's 2005 Equity Incentive Plan filed as Exhibit 10.49 to the Annual Report on Form 10-K for 2006 of the Company, and incorporated herein by reference. 
  
     
10.45
Change of Control Agreement, dated August 10, 2006, by and between Joseph H. Mongrain and Cameron International Corporation filed as Exhibit 10.50 to the Annual Report on Form 10-K for 2006 of the Company, and incorporated herein by reference.
  
     

31

 
Exhibit
Number
 
Description
Sequential Page Number
     
13.1*
Portions of the 2007 Annual Report to Stockholders are included as an exhibit to this report.
  
     
14.1
Code of Business Conduct and Ethics for Directors incorporated by reference to the Company's Proxy Statement for the annual meeting of Stockholders held on May 8, 2003.
  
     
14.2
Code of Ethics for Management Personnel, filed as Exhibit 14.2 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
14.3
Standards of Conduct, filed as Exhibit 14.3 to the Annual Report on Form 10-K for 2004 of the Company, and incorporated herein by reference.
  
     
21.1*
Subsidiaries of registrant.
  
     
23.1*
Consent of Independent Registered Public Accounting Firm.
  
     
31.1*
Certification.
  
     
31.2*
Certification.
  
     
32.1*
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  

____________
*   Filed herewith
 
 
32
 

EX-3.6 2 ex3_6.htm BYLAWS-1ST AMEND TO 2ND RESTATED BYLAWS-2-2008 ex3_6.htm
EXHIBIT 3.6

FIRST AMENDMENT
TO
SECOND AMENDED AND RESTATED BYLAWS
OF
CAMERON INTERNATIONAL CORPORATION
(FORMERLY COOPER CAMERON CORPORATION)

Effective February 21, 2008

WHEREAS, the Board of Directors (the “Board”) of Cameron International Corporation, a Delaware corporation (the “Corporation”), has heretofore adopted the Corporation’s Second Restated Bylaws (the ”Bylaws”); and

WHEREAS, Section FOURTEENTH of the Restated Certificate of Incorporation of the Corporation and Article IX of the Bylaws provide that the Board has the power to amend the Bylaws; and

WHEREAS, by meeting of the Board on February 21 2008, the Board authorized and approved certain amendments to the Bylaws as set forth in this First amendment to Second Restated Bylaws;

NOW, THEREFORE, effective as of the date first set forth above, the Bylaws are hereby amended as follows:

A.   Article V, Section 1 of the Bylaws is hereby amended and restated to read in its entirety as follows:
 
     “Section 1.     Certificates for Shares.  The shares of the Corporation’s capital stock may be certificated or uncertificated, as provided under the laws of the State of Delaware.  Except as otherwise provided by law, the rights and obligations of shareholders are identical whether or not their shares are represented by certificates.  Each shareholder, upon written request to the Corporation or its transfer agent, shall be entitled to a certificate of the capital stock of the Corporation.  If certificated, certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors.  Such certificates shall be signed (i) by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or a vice President and (ii) by the Secretary or an Assistant Secretary.  All certificates for shares shall be consecutively numbered or otherwise identified.  The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation.  All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in the case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe.”

B.   Article V, Section 4 of the Bylaws is hereby amended and restated to read in its entirety as follows:
 
    “Section 4.      Transfer of Shares.  The Board of Directors may appoint one or more transfer agents for the Corporation’s capital stock and may make, or authorize such agent or agents to make, all such rules and regulations as are expedient governing the issue, transfer and registration of shares of capital stock of the Corporation and any certificates representing such shares.  Transfer of the shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of his authority to transfer, or by his attorney thereunder authorized by power of attorney, duly executed and filed with Secretary of the Corporation or its transfer agent, either (i) if such shares are certificated, on surrender for cancellation of the certificate of such shares to the Corporation or its transfer agent, or (ii) if such shares are uncertificated, upon proper instructions from the holder thereof, in each case with such proof of authenticity of signature as the Corporation or its transfer agent may reasonably require.  Prior to due presentment for registration of transfer of a security (whether certificate or uncertificated), the Corporation shall treat the registered owner of such security as the person exclusively entitled to vote, receive notifications and dividends, and otherwise to exercise all rights and powers of such security.”
 

 EX-10.20 3 ex10_20.htm LEMMER CHANGE OF CONTROL ex10_20.htm
EXHIBIT 10.20
August 13, 2007


Mr. William C. Lemmer
[Address]
 
Dear Mr. Lemmer,
 
Cameron International Corporation (the “Company”) considers the establishment and maintenance of a sound and vital management to be essential for the protection and enhancement of the best interests of the Company and its shareholders.  The Company recognizes that, as is the case with many publicly-held corporations, the possibility of a Change of Control1  may arise and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders.  Accordingly, the Board of Directors of the Company (the “Board”) has determined that appropriate steps should be taken to assure the Company of the continuation of your service and to reinforce and encourage the attention and dedication of members of the Company’s management to their assigned duties without distraction in circumstances arising from the possibility of a Change of Control. In particular the Board believes it important, should the Company or its shareholders receive a proposal for or notice of a Change of Control, or consider one itself, that you be able to assess and advise the Company whether such transaction would be or is in the best interests of the Company and its shareholders, and to take such other action regarding such transaction as the Board might determine to be appropriate, without being influenced by the uncertainties of your own situation.
 
In order to induce you to remain in the employ of the Company, this letter agreement (the “Agreement”), prepared pursuant to authority granted by the Compensation Committee of the Board of Directors, sets forth the severance benefits which the Company agrees will be provided to you should your employment with the Company be terminated in connection with a Change of Control under the circumstances described below, as well as certain other benefits which will be made available to you should you be employed by the Company on the Effective Date of a Change of Control.
 
This Agreement shall remain in full force and effect for as long as you remain in your current position with the Company or any other position of equal or higher grade which has historically made its holder eligible for a Change of Control Agreement; provided, however, that this Agreement shall terminate and cease to be in full force and effect upon your giving notice  that you are or are intending to terminate your employment with the Company, or resign from an eligible position, for any reason other than Good Reason.  This Agreement supersedes any prior agreement between you and the Company regarding the subject matter hereof.
 
_____________________________
1 Reference is made to Annex I hereto for definitions of certain terms used in this Agreement, and such definitions are incorporated herein by reference with the same effect as if set forth herein.  Certain capitalized terms used in this Agreement in connection with the description of various Plans are defined in the respective Plans, but if any such Plan-defined term conflicts with a definition herein contained, the latter shall prevail.
 
 
 
 
 
Page 2
 
1.             Termination in Connection with a Change of Control.
 
(a)           If, while this Agreement is in effect, there is a termination of your employment with the Company either by the Company without Cause or by you for Good Reason and a Termination Date occurs or is deemed to have occurred as a result thereof during the Effective Period, you shall be entitled to the following benefits, whether or not this Agreement has been cancelled prior to the time of your termination:
 
(i)           all benefits conferred upon you by the Severance Package, and
 
(ii)           in addition, all benefits payable under the provisions either of the Company’s employee and executive Plans in which you are a participant immediately prior to the Effective Date, or of those plans in existence at the time of the applicable Termination Date, whichever are more favorable to you, in accordance with the terms and conditions of such Plans or plans, such benefits to be paid under such Plans or plans and not under this Agreement.
 
(b)           Notwithstanding anything in this Agreement or any applicable Plan or plans to the contrary, any benefit payable pursuant to this Section 1 shall be paid on the date six months, two days after the applicable Termination Date.
 
(c)           Notwithstanding the above, you shall not be entitled to any such benefits if your termination results from your death or Disability, unless your death or Disability occurs (i) during the Effective Period and (ii) with respect to the benefits conferred by the Severance Package only, after either it has been decided that you will be terminated without Cause during the Effective Period, or you have given notice of termination for Good Reason during the Effective Period.
 
(d)           You shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by you as the result of your employment by another employer after the applicable Termination Date.
 
2.             Termination Date.
 
(a)           If it is intended that your employment be terminated by you for Good Reason during the Effective Period, you shall transmit to the Company written notice setting forth the particulars upon which you base your determination that Good Reason exists and, only if the stated basis therefore is capable of being cured, requesting a cure within ten days. Failing such a cure, a Termination Date shall then occur, and if such stated basis is not capable of cure by the Company, a Termination Date shall occur simultaneously with delivery of such notice.
 
(b)           If it is intended that your employment be terminated by the Company during the Effective Period without Cause, a “Termination Date” shall be deemed to have occurred upon the date of your receipt of written notice to that effect from the Company  or upon the date specified in such notice, if a later date, provided that this later date is within the Effective Period.  If the date specified in the notice is beyond the Effective Period, a “Termination Date” shall be deemed to have occurred on the last day of the Effective Period.
 
 
 
 
 
Page 3
 
(c)           If it is intended that your employment be terminated by the Company for Cause during the Effective Period, and if you contest such termination pursuant to any proceeding initiated pursuant to Section 6 hereof within fifteen days of receipt of notice and it is ultimately determined that Cause did not exist, then (anything else in the Agreement to the contrary notwithstanding) a “Termination Date” shall be deemed to have occurred upon the date you received such notice from the Company.
 
3.             LTIP Benefit Acceleration.  Immediately upon an applicable Termination Date, all contingent compensation rights issued to you under an LTIP Plan which are then (i) held by you, a member of your Immediate Family, or a partnership or limited liability company the partners or shareholders of which are you and members of your Immediate Family, and (ii) outstanding, shall become vested, exercisable, distributable and unrestricted (any contrary provision in an LTIP Plan notwithstanding), subject to the following provisions of this Section 3.  You shall have the right:
 
(a)           To (i) exercise all or any portion of your options covered (including, at your sole election, any associated Tandem SAR) by an LTIP Plan and to have the underlying Shares issued to you and (ii) exercise all or any portion of any LTIP Plan Freestanding SAR held by you, to the extent that such SAR is not non-qualified deferred compensation under Section 409A of the Code.
 
(b)           To (i) have issued to you on a non-forfeitable basis any or all Shares covered by Restricted Stock Awards held by you under an LTIP Plan and (ii) have issued to you any or all Performance Shares and/or Performance Units held by you in an LTIP Plan, and such issuance shall occur within 10 days of the Termination Date.
 
(c)           With respect to all other contingent compensation rights to which you may be entitled under an LTIP Plan which are not non-qualified deferred compensation within the meaning of Section 409A of the Code, to obtain the full benefit of any such right or rights, in each case as though all applicable Performance Targets had been met or achieved at maximum levels for all Performance Periods (including those extending beyond the date upon which a Change of Control occurs), all other LTIP Plan contingencies had been satisfied in full at the date upon which a Change of Control occurs, and the maximum possible benefits thereunder had been earned at the date upon which a Change of Control occurs.
 
(d)           With respect to all other contingent compensation rights to which you may be entitled under an LTIP Plan which are non-qualified deferred compensation within the meaning of Section 409A of the Code, to receive all such rights and benefits, payable in accordance with the terms of an LTIP Plan without regard to any other vesting or performance requirements therein.
 
 
 
 
 
Page 4
 
4.             Excise Tax.
 
(a)           Any other provision of this Agreement to the contrary notwithstanding, if any payment in the nature of compensation to be paid or provided to you under this Agreement or otherwise is considered to be a “parachute payment” within the meaning of Section 280G(b) of the Code, the Company shall pay to you an additional amount (hereinafter referred to as the “Excise Tax Premium”).  The Excise Tax Premium shall be equal to the excise tax determined under Code Section 4999 attributable to the total excess parachute payments received by you as determined under Code Section 280G, together with any applicable interest or penalties with respect thereto.  The Excise Tax Premium shall also include any amount equal to the excise tax attributable to the Excise Tax Premium (and, if applicable, interest and penalties thereon).  The Company shall also pay to you an additional amount (the “Additional Amount”) such that the net amount received by you, after paying any applicable excise taxes (and, if applicable, interest and penalties thereon) with respect to your excess parachute payments and the Excise Tax Premium, as well as any federal or state income, excise or other tax (and, if applicable, interest and penalties thereon) on such Additional Amount, shall be equal to the amount that you would have received if no excise tax under Code Section 4999 were applicable.  You shall be deemed to pay income taxes at all relevant times at the highest marginal rate of income taxation in effect in your taxing jurisdiction.  The Additional Amount shall include any amount attributable to income, excise or other tax on the Additional Amount.
 
(b)           Not later than 30 days following any payment in the nature of compensation described in this Agreement, the independent public accountants acting as auditors for the Company on the date of the transaction constituting the change of control within the meaning of Code Section 280G (or another accounting firm designated by you) (the “Accounting Firm”) shall (i) determine whether the sum of the present value of any “parachute payments” payable under this Agreement or otherwise and the present value of any other “parachute payments” received by you in connection with, relating to, or by reason of any such change of control is in excess of the amount you can receive without causing you to be subject to an excise tax with respect to such amount under Code Section 4999, (ii) shall determine the amount of any Excise Tax Premium and Additional Amount required under Section 4(a) above, and (iii) shall furnish you with a written opinion as to such determinations.  Any determinations by the Accounting Firm shall be binding upon you and the Company.  All fees and expenses of the Accounting Firm shall be borne solely by the Company.
 
(c)           The Excise Tax Premium and Additional Amount shall be paid by the Company to you within 10 days of the receipt of the Accounting Firm’s determinations made in accordance with Section 4(b) above, but in no event later than the end of the calendar year next following the calendar year in which you remit the applicable excise and other taxes, and shall be net of any amounts required to be withheld for taxes.
 
 
 
 
 
Page 5
 
(d)           For purposes of this Section, “present value” means the value determined in accordance with the principles of Section 1274(b)(2) of the Code under the rules provided in Code Section 280G and the corresponding Treasury Regulations thereunder.
 
(e)           To the extent Code Section 280G is amended prior to the termination of this Agreement, or is replaced by a successor statute, the provisions of this Section 4 shall be deemed modified, without further action on the part of the parties, in a manner consistent with such amendments or successor statutes, as the case may be.  In the event that Code Section 280G or any successor statute is repealed, this Section 4 shall cease to be effective on the effective date of such repeal.  The parties recognize that Treasury Regulations under Code Sections 280G and 4999 may affect the amount or amounts that may be paid hereunder and agree that, upon the issuance of any such Regulations, this Agreement may be modified as in good faith may be deemed necessary in light of the provisions of such Regulations to achieve the purposes hereof, and that consent to such modifications shall not be unreasonably withheld.
 
5.             409A Tax Provision.  If any payment or benefit received or to be received by you under this Agreement is determined to be “deferred compensation” as that term is used in Code Section 409A and related Treasury Regulations and Department of the Treasury guidance thereunder, with the effect that you are liable for the payment of tax or interest imposed by reason of Code Section 409A (the “409A Tax”), the Company will pay you an additional cash payment equal to such tax and interest plus any federal, state and local income taxes, employment taxes and any additional taxes, interest and penalties applicable to the payment under this Section 5.  If you become entitled to benefits under the Agreement by reason of separation from service, you agree to a delay in the payment of such amounts determined to be deferred compensation for a period of six months and two business days following your separation from service with the Company if the Company determines such delay is necessary to comply with Code Section 409A.  The parties agree to amend the provisions of this Agreement or any other compensation arrangement in any reasonable manner requested by the Executive or the Company to comply with Code Section 409A and related Treasury Regulations and Department of the Treasury guidance that would reduce or eliminate the 409A Tax.  If any payment to you is delayed by reason of this Section 5, unless such payment is otherwise subject to adjustment to take into account earnings (or losses) attributable thereto during the period of delay, when such payment is made you will also receive from the Company interest on such payment, from the date the payment would otherwise have been made to the date the payment is made, at the Prime Rate of interest as reported in the Wall Street Journal, compounded monthly with such interest rate being adjusted each month to track such Prime Rate of interest, prospectively for the ensuing month.
 
6.             Governing Law and Dispute Resolution.
 
(a)           This Agreement shall be governed in all respects, including as to validity, interpretation, construction, performance and effect, by the internal laws of the State of Texas without regard to choice of law principles.
 
(b)           It is irrevocably agreed that if any dispute arises between us under this Agreement: (i) exclusive jurisdiction shall be in the lowest Texas state court of general jurisdiction sitting in Harris County, Texas; (ii) we are each at the time present in Texas for the purpose of conferring personal jurisdiction; (iii) any such action may be brought in such court, and any objection that the Company or you may now or hereafter have to the venue of such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court is waived, and we each agree not to plead or claim the same; (iv) service of process in any such proceeding or action may be effected by mailing a copy thereof by registered or certified mail, return receipt requested (or any substantially similar form of mail), postage prepaid, to such party at the address provided in Section 9 hereof; and (v) prior to any trial on the merits, we will submit to court supervised, non-binding mediation.
 
 
 
 
 
Page 6
 
(c)           Notwithstanding any contrary provision of Texas law, the Company shall have the burden of proof with respect to any of the following: (i) that Cause existed at the time any notice was given to you under Section 2; (ii) that Good Reason did not exist at the time notice was given to the Company under Section 2; and (iii) that a Change of Control has not occurred.
 
7.             Successors; Binding Agreement.
 
(a)           In the event any Successor (as defined below) does not assume this Agreement by operation of law, the Company will seek to have such Successor, by agreement in form and substance satisfactory to you, expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it.  If there has been a Change of Control prior to, or a Change of Control will result from, any such succession, then failure of the Company to obtain such agreement prior to or upon the effectiveness of any such succession (unless assumption occurs as a matter of law) shall constitute Good Reason for termination by you of your employment and, upon delivery of your written notice of termination to the Company, you shall be entitled to all benefits provided for in this Agreement as a result of such termination.  “Successor” shall mean any Person that succeeds to, or has the ability to control, the Company’s business as a whole, whether directly by merger, consolidation, spin-off or similar transaction or indirectly by purchase of the Company’s Voting Securities or acquisition of all or substantially all of the assets of the Company.
 
(b)           This Agreement shall inure to the benefit of and be enforceable by your personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
 
8.             Fees and Expenses. The Company shall pay all legal fees and expenses incurred by you as a result of your seeking to interpret, obtain, assert or enforce any right or benefit conferred upon you by this Agreement to the extent you are the prevailing party.
 
9.             Notices.  Any and all notices required or permitted to be given hereunder shall be in writing and shall be deemed to have been given when delivered in person to the persons specified below or deposited in the United States mail, certified or registered mail, postage prepaid and addressed as follows:
 
 
 
 
 
Page 7
 
If to the Company:
Cameron International Corporation
 
1333 West Loop South, Suite 1700
 
Houston, Texas 77027
 
Attention: Chief Executive Officer
   
If to you:
Mr. William C. Lemmer
 
[Address]
 
 
Either party may change, by the giving of notice in accordance with this Section 9, the address to which notices are thereafter to be sent.
 
10.           Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
 
11.           Survival.  All obligations undertaken and benefits conferred pursuant to this Agreement shall survive any termination of your employment and continue until performed in full.
 
12.           Miscellaneous.  No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by you and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement.
 
13.           Duplicate Originals.  This Agreement has been executed in duplicate originals, with one to be held by each of the parties hereto.
 
 
 
 
 
Page 8
 
If this Agreement correctly sets forth our understanding with respect to the subject matter hereof, please sign and return one copy of this Agreement to the Company.

 
Sincerely,
   
 
CAMERON INTERNATIONAL CORPORATION
     
     
     
 
By:
 /s/ Sheldon R. Erikson
   
Sheldon R. Erikson
   
Chairman and
   
Chief Executive Officer
 
 
Agreed to as of the 5th day of September, 2007
 
/w/ William C. Lemmer
  
Name:
   William C. Lemmer
  
 
 
 
 
 
Annex I to Agreement dated August 13, 2007
between
Cameron International Corporation
and
William C. Lemmer
 
DEFINITION OF
CERTAIN TERMS
 
“Agreement” means the letter agreement between William C. Lemmer and the Company dated  August 13, 2007.
 
“Bonus Plan” means for each year, the Company’s Management Incentive Compensation Plan or any other Plan adopted by the Board which provides for the payment of additional compensation on an annual basis to senior executive officers contingent upon the Company’s results of operations for that specific year, in either case as such Plan shall be amended or modified to, but not on or after, any Effective Date.
 
“Cause” means (i) your conviction by a court of competent jurisdiction, from which conviction no further appeal can be taken, of a felony-grade crime involving moral turpitude, or (ii) your willful failure to perform substantially your duties with the Company (other than a failure due to physical or mental illness) which is materially and demonstrably injurious to the Company.   No act or failure to act on your part shall be considered “willful” unless done, or omitted to be done, by you in bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interests of the Company.
 
“Change of Control” means the earliest date at which:
 
(i)             any Person is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s outstanding Voting Securities, other than through the purchase of Voting Securities directly from the Company through a private placement;
 
(ii)            individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of the directors comprising the Incumbent Board shall from and after such election be deemed to be a member of the Incumbent Board;
 
(iii)           a merger or consolidation involving the Company or its stock or an acquisition by the Company, directly or indirectly or through one or more subsidiaries, of another entity or its stock or assets in exchange for the stock of the Company, unless, immediately following such transaction, 70% or more of the then outstanding Voting Securities of the surviving or resulting corporation or entity will be (or is) then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners of the Company’s outstanding Voting Securities immediately prior to such transaction (treating, for purposes of determining whether the 70% continuity test is met, any ownership of the Voting Securities of the surviving or resulting corporation or entity that results from a stockholder’s ownership of the stock of, or other ownership interest in, the corporation or other entity with which the Company is merged or consolidated as not owned by persons who were beneficial owners of the Company’s outstanding Voting Securities immediately prior to the transaction);
 
 
A-1
 

(iv)           any transaction of the type described in part (iii) above, that would have qualified as a “Change of Control” but for the fact that the consideration therefore is part or all cash;
 
(v)            a tender offer or exchange offer is made and consummated by a Person other than the Company for the ownership of 20% or more of the Voting Securities of the Company then outstanding; or
 
(vi)           all or substantially all of the assets of the Company are sold or transferred to a Person as to which (A) the Incumbent Board does not have authority (whether by law or contract) to directly control the use or further disposition of such assets and (B) the financial results of the Company and such Person are not consolidated for financial reporting purposes.
 
Anything else in this definition to the contrary notwithstanding, no Change of Control shall be deemed to have occurred by virtue of any transaction which results in you, or a group of Persons which includes you, acquiring more than 20% of either the combined voting power of the Company’s outstanding Voting Securities or the Voting Securities of any other corporation or entity which acquires all or substantially all of the assets of the Company, whether by way of merger, consolidation, sale of such assets or otherwise.
 
“Code” means the Internal Revenue Code of 1986, as amended.
 
“Defined Benefit Plan” means the Company’s Retirement Plan and Supplemental Excess Defined Benefit Plan, as the same shall be amended or modified prior to, but not on or after, any Effective Date.
 
“Defined Contribution Plan” means the Company’s Retirement Savings Plan and Supplemental Excess Defined Contribution Plan, as the same shall be amended or modified prior to, but not on or after, any Effective Date.
 
“Disability” means your continuing full-time absence from your duties with the Company for 180 days or longer as a result of physical or mental incapacity.
 
“Effective Date” means the earliest date upon which any of the following shall have occurred: (i) any of the events set forth under the definition of Change of Control; (ii) the receipt by the Company of a Schedule 13D stating the intention of any Person to take actions which, if accomplished, would constitute a Change of Control; (iii) the public announcement by any Person of its intention to take any such action, in each case without regard for any contingency or condition which has not been satisfied on such date; (iv) the agreement by the Company to enter into a transaction which, if consummated, would result in a Change of Control; or (v) consideration by the Board of a transaction which, if consummated, would result in a Change of Control.
 
 
A-2
 

If, however, an Effective Date with respect to any proposed transaction occurs but the proposed transaction to which it relates ceases to be actively considered, the Effective Period will be deemed not to have commenced for purposes of this Agreement.  If an Effective Date occurs with respect to a proposed transaction which ceased to be actively considered but for which active consideration is revived, the Effective Date with respect to the Change of Control that ultimately occurs shall be that date upon which consideration was revived and ultimately carried through to consummation.
 
“Effective Period” means the period between the Effective Date and two years following the occurrence of the Change of Control.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
 
“Good Reason” means any of the following:
 
(i)             a change in your status, title(s) or position(s) with the Company, including as an officer of the Company, which, in your reasonable judgment, does not represent a promotion, with commensurate adjustment of compensation, from your status, title(s) and position(s) immediately prior to the Effective Date; or the assignment to you of any duties or responsibilities which, in your reasonable judgment, are inconsistent with your status, title(s) or position(s) immediately prior to the Effective Date; or the withdrawal from you of any duties or responsibilities which in your reasonable opinion are consistent with your status, title(s) or position(s) immediately prior to the Effective Date; or any removal of you from or any failure to reappoint or reelect you to your position(s) immediately prior to the Effective Date; provided that the circumstances described in this item (i) do not apply if as a result of your death, retirement, or Disability or following receipt by you of written notice from the Company of the termination of your employment for Cause;
 
(ii)            a reduction by the Company any time after the Effective Date in your then current base salary;
 
(iii)           the failure by the Company to continue in effect any Plan in which you were participating immediately prior to the Effective Date other than as a result of the normal expiration or amendment of any such Plan in accordance with its terms; or the taking of any action, or the failure to act, by the Company which would adversely affect your continued participation in any such Plan on at least as favorable a basis to you as is the case immediately prior to the Effective Date or which would materially reduce your benefits under any such Plan or deprive you of any material benefit enjoyed by you immediately prior to the Effective Date, except with your express written consent;
 
 
A-3
 

(iv)           the relocation of the principal place of your employment to a location 25 miles further from your principal residence without your express written consent;
 
(v)            the failure by the Company upon a Change of Control to obtain the express assumption of this Agreement by any Successor (other than by operation of law);
 
(vi)           any refusal by the Company to continue to allow you to attend to or engage in matters or activities not directly related to the business of the Company which you attended to or were engaged in immediately prior to the Effective Date and which do not otherwise violate your obligations of employment with the Company; or
 
(vii)           any continuing material default by the Company in the performance of its obligations under this Agreement, whether before or after a Change of Control.
 
“LTIP Plan” means any of the Company’s long-term incentive plans as such plans may be amended, modified, or replaced, up to, but not on or after, an Effective Date.
 
“Market Value” means, when used with respect to Shares or Voting Securities, the closing price thereof on the New York Stock Exchange on the date for which the Market Value is to be determined, or if not listed thereon, on such other exchange as shall at that time constitute the principal exchange for trading the Shares or Voting Securities.
 
“Other Plans” means any thrift, bonus or incentive, stock option or stock accumulation pension medical, disability, accident or life insurance plan, program or policy of the Company which is intended to benefit employees of the Company similarly situated to you (other than the Bonus Plan, Defined Benefit Plan, Defined Contribution Plan, LTIP Plan or Purchase Plan).
 
“Person” means any individual, corporation, partnership, group, association or other “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act, other than the Company or any Plans sponsored by the Company.
 
“Perquisites” means individual perquisite benefits received by you immediately prior to the Effective Date, including, but not limited to, club membership dues and certain automobile expenses.
 
“Plans” means the Bonus Plan, Defined Benefit Plan, Defined Contribution Plan, LTIP Plan, Purchase Plan, and Other Plans.
 
“Purchase Plan” means the Company’s Employee Stock Purchase Plan adopted as the same shall be amended or modified prior to, but not on or after, the Effective Date.
 
 “Severance Package” means your right to receive, and the Company’s obligation to pay and/or perform, the following:
 
(a)            the Company shall pay to you, on the date six months, two days after the applicable Termination Date, a lump sum cash amount equal to the sum of (i) three times the highest annual rate of base salary in effect during the current year or any of the three years preceding the Termination Date, and (ii) three times the greater of (A) the target award you would have been eligible to receive under the Bonus Plan in respect of the current year, regardless of any limitations otherwise applicable to the Bonus Plan (i.e., the failure to have completed any vesting period or the current measurement period, or the failure to achieve any performance goal applicable to all or any portion of the measurement period) or (B) the largest award earned (whether or not paid) under the Bonus Plan in respect of any of the three years preceding the Termination Date;
 
 
A-4
 

(b)    in addition to any vested portion of your interest in the Defined Contribution Plan to which you are entitled on the applicable Termination Date under that Plan, the Company shall pay to you, on the date six months, two days after the Termination Date, an amount in cash equal to the unvested portion of the Company’s contributions to your account, which unvested portion shall be valued as of the Termination Date at Market Value;
 
(c)           in addition to any vested retirement benefits to which you are entitled under the Defined Benefit Plan on the applicable Termination Date, the Company shall pay to you, on the date six months, two days after the Termination Date, an amount in cash equal to the product of (i) a number equal to your years of life expectancy beyond age 65 determined in accordance with the actuarial assumptions utilized under the Defined Benefit Plan immediately prior to the Termination Date, times (ii) an amount equal to the difference between (A) the annual benefit to which you would have been entitled under the single life annuity method of distribution under the Defined Benefit Plan if you were fully vested thereunder (without regard to (I) whether you shall actually have completed the period of Vesting Service required to qualify for benefits under the Defined Benefit Plan, (II) any limitation on the amount used in the calculation of the annual benefit thereunder, (III) any offset thereunder for severance allowances payable thereunder, or (IV) any amendment to the Defined Benefit Plan made in connection with a Change of Control and on or prior to the Termination Date, which amendment adversely affects in any manner the computation of retirement benefits under such Plan) and had accumulated an additional three years of Vesting Service thereunder, and (B) the annual benefit, if any, to which you would be entitled under the single life annuity method of distribution under the Defined Benefit Plan as of the Termination Date; and
 
(d)    the Company shall pay to you, on the date six months, two days after the applicable Termination Date, an amount in cash equal to three times the average annual cost incurred by the Company, during the three calendar years preceding the calendar year in which the Termination Date occurs, as a result of your participation in all insured and self-insured employee welfare benefit Plans and Perquisites in which you were entitled to participate immediately prior to the Termination Date (or such fewer whole calendar years as you have so participated).
 
 “Shares” means shares of Common Stock, $.01 par value, of the Company as of the date of this Agreement, as the same shall be subsequently amended, modified or changed.
 
“Termination Date” shall have the meaning given it by Section 2 of the Agreement.
 
“Voting Securities” means, with respect to any corporation or business enterprise, those securities which under ordinary circumstances are entitled to vote for the election of directors or others charged with comparable duties under applicable law.
 
 
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EX-10.21 4 ex10_21.htm 2007 FORM - CHANGE OF CONTROL ex10_21.htm
EXHIBIT 10.21
 
FORM CHANGE OF CONTROL AGREEMENT DATED DECEMBER 19, 2007
 
 
 
______________________
 
 
____________________________
____________________________
____________________________

 
Dear _____________________,
 
Cameron International Corporation (the “Company”) considers the establishment and maintenance of a sound and vital management to be essential for the protection and enhancement of the best interests of the Company and its shareholders.  The Company recognizes that, as is the case with many publicly-held corporations, the possibility of a Change of Control1  may arise and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders.  Accordingly, the Board of Directors of the Company (the “Board”) has determined that appropriate steps should be taken to assure the Company of the continuation of your service and to reinforce and encourage the attention and dedication of members of the Company’s management to their assigned duties without distraction in circumstances arising from the possibility of a Change of Control. In particular the Board believes it important, should the Company or its shareholders receive a proposal for or notice of a Change of Control, or consider one itself, that you be able to assess and advise the Company whether such transaction would be or is in the best interests of the Company and its shareholders, and to take such other action regarding such transaction as the Board might determine to be appropriate without being influenced by the uncertainties of your own situation.
In order to induce you to remain in the employ of the Company, this letter agreement (the “Agreement”), prepared pursuant to authority granted by the Board, sets forth the compensation and severance benefits which the Company agrees will be provided to you should your employment with the Company be terminated in connection with a Change of Control under the circumstances described below, as well as certain other benefits which will be made available to you should you be employed by the Company on the Effective Date of a Change of Control.
 
This Agreement shall remain in full force and effect for as long as you remain in your current position with the Company or any other position of equal or higher grade which has historically made its holder eligible for a Change of Control Agreement; provided, however, that this Agreement shall terminate and cease to be in full force and effect upon your giving notice of your intent to terminate your employment with the Company for any reason other than Good Reason, whether by retirement, early retirement, or otherwise.  This Agreement supersedes any prior Agreement between you and the Company regarding the subject matter hereof.

_____________________________
1 Reference is made to Annex I hereto for definitions of certain terms used in this Agreement, and such definitions are incorporated herein by such reference with the same effect as if set forth herein.  Certain capitalized terms used in this Agreement in connection with the description of various Plans are defined in the respective Plans, but if any conflicts with a definition herein contained, the latter shall prevail.

 
 
 
 
Page 2
 
1.             Termination in Connection with a Change of Control.
 
(a)           If there is a termination of your employment with the Company either by the Company without Cause or by you for Good Reason during the period between the Effective Date of a Change of Control and 2 years following the occurrence of the Change of Control (the “Effective Period”), and if such Effective Date occurs during the life of this Agreement, you shall be entitled to the following benefits, whether or not this Agreement has been cancelled prior to the time of your termination:
 
(i)           all benefits conferred upon you by the Severance Package, and
 
(ii)           in addition, all benefits payable under the provisions either of the Company’s employee and executive Plans in which you are a participant immediately prior to the Effective Date, or of those plans in existence at the time of your Termination Date, whichever are more favorable to you, in accordance with the terms and conditions of such Plans or plans, such benefits to be paid under such Plans or plans and not under this Agreement.
 
(b)           Notwithstanding the above, you shall not be entitled to any such benefits if your termination results from your death or disability, unless your death or disability occurs (i) during the Effective Period and (ii), with respect to the benefits conferred by the Severance Package only, after either it has been decided that you will be terminated without Cause during the Effective Period, or you have given notice of termination for Good Reason during the Effective Period.
 
(c)           You shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by you as the result of employment by another employer after any Termination Date.
 
2.             Procedures for Termination.
 
(a)           If it is intended that your employment be terminated by you for Good Reason you shall transmit to the Company written notice setting forth the particulars upon which you base your determination that Good Reason exists and, only if the stated basis therefore is capable of being cured, requesting a cure within 10 days. Failing such a cure, a “final separation” shall then occur, and if such stated basis is not capable of cure by the Company, “final separation” shall occur co-extensive with delivery of the notice.  For purposes of this Agreement, a “Termination Date” shall be deemed to have occurred upon the date of such “final separation".
 
 
 
 
 
Page 3
(b)           If it is intended that your employment be terminated by the Company without Cause, a “Termination Date” shall be deemed to have occurred upon the 30th day following the date of receipt of any notice so stating, or upon the date specified in the notice, whichever is later.  If it is intended that your employment be terminated by the Company for Cause, if you contest such termination pursuant to any proceeding initiated pursuant to Section 6 hereof within 15 days of receipt of such notice, and it is ultimately determined that cause did not exist, then (anything else in the Agreement to the contrary notwithstanding) a “Termination Date” shall be deemed to have occurred upon the final resolution of such  proceeding.
 
3.             LTIP Benefit Acceleration.  Immediately upon an applicable Termination Date, all contingent compensation rights issued to you under the LTIP Plan, which are then (i) held by you, a member of your Immediate Family, or a partnership or limited liability company whose partners or shareholders are you and members of your Immediate Family, and (ii) outstanding, shall become vested, exercisable, distributable and unrestricted (any contrary provision in the LTIP Plan notwithstanding) whether or not you continue to be employed by the Company. You shall have the right immediately upon any written request by you to the Company, to (i) exercise all or any portion of all your options covered (including, at your sole election, any associated Tandem SAR) by the LTIP Plan and to have the underlying Shares issued to you, (ii) have issued to you on a non-forfeitable basis any or all Shares covered by Restricted Stock Awards held by you under the LTIP Plan, (iii) have issued to you any or all Performance Shares and/or Performance Units held by you in the LTIP Plan, (iv) exercise all or any portion of any LTIP Plan Freestanding SAR held by you, and (v) obtain the full benefit of any other contingent compensation rights to which you may be entitled under the LTIP Plan, in each case as though all applicable Performance Targets had been met or achieved at maximum levels for all Performance Periods (including those extending beyond the Effective Date) and any and all other LTIP Plan contingencies had been satisfied in full at the date of the Change of Control and the maximum possible benefits thereunder had been earned at the date of the Change of Control.
 
4.             Conditional Share Purchase Obligation.
 
(a)           If a Change of Control occurs as a consequence of a tender offer or exchange offer (the “Tender Offer”), the Company shall, if requested by you, purchase from you (whether a Termination Date has occurred following the Change of Control) for cash on any business day selected by you upon not less than ten days’ notice to the Company, which day shall not be less than ten days following consummation of the Tender Offer nor more than three years after the Effective Date, up to that number of Shares which shall be equal to the product of (x) the number of Shares acquired by you upon exercise or distribution of any benefit under the Bonus Plan or LTIP Plan prior to consummation of the Tender Offer, multiplied by (y) the decimal equivalent of (I) the number of Shares accepted for purchase or exchange in the Tender Offer, divided by (II) the number of Shares timely and validly tendered pursuant to the Tender Offer. In the event the above obligation to purchase Shares occurs by reason of a cash tender offer or a combination cash tender offer and exchange offer, the cash price per share to be paid to you hereunder shall be equal to the highest price paid in cash pursuant to the Tender Offer. In the event such obligation occurs by reason of an exchange offer, the cash price per share to be paid to you hereunder shall be equal to the closing price, if traded on a stock exchange, or the average bid and asked prices, if traded in the over-the-counter market, of the security of the person so exchanged for the Shares (the “Exchange Security”) on the first day on which the Exchange Security could have been sold by you on such exchange or in the over-the-counter market, as the case may be, in a regular broker’s transaction had your Shares been tendered and accepted, multiplied by the number of Exchange Securities (or fraction thereof) issued in the Tender Offer for each Company Share; and
 
 
 
 
Page 4
 
 
(b)           If a Change of Control occurs pursuant to a Tender Offer and (i) a merger, consolidation, reorganization, sale, spin-off, or purchase of assets under which all remaining outstanding Shares will be converted into or become exchangeable for cash, or for securities (“Merger Security”) issued or to be issued by the Person who made the Tender Offer (or a subsidiary or affiliate of such Person) is thereafter proposed to the Company or its shareholders, and (ii) such merger, consolidation, reorganization or purchase of assets occurs less than three years after the Effective Date, and (iii) the amounts of cash into which each Share would be converted if the transaction is effected wholly for cash, or the Merger Security Value (as defined below) if such transaction is effected wholly for Merger Securities, or the sum of the cash and the Merger Security Value if the Transaction is effected partly for cash and partly for Merger Securities, as the case may be, is less than 95% of the per share price that would have been paid by the Company for such portion of your Shares had you exercised your option to require the Company to purchase such Shares under Section 4(a) above, the Company shall pay you (whether or not a Termination Date has occurred following a Change of Control), an amount in cash equal to the difference between the aggregate price you would have received from the number of Shares the Company would have been required to purchase from you had you exercised such option under Section 4(a) and the amount of cash and/or the Merger Security Value received for the same number of Shares in such merger, consolidation, reorganization or purchase of assets. Such cash payment shall be made to you on a business day selected by you upon no less than ten-calendar days’ notice to the Company or its Successor (as hereinafter defined). For purposes of this Section 4(b), “Merger Security Value” shall mean the closing price, if traded on a stock exchange, or the average bid and asked prices if traded in the over-the-counter market, of the Merger Security on the first day on which the Merger Security could have been sold by you on such exchange or in the over-the-counter market, as the case may be, in a regular broker’s transaction, multiplied by the number of Merger Securities (or fraction thereof) for which each Share was exchangeable or into which each Share was convertible. If no public market develops for the Merger Security within 30 days from the date of its issue, however, “Merger Security Value” shall mean the fair market value of such Merger Security (on a per unit basis in the written opinion of a nationally recognized investment banking firm acceptable to you) on the effective date of the merger, consolidation, reorganization or purchase of assets, as the case may be, multiplied by the number of Merger Securities (or fraction thereof) for which each Share was exchangeable or into which each Share was convertible.
 
 
 
 
 
 
Page 5
 
 
5.             Excise Tax.
 
(a)           Any other provision of this Agreement to the contrary notwithstanding, if any payment in the nature of compensation to be paid or provided to you under this Agreement or otherwise is considered to be a “parachute payment” within the meaning of Section 280G(b) of the Code, the Company shall pay to you an additional amount (hereinafter referred to as the “Excise Tax Premium”).  The Excise Tax Premium shall be equal to the excise tax determined under Code Section 4999 attributable to the total amount of payments received by you.  The Excise Tax Premium shall also include any amount attributable to excise tax on the Excise Tax Premium.  The Company shall also pay to you an additional amount (the “Additional Amount”) such that the net amount received by you, after paying any applicable Excise Tax Premium and any federal or state income, excise or other tax on such additional amount, shall be equal to the amount that you would have received if such Excise Tax Premium were not applicable.  You shall be deemed to pay income taxes at all relevant times at the highest marginal rate of income taxation in effect in your taxing jurisdiction.  The Additional Amount shall include any amount attributable to income, excise or other tax on the Additional Amount.
 
(b)           Not later than 30 days following any payment in the nature of compensation described herein, the independent public accountants acting as auditors for the Company on the date of the transaction constituting the change of control within the meaning of Code Section 280G (or another accounting firm designated by you) shall determine whether the sum of the present value of any “parachute payments” payable under this Agreement or otherwise and the present value of any other “parachute payments” received by you upon or after any such change of control is in excess of the amount you can receive without causing you to be subject to an excise tax with respect to such amount on account of Code Section 4999, and shall determine the amount of any Excise Tax Premium and Additional Amount payable to you.  The Excise Tax Premium and Additional Amount shall be paid to you as soon as practicable but in no event later than the time when the tax payment is due, including by way of withholding, and shall be net of any amounts required to be withheld for taxes.
 
(c)           For purposes of this Section, “present value” means the value determined in accordance with the principles of Section 1274 (b) (2) of the Code under the rules provided in Treasury Regulations under Section 280G of the Code.
 
(d)           To the extent Code Section 280G is amended prior to the termination of this Agreement, or is replaced by a successor statute, the provisions of this Section 5 shall be deemed modified without further action of the parties in a manner consistent with such amendments or successor statutes, as the case may be.  In the event that Code Section 280G or any successor statute is repealed, this Section 5 shall cease to be effective on the effective date of such repeal.  The parties recognize that Treasury Regulations under Code Sections 280G and 4999 may affect the amount that may be paid hereunder and agree that, upon the issuance of any such regulations, this Agreement may be modified as in good faith may be deemed necessary in light of the provisions of such regulations to achieve the purposes hereof, and that consent to such modifications shall not be unreasonably withheld.
 
 
 
 
 
Page 6
 
 
6.             Dispute Resolution.
 
(a)           This Agreement shall be governed in all respects, including as to validity, interpretation and effect, by the internal laws of the State of Texas without regard to choice of law principles.
 
(b)           It is irrevocably agreed that if any dispute arises between us under this Agreement: (i) exclusive jurisdiction shall be in the lowest Texas state court of general jurisdiction sitting in Harris County, Texas, (ii) we are each at the time present in Texas for the purpose of conferring personal jurisdiction; (iii) any such action may be brought in such court, and any objection that the Company or you may now or hereafter have to the venue of such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court is waived, and we each agree not to plead or claim the same, (iv) service of process in any such proceeding or action may be effected by mailing a copy thereof by registered or certified mail, return receipt requested (or any substantially similar form of mail), postage prepaid, to such party at the address provided in Section 11 hereof, and (v) prior to any trial on the merits, we will submit to court supervised, non-binding mediation.
 
(c)           Notwithstanding any contrary provision of Texas law, the Company shall have the burden of proof with respect to any of the following: (i) that Cause existed at the time any notice was given to you under Section 2 (ii) that Good Reason did not exist at the time notice was given to the Company under Section 2; and (iii) that a Change of Control has not occurred.
 
7.             Successors; Binding Agreement.
 
(a)           In the event any Successor (as defined below) does not assume this Agreement by operation of law the Company will seek to have any Successor, by agreement in form and substance satisfactory to you, expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it. If there has been a Change of Control prior to, or a Change of Control will result from, any such succession, then failure of the Company to obtain at your request such agreement prior to or upon the effectiveness of any such succession (unless assumption occurs as a matter of law) shall constitute Good Reason for termination by you of your employment and, upon delivery of a notice of termination by you to the Company, you shall be entitled to the benefits provided for herein.  “Successor” shall mean any Person that succeeds to, or has the ability to control, the Company’s business as a whole, directly by merger, consolidation, spin-off or similar transaction, or indirectly by purchase of the Company’s Voting Securities or acquisition of all or substantially all of the assets of the Company.
 
(b)           This Agreement shall inure to the benefit of and be enforceable by your personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
 
 
 
 
 
Page 7
 
 
8.             Fees and Expenses. The Company shall pay all legal fees and expenses incurred by you as a result of your seeking to interpret, obtain, assert or enforce any right or benefit conferred upon you by this Agreement to the extent you are the prevailing party.
 
9.             Notices.  Any and all notices required or permitted to be given hereunder shall be in writing and shall be deemed to have been given when delivered in person to the persons specified below or deposited in the United States mail, certified or registered mail, postage prepaid and addressed as follows:
 
 
 
If to the Company:
Cameron International Corporation
 
1333 West Loop South, Suite 1700
 
Houston, Texas 77027
 
Attention: Chief Executive Officer
   
If to you:
___________________________
____________________________
____________________________
 
 
Either party may change, by the giving of notice in accordance with this Section 9, the address to which notices are thereafter to be sent.
 
10.           Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
 
11.           Survival.  All obligations undertaken and benefits conferred pursuant to this Agreement shall survive any termination of your employment and continue until performed in full.
 
12.           Miscellaneous.  No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by you and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The internal laws of the State of Texas shall govern the validity, interpretation, construction and performance of this Agreement.
 
13.           Duplicate Originals.  This Agreement has been executed in duplicate originals, with one to be held by each of the parties hereto.
 

  
 
 
 
 
Page 8
 
If this Agreement correctly sets forth our understanding with respect to the subject matter hereof, please sign and return one copy of this Agreement to the Company.
 

 
 
Sincerely,
   
 
CAMERON INTERNATIONAL CORPORATION
     
     
     
 
By:
 /s/ Sheldon R. Erikson
   
Sheldon R. Erikson
   
Chairman and
   
Chief Executive Officer
 
Agreed to as of the _______day of ___________________
 
    
Name:
   
  
 
 
 
 
 
Annex I to Agreement dated ____________
between
Cameron International Corporation
and
___________________________________
 
DEFINITION OF
CERTAIN TERMS
 
“Agreement” means the letter agreement between ___________________________and the Company dated  _______________________.
 
“Bonus Plan” means for each year, the Company’s Management Incentive Compensation Plan or any other Plan adopted by the Board which provides for the payment of additional compensation on an annual basis to senior executive officers contingent upon the Company’s results of operations for that specific year, in either case as such Plan shall be amended or modified to, but not on or after, any Effective Date.
 
“Bylaws” means the bylaws of the Company as in effect at the date hereof and as the same shall be amended or otherwise modified to, but not on or after, any Effective Date.
 
“Cause” means (i) your conviction by a court of competent jurisdiction, from which conviction no further appeal can be taken, of a felony-grade crime involving moral turpitude, or (ii) your willful failure to perform substantially your duties with the Company (other than a failure due to physical or mental illness) which is materially and demonstrably injurious to the Company.   No act or failure to act on your part shall be considered “willful” unless done, or omitted to be done, by you in bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interests of the Company.
 
“Change of Control” means the earliest date at which:
 
(i)            any Person is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company’s outstanding Voting Securities, other than through the purchase of Voting Securities directly from the Company through a private placement; or
 
(ii)           individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of the directors comprising the Incumbent Board shall from and after such election be deemed to be a member of the Incumbent Board; or
 
(iii)           a merger or consolidation involving the Company or its stock or an acquisition by the Company, directly or indirectly or through one or more subsidiaries, of another entity or its stock or assets in exchange for the stock of the Company, unless, immediately following such transaction, 70% or more of the then outstanding Voting Securities of the surviving or resulting corporation or entity will be (or is) then beneficially owned, directly or indirectly, by the individuals and entities who were the beneficial owners of the Company’s outstanding Voting Securities immediately prior to such transaction (treating, for purposes of determining whether the 70% continuity test is met, any ownership of the Voting Securities of the surviving or resulting corporation or entity that results from a stockholder’s ownership of the stock of, or other ownership interest in, the corporation or other entity with which the Company is merged or consolidated as not owned by persons who were beneficial owners of the Company’s outstanding Voting Securities immediately prior to the transaction; or



 
A-1
 
 
(iv)           any transaction of the type described in part (iii) above, that would have qualified as a “Change of Control” but for the fact that the consideration therefore is part or all cash;
 
(v)            a tender offer or exchange offer is made and consummated by a Person other than the Company for the ownership of 20% or more of the Voting Securities of the Company then outstanding; or
 
(vi)           all or substantially all of the assets of the Company are sold or transferred to a Person as to which (A) the Incumbent Board does not have authority (whether by law or contract) to directly control the use or further disposition of such assets and (B) the financial results of the Company and such Person are not consolidated for financial reporting.
 
             Anything else in this definition to the contrary notwithstanding, no Change of Control shall be deemed to have occurred by virtue of any transaction which results in you, or a group of Persons which includes you, acquiring more than 20% of either the combined voting power of the Company’s outstanding Voting Securities or the Voting Securities of any other corporation or entity which acquires all or substantially all of the assets of the Company, whether by way of merger, consolidation, sale of such assets or otherwise.
 
“Code” means the Internal Revenue Code of 1986, as amended.
 
“Defined Benefit Plan” means the Company’s Retirement Plan and Supplemental Excess Defined Benefit Plan, as the same shall be amended or modified prior to, but not on or after, any Effective Date.
 
“Defined Contribution Plan” means the Company’s Retirement Savings Plan and Supplemental Excess Defined Contribution Plan, as the same shall be amended or modified prior to, but not on or after, any Effective Date.
 
“Disability” means your continuing full-time absence from your duties with the Company for 180 days or longer as a result of physical or mental incapacity.
 
“Effective Date” means the earliest date upon which (i) any of the events set forth under the definition of Change of Control shall have occurred, (ii) the receipt by the Company of a Schedule 13D stating the intention of any Person to take actions which, if accomplished, would constitute a Change of Control, (iii) the public announcement by any Person of its intention to take any such action, in each case without regard for any contingency or condition which has not been satisfied on such date, (iv) the agreement by the Company to enter into a transaction which, if consummated, would result in a Change of Control, or (v) consideration by the Board of a transaction which, if consummated, would result in a Change of Control.
 
 
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If, however, an Effective Date occurs but the proposed transaction to which it relates ceases to be actively considered, the Effective Period will be deemed not to have commenced for purposes of this Agreement.  If an Effective Date occurs with respect to a proposed transaction which ceased to be actively considered but for which active consideration is revived, the Effective Date with respect to the Change of Control that ultimately occurs shall be that date when consideration was revived and carried through to consummation.
 
“Effective Period” means the period between the Effective Date and 2 years following the occurrence of the Change of Control.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
 
“Good Reason” means any of the following:
 
(i)             except as a result of your death or Retirement, or following the receipt by you of a Notice of Termination for Cause or due to Disability, a change in your status, title(s) or position(s) with the Company, including as an officer of the Company, which, in your reasonable judgment, does not represent a promotion, with commensurate adjustment of compensation, from your status, title(s) and position(s) immediately prior to the Effective Date; or the assignment to you of any duties or responsibilities which, in your reasonable judgment, are inconsistent with such status, title(s) or position(s); or the withdrawal from you of any duties or responsibilities which in your reasonable opinion are consistent with such status, title(s) or position(s); or any removal of you from or any failure to reappoint or reelect you to such position(s); or
 
(ii)            a reduction by the Company any time after the Effective Date in your then current base salary; or
 
(iii)           the failure by the Company to continue in effect any Plan in which you were participating immediately prior to the Effective Date other than as a result of the normal expiration or amendment of any such Plan in accordance with its terms, or the taking of any action, or the failure to act, by the Company which would adversely affect your continued participation in any such Plan on at least as favorable a basis to you as is the case immediately prior to the Effective Date or which would materially reduce your benefits under any of such Plans or deprive you of any material benefit enjoyed by you immediately prior to the Effective Date, except as consented to by you; or
 
(iv)           the relocation of the principal place of your employment to a location 25 miles further from your principal residence without your express written consent; or
 
 
A-3
 
 
 
(v)            the failure by the Company upon a Change of Control to obtain the express assumption of this Agreement by any Successor (other than by operation of law); or
 
(vi)           any refusal by the Company to continue to allow you to attend to matters or engage in activities not directly related to the business of the Company which you attended to or were engaged in immediately prior to the Effective Date and which do not otherwise violate your obligations hereunder; or
 
(vii)           any continuing material default by the Company in the performance of its obligations under this Agreement, whether before or after a Change of Control.
 
“LTIP Option” means any option granted under the LTIP Plan.
 
“LTIP Plan” means the Company’s Long-Term Incentive Plan and/or its Broad Based 2000 Incentive Plan adopted as such plan may be amended, modified, or replaced, up to, but not on or after, an Effective Date.
 
“Market Value” means, when used with respect to Shares or Voting Securities, the closing price thereof on the New York Stock Exchange on the date for which the Market Value is to be determined, or if not listed thereon, on such other exchange as shall at that time constitute the principal exchange for trading the Shares or Voting Securities.
 
“Other Plans” means any thrift, bonus or incentive, stock option or stock accumulation pension medical, disability, accident or life insurance plan, program or policy of the Company which is intended to benefit employees of the Company similarly situated to you (other than the Bonus Plan, Defined Benefit Plan, Defined Contribution Plan, LTIP Plan or Purchase Plan).
 
“Person” means any individual, corporation, partnership, group, association or other “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act, other than the Company or any Plans sponsored by the Company.
 
“Perquisites” means individual perquisite benefits received by you immediately prior to the Effective Date, including, but not limited to, club membership dues and certain automobile expenses.
 
“Plans” means the Bonus Plan, Defined Benefit Plan, Defined Contribution Plan, LTIP Plan, Purchase Plan, Compensation Deferral Plan and Other Plans.
 
“Purchase Plan” means the Company’s Employee Stock Purchase Plan adopted as the same shall be amended or modified prior to, but not on or after, the Effective Date.
 
“Retirement” means termination of your employment on the “normal retirement date” as set forth in the Defined Benefit Plan.
 
 
A-4
 
 
 
 “Severance Package” means your right to receive, and the Company’s obligation to pay and/or perform, the following:
 
(a)            on or within ten days following an applicable Termination Date, the Company shall pay to you a lump sum, cash amount equal to the sum of (i) three times the highest annual rate of base salary in effect during the current year or any of the three years preceding the Termination Date, and (ii) three times the greater of (A) the target award you would have been eligible to receive under the Bonus Plan in respect of the current year, regardless of any limitations otherwise applicable to the Bonus Plan (i.e., the failure to have completed any vesting period or the current measurement period, or the failure to achieve any performance goal applicable to all or any portion of the measurement period) or (B) the largest award earned (whether or not paid) under the Bonus Plan in respect of any of the three years preceding the Termination Date; and
 
(b)    in addition to your entitlement to the vested portion of your interest in the Defined Contribution Plan in accordance with the terms of that plan, the Company shall pay to you, on or within ten days following the applicable Termination Date, an amount in cash equal to the unvested portion of the Company’s contributions to your account, which unvested portion shall be valued as of your Termination Date at Market Value; and
 
(c)           in addition to any vested retirement benefits to which you are entitled on the Termination Date under the Defined Benefit Plan, the Company shall pay to you, on or within ten days following an applicable Termination Date, an amount in cash equal to the product of (i) a number equal to your years of life expectancy beyond age 65 determined in accordance with the actuarial assumptions utilized under the Defined Benefit Plan immediately prior to the Termination Date, times (ii) an amount equal to the difference between (A) the annual benefit to which you would have been entitled under the “single life annuity” method of distribution under the Defined Benefit Plan if you were fully vested thereunder (without regard to (I) whether you shall actually have completed the period of Vesting Service required to qualify for benefits under the Defined Benefit Plan, (II) any limitation on the amount used in the calculation of the annual benefit thereunder, (III) any offset thereunder for severance allowances payable thereunder, or (IV) any amendment to the Defined Benefit Plan made in connection with a Change of Control and on or prior to the Termination Date, which amendment adversely affects in any manner the computation of retirement benefits under such plan) and had accumulated an additional three years of Vesting Service thereunder, and (B) the annual benefit, if any, to which you would be entitled under the single life annuity method of distribution under the Defined Benefit Plan as of the Termination Date; and
 
(d)    an amount in cash equal to three times the average annual cost incurred by the Company during the preceding three calendar years as a result of your participation in all insured and self-insured employee welfare benefit Plans and Perquisites in which you were entitled to participate immediately prior to the Termination Date (or such fewer whole calendar years as you have so participated).
 
 
A-5
 
 
 
 
Anything else in this Agreement to the contrary notwithstanding, if (i) you are terminated in connection with a Change of Control, and (ii) you are entitled to the Severance Package, and (iii) your Termination Date precedes or occurs on the date of the closing thereof, then unless otherwise agreed to by both parties in writing, all amounts to which you are or shall become entitled to under this Agreement, which are calculable as of the closing date, shall be accelerated to, and become immediately due and payable contemporaneously with such closing.
 
 “Shares” means shares of Common Stock, $.01 par value, of the Company as of the date of this Agreement, as the same shall be subsequently amended, modified or changed.
 
“Termination Date” shall have the meaning given it by Section 2 of the Agreement.
 
“Voting Securities” means, with respect to any corporation or business enterprise, those securities which under ordinary circumstances are entitled to vote for the election of directors or others charged with comparable duties under applicable law.
 
 
A-6
EX-13.1 5 ex13_1.htm MD&A - FINANCIALS ex13_1.htm
EXHIBIT 13.1
 
Management’s Discussion and Analysis of Results of Operations and
Financial Condition of Cameron International Corporation
 
The following discussion of Cameron International Corporation’s (the Company or Cameron) historical results of operations and financial condition should be read in conjunction with the Company’s consolidated financial statements and notes thereto included elsewhere in this Annual Report. All per share amounts included in this discussion are based on diluted shares outstanding and have been revised to reflect the 2-for-1 stock split effective December 28, 2007.
 
Overview
 
Cameron is a provider of flow equipment products, systems and services to worldwide oil, gas and process industries. The Company’s operations are organized into three business segments — Drilling & Production Systems (DPS), Valves & Measurement (V&M) and Compression Systems (CS).
 
Based upon the amount of equipment installed worldwide and available industry data, DPS is one of the world’s leading providers of systems and equipment used to control pressures, direct flows of oil and gas wells and separate oil and gas from impurities. DPS’s products are employed in a wide variety of operating environments including basic onshore fields, highly complex onshore and offshore environments, deepwater subsea applications and ultra-high temperature geothermal operations. DPS’s products include surface and subsea production systems, blowout preventers (BOPs), drilling and production control systems, oil and gas separation equipment, gate valves, actuators, chokes, wellheads, drilling riser and aftermarket parts and services. DPS’s customers include oil and gas majors, national oil companies, independent producers, engineering and construction companies, drilling contractors, rental companies and geothermal energy producers. Based upon the amount of equipment installed worldwide and available industry data, V&M is a leading provider of valves and measurement systems primarily used to control, direct and measure the flow of oil and gas as they are moved from individual wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centers for processing. V&M’s products include gate valves, ball valves, butterfly valves, Orbit® valves, double block and bleed valves, plug valves, globe valves, check valves, actuators, chokes and aftermarket parts and services. Measurement products include totalizers, turbine meters, flow computers, chart recorders, ultrasonic flow meters and sampling systems. V&M’s customers include oil and gas majors, independent producers, engineering and construction companies, pipeline operators, drilling contractors and major chemical, petrochemical and refining companies. CS provides reciprocating and integrally geared centrifugal compression equipment and related aftermarket parts and services. The Company’s compression equipment is used by gas transmission companies, compression leasing companies, oil and gas producers and processors, independent power producers, petrochemical and refining companies, natural gas processing companies, durable goods manufacturers, utilities, air separation and chemical companies.
 
Revenues for the years ended December 31, 2007, 2006 and 2005 were generated from shipments to the following regions of the world (dollars in millions):
 
Region
  
2007
    
2006
  
 
2005
  
North America
   $ 1,741.0     $ 1,673.5     $ 1,145.9  
South America
     307.7       301.2       141.8  
Asia, including Middle East
     970.9       693.3       486.8  
Africa
     614.9       471.8       348.2  
Europe
     947.7       525.7       359.4  
Other
     84.2       77.4       35.7  
    $ 4,666.4     $ 3,742.9     $ 2,517.8  
 
In addition to the historical data contained herein, this Annual Report, including the information set forth in the Company’s Management’s Discussion and Analysis and elsewhere in this report, may include forward-looking statements regarding future market strength, order levels, revenues and earnings of the Company, cash generated from operations, capital expenditures and the use of existing cash balances and future anticipated cash flows made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company’s actual results may differ materially from those described in any forward-looking statements. Any such statements are based on current expectations of the Company’s performance and are subject to a variety of factors, some of which are not under the control of the Company, which can affect the Company’s results of operations, liquidity or financial condition. Such factors may include overall demand for, and pricing of, the Company’s products; the size and timing of orders; the Company’s ability to successfully execute large subsea and drilling projects it has been awarded; the Company’s ability to convert backlog into revenues on a timely and profitable basis; the impact of acquisitions the Company has made or may make; changes in the price of (and demand for) oil and gas in both domestic and international markets; raw material costs and availability; political and social issues affecting the countries in which the Company does business; fluctuations in currency markets worldwide; and variations in global economic activity. In particular, current and projected oil and gas prices historically have generally directly affected customers’ spending levels and their related purchases of the Company’s products and services. Additionally, changes in oil and gas price expectations may impact the Company’s financial results due to changes in cost structure, staffing and spending levels. See additional factors discussed in “Factors That May Affect Financial Condition and Future Results” contained herein.

 
25
 

Because the information herein is based solely on data currently available, it is subject to change as a result of, among other things, changes in conditions over which the Company has no control or influence, and should not therefore be viewed as assurance regarding the Company’s future performance. Additionally, the Company is not obligated to make public indication of such changes unless required under applicable disclosure rules and regulations.
 
The Company’s discussion and analysis of its 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. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to warranty obligations, bad debts, inventories, intangible assets, assets held for sale, exposure to liquidated damages, income taxes, pensions and other postretirement benefits, other employee benefit plans, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions.
 
Critical Accounting Policies
 
The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of its consolidated financial statements. These policies and the other sections of the Company’s Management’s Discussion and Analysis of Results of Operations and Financial Condition have been reviewed with the Company’s Audit Committee of the Board of Directors.
 
Revenue Recognition — The Company generally recognizes revenue once the following four criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery of the equipment has occurred or services have been rendered, (iii) the price of the equipment or service is fixed and determinable and (iv) collectibility is reasonably assured. For certain engineering, procurement and construction-type contracts, which typically include the Company’s subsea and drilling systems and processing equipment contracts, revenue is recognized in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1). Under SOP 81-1, the Company recognizes revenue on these contracts using a units-of-completion method. Under the units-of-completion method, revenue is recognized once the manufacturing process is complete for each piece of equipment specified in the contract with the customer, including customer inspection and acceptance, if required by the contract. Approximately 21%, 17% and 13% of the Company’s revenues for the years ended December 31, 2007, 2006 and 2005, respectively, was recognized under SOP 81-1.
 
Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts for estimated losses that may result from the inability of its customers to make required payments. Such allowances are based upon several factors including, but not limited to, historical experience, the length of time an invoice has been outstanding, responses from customers relating to demands for payment and the current and projected financial condition of specific customers. Were the financial condition of a customer to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required. See Note 3 of the Notes to Consolidated Financial Statements for additional information relating to the Company’s allowance for doubtful accounts.
 
Inventories — The Company’s aggregate inventories are carried at cost or, if lower, net realizable value. Inventories located in the United States and Canada are carried on the last-in, first-out (LIFO) method. Inventories located outside of the United States and Canada are carried on the first-in, first-out (FIFO) method. The Company provides a reserve for estimated obsolescence or excess quantities on hand equal to the difference between the cost of the inventory and its estimated realizable value. The future estimated realizable value of inventory is generally based on the historical realized value of inventory that has not had recent customer demand. The Company ages its inventory with no recent demand and applies various valuation factors based on the number of years since the last demand from customers for such material. If future conditions cause a reduction in the Company’s current estimate of realizable value, due to a decrease in customer demand, a drop in commodity prices or other market-related factors that could influence demand for particular products, additional provisions may be required. Additional information relating to the Company’s allowance for obsolete and excess inventory may be found in Note 4 of the Notes to Consolidated Financial Statements.
 
Goodwill — The Company reviews the carrying value of goodwill in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which requires that the Company estimate the fair value of each of its reporting units annually and compare such amounts to their respective book values to determine if an impairment of goodwill is required. For the 2007, 2006 and 2005 evaluations, the fair value was determined using discounted cash flows or other market-related valuation models. Certain estimates and judgments, including future earnings and cash flow levels, future interest rates and future stock market valuation levels, are required in the application of the fair value models. Based upon each of the Company’s annual evaluations, no impairment of goodwill was required. However, should the Company’s estimate of the fair value of any of its reporting units decline dramatically in future periods, due to changes in customer demand, market activity levels, interest rates or other factors which would impact future earnings and cash flow or market valuation levels, an impairment of goodwill could be required. Additional information relating to the Company’s goodwill may be found in Note 5 of the Notes to Consolidated Financial Statements.
 
Product Warranty — The Company provides for the estimated cost of product warranties at the time of sale based upon historical experience, or, in some cases, when specific warranty problems are encountered. Should actual product failure rates or repair costs differ from the Company’s current estimates, or should the Company reach a settlement for an existing warranty claim in an amount that is different from what has been previously estimated, revisions to the estimated warranty liability would be required. See Note 6 of the Notes to Consolidated Financial Statements for additional details surrounding the Company’s warranty accruals.
 
Contingencies — The Company accrues for costs relating to litigation, including litigation defense costs, claims and other contingent matters, including liquidated damage liabilities, when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties, amounts specified by contract, amounts designated by legal statute or on management’s judgment, as appropriate. Revisions to contingent liability reserves are reflected in income in the period in which different facts or information become known or circumstances change that
 
26
 
 
affect our previous assumptions with respect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of contingent liabilities may be materially different from previous estimates and could require adjustments to the estimated reserves to be recognized in the period such new information becomes known.
 
Deferred Tax Assets — The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company has considered all available evidence in assessing the need for valuation allowances, including future taxable income and ongoing prudent and feasible tax planning strategies. Accordingly, the Company has recorded valuation allowances against certain of its deferred tax assets as of December 31, 2007. In the event the Company were to determine that it would not be able to realize all or a part of its deferred tax assets in the future, an adjustment to the valuation allowances against these deferred tax assets would be charged to income in the period such determination was made.
 
The Company also considers all unremitted earnings of its foreign subsidiaries, except certain amounts primarily earned before 2003 and amounts previously subjected to tax in the U.S., to be permanently reinvested. Should the Company change its determination of earnings that it anticipates are to be remitted, it may be required to change the amount of deferred income taxes that are currently recorded.
 
Pension and Postretirement Benefits Accounting — The Company follows the provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158) with regard to recognition of the funded status of its defined benefit pension and other postretirement benefit plans in its Consolidated Balance Sheets. The Company currently uses a measurement date of December 31 for its defined benefit pension plans. The Company expects to adopt the measurement date provisions of SFAS 158 for its postretirement benefit plans when required in 2008. No material impact on the Company’s consolidated financial statements is expected for the planned change in the measurement date of the postretirement benefit plans to December 31, 2008. SFAS 158 did not change the basic approach used by companies to measure plan assets, benefit obligations and annual net periodic benefit costs. These issues are expected to be addressed by the Financial Accounting Standards Board (FASB) at a later date. Accordingly, the Company continues to follow the provisions of Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions (SFAS 87) and Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (SFAS 106) in measuring its plan assets and benefit obligations as of December 31, 2007 and 2006 and in determining the amount of its net periodic benefit costs for the years ended December 31, 2007, 2006 and 2005.
 
The assumptions used in calculating the pension amounts recognized in the Company’s consolidated financial statements include discount rates, interest costs, expected return on plan assets, retirement and mortality rates, inflation rates, salary growth and other factors. The Company bases the discount rate assumptions of its defined benefit pension plan in the United Kingdom on the average yield of a hypothetical high-quality bond portfolio (rated AA- or better) with maturities that approximately match the estimated cash flow needs of the plan. Due to the Company’s announced intention in 2007 to terminate its defined benefit pension plans in the United States, the discount rate for those plans has been based on current high-quality short-term investment yields earned by plan participants on their cash balance accounts in the plans. The Company’s inflation assumption is based on an evaluation of external market indicators. The expected rate of return on plan assets is based on historical experience and estimated future investment returns taking into consideration anticipated asset allocations, investment strategy and the views of various investment professionals. Retirement and mortality rates are based primarily on actuarial tables that are thought to approximate our actual plan experience. In accordance with SFAS 158, actual results that differ from these assumptions are recorded in accumulated other comprehensive income and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. While the Company believes the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension obligations and future expense.
 
A significant reason for the increase in pension expense since 2002 is the difference between the actual and assumed rates of return on plan assets in prior years. During 2001 and 2002, the Company’s pension assets earned substantially less than the assumed rates of return in those years. In accordance with SFAS 87, the difference between the actual and assumed rate of return is being amortized over the estimated average period to retirement of the individuals in the plans. In 2004, 2005 and again in 2007, the Company lowered the assumed rate of return for the assets in these plans. The plans earned more than the assumed rates of return in 2007, 2006 and 2005 and slightly less than the assumed rate of return in 2004.
 
As indicated above, during 2007, the Company announced its intention to terminate its U.S. defined benefit pension plans. In connection with a curtailment of future benefits from these plans, effective as of December 31, 2007, and a settlement during 2007 of certain existing obligations of the plans, the Company recorded a $35.7 million charge for the year in its consolidated results of operations. An additional charge of approximately $26.4 million is expected to be recognized in late 2008 or early 2009, depending on the timing of the final regulatory approval of the termination and the settlement of the remaining obligations of the plans.
 
The following table illustrates the sensitivity to a change in certain assumptions used in (i) the calculation of pension expense for the year ending December 31, 2008 and (ii) the calculation of the projected benefit obligation (PBO) at December 31, 2007 for the Company’s pension plans:
 
   
Increase (decrease)
    
Increase (decrease)
  
   
in 2008 Pre-tax
    
in PBO at
  
(dollars in millions)
  
Pension Expense
    
December 31, 2007
  
Change in Assumption:
            
25 basis point decrease in discount rate
   $ 1.4     $ 15.1  
25 basis point increase in discount rate
   $ (1.3 )   $ (14.4 )
25 basis point decrease in expected return on assets
   $ 1.0       —  
25 basis point increase in expected return on assets
   $ (0.8 )     —  

 
27
 
 
Financial Summary
 
The following table sets forth the consolidated percentage relationship to revenues of certain income statement items for the periods presented:
 
   
Year Ended December 31,
  
   
2007
    
2006
    
2005
  
Revenues
     100.0 %     100.0 %     100.0 %
Costs and expenses:
                        
Cost of sales (exclusive of depreciation and amortization shown separately below)
     69.5       69.5       71.3  
Selling and administrative expenses
     12.4       14.1       15.2  
Depreciation and amortization
     2.4       2.7       3.1  
Interest income
     (0.7 )     (0.7 )     (0.5 )
Interest expense
     0.5       0.5       0.5  
Charge for pension plan termination
     0.8       —       —  
Acquisition integration costs
     —       0.8       —  
Total costs and expenses
     84.9       86.9       89.6  
Income before income taxes
     15.1       13.1       10.4  
Income tax provision
     (4.4 )     (4.6 )     (3.6 )
Net income
     10.7 %     8.5 %     6.8 %

Results of Operations
 
Consolidated Results — 2007 Compared to 2006
 
The Company’s net income for 2007 totaled $500.9 million, or $2.16 per diluted share, compared to $317.8 million, or $1.36 per diluted share in 2006. The results for 2007 include (i) a pre-tax charge of $35.7 million associated with a decision to terminate the Company’s U.S. defined benefit pension plans made in 2007 and (ii) reductions in the income tax provision of $34.1 million for certain discrete items during the year, including (a) a reduction of $16.1 million based on a change in the estimated utilization of certain foreign tax credits in the United States, (b) a reduction of $5.7 million for resolution of an international contingency relating to transfer pricing, (c) a reduction of $5.5 million in an international valuation allowance based on estimated usage of certain foreign net operating loss carryforwards, (d) a reduction of $5.1 million based on a change in the estimated utilization of certain foreign tax deductions locally resulting from changes in estimated earnings internationally, (e) a reduction in deferred taxes of $1.8 million due to changes in statutory tax rates in certain international jurisdictions and (f) adjustments to other tax accruals and valuation allowances, which reduced income tax expense by $6.2 million. These reductions were partially offset by an increase of $6.3 million to the Company’s tax accruals based on changes in the estimated recoverability of certain foreign local tax benefits. The results for 2006 included pre-tax charges of $29.6 million for acquisition integration activities associated with the operations of the Flow Control segment of Dresser, Inc. that were acquired in late 2005 and early 2006 (the Dresser Acquired Businesses). Additionally, the Company recorded a pre-tax charge of $17.5 million in 2006, for the anticipated cost of the settlement of a class action lawsuit related to contaminated underground water near a former manufacturing facility in Houston, Texas. These charges were partially offset by a pre-tax foreign currency gain in the second quarter of 2006 of $10.0 million, primarily relating to short-term intercompany loans made to the Company’s European subsidiaries in connection with the acquisition of the Dresser Acquired Businesses.
 
Revenues
 
Revenues for 2007 totaled $4.7 billion, an increase of $923.5 million, or 24.7%, from $3.7 billion during 2006. Excluding the effects of a weaker U.S. dollar against most other major world currencies and the impact of recent acquisitions, revenues were up approximately 21.3% with the DPS segment accounting for nearly 87% of the remaining increase. The V&M and CS segments also showed year-over-year improvements in revenues, although at more modest levels than in DPS, which benefited from current-year shipments relating to the high level of drilling orders received in 2006 for new rig construction projects as well as higher demand, mainly from international customers, for the segment’s surface and subsea product offerings. A further discussion of revenue by segment may be found below.
 
Cost and Expenses
 
Cost of sales (exclusive of depreciation and amortization) for 2007 totaled $3.2 billion, an increase of $641.2 million, or 24.7%, from $2.6 billion for 2006. As a percent of revenues, cost of sales (exclusive of depreciation and amortization) was flat at 69.5% for both years. Although the ratio of cost of sales to revenues was flat year-over-year, there was a decrease in the ratio of cost of sales to revenues for the Company’s products during 2007 resulting from (i) improved pricing and cost controls at V&M and CS, the effect of which was mostly offset by the impact of shipments of major drilling and subsea projects at DPS which carry a higher cost of sales to revenue ratio than the segment’s base drilling and subsea businesses (approximately a 0.2 percentage-point decrease) and (ii) the application of relatively fixed manufacturing overhead to a larger revenue base (approximately a 0.3 percentage-point decrease). Offsetting these improvements was (i) the absence in 2007 of LIFO income totaling $2.1 million recognized in 2006 in relation to a decrease in inventory levels that year in the CS segment (approximately a 0.1 percentage-point increase) and (ii) the absence of foreign currency gains recognized in 2006, net of foreign currency losses recognized in 2007, totaling $14.8 million, which
 
28
 
 
primarily related to intercompany loans the Company has with various foreign subsidiaries that are denominated in currencies other than the U.S. dollar (approximately a 0.4 percentage-point increase).
 
Selling and administrative expenses for 2007 were $577.6 million as compared to $528.6 million in 2006, an increase of $49.0 million, or 9.3%. The increase is due primarily to (i) higher salary, benefit, travel and other employee-related costs of approximately $51.6 million resulting mainly from headcount increases and higher activity levels, (ii) higher non-cash stock compensation costs totaling $5.8 million, (iii) $9.7 million of higher legal and professional services primarily relating to litigation and compliance-related activities, (iv) $2.8 million relating to newly acquired businesses and (v) $1.1 million for plant consolidation and restructuring costs in the CS segment. Offsetting these increases was (i) a $5.8 million one-time reduction in pension expense relating to one of the Company’s non-U.S. defined benefit pension plans and (ii) the absence in 2007 of a 2006 provision of $17.5 million for the estimated cost of settlement of a class action lawsuit related to environmental contamination near a former manufacturing facility.
 
Depreciation and amortization expense totaled $109.8 million for 2007, an increase of $8.4 million from $101.4 million in 2006. The increase was primarily attributable to the higher level of capital spending in recent periods for machinery and equipment and the Company’s enterprise-wide technology assets.
 
Interest income for 2007 was $30.7 million as compared to $26.9 million in 2006, an increase of $3.8 million. The increase is primarily attributable to higher invested cash balances for 2007 as compared to 2006.
 
Interest expense incurred during 2007 totaled $23.3 million, an increase of $2.6 million from $20.7 million for 2006. The increase is primarily due to the full-year impact in 2007 of interest on $500.0 million of 2.5% debentures issued in May 2006, which amounted to an approximate $5.5 million increase in interest expense in 2007. This increase was partially offset by the repayment of $200.0 million of 2.65% senior notes in April 2007, which lowered interest expense by approximately $3.1 million during 2007 as compared to 2006.
 
During 2007, the Company announced its intention to terminate its U.S. defined benefit pension plans. In connection with a curtailment of future benefits from these plans, effective as of December 31, 2007, and a settlement during 2007 of certain existing obligations of the plans, the Company recorded a $35.7 million charge for the year. Further information relating to termination of the Company’s U.S. defined benefit pension plans may be found in Note 7 of the Notes to Consolidated Financial Statements.
 
During 2006, acquisition integration costs totaling $29.6 million were incurred in connection with the integration of the Dresser Acquired Businesses primarily into the operations of the V&M segment. Approximately $10.5 million of the costs relates to non-cash asset impairment charges and $4.2 million relates to employee severance at a legacy facility being closed as a result of the acquisition. The remaining costs were for employee stay bonuses, employee relocation, plant rearrangement, plant and facility consolidation and other integration costs (see Note 2 of the Notes to Consolidated Financial Statements).
 
The income tax provision for 2007 was $207.6 million compared to $170.8 million in 2006. The effective tax rates for 2007 and 2006 were 29.3% and 34.9%, respectively. The decrease in the effective tax rate for 2007 was primarily attributable to adjustments during the year totaling $34.1 million, as described above, and an increased amount of full-year income in lower tax rate jurisdictions.
 
Segment Results — 2007 Compared to 2006
 
Information relating to results by segment may be found in Note 14 of the Notes to Consolidated Financial Statements.
 
DPS Segment
   
Year Ended December 31,
    
Increase
  
(dollars in millions)
  
2007
    
2006
    
$
       %  
Revenues
   $ 2,887.1     $ 2,113.1     $ 774.0       36.6 %
Income before income taxes
   $ 498.8     $ 364.7     $ 134.1       36.8 %
 
DPS segment revenues for 2007 totaled $2.9 billion, an increase of $774.0 million, or 36.6%, compared to $2.1 billion in 2006. Sales of drilling equipment increased approximately 97%, surface sales were up over 28% and subsea equipment sales increased approximately 23% while sales of oil, gas and water separation applications were down by nearly 7%. Nearly two-thirds of the increase in drilling sales is attributable to the higher level of new major rig construction projects with the remainder due to increased shipments of blowout preventers (BOPs) for land and jack-up rigs and higher sales of aftermarket parts and services. Nearly 14% of the growth in sales of surface equipment was the result of the impact of a weaker U.S. dollar in relation to other major world currencies during 2007 in comparison to 2006, with nearly 60% of the remaining increase due largely to strong demand from customers in the European, African and Caspian Sea regions. Other major regions of the world, except Canada, also showed higher activity levels and demand for surface equipment during 2007. Nearly one-fifth of the increase in subsea equipment sales in 2007 was due to the effects of a weaker U.S. dollar with the remaining increase due mainly to shipments for large projects offshore West Africa. Excluding the effects of a weaker U.S. dollar, sales of oil, gas and water separation applications declined nearly 11% due primarily to the absence in 2007 of revenues recognized in 2006 associated with an oil separation application to be used on a floating offshore storage platform offshore Brazil. This impact was partially offset by higher activity levels in 2007 for water treatment projects.
 
Income before income taxes for 2007 totaled $498.8 million as compared to $364.7 million in 2006, an increase of $134.1 million, or 36.8%, which was in line with the increase in revenues as discussed above. Cost of sales as a percent of revenues increased from 70.0% in 2006 to 71.8% in 2007. The increase was due primarily to (i) an increase in the ratio of cost of sales to revenues for the segment’s products, due largely to higher shipments of major drilling and subsea projects, which carry a higher cost of sales-to-revenue ratio than the segment’s base drilling and subsea businesses (approximately a 1.7 percentage-point increase), (ii) higher subcontract costs, mainly at international locations (a 0.2 percentage-point increase) and (iii) an increase in warranty costs in 2007 compared to 2006 (a 0.3 percentage-point increase). These increases were partially offset by a change order agreed to with one of the Company’s major subsea customers in late 2007 (a 0.4 percentage-point decrease).

 
29
 

Selling and administrative costs for 2007 totaled $260.7 million, an increase of $44.6 million, or 20.7%, from $216.0 million in 2006. Increased headcount levels, including the associated salary, benefit, travel and other personnel-related costs accounted for over three-fourths of the increase with the remainder due primarily to higher facility costs and activity levels needed to support the expansion of the Company’s business.
 
Depreciation and amortization expense for 2007 was $55.9 million, an increase of $3.1 million, or 5.9%, from $52.8 million in 2006. The increase is due primarily to higher depreciation of machinery and equipment due to increased levels of capital spending in recent periods.
 
Acquisition integration costs totaling $0.3 million associated with a product line addition from the Dresser Acquired Businesses were incurred by DPS in 2006.
 
V&M Segment
 
   
Year Ended December 31,
    
Increase
  
(dollars in millions)
  
2007
    
2006
     $       %  
Revenues
   $ 1,273.7     $ 1,177.9     $ 95.8       8.1 %
Income before income taxes
   $ 268.0     $ 167.5     $ 100.5       60.0 %
 
Revenues of the V&M segment totaled $1.3 billion for 2007, an increase of $95.8 million, or 8.1%, from $1.2 billion in 2006. Over 40% of the increase in revenues was attributable to a weakening U.S. dollar, with product line acquisitions during 2007 adding another $6.9 million to the year-over-year change. Excluding the effects of the weaker U.S. dollar and product line acquisitions during 2007, sales to customers in the process markets accounted for over 80% of the increase in revenues due largely to current-year shipments resulting from strong order levels in late 2006, driven largely by new liquefied natural gas (LNG) projects internationally and refinery upgrades. The remainder of the increase was largely related to higher aftermarket revenues driven largely by higher demand from customers in North America and West Africa for parts and services. A 4% decrease in sales of measurement products caused mainly by weakness in the Canadian markets was mostly offset by a 2% increase in shipments of distributed products resulting from high beginning-of-the-year backlog and capacity increases during the year. Engineered valve shipments were down 1% mainly due to delivery of certain lower-value products included in the acquired backlog of the Dresser Acquired Businesses in South America.
 
Income before income taxes totaled $268.0 million in 2007, an increase of $100.5 million, or 60.0%, from $167.5 million in 2006. Cost of sales as a percentage of revenues declined from 68.0% in 2006 to 64.2% in 2007. The improvement in the ratio is primarily the result of (i) lower cost of sales as a percent of revenues for the segment’s products due largely to improved pricing in the engineered, distributed and process valve product lines, the absence in 2007 of shipments made in 2006 of certain higher-cost products acquired as part of the acquisition of the Dresser Acquired Businesses in late 2005 and a mix shift to higher sales of process valves and aftermarket parts and services, which have a lower cost of sales-to-revenue ratio as compared to the segment’s other product lines (approximately a 3.6 percentage-point decrease) and (ii) lower warranty costs (approximately a 0.2 percentage-point decrease).
 
Selling and administrative expenses for 2007 totaled $157.3 million, an increase of $5.8 million, or 3.9%, from $151.5 million in 2006. Approximately $2.8 million of the increase is due to newly acquired businesses during 2007 with the remaining increase largely attributable to the effects of a weaker U.S. dollar against most other major world currencies.
 
Depreciation and amortization in the V&M segment decreased by $0.7 million, from $30.7 million in 2006 to $30.0 million in 2007, primarily as a result of the consolidation of certain facilities that occurred during 2006.
 
V&M incurred $26.8 million of acquisition integration costs in 2006 as a result of integrating the Dresser Acquired Businesses into the segment’s operations. These costs are described in “Consolidated Results - 2006 compared to 2005”.
 
CS Segment
 
   
Year Ended December 31,
    
Increase
  
(dollars in millions)
  
2007
    
2006
     $       %  
Revenues
   $ 505.6     $ 452.0     $ 53.6       11.9 %
Income before income taxes
   $ 76.5     $ 45.7     $ 30.8       67.5 %
 
CS segment revenues for 2007 totaled $505.6 million, an increase of $53.6 million, or 11.9%, from $452.0 million in 2006. Sales of reciprocating compression equipment were up nearly 11% in 2007 while sales of centrifugal compression equipment climbed nearly 17%. Over one-half of the increase in the reciprocating product line was due to an 8% increase in sales of aftermarket parts and services, which resulted from a high backlog level at the beginning of the year coupled with strong demand from customers who have been maintaining their equipment at high utilization levels to take advantage of currently high natural gas prices. Additionally, sales of Ajax units, primarily to domestic lease fleet operators, climbed nearly 16% and shipments of Superior Compressors were up almost 19% in 2007 as compared to 2006, primarily due to large shipments to customers in Eastern Europe. Shipments of Engineered Air equipment, primarily to customers in the Far East, accounted for a large portion of the 18% increase in this product line. Deliveries of Plant Air equipment to domestic and Middle Eastern customers accounted for a large portion of the 9% increase in sales of this product line during 2007. Additionally, higher demand for spare parts, an increase in the number of service technicians and the start-up of a new business involving non-original equipment manufacturer upgrades and contract maintenance services all contributed to a 20% increase in revenues for the Centrifugal aftermarket business during 2007.

 
30
 

Income before income taxes for the CS segment totaled $76.5 million in 2007, an increase of $30.8 million, or 67.5%, from $45.7 million in 2006. Cost of sales as a percent of revenues declined from 72.7% in 2006 to 69.3% in 2007. The improvement in the ratio is primarily due to (i) lower subcontract variances in 2007 and benefits obtained from efforts to source raw materials from lower cost international suppliers, as well as greater absorption of factory indirect costs due to higher volumes, largely contributing to a 2.6 percentage-point decrease in the ratio and (ii) the application of relatively fixed manufacturing overhead to a larger revenue base (approximately a 1.4 percentage-point decrease). These improvements were partially offset by the absence in 2007 of LIFO income totaling $2.1 million recognized in 2006 in relation to a decrease in inventory levels that year (approximately a 0.5 percentage-point increase).
 
Selling and administrative expenses for 2007 totaled $64.9 million, an increase of $2.8 million, or 4.6%, from $62.1 million in 2006. Approximately $1.1 million of the increase was due to plant consolidation and restructuring costs during 2007 with the remainder largely attributable to higher headcount and other employee-related costs associated with increased business activity levels.
 
Depreciation and amortization expense totaled $13.7 million in 2007 compared to $13.0 million in 2006, an increase of $0.7 million. Higher levels of capital spending and higher internally allocated amortization expense associated with the Company’s capitalized enterprise-wide software systems accounted for the majority of the increase.
 
Acquisition integration costs of $2.5 million were incurred by CS during 2006. The costs relate to the relocation of certain CS facilities into one of the locations acquired in connection with the acquisition of the Dresser Acquired Businesses.
 
Corporate Segment
 
The Corporate segment’s loss before income taxes for 2007 totaled $134.8 million, an increase of $45.5 million from $89.3 million in 2006. The primary factors causing the increase were (i) a charge of $35.7 million associated with a decision to terminate the Company’s U.S. defined benefit pension plans made in 2007 and (ii) the absence of foreign currency gains recognized in 2006, net of foreign currency losses recognized in 2007 totaling $9.6 million, which primarily related to intercompany loans the Company has with various foreign subsidiaries that are denominated in currencies other than the U.S. dollar.
 
Selling, general and administrative expenses in 2007 totaled $94.7 million, a decrease of $4.3 million from $99.0 million in 2006. Included in selling and administrative costs for 2006 was a provision of $17.5 million for the estimated cost of the settlement of a class action lawsuit related to environmental contamination near a former manufacturing facility, which did not recur in 2007. Additionally, 2007 selling, general and administrative costs include a $5.8 million one-time reduction in pension expense relating to one of the Company’s non-U.S. defined benefit pension plans. These decreases have been partially offset by (i) $5.8 million of higher non-cash stock compensation costs, (ii) $8.6 million of higher costs for legal and professional services primarily relating to litigation and compliance-related activities and (iii) $4.6 million of higher salaries, benefits and employee travel costs, primarily due to higher headcount and increased activity levels needed to support the expansion of the Company’s business.
 
Depreciation and amortization for 2007 increased by $5.2 million from 2006, primarily due to differences in internal allocations between segments associated with the amortization of the Company’s enterprise-wide information technology assets and higher capital spending in recent periods.
 
The increases in interest income and interest expense during 2007 as compared to 2006 are discussed in “Consolidated Results – 2007 Compared to 2006” above.
 
Consolidated Results — 2006 Compared to 2005
 
The Company’s net income for 2006 totaled $317.8 million, or $1.36 per diluted share, compared to $171.1 million or $0.76 per diluted share in 2005. The results for 2006 included pre-tax charges of $29.6 million for acquisition integration activities associated with the operations of the Flow Control segment of Dresser, Inc. that were acquired in late 2005 and early 2006 (the Dresser Acquired Businesses). Additionally, the Company recorded a pre-tax charge of $17.5 million, in 2006 for the anticipated cost of the settlement of a class action lawsuit related to contaminated underground water near a former manufacturing facility in Houston, Texas. These charges were partially offset by a pre-tax foreign currency gain in the second quarter of 2006 of $10.0 million primarily relating to short-term intercompany loans made to the Company’s European subsidiaries in connection with the acquisition of the Dresser Acquired Businesses.
 
Effective January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board Statement No. 123(R), Share-Based Payment (SFAS 123(R)) using the modified-prospective-transition method. Under SFAS 123(R), stock-based compensation expense recognized during 2006 totaled $25.6 million, of which $10.0 million related to outstanding restricted and deferred stock unit grants and $15.6 million related to unvested outstanding stock option grants. There was no material cumulative effect of adopting SFAS 123(R). Prior to January 1, 2006, the Company accounted for stock-based payments under APB Opinion 25, Accounting for Stock-Based Compensation. During 2005, a total of $2.8 million in stock-based compensation expense was recognized related to the amortization of the fair value of restricted stock unit grants. Options granted under the Company’s equity compensation plans had an exercise price equal to the market value of the underlying common stock on the date of grant and all terms were fixed; accordingly, no expense was recognized under APB Opinion 25. During 2005, the Company began issuing restricted stock unit grants with no exercise price to key employees in place of stock options and, as more fully described in Note 8 of the Notes to Consolidated Financial Statements, also made restricted stock unit grants to officers and key employees during 2006, some of which contained performance-based conditions. At December 31, 2006, approximately $19.0 million and $12.2 million of compensation costs remain to be recognized over the next 2.02 and 1.61 years relating to the grant date fair value of unvested stock option grants and unvested restricted stock unit grants, respectively.

 
31
 
 
Revenues
 
Revenues for 2006 totaled $3.7 billion, an increase of 48.7% from $2.5 billion in 2005. Revenues increased in each of the Company’s segments and across all product lines. The increase was driven primarily by high oil and gas prices, which have led to increased drilling and production activities and demand for new equipment. Entities acquired since the beginning of 2005 accounted for approximately $518.8 million, or 42.4% of the growth in revenues. Excluding the effect of newly acquired entities, the growth in the legacy businesses of DPS accounted for approximately 83.5% of the remaining increase in consolidated revenues. A discussion of revenue by segment may be found below.
 
Cost and Expenses
 
Cost of sales (exclusive of depreciation and amortization) for 2006 totaled $2.6 billion, an increase of $804.8 million, or 44.8%, from $1.8 billion in 2005. As a percent of revenues, cost of sales (exclusive of depreciation and amortization) declined from 71.3% in 2005 to 69.5% in 2006. This decline is due primarily to (i) favorable pricing and a mix shift in 2006 to higher-margin distributed product sales by the V&M segment’s legacy operations, which had a combined effect of lowering the cost of sales-to-revenue ratio by approximately 0.8 percentage points, (ii) lower inventory obsolescence provisions in 2006 as 2005 included a $9.9 million charge related to a change in the estimated recovery value of certain slow-moving inventory at DPS (a 0.6 percentage-point decrease), (iii) lower product warranty costs, driven largely by the favorable settlement of a warranty issue on a subsea project in DPS, which reduced warranty expense in 2006 compared to 2005 by $9.7 million (a 0.5 percentage-point decrease) and (iv) the application of manufacturing overhead to a larger revenue base, which reduced this ratio by approximately 1.0 percentage points. These decreases were partially offset by the impact of entities acquired since the beginning of 2005, which caused a 1.0 percentage-point increase as these businesses incur a higher cost of sales-to-revenue ratio than the Company’s legacy operations.
 
Selling and administrative expenses for 2006 were $528.6 million, an increase of $147.3 million, or 38.6%, from $381.3 million in 2005. Acquisitions of new entities since the beginning of 2005 accounted for $61.2 million of the increase. Other factors contributing to the increase were (i) additional stock compensation expense of $22.8 million recognized in accordance with SFAS 123(R), which was adopted January 1, 2006, and (ii) a provision of $17.5 million for the expected costs of a class action lawsuit related to environmental contamination near a former manufacturing facility. The remaining portion of the increase was largely attributable to higher activity in the Company’s selling and marketing operations in order to support the growth in the business and higher employee-related costs due to higher headcount levels and increased employee incentives in connection with improvements in the Company’s financial performance during the year.
 
Depreciation and amortization for 2006 totaled $101.4 million, an increase of $23.0 million compared to 2005. Newly acquired entities accounted for approximately $11.0 million of the change with the remaining increase largely due to an impairment charge of $3.0 million related to certain long-lived assets in the DPS segment and higher levels of capital spending since the beginning of 2005.
 
Interest income for 2006 was $26.9 million as compared to $13.1 million in 2005. The increase of $13.8 million is primarily attributable to higher invested cash balances due primarily to the issuance of $500 million of convertible debt in May 2006 and positive operating cash flows as well as higher short term interest rates the Company has received on its invested cash balances.
 
Interest expense for 2006 totaled $20.7 million as compared to $12.0 million in 2005. Approximately $7.6 million of the increase is attributable to the issuance of $500 million of convertible debt in May 2006.
 
During 2006, acquisition integration costs totaling $29.6 million were incurred in connection with the integration of the Dresser Acquired Businesses primarily into the operations of the V&M segment. Approximately $10.5 million of the costs relate to non-cash asset impairment charges and $4.2 million relates to employee severance at a legacy facility that was closed as a result of the acquisition. The remaining costs were for employee stay bonuses, employee relocation, plant rearrangement, plant and facility consolidation and other integration costs (see Note 2 of the Notes to Consolidated Financial Statements).
 
The income tax provision was $170.8 million in 2006 as compared to $91.9 million in 2005. The effective tax rate for both 2006 and 2005 was 34.9%.
 
Segment Results — 2006 Compared to 2005
 
Information relating to results by segment may be found in Note 14 of the Notes to Consolidated Financial Statements.
 
DPS Segment
 
   
Year Ended December 31,
    
Increase
  
(dollars in millions)
  
2006
    
2005
     $       %  
Revenues
   $ 2,113.1     $ 1,507.8     $ 605.3       40.1 %
Income before income taxes
   $ 364.7     $ 178.9     $ 185.8       103.8 %
 
DPS segment revenues for 2006 totaled $2.1 billion, an increase of $605.3 million, or 40.1%, from 2005’s revenues of $1.5 billion. Sales of drilling products increased approximately 60%, surface sales were up approximately 33%, subsea equipment sales increased approximately 43% and sales of oil, gas and water separation applications were up nearly 19%. The increase in drilling sales reflects the higher level of new major rig construction projects, as well as increased shipments of BOPs for land and jack-up rigs and higher sales levels for aftermarket parts and services. The increase in surface sales is a reflection of the current strong market conditions resulting from high commodity prices and high rig count levels. Subsea equipment sales were up in 2006 mainly due to shipments for large projects offshore West Africa. Revenues associated with an oil separation application to be used on a floating offshore storage platform offshore Brazil accounted for the majority of the increase in the oil, gas and water separation application product line.

 
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Income before income taxes for 2006 totaled $364.7 million, an increase of $185.8 million, from 2005’s amount of $178.9 million. Cost of sales as a percent of revenues decreased from 72.7% in 2005 to 70.0% in 2006. The reduction was due primarily to (i) lower warranty costs, driven largely by the favorable settlement of a warranty issue on a subsea project, which reduced warranty expense in 2006 compared to 2005 by $9.7 million (a 0.8 percentage-point decrease), (ii) lower inventory obsolescence provisions in 2006 as 2005 included a $9.9 million charge related to a change in the estimated recovery value of certain slow-moving inventory (a 0.8 percentage-point decrease) and (iii) the application of manufacturing overhead to a larger revenue base (a 1.2 percentage-point decrease).
 
Selling and administrative expenses for 2006 totaled $216.0 million, an increase of $27.2 million, or 14.4%, from $188.8 million in 2005. Newly acquired entities, as well as increased headcount and activity levels in the selling and marketing operations of DPS in order to support the expansion of the business accounted for the majority of the increase in costs.
 
Depreciation and amortization expense for 2006 totaled $52.8 million as compared to $43.7 million in 2005, an increase of $9.1 million or 20.8%. The increase is primarily attributable to an impairment charge of $3.0 million related to certain long-lived assets and higher levels of capital spending since the beginning of 2005.
 
Acquisition integration costs totaling $0.3 million associated with a product line addition from the Dresser Acquired Businesses were incurred by DPS in 2006.
 
V&M Segment
 
   
Year Ended December 31,
    
Increase
  
(dollars in millions)
  
2006
    
2005
     $       %  
Revenues
   $ 1,177.9     $ 625.1     $ 552.8       88.4 %
Income before income taxes
   $ 167.5     $ 101.5     $ 66.0       65.0 %
 
Revenues of the V&M segment for 2006 totaled $1.2 billion, an increase of 88.4% from $625.1 million in 2005. Acquisitions since the beginning of 2005 accounted for $503.5 million, or 91.1% of the increase. Engineered product line sales increased 173% in 2006 as compared to 2005. Absent the effect of the Dresser Acquired Businesses in late 2005 and early 2006, engineered sales decreased by approximately 11% in 2006. This decline related primarily to the discontinuance of a product line during 2006. Sales of distributed products were up over 39% in 2006. Approximately 34% of the increase was due to newly acquired entities with the remainder caused mainly by strong demand in the segment’s legacy businesses in the United States resulting from high commodity prices and rig count levels. Sales of equipment for the process markets increased more than 51%. Approximately 80% of the increase was the result of newly acquired entities with the remainder attributable mainly to new LNG projects internationally, as well as refinery upgrades and new storage capacity projects.
 
Income before income taxes for 2006 totaled $167.5 million, an increase of 65.0% from $101.5 million in 2005. Cost of sales as a percent of revenues increased from 67.3% in 2005 to 68.0% in 2006. The increase was due primarily to the impact of entities acquired since the beginning of 2005, which caused a 6.5 percentage-point increase as these businesses incur a higher cost of sales-to-revenue ratio than V&M’s legacy businesses. This increase was partially offset by (i) favorable pricing and a mix shift in 2006 to higher-margin distributed product sales by the segment’s legacy operations, which had a combined effect of lowering the cost of sales-to-revenue ratio by 3.7 percentage points and (ii) the application of manufacturing overhead by those operations to a larger revenue base, which positively impacted this ratio by approximately 2.1 percentage points.
 
Selling and administrative expenses for the V&M segment increased $65.5 million, or 76.2%, to $151.5 million in 2006 as compared to $86.0 million in 2005. Approximately $57.0 million of the increase is attributable to entities acquired since the beginning of 2005, with the remaining increase largely attributable to higher headcount levels in the legacy businesses and higher employee incentive costs due to strong business activity levels.
 
Depreciation and amortization for V&M increased by $13.9 million in 2006, to $30.7 million from $16.8 million in 2005. The increase is primarily attributable to newly acquired entities.
 
V&M incurred $26.8 million of acquisition integration costs in 2006 as a result of integrating the Dresser Acquired Businesses into the segment’s operations. These costs are described in “Consolidated Results - 2006 compared to 2005” above.
 
CS Segment
 
   
Year Ended December 31,
    
Increase
  
(dollars in millions)
  
2006
    
2005
     $       %  
Revenues
   $ 452.0     $ 384.9     $ 67.1       17.4 %
Income before income taxes
   $ 45.7     $ 26.7     $ 19.0       71.2 %
 
Revenues in the CS segment totaled $452.0 million in 2006, an increase of 17.4%, compared to $384.9 million in 2005. Sales of gas compression equipment increased approximately 16%, nearly three-quarters of which was driven by higher shipments of new units due to higher beginning-of-the-year backlog levels, a large shipment of Superior compressors to a customer in the Far East and stronger demand for Ajax units from domestic lease fleet operators. Sales in the air compression market were up approximately 18%, due mainly to increased demand for new engineered machines.
 
Income before income taxes totaled $45.7 million in 2006, an increase of 71.2%, from $26.7 million in 2005. Over 90% of the increase is related to higher sales volumes. Cost of sales as a percent of revenues increased from 72.5% in 2005 to 72.7% in 2006. Rising material costs in excess of price increases and higher subcontract costs, partially offset by higher utilization and lower spending levels on certain variable costs, added 0.9 percentage points to the ratio of cost of sales to revenues. A decrease in income of over $1.9 million from 2005 to 2006 relating to
 
33
 
 
the liquidation of LIFO inventory layers also added 0.6 percentage points to the increase. These increases were mostly offset by lower inventory obsolescence and product liability provisions, which accounted for a decrease of 1.2 percentage points in the 2006 ratio of cost of sales-to-revenues as compared to 2005.
 
Selling and administrative costs declined $1.5 million, or 2.4%, to $62.1 million in 2006 as compared to $63.6 million in 2005. The decline is due mainly to lower management incentive costs, partially offset by higher headcount levels.
 
Depreciation and amortization expense for the CS segment declined by $2.4 million, or 15.8%, in 2006 as compared to 2005. The decline was mainly due to assets which became fully depreciated or were disposed of during the year and the absence of a 2005 charge to write down the value of certain excess equipment relating to a plant consolidation within the segment.
 
Acquisition integration costs of $2.5 million were incurred by CS during 2006. The costs relate to the relocation of certain CS facilities into one of the locations acquired in connection with the acquisition of the Dresser Acquired Businesses.
 
Corporate Segment
 
The Corporate segment’s loss before income taxes for 2006 totaled $89.3 million compared to $44.1 million for 2005, an increase of $45.2 million. Included in the loss for 2006 was a foreign currency gain of $10.0 million recognized in the second quarter of 2006 relating primarily to short-term intercompany loans made to the Company’s European subsidiaries in connection with the acquisition of the Dresser Acquired Businesses in late 2005. More than offsetting this gain were additional selling and administrative costs of $56.1 million, consisting primarily of (i) $22.8 million of additional expense relating to employee stock compensation programs, recognized in accordance with SFAS 123(R), which was adopted January 1, 2006, (ii) a provision of $17.5 million for the estimated cost of the settlement of a class action lawsuit related to environmental contamination near a former manufacturing facility and (iii) approximately $11.8 million of additional salaries, bonuses and other payments to employees related to higher headcount and improvements in the Company’s financial results for 2006 as compared to 2005. The remaining increase primarily relates to higher employee travel, rental expenses, cost for third party service providers and other promotional and marketing costs.
 
Depreciation and amortization in the Corporate segment increased by $2.4 million to $4.9 million in 2006 compared to $2.5 million in 2005. The increase is due to higher levels of capital spending and lower amounts allocated to other segments for amortization of the Company’s enterprise-wide software systems.
 
The increases in interest income and interest expense during 2006 as compared to 2005 are discussed in “Consolidated Results – 2006 Compared to 2005” above.
 
Orders and Backlog
 
Orders were as follows (in millions):
 
   
Year Ended December 31,
        
   
2007
    
2006
    
Increase
  
DPS
   $ 3,417.9     $ 3,256.9     $ 161.0  
V&M
     1,315.5       1,296.0       19.5  
CS
     648.7       521.3       127.4  
    $ 5,382.1     $ 5,074.2     $ 307.9  
 
Orders for 2007 were $5.4 billion, an increase of 6.1% from $5.1 billion in 2006. Excluding the effects of a weaker U.S. dollar in 2007 in relation to other major world currencies and the impact of acquisitions during 2007, orders increased approximately 3.7% compared to 2006.
 
DPS segment orders for 2007 totaled $3.4 billion, an increase of $161.0 million, or 4.9%, from $3.3 billion for 2006. A decrease of 44% in drilling orders was more than offset by increases of 12% in surface orders, 75% in subsea orders and nearly 47% in orders of oil, gas and water separation applications. The decrease in drilling orders in 2007 reflects reductions in the level of large orders for major rig construction projects as compared to 2006. Over one-third of the increase in surface orders was due to the effects of a weaker U.S. dollar in 2007. The remainder of the increase was due largely to higher demand from customers in the European, African and Caspian Sea regions, as well as from Asia Pacific and the Middle East. This increase was partially offset by lower demand in North America, particularly from customers in Canada, due to weakness in the natural gas markets in that region. The increased level of subsea orders primarily reflects large awards or additional work for offshore projects in South America, Australia and West Africa. Over 10% of the increase in orders for oil, gas and water separation applications was attributable to the effects of a weaker U.S. dollar with the remainder mainly reflecting several large gas application project awards received in 2007, as well as higher activity levels during the year relating to production and water treatment projects.
 
The V&M segment had orders of $1.3 billion in 2007, an increase of $19.5 million, or 1.5%, from 2006. Acquisitions during 2007 accounted for $4.5 million of the increase in orders. Excluding the effects of acquisitions and the effect of a weakening in the U.S. dollar, orders declined nearly 2% in 2007 as compared to 2006. This decline was due mainly to a 13% decline in orders for distributed products, driven largely by weakness in the Canadian market and the absence in 2007 of the large stocking orders placed by U.S. distributors during 2006. Process valve orders were down nearly 3% due mainly to a slowdown in activity in the Gulf of Mexico. These declines were partially offset by (i) a 4% growth in engineered orders as onshore and offshore pipeline project construction activity remained high, (ii) a 5% increase in measurement orders resulting from strong international demand for nuclear and flow products and (iii) a 10% increase in aftermarket activity reflecting the addition of several new service centers during 2007 as well as higher demand for parts and services from North American and West African customers.
 
Orders in the CS segment totaled $648.7 million in 2007, an increase of $127.4 million, or 24.4% from 2006. Orders in the reciprocating compression market were up 9.3%, over 60% of which was due to a 61% increase in orders for Superior Compressors, mainly from customers in Eastern Europe, Russia and the Far East. Orders for Ajax units also increased nearly 4% as strong demand continued from international customers,
 
34
 
 
particularly in Russia and China and from domestic lease fleet operators. A 50% increase in orders, mainly from international customers, for new engineered machines designed primarily to meet air separation and industrial gas compression needs accounted for over 70% of the 42% increase in demand for centrifugal compression equipment in 2007 as compared to 2006. Strong demand from customers in the U.S., Middle East, Far East and South America also led to a 32% increase in orders for Plant Air equipment in 2007.
 
Backlog was as follows (in millions):
 
   
December 31,
        
   
2007
    
2006
    
Increase
  
DPS
   $ 3,203.0     $ 2,661.3     $ 541.7  
V&M
     685.2       620.8       64.4  
CS
     380.1       248.9       131.2  
    $ 4,268.3     $ 3,531.0     $ 737.3  
 
Recent Pronouncements
 
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value and expands the level of disclosures regarding fair value. SFAS 157 also emphasizes that fair value is a market-based measurement rather than an entity-specific measurement. The Company adopted the provisions of SFAS 157 which became effective on January 1, 2008, as required. There was no impact on the Company’s financial statements at the time of adoption, however, the Company does expect this new standard will impact certain aspects of its accounting for business combinations on a prospective basis, including the determination of fair values assigned to certain purchased assets and liabilities and the expensing of all transaction costs relating to future business combinations.
 
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 provides entities with an option to measure many financial assets and liabilities and certain other items at fair value as determined on an instrument-by-instrument basis. The Company adopted SFAS 159 on January 1, 2008, as required. There was no impact on the Company’s financial statements at the time of adoption.
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business Combinations (SFAS 141R) and Statement of Financial Accounting Standards No. 160, Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). These two standards must be adopted in conjunction with each other on a prospective basis. The most significant changes to business combination accounting pursuant to SFAS 141R and SFAS 160 are the following: (a) recognize, with certain exceptions, 100 percent of the fair values of assets acquired, liabilities assumed and noncontrolling interests in acquisitions of less than a 100 percent controlling interest when the acquisition constitutes a change in control of the acquired entity, (b) acquirers’ shares issued in consideration for a business combination will be measured at fair value on the closing date, not the announcement date, (c) recognize contingent consideration arrangements at their acquisition date fair values, with subsequent changes in fair value generally reflected in earnings, (d) the expensing of all transaction costs as incurred and most restructuring costs, (e) recognition of pre-acquisition loss and gain contingencies at their acquisition date fair values, with certain exceptions, (f) capitalization of acquired in-process research and development rather than expense recognition, (g) earn-out arrangements may be required to be remeasured at fair value and (h) recognize changes that result from a business combination transaction in an acquirer’s existing income tax valuation allowances and tax uncertainty accruals as adjustments to income tax expense. The Company anticipates these new standards will significantly affect the Company’s accounting for future business combinations following adoption on January 1, 2009.
 
Liquidity and Capital Resources
 
The Company’s cash balances totaled $739.9 million at December 31, 2007, a decrease of $293.6 million from $1.0 billion at December 31, 2006. The main reasons for the decrease were (i) the repayment in April 2007 of all of the outstanding $200.0 million 2.65% Senior Notes, (ii) the purchase of treasury stock at a cash cost of $321.9 million, (iii) the acquisition of certain assets and liabilities of four businesses during 2007 for a cash cost of $76.4 million and (iv) capital expenditures of $245.6 million. These cash outflows were partially offset by (i) $451.7 million of cash flow provided by operations in 2007, (ii) $52.8 million of proceeds from stock option exercises and (iii) $28.0 million of excess tax benefits from stock compensation plan transactions.
 
During 2007, the Company generated $451.7 million of cash from operating activities compared to $546.5 million in 2006. The primary reason for the decrease was due to the higher level of spending on working capital in 2007 in order to support the increased activity levels within the Company. Working capital increased $269.5 million during 2007 as compared to a $30.9 million increase for the comparable period in 2006. The main contributors to the increased use of cash in support of working capital in 2007 as compared to 2006 were the continued growth in the Company’s investment in inventory year-over-year, totaling approximately $85.4 million, in support of the Company’s record year-end 2007 backlog levels and a decline in the year-over-year growth in advances from customers of approximately $149.6 million, reflecting the high level of advances received in 2006 due to the large number of major drilling orders received during that period. Offsetting the increased use of cash to build working capital was increased cash inflows from increased net income, including non-cash adjustments to net income. Net income in 2007 totaled $500.9 million, compared to $317.8 million in 2006. Additionally, certain adjustments to net income to arrive at net cash provided by operating activities such as depreciation, amortization, the charge for the Company’s U.S. defined benefit pension plan termination, stock-based compensation expense, asset write-offs, provisions for deferred income taxes and the operating tax benefit of employee benefit plan transactions totaled $220.3 million in 2007 compared to $197.8 million in 2006.

 
35
 

The Company utilized $312.9 million of cash for investing activities in 2007 as compared to $197.0 million in 2006. During 2007, the Company spent $76.4 million to acquire certain assets and liabilities of four businesses. Capital spending during 2007 totaled $245.6 million compared to $184.8 million in 2006. The increase reflects the Company’s strategy to increase capacity, improve efficiency and address market needs by upgrading its machine tools, manufacturing facilities and processes.
 
During 2007, the Company’s financing activities used $447.1 million of cash compared to cash generated of $297.1 million during 2006. The Company spent $321.9 million of cash in 2007 and $282.2 million in 2006 to acquire treasury stock. Additionally, the Company repaid all of its outstanding $200.0 million 2.65% Senior Notes in April 2007. The Company issued $500.0 million of 2.5% twenty-year convertible debentures in May 2006, incurring issuance costs of approximately $8.6 million. Proceeds from stock option exercises and excess tax benefits available to the Company from stock option exercises and vesting of restricted stock units contributed an additional $80.8 million to the increase in the Company’s cash balances during 2007. During 2006, proceeds available to the Company from stock option exercises and excess tax benefits from stock compensation plans totaled $92.6 million.
 
In the short-term, cash flows will be used to fund capital spending for 2008, currently estimated to be approximately $250.0 million to $270.0 million, as the Company continues its program to improve its manufacturing efficiency and expand capacity.
 
On a longer-term basis, the Company has outstanding $238.0 million of 1.5% convertible debentures in addition to the $500 million of 2.5% convertible debentures described above. Holders of the 1.5% convertible debentures could require the Company to redeem them beginning in May 2009, whereas holders of the 2.5% convertible debentures could require redemption beginning in June 2011. The Company believes, based on its current financial condition, existing backlog levels, the current state of the corporate lending markets and current expectations for future market conditions, that it will be able to meet its short- and longer-term liquidity needs through additional debt issuances or refinancing or with cash generated from operating activities, existing cash balances on hand and amounts available under its $350.0 million five-year multicurrency revolving credit facility which expires on October 12, 2010, subject to certain extension provisions.
 
The following summarizes the Company’s significant cash contractual obligations and other commercial commitments for the next five years as of December 31, 2007.
 
(in millions)
  
Payments Due by Period
  
   
Less Than
      
1 - 3
      
4 - 5
    
After 5
        
Contractual Obligations
  
Total
    
1 Year
    
Years
    
Years
    
Years
  
Debt (a)$
   $ 741.7     $ 3.6     $ 238.1     $ 500.0       —  
Capital lease obligations (b)
     12.8       5.5       6.5       0.8       —  
Operating leases
     108.0       18.5       32.5       20.5       36.5  
Purchase obligations (c)
     751.8       736.3       14.7       0.8       —  
Contributions to funded defined benefit pension plans (d) 
     7.0       7.0       —       —       —  
Benefit payments expected for unfunded pension and postretirement benefit plans (e)
     26.4       3.9       5.6       5.2       11.7  
Unrecognized tax benefits (f)
     8.4       8.4       —       —       —  
Total contractual cash obligations
   $ 1,656.1     $ 783.2     $ 297.4     $ 527.3     $ 48.2  
 
(a)  See Note 9 of the Notes to Consolidated Financial Statements for information on redemption rights by the Company, and by holders of the Company’s debentures, that would allow for early redemption of the 1.5% Convertible Debentures in 2009 and the 2.5% Convertible Debentures in 2011.
(b)  Payments shown include interest.
(c)  Represents outstanding purchase orders entered into in the ordinary course of business.
(d)  The Company does not estimate its future contributions beyond one year.
(e)  Prior to expected Medicare Part D subsidy.
(f)  The balance shown represents the portion of the Company’s unrecognized tax benefits recorded as a current liability at December 31, 2007. The remaining balance of unrecognized tax benefits totaling $38.9 million has been excluded from the table as the Company cannot reasonably estimate the timing of the associated future cash outflows.
 
(in millions)
  
Amount of Commitment Expiration by Period
  
Other Unrecorded Commercial
                              
Obligations and Off-Balance
  
Total
    
Less Than
      
1 - 3
      
4 - 5
    
After 5
  
Sheet Arrangements
  
Commitment
    
1 Year
    
Years
    
Years
    
Years
  
Committed lines of credit
   $ 350.0     $ —     $ 350.0     $ —     $ —  
Standby letters of credit and bank guarantees
     500.4       284.6       183.6       29.7       2.5  
Financial letters of credit
     11.6       11.6       —       —       —  
Insurance bonds
     5.6       3.4       1.3       0.1       0.8  
Other financial guarantees
     1.6       1.6       —       —       —  
Total commercial com6mitments
   $ 869.2     $ 301.2     $ 534.9     $ 29.8     $ 3.3  

 
36
 

The Company secures certain contractual obligations under various agreements with its customers or other parties through the issuance of letters of credit or bank guarantees. The Company has various agreements with financial institutions to issue such instruments. As of December 31, 2007, the Company had $500.4 million of letters of credit and bank guarantees outstanding in connection with the delivery, installation and performance of the Company's products. Additional letters of credit and guarantees are outstanding at December 31, 2007 in connection with certain financial obligations of the Company. Should these facilities become unavailable to the Company, the Company’s operations and liquidity could be negatively impacted. Circumstances which could result in the withdrawal of such facilities include, but are not limited to, deteriorating financial performance of the Company, deteriorating financial condition of the financial institutions providing such facilities, overall constriction in the credit markets or rating downgrades of the Company.
 
Factors That May Affect Financial Condition and Future Results
 
The inability of the Company to deliver its backlog on time could affect the Company’s future sales and profitability and its relationships with its customers.
 
At December 31, 2007, the Company’s backlog was nearly $4.3 billion, a record level for the Company. The ability to meet customer delivery schedules for this backlog is dependent on a number of factors including, but not limited to, access to the raw materials required for production, an adequately trained and capable workforce, project engineering expertise for certain large projects, sufficient manufacturing plant capacity and appropriate planning and scheduling of manufacturing resources. Many of the contracts the Company enters into with its customers require long manufacturing lead times and contain penalty or incentive clauses relating to on-time delivery. A failure by the Company to deliver in accordance with customer expectations could subject the Company to financial penalties or loss of financial incentives and may result in damage to existing customer relationships. Additionally, the Company bases its earnings guidance to the financial markets on expectations regarding the timing of delivery of product currently in backlog. Failure to deliver backlog in accordance with expectations could negatively impact the Company’s financial performance and thus cause adverse changes in the market price of the Company’s outstanding common stock and other publicly-traded financial instruments.
 
The Company has embarked on a significant capital expansion program.
 
The Company’s capital expenditures increased by nearly $60.8 million from 2006 to $245.6 million for the year ended December 31, 2007. For 2008, the Company expects full-year capital expenditures of approximately $250.0 million to $270.0 million, including approximately $40.0 million for a new surface manufacturing facility in Romania, to continue its program of upgrading its machine tools, manufacturing technologies, processes and facilities in order to improve its efficiency and address current and expected market demand for the Company’s products. To the extent this program causes disruptions in the Company’s plants, or the needed machine tools or facilities are not delivered and installed or in use as currently expected, the Company’s ability to deliver existing or future backlog may be negatively impacted. In addition, if the program does not result in the expected efficiencies, future profitability may be negatively impacted.
 
Execution of subsea systems projects exposes the Company to risks not present in its surface business.
 
This market is significantly different from the Company’s other markets since subsea systems projects are significantly larger in scope and complexity, in terms of both technical and logistical requirements. Subsea projects (i) typically involve long lead times, (ii) typically are larger in financial scope, (iii) typically require substantial engineering resources to meet the technical requirements of the project and (iv) often involve the application of existing technology to new environments and in some cases, new technology. These projects accounted for approximately 8.5% of total revenues for the year ended December 31, 2007. To the extent the Company experiences difficulties in meeting the technical and/or delivery requirements of the projects, the Company’s earnings or liquidity could be negatively impacted. As of December 31, 2007, the Company had a subsea systems project backlog of approximately $954.7 million.
 
Increases in the cost of and the availability of metals used in the Company’s manufacturing processes could negatively impact the Company’s profitability.
 
Commodity prices for items such as nickel, molybdenum and heavy metal scrap that are used to make the steel alloys required for the Company’s products continue to increase. Certain of the Company’s suppliers have passed these increases on to the Company. The Company has implemented price increases intended to offset the impact of the increase in commodity prices. However, if customers do not accept these price increases, future profitability will be negatively impacted. In addition, the Company’s vendors have informed the Company that lead times for certain raw materials are being extended. To the extent such change negatively impacts the Company’s ability to meet delivery requirements of its customers, the financial performance of the Company may suffer.
 
Downturns in the oil and gas industry have had, and may in the future have, a negative effect on the Company’s sales and profitability.
 
Demand for most of the Company’s products and services, and therefore its revenues, depends to a large extent upon the level of capital expenditures related to oil and gas exploration, production, development, processing and transmission. Declines, as well as anticipated declines, in oil and gas prices could negatively affect the level of these activities, or could result in the cancellation, modification or rescheduling of existing orders. As an example, since the latter part of 2006, the Company has seen activity levels in Canada decline, which has resulted in declining demand for the Company’s surface equipment and distributed valve product offerings in that market. The Company is typically protected against financial losses
 
37
 
 
related to products and services it has provided prior to any cancellation. However, if the Company’s customers cancel existing purchase orders, future profitability could be negatively impacted. Factors that contribute to the volatility of oil and gas prices include the following:
 
 
·
demand for oil and gas, which is impacted by economic and political conditions and weather; the ability of the Organization of Petroleum Exporting Countries (OPEC) to set and maintain production levels and pricing;
 
·
the level of production from non-OPEC countries;
 
·
policies regarding exploration and development of oil and gas reserves;
 
·
the political environments of oil and gas producing regions, including the Middle East;
 
·
the depletion rates of gas wells in North America; and
 
·
advances in exploration and development technology.
 
Fluctuations in worldwide currency markets can impact the Company’s profitability.
 
The Company has established multiple “Centers of Excellence” facilities for manufacturing such products as subsea trees, subsea chokes, subsea production controls and BOPs. These production facilities are located in the United Kingdom, Brazil and other European and Asian countries. To the extent the Company sells these products in U.S. dollars, the Company’s profitability is eroded when the U.S. dollar weakens against the British pound, the euro, the Brazilian real and certain Asian currencies, including the Singapore dollar.
 
The Company’s worldwide operations expose it to instability and changes in economic and political conditions, foreign currency fluctuations, trade and investment regulations and other risks inherent to international business.
 
The economic risks of doing business on a worldwide basis include the following:
 
 
·
volatility in general economic, social and political conditions;
 
·
differing tax rates, tariffs, exchange controls or other similar restrictions;
 
·
changes in currency rates;
 
·
inability to repatriate income or capital;
 
·
reductions in the number or capacity of qualified personnel; and
 
·
seizure of equipment.
 
Cameron has manufacturing and service operations that are essential parts of its business in developing countries and economically and politically volatile areas in Africa, Latin America, Russia and other countries that were part of the Former Soviet Union, the Middle East, and Central and South East Asia. The Company also purchases a large portion of its raw materials and components from a relatively small number of foreign suppliers in developing countries. The ability of these suppliers to meet the Company’s demand could be adversely affected by the factors described above.
 
The Company is subject to trade regulations that expose the Company to potential liability.
 
Doing business on a worldwide basis also puts the Company and its operations at risk due to political risks and the need for compliance with the laws and regulations of many jurisdictions. These laws and regulations impose a range of restrictions and/or duties on importation and exportation, operations, trade practices, trade partners and investment decisions. The Company has received inquiries regarding its compliance with certain such laws and regulations from U.S. federal agencies.
 
The Company does business and has operations in a number of developing countries that have relatively under-developed legal and regulatory systems when compared to more developed countries. Several of these countries are generally perceived as presenting a higher than normal risk of corruption, or a culture where requests for improper payments are not discouraged. Maintaining and administering an effective U.S. Foreign Corrupt Practices Act (FCPA) compliance program in these environments presents greater challenges to the Company than is the case in other, more developed countries. With respect to FCPA compliance, the Company received a voluntary request for information in September 2005 from the U.S. Securities and Exchange Commission (SEC) regarding certain of the Company’s West African activities and responded to this request.
 
As discussed in the Note 18 of the Notes to Consolidated Financial Statements, in July 2007, the Company was one of a number of companies to receive a letter from the Criminal Division of the U.S. Department of Justice (DOJ) requesting information on their use of a freight forwarder and customs clearance broker. The DOJ is inquiring into whether certain of the services provided to the Company by the freight forwarder may have involved violations of the FCPA. The Company is conducting an internal investigation in response, as discussed below, and is providing the requested information to the DOJ.
 
The Company engaged special counsel reporting to the Audit Committee of the Board of Directors to conduct an investigation into its dealings with the freight forwarder to determine if any payment made to or by the freight forwarder and customs clearing broker on the Company's behalf constituted a violation of the FCPA. The investigation is also looking into activities of Company employees and agents with respect to immigration matters and importation permitting. To date, the special counsel has found that the Company utilized certain services in Nigeria offered by the customs broker that appear to be similar to services that have been under review by the DOJ. Special counsel is reviewing these and other services and activities to determine whether they were conducted in compliance with all applicable laws and regulations. Special counsel is also reviewing the extent, if any, of the Company’s knowledge, and its involvement in the performance, of these services and activities and whether the Company fulfilled its obligations under the FCPA.
 
In addition, the SEC is conducting an informal inquiry into the same matters currently under review by the DOJ. As part of this inquiry the SEC has requested that the Company provide to them the information and documents that have been requested by and are being provided to the DOJ. The Company is cooperating fully with the SEC, as it is doing with the DOJ, and is providing the requested materials. At this stage of the internal investigation, the Company cannot predict the ultimate outcome of either the internal investigation or the government inquiries. The Company has also undertaken an enhanced compliance training effort for its personnel, including foreign operations personnel dealing with customs clearance regulations.
 
38
 

Compliance with U.S. trade sanctions and embargoes also pose a risk to the Company since it deals with its business on a worldwide basis through various incorporated and unincorporated entities. The U.S. Department of Treasury’s Office of Foreign Assets Control made an inquiry regarding U.S. involvement in a United Kingdom subsidiary’s commercial and financial activity relating to Iran in September 2004 and the U.S. Department of Commerce made an inquiry regarding sales by another United Kingdom subsidiary to Iran in February 2005. The Company responded to these two inquiries and has not received any additional requests related to these matters. The Company’s policy is to not do business with, and has restricted its non-U.S. subsidiaries and persons from doing business with, countries with respect to which the United States has imposed sanctions, which include Iran, Syria, Sudan, North Korea and Cuba.
 
In January 2007, the Company underwent a Pre-Assessment Survey as part of a Focused Assessment initiated by the Regulatory Audit Division of the U.S. Customs and Border Protection, Department of Homeland Security. The Pre-Assessment Survey resulted in a finding that the Company had deficiencies in its U.S. Customs compliance processes. The Company is taking corrective action and will undergo Assessment Compliance Testing in the first half of 2008.
 
Compression Systems’ aftermarket revenues associated with legacy equipment may decline.
 
During 2007, approximately 31% of Compression Systems’ revenues were estimated to come from the sale of replacement parts for equipment that the Company no longer manufactures. Many of these units have been in service for long periods of time, and are gradually being replaced. As this installed base of legacy equipment declines, the Company’s potential market for parts orders may also be reduced.
 
The Company is subject to environmental, health and safety laws and regulations that expose the Company to potential liability.
 
The Company’s operations are subject to a variety of national and state, provisional and local laws and regulations, including laws and regulations relating to the protection of the environment. The Company is required to invest financial and managerial resources to comply with these laws and expects to continue to do so in the future. To date, the cost of complying with governmental regulation has not been material, but the fact that such laws or regulations are frequently changed makes it impossible for the Company to predict the cost or impact of such laws and regulations on the Company’s future operations. The modification of existing laws or regulations or the adoption of new laws or regulations imposing more stringent environmental restrictions could adversely affect the Company.
 
Potential change in accounting for convertible debt instruments.
 
The FASB has issued a proposed FASB Staff Position (FSP) APB 14-a that would clarify the accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlements). This proposal, if adopted, would require the issuer of a convertible debt instrument within its scope to separately account for the liability and equity components of the instrument in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This proposed standard would apply to the Company’s existing 1.5% convertible debentures due 2024 and 2.5% convertible debentures due 2026, totaling in aggregate $738.0 million at December 31, 2007. Although currently under redeliberation, if approved, this FSP could be applied retrospectively to all periods presented once it becomes effective. The Company believes this FSP would have a material impact on both debt and equity balances of the Company’s consolidated financial statements should this FSP be adopted.
 
Environmental Remediation
 
The Company’s worldwide operations are subject to domestic and international regulations with regard to air, soil and water quality as well as other environmental matters. The Company, through its environmental management system and active third-party audit program, believes it is in substantial compliance with these regulations.
 
The Company is currently identified as a potentially responsible party (PRP) with respect to two sites designated for cleanup under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or similar state laws. One of these sites is Osborne, Pennsylvania (a landfill into which a predecessor of the CS operation in Grove City, Pennsylvania deposited waste), where remediation is complete and remaining costs relate to ongoing ground water treatment and monitoring. The other is believed to be a de minimis exposure. The Company is also engaged in site cleanup under the Voluntary Cleanup Plan of the Texas Commission on Environmental Quality at former manufacturing locations in Houston and Missouri City, Texas. Additionally, the Company has discontinued operations at a number of other sites which had been active for many years. The Company does not believe, based upon information currently available, that there are any material environmental liabilities existing at these locations. At December 31, 2007, the Company’s consolidated balance sheet included a noncurrent liability of $7.5 million for environmental matters.
 
Environmental Sustainability
 
The Company has pursued environmental sustainability in a number of ways. Processes are monitored in an attempt to produce the least amount of waste. None of the Company’s facilities are rated above Small Quantity Generated status. All of the waste disposal firms used by the Company are carefully selected in an attempt to prevent any future Superfund involvements. Actions are taken in an attempt to minimize the generation of hazardous wastes and to minimize air emissions. None of the Company’s facilities are classified as sites that generate more than minimal air emissions. Recycling of process water is a common practice. Best management practices are used in an effort to prevent contamination of soil and ground water on the Company’s sites. The Company has an active health, safety and environmental audit program in place throughout the world.

 
39
 
 
Market Risk Information
 
The Company is currently exposed to market risk from changes in foreign currency rates and changes in interest rates. A discussion of the Company’s market risk exposure in financial instruments follows.
 
Foreign Currency Exchange Rates
 
A large portion of the Company’s operations consist of manufacturing and sales activities in foreign jurisdictions, principally in Europe, Canada, West Africa, the Middle East, Latin America and the Pacific Rim. As a result, the Company’s financial performance may be affected by changes in foreign currency exchange rates in these markets. Overall, for those locations where the Company is a net receiver of local non-U.S. dollar currencies, Cameron generally benefits from a weaker U.S. dollar with respect to those currencies. Alternatively, for those locations where the Company is a net payer of local non-U.S. dollar currencies, a weaker U.S. dollar with respect to those currencies will generally have an adverse impact on the Company’s financial results. For each of the last three years, the Company’s gain or loss from foreign currency-denominated transactions has not been material, except as noted above under “Consolidated Results - 2006 compared to 2005”.
 
In order to mitigate the effect of exchange rate changes, the Company will often attempt to structure sales contracts to provide for collections from customers in the currency in which the Company incurs its manufacturing costs. In certain instances, the Company will enter into foreign currency forward contracts to hedge specific large anticipated receipts in currencies for which the Company does not traditionally have fully offsetting local currency expenditures. The Company was party to a number of long-term foreign currency forward contracts at December 31, 2007. The purpose of the majority of these contracts was to hedge large anticipated non-functional currency cash flows on major subsea or drilling contracts involving the Company’s United States operations and its wholly-owned subsidiaries in Brazil, Ireland, Italy, Singapore and the United Kingdom. Information relating to the contracts and the fair values recorded in the Company’s Consolidated Balance Sheets at December 31, 2007 and 2006 follows:
 
   
December 31, 2007
        
   
Year of Contract Expiration
    
December 31,
  
(amounts in millions except exchange rates)
  
2008
    
2009
    
Total
    
2006
  
Buy GBP/Sell USD:
                        
Notional amount to sell (in U.S. dollars)
   $ 11.0     $ 2.6     $ 13.6     $ 79.0  
Average USD to GBP contract rate
     1.8039       1.7989       1.8029       1.8080  
Average USD to GBP forward rate at December 31, 2007
     1.9695       1.9507       1.9658       1.9573  
Fair value at December 31, 2007 in U.S. dollars$
                    $ 1.2        6.5   
Sell GBP/Buy Euro:
                                
Notional amount to buy (in euros)
     0.9       —       0.9       16.9  
Average EUR to GBP contract rate
     1.3693       1.3450       1.3690       1.3891  
Average EUR to GBP forward rate at December 31, 2007
     1.3557       1.3435       1.3555       1.4746  
Fair value at December 31, 2007 in U.S. dollars
                    $  —      $ (1.4  )
Buy USD/Sell BRL:
                                
Notional amount to buy (in U.S. dollars)
     20.5       19.1       39.6       —  
Average BRL to USD contract rate
     1.8372       1.9408       1.8872       —  
Average BRL to USD forward rate at December 31, 2007
     1.8384       1.9688       1.9013       —  
Fair value at December 31, 2007 in U.S. dollars
                   $ 0.3      $
      —
  
Buy Euro/Sell USD:
                                
Notional amount to buy (in euros)
     75.1       23.3       98.4       35.5  
Average USD to EUR contract rate
     1.1537       1.4103       1.2145       1.2970  
Average USD to EUR forward rate at December 31, 2007
     1.2149       1.4519       1.2711       1.3324  
Fair value at December 31, 2007 in U.S. dollars$
                   $ 6.4       —  
Other Currencies:
                                
Fair value at December 31, 2007 in U.S. dollars$
                   $ 0.1       (0.3 )
 
Interest Rates
 
The Company is subject to interest rate risk on its long-term fixed interest rate debt and, to a lesser extent, variable-interest rate borrowings. Variable-rate debt, where the interest rate fluctuates periodically, exposes the Company’s cash flows to variability due to changes in market interest rates. Fixed-rate debt, where the interest rate is fixed over the life of the instrument, exposes the Company to changes in the fair value of its debt due to changes in market interest rates and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate.

 
40
 

The Company has performed a sensitivity analysis to determine how market rate changes might affect the fair value of its debt. This analysis is inherently limited because it represents a singular, hypothetical set of assumptions. Actual market movements may vary significantly from the assumptions. The effects of market movements may also directly or indirectly affect the Company’s assumptions and its rights and obligations not covered by the sensitivity analysis. Fair value sensitivity is not necessarily indicative of the ultimate cash flow or the earnings effect from the assumed market rate movements.
 
An instantaneous one-percentage-point decrease in interest rates across all maturities and applicable yield curves would have increased the fair value of the Company’s fixed-rate debt positions by approximately $62.6 million ($50.2 million at December 31, 2006), whereas a one-percentage-point increase in interest rates would have decreased the fair value of the Company’s fixed rate debt by $62.1 million at December 31, 2007 ($25.9 million at December 31, 2006). This analysis does not reflect the effect that increasing or decreasing interest rates would have on other items, such as new borrowings, nor the impact they would have on interest expense and cash payments for interest.
 
The Company manages its debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that goal. The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions.
 
In May 2004, the Company entered into interest rate swap agreements on a notional amount of $150.0 million of its senior notes due April 15, 2007 (Senior Notes) to take advantage of short-term interest rates available. Under these agreements, the Company received interest from the counterparties at a fixed rate of 2.65% and paid a variable interest rate based on the published six-month LIBOR rate less 82.5 to 86.0 basis points. On June 7, 2005, the Company terminated these interest rate swaps and paid the counterparties approximately $1.1 million, which represented the fair market value of the agreements at the time of termination and was recorded as an adjustment to the carrying value of the related debt. This amount was being amortized as an increase to interest expense over the remaining term of the debt. The company’s interest expense was increased by $0.3 million and $0.5 million for the years ended December 31, 2007 and 2006, respectively, as a result of the amortization of the termination payment. The Company redeemed all $200.0 million of its outstanding 2.65% senior notes on April 16, 2007, using available cash on hand.
 
The fair values of the 1.5% and 2.5% convertible senior debentures are principally dependent on both prevailing interest rates and the Company’s current share price as it relates to the initial conversion price of the respective instruments.
 
The Company has various other long-term debt instruments, but believes that the impact of changes in interest rates in the near term will not be material to these instruments.

 
41
 

Management’s Report on Internal Control Over Financial Reporting
 
The Company maintains a system of internal controls that is designed to provide reasonable but not absolute assurance as to the reliable preparation of the consolidated financial statements. The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of errors or fraud, if any, within Cameron have been detected.
 
The control environment of Cameron is the foundation for its system of internal controls over financial reporting and is embodied in the Company’s Standards of Conduct. It sets the tone of the Company’s organization and includes factors such as integrity and ethical values. The Company’s internal controls over financial reporting are supported by formal policies and procedures that are reviewed, modified and improved as changes occur in the Company’s business or as otherwise required by applicable rule-making bodies.
 
The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with members of management, the internal audit department and the independent registered public accountants to review and discuss internal controls over financial reporting and accounting and financial reporting matters. The independent registered public accountants and internal audit report to the Audit Committee and accordingly have full and free access to the Audit Committee at any time.
 
Assessment of Internal Control Over Financial Reporting
 
Cameron’s management is responsible for establishing and maintaining adequate internal control (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) over financial reporting.
 
Management conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included a review of the documentation surrounding the Company’s financial controls, an evaluation of the design effectiveness of these controls, testing of the operating effectiveness of these controls and a conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of internal controls over financial reporting – including the possibility of the circumvention or overriding of controls – based on management’s evaluation, management has concluded that the Company’s internal controls over financial reporting were effective as of December 31, 2007, based on the framework established in “Internal Control – Integrated Framework”. However, because of changes in conditions, it is important to note that internal control system effectiveness may vary over time.
 
In conducting management’s evaluation of the effectiveness of the Company’s internal controls over financial reporting, the operations of DES Operations Limited, Prime Measurement Products, Paradigm Services, LP, and Filtra-Systems Company, all acquired during 2007, were excluded. These operations constituted less than 5% of the Company’s consolidated revenues, income before income taxes and total assets as of and for the year ended December 31, 2007.
 
Ernst & Young LLP, an independent registered public accounting firm that has audited the Company’s financial statements as of and for the three-year period ended December 31, 2007, has issued a report on their audit of management's internal control over financial reporting, which is included herein.
 
/s/ Sheldon R. Erikson 
Sheldon R. Erikson 
Chairman of the Board
and Chief Executive Officer
 
/s/ Franklin Myers
Franklin Myers
Senior Vice President and
Chief Financial Officer

 
42
 

Report of Independent Registered Public Accounting Firm
 
 
The Board of Directors and Stockholders of
Cameron International Corporation
 
 
We have audited Cameron International Corporation’s (the Company) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of DES Operations Limited, Prime Measurement Products, Paradigm Services, LP, and Filtra-Systems Company, all acquired during 2007, which are included in the 2007 consolidated financial statements of Cameron International Corporation and constituted less than 5% of the Company’s consolidated revenues, income before income taxes and total assets for the year ended December 31, 2007. Our audit of internal control over financial reporting of Cameron International Corporation also did not include an evaluation of the internal control over financial reporting of DES Operations Limited, Prime Measurement Products, Paradigm Services, LP, and Filtra-Systems Company.
 
In our opinion, Cameron International Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Cameron International Corporation as of December 31, 2007 and 2006, and the related statements of consolidated results of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007 and our report dated February 27, 2008 expressed an unqualified opinion thereon.
 
 
 
   
/s/ Ernst & Young LLP
     

 
Houston, Texas
February 27, 2008

 
43
 

Report of Independent Registered Public Accounting Firm
 
 
The Board of Directors and Stockholders of
Cameron International Corporation
 
 
We have audited the accompanying consolidated balance sheets of Cameron International Corporation (the Company) as of December 31, 2007 and 2006, and the related statements of consolidated results of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cameron International Corporation at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
 
As discussed in Note 11 of the Notes to Consolidated Financial Statements, the Company adopted, effective January 1, 2007, the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No. 109, Accounting for Income Taxes. The Company also adopted, effective January 1, 2006, Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment,” and, effective December 31, 2006, Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)”, respectively.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2008 expressed an unqualified opinion thereon.
 
 
 
   
/s/ Ernst & Young LLP
     

 
Houston, Texas
February 27, 2008

 
44
 

 
Consolidated Results of Operations
 
   
Year Ended December 31,
  
(dollars in thousands, except per share data)
  
2007
    
2006
    
2005
  
Revenues
   $ 4,666,368     $ 3,742,907     $ 2,517,847  
Costs and expenses:
                        
Cost of sales (exclusive of depreciation and amortization shown separately below)
     3,242,238       2,601,072       1,796,277  
Selling and administrative expenses
     577,588       528,568       381,267  
Depreciation and amortization
     109,774       101,350       78,398  
Interest income
     (30,745 )     (26,939 )     (13,060 )
Interest expense
     23,313       20,677       11,953  
Charge for pension plan termination
     35,725       —       —  
Acquisition integration costs
     —       29,578       —  
Total costs and expenses
     3,957,893       3,254,306       2,254,835  
Income before income taxes
     708,475       488,601       263,012  
Income tax provision
     (207,615 )     (170,785 )     (91,882 )
Net income
   $ 500,860     $ 317,816     $ 171,130  
Earnings per common share: 1
                        
Basic
   $ 2.28     $ 1.40     $ 0.77  
Diluted
   $ 2.16     $ 1.36     $ 0.76  
 
1Prior year earnings per common share amounts have been revised to reflect the 2-for-1 stock split effective December 28, 2007. See Note 12 of the Notes to Consolidated Financial Statements.
 
The Notes to Consolidated Financial Statements are an integral part of these statements.

 
45
 

Consolidated Balance Sheets
 
   
December 31,
  
(dollars in thousands, except shares and per share data)
  
2007
    
2006
  
Assets
            
Cash and cash equivalents
   $ 739,916     $ 1,033,537  
Receivables, net
     797,471       696,147  
Inventories, net
     1,413,403       1,009,414  
Other
     121,141       168,554  
Total current assets
     3,071,931       2,907,652  
Plant and equipment, net
     821,104       648,785  
Goodwill
     647,819       595,268  
Other assets
     189,965       199,045  
Total assets
   $ 4,730,819     $ 4,350,750  
Liabilities and stockholders’ equity
                
Current portion of long-term debt
   $ 8,766     $ 207,345  
Accounts payable and accrued liabilities
     1,677,054       1,364,716  
Accrued income taxes
     7,056       56,151  
Total current liabilities
     1,692,876       1,628,212  
Long-term debt
     745,128       745,408  
Postretirement benefits other than pensions
     15,766       20,757  
Deferred income taxes
     68,646       90,248  
Other long-term liabilities
     113,439       124,686  
Total liabilities
     2,635,855       2,609,311  
Commitments and contingencies
     —       —  
                 
Stockholders’ equity:
                
Common stock, par value $.01 per share, 400,000,000 shares authorized, 232,341,726 shares issued at December 31, 2007 and 116,170,863 (pre 2-for-1 split) shares issued at December 31, 2006
     2,324       1,162  
Preferred stock, par value $.01 per share, 3,000,000 shares authorized, no shares issued or outstanding
     —       —  
Capital in excess of par value
     1,160,814       1,140,765  
Retained earnings
     1,256,822       760,958  
Accumulated other elements of comprehensive income
     101,004       16,326  
Less: Treasury stock at cost, 14,332,927 shares at December 31, 2007 and 3,881,236 (pre 2-for-1 split) shares at December 31, 2006
     (426,000 )     (177,772 )
Total stockholders’ equity
     2,094,964       1,741,439  
Total liabilities and stockholders’ equity
   $ 4,730,819     $ 4,350,750  
 
The Notes to Consolidated Financial Statements are an integral part of these statements.

 
46
 

Consolidated Cash Flows
 
   
Year Ended December 31,
  
(dollars in thousands)
  
2007
    
2006
    
2005
  
Cash flows from operating activities:
                  
Net income
   $ 500,860     $ 317,816     $ 171,130  
Adjustments to reconcile net income to net cash provided by operating activities:
                        
Depreciation
     81,458       75,909       64,018  
Amortization
     28,316       25,441       14,380  
Non-cash charge for pension plan termination
     35,725       —       —  
Non-cash stock compensation expense
     31,383       25,568       2,790  
Non-cash write-down of investments
     —       —       2,458  
Non-cash write-off of assets associated with acquisition integration efforts
     —       10,525       —  
Tax benefit of employee stock compensation plan transactions and deferred income taxes
     43,455       60,345       34,049  
Changes in assets and liabilities, net of translation, acquisitions, and non-cash items:
                        
Receivables
     (69,223 )     (81,762 )     (80,659 )
Inventories
     (355,215 )     (269,771 )     (137,384 )
Accounts payable and accrued liabilities
     219,503       382,854       255,213  
Other assets and liabilities, net
     (64,542 )     (414 )     26,094  
Net cash provided by operating activities
     451,720       546,511       352,089  
Cash flows from investing activities:
                        
Capital expenditures
     (245,589 )     (184,830 )     (77,508 )
Acquisitions, net of cash acquired
     (76,386 )     (28,846 )     (328,570 )
Proceeds from sale of plant and equipment
     9,056       16,638       5,474  
Net cash used for investing activities
     (312,919 )     (197,038 )     (400,604 )
Cash flows from financing activities:
                        
Loan repayments, net
     (200,707 )     (308 )     (2,243 )
Issuance of long-term debt
     —       500,000       —  
Redemption of convertible debt
     —       —       (14,821 )
Debt issuance costs
     —       (8,630 )     —  
Purchase of treasury stock
     (321,913 )     (282,191 )     (9,395 )
Proceeds from stock option exercises
     52,784       76,002       223,085  
Excess tax benefits of employee stock compensation plans/transactions
     28,034       16,580       —  
Principal payments on capital leases
     (5,312 )     (4,401 )     (4,098 )
Net cash (used for) provided by financing activities
     (447,114 )     297,052       192,528  
Effect of translation on cash
     14,692       25,041       (9,040 )
(Decrease) increase in cash and cash equivalents
     (293,621 )     671,566       134,973  
Cash and cash equivalents, beginning of year
     1,033,537       361,971       226,998  
Cash and cash equivalents, end of year
   $ 739,916     $ 1,033,537     $ 361,971  
 
The Notes to Consolidated Financial Statements are an integral part of these statements.

 
47
 
Consolidated Changes in Stockholders’ Equity
 
                     
Accumulated
              
                     
other
              
         
Capital in
          
elements of
              
   
Common
    
excess of
    
Retained
    
comprehensive
    
Treasury
        
(dollars in thousands)
  
stock
    
par value
    
earnings
    
income
    
stock
    
Total
  
Balance – December 31, 2004
   $ 549     $ 948,740     $ 272,012     $ 94,974     $ (88,028 )   $ 1,228,247  
Net income
                     171,130                       171,130  
Foreign currency translation
                             (49,110 )             (49,110 )
Change in fair value of derivatives accounted for as cash flow hedges, net of $3,873 in taxes
                             (8,441 )             (8,441 )
Other comprehensive income from derivative transactions recognized in current year earnings, net of $18 in taxes
                             41               41  
Comprehensive income
                                             113,620  
Non-cash stock compensation expense
             2,790                               2,790  
Purchase of treasury stock
                                     (9,395 )     (9,395 )
Common and treasury stock issued under stock option and other employee benefit plans
     31       124,230                       97,423       221,684  
Tax benefit of employee stock compensation plan transactions
             37,817                               37,817  
Stock split
     576       (576 )                             —  
Balance – December 31, 2005
     1,156       1,113,001       443,142       37,464       —       1,594,763  
Net income
                     317,816                       317,816  
Foreign currency translation
                             57,130               57,130  
Change in fair value of derivatives accounted for as cash flow hedges, net of $6,222 in taxes
                             13,468               13,468  
Other comprehensive income from derivative transactions recognized in current year earnings, net of $116 in taxes
                             (251 )             (251 )
Minimum pension liability, net
                             (337 )             (337 )
Comprehensive income
                                             387,826  
Adjustment to initially apply FASB Statement No. 158, net of $44,382 in taxes
                             (91,148 )             (91,148 )
Non-cash stock compensation expense
             25,568                               25,568  
Purchase of treasury stock
                                     (282,191 )     (282,191 )
Common and treasury stock issued under stock option and other employee benefit plans
     6       (28,804 )                     103,777       74,979  
Tax benefit of employee stock compensation plan transactions
             23,284                               23,284  
Other
             7,716                       642       8,358  
Balance – December 31, 2006
     1,162       1,140,765       760,958       16,326       (177,772 )     1,741,439  
Net income
                     500,860                       500,860  
Foreign currency translation
                             59,686               59,686  
Change in fair value of derivatives accounted for as cash flow hedges, net of $2,803 in taxes
                             5,011               5,011  
Other comprehensive income from derivative transactions recognized in current year earnings, net of $2,225 in taxes
                             (4,583 )             (4,583 )
Pension settlement loss, net of $14,422 in taxes
                             23,282               23,282  
Pension curtailment gain, net of $757 in taxes
                             (1,222 )             (1,222 )
Actuarial loss, net of amortization
                             2,504               2,504  
Comprehensive income
                                             585,538  
Adjustment to initially apply FIN 48
             (2,000 )     (4,996 )                     (6,996 )
Non-cash stock compensation expense
             31,383                               31,383  
Purchase of treasury stock
                                     (341,423 )     (341,423 )
Common and treasury stock issued under stock option and other employee benefit plans
             (40,411 )                     93,195       52,784  
Tax benefit of employee stock compensation plan transactions
             32,239                               32,239  
Stock split
     1,162       (1,162 )                             —  
Balance – December 31, 2007
   $ 2,324     $ 1,160,814     $ 1,256,822     $ 101,004     $ (426,000 )   $ 2,094,964  
 
The Notes to Consolidated Financial Statements are an integral part of these statements.
 
48
 

Notes to Consolidated Financial Statements
 
Note 1: Summary of Major Accounting Policies
 
Company Operations — Cameron International Corporation (Cameron or the Company) is a leading provider of flow equipment products, systems and services to worldwide oil, gas and process industries. Products include oil and gas pressure control and separation equipment, including valves, wellheads, controls, chokes, blowout preventers and assembled systems for oil and gas drilling, production and transmission processes used in onshore, offshore and subsea applications. Cameron also manufactures and services air and gas compressors and turbochargers.
 
The Company’s operations are organized into three business segments — Drilling and Production Systems (DPS), Valves & Measurement (V&M) and Compression Systems (CS). Additional information regarding each segment may be found in Note 14 of the Notes to Consolidated Financial Statements.
 
Principles of Consolidation — The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. Investments from 20% to 50% in affiliated companies are accounted for using the equity method.
 
Estimates in Financial Statements — The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include, but are not limited to, estimated losses on accounts receivable, estimated realizable value on excess and obsolete inventory, contingencies, including tax contingencies, estimated liabilities for litigation exposures and liquidated damages, estimated warranty costs, estimates related to pension accounting, estimated proceeds from assets held for sale and estimates related to deferred tax assets and liabilities, including valuation allowances on deferred tax assets. Actual results could differ materially from these estimates.
 
Revenue Recognition — The Company generally recognizes revenue once the following four criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery of the equipment has occurred or services have been rendered, (iii) the price of the equipment or service is fixed and determinable and (iv) collectibility is reasonably assured. For certain engineering, procurement and construction-type contracts, which typically include the Company’s subsea and drilling systems and processing equipment contracts, revenue is recognized in accordance with Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (SOP 81-1). Under SOP 81-1, the Company recognizes revenue on these contracts using a units-of-completion method. Under the units-of-completion method, revenue is recognized once the manufacturing process is complete for each piece of equipment specified in the contract with the customer. This would include customer inspection and acceptance, if required by the contract. Approximately 21%, 17% and 13% of the Company’s revenues for the years ended December 31, 2007, 2006 and 2005, respectively, was recognized under SOP 81-1.
 
Shipping and Handling Costs — Shipping and handling costs are reflected in the caption entitled “Cost of sales (exclusive of depreciation and amortization shown separately below)” in the accompanying Consolidated Results of Operations statements.
 
Cash Equivalents — For purposes of the Consolidated Cash Flows statement, the Company considers all investments purchased with original maturities of three months or less to be cash equivalents.
 
Short-term Investments — Investments in available-for-sale marketable debt and equity securities are carried at fair value, based on quoted market prices. Differences between cost and fair value are reflected as a component of accumulated other elements of comprehensive income until such time as those differences are realized. The basis for computing realized gains or losses is the specific identification method. If the Company determines that a loss is other than temporary, such loss will be charged to earnings. No material realized gains or losses on short-term investments were recognized during the years ended December 31, 2007, 2006 and 2005.
 
Allowance for Doubtful Accounts — The Company maintains allowances for doubtful accounts for estimated losses that may result from the inability of its customers to make required payments. Such allowances are based upon several factors including, but not limited to, historical experience, the length of time an invoice has been outstanding, responses from customers relating to demands for payment and the current and projected financial condition of specific customers.
 
Inventories — Aggregate inventories are carried at cost or, if lower, net realizable value. On the basis of current costs, 50% of inventories at December 31, 2007 and 48% at December 31, 2006 are carried on the last-in, first-out (LIFO) method. For these locations, the use of LIFO results in a better matching of costs and revenues. The remaining inventories, which are located outside the United States and Canada, are carried on the first-in, first-out (FIFO) method. The Company provides a reserve for estimated inventory obsolescence or excess quantities on hand equal to the difference between the cost of the inventory and its estimated realizable value. During 2006 and 2005, the Company reduced its LIFO inventory levels in the CS segment resulting in a liquidation of certain low-cost inventory layers. Accordingly, the Company recorded non-cash LIFO income of $2,091,000 and $4,033,000 for the years ended December 31, 2006 and 2005, respectively.
 
Plant and Equipment — Property, plant and equipment, both owned and under capital lease, is carried at cost. Maintenance and repair costs are expensed as incurred. The cost of renewals, replacements and betterments is capitalized. The Company capitalizes software developed or obtained for internal use. Accordingly, the cost of third-party software, as well as the cost of third-party and internal personnel that are directly involved in application development activities, are capitalized during the application development phase of new software systems projects. Costs during the preliminary project stage and post-implementation stage of new software systems projects, including data conversion and training costs, are expensed as incurred. Depreciation and amortization is provided over the estimated useful lives of the related assets, or in the case of assets under capital leases,
 
49
 
 
over the related lease term, if less, using the straight-line method. The estimated useful lives of the major classes of property, plant and equipment are as follows:

 
 
Estimated
 
Useful Lives
Buildings and leasehold improvements
10 - 40 years
Machinery, equipment and tooling
3 - 18 years
Office furniture, software and other
3 - 10 years
 
Goodwill — In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), the Company reviews goodwill at least annually for impairment at the reporting unit level, or more frequently if indicators of impairment are present. The Company conducts its annual review by comparing the estimated fair value of each reporting unit to its respective book value. The estimated fair value for the 2007, 2006 and 2005 annual evaluations was determined using discounted cash flows or other market-related valuation models. Certain estimates and judgments are required in the application of the fair value models. Each of the annual evaluations indicated that no impairment of goodwill was required. The Company’s reporting units for SFAS 142 purposes are the Drilling, Surface, Subsea and Petreco Process Systems product lines of the DPS segment, the Engineered Valves, Distributed Valves, Process Valves, Measurement Systems product lines and the Aftermarket Services business of the V&M segment and the Reciprocating and Centrifugal Compression product lines of the CS segment. See Note 14 of the Notes to Consolidated Financial Statements for further discussion of the Company’s business segments.
 
Intangible Assets — The Company’s intangible assets, excluding goodwill, represent purchased patents, trademarks, customer lists and other identifiable intangible assets. The majority of other identifiable intangible assets are amortized on a straight-line basis over the years expected to be benefited, generally ranging from 5 to 20 years. Such intangibles are tested for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable. As many areas of the Company’s business rely on patents and proprietary technology, it has followed a policy of seeking patent protection both inside and outside the United States for products and methods that appear to have commercial significance. The costs of developing any intangibles internally, as well as costs of defending such intangibles, are expensed as incurred.
 
Long-Lived Assets — In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), long-lived assets, excluding goodwill and indefinite-lived intangibles, to be held and used by the Company are reviewed to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. For long-lived assets to be held and used, the Company bases its evaluation on impairment indicators such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, the Company determines whether an impairment has occurred through the use of an undiscounted cash flow analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, the Company recognizes a loss for the difference between the carrying amount and the fair value of the asset. Assets are classified as held for sale when the Company has a plan for disposal of such assets and those assets meet the held for sale criteria contained in SFAS 144 and are stated at estimated fair value less estimated costs to sell.
 
Product Warranty — Estimated warranty costs are accrued either at the time of sale based upon historical experience or, in some cases, when specific warranty problems are encountered. Adjustments to the recorded liability are made periodically to reflect actual experience.
 
Contingencies — The Company accrues for costs relating to litigation, including litigation defense costs, claims and other contingent matters, including liquidated damage liabilities, when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Revisions to contingent liability reserves are reflected in income in the period in which different facts or information become known or circumstances change that affect the Company’s previous assumptions with respect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of contingent liabilities may be materially different from previous estimates and could require adjustments to the estimated reserves to be recognized in the period such new information becomes known.
 
Income Taxes — The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Income tax expense includes U.S. and foreign income taxes, including U.S. federal taxes on undistributed earnings of foreign subsidiaries to the extent such earnings are planned to be remitted. Taxes are not provided on the translation component of comprehensive income since the effect of translation is not considered to modify the amount of the earnings that are planned to be remitted.
 
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No. 109, Accounting for Income Taxes, on January 1, 2007. FIN 48 was issued in June 2006 in order to create a single model to address accounting for uncertainty in income tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods and disclosure. Under FIN 48, income taxes are no longer subject to Statement of Financial Accounting Standards No. 5, Accounting for Contingencies.
 
The Company reflects interest related to an underpayment of income taxes as a component of interest expense in the Consolidated Results of Operations statement. Penalties on a tax position taken by the Company are reflected as a component of income tax expense in the Consolidated Results of Operations statement. See Note 11 of the Notes to Consolidated Financial Statements for further discussion of the Company’s income taxes.

 
50
 

Environmental Remediation and Compliance — Environmental remediation and postremediation monitoring costs are accrued when such obligations become probable and reasonably estimable. Such future expenditures are not discounted to their present value.
 
Pension and Postretirement Benefits Accounting — The Company follows the provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158) with regard to recognition of the funded status of its defined benefit pension and other postretirement benefit plans in its Consolidated Balance Sheets. The Company currently uses a measurement date of December 31 for its defined benefit pension plans. The Company expects to adopt the measurement date provisions of SFAS 158 for its postretirement benefit plans when required in 2008. SFAS 158 did not change the basic approach used by companies to measure plan assets, benefit obligations and annual net periodic benefit costs. These issues are expected to be addressed by the Financial Accounting Standards Board (FASB) at a later date. Accordingly, the Company continues to follow the provisions of Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions (SFAS 87) and Statement of Financial Accounting Standards No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions (SFAS 106) in measuring its plan assets and benefit obligations as of December 31, 2007 and 2006 and in determining the amount of its net periodic benefit costs for the years ended December 31, 2007, 2006 and 2005.
 
Stock-Based Compensation — At December 31, 2007, the Company had four stock-based employee compensation plans, which are described in further detail in Note 8 of the Notes to Consolidated Financial Statements. Prior to January 1, 2006, the Company measured compensation expense for its stock-based compensation plans using the intrinsic value method. Effective January 1, 2006, compensation expense for the Company's stock-based compensation plans is now measured using the fair value method required by Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). Under SFAS 123(R), the fair value of stock option grants and restricted stock unit awards is amortized to expense using the straight-line method over the shorter of the vesting period or the remaining employee service period.
 
Derivative Financial Instruments — The Company recognizes all derivative financial instruments as assets and liabilities and measures them at fair value. Under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), hedge accounting is only applied when the derivative is deemed highly effective at offsetting changes in anticipated cash flows of the hedged item or transaction. Changes in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated other elements of comprehensive income until the underlying transactions are recognized in earnings, at which time any deferred hedging gains or losses are also recorded in earnings on the same line as the hedged item. Any ineffective portion of the change in the fair value of a derivative used as a cash flow hedge is recorded in earnings as incurred. The amounts recorded in earnings from ineffectiveness for the years ended December 31, 2007, 2006 and 2005 have not been material. The Company may at times also use forward contracts to hedge foreign currency assets and liabilities. These contracts are not designated as hedges under SFAS 133. Therefore, the changes in fair value of these contracts are recognized in earnings as they occur and offset gains or losses on the related asset or liability.
 
Foreign Currency — For most subsidiaries and branches outside the U.S., the local currency is the functional currency. In accordance with Statement of Financial Accounting Standards No. 52, Foreign Currency Translation, the financial statements of these subsidiaries and branches are translated into U.S. dollars as follows: (i) assets and liabilities at year-end exchange rates; (ii) income, expenses and cash flows at average exchange rates; and (iii) stockholders’ equity at historical exchange rates. For those subsidiaries for which the local currency is the functional currency, the resulting translation adjustment is recorded as a component of accumulated other elements of comprehensive income in the accompanying Consolidated Balance Sheets.
 
For certain other subsidiaries and branches, operations are conducted primarily in currencies other than the local currencies, which are therefore the functional currency. Non-functional currency monetary assets and liabilities are remeasured at year-end exchange rates. Revenue, expense and gain and loss accounts of these foreign subsidiaries and branches are remeasured at average exchange rates. Non-functional currency non-monetary assets and liabilities, and the related revenue, expense, gain and loss accounts are remeasured at historical rates.
 
Foreign currency gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved are included in income. The effects of foreign currency transactions were a loss of $360,000 for the year ended December 31, 2007, and gains of $14,414,000 and $2,717,000 for the years ended December 31, 2006 and 2005, respectively.
 
Reclassifications and Revisions — Certain prior year amounts have been reclassified to conform to the current year presentation. Prior period earnings per common share amounts and shares utilized in the calculation of prior period earnings per common share have been revised to reflect the 2-for-1 split of the Company’s common stock effective December 28, 2007.
 
Recently Issued Accounting Pronouncements — In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value and expands the level of disclosures regarding fair value. SFAS 157 also emphasizes that fair value is a market-based measurement rather than an entity-specific measurement. The Company adopted the provisions of SFAS 157 which became effective on January 1, 2008, as required. There was no impact on the Company’s financial statements at the time of adoption, however, the Company does expect that this new standard will impact certain aspects of its accounting for business combinations on a prospective basis, including the determination of fair values assigned to certain purchased assets and liabilities and the expensing of all transaction costs relating to future business combinations.
 
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 provides entities with an option to measure many financial assets and liabilities and certain other items at fair value as determined on an instrument-by-instrument basis. The Company adopted SFAS 159 on January 1, 2008, as required. There was no impact on the Company’s financial statements at the time of adoption.
 
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business Combinations (SFAS 141R) and Statement of Financial Accounting Standards No. 160, Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements, an amendment 
 
51
 
of ARB No. 51 (SFAS 160). These two standards must be adopted in conjunction with each other on a prospective basis. The most significant changes to business combination accounting pursuant to SFAS 141R and SFAS 160 are the following: (a) recognize, with certain exceptions, 100 percent of the fair values of assets acquired, liabilities assumed and noncontrolling interests in acquisitions of less than a 100 percent controlling interest when the acquisition constitutes a change in control of the acquired entity, (b) acquirers’ shares issued in consideration for a business combination will be measured at fair value on the closing date, not the announcement date, (c) recognize contingent consideration arrangements at their acquisition date fair values, with subsequent changes in fair value generally reflected in earnings, (d) the expensing of all transaction costs as incurred and most restructuring costs, (e) recognition of pre-acquisition loss and gain contingencies at their acquisition date fair values, with certain exceptions, (f) capitalization of acquired in-process research and development rather than expense recognition, (g) earn-out arrangements may be required to be remeasured at fair value and (h) recognize changes that result from a business combination transaction in an acquirer’s existing income tax valuation allowances and tax uncertainty accruals as adjustments to income tax expense. The Company anticipates these new standards will significantly affect the Company’s accounting for future business combinations following adoption on January 1, 2009.
 
Note 2: Acquisitions
 
On March 13, 2007, the Company acquired DES Operations Limited (DES), a Scotland-based supplier of production enhancement technology at a cash cost of approximately $37,679,000, plus a maximum additional contingent payout of approximately 4.0 million British Pounds, depending on the financial performance of DES over the next three years. The acquisition of DES enhances the Company’s subsea product offerings within the DPS segment by providing technology that allows for subsea processing capabilities directly on a subsea tree. DES’s results are included in the Company’s consolidated financial statements for the period subsequent to the acquisition date. Goodwill recorded as a result of this acquisition totaled approximately $36,297,000, most of which will not be deductible for income tax purposes.
 
On March 22, 2007, the Company acquired certain assets of Prime Measurement Products (Prime), a supplier to the measurement business of the V&M segment. The total cost of this acquisition was approximately $6,265,000. No goodwill has been recorded as a result of this acquisition.
 
On April 2, 2007, the Company completed the purchase of certain assets and liabilities of Paradigm Services, LP (Paradigm), a Texas-based valve and actuator repair and remanufacturing business, at a cash cost of $10,960,000. This business has been included in the operations of the V&M segment since the date of acquisition. Goodwill recorded as a result of this acquisition totaled approximately $7,765,000, most of which will be deductible for income tax purposes.
 
The Company is still awaiting certain information relating to the fair values of the assets and liabilities of the businesses above in order to finalize the respective purchase price allocations. 
 
Additionally, on June 5, 2007, the Company purchased the Hydromation Deep Bed Filter product line from the Filtra-Systems Company, a Michigan-based supplier of filter solutions, at a cash cost of approximately $21,482,000. This business was a supplier to the DPS segment’s oil, gas and water separation applications product line. The results of this acquired entity are included in the Company’s consolidated financial statements for the period subsequent to the acquisition date. Goodwill recorded as a result of this acquisition totaled approximately $12,575,000, most of which will be deductible for income tax purposes.
 
On September 1, 2005, the Company announced it had agreed to acquire substantially all of the businesses included within the Flow Control segment of Dresser, Inc. (the Dresser Acquired Businesses). On November 30, 2005, the Company completed the acquisition of all of these businesses other than a portion of the business, located in Brazil, which was acquired on January 10, 2006. The total net cash purchase price for the Dresser Acquired Businesses was approximately $210,470,000. The acquired operations serve customers in the worldwide oil and gas production, pipeline and process markets and have been included in the Company’s consolidated financial statements for the period subsequent to the acquisition, primarily in the V&M segment.
 
During 2007, the Company obtained information relating to the fair value of the assets and liabilities of the Dresser Acquired Businesses existing at the acquisition date for purposes of allocating the purchase price in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations. As a result of incorporating this information into its initial purchase price allocation, goodwill associated with this acquisition has decreased by $13,754,000 to approximately $75,236,000 at December 31, 2007.
 
In connection with the integration of the Dresser Acquired Businesses primarily into the V&M segment, a total of $29,578,000 in integration costs were recognized during the year ended December 31, 2006, of which approximately $10,525,000 related to non-cash impairment charges for goodwill, fixed assets and other assets at certain legacy locations of the Company that were closed or otherwise impacted by the integration. The components of the total integration costs are as follows:
 
   
Year Ended
  
(dollars in thousands)
  
December 31, 2006
  
Plant rearrangement and other integration costs
   $ 13,241  
Non-cash asset impairment charges
     10,525  
Employee severance
     4,220  
Stay bonuses and employee relocation costs
     1,592  
Total
   $ 29,578  
 
On January 3, 2006, the Company acquired the assets and liabilities of Caldon, Inc. for approximately $13,089,000 in cash. The acquisition of Caldon added a new ultrasonic flow measurement product line to the existing flow measurement products in the V&M segment. Caldon’s results are
 
52
 
 
included in the Company’s consolidated financial statements for the period subsequent to the acquisition date. Goodwill associated with the Caldon acquisition totaled approximately $6,244,000 at December 31, 2007, most of which is deductible for income tax purposes.
 
On May 11, 2005, the Company acquired one hundred percent of the outstanding stock of NuFlo Technologies, Inc. (NuFlo), a Houston-based supplier of metering and related flow measurement equipment, for approximately $121,294,000 in cash and assumed debt. NuFlo’s results are included in the Company’s consolidated financial statements for the period subsequent to the acquisition date in the V&M segment. Goodwill recorded at December 31, 2007, as a result of this acquisition, totaled approximately $75,657,000, most of which will not be deductible for income tax purposes.
 
Also, during 2005, the Company made three small product line acquisitions. Two of the acquisitions, totaling $10,118,000, were complementary to the current product offerings in the DPS segment. One acquisition in the amount of $1,022,000, plus certain additional amounts that have been deferred for annual payout over a three-year period ending January 5, 2008, was incorporated into the V&M segment. The results of the acquired entities have been included in the Company’s consolidated financial statements for the period subsequent to the respective acquisition dates. Total goodwill recorded as a result of these acquisitions at December 31, 2007 amounted to $7,005,000, the majority of which will be deductible for income tax purposes.
 
Note 3: Receivables
 
Receivables consisted of the following:
 
   
December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Trade receivables
   $ 747,006     $ 671,343  
Other receivables
     58,709       32,107  
Allowance for doubtful accounts
     (8,244 )     (7,303 )
Total receivables
   $ 797,471     $ 696,147  
 
Note 4: Inventories
 
Inventories consisted of the following:
 
   
December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Raw materials
   $ 121,071     $ 108,889  
Work-in-process
     454,309       300,970  
Finished goods, including parts and subassemblies
     947,254       687,088  
Other
     8,528       4,721  
      1,531,162       1,101,668  
Excess of current standard costs over LIFO costs
     (67,704 )     (48,031 )
Allowance for obsolete and excess inventory
     (50,055 )     (44,223 )
Total inventories
   $ 1,413,403     $ 1,009,414  
 
Note 5: Plant and Equipment, Goodwill and Other Assets
 
Plant and equipment consisted of the following:
 
   
December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Land and land improvements
   $ 50,648     $ 41,738  
Buildings
     337,098       282,049  
Machinery and equipment
     770,894       646,646  
Tooling, dies, patterns, etc.
     97,384       81,107  
Office furniture & equipment
     117,235       103,115  
Capitalized software
     112,243       95,953  
Assets under capital leases
     25,534       22,921  
Construction in progress
     99,191       74,021  
All other
     16,409       17,914  
      1,626,636       1,365,464  
Accumulated depreciation
     (805,532 )     (716,679 )
Total plant and equipment
   $ 821,104     $ 648,785  

 
53
 
 
Changes in goodwill during 2007 were as follows:
 
(dollars in thousands)
  
DPS
    
V&M
    
CS
    
Total
  
Balance at December 31, 2006
   $ 249,852     $ 283,194     $ 62,222     $ 595,268  
Acquisitions
     48,872       7,765       —       56,637  
Purchase price allocation adjustment to goodwill for the
                                
Dresser Acquired Businesses and other
     —       (13,834 )     —       (13,834 )
Translation and other
     6,512       3,236       —       9,748  
Balance at December 31, 2007
   $ 305,236     $ 280,361     $ 62,222     $ 647,819  
 
Other assets consisted of the following:
 
   
December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Funded status of overfunded defined benefit pension plans
   $ 8,087     $ 18,451  
Deferred income taxes
     29,313       45,703  
Other intangibles:
                
Nonamortizable
     8,456       8,607  
Gross amortizable
     111,245       94,683  
Accumulated amortization
     (31,813 )     (20,807 )
Other
     64,677       52,408  
Total other assets
   $ 189,965     $ 199,045  
 
Amortization associated with the Company’s capitalized software and other amortizable intangibles (primarily patents, trademarks, customer lists and other) recorded as of December 31, 2007 is expected to approximate $24,961,000, $20,991,000, $17,688,000, $13,851,000 and $13,269,000 for the years ending December 31, 2008, 2009, 2010, 2011 and 2012, respectively.
 
Note 6: Accounts Payable and Accrued Liabilities
 
Accounts payable and accrued liabilities consisted of the following:
 
   
December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Trade accounts payable and accruals
   $ 517,692     $ 408,480  
Salaries, wages and related fringe benefits
     155,048       141,444  
Advances from customers
     756,441       573,527  
Sales-related costs and provisions
     87,253       78,666  
Payroll and other taxes
     35,904       30,032  
Product warranty
     29,415       29,846  
Other
     95,301       102,721  
Total accounts payable and accrued liabilities
   $ 1,677,054     $ 1,364,716  
 
Activity during the year associated with the Company’s product warranty accruals was as follows (dollars in thousands):
 

Net
    
Charges
                    
Balance
    
Warranty
    
Against
    
Translation
    
Balance
  
December 31, 2006
    
Provisions
    
Accrual
    
and Other
    
December 31, 2007
  
$ 29,846
    
$ 20,731
    
$ (19,404)
    
$ (1,758)
    
$ 29,415
  


 
54
 

Note 7: Employee Benefit Plans
 
The Company sponsors the Cameron International Corporation Retirement Plan (Retirement Plan), which covered the majority of salaried U.S. employees and certain domestic hourly employees at the time it was frozen to most new entrants, effective May 1, 2003. In addition, the Company sponsors separate defined benefit pension plans for employees of its U.K. and German subsidiaries and several unfunded defined benefit arrangements for various other employee groups. The U.K. defined benefit pension plan was frozen to new entrants effective June 14, 1996. With respect to the freeze in the Retirement Plan, the basic credits to participant account balances decreased from 4% of compensation below the Social Security Wage Base plus 8% of compensation in excess of the Social Security Wage Base to 3% and 6%, respectively, and vesting for participants who had not completed three full years of vesting service as of May 1, 2003 changed from a three-year graded vesting with 33% vested after three years and 100% vested after five years to five-year cliff vesting.
 
In June 2007, the Company communicated to employees and beneficiaries that it had elected to terminate the Retirement Plan and replace the benefits offered under the Retirement Plan with enhanced benefits under its existing defined contribution plan. The Company expects to distribute the assets of the Retirement Plan in two phases. The first phase occurred during the fourth quarter of 2007 and included former employees who were participants in the Retirement Plan. In connection with this distribution, the Company recorded a pre-tax settlement loss of $37,704,000 as of December 31, 2007. The second phase of asset distributions from the Retirement Plan will cover current employees and is expected to occur once all necessary governmental approvals are obtained, which is currently anticipated to be in 2008 or early 2009. The Company expects to record pre-tax charges totaling approximately $26,426,000 upon the occurrence of this second phase of asset distributions to settle remaining obligations of the Plan. In addition, the Retirement Plan was amended effective December 31, 2007 to eliminate future benefits from being earned. As a result, the Company also recorded a pre-tax curtailment gain of $1,979,000 as of December 31, 2007, for a net charge in 2007 of $35,725,000.
 
Certain of the Company’s employees also participate in various domestic employee welfare benefit plans, including medical, dental and prescriptions. Additionally, certain employees receive retiree medical, prescription and life insurance benefits. All of the welfare benefit plans, including those providing postretirement benefits, are unfunded.
 
Total net benefit plan expense (income) associated with the Company’s defined benefit pension and postretirement benefit plans consisted of the following:
 
         
Postretirement
  
   
Pension Benefits
    
Benefits
  
(dollars in thousands)
  
2007
    
2006
    
2005
    
2007
    
2006
    
2005
  
Service cost
   $ 9,039     $ 8,830     $ 7,574     $ 5     $ 6     $ 7  
Interest cost
     25,129       23,046       22,215       1,211       1,334       1,502  
Expected return on plan assets
     (33,444 )     (31,500 )     (28,807 )     —       —       —  
Amortization of prior service cost (credit)
     (540 )     (525 )     (526 )     (383 )     (383 )     (388 )
Amortization of losses (gains) and other
     14,065       11,203       9,925       (1,078 )     (979 )     (956 )
Total net benefit plan expense (income)
     14,249       11,054       10,381       (245 )     (22 )     165  
                                                 
Settlement loss
     37,704       —       —       —       —       —  
Curtailment gain
     (1,979 )     —       —       —       —       —  
Total net benefit plan expense (income)
   $ 49,974     $ 11,054     $ 10,381     $ (245 )   $ (22 )   $ 165  
                                                 
Net benefit plan expense (income):
                                                
U.S. plans
   $ 42,065     $ 4,804     $ 3,155     $ (245 )   $ (22 )   $ 165  
Foreign plans
     7,909       6,250       7,226       —       —       —  
Total net benefit plan expense (income)
   $ 49,974     $ 11,054     $ 10,381     $ (245 )   $ (22 )   $ 165  

 
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Included in accumulated other elements of comprehensive income at December 31, 2007 and 2006 are the following amounts that have not yet been recognized in net periodic benefit plan cost, as well as the amounts that are expected to be recognized in net periodic benefit plan cost during the year ending December 31, 2008:
 
                           
Year Ending
  
   
December 31, 2007
    
December 31, 2006
    
December 31, 2008
  
                           
Expected
  
(dollars in thousands)
  
Before Tax
    
After Tax
    
Before Tax
    
After Tax
    
Amortization
  
Pension benefits:
                              
Prior service credit, net
   $ 58     $ 36     $ (2,461 )   $ (1,520 )   $ 14  
Actuarial losses, net
     113,897       79,215       155,487       103,427       9,945  
Post retirement benefits:
                                        
Prior service credit
     (2,295 )     (1,417 )     (2,677 )     (1,653 )     (382 )
Actuarial gains
     (15,233 )     (9,406 )     (11,760 )     (7,262 )     (1,483 )
    $ 96,427     $ 68,428     $ 138,589     $ 92,992     $ 8,094  
 
The change in the projected benefit obligation associated with the Company’s defined benefit pension plans and the change in the accumulated benefit obligation associated with the Company’s postretirement benefit plans is as follows:
 
         
Postretirement
  
   
Pension Benefits
    
Benefits
  
(dollars in thousands)
  
2007
    
2006
    
2007
    
2006
  
Benefit obligation at beginning of year
   $ 487,407     $ 422,897     $ 23,264     $ 24,912  
Service cost
     9,039       8,830       5       6  
Interest cost
     25,129       23,046       1,211       1,334  
Plan participants’ contributions
     1,002       921       —       —  
Actuarial losses (gains)
     12,693       17,374       (3,884 )     (1,274 )
Exchange rate changes
     4,387       31,975       —       —  
Benefits and expenses paid from plan assets
     (70,046 )     (17,063 )     —       —  
Benefits paid directly by the Company
     (522 )     (573 )     (2,771 )     (1,714 )
Curtailments
     (1,695 )     —       —       —  
Purchase of annuity contracts
     (77,574 )     —       —       —  
Benefit obligation at end of year
   $ 389,820     $ 487,407     $ 17,825     $ 23,264  
Benefit obligation at end of year:
                                
U.S. plans
   $ 99,921     $ 210,244     $ 17,825     $ 23,264  
Foreign plans
     289,899       277,163       —       —  
Benefit obligation at end of year
   $ 389,820     $ 487,407     $ 17,825     $ 23,264  

 
56
 

The total accumulated benefit obligation for the Company’s defined benefit pension plans was $350,849,000 and $445,911,000 at December 31, 2007 and 2006, respectively.
 
The change in the plan assets associated with the Company’s defined benefit pension and postretirement benefit plans is as follows:
 
         
Postretirement
  
   
Pension Benefits
    
Benefits
  
(dollars in thousands)
  
2007
    
2006
    
2007
    
2006
  
Fair value of plan assets at beginning of year
   $ 467,428     $ 403,942     $ —     $ —  
Actual return on plan assets
     35,860       38,633       —       —  
Actuarial gains
     —       4,563       —       —  
Company contributions
     8,463       7,586       —       —  
Plan participants’ contributions
     1,002       921       —       —  
Exchange rate changes
     3,248       28,846       —       —  
Purchase of annuity contracts
     (77,574 )     —       —       —  
Benefits and expenses paid from plan assets
     (70,046 )     (17,063 )     —       —  
Fair value of plan assets at end of year
   $ 368,381     $ 467,428     $ —     $ —  
Fair value of plan assets at end of year:
                                
U.S. plans
   $ 102,707     $ 223,835     $ —     $ —  
Foreign plans
     265,674       243,593       —       —  
Fair value of plan assets at end of year
   $ 368,381     $ 467,428     $ —     $ —  
 
The funded status of the Company’s defined benefit pension and postretirement benefit plans is as follows:
 
         
Postretirement
  
   
Pension Benefits
    
Benefits
  
(dollars in thousands)
  
2007
    
2006
    
2007
    
2006
  
                                 
Overfunded plans
   $ 8,087     $ 18,451     $ —     $ —  
Underfunded plans
     (29,526 )     (38,430 )     (17,825 )     (23,264 )
Funded status
   $ (21,439 )   $ (19,979 )   $ (17,825 )   $ (23,264 )
 
Actual asset investment allocations for the Company’s main defined benefit pension plans in the United States and the United Kingdom, which account for approximately 99% of total plan assets, are as follows:
 
   
Pension Benefits
  
   
2007
    
2006
  
U.S. plan:
            
Equity securities
     2 %     65 %
Fixed income debt securities, cash and other
     98 %     35 %
U.K. plan:
                
Equity securities
     49 %     50 %
Fixed income debt securities, cash and other
     51 %     50 %
 
In each jurisdiction, the investment of plan assets is overseen by a plan asset committee whose members act as trustees of the plan and set investment policy. For the years ended December 31, 2007 and 2006, the investment strategy has been designed to approximate the performance of market indexes. The asset allocations for the U.S. plan at December 31, 2007 were heavily weighted towards fixed income debt securities, cash and other short-term investments due to the plan termination announced during 2007 as discussed above. The asset allocations for the U.S. plan at December 31, 2006 were weighted slightly heavier toward equity securities than the targeted allocations. The Company has modified its targeted allocation for the U.K. Plan for 2008 and beyond to be approximately 55% in equities, 40% in fixed income debt securities and 5% in real estate.
 
 
57
 
 
During 2007, the Company made contributions totaling $8,463,000 to the assets of its various defined benefit pension plans. Contributions to plan assets for 2008 are currently expected to approximate $7,017,000, assuming no change in the current discount rate or expected investment earnings.
 
The weighted-average assumptions associated with the Company’s defined benefit pension and postretirement benefit plans were
as follows:
 
         
Postretirement
  
   
Pension Benefits
    
Benefits
  
   
2007
    
2006
    
2007
    
2006
  
Assumptions related to net benefit costs:
                        
Domestic plans:
                        
Discount rate
     5.0 - 5.75 %     5.75 %     5.5 %     5.5 %
Expected return on plan assets
     5.25 - 8.25 %     8.5 %     —       —  
Rate of compensation increase
     4.5 %     4.5 %     —       —  
Health care cost trend rate
     —       —       9.0 %     9.0 %
Measurement date
  
1/1/2007
    
1/1/2006
    
10/1/2006
    
10/1/2005
  
International plans:
                                
Discount rate
     4.5 - 5.0 %     4.25 - 5.0 %     —       —  
Expected return on plan assets
     4.5 - 6.75 %     4.5 - 6.75 %     —       —  
Rate of compensation increase
     2.75 - 4.0 %     2.75 - 4.0 %     —       —  
Measurement date
  
1/1/2007
    
1/1/2006
       —       —  
Assumptions related to end-of-period benefit obligations:
                                
Domestic plans:
                                
Discount rate
     5.0 - 6.25 %     5.75 %     6.25 %     5.5 %
Rate of compensation increase
     4.5 %     4.5 %     —       —  
Health care cost trend rate
     —       —       8.0 %     9.0 %
Measurement date
  
12/31/2007
    
12/31/2006
    
10/1/2007
    
10/1/2006
  
International plans:
                                
Discount rate
     5.25 - 5.75 %     4.5 - 5.0 %     —       —  
Rate of compensation increase
     2.75 - 4.5 %     2.75 - 4.0 %     —       —  
Measurement date
  
12/31/2007
    
12/31/2006
       —       —  
 
The Company’s discount rate assumptions for its U.S. and U.K. defined benefit pension plans are based on the average yield of a hypothetical high quality bond portfolio with maturities that approximately match the estimated cash flow needs of the plans.
 
The assumptions for expected long-term rates of return on assets are based on historical experience and estimated future investment returns, taking into consideration anticipated asset allocations, investment strategies and the views of various investment professionals.
 
The rate of compensation increase assumption for the U.S. plans is based on an age-grade scale ranging from 3.0% to 7.5% with a weighted-average rate of approximately 4.5%. The assumptions for the foreign plans reflect local economic conditions and the Company’s compensation strategy in those locations.
 
The health care cost trend rate is assumed to decrease gradually from 8.0% to 5.0% by 2014 and remain at that level thereafter. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:
 
   
One-percentage-
    
One-percentage-
  
(dollars in thousands)
  
point Increase
    
point Decrease
  
Effect on total of service and interest cost components in 2007
   $ 55     $ (50 )
Effect on postretirement benefit obligation as of December 31, 2007
   $ 886     $ (801 )
 
Year-end amounts applicable to the Company’s pension plans with projected benefit obligations in excess of plan assets and accumulated benefit obligations in excess of plan assets were as follows:
 
   
Projected Benefit
    
Accumulated Benefit
  
   
Obligation in Excess
    
Obligation in Excess
  
   
of Plan Assets
    
of Plan Assets
  
(dollars in thousands)
  
2007
    
2006
    
2007
    
2006
  
Fair value of applicable plan assets
   $ 266,070     $ 244,026     $ 6,692     $ 5,737  
Projected benefit obligation of applicable plans
   $ (295,596 )   $ (282,456 )   $ —     $ —  
Accumulated benefit obligation of applicable plans
   $ —     $ —     $ (17,062 )   $ (15,529 )

 
58
 

 
 
Future expected benefit payments and future expected receipts of Medicare Part D subsidies are as follows (due to uncertainty over the timing of receiving final regulatory approvals for termination of the Retirement Plan, the future expected benefit payments under this plan are presented as if the Retirement Plan was to continue on an ongoing basis):
 
                     
Postretirement
  
   
Pension Benefits
    
Benefits
  
                     
Payment
    
Medicare
  
   
U.S. Unfunded
    
U.S. Funded
    
Foreign
    
Before
    
Part D
  
(dollars in thousands)
  
Plans
    
Plans
    
Funded Plans
    
Subsidy
    
Subsidy
  
Year ended December 31:
                              
2008
   $ 1,483     $ 9,613     $ 5,813     $ 2,448     $ 389  
2009
   $ 463     $ 9,479     $ 6,249     $ 2,416     $ 383  
2010
   $ 309     $ 9,063     $ 6,851     $ 2,353     $ 369  
2011
   $ 389     $ 9,046     $ 7,260     $ 2,296     $ 358  
2012
   $ 353     $ 8,908     $ 8,480     $ 2,196     $ 346  
2013 - 2017
   $ 2,194     $ 42,532     $ 54,786     $ 9,514     $ 1,434  
 
The Company’s domestic employees who are not covered by a bargaining unit and certain others are also eligible to participate in the Cameron International Corporation Retirement Savings Plan. Under this plan, employees’ savings deferrals are partially matched in cash and invested at the employees’ discretion. Additionally, the Company makes cash contributions for hourly employees who are not covered under collective bargaining agreements and will make contributions equal to a targeted rate of 2% of earnings of new employees hired on or after May 1, 2003, who are not eligible for participation in the Retirement Plan, based upon the achievement of certain financial objectives by the Company. The Company’s expense under this plan for the years ended December 31, 2007, 2006 and 2005 amounted to $13,228,000, $10,524,000 and $9,573,000, respectively. In addition, the Company provides savings or other benefit plans for employees under collective bargaining agreements and, in the case of certain international employees, as required by government mandate, which provide for, among other things, Company matching contributions in cash based on specified formulas. Expense with respect to these various defined contribution and government-mandated plans for the years ended December 31, 2007, 2006 and 2005 amounted to $17,437,000, $19,045,000 and $15,760,000, respectively.
 
Note 8: Stock-Based Compensation Plans
 
The Company has grants outstanding under four equity compensation plans, only one of which, the 2005 Equity Incentive Plan (2005 EQIP), is currently available for future grants of equity compensation awards to employees and non-employee directors. The other three plans, which continue to have options outstanding at December 31, 2007, are the Company’s Long-Term Incentive Plan, as Amended and Restated as of November 2002, the Broadbased 2000 Incentive Plan and the Second Amended and Restated 1995 Stock Option Plan for Non-Employee Directors. Prior to January 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock-Based Compensation. Accordingly, no stock-based employee compensation cost was recognized in the Consolidated Results of Operations statements, except with respect to the amortization of the intrinsic value of restricted stock unit grants totaling $2,790,000 for the year ended December 31, 2005. Options granted under the Company’s four equity compensation plans had an exercise price equal to the market value of the underlying common stock on the date of grant and all terms were fixed. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R), using the modified-prospective-transition method. Under that transition method, compensation cost recognized for the years ended December 31, 2007 and 2006 included: (a) compensation cost related to all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of Financial Accounting Standards Board Statement 123, Accounting for Stock-Based Compensation (SFAS 123), and (b) compensation cost related to all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).
 
Stock-based compensation expense recognized under the provisions of SFAS 123(R) was as follows:
 
   
Year Ended December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Outstanding restricted and deferred stock unit grants
   $ 15,610     $ 9,974  
Unvested outstanding stock options grants
     15,773       15,594  
Total stock-based compensation expense
   $ 31,383     $ 25,568  
 
The total income statement tax benefit recognized from stock-based compensation arrangements during the years ended December 31, 2007 and 2006 totaled approximately $12,004,000 and $9,780,000, respectively.

 
59
 
 
The following table illustrates the effect on net income and earnings per share for 2005, as if the Company had applied the fair value recognition provisions of SFAS 123 to options granted under the Company’s equity compensation plans. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes-Merton option-pricing formula and amortized to expense over the options’ vesting periods.
 
 
   
Year Ended December 31,
  
(dollars in thousands, except per share data)
  
2005
  
Net income, as reported
   $ 171,130  
Add: Stock compensation expense included in net income
     1,816  
Deduct: Total stock-based employee compensation expense determined under the fair value method, net of tax
     (11,913 )
Pro forma net income
   $ 161,033  
Earnings per share: 1
        
Basic - as reported
   $ 0.77  
Basic - pro forma
   $ 0.73  
Diluted - as reported
   $ 0.76  
Diluted - pro forma
   $ 0.72  
 
1  Prior year amounts have been revised to reflect the 2-for-1 stock split effective December 28, 2007.
 
Stock option awards
 
Options with terms of seven years are granted to officers and other key employees of the Company under the 2005 EQIP plan at a fixed exercise price equal to the fair value of the Company’s common stock on the date of grant. The options vest in one-third increments each year on the anniversary date following the date of grant, based on continued employment. Grants made in previous years to officers and other key employees under the Long-Term and Broadbased Incentive Plans provide similar terms, except that the options terminate after ten years rather than seven.
 
A summary of option activity under the Company’s stock compensation plans as of and for the year ended December 31, 2007 is presented below (all amounts reflect the 2-for-1 stock split effective December 28, 2007):
 
               
Weighted-
        
               
Average
    
Aggregate
  
         
Weighted-
    
Remaining
    
Intrinsic
  
         
Average
    
Contractual
    
Value
  
         
Exercise
    
Term
    
(dollars in
  
Options
  
Shares
    
Price
    
(in years)
    
thousands)
  
Outstanding at January 1, 2007
     9,960,484     $ 17.22              
Granted
     1,763,100       44.01              
Exercised
     (4,019,480 )     13.78              
Forfeited
     (39,998 )     26.93              
Expired
     (4,928 )     10.73              
Outstanding at December 31, 2007
     7,659,178     $ 25.15       5.32     $ 176,037  
Vested at December 31, 2007 or expected to vest in the future
     7,579,466     $ 25.11       5.32     $ 174,458  
Exercisable at December 31, 2007
     3,198,371     $ 16.64       4.46     $ 100,721  
 
   
At
  
   
December 31, 2007
  
Stock-based compensation cost not yet recognized under the straight-line method (dollars in thousands)
   $ 21,678  
Weighted-average remaining expense recognition period (in years)
     1.64  

 
60
 

The fair values per share of option grants for the years ended December 31, 2007, 2006 and 2005 were estimated using the Black-Scholes-Merton option pricing formula with the following weighted-average assumptions:
 
   
Year Ended December 31,
  
   
2007
    
2006
    
2005
  
Expected life (in years)
     2.6       2.4       3.0  
Risk-free interest rate
     3.4 %     4.6 %     4.4 %
Volatility
     31.2 %     30.2 %     27.0 %
Expected dividend yield
     0.0 %     0.0 %     0.0 %
 
The Company determined the assumptions involving the expected life of its options and volatility rates based primarily on historical data and consideration of expectations for the future.
 
The above assumptions and market prices of the Company’s common stock at the date of option exercises resulted in the following values (grant date fair values and intrinsic values per share for prior years have been revised to reflect the 2-for-1 stock split effective December 28, 2007):
 
   
Year Ended December 31,
  
   
2007
    
2006
    
2005
  
Grant-date fair value per option
   $ 10.32     $ 6.08     $ 3.94  
Intrinsic value of options exercised (dollars in thousands)
   $ 95,203     $ 71,178     $ 103,157  
Average intrinsic value per share of options exercised
   $ 23.69     $ 12.27     $ 4.84  
 
Restricted and deferred stock unit awards

During 2005, the Company began issuing restricted stock units with no exercise price to key employees in place of stock options. During 2007 and 2006, grants of restricted stock units were made to officers and key employees. Approximately 235,433 and 143,134 of the restricted stock unit grants during 2007 and 2006, respectively, contained performance-based conditions which were fully satisfied based on the Company’s full-year 2007 and 2006 financial performance against certain targets. The restricted stock units granted to officers and other key employees during 2007 generally provided for three-year 100% cliff vesting on the third anniversary of the date of grant, based on continued employment. The restricted stock units granted to officers during 2006 generally provide for 12.5% vesting on each of the first and second anniversaries of the date of grant and a final vesting of 75% on the third anniversary of the date of grant, based on continued employment. Restricted stock units granted to other key employees during 2006 generally provide for 25% vesting on the second anniversary of the date of grant and a final vesting of 75% on the third anniversary of the date of grant, based on continued employment, whereas restricted stock units granted prior to January 1, 2006 generally provide for 25% vesting on each of the first and second anniversaries of the grant date and a final vesting of 50% on the third anniversary of the grant date, based on continued employment.
 
Under an update to the Compensation Program for Non-Employee Directors approved by the Board of Directors in November 2007, non-employee directors are entitled to receive a pro-rata grant of deferred stock units from the 2005 EQIP plan based on the date of first to the Board, equal to 4,000 units multiplied by the product of the number of months until the next Annual Meeting of Shareholders divided by twelve, and a grant of 4,000 units annually thereafter. These units, which have no exercise price and no expiration date, vest in one-fourth increments quarterly over the following year but cannot be converted into common stock until the earlier of termination of Board service or three years, although Board members have the ability to voluntarily defer conversion for a longer period of time.
 
A summary of restricted stock unit award activity under the Company’s stock compensation plans as of and for the year ended December 31, 2007 is presented below:
 
         
Weighted-Average
  
         
Grant Date
  
Restricted Stock Units
  
Units
    
Fair Value
  
Nonvested at January 1, 2007
     1,248,522     $ 18.16  
Granted
     708,042       29.04  
Vested
     (195,108 )     15.44  
Forfeited
     (149,884 )     22.64  
Nonvested at December 31, 2007
     1,611,572     $ 23.21  
 
   
At
  
   
December 31, 2007
  
Stock-based compensation cost not yet recognized under the straight-line method (dollars in thousands)
   $ 18,204  
Weighted-average remaining expense recognition period (in years)
     1.60  

 
61
 

The intrinsic value of restricted stock units vesting during the years ended December 31, 2007 and 2006 was $5,277,000 and $3,451,000, respectively.
 
During the years ended December 31, 2006 and 2005, respectively, a total of 787,054 and 686,800 restricted stock units (post-split) at a weighted-average grant date fair value of $20.82 and $13.85 per share (post-split). The fair value of restricted stock units is determined based on the closing trading price of the Company’s common stock on the grant date.
 
At December 31, 2007, 3,306,027 shares were reserved for future grants of options, deferred stock units, restricted stock units and other awards. The Company may issue either treasury shares or newly issued shares of its common stock in satisfaction of these awards.
 
Note 9: Debt
 
The Company’s debt obligations were as follows:
 
   
December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Senior notes, net of $301 of unamortized original issue discount and deferred loss on termination of interest rate swaps at December 31, 2006
   $ —     $ 199,699  
Convertible debentures
     738,000       738,000  
Other debt
     3,671       3,557  
Obligations under capital leases
     12,223       11,497  
      753,894       952,753  
Current maturities
     (8,766 )     (207,345 )
Long-term portion
   $ 745,128     $ 745,408  
 
On April 16, 2007, the Company redeemed all $200,000,000 of its outstanding 2.65% Senior Notes (the Senior Notes) using available cash on hand.
 
On May 23, 2006, the Company issued $500,000,000 of twenty-year senior convertible debentures, due June 15, 2026, that pay interest semi-annually at a rate of 2.5% on each June 15 and December 15, beginning December 15, 2006 (the 2.5% Convertible Debentures). The Company has the right to redeem the 2.5% Convertible Debentures at any time on or after June 20, 2011, at principal plus accrued and unpaid interest. Holders may require the Company to repurchase all or a portion of the 2.5% Convertible Debentures on June 15 of 2011, 2016 and 2021, or at any time the Company undergoes a fundamental change as defined in the debenture agreement, for principal plus accrued and unpaid interest. Prior to June 15, 2011, holders may also convert their debenture holdings into shares of common stock at an initial conversion rate of 28.2656 shares of common stock per $1,000 principal amount, or $35.38 per share (post-split basis), only under the following circumstances:
 
 
·
during any quarter after June 30, 2006, if the closing price of the Company’s common stock exceeds 130% of the then-current conversion price for at least 20 consecutive trading days in the 30 consecutive trading day period ending on the last trading day of the immediately preceding quarter;
 
·
during the five business-day period after any five consecutive trading day period in which the trading price per debentures for each day of the period was less than 97% of the product of the last reported sales price of the Company’s common stock and the current conversion rate;
 
·
upon the occurrence of specified corporate events; or
 
·
upon receipt of a notice of redemption by the Company.
 
Holders may also convert the 2.5% Convertible Debentures into shares of common stock at any time on or after June 15, 2011 without meeting the above provisions. In either case involving conversion by the holders, any amount due up to and including the principal amount of the debt and accrued but unpaid interest will be satisfied in cash by the Company. The portion of the conversion value of the debt in excess of principal may, at the option of the Company, be satisfied in either cash or shares of the Company’s common stock. The initial conversion rate is subject to adjustment based on certain specified events or in the event the Company undergoes a fundamental change as defined. As part of the offering of the 2.5% Convertible Debentures, the Company agreed to file a shelf registration statement related to the resale of the debentures and the common stock issuable upon conversion of the debentures within a specified period of time and to have the registration statement become effective and maintain effectiveness during periods specified in the debenture agreement. This registration statement was filed timely by the Company on August 14, 2006. If the registration statement subsequently ceases to be effective, the Company could be subject to liquidated damage payments of up to 0.50% per year on the principal amount of the 2.5% Convertible Debentures, payable on June 15 and December 15 of each year during the period that the registration statement is not effective, as defined in the debenture agreement. Immediately following the offering, the Company used approximately $190,220,000 of the proceeds to purchase 8,333,830 shares of the Company’s common stock at an average cost of $22.83 per share (post-split basis). Remaining proceeds from the offering are available for acquisitions, further share repurchases and general corporate uses.
 
On October 12, 2005, the Company entered into a new $350,000,000 five-year multicurrency revolving credit facility, expiring October 12, 2010, subject to certain extension provisions. The credit facility (all of which was available at December 31, 2007) also allows for the issuance of letters of credit up to the full amount of the facility. The Company has the right to request an increase in the amount of the facility up to $700,000,000 and may request three one-year extensions of the maturity date of the facility, all subject to lender approval. The facility provides for variable-rate borrowings based on the London Interbank Offered Rate (LIBOR) plus a margin (based on the Company’s then-current credit rating) or an alternate base rate. The agreement provides for facility and utilization fees and requires that the Company maintain a total debt-to-total capitalization ratio of less than 60%
 
62
 
during the term of the agreement. The Company was in compliance with all loan covenants as of December 31, 2007.   On February 21, 2008, the Company borrowed 46,000,000 Pounds Sterling for general corporate purposes under its $350,000,000 multicurrency revolving credit facility.  The borrowing, which matures on March 20, 2008, bears interest at a rate of 5.86% per annum.
 
During 2004, the Company issued an aggregate amount of $238,000,000 of twenty-year convertible debentures due 2024 with an interest rate of 1.5%, payable semi-annually on May 15 and November 15 (the 1.5% Convertible Debentures). The Company has the right to redeem the 1.5% Convertible Debentures anytime after five years at the principal amount plus accrued and unpaid interest, and the debenture holders have the right to require the Company to repurchase the debentures on the fifth, tenth and fifteenth anniversaries of the issue. The 1.5% Convertible Debentures are convertible into the Company’s common stock at a rate of 57.9428 shares per debenture, or $17.26 per share (post-split basis). The holders can convert the debentures into the Company’s common stock only under the following circumstances:
 
 
·
during any quarter in which the sales price of the Company’s common stock exceeds 120% of the conversion price for at least 20 consecutive trading days in the 30 consecutive trading day period ending on the last trading day of the immediately preceding quarter;
 
·
during any five consecutive trading day period immediately following any five consecutive trading day period in which the average trading price for the debentures is less than 97% of the average conversion value of the debentures;
 
·
upon fundamental changes in the ownership of the Company’s common stock, which would include a change of control as defined in the debenture agreement.
 
The Company has elected to use the “cash pay” provision with respect to its 1.5% Convertible Debentures for any debentures tendered for conversion or designated for redemption. Under this provision, the Company will satisfy in cash its conversion obligation for 100% of the principal amount of any debentures submitted for conversion, with any remaining amount to be satisfied in shares of the Company’s common stock.
 
On May 16, 2001, the Company issued twenty-year convertible debentures in an aggregate amount of $200,000,000, with an interest rate of 1.75%, payable semi-annually on May 15 and November 15 (the 1.75% Convertible Debentures). In May 2004, the Company redeemed $184,250,000 of the 1.75% Convertible Debentures. During February 2005, the Company retired an additional $15,000,000 of the 1.75% Convertible Debentures. The remaining portion was converted into shares of the Company’s common stock in May 2006.
 
In addition to the above, the Company also has other unsecured and uncommitted credit facilities available to its foreign subsidiaries to fund ongoing operating activities. Certain of these facilities also include annual facility fees.
 
Other debt, some of which is held by entities located in countries with high rates of inflation, has a weighted-average interest rate of 12.8% at December 31, 2007 (4.7% at December 31, 2006). Future maturities of the Company’s debt (excluding capital leases) are approximately $3,603,000 in 2008, $238,068,000 in 2009 and $500,000,000 in 2011. Maturities in 2009 and 2011 are mainly related to the 1.5% Convertible Debentures and the 2.5% Convertible Debentures, which the holders have the right to require the Company to repurchase on May 15, 2009 and June 15, 2011, respectively.
 
Interest paid during the years ended December 31, 2007, 2006 and 2005 approximated $17,279,000, $19,515,000 and $10,908,000, respectively.
 
Note 10: Leases
 
The Company leases certain facilities, office space, vehicles and office, data processing and other equipment under capital and operating leases. Rental expenses for the years ended December 31, 2007, 2006 and 2005 were $42,709,000, $32,148,000 and $20,653,000, respectively. Future minimum lease payments with respect to capital leases and operating leases with noncancelable terms in excess of one year were as follows:
 
   
Capital
    
Operating
  
(dollars in thousands)
  
Lease Payments
    
Lease Payments
  
Year ended December 31:
            
2008
   $ 5,482     $ 18,519  
2009
     3,978       15,026  
2010
     2,600       17,514  
2011
     739       10,322  
2012
     33       10,113  
Thereafter
     —       36,497  
Future minimum lease payments
     12,832       107,991  
Less: amount representing interest
     (609 )     —  
Lease obligations at December 31, 2007
   $ 12,223     $ 107,991  
 
Note 11: Income Taxes
 
The components of income before income taxes were as follows:
 
   
Year Ended December 31,
  
(dollars in thousands)
  
2007
    
2006
    
2005
  
Income before income taxes:
                  
U.S. operations
   $ 307,895     $ 202,444     $ 90,930  
Foreign operations
     400,580       286,157       172,082  
Income before income taxes
   $ 708,475     $ 488,601     $ 263,012  
 
63
 

The provisions for income taxes were as follows:
 
   
Year Ended December 31,
  
(dollars in thousands)
  
2007
    
2006
    
2005
  
Current:
                  
U.S. federal
   $ 64,497     $ 28,738     $ 32,906  
U.S. state and local
     4,143       3,370       5,243  
Foreign
     99,725       85,036       49,118  
      168,365       117,144       87,267  
Deferred:
                        
U.S. federal
     27,764       45,157       465  
U.S. state and local
     (3,120 )     6,791       70  
Foreign
     14,606       1,693       4,080  
      39,250       53,641       4,615  
Income tax provision
   $ 207,615     $ 170,785     $ 91,882  
 
The reasons for the differences between the provision for income taxes and income taxes using the U.S. federal income tax rate were as follows:
 
   
Year Ended December 31,
  
(dollars in thousands)
  
2007
    
2006
    
2005
  
U.S. federal statutory rate
     35.00 %     35.00 %     35.00 %
State and local income taxes
     0.95       1.53       1.36  
Tax exempt income
     —       (0.50 )     (1.00 )
Foreign statutory rate differential
     (3.47 )     (3.72 )     (6.04 )
Change in valuation allowance on deferred tax assets
     (1.52 )     (0.39 )     0.06  
Nondeductible expenses
     1.28       1.55       1.49  
Foreign income currently taxable in U.S.
     0.59       1.33       1.46  
Change in utilization of certain foreign tax credits
     (2.26 )     —       —  
All other
     (1.26 )     0.15       2.60  
Total
     29.31 %     34.95 %     34.93 %
Total income taxes paid
   $ 199,283     $ 64,111     $ 34,941  
 
As a result of changes in statutory tax rates in certain international jurisdictions, the Company recognized a decrease of $1,839,000 in deferred taxes.
 
Components of deferred tax assets (liabilities) were as follows:
 
   
December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Deferred tax liabilities:
            
Plant and equipment
   $ (19,121 )   $ (21,785 )
Inventory
     (52,217 )     (30,888 )
Pensions
     (2,673 )     (5,346 )
Other
     (31,487 )     (36,097 )
Total deferred tax liabilities
     (105,498 )     (94,116 )
Deferred tax assets:
                
Postretirement benefits other than pensions
     13,143       14,333  
Reserves and accruals
     53,582       58,670  
Net operating losses and related deferred tax assets
     26,321       54,678  
Other
     6,929       2,184  
Total deferred tax assets
     99,975       129,865  
Valuation allowance
     (33,907 )     (33,077 )
Net deferred tax assets (liabilities)
   $ (39,430 )   $ 2,672  

 
64
 
 
The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No. 109, Accounting for Income Taxes, on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized an increase of $13,888,000 in the liability for unrecognized tax benefits along with (i) a corresponding decrease of $4,996,000 in the January 1, 2007 balance of retained earnings, (ii) a decrease of $2,000,000 in capital in excess of par relating to amounts previously recognized in connection with the tax benefit of employee stock benefit plan transactions and (iii) an increase in deferred tax assets of $6,892,000. This adjustment resulted in a total amount of unrecognized tax benefits at January 1, 2007 of $42,789,000.
 
Changes in the Company’s unrecognized tax benefits for the year ended December 31, 2007 are as follows (in thousands):
 
         
Balance - January 1, 2007
   $ 42,789  
Increases due to tax positions taken prior to January 1, 2007
     2,850  
Increases due to tax positions taken during 2007
     7,943  
Decreases relating to settlements with tax authorities
     (2,412 )
Decreases resulting from the lapse of applicable statutes of limitation
     (5,727 )
Net increase due to translation and interest
     1,901  
Balance - December 31, 2007
   $ 47,344  
 
The Company is not currently aware of any adjustments that may occur that would materially increase or decrease the amount of its unrecognized tax benefits during the next twelve-month period or any material amounts included as unrecognized tax benefits at December 31, 2007 that, if recognized, would not impact the Company’s effective income tax rate.
 
There were no material payments for interest or penalties for the years ended December 31, 2007, 2006 or 2005. Also, there were no material accruals for unpaid interest or penalties at December 31, 2007 or 2006.
 
The Company and its subsidiaries file income tax returns in the United States, various domestic states and localities and in many foreign jurisdictions. The earliest years’ tax returns filed by the Company that are still subject to examination by authorities in the major tax jurisdictions are as follows:
 
United States
United Kingdom
Canada
France
Germany
Norway
Singapore
Italy
2000
2001
1995
2004
2004
2003
1999
2003
 
Primarily due to changes in estimates concerning the realizability of certain deferred tax assets, valuation allowances established in prior years decreased in 2007 by $6,897,000, decreased in 2006 by $2,902,000 and increased in 2005 by $150,000, with a corresponding offset in the Company’s income tax expense. In addition, valuation allowances were established in 2007 and 2005 in the amount of $7,400,000 and $10,778,000, respectively, to offset the tax benefit of net operating losses and other deferred tax assets recorded as part of international acquisitions. This amount was reduced in 2007 and 2006 by $591,000 and $1,280,000, respectively, with a corresponding offset to goodwill. Also in 2007, valuation allowances of $2,912,000 were reduced to correspond with the write-off of the associated deferred tax assets. Certain valuation allowances are recorded in the non-U.S. dollar functional currency of the respective operation and the U.S. dollar equivalent reflects the effects of translation. The valuation allowance increased in 2007, 2006 and 2005 by $3,830,000, $1,728,000 and $743,000, respectively, due to translation.
 
At December 31, 2007, the Company had a net operating loss carryforward in Brazil of approximately $33,700,000, which has no expiration period, and U.S. state net operating loss carryforwards with various expiration periods. The Company had a valuation allowance of $33,907,000 as of December 31, 2007 against these net operating loss carryforwards and other deferred tax assets. Approximately $15,600,000 of this amount will reduce goodwill in the event of any subsequent recognition of the related tax benefit. The Company has considered all available evidence in assessing the need for the valuation allowance, including future taxable income and ongoing prudent and feasible tax planning strategies. In the event the Company were to determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the net deferred tax asset would be charged to income in the period such determination was made.
 
The tax benefit that the Company receives with respect to certain stock benefit plan transactions is credited to capital in excess of par value and does not reduce income tax expense. This benefit amounted to $32,239,000, $23,284,000 and $37,817,000 in 2007, 2006 and 2005, respectively.
 
The Company considers all unremitted earnings of its foreign subsidiaries, except certain amounts primarily earned before 2003 and amounts previously subjected to tax in the U.S., to be permanently reinvested. An estimate of the amounts considered permanently reinvested is $1,046,000,000. It is not practical for the Company to compute the amount of additional U.S. tax that would be due on this amount. The Company has provided deferred income taxes on the earnings that the Company anticipates to be remitted.
 
The Company operates in jurisdictions in which it has been granted tax holidays. Currently the benefit of these holidays is immaterial.
 
Note 12: Stockholders’ Equity
 
Common Stock
 
On December 7, 2007, stockholders of the Company approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 150,000,000 to 400,000,000. Additionally, effective December 28, 2007, the Company implemented a 2-for-1 stock split in the form of a stock dividend at that date.

 
65
 
 
In February 2006, the Company’s Board of Directors changed the number of shares of the Company’s common stock authorized for repurchase from the 5,000,000 shares authorized in August 2004 to 10,000,000 shares in order to reflect the 2-for-1 stock split effective December 15, 2005. This authorization was subsequently increased to 20,000,000 in connection with the 2-for-1 stock split effective December 28, 2007 and eventually to 30,000,000 by a resolution adopted by the Board of Directors on February 21, 2008. Additionally, on May 22, 2006, the Company’s Board of Directors approved repurchasing shares of the Company’s common stock with the proceeds remaining from the Company’s 2.5% Convertible Debenture offering, after taking into account a planned repayment of $200,000,000 principal amount of the Company’s outstanding 2.65% Senior Notes due 2007. This authorization is in addition to the 20,000,000 shares described above.
 
Purchases pursuant to the 30,000,000-share Board authorization may be made by way of open market purchases, directly or indirectly, for the Company’s own account or through commercial banks or financial institutions and by the use of derivatives such as a sale or put on the Company’s common stock or by forward or economically equivalent transactions.
 
Changes in the number of shares of the Company’s outstanding stock for the last three years were as follows:
 
   
Common
    
Treasury
    
Shares
  
   
Stock
    
Stock
    
Outstanding
  
Balance - December 31, 2004
     54,933,658       (1,795,843 )     53,137,815  
Purchase of treasury stock
     —       (164,500 )     (164,500 )
Stock issued under stock option and other employee benefit plans
     3,130,345       1,960,343       5,090,688  
Effect of stock split on shares outstanding
     57,565,114       —       57,565,114  
Balance - December 31, 2005
     115,629,117       —       115,629,117  
Purchase of treasury stock
     —       (6,241,315 )     (6,241,315 )
Stock issued upon conversion of 1.75% convertible debentures
     —       15,773       15,773  
Stock issued under stock option and other employee benefit plans
     541,746       2,344,306       2,886,052  
Balance - December 31, 2006
     116,170,863       (3,881,236 )     112,289,627  
Purchase of treasury stock before stock split
     —       (5,284,256 )     (5,284,256 )
Stock issued under stock option and other employee benefit plans before stock split
     —       2,074,029       2,074,029  
Effect of stock split on shares outstanding
     116,170,863       (7,091,464 )     109,079,399  
Purchase of treasury stock after stock split
     —       (150,000 )     (150,000 )
Balance - December 31, 2007
     232,341,726       (14,332,927 )     218,008,799  
 
At December 31, 2007, 14,172,167 shares of unissued common stock were reserved for future issuance under various employee benefit plans.
 
Preferred Stock
 
On October 1, 2007, the Board of Directors of the Company approved an amendment to the Amended and Restated Certificate of Incorporation to create a Series B Junior Participating Preferred Stock at a par value of $0.01 per share. Under the amendment, the Company is authorized to issue up to 3,000,000 shares of Series B Junior Participating Preferred Stock, none of which were issued or outstanding at December 31, 2007. Additionally, on December 17, 2007, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to eliminate all references in the Amended and Restated Certificate of Incorporation to the current Series A Junior Participating Preferred Stock. As a result, all authorized shares of the Series A Junior Participating Preferred Stock have now been cancelled.
 
Stockholder Rights Plan
 
The Company’s Board of Directors adopted a Rights Agreement, dated as of October 1, 2007 (the Rights Agreement), between the Company and its Rights Agent to replace the existing Rights Agreement which was set to expire on October 31, 2007. Subject to entering into the Rights Agreement, the Board of Directors declared, on October 1, 2007, a dividend distribution of one preferred share purchase right (a Right) for each outstanding share of Common Stock, payable on October 31, 2007 to stockholders of record on that date. Each Right entitles the holder to purchase one one-hundredth of a share of Series B Junior Participating Preferred Stock at an exercise price of $400 per one one-hundredth of a share of Preferred Stock, subject to adjustment.
 
The Rights are not exercisable until the occurrence of certain events specified in the Rights Agreement involving the actual or planned acquisition or beneficial ownership by a person or group of affiliated persons of 20% or more of the outstanding common stock of the Company at that time. Upon exercise, each holder, other than those involved in acquiring or owning 20% or more of the outstanding common stock of the Company, will have the right to receive common stock or other assets having a value equal to two times the exercise price of the Right. The Company may redeem the Rights at a price of $0.01 per Right at any time until the tenth business day following a potential acquisition of the Company as described above or expiration of the Rights. The Rights, if not exercised or redeemed earlier by the Company, will expire on October 31, 2017.

 
66
 
 
Retained Earnings
 
Delaware law, under which the Company is incorporated, provides that dividends may be declared by the Company’s Board of Directors from a current year’s earnings as well as from the total of capital in excess of par value plus the retained earnings, which amounted to approximately $2,417,636,000 at December 31, 2007.
 
Note 13: Accumulated Other Elements of Comprehensive Income
 
Accumulated other elements of comprehensive income comprised the following:
 
   
December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Accumulated foreign currency translation gain
   $ 164,305     $ 104,619  
Prior service credits, net, related to the Company’s pension and postretirement benefit plans
     1,381       3,173  
Actuarial losses, net, related to the Company’s pension  and postretirement benefit plans
     (69,809 )     (96,165 )
Change in fair value of derivatives accounted for as cash flow hedges, net of tax and other
     5,127       4,699  
    $ 101,004     $ 16,326  
 
Note 14: Business Segments
 
The Company’s operations are organized into three separate business segments — DPS, V&M and CS.
 
Based upon the amount of equipment installed worldwide and available industry data, DPS is one of the world’s leading providers of systems and equipment used to control pressures, direct flows of oil and gas wells and separate oil and gas from impurities. DPS’s products include surface and subsea production systems, blowout preventers, drilling and production control systems, oil and gas separation equipment, gate valves, actuators, chokes, wellheads, drilling riser and aftermarket parts and services.
 
Based upon the amount of equipment installed worldwide and available industry data, V&M is a leading provider of valves and measurement systems primarily used to control, direct and measure the flow of oil and gas as they are moved from individual wellheads through flow lines, gathering lines and transmission systems to refineries, petrochemical plants and industrial centers for processing. V&M’s products include gate valves, ball valves, butterfly valves, Orbit valves, double block and bleed valves, plug valves, globe valves, check valves, actuators, chokes and aftermarket parts and services. Measurement products include totalizers, turbine meters, flow computers, chart recorders, ultrasonic flow meters and sampling systems.
 
CS provides reciprocating and integrally geared centrifugal compression equipment and related aftermarket parts and services for the energy industry and for manufacturing companies and chemical process industries worldwide.
 
The Company’s primary customers are oil and gas majors, national oil companies, independent producers, engineering and construction companies, drilling contractors, rental companies, geothermal energy and independent power producers, pipeline operators, major chemical, petrochemical and refining companies, natural gas processing and transmission companies, compression leasing companies, durable goods manufacturers, utilities and air separation companies.
 
The Company markets its equipment through a worldwide network of sales and marketing employees supported by agents and distributors in selected international locations. Due to the extremely technical nature of many of the products, the marketing effort is further supported by a staff of engineering employees.
 
The Company expenses all research and product development and enhancement costs as incurred, or if incurred in connection with a product ordered by a customer, when the revenue associated with the product is recognized. For the years ended December 31, 2007, 2006 and 2005, the Company incurred research and product development costs, including costs incurred on projects designed to enhance or add to its existing product offerings, totaling approximately $59,585,000, $44,576,000 and $34,394,000, respectively. DPS accounted for 68%, 81% and 80% of each respective year’s total costs.
 
Summary financial data by segment follows:
 
   
Year Ended December 31, 2007
  
         
 
          
Corporate
        
(dollars in thousands)
  
DPS
    
V&M
    
CS
    
& Other
    
Consolidated
  
Revenues
   $ 2,887,079     $ 1,273,680     $ 505,609     $ —     $ 4,666,368  
Depreciation and amortization
   $ 55,882     $ 30,039     $ 13,668     $ 10,185     $ 109,774  
Interest income
   $ —     $ —     $ —     $ (30,745 )   $ (30,745 )
Interest expense
   $ —     $ —     $ —     $ 23,313     $ 23,313  
Income (loss) before income taxes
   $ 498,751     $ 268,033     $ 76,483     $ (134,792 )   $ 708,475  
Capital expenditures
   $ 147,304     $ 59,736     $ 22,783     $ 15,766     $ 245,589  
Total assets
   $ 2,784,305     $ 1,174,630     $ 363,656     $ 408,228     $ 4,730,819  

 
67
 
 
   
Year Ended December 31, 2006
  
                     
Corporate
        
(dollars in thousands)
  
DPS
    
V&M
    
CS
    
& Other
    
Consolidated
  
Revenues
   $ 2,113,073     $ 1,177,879     $ 451,955     $ —     $ 3,742,907  
Depreciation and amortization
   $ 52,762     $ 30,694     $ 12,957     $ 4,937     $ 101,350  
Interest income
   $ —     $ —     $ —     $ (26,939 )   $ (26,939 )
Interest expense
   $ —     $ —     $ —     $ 20,677     $ 20,677  
Income (loss) before income taxes
   $ 364,653     $ 167,541     $ 45,674     $ (89,267 )   $ 488,601  
Capital expenditures
   $ 115,052     $ 33,331     $ 20,453     $ 15,994     $ 184,830  
Total assets
   $ 2,101,823     $ 1,037,528     $ 285,278     $ 926,121     $ 4,350,750  
 
   
Year Ended December 31, 2005
  
                     
Corporate
        
(dollars in thousands)
  
DPS
    
V&M
    
CS
    
& Other
    
Consolidated
  
Revenues
   $ 1,507,823     $ 625,124     $ 384,900     $ —     $ 2,517,847  
Depreciation and amortization
   $ 43,736     $ 16,787     $ 15,387     $ 2,488     $ 78,398  
Interest income
   $ —     $ —     $ —     $ (13,060 )   $ (13,060 )
Interest expense
   $ —     $ —     $ —     $ 11,953     $ 11,953  
Income (loss) before income taxes
   $ 178,939     $ 101,539     $ 26,675     $ (44,141 )   $ 263,012  
Capital expenditures
   $ 49,789     $ 13,807     $ 7,269     $ 6,643     $ 77,508  
Total assets
   $ 1,575,363     $ 936,443     $ 280,057     $ 306,699     $ 3,098,562  
 
For internal management reporting, and therefore in the above segment information, Corporate and Other includes expenses associated with the Company’s Corporate office in Houston, Texas, as well as all of the Company’s interest income, interest expense, certain litigation expense managed by the Company’s General Counsel, foreign currency gains and losses from certain intercompany lending activities managed by the Company’s centralized Treasury function, the charge for the termination of the U.S. defined benefit pension plans and all of the Company’s stock compensation expense. Consolidated interest income and expense are treated as a Corporate item because short-term investments and debt, including location, type, currency, etc., are managed on a worldwide basis by the Corporate Treasury Department. In addition, income taxes are managed on a worldwide basis by the Corporate Tax Department and are therefore treated as a corporate item.
 
Revenue by shipping location and long-lived assets by country were as follows:
 
   
Year Ended December 31,
  
(dollars in thousands)
  
2007
    
2006
    
2005
  
Revenues:
                  
United States
   $ 2,359,256     $ 1,900,781     $ 1,365,770  
United Kingdom
     664,026       498,497       326,231  
Other foreign countries
     1,643,086       1,343,629       825,846  
Total revenues
   $ 4,666,368     $ 3,742,907     $ 2,517,847  
 
   
December 31,
  
(dollars in thousands)
  
2007
    
2006
    
2005
  
Long-lived assets:
                  
United States
   $ 849,580     $ 719,377     $ 655,922  
United Kingdom
     210,972       156,333       125,763  
Other foreign countries
     496,259       450,826       373,026  
Total long-lived assets
   $ 1,556,811     $ 1,326,536     $ 1,154,711  

 
68
 

Note 15: Earnings Per Share
 
The calculation of basic and diluted earnings per share for each period presented was as follows (prior year amounts have been revised to reflect the 2-for-1 stock split effective December 28, 2007):
 
   
Year Ended December 31,
  
(amounts in thousands)
  
2007
    
2006
    
2005
  
Net income
   $ 500,860     $ 317,816     $ 171,130  
Add back interest on convertible debentures, net of tax
     —       11       —  
                         
Net income (assuming conversion of convertible debentures)
   $ 500,860     $ 317,827     $ 171,130  
                         
Average shares outstanding (basic)
     219,355       226,566       221,464  
Common stock equivalents
     3,439       3,610       2,950  
Incremental shares from assumed conversion of convertible debentures 
     8,593       3,808       802  
                         
Shares utilized in diluted earnings per share calculation
     231,387       233,984       225,216  
                         
Earnings per share:
                        
Basic
   $ 2.28     $ 1.40     $ 0.77  
Diluted
   $ 2.16     $ 1.36     $ 0.76  
 
Diluted shares and net income used in computing diluted earnings per common share have been calculated using the if-converted method for the Company’s 1.75% Convertible Debentures for the period they were outstanding during the year ended December 31, 2006. For the year ended December 31, 2005, these debentures were anti-dilutive. The Company’s 1.5% Convertible Debentures have been included in the calculation of diluted earnings per share for the years ended December 31, 2007 and 2006, since the average market price of the Company’s common stock exceeded the conversion price of the debentures during both periods. The Company’s 2.5% Convertible Debentures have been included in the calculation of diluted earnings per share for the period ending December 31, 2007. The Company’s 2.5% Convertible Debentures have not been included in the calculation of diluted earnings per share for the year ended December 31, 2006, as the conversion price of the debentures was in excess of the average market price of the Company’s common stock during the year. See Note 9 of the Notes to Consolidated Financial Statements for further information regarding conversion of these debentures.
 
Note 16: Summary of Noncash Operating, Investing and Financing Activities
 
The effect on net assets of noncash operating, investing and financing activities was as follows:
 
   
Year Ended December 31,
  
(dollars in thousands)
  
2007
    
2006
  
Change in net assets due to implementation of SFAS 158, including elimination of minimum pension liability
   $ —     $ (91,485 )
Change in net assets due to implementation of FIN 48
   $ (6,996 )   $ —  
Change in receivables from employees relating to equity issuances from stock compensation plans
   $ —     $ (1,023 )
Change in net assets due to accrual for purchases of treasury stock
   $ (19,510 )   $ —  
Tax benefit of employee stock compensation plan transactions
   $ 32,239     $ 23,284  
Change in fair value of derivatives accounted for as cash flow hedges, net of tax
   $ 5,011     $ 13,468  
Actuarial loss, net, related to defined fenefit pension and postretirement  benefit plans
   $ 2,504     $ —  
Other
   $ —     $ 8,358  
 
Note 17: Off-Balance Sheet Risk and Guarantees, Concentrations of Credit Risk and Fair Value of Financial Instruments
 
Off-Balance Sheet Risk and Guarantees
 
At December 31, 2007, the Company was contingently liable with respect to $500,373,000 of bank guarantees and standby letters of credit issued on its behalf by major domestic and international financial institutions in connection with the delivery, installation and performance of the Company’s products under contract with customers throughout the world. The Company was also liable to these financial institutions for financial letters of credit and other guarantees issued on its behalf totaling $11,555,000, which provide security to third parties relating to the Company’s ability to meet specified financial obligations, including payment of leases, customs duties, insurance and other matters. Additionally, the Company was liable for
 
69
 
 
$5,627,000 of insurance bonds at December 31, 2007 relating to the requirements in certain foreign jurisdictions where the Company does business that the Company hold insurance bonds rather than bank guarantees.
 
The Company’s other off-balance sheet risks were not material at December 31, 2007.
 
Concentrations of Credit Risk
 
Apart from its normal exposure to its customers, who are predominantly in the energy industry, the Company had no significant concentrations of credit risk at December 31, 2007. The Company typically does not require collateral for its customer trade receivables.
 
Fair Value of Financial Instruments
 
The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, trade payables, derivative instruments and debt instruments. The book values of cash and cash equivalents, trade receivables, trade payables, derivative instruments and floating-rate debt instruments are considered to be representative of their respective fair values. At December 31, 2007, the fair value of the Company’s fixed-rate debt (based on quoted market rates) was approximately $1,432,859,000 as compared to the $738,000,000 face value of the debt.
 
In order to mitigate the effect of exchange rate changes, the Company will often attempt to structure sales contracts to provide for collections from customers in the currency in which the Company incurs its manufacturing costs. In certain instances, the Company will enter into forward foreign currency exchange contracts to hedge specific large anticipated receipts or disbursements in currencies for which the Company does not traditionally have fully offsetting local currency expenditures or receipts. The Company was party to a number of long-term foreign currency forward contracts at December 31, 2007. The purpose of the majority of these contracts was to hedge large anticipated non-functional currency cash flows on major subsea or drilling contracts involving the Company’s United States operations and its wholly-owned subsidiaries in Brazil, Ireland, Italy, Singapore and the United Kingdom. Information relating to the contracts and the fair values recorded in the Company’s Consolidated Balance Sheets at December 31, 2007 and 2006 follows:
 
   
December 31, 2007
        
   
Year of Contract Expiration
    
December 31,
  
(amounts in thousands except exchange rates)
  
2008
    
2009
    
Total
    
2006
  
Buy GBP/Sell USD:
                        
Notional amount to sell (in U.S. dollars)
   $ 10,966     $ 2,621     $ 13,587     $ 78,993  
Average USD to GBP contract rate
     1.8039       1.7989       1.8029       1.8080  
Average USD to GBP forward rate at December 31, 2007
     1.9695       1.9507       1.9658       1.9573  
Fair value at December 31, 2007 in U.S. dollars
                   $ 1,238     $ 6,525  
Sell GBP/Buy Euro:
                                
Notional amount to buy (in euros)
     899       12       911       16,876  
Average EUR to GBP contract rate
     1.3693       1.3450       1.3690       1.3891  
Average EUR to GBP forward rate at December 31, 2007
     1.3557       1.3435       1.3555       1.4746  
Fair value at December 31, 2007 in U.S. dollars
                   $ 13     $ (1,380 )
Buy USD/Sell BRL:
                                
Notional amount to buy (in U.S. dollars)
     20,491       19,089       39,580       —  
Average BRL to USD contract rate
     1.8372       1.9408       1.8872       —  
Average BRL to USD forward rate at December 31, 2007
     1.8384       1.9688       1.9013       —  
Fair value at December 31, 2007 in U.S. dollars
                   $ 314     $ —  
Buy Euro/Sell USD:
                                
Notional amount to buy (in euros)
     75,140       23,349       98,489       35,536  
Average USD to EUR contract rate
     1.1537       1.4103       1.2145       1.2970  
Average USD to EUR forward rate at December 31, 2007
     1.2149       1.4519       1.2711       1.3324  
Fair value at December 31, 2007 in U.S. dollars
                   $ 6,374     $ —  
Other Currencies:
                                
Fair value at December 31, 2007 in U.S. dollars
                   $ 85     $ (258 )

 
70
 
Note 18: Contingencies
 
The Company is subject to a number of contingencies, including environmental matters, litigation and tax contingencies.
 
Environmental Matters
 
The Company’s worldwide operations are subject to regulations with regard to air, soil and water quality as well as other environmental matters. The Company, through its environmental management system and active third-party audit program, believes it is in substantial compliance with these regulations.
 
The Company is currently identified as a potentially responsible party (PRP) with respect to two sites designated for cleanup under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or similar state laws. One of these sites is Osborne, Pennsylvania (a landfill into which a predecessor of the CS operation in Grove City, Pennsylvania deposited waste), where remediation is complete and remaining costs relate to ongoing ground water treatment and monitoring. The other is believed to be a de minimis exposure. The Company is also engaged in site cleanup under the Voluntary Cleanup Plan of the Texas Commission on Environmental Quality at former manufacturing locations in Houston and Missouri City, Texas. Additionally, the Company has discontinued operations at a number of other sites which had been active for many years. The Company does not believe, based upon information currently available, that there are any material environmental liabilities existing at these locations. At December 31, 2007, the Company’s consolidated balance sheet included a noncurrent liability of approximately $7,548,000 for environmental matters.
 
Legal Matters
 
In 2001, the Company discovered that contaminated underground water from the former manufacturing site in Houston referenced above had migrated under an adjacent residential area. Pursuant to applicable state regulations, the Company notified the affected homeowners. Concerns over the impact on property values of the underground water contamination and its public disclosure led to a number of claims by homeowners.
 
The Company has entered into a number of individual settlements and has settled a class action lawsuit. Twenty-one of the individual settlements were made in the form of agreements with homeowners that obligated the Company to reimburse them for any estimated decline in the value of their homes at time of sale due to potential buyers’ concerns over contamination or, in the case of some agreements, to purchase the property after an agreed marketing period. Three of these agreements have had no claims made under them yet. The Company has also settled ten other property claims by homeowners who have sold their properties. In addition, the Company has settled Valice v. Cameron Iron Works, Inc. (80th Jud. Dist. Ct., Harris County, filed June 21, 2002), which was filed and settled as a class action. Pursuant to the settlement, the homeowners who remained part of the class are entitled to receive a cash payment of approximately 3% of the 2006 appraised value of their property or reimbursement of any diminution in value of their property due to contamination concerns at the time of any sale. To date, 60 homeowners have elected the cash payment.
 
Of the 258 properties included in the Valice class, there were 21 homeowners who opted out of the class settlement. There are three suits currently pending regarding this matter filed by non-settling homeowners. Moldovan v. Cameron Iron Works, Inc. (165th Jud. Dist. Ct., Harris County, filed October 23, 2006), was filed by six such homeowners. The other suits were filed by individual homeowners, Tuma v. Cameron Iron Works, Inc. (334th Judicial District Court of Harris County, Texas, filed on November 27, 2006), and Rudelson v. Cooper Industries, Inc. (189th Judicial District Court of Harris County, Texas, filed on November 29, 2006). The complaints filed in these actions make the claim that the contaminated underground water has reduced property values and seek recovery of alleged actual and exemplary damages for the loss of property value.
 
While one suit related to this matter involving health risks has been filed, the Company is of the opinion that there is no health risk to area residents and that the suit is without merit.
 
The Company believes, based on its review of the facts and law, that any potential exposure from existing agreements, the class action settlement or other actions that have been or may be filed, will not have a material adverse effect on its financial position or results of operations. The Company’s consolidated balance sheet included a liability of $13,549,000 for these matters as of December 31, 2007.
 
The Company has been named as a defendant in a number of multi-defendant, multi-plaintiff tort lawsuits since 1995. At December 31, 2007, the Company’s consolidated balance sheet included a liability of approximately $2,869,000 for such cases, including estimated legal costs. The Company believes, based on its review of the facts and law, that the potential exposure from these suits will not have a material adverse effect on its consolidated results of operations, financial condition or liquidity.
 
Regulatory Contingencies
 
In January 2007, the Company underwent a Pre-Assessment Survey as part of a Focused Assessment initiated by the Regulatory Audit Division of the U.S. Customs and Border Protection, Department of Homeland Security. The Pre-Assessment Survey resulted in a finding that the Company had deficiencies in its U.S. Customs compliance processes. The Company is taking corrective action and will undergo Assessment Compliance Testing in the first half of 2008. At December 31, 2007, the Company’s consolidated balance sheet included a liability of $750,000 for the estimated additional customs duties which may be due.
 
In July 2007, the Company was one of a number of companies to receive a letter from the Criminal Division of the U.S. Department of Justice (DOJ) requesting information on their use of a freight forwarder and customs clearance broker. The DOJ is inquiring into whether certain of the services provided to the Company by the freight forwarder may have involved violations of the U.S. Foreign Corrupt Practices Act (FCPA). The Company is conducting an internal investigation in response, as discussed below, and is providing the requested information to the DOJ.
 
The Company engaged special counsel reporting to the Audit Committee of the Board of Directors to conduct an investigation into its dealings with the freight forwarder to determine if any payment made to or by the freight forwarder and customs clearing broker on the Company's behalf constituted a violation of the FCPA. The investigation is also looking into activities of Company employees and agents with respect to immigration matters and importation permitting. To date, the special counsel has found that the Company utilized certain services in Nigeria offered by the customs broker that appear to be similar to services that have been under review by the DOJ. Special counsel is reviewing these and other services
 
71
 
 
and activities to determine whether they were conducted in compliance with all applicable laws and regulations. Special counsel is also reviewing the extent, if any, of the Company’s knowledge, and its involvement in the performance, of these services and activities and whether the Company fulfilled its obligations under the FCPA.
 
In addition, the U.S. Securities and Exchange Commission (SEC) is conducting an informal inquiry into the same matters currently under review by the DOJ. As part of this inquiry the SEC has requested that the Company provide to them the information and documents that have been requested by and are being provided to the DOJ. The Company is cooperating fully with the SEC, as it is doing with the DOJ, and is providing the requested materials. At this stage of the internal investigation, the Company cannot predict the ultimate outcome of either the internal investigation or the government inquiries. The Company has also undertaken an enhanced compliance training effort for its personnel, including foreign operations personnel dealing with customs clearance regulations.
 
Tax Contingencies
 
The Company has legal entities in over 35 countries. As a result, the Company is subject to various tax filing requirements in these countries. The Company prepares its tax filings in a manner which it believes is consistent with such filing requirements. However, some of the tax laws and regulations which the Company is subject to are subject to interpretation and/or judgment. Although the Company believes that the tax liabilities for periods ending on or before the balance sheet date have been adequately provided for in the financial statements, to the extent that a taxing authority believes that the Company has not prepared its tax filings in accordance with the authority’s interpretation of the tax laws/regulations, the Company could be exposed to additional taxes.
 
Note 19: Unaudited Quarterly Operating Results
 
Unaudited quarterly operating results were as follows (prior period earnings per share amounts have been revised to reflect the 2-for-1 stock split effective December 28, 2007):
 
   
2007 (by quarter)
  
(dollars in thousands, except per share data)
    
1
    
 
2
      
3
      
4
  
Revenues
   $ 997,050     $ 1,139,042     $ 1,186,173     $ 1,344,103  
Revenues less cost of sales (exclusive of depreciation and amortization)
   $ 303,134     $ 346,912     $ 376,014     $ 398,070  
Charge for pension plan termination
   $ —     $ —     $ —     $ 35,725  
Net income
   $ 101,004     $ 123,228     $ 150,723     $ 125,905  
Earnings per share:
                                
Basic
   $ 0.45     $ 0.56     $ 0.69     $ 0.58  
Diluted
   $ 0.44     $ 0.54     $ 0.65     $ 0.54  
 
   
2006 (by quarter)
  
(dollars in thousands, except per share data)
    
1
      
2
      
3
      
4
  
Revenues
   $ 829,660     $ 857,765     $ 978,792     $ 1,076,690  
Revenues less cost of sales (exclusive of depreciation and amortization)
   $ 244,665     $ 274,856     $ 293,824     $ 328,490  
Acquisition integration costs
   $ 10,028     $ 9,083     $ 3,648     $ 6,819  
Income from liquidation of LIFO inventory layers at Compression Systems
   $ —     $ —     $ —     $ 2,091  
Charge relating to settlement of a class action lawsuit
   $ 6,500     $ —     $ 2,000     $ 9,000  
Net income
   $ 56,042     $ 75,964     $ 89,285     $ 96,525  
Earnings per share:
                                
Basic
   $ 0.24     $ 0.33     $ 0.40     $ 0.43  
Diluted
   $ 0.24     $ 0.32     $ 0.39     $ 0.42  
 
72
 
Selected Consolidated Historical Financial Data of Cameron International Corporation
 
The following table sets forth selected historical financial data for the Company for each of the five years in the period ended December 31, 2007. This information should be read in conjunction with the consolidated financial statements of the Company and notes thereto included elsewhere in this Annual Report.
 
   
Year Ended December 31,
  
(dollars in thousands, except per share data)
  
2007
    
2006
    
2005
    
2004
    
2003
  
                               
Income Statement Data:
                              
Revenues
   $ 4,666,368     $ 3,742,907     $ 2,517,847     $ 2,092,845     $ 1,634,346  
                                         
Costs and expenses:
                                        
Cost of sales (exclusive of depreciation and amortization shown separately below)
     3,242,238       2,601,072       1,796,277       1,560,268       1,181,650  
Selling and administrative expenses
     577,588       528,568       381,267       300,124       288,569  
Depreciation and amortization
     109,774       101,350       78,398       82,841       83,565  
Non-cash write-down of technology investment
     —       —       —       3,814       —  
Interest income
     (30,745 )     (26,939 )     (13,060 )     (4,874 )     (5,198 )
Interest expense
     23,313       20,677       11,953       17,753       8,157  
Charge for pension plan termination
     35,725       —       —       —       —  
Acquisition integration costs
     —       29,578       —       —       —  
Total costs and expenses
     3,957,893       3,254,306       2,254,835       1,959,926       1,556,743  
                                         
Income before income taxes and cumulative effect of accounting change
     708,475       488,601       263,012       132,919       77,603  
Income tax provision
     (207,615 )     (170,785 )     (91,882 )     (38,504 )     (20,362 )
                                         
Income before cumulative effect of accounting change
     500,860       317,816       171,130       94,415       57,241  
Cumulative effect of accounting change
     —       —       —       —       12,209  
Net income
   $ 500,860     $ 317,816     $ 171,130     $ 94,415     $ 69,450  
                                         
Basic earnings per share: 1
                                        
Before cumulative effect of accounting change
   $ 2.28     $ 1.40     $ 0.77     $ 0.44     $ 0.27  
Cumulative effect of accounting change
     —       —       —       —       0.06  
Net income per share
   $ 2.28     $ 1.40     $ 0.77     $ 0.44     $ 0.33  
                                         
Diluted earnings per share: 1
                                        
Before cumulative effect of accounting change
   $ 2.16     $ 1.36     $ 0.76     $ 0.44     $ 0.26  
Cumulative effect of accounting change
     —       —       —       —       0.05  
Net income per share
   $ 2.16     $ 1.36     $ 0.76     $ 0.44     $ 0.31  
                                         
                                         
Balance Sheet Data (at the end of period):
                                        
Total assets
   $ 4,730,819     $ 4,350,750     $ 3,098,562     $ 2,356,430     $ 2,140,685  
Stockholders’ equity
   $ 2,094,964     $ 1,741,439     $ 1,594,763     $ 1,228,247     $ 1,136,723  
Long-term debt
   $ 745,128     $ 745,408     $ 444,435     $ 458,355     $ 204,061  
Other long-term obligations
   $ 197,851     $ 235,691     $ 137,503     $ 141,568     $ 119,982  
 
1  Prior year earnings per share have been revised to reflect the 2-for-1 stock split effective December 28, 2007.
 
 
73
 EX-21.1 6 ex21_1.htm SUBSIDIARY LIST ex21_1.htm
 
EXHIBIT 21.1

CAMERON INTERNATIONAL CORPORATION -- SUBSIDIARIES & JOINT VENTURES
(Active As of February 25, 2008)
Cameron International Corporation (Delaware) -- Parent - 100
% Owned  By Subsidiary
% Owned By CAM
State/Country of Incorporation or  Organization
       
1 - Cameron Algerie (1 share owned by CPEGI)
  
100%
Algeria
1 - Cameron Al Rushaid Limited Company
  
50%
Saudi Arabia
1 - Cameron Argentina S.A.I.C. (122,700 shares owned by CPEGI)
Less than 1%
100%
Argentina
1 - Cameron Gabon, S.A. (1 share owned by Chairman)
  
100%
Gabon
1 - Cameron/Curtiss-Wright EMD LLC
  
50%
Delaware, USA
1 - Cameron Offshore Systems Nigeria Limited
  
100%
Nigeria
1 - Cameron Services Middle East LLC (Joint Venture)
  
24%
Oman
1 - Cameron Venezolana, S.A. - (51% owned by CPEGI)
  
100%
Venezuela
1 - Cameron Angola - Prestaçao de Serviços, Limitada - (1 share owned by CPEGI)
  
100%
Angola
1 - Compression Services Company
  
100%
Ohio, USA
1 - Cooper Cameron Foreign Sales Company Ltd.
  
100%
Barbados
1 - Cameron International Holding Corp. (CESI has partial interest)
8.36%
91.64%
Nevada, USA
 
2 - Cameron Holding (Cayman) Limited
100%
  
Grand Cayman
 
3 - Cameron Technologies UK Limited
100%
  
England & Wales
 
3 - Petreco International Limited
100%
  
United Kingdom
 
4 - KCC Group Limited
100%
  
United Kingdom
 
5 - Petreco International (Middle East) Limited
100%
  
United Kingdom
 
5 - KCC Process Equipment Limited
100%
  
United Kingdom
 
6 - RJB Engineering (UK) Limited
100%
  
United Kingdom
 
5 - KCC Resources (Jersey) Limited
100%
  
Jersey
 
3 - Cameron Products Ltd.
100%
  
Grand Cayman
 
3 - Cameron Russia Ltd.
100%
  
Grand Cayman
 
3 - Cameron Services Russia Ltd.
100%
  
Grand Cayman
 
3  - Cameron Australasia Pty. Ltd.
100%
  
Australia
 
 4 - Cooper Cameron Valves Australia Pty. Ltd.
100%
  
Australia
 
3 - Cameron Campex Limited
80.1%
  
Grand Cayman
 
 4 - ShanDong Cooper Cameron Petroleum Equipment PTE LTD  (10-12-2004)
100%
  
China
 
3 - Cameron do Brasil Ltda. (1 share owned by Cameron (Lux) SARL)
100%
  
Brazil
 
4 - On/Off Manufatura e Comércio de Vávulas Ltda.
100%
  
Brazil
 
      [1 share owned by Cameron Holding (Cayman) Limited]
      
 
3 - Cameron (Trinidad) Limited
100%
  
Trinidad and Tobago
 
3 - Cameron International Malaysia Sdn Bhd
49%
  
Malaysia
 
3 - Cameron Holding (Luxembourg) SARL
100%
  
Luxembourg
 
4 - Cameron (Luxembourg) SARL
100%
  
Luxembourg
 
5 – SBS Oilfield Equipment GmbH
100%
  
Austria
 
5 – SBS Immobilienentwicklung und-verwertungs GmbH (partially owned by Cameron Limited)
100%
  
Austria
 
5 - Cameron GmbH
100%
  
Germany
 
5 - Cameron Italy S.R.L.
100%
  
Italy
 
5 - Cameron Ireland Limited
100%
  
Ireland
 
5 - Cameron Systems (Ireland) Limited
100%
  
Ireland
 
5 - Cameron International Malaysia Systems Sdn Bhd
100%
  
Malaysia
 
5 - Cameron Korea Limited
100%
  
Korea
 
5 - Cameron Valves - Trading and Industrial Services LDA
55%
  
Portugal
 
6 - Cameron Valves & Measurement West Africa Limited
70%
  
Nigeria
 
5 - Cameron Netherlands B.V. (11-2004)
100%
  
Netherlands
 
6 - Cameron Euro Automation Center B.V.
100%
  
Netherlands
 
6- Caméron România S.A.
100%
  
Romania
 
5- Cameron Holding (Dutch) B.V.
100%
  
Netherlands
 
6- Cameron Canada Corporation
100%
  
Canada/Nova Scotia
 
5 - Cooper Cameron Holding (U.K.) Limited
100%
  
United Kingdom
 
6 - Cameron France, S.A.S.
100%
  
France
 
6 - Cameron Limited
100%
  
United Kingdom
 
7 - Cooper Cameron (U.K.) Investments Limited
100%
  
United Kingdom
 
8 - Cameron Manufacturing (India) Private Limited
100%
  
India
 
8 - Flow Control-Tati Production Sdn. Bhd.
49%
  
Malaysia
 
7 - Cameron Offshore Engineering Limited
100%
  
United Kingdom
 
7 - Cooper Cameron Pensions Limited
100%
  
United Kingdom
 
7 - Cameron Integrated Services Limited
100%
  
United Kingdom
 
7 - D.E.S. Operations Limited
100%
  
Scotland
 
7 - DES Operations, Inc.
100%
  
Texas, USA
 
7 - International Valves Limited
100%
  
United Kingdom
 
6 - Cameron International Holding B.V.
100%
  
Netherlands
 
7 - Cameron Energy Services B.V.
100%
  
Netherlands
 
7 - Cameron B.V.
100%
  
Netherlands
 
7 - Cooper Cameron Holding (Norway) AS
100%
  
Norway
 
8 - Cameron Norge AS
100%
  
Norway
 
3 - Cooper Cameron Libya Limited
50%
  
Malta
 
3 - Cameron (Singapore) Pte. Ltd.
100%
  
Singapore
 
4 - Cameron Systems Shanghai Co., Ltd.
100%
  
China
 
4 - Riyan Cameron (B) Sendirian Berhad
100%
  
Brunei
1 - Cameron (Holding) Corp.
  
100%
Nevada, USA
 
2-  Cameron Technologies, Inc.
100%
  
Delaware, USA
 
3 - Cameron Flow Systems Ltd.
100%
  
Alberta, CA
 
3 - NuFlo Finance and Royalty Company
100%
  
Delaware, USA
 
3 - Cameron Technologies US, Inc.
100%
  
Delaware, USA
1 - Sequel Holding, Inc.
  
100%
Delaware, USA
1 - Petreco International Inc. (partially owned by Sequel Holding, Inc.)
51%
49%
Delaware, USA
 
2 - Petreco-KCC Holding, Inc.
100%
  
Delaware, USA
 
3 - Petreco-KCC Limited
100%
  
United Kingdom
 
2 - Petreco Canada Inc.
100%
  
Canada/Alberta
1 - Cooper Cameron Corporation Nigeria Limited
  
60%
Nigeria
1 - Cameron Systems Srl
  
100%
Italy
1 - Cameron Systems de Venezuela, S.A.
  
100%
Venezuela
1 - Cameron Energy Services International, Inc.
  
100%
Ohio, USA
 
2 - Canada Tiefbohrgeräte und Maschinenfabrik GmbH (1 share owned by CPEGI)
100%
  
Austria
1 - Cameron de Mexico S.A. de C.V. (1 share owned by CPEGI)
  
100%
Mexico
1 - Cameron Petroleum Equipment Group, Inc. (CPEGI)
  
100%
Delaware, USA
1 - Cameron Wellhead Services, Inc.
  
100%
Nevada, USA
 
2 - Cooper Cameron (Malaysia) Sdn Bhd
49%
  
Malaysia
 
3 - Cooper Cameron Valves Singapore Pte. Ltd.
100%
  
Singapore
 
4 - Cooper Cameron Corporation Sdn Bhd
100%
  
Malaysia
 
4 - PCC Bumi Flow Technologies Sdn. Bhd.
100%
  
Malaysia
 

 EX-23.1 7 ex23_1.htm CONSENT OF INDEPEND REG PUBLIC ACCTING FIRM ex23_1.htm

EXHIBIT 23.1
 

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements on Forms S-3, S-3/A and S-8 of Cameron International Corporation of our reports dated February 27, 2008, with respect to the consolidated financial statements and schedule of Cameron International Corporation and the effectiveness of internal control over financial reporting of Cameron International Corporation, incorporated by reference or included in this Annual Report (Form 10-K) of Cameron International Corporation for the year ended December 31, 2007.

Registration
Statement No.
 
Purpose
No. 333-26923
No. 33-95004
No. 333-53545
No. 333-37850
No. 333-106224
 
Form S-8 Registration Statements pertaining to the Amended and Restated Cooper Cameron Corporation Long-Term Incentive Plan
No. 33-95002
Form S-8 Registration Statement pertaining to the Cooper Cameron Corporation Retirement Savings Plan
 
No. 333-57991
Form S-8 Registration Statement pertaining to the Individual Account Retirement Plan for Bargaining Unit Employees at the Cooper Cameron Corporation Buffalo, New York Plant
 
No. 333-51705
Form S-3 Registration Statement pertaining to the Cooper Cameron Corporation shelf registration of up to $500 million of securities
 
No. 333-79787
Form S-8 Registration Statement pertaining to the Cooper Cameron Corporation Second Amended and Restated 1995 Stock Option Plan for Non-Employee Directors
 
No. 333-46638
No. 333-82082
No. 333-61820
No. 333-104755
 
Form S-8 Registration Statements pertaining to the Cooper Cameron Corporation Broad Based 2000 Incentive Plan
No. 333-96565
Form S-3 and S-3/A Registration Statements pertaining to the Cooper Cameron Corporation shelf registration of up to $500 million of securities
 
No. 333-106225
Form S-8 Registration Statement pertaining to the Cooper Cameron Corporation Compensation Deferral Plan, Cooper Cameron Corporation Supplemental Excess Defined Contribution Plan and 2003 Cooper Cameron Corporation Supplemental Excess Defined Contribution Plan
 
No. 333-116667
Form S-3 and S-3/A Registration Statements pertaining to the Cooper Cameron Corporation 1.50% Convertible Senior Debentures due 2024
 
No. 333-128414
No. 333-136900
Form S-8 Registration Statement pertaining to the Cooper Cameron Corporation 2005 Equity Incentive Plan
   
No. 333-136589
 Form S-3 ASR Registration Statement pertaining to the Cameron International Corporation 2.50% Convertible Senior Notes due 2026

   
/s/ Ernst & Young LLP
 
 
Houston, Texas
February 27, 2008
 
 
EX-31.1 8 ex31_1.htm CEO CERTIFICATION ex31_1.htm
EXHIBIT 31.1

Cameron International Corporation and Subsidiaries
Certification
 
I, Sheldon R. Erikson, certify that:
 
1. I have reviewed this annual report on Form 10-K of Cameron International Corporation;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
 
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: February 28, 2008
 
 
 /s/ Sheldon R. Erikson
 
 Sheldon R. Erikson
 
 Chairman & Chief Executive Officer
 
 EX-31.2 9 ex31_2.htm CFO CERTIFICATION ex31_2.htm
EXHIBIT 31.2

Cameron International Corporation and Subsidiaries
Certification

I, Franklin Myers, certify that:

1. I have reviewed this annual report on Form 10-K of Cameron International Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2008

 
 /s/ Franklin Myers   
 
 Franklin Myers
 
 Senior Vice President and Chief Financial Officer
 

 EX-32.1 10 ex32_1.htm CEO & CFO CERTIFICATION PURSUANT TO SEC 906 ex32_1.htm
EXHIBIT 32.1

Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2007 of Cameron International Corporation (the Company) as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to such officer’s knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 28, 2008

/s/ Sheldon R. Erikson  
Name: Sheldon R. Erikson
Title: Chairman & Chief Executive Officer

/s/ Franklin Myers  
Name: Franklin Myers
Title: Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cameron International Corporation and will be retained by Cameron International Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

Note: The certification the registrant furnishes in this exhibit is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. Registration Statements or other documents filed with the Securities and Exchange Commission shall not incorporate this exhibit by reference, except as otherwise expressly stated in such filing.


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