INGERSOLL-RAND PLC, 10-Q filed on 11/6/2009
Quarterly Report
Statement Of Income Alternative (USD $)
In Millions, except Per Share data
3 Months Ended
Sep. 30, 2009
9 Months Ended
Sep. 30, 2009
3 Months Ended
Sep. 30, 2008
9 Months Ended
Sep. 30, 2008
Net revenues
$ 3,482.7 
$ 9,889.4 
$ 4,313.2 
$ 9,557.3 
Cost of goods sold
(2,486.6)
(7,233.4)
(3,209.4)
(6,946.4)
Selling and administrative expenses
(677.8)
(2,037.2)
(756.4)
(1,654.9)
Operating income
318.3 
618.8 
347.4 
956.0 
Interest expense
(76.5)
(225.8)
(83.7)
(156.4)
Other, net
0.5 
16.3 
1.8 
77.3 
Earnings (loss) before income taxes
242.3 
409.3 
265.5 
876.9 
Benefit (provision) for income taxes
(11.4)
(54.6)
(26.3)
(153.2)
Continuing operations
230.9 
354.7 
239.2 
723.7 
Discontinued operations, net of tax
(8.3)
(26.4)
(6.0)
(42.4)
Net earnings (loss)
222.6 
328.3 
233.2 
681.3 
Less: Net earnings attributable to noncontrolling interests
(6.0)
(16.4)
(5.5)
(15.9)
Net earnings (loss) attributable to Ingersoll-Rand plc
216.6 
311.9 
227.7 
665.4 
Amounts attributable to Ingersoll-Rand plc ordinary shareholders:
 
 
 
 
Continuing operations
224.9 
338.3 
233.7 
707.8 
Discontinued operations
(8.3)
(26.4)
(6.0)
(42.4)
Net earnings (loss) attributable to Ingersoll-Rand plc
216.6 
311.9 
227.7 
665.4 
Earnings (loss) per share attributable to Ingersoll-Rand plc ordinary shareholders:
 
 
 
 
Basic:
 
 
 
 
Continuing operations
0.70 
1.05 
0.73 
2.40 
Discontinued operations
(0.03)
(0.08)
(0.02)
(0.14)
Net earnings (loss)
0.67 
0.97 
0.71 
2.26 
Diluted:
 
 
 
 
Continuing operations
0.68 
1.04 
0.72 
2.38 
Discontinued operations
(0.03)
(0.08)
(0.02)
(0.14)
Net earnings (loss)
0.65 
0.96 
0.70 
2.24 
Weighted-average shares outstanding
 
 
 
 
Basic
321.0 
320.8 
320.2 
293.9 
Diluted
331.8 
326.4 
324.1 
297.5 
Dividends per ordinary share
$ 0.07 
$ 0.43 
$ 0.18 
$ 0.54 
Statement Of Financial Position Classified (USD $)
In Millions
Sep. 30, 2009
Dec. 31, 2008
ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
$ 743.9 
$ 550.2 
Accounts and notes receivable
2,130.4 
2,512.1 
Inventories
1,303.7 
1,615.1 
Other current assets
594.2 
722.3 
Total current assets
4,772.2 
5,399.7 
Property, plant and equipment, net
1,909.9 
1,968.5 
Goodwill
6,676.1 
6,620.1 
Intangible assets, net
5,090.8 
5,214.1 
Other noncurrent assets
1,684.1 
1,722.1 
Total assets
20,133.1 
20,924.5 
LIABILITIES AND EQUITY
 
 
Current liabilities:
 
 
Accounts payable
1,135.6 
1,046.5 
Accrued compensation and benefits
482.6 
508.8 
Accrued expenses and other current liabilities
1,489.4 
1,605.7 
Short-term borrowings and current maturities of long-term debt
922.4 
2,350.4 
Total current liabilities
4,030.0 
5,511.4 
Long-term debt
3,210.0 
2,773.7 
Postemployment and other benefit liabilities
1,857.5 
1,865.5 
Deferred and noncurrent income taxes
2,116.3 
2,184.8 
Other noncurrent liabilities
1,733.4 
1,827.0 
Total liabilities
12,947.2 
14,162.4 
Shareholders' equity:
 
 
Ingersoll-Rand plc shareholders' equity:
 
 
Ordinary shares
319.5 
318.8 
Capital in excess of par value
2,351.0 
2,246.0 
Retained earnings
4,721.5 
4,547.4 
Accumulated other comprehensive income (loss)
(310.5)
(450.8)
Total Ingersoll-Rand plc shareholders' equity
7,081.5 
6,661.4 
Noncontrolling interests
104.4 
100.7 
Total shareholders' equity
7,185.9 
6,762.1 
Total liabilities and shareholders' equity
$ 20,133.1 
$ 20,924.5 
Statement Of Cash Flows Indirect (USD $)
In Millions
9 Months Ended
Sep. 30,
2009
2008
Cash flows from operating activities:
 
 
Net earnings (loss)
$ 328.3 
$ 681.3 
(Income) loss from discontinued operations, net of tax
26.4 
42.4 
Adjustments to arrive at net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
315.7 
329.8 
Stock settled share-based compensation
56.0 
35.1 
Changes in other assets and liabilities, net
682.8 
(1,127.4)
Other, net
93.1 
52.3 
Net cash provided by (used in) continuing operating activities
1,502.3 
13.5 
Net cash provided by (used in) discontinued operating activities
(22.1)
(26.1)
Cash flows from investing activities:
 
 
Capital expenditures
(156.1)
(196.2)
Proceeds from sale of property, plant and equipment
19.0 
59.7 
Acquisitions, net of cash acquired
0.0 
(7,105.4)
Proceeds from business dispositions, net of cash
0.0 
73.3 
Other, net
(0.2)
(42.5)
Net cash provided by (used in) continuing investing activities
(137.3)
(7,211.1)
Net cash provided by (used in) discontinued investing activities
Cash flows from financing activities:
 
 
Proceeds from issuance of bonds
1,000.0 
0.0 
Proceeds from bridge loan
196.0 
2,950.0 
Payments of bridge loan
(950.0)
(2,000.0)
Commercial paper program (net)
(998.7)
958.2 
Increase (decrease) in other short-term borrowings
(11.7)
5.5 
Proceeds from long-term debt
2.2 
1,603.1 
Payments of long-term debt
(210.3)
(170.0)
Net change in debt
(972.5)
3,346.8 
Settlement of cross currency swap
(26.9)
0.0 
Debt issuance costs
(16.1)
(23.2)
Dividends paid to ordinary shareholders
(137.8)
(155.5)
Acquisition of noncontrolling interest
(1.5)
0.0 
Proceeds from exercise of stock options
8.3 
18.2 
Repurchase of ordinary shares by subsidiary
0.0 
(2.0)
Other, net
(12.0)
6.3 
Net cash provided by (used in) continuing financing activities
(1,158.5)
3,190.6 
Net cash provided by (used in) discontinued financing activities
Effect of exchange rate changes on cash and cash equivalents
9.3 
39.3 
Net increase (decrease) in cash and cash equivalents
193.7 
(3,993.8)
Cash and cash equivalents - beginning of period
550.2 
4,735.3 
Cash and cash equivalents - end of period
$ 743.9 
$ 741.5 
Note 1 - Description of Company
Note 1 - Description of Company

Note 1 – Description of Company

Ingersoll-Rand plc (IR-Ireland), an Irish public limited company, and its consolidated subsidiaries (the Company) is a diversified, global company that provides products, services and solutions to enhance the quality and comfort of air in homes and buildings, transport and protect food and perishables, secure homes and commercial properties, and increase industrial productivity and efficiency. The Company’s business segments consist of Air Conditioning Systems and Services, Climate Control Technologies, Industrial Technologies and Security Technologies, each with strong brands and leading positions within their respective markets. The Company generates revenue and cash primarily through the design, manufacture, sale and service of a diverse portfolio of industrial and commercial products that include well-recognized, premium brand names such as Club Car®, Hussmann®, Ingersoll-Rand®, Schlage®, Thermo King® and Trane®.

On July 1, 2009, Ingersoll-Rand Company Limited (IR-Limited), a Bermuda company, completed a reorganization to change the jurisdiction of incorporation of the parent company of Ingersoll Rand from Bermuda to Ireland. As a result, IR-Ireland replaced IR-Limited as the ultimate parent company effective July 1, 2009. All references related to the Company prior to July 1, 2009 relate to IR-Limited.

Note 2 - The Reorganization
Note 2 - The Reorganization

Note 2 – The Reorganization

On March 5, 2009, the Company’s board of directors approved a reorganization that would change the jurisdiction of incorporation of the parent company of Ingersoll Rand from Bermuda to Ireland (the Reorganization). The first step in the Reorganization was the establishment of IR-Limited’s tax residency in Ireland, which occurred in March 2009. Subsequently, IR-Ireland replaced IR-Limited as the ultimate parent company pursuant to a scheme of arrangement under Bermuda law (the Scheme of Arrangement). Major milestones to complete the Scheme of Arrangement were as follows:

 

   

On April 1, 2009, IR-Limited formed IR-Ireland as a direct subsidiary.

 

   

On April 20, 2009, IR-Limited petitioned the Supreme Court of Bermuda to order the calling of a meeting of the Class A common shareholders of IR-Limited to approve the Scheme of Arrangement.

 

   

On April 23, 2009, the Supreme Court of Bermuda ordered IR-Limited to seek the approval of its Class A common shareholders on the Scheme of Arrangement.

 

   

On June 3, 2009, IR-Limited received the requisite approval from its Class A common shareholders.

 

   

On June 11, 2009, the Supreme Court of Bermuda issued an order (the Sanction Order) approving the Scheme of Arrangement.

 

On June 30, 2009, IR-Limited filed the Sanction Order with the Bermuda Registrar of Companies and, at 12:01 a.m. on July 1, 2009 (the Transaction Time) the following steps occurred simultaneously:

 

   

All fractional shares of IR-Limited held of record were cancelled and IR-Limited paid to each holder of fractional shares that were cancelled an amount based on the average of the high and low trading prices of the IR-Limited Class A common shares on the New York Stock Exchange on June 29, 2009.

 

   

All previously outstanding whole Class A common shares of IR-Limited were cancelled.

 

   

IR-Limited issued to IR-Ireland 319,166,220 Class A common shares.

 

   

IR-Ireland issued 319,166,220 ordinary shares to holders of whole IR-Limited Class A common shares that were cancelled as a part of the Scheme of Arrangement.

 

   

All previously outstanding ordinary shares of IR-Ireland held by IR-Limited and its nominees were acquired by IR-Ireland and cancelled for no consideration.

As a result of the Reorganization, IR-Limited became a wholly-owned subsidiary of IR-Ireland and the Class A common shareholders of IR-Limited became ordinary shareholders of IR-Ireland.

The Reorganization did not have a material impact on our financial results. Ingersoll-Rand plc will still continue to be subject to United States Securities and Exchange Commission reporting requirements and prepare financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Shares of Ingersoll-Rand plc will continue to trade on the New York Stock Exchange under the symbol “IR”, the same symbol under which the Ingersoll-Rand Company Limited Class A common shares previously traded.

See Note 15 for a discussion of the modifications made to the Company’s equity-based plans. See Notes 10 and 22 for a discussion of certain modifications to the indentures governing the Company’s outstanding notes, medium-term notes and debentures and the documents relating to the Company’s commercial paper program.

Note 3 - Basis of Presentation
Note 3 - Basis of Presentation

Note 3 – Basis of Presentation

The accompanying condensed consolidated financial statements reflect the consolidated operations of the Company and have been prepared in accordance with GAAP as defined by the Financial Accounting Standards Board (FASB) within the FASB Accounting Standards Codification (FASB ASC). In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to present fairly the consolidated unaudited results for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Ingersoll-Rand Company Limited Annual Report on Form 10-K for the year ended December 31, 2008. Certain reclassifications of amounts reported in prior years have been made to conform to the 2009 classification. The Company has evaluated the financial statements for subsequent events through the date of the filing of this Form 10-Q.

The Company adopted the FASB’s new standard for accounting for noncontrolling interests on January 1, 2009. A noncontrolling interest in a subsidiary is considered an ownership interest that should now be reported as equity in the consolidated financial statements. As a result, the Company now includes noncontrolling interests as a component of Total shareholders’ equity in the Condensed Consolidated Balance Sheet and the earnings attributable to noncontrolling interests are now presented as an adjustment from Net earnings (loss) used to arrive at Net earnings (loss) attributable to Ingersoll-Rand plc in the Condensed Consolidated Income Statement. Prior to the adoption of this new standard, earnings associated with noncontrolling interests were reported as a component of Other, net.

As discussed in Note 4, the Company acquired Trane Inc. (Trane) at the close of business on June 5, 2008. The results of operations of Trane have been included in the condensed consolidated income statement and cash flows for the three and nine months ended September 30, 2009 and the three months ended September 30, 2008. The condensed consolidated income statement and cash flows for the nine months ended September 30, 2008 includes the results of operations for Trane since June 5, 2008.

Note 4 - Acquisition of Trane Inc.
Note 4 - Acquisition of Trane Inc.

Note 4 – Acquisition of Trane Inc.

At the close of business on June 5, 2008 (the Acquisition Date), the Company completed its acquisition of 100% of the outstanding common shares of Trane. Trane, formerly American Standard Companies Inc., provides systems and services that enhance the quality and comfort of the air in homes and buildings around the world. Trane’s systems and services have leading positions in premium commercial, residential, institutional and industrial markets, a reputation for reliability, high quality and product innovation and a powerful distribution network.

The Company paid a combination of (i) 0.23 of an IR-Limited Class A common share and (ii) $36.50 in cash, without interest, for each outstanding share of Trane common stock. The total cost of the acquisition was approximately $9.6 billion, including change in control payments and direct costs of the transaction. The Company financed the cash portion of the acquisition with a combination of cash on hand, commercial paper and a 364-day senior unsecured bridge loan facility.

The components of the purchase price were as follows:

 

In billions

    

Cash consideration

   $ 7.3

Stock consideration (Issuance of 45.4 million IR-Limited Class A common shares)

     2.0

Estimated fair value of Trane stock options converted to 7.4 million IR-Limited stock options

     0.2

Transaction costs

     0.1
      

Total

   $ 9.6
      

The Company allocated the purchase price of Trane to the estimated fair value of assets acquired and liabilities assumed upon acquisition in accordance with SFAS No. 141, “Business Combinations” (SFAS No. 141). The following table summarizes the fair values of the Trane assets acquired and liabilities assumed at the Acquisition Date.

 

In millions

   June 5,
2008

Current assets:

  

Cash and cash equivalents

   $ 317.5

Accounts and notes receivable

     1,194.2

Inventories

     970.5

Other current assets

     462.0
      

Total current assets

     2,944.2

Property, plant and equipment

     1,035.4

Goodwill

     5,566.9

Intangible assets

     5,576.0

Other noncurrent assets

     725.7
      

Total assets

   $ 15,848.2
      

Current liabilities:

  

Accounts payable

   $ 562.9

Accrued compensation and benefits

     225.7

Accrued expenses and other current liabilities

     1,087.3

Short-term borrowings and current maturities of long-term debt

     254.3
      

Total current liabilities

     2,130.2

Long-term debt

     476.3

Postemployment and other benefit liabilities

     313.7

Deferred income taxes

     2,297.3

Other noncurrent liabilities

     1,012.7

Minority interests

     7.7
      

Total liabilities and minority interests

   $ 6,237.9
      

Net assets acquired

   $ 9,610.3
      

The following unaudited pro forma information for the nine months ended September 30, 2008 assumes the acquisition of Trane occurred as of the beginning of the period presented:

 

In millions

    

Net revenues

   $ 12,688.8

Earnings from continuing operations attributable to Ingersoll-Rand plc common shareholders

   $ 683.2

The unaudited pro forma financial information for the nine months ended September 30, 2008 includes $10.7 million of additional non-recurring purchase accounting charges associated with the fair value allocation of purchase price to backlog, inventory and in-process research and development costs.

 

In addition, for the nine months ended September 30, 2008, the Company included $104.8 million as an increase to interest expense associated with the borrowings to fund (a) the cash portion of the purchase price and (b) the out-of-pocket transaction costs associated with the acquisition.

The unaudited pro forma information does not purport to be indicative of the results that actually would have been achieved had the operations been combined during the period presented, nor is it intended to be a projection of future results or trends.

Note 5 - Restructuring Activities
Note 5 - Restructuring Activities

Note 5 – Restructuring Activities

Restructuring charges recorded during the three and nine months ended September 30, 2009 and 2008 were as follows:

 

     Three months ended
September 30,
    Nine months ended
September 30,

In millions

   2009    2008     2009    2008

Air Conditioning Systems and Services

   $ 2.7    $ —        $ 14.3    $ 2.0

Climate Control Technologies

     0.6      1.0        6.2      1.1

Industrial Technologies

     3.5      (0.1     21.4      4.3

Security Technologies

     2.0      0.5        8.2      2.3

Corporate and Other

     0.9      8.5        11.6      10.5
                            

Total

   $ 9.7    $ 9.9      $ 61.7    $ 20.2
                            

Cost of goods sold

   $ 5.2    $ 1.5      $ 23.1    $ 5.7

Selling and administrative

     4.5      8.4        38.6      14.5
                            

Total

   $ 9.7    $ 9.9      $ 61.7    $ 20.2
                            

The changes in the restructuring reserve were as follows:

 

In millions

   December 31,
2008
   Additions    Reversals     Cash and
non-cash
uses
    Currency
Translation
    September 30,
2009

Air Conditioning Systems and Services

   $ 17.1    $ 14.3    $ —        $ (22.9   $ 1.1      $ 9.6

Climate Control Technologies

     32.5      8.2      (2.0     (32.2     (3.3     3.2

Industrial Technologies

     2.7      21.4      —          (20.5     —          3.6

Security Technologies

     11.1      10.0      (1.8     (12.8     —          6.5

Corporate and Other

     1.1      11.6      —          (5.3     —          7.4
                                            

Total

   $ 64.5    $ 65.5    $ (3.8   $ (93.7   $ (2.2   $ 30.3
                                            

In October 2008, the Company announced an enterprise-wide restructuring program necessitated by the severe economic downturn. This program included streamlining the footprint of manufacturing facilities and reducing the general and administrative cost base across all sectors of the company. Projected costs totaled $110 million when we announced the program in October 2008.

 

During the nine months ended September 30, 2009, the Company expanded the scope of the restructuring program, with total projected costs now expected to be approximately $277 million. Since the beginning of the fourth quarter of 2008, the Company has incurred $132.4 million associated with the restructuring program. As of September 30, 2009, the Company had $30.3 million accrued for workforce reductions and the consolidation of manufacturing facilities, of which a majority will be paid throughout the remainder of 2009.

During the nine months ended September 30, 2008, the Company incurred costs of $20.2 million associated with ongoing restructuring actions. These actions included workforce reductions as well as the consolidation of manufacturing facilities in an effort to increase efficiencies across multiple lines of business.

Note 6 - Inventories
Note 6 - Inventories

Note 6 Inventories

Depending on the business, U.S. inventories are stated at the lower of cost or market using the last-in, first-out (LIFO) method or the lower of cost or market using the first-in, first-out (FIFO) method. Non-U.S. inventories are primarily stated at the lower of cost or market using the FIFO method.

The major classes of inventory are as follows:

 

In millions

   September 30,
2009
    December 31,
2008
 

Raw materials

   $ 390.0      $ 446.9   

Work-in-process

     245.2        301.7   

Finished goods

     763.0        980.0   
                

Sub-total

     1,398.2        1,728.6   

LIFO reserve

     (94.5     (113.5
                

Total

   $ 1,303.7      $ 1,615.1   
                
Note 7 - Goodwill
Note 7 - Goodwill

Note 7Goodwill

The changes in the carrying amount of goodwill are as follows:

 

In millions

   Air
Conditioning
Systems and
Services
    Climate
Control
Technologies
   Industrial
Technologies
   Security
Technologies
   Total

December 31, 2008

   $ 3,033.9      $ 2,577.0    $ 369.8    $ 639.4    $ 6,620.1

Acquisitions and adjustments

     37.1        —        —        —        37.1

Translation

     (41.7     27.5      3.7      29.4      18.9
                                   

September 30, 2009

   $ 3,029.3      $ 2,604.5    $ 373.5    $ 668.8    $ 6,676.1
                                   

 

Note 8 - Intangible Assets
Note 8 - Intangible Assets

Note 8 – Intangible Assets

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

 

In millions

   September 30,
2009
    December 31,
2008
 

Customer relationships

   $ 2,357.1      $ 2,368.2   

Completed technologies/patents

     204.1        203.1   

Other

     190.9        189.6   

Trademarks (finite-lived)

     112.9        109.3   
                

Total gross finite-lived intangible assets

     2,865.0        2,870.2   

Accumulated amortization

     (498.1     (378.5
                

Total net finite-lived intangible assets

     2,366.9        2,491.7   

Trademarks (indefinite-lived)

     2,723.9        2,722.4   
                

Total

   $ 5,090.8      $ 5,214.1   
                

Intangible asset amortization expense was $40.1 million and $128.9 million for the three months ended September 30, 2009 and 2008, respectively. For the nine months ended September 30, 2009 and 2008, intangible asset amortization was $117.1 million and $178.0 million, respectively.

Note 9 - Accounts Receivable Purchase Agreements
Note 9 - Accounts Receivable Purchase Agreements

Note 9 – Accounts Receivable Purchase Agreements

In connection with the acquisition of Trane, the Company acquired Trane’s accounts receivable purchase agreement (the Trane Facility) in the U.S. As part of the Trane Facility, Trane formed a special-purpose entity (SPE) for the sole purpose of buying and selling receivables generated by Trane. Under the Trane Facility, Trane, irrevocably and without recourse, transferred all eligible accounts receivable to the SPE, which, in turn, sold undivided ownership interests in them to a conduit administered by the participating bank. The assets of the SPE were not available to pay the claims of Trane or any of its subsidiaries.

The undivided interests in receivables sold to the conduit as a part of the Trane Facility were removed from the balance sheet since they met the applicable criteria under GAAP. Trane’s interests in the receivables retained by the Company were recorded at its allocated carrying amount, less an appropriate reserve for doubtful accounts, in the balance sheet as of December 31, 2008. To the extent that the consideration received was less than the allocated carrying value of the receivables sold, losses were recognized at the time of sale.

On March 31, 2009, the Company entered into new accounts receivable purchase agreements (the Expanded IR Facility), to expand the existing accounts receivable purchase agreement. The Expanded IR Facility supersedes the Trane Facility. As of September 30, 2009, there are no interests in the receivables retained by the Company related to the Trane Facility.

Under the Expanded IR Facility, the Company continuously sells, through certain consolidated special purpose vehicles, designated pools of eligible trade receivables to an affiliated master special purpose vehicle (MSPV) which, in turn, sells undivided ownership interests to three conduits administered by unaffiliated financial institutions.

The maximum purchase limit of the three conduits is $325.0 million. The Company pays commitment fees on the aggregate amount of the liquidity commitments of the financial institutions under the facility (which is 102% of the maximum purchase limit) and an additional program fee on the aggregate amounts purchased under the facility by the conduits to the extent funded through the issuance of commercial paper or other securities.

 

The MSPV is not designed to be a qualifying SPE since the MSPV transfers assets representing undivided ownership interests in the accounts receivables it holds to the conduits. The Company has concluded that the MSPV is a variable interest entity (VIE) whereby the Company is deemed the primary beneficiary and subsequently consolidates the MSPV. Accordingly, accounts receivable balances are not removed from the balance sheet until the undivided ownership interests are sold to the conduits. The remaining trade receivables transferred into the MSPV but not sold to the conduits remain in Accounts and notes receivable, net. The interests in the receivables retained by the Company are exposed to the first risk of loss for any uncollectible amounts in the receivables sold under the facility. The Company provides no other forms of continued financial support related to the undivided interests transferred to the conduits. The Company has reclassified $83.6 million of its net interests in the receivables retained by the Company as of December 31, 2008 from Other current assets to Accounts and notes receivable, net, to conform to the current year presentation. Although the special purpose vehicles are consolidated by the Company, they are separate corporate entities with their assets legally isolated from the Company and thus not available to satisfy claims of the Company.

The following is a summary of receivables sold under the facilities:

 

In millions

   September 30,
2009
   December 31,
2008

Outstanding balance of receivables sold to SPE

   $ 637.7    $ 149.5

Net balance of interest in the receivables retained

     432.2      83.6

Net interests sold to conduits

     205.5      62.8

The Company continues to service, administer and collect the receivables on behalf of the MSPV and the conduits and receives a servicing fee of 0.75% per annum on the outstanding balance of the serviced receivables. As the Company estimates that the fee it receives from the conduits, including other ancillary fees received, are adequate compensation for its obligation to service these receivables, the fair value is zero and no servicing assets or liabilities are recognized.

During the nine months ended September 30, 2009, the Company recorded a cash inflow of approximately $143 million within cash flow from operations, which represented the increase in the net interests in the receivables sold to the conduits.

The Company records as a loss on sale the difference between the receivables sold and the net cash proceeds received. The loss on sale recorded for the three and nine months ended September 30 were as follows:

 

     Three months ended    Nine months ended

In millions

   2009    2008    2009    2008

Loss on sale of receivables

   $ 1.2    $ 1.2    $ 4.4    $ 1.5
Note 10 - Debt and Credit Facilities
Note 10 - Debt and Credit Facilities

Note 10 – Debt and Credit Facilities

Short-term borrowings and current maturities of long-term debt consisted of the following:

 

In millions

   September 30,
2009
   December 31,
2008

Commercial paper program

   $ —      $ 998.7

Senior unsecured bridge loan facility

     —        754.0

Debentures with put feature

     343.7      345.7

Current maturities of long-term debt

     522.9      200.4

Other short-term borrowings

     55.8      51.6
             

Total

   $ 922.4    $ 2,350.4
             

Commercial Paper Program

The Company uses borrowings under its commercial paper program for general corporate purposes. As of September 30, 2009, the Company had no outstanding commercial paper borrowings after paying down $998.7 million during the nine months then ended. The Company funded these payments primarily using cash generated from operations.

Senior Unsecured Bridge Loan Facility

In connection with the Trane acquisition, the Company entered into a $3.9 billion senior unsecured bridge loan facility, with a 364-day term. The Company drew down $2.95 billion against the bridge loan facility in June 2008. The proceeds, along with cash on hand and the issuance of $1.5 billion in commercial paper, were used to fund the cash component of the consideration paid for the acquisition as well as to pay for related fees and expenses incurred in connection with the acquisition.

At December 31, 2008, the outstanding balance of the senior unsecured bridge loan facility was $754.0 million, which would have expired in June 2009 per the original term. In the first quarter of 2009, the Company borrowed an additional $196.0 million under the facility increasing the outstanding balance to $950.0 million as of March 31, 2009. In April 2009, we repaid the outstanding balance with our long-term debt issuance described below and terminated the facility.

Debentures with Put Feature

The Company has fixed rate debentures which contain a put feature that allows the holders to exercise on each anniversary of the issuance date. If exercised, the Company is obligated to repay in whole or in part, at the holder’s option, the outstanding principal amount (plus accrued and unpaid interest) of the debentures held by the holder. If these options are not fully exercised, the final maturity dates would range between 2027 and 2028.

In February 2009, holders of these debentures had the option to exercise the put feature on $39.2 million of the outstanding debentures, of which approximately $2.0 million were exercised and repaid in February. In the fourth quarter of 2009, holders of these debentures will have the option to exercise the put feature on approximately $306.5 million of the remaining debentures.

 

Long-term debt excluding current maturities consisted of the following:

 

In millions

   September 30,
2009
   December 31,
2008

Senior floating rate notes due 2010

   $ —      $ 250.0

7.625% Senior notes due 2010

     —        261.2

4.50% Exchangeable senior notes due 2012

     311.7      —  

6.000% Senior notes due 2013

     599.8      599.8

9.50% Senior notes due 2014

     655.0      —  

5.50% Senior notes due 2015

     199.7      199.6

4.75% Senior notes due 2015

     299.3      299.2

6.875% Senior notes due 2018

     749.0      749.0

9.00% Debentures due 2021

     125.0      125.0

7.20% Debentures due 2010-2025

     112.5      120.0

6.48% Debentures due 2025

     149.7      149.7

Other loans and notes

     8.3      20.2
             

Total

   $ 3,210.0    $ 2,773.7
             

The fair value of the Company’s debt was $4,374.5 million at September 30, 2009. The fair value of debt was primarily based upon quoted market values.

Senior Notes Due 2014

In April 2009, the Company issued $655 million of 9.5% Senior Notes through its wholly-owned subsidiary, Ingersoll-Rand Global Holding Company Limited (IR-Global). The notes are fully and unconditionally guaranteed by each of IR-Ireland, IR-Limited and Ingersoll-Rand International Holding Limited (IR-International), another wholly-owned indirect subsidiary of IR-Limited. Interest on the fixed rate notes will be paid twice a year in arrears. The Company has the option to redeem them in whole or in part at any time, and from time to time, prior to their stated maturity date at redemption prices set forth in the indenture agreement. The notes are subject to certain customary covenants, however, none of these covenants are considered restrictive to the Company’s operations.

Exchangeable Senior Notes Due 2012

In April 2009, the Company issued $345 million of 4.5% Exchangeable Senior Notes through its wholly-owned subsidiary, IR-Global. The notes are fully and unconditionally guaranteed by each of IR-Ireland, IR-Limited and IR-International. Interest on the exchangeable notes will be paid twice a year in arrears. Holders may exchange their notes at their option prior to November 15, 2011 in accordance with specified circumstances set forth in the indenture agreement or anytime on or after November 15, 2011 through their scheduled maturity in April 2012. Upon exchange, the notes will be paid in cash up to the aggregate principal amount of the notes to be exchanged, the remainder due on the option feature, if any, will be paid in cash, the Company’s ordinary shares or a combination thereof at the option of the Company. The notes are subject to certain customary covenants, however, none of these covenants are considered restrictive to the Company’s operations.

The Company allocated approximately $305 million of the gross proceeds to debt, with the remaining discount of approximately $40 million (approximately $39 million after allocated fees) recorded within equity. Additionally, the Company will amortize the discount into earnings over a three-year period.

 

Credit Facilities

At December 31, 2008, the Company’s committed revolving credit facilities totaled $3.0 billion, of which $750 million expired in June 2009, and was not renewed. At September 30, 2009, the Company’s committed revolving credit facilities totaled $2.25 billion, of which $1.25 billion expires in August 2010 and $1.0 billion expires in June 2011. These lines are unused and provide support for the Company’s commercial paper program as well as for other general corporate purposes.

Modifications Relating to the Reorganization

In connection with the Reorganization discussed in Note 2, on July 1, 2009 at 12:01 A.M. (the Transaction Time), IR-Limited completed the transfer of all the outstanding shares of IR-Global to IR-International, whereupon IR-International assumed the obligations of IR-Limited as an issuer or guarantor, as the case may be, under the indentures governing the Company’s outstanding notes, medium-term notes and debentures. IR-Ireland and IR-Limited also fully and unconditionally guarantee the payment obligations of IR-International, IR-Global and Ingersoll-Rand Company (IR-New Jersey), a wholly-owned indirect subsidiary of IR-Limited incorporated in New Jersey, as the case may be, as the issuers of debt securities under these indentures. Neither IR-Ireland nor IR-Limited intends to issue guarantees in respect of any indebtedness incurred by Trane. In addition, any securities issued by the Company that were convertible, exchangeable or exercisable into Class A common shares of IR-Limited became convertible, exchangeable or exercisable, as the case may be, into the ordinary shares of IR-Ireland.

On July 1, 2009, IR-Global amended and restated its commercial paper program (the Commercial Paper Program) pursuant to which IR-Global may issue, on a private placement basis, unsecured commercial paper notes up to a maximum aggregate amount outstanding at any time of $2.25 billion. Under the Commercial Paper Program, IR-Global may issue notes from time to time, and the proceeds of the financing will be used for general corporate purposes. Each of IR-Ireland, IR-Limited and IR-International has provided an irrevocable and unconditional guarantee for the notes issued under the Commercial Paper Program.

Pursuant to the terms of the credit facility entered into on August 12, 2005 and our credit facility entered into on June 27, 2008 (the Credit Facilities), at the Transaction Time, IR-Ireland and IR-International became guarantors to such Credit Facilities. In connection therewith, IR-Ireland and IR-International entered into Addendums on July 1, 2009 to become parties to the Credit Facilities.

Note 11 - Financial Instruments
Note 11 - Financial Instruments

Note 11 – Financial Instruments

In the normal course of business, the Company uses various financial instruments, including derivative instruments, to manage the risks associated with interest rate, currency rate, commodity price and share-based compensation exposures. These financial instruments are not used for trading or speculative purposes.

On the date a derivative contract is entered into, the Company designates the derivative instrument either as a cash flow hedge of a forecasted transaction, a cash flow hedge of a recognized asset or liability, or as an undesignated derivative. The Company formally documents its hedge relationships, including identification of the derivative instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivative instruments that are designated as hedges to specific assets, liabilities or forecasted transactions.

 

The Company also assesses both at the inception and at least quarterly thereafter, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in the cash flows of the hedged item. Any ineffective portion of a derivative instrument’s change in fair value is recorded in the income statement in the period of change. If the hedging relationship ceases to be highly effective, or it becomes probable that a forecasted transaction is no longer expected to occur, the hedging relationship will be undesignated and any future gains and losses on the derivative instrument would be recorded in the income statement.

The fair market value of derivative instruments are determined through market-based valuations and may not be representative of the actual gains or losses that will be recorded when these instruments mature due to future fluctuations in the markets in which they are traded.

Currency and Commodity Derivative Instruments

The notional amounts of the Company’s currency derivatives, excluding the cross currency swap described below, were $821.4 million and $920.4 million at September 30, 2009 and December 31, 2008, respectively. At September 30, 2009 and December 31, 2008, a deferred loss of $1.5 million and a deferred gain of $7.6 million, net of tax, respectively, were included in Accumulated other comprehensive income (AOCI) related to the fair value of the Company’s currency derivatives designated as accounting hedges. The amount expected to be reclassified into earnings over the next twelve months is $1.5 million. The actual amounts that will be reclassified into earnings may vary from this amount as a result of changes in market conditions. Gains and losses associated with the Company’s currency derivatives not designated as hedges are recorded in earnings as changes in fair value occur. At September 30, 2009, the maximum term of the Company’s currency derivatives was 12 months.

As a result of the acquisition of Trane in June 2008, the Company assumed a cross currency swap that fixed, in U.S. dollars, the currency cash flows on the £60.0 million 8.25% senior notes. These senior notes matured on June 1, 2009 along with the cross currency swap. The cross currency swap met the criteria to be accounted for as a foreign currency cash flow hedge, which allowed for deferral of any associated gains or losses within AOCI until settlement. The deferred gain remaining in AOCI related to the cross currency swap was released into earnings upon maturity.

The notional amount of the Company’s commodity derivatives was $2.1 million and $21.3 million at September 30, 2009 and December 31, 2008, respectively. The Company’s commodity derivatives are not designated as accounting hedges. Therefore, gains and losses associated with the Company’s commodity derivatives are recorded in earnings as changes in fair value occur.

Other Derivative Instruments

During the third quarter of 2008, the Company entered into interest rate locks for the forecasted issuance of approximately $1.4 billion of Senior Notes due in 2013 and 2018. These interest rate locks met the criteria to be accounted for as cash flow hedges of a forecasted transaction. Consequently, the changes in fair value of the interest rate locks were deferred in AOCI. No further gain or loss will be deferred in AOCI related to these interest rate locks as the contracts were effectively terminated upon issuance of the underlying debt. However, the amount of AOCI associated with these interest rate locks at the time of termination will be recognized into interest expense over the term of the notes. At September 30, 2009 and December 31, 2008, $13.1 million and $14.4 million, respectively, of deferred losses remained in AOCI related to these interest rate locks. The amount expected to be reclassified into interest expense over the next twelve months is $1.8 million.

 

In March 2005, the Company entered into interest rate locks for the forecasted issuance of $300 million of Senior Notes due 2015. These interest rate locks met the criteria to be accounted for as cash flow hedges of a forecasted transaction. Consequently, the changes in fair value of the interest rate locks were deferred in AOCI. No further gain or loss will be deferred in AOCI related to these interest rate locks as the contracts were effectively terminated upon issuance of the underlying debt. However, the amount of AOCI associated with these interest rate locks at the time of termination will be recognized into interest expense over the term of the notes. At September 30, 2009 and December 31, 2008, $6.8 million and $7.6 million, respectively, of deferred losses remained in AOCI related to these interest rate locks. The amount expected to be reclassified into interest expense over the next twelve months is $1.1 million.

The following table presents the fair values of derivative instruments included within the Condensed Consolidated Balance Sheet as of September 30, 2009:

 

In millions

   Asset
derivatives
   Liability
derivatives

Derivatives designated as accounting hedges:

     

Currency derivatives

   $ 0.6    $ 2.9

Derivatives not designated as accounting hedges:

     

Currency derivatives

     12.3      10.2

Commodity derivatives

     —        0.6
             

Total derivatives

   $ 12.9    $ 13.7
             

Asset and liability derivatives included in the table above are recorded within Other current assets and Accrued expenses and other current liabilities, respectively, on the Condensed Consolidated Balance Sheet.

The following table represents the amounts associated with derivatives designated as hedges affecting the Condensed Consolidated Income Statement and AOCI for the three and nine months ended September 30, 2009:

 

     Amount of gain (loss)
deferred in AOCI
   

Location of gain
(loss) reclassified from

AOCI and recognized
into earnings

   Amount of gain (loss)
reclassified from AOCI and
recognized into earnings
 

In millions

   3 months
ended
    9 months
ended
       3 months
ended
    9 months
ended
 

Currency derivatives

   $ (1.5   $ (5.1   Other, net    $ (0.5   $ 7.3   

Interest rate locks

     —          —        Interest expense      (0.7     (2.1
                                   

Total

   $ (1.5   $ (5.1      $ (1.2   $ 5.2   
                                   

 

The following table represents the amounts associated with derivatives not designated as hedges affecting the Condensed Consolidated Income Statement for the three and nine months ended September 30, 2009:

 

     Location of
gain (loss)
   Amount of gain (loss)  

In millions

      3 months
ended
   9 months
ended
 

Currency derivatives

   Other, net    $ 18.6    $ 49.8

Commodity derivatives

   Other, net      0.6      1.7   
                  

Total

      $ 19.2    $ 51.5   
                  

 

* The gains and losses associated with the Company’s undesignated currency derivatives are materially offset in the Condensed Consolidated Income Statement by changes in the fair value of the underlying transactions.

Concentration of Credit Risk

The counterparties to the Company’s forward contracts consist of a number of investment grade major international financial institutions. The Company could be exposed to losses in the event of nonperformance by the counterparties. However, credit ratings and concentration of risk of these financial institutions are monitored on a continuous basis and present no significant credit risk to the Company.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, short-term borrowings and accounts payable are a reasonable estimate of their fair value due to the short-term nature of these instruments.

Note 12 - Employee Benefit Plans
Note 12 - Employee Benefit Plans

Note 12Employee Benefit Plans

Pension Plans

The Company has noncontributory pension plans covering substantially all non-Trane U.S. employees and maintains a pension plan for non-collectively bargained U.S. employees of Trane, whereby eligible employees may elect to participate and receive a credit equal to 3% of eligible pay. In addition, the Company maintains a U.S. collectively bargained pension plan for Trane employees. Certain non-U.S. employees in other countries, including Trane employees, are covered by pension plans.

The Company’s pension plans for U.S. non-collectively bargained employees provided benefits on a final average pay formula. U.S. non-collectively bargained and some collectively bargained employees may elect to participate in a Cash Balance Pension Plan. The Company’s U.S. collectively bargained pension plans, including those covering employees of Trane, principally provide benefits based on a flat benefit formula. Non-U.S. plans provide benefits based on earnings and years of service. The Company maintains additional other supplemental benefit plans for officers and other key employees.

 

The components of the Company’s pension related costs for the three and nine months ended September 30 are as follows:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

In millions

   2009     2008     2009     2008  

Service cost

   $ 13.9      $ 18.1      $ 48.9      $ 42.8   

Interest cost

     49.6        52.4        147.3        133.7   

Expected return on plan assets

     (45.1     (64.9     (133.4     (167.8

Net amortization of:

        

Prior service costs

     2.2        2.4        6.4        6.6   

Transition amount

     0.1        0.2        0.3        0.6   

Plan net actuarial losses

     15.7        3.5        44.5        8.3   
                                

Net periodic pension benefit cost

     36.4        11.7        114.0        24.2   

Net curtailment and settlement (gains) losses

     (1.1     1.2        (0.3     2.5   
                                

Net periodic pension benefit cost after net curtailment and settlement (gains) losses

   $ 35.3      $ 12.9      $ 113.7      $ 26.7   
                                

Amounts recorded in continuing operations

   $ 32.5      $ 16.5      $ 105.3      $ 37.6   

Amounts recorded in discontinued operations

     2.8        (3.6     8.4        (10.9
                                

Total

   $ 35.3      $ 12.9      $ 113.7      $ 26.7   
                                

The Company made employer contributions of $88.8 million and $18.6 million to its pension plans during the nine months ended September 30, 2009 and 2008, respectively.

The curtailment and settlement gain in 2009 and loss in 2008 are associated with lump sum distributions under supplemental benefit plans for officers and other key employees, in addition to a plant closure in 2009.

Postretirement Benefits Other Than Pensions

The Company sponsors several postretirement plans that cover certain eligible employees, including certain Trane employees since the acquisition date. These plans provide for health-care benefits, and in some instances, life insurance benefits. Postretirement health plans generally are contributory and contributions are adjusted annually. Life insurance plans for retirees are primarily noncontributory. The Company funds the postretirement benefit costs principally on a pay-as-you-go basis.

 

The components of net periodic postretirement benefit cost for the three and nine months ended September 30 are as follows:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

In millions

   2009     2008     2009     2008  

Service cost

   $ 2.1      $ 4.2      $ 7.3      $ 7.2   

Interest cost

     13.9        14.3        42.5        34.9   

Net amortization of prior service gains

     (0.8     (0.8     (2.5     (2.6

Net amortization of net actuarial losses

     1.3        3.7        9.7        11.1   
                                

Net periodic postretirement benefit cost

     16.5        21.4        57.0        50.6   
                                

Amounts recorded in continuing operations

   $ 10.6      $ 14.0      $ 34.9      $ 28.4   

Amounts recorded in discontinued operations

     5.9        7.4        22.1        22.2   
                                

Total

   $ 16.5      $ 21.4      $ 57.0      $ 50.6   
                                
Note 13 - Fair Value Measurement
Note 13 - Fair Value Measurement

Note 13 – Fair Value Measurement

FASB ASC 820, “Fair Value Measurements and Disclosures” (ASC 820) establishes a framework for measuring fair value that is based on the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The Company adopted this provision of ASC 820 on January 1, 2008. The fair value hierarchy outlined in ASC 820 is comprised of three levels that are described below:

 

   

Level 1 – Inputs based on quoted prices in active markets for identical assets or liabilities.

 

   

Level 2 – Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

 

   

Level 3 – Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities.

In accordance with ASC 820, the Company delayed its implementation of these provisions on the fair value of goodwill, indefinite-lived intangible assets and nonfinancial long-lived assets until January 1, 2009. In addition, the Company has not elected to utilize the fair value option on any of its financial assets or liabilities in accordance with FASB ASC 825, “Financial Instruments” (ASC 825).

 

Assets and liabilities measured at fair value on a recurring basis at September 30, 2009 are as follows:

 

     Fair value measurements    Total
fair value

In millions

   Level 1    Level 2    Level 3   

Assets:

           

Cash and cash equivalents

   $ 743.9    $ —      $ —      $ 743.9

Marketable securities

     10.4      —        —        10.4

Derivative instruments

     —        12.9      —        12.9

Benefit trust assets

     18.0      144.9      —        162.9
                           

Total

   $ 772.3    $ 157.8    $ —      $ 930.1
                           

Liabilities:

           

Derivative instruments

   $ —      $ 13.7    $ —      $ 13.7

Benefit liabilities

     18.4      165.2      —        183.6
                           

Total

   $ 18.4    $ 178.9    $ —      $ 197.3
                           

The methodologies used by the Company to determine the fair value of its financial assets and liabilities at September 30, 2009 are the same as those used as of December 31, 2008.

Note 14 - Shareholders' Equity
Note 14 - Shareholders' Equity

Note 14 – Shareholders’ Equity

The reconciliation of ordinary shares is as follows:

 

In millions

    

December 31, 2008

   318.8

Shares issued under incentive plans

   0.7
    

September 30, 2009

   319.5
    

On June 3, 2009, IR-Limited cancelled 52.0 million treasury shares in anticipation of the Reorganization that became effective on July 1, 2009.

 

The components of shareholders’ equity for the nine months ended September 30, 2009 are as follows:

 

In millions

   IR-Ireland
Shareholders’
Equity
    Noncontrolling
interests
    Total
Shareholders’
Equity
 

Balance at December 31, 2008

   $ 6,661.4      $ 100.7      $ 6,762.1   

Net earnings (loss)

     311.9        16.4        328.3   

Currency translation

     111.5        0.7        112.2   

Change in value of marketable securities and derivatives qualifying as cash flow hedges, net of tax

     (2.8     —          (2.8

Pension and OPEB adjustments, net of tax

     31.6        —          31.6   
                        

Total comprehensive income

     452.2        17.1        469.3   

Shares issued under incentive stock plan

     8.3        —          8.3   

Share-based compensation

     55.9        —          55.9   

Issuance of exchangeable notes

     38.7     —          38.7   

Acquisition of noncontrolling interests

     (0.1     (1.4     (1.5

Dividends to noncontrolling interests

     —          (12.0     (12.0

Dividends to common shareholders

     (137.8     —          (137.8

Other

     2.9        —          2.9   
                        

Balance at September 30, 2009

   $ 7,081.5      $ 104.4      $ 7,185.9   
                        

 

* Represents the portion of net proceeds received from the issuance of Senior Exchangeable Notes that is allocated to equity, as described in Note 10.

 

The components of shareholders’ equity for the nine months ended September 30, 2008 are as follows:

 

In millions

   IR-Ireland
Shareholders’
Equity
    Noncontrolling
interests
    Total
Shareholders’
Equity
 

Balance at December 31, 2007

   $ 7,907.9      $ 97.5      $ 8,005.4   

Net earnings (loss)

     665.4        15.9        681.3   

Currency translation

     (18.2     (5.5     (23.7

Change in value of marketable securities and derivatives qualifying as cash flow hedges, net of tax

     (13.6     —          (13.6

Pension and OPEB adjustments, net of tax

     27.1        —          27.1   
                        

Total comprehensive income

     660.7        10.4        671.1   

Shares issued under incentive stock plan

     36.9        —          36.9   

Share-based compensation

     35.7        —          35.7   

Purchase of treasury shares

     (2.0     —          (2.0

Treasury shares issued

     2,035.1        —          2,035.1   

Conversion of Trane options

     184.0        —          184.0   

Trane’s noncontrolling interests

     —          7.7        7.7   

Dividends to noncontrolling interests

     —          (12.2     (12.2

Dividends to common shareholders

     (155.5     —          (155.5
                        

Balance at September 30, 2008

   $ 10,702.8      $ 103.4      $ 10,806.2   
                        
Note 15 - Share-Based Compensation
Note 15 - Share-Based Compensation

Note 15 – Share-Based Compensation

The Company records share-based compensation awards using a fair value method and recognizes compensation expense for an amount equal to the fair value of the share-based payment issued in its consolidated financial statements.

On June 3, 2009, the shareholders of the Company approved the amendment and restatement of the Incentive Stock Plan of 2007, which authorizes the Company to issue stock options and other share-based incentives. As a result, the total number of shares authorized by the shareholders was increased to 27.0 million, of which 14.8 million remains available as of September 30, 2009 for future incentive awards.

Modifications Relating to the Reorganization

In connection with the Reorganization discussed in Note 2, on July 1, 2009, IR-Ireland assumed the existing obligations of IR-Limited under the equity incentive plans and other similar employee award plans of Ingersoll Rand (collectively, the Plans), including all awards issued thereunder. Furthermore, the Plans were amended by IR-Limited to provide (1) that ordinary shares of IR-Ireland will be issued, held available or used to measure benefits as appropriate under the Plans, in lieu of the Class A common shares of IR-Limited, including upon exercise of any options or share appreciation rights or upon the vesting of restricted stock units or performance units issued under those Plans; and (2) for the appropriate substitution of IR-Ireland for IR-Limited in those Plans.

 

Stock Options/Restricted Stock Units

On February 12, 2009, the Compensation Committee of the Company’s Board of Directors approved a change to the Company’s equity grant approach whereby options would no longer be used as the predominant equity vehicle for eligible participants; instead a mix of options and restricted stock units (RSUs) will be utilized. The RSUs will vest ratably over three years and any accrued dividends will be paid in cash at the time of vesting. As a result of this change, eligible participants may receive (i) stock options, (ii) RSUs or (iii) a combination of both stock options and RSUs under the Company’s Incentive Stock Plan of 2007.

The average fair value of the stock options granted for the nine months ended September 30, 2009 and 2008 was estimated to be $5.65 per share and $11.59 per share, respectively, using the Black-Scholes option-pricing model. The following assumptions were used:

 

     2009     2008  

Dividend yield

   1.97   1.58

Volatility

   43.18   31.49

Risk-free rate of return

   1.76   2.95

Expected life

   5.1 years      5.4 years   

The fair value of each of the Company’s stock option awards is expensed on a straight-line basis over the required service period, which is generally the three-year vesting period of the options. However, for options granted to retirement eligible employees, the Company recognizes expense for the fair value of the options at the grant date. Expected volatility is based on the historical volatility from traded options on the Company’s stock. The risk-free rate of return is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. Historical data is used to estimate forfeitures within the Company’s valuation model. The Company’s expected life of the stock option awards is derived from historical experience and represents the period of time that awards are expected to be outstanding.

Changes in options outstanding under the plans for the nine months ended September 30, 2009 were as follows:

 

     Shares
subject to
option
    Weighted-
average
exercise price
   Aggregate
intrinsic
value (millions)
   Weighted-
average
remaining life

December 31, 2008

   27,215,227      $ 31.11      

Granted

   4,056,032        16.83      

Exercised

   (420,020     20.33      

Cancelled

   (1,587,534     31.78      
                        

Outstanding September 30, 2009

   29,263,705      $ 29.27    $ 174.5    5.4
                        

Exercisable September 30, 2009

   21,257,735      $ 29.29    $ 119.3    4.1
                        

On February 12, 2009, the Company granted annual RSU awards. The fair value of each of the Company’s RSU awards is measured as the grant-date price of the Company’s shares and is expensed on a straight-line basis over the three year vesting period. For RSUs granted to retirement eligible employees, the Company recognizes expense for the fair value of the RSUs at the grant date.

 

The following table summarizes RSU activity during the nine months ended September 30, 2009:

 

     RSUs     Weighted-
average fair
value

Outstanding and unvested at December 31, 2008

   —        $ —  

Granted

   921,182        16.85

Vested

   (1,980     16.85

Cancelled

   (27,214     16.85
            

Outstanding and unvested at September 30, 2009

   891,988      $ 16.85
            

SARs

All SARs outstanding as of September 30, 2009 are vested and expire ten years from the date of grant. All SARs exercised are settled with the Company’s ordinary shares.

The following table summarizes the information for currently outstanding SARs for the nine months ended September 30, 2009:

 

     Shares
subject

to option
    Weighted-
average
exercise price
   Aggregate
intrinsic
value (millions)
   Weighted-
average
remaining life

December 31, 2008

   1,073,472      $ 34.02      

Exercised

   (1,000   $ 20.27      

Cancelled

   (63,873     35.72      
                        

Outstanding September 30, 2009

   1,008,599      $ 33.92    $ 1.9    3.6
                        

Exercisable September 30, 2009

   1,008,599      $ 33.92    $ 1.9    3.6
                        

The Company did not grant SARS during the nine months ended September 30, 2009 and does not anticipate further granting in the future.

Performance Shares

The Company has a Performance Share Program (PSP) for key employees. The program provides awards based on performance against pre-established objectives. The annual target award level is expressed as a number of the Company’s ordinary shares. All PSP awards are settled in the form of ordinary shares.

On February 12, 2009, the Compensation Committee determined the PSP awards for the performance year 2008. In doing so, primary emphasis was placed on financial objectives in light of the current economic environment. The 2008 PSP awards have a one-year vesting period.

On October 4, 2008, the Compensation Committee approved certain changes to the Company’s long-term incentive compensation programs to be implemented beginning with the 2009 performance year. Under these changes, the performance period under the Company’s PSP Program was changed from one year to three years starting with year 2009 in order to increase the long-term nature of incentive compensation for PSP participants. In addition, these PSP awards are based on the Company’s relative EPS growth as compared to the industrial group of companies in the S&P 500 Index over the three-year performance period. To transition between the previous one-year PSP program and the revised three-year PSP program, there is a one-time PSP award with a two-year performance period for 2009 through 2010, which is based on the Company’s EPS growth relative to the industrial group of companies in the S&P 500 Index and the publicly announced Trane acquisition synergy savings.

Deferred Compensation

The Company allows key employees to defer a portion of their eligible compensation into a number of investment choices, including ordinary share equivalents. Any amounts invested in ordinary share equivalents will be settled in ordinary shares at the time of distribution.

Other Plans

The Company maintains a shareholder-approved Management Incentive Unit Award Plan. Under the plan, participating key employees were awarded incentive units. When dividends are paid on ordinary shares, phantom dividends are awarded to unit holders, one-half of which is paid in cash, the remaining half of which is credited to the participants’ accounts in the form of ordinary share equivalents. The value of the actual incentive units is never paid to participants, and only the fair value of accumulated ordinary share equivalents is paid in cash upon the participants’ retirement. The number of ordinary share equivalents credited to participants’ accounts at September 30, 2009 is 114,046.

The Company has issued stock grants as an incentive plan for certain key employees, with varying vesting periods. All stock grants are settled with the Company’s ordinary shares. At September 30, 2009, there were 278,260 stock grants outstanding, all of which were vested.

Compensation Expense

Share-based compensation expense is included in Selling and administrative expenses. The following table summarizes the expenses recognized for the three and nine months ended September 30:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

In millions

   2009     2008     2009     2008  

Stock options

   $ 7.3      $ 7.4      $ 30.3      $ 31.1   

RSUs

     1.1        —          5.6        —     

Performance shares

     8.8        1.2        17.8        3.6   

Deferred compensation

     1.7        0.5        2.2        1.1   

SARs and other

     1.0        0.6        2.2        1.0   
                                

Pre-tax expense

     19.9        9.7        58.1        36.8   

Tax benefit

     (7.6     (3.7     (22.2     (14.1
                                

After tax expense

   $ 12.3      $ 6.0      $ 35.9      $ 22.7   
                                

Amounts recorded in continuing operations

   $ 12.3      $ 6.0      $ 35.9      $ 22.7   

Amounts recorded in discontinued operations

     —          —          —          —     
                                

Total

   $ 12.3      $ 6.0      $ 35.9      $ 22.7   
                                

 

Note 16 - Other, Net
Note 16 - Other, Net

Note 16 – Other, Net

The components of Other, net for the three and nine months ended September 30 are as follows:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

In millions

   2009     2008     2009     2008  

Interest income

   $ 3.4      $ 9.9      $ 10.9      $ 86.9   

Exchange gain (loss), net

     (6.5     (11.0     (7.8     (15.5

Earnings from equity investments

     3.1        1.4        6.6        2.6   

Other

     0.5        1.5        6.6        3.3   
                                

Other, net

   $ 0.5      $ 1.8      $ 16.3      $ 77.3   
                                
Note 17 - Income Taxes
Note 17 - Income Taxes

Note 17 – Income Taxes

The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Brazil, Canada, Germany, Ireland, Italy, the Netherlands and the United States. In general, the examination of the Company’s material tax returns is completed for the years prior to 2000, with certain matters being resolved through appeals and litigation.

The Internal Revenue Service (IRS) has completed the examination of the Company’s federal income tax returns through the 2000 tax year and has issued a notice proposing adjustments. The principal proposed adjustment relates to the disallowance of certain capital losses. The Company disputes the IRS position and protests have been filed with the IRS Appeals Division. In order to reduce the potential interest expense associated with this matter, the Company made a payment of $217 million in the third quarter of 2007, which reduced the Company’s total liability for uncertain tax positions by $141 million. Similarly, during the third quarter of 2008, the Company made an additional payment of $55.1 million related to a potential penalty assessment plus accrued interest on this matter. The Company continues negotiating with the IRS on the ultimate settlement of this matter. The issues raised by the IRS associated with this payment are not related to the Company’s reorganization in Bermuda, or the Company’s intercompany debt structure.

On July 20, 2007, the Company and its consolidated subsidiaries received a notice from the IRS containing proposed adjustments to the Company’s tax filings in connection with an audit of the 2001 and 2002 tax years. The IRS did not contest the validity of the Company’s reincorporation in Bermuda. The most significant adjustments proposed by the IRS involve treating the entire intercompany debt incurred in connection with the Company’s reincorporation in Bermuda as equity. As a result of this recharacterization, the IRS has disallowed the deduction of interest paid on the debt and imposed dividend withholding taxes on the payments denominated as interest. These adjustments proposed by the IRS, if upheld in their entirety, would result in additional taxes with respect to 2002 of approximately $190 million plus interest, and would require the Company to record additional charges associated with this matter. At this time, the IRS has not yet begun their examination of the Company’s tax filings for years subsequent to 2002. However, if these adjustments or a portion of these adjustments proposed by the IRS are ultimately sustained, it is likely to also affect subsequent tax years.

 

The Company strongly disagrees with the view of the IRS and filed a protest with the IRS in the third quarter of 2007. The Company has and intends to continue to vigorously contest these proposed adjustments. The Company, in consultation with its outside advisors, carefully considered many factors in determining the terms of the intercompany debt, including the obligor’s ability to service the debt and the availability of equivalent financing from unrelated parties, two factors prominently cited by the IRS in denying debt treatment. The Company believes that its characterization of that obligation as debt for tax purposes was supported by the relevant facts and legal authorities at the time of its creation. The subsequent financial results of the relevant companies, including the actual cash flow generated by operations and the production of significant additional cash flow from dispositions, have confirmed the ability to service this debt. Although the outcome of this matter cannot be predicted with certainty, based upon an analysis of the strength of its position, the Company believes that it is adequately reserved for this matter. As the Company moves forward to resolve this matter with the IRS, it is reasonably possible that the reserves established may be adjusted within the next 12 months. However, the Company does not expect that the ultimate resolution will have a material adverse impact on its future results of operations or financial position.

The Company believes that it has adequately provided for any reasonably foreseeable resolution of any tax disputes, but will adjust its reserves if events so dictate in accordance with GAAP. To the extent that the ultimate results differ from the original or adjusted estimates of the Company, the effect will be recorded in the provision for income taxes.

Total unrecognized tax benefits as of September 30, 2009 and December 31, 2008 were $552.6 million and $589.6 million, respectively.

During the third quarter of 2009, the Company identified certain accounting errors associated with its previously reported income tax balance sheet accounts. The Company corrected these errors in the third quarter of 2009, which resulted in a tax benefit of $25 million recorded to continuing operations and a tax charge of $29 million recorded to discontinued operations. The Company does not believe that the accounting errors are material to its projected annual results for 2009 or to any of its previously issued financial statements. As a result, the Company did not adjust any prior period amounts.

In addition, during the third quarter of 2009, the Company recorded to continuing operations a tax charge of $42 million associated with increasing its deferred tax asset valuation allowance for its foreign tax credit carryforwards, and a tax benefit of $30 million primarily associated with reducing its liability for unrecognized tax benefits. The Company recorded to discontinued operations a benefit of $22 million primarily associated with reducing its liability for unrecognized tax benefits. The net tax charge recorded to continuing operations and the benefit recorded to discontinued operations represent changes in accounting estimate as defined by GAAP.

 

Note 18 - Divestitures and Discontinued Operations
Note 18 - Divestitures and Discontinued Operations

Note 18 – Divestitures and Discontinued Operations

The components of discontinued operations for the three and nine months ended September 30 are as follows:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

In millions

   2009     2008     2009     2008  

Revenues

   $ —        $ 0.1      $ —        $ 15.3   
                                

Pre-tax earnings (loss) from operations

     (16.4     (11.0     (53.3     (34.0

Pre-tax gain (loss) on sale

     (0.3     0.1        1.9        (5.5

Tax benefit (expense)

     8.4        4.9        25.0        (2.9
                                

Discontinued operations, net of tax

   $ (8.3   $ (6.0   $ (26.4   $ (42.4
                                

During the third quarter of 2009, the Company recorded a benefit of $22 million primarily associated with reducing its liability for unrecognized tax benefits, and a discrete tax charge of $29 million associated with correcting immaterial accounting errors. See Note 17 for a further description of these tax matters.

Discontinued operations by business for the three and nine months ended September 30 are as follows:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

In millions

   2009     2008     2009     2008  

Compact Equipment, net of tax

   $ (29.5   $ —        $ (30.2   $ (22.9

Road Development, net of tax

     (1.5     —          3.0        (1.8

Other discontinued operations, net of tax

     22.7        (6.0     0.8        (17.7
                                

Total discontinued operations, net of tax

   $ (8.3   $ (6.0   $ (26.4   $ (42.4
                                

Compact Equipment Divestiture

On July 29, 2007, the Company agreed to sell its Bobcat, Utility Equipment and Attachments businesses (collectively, Compact Equipment) to Doosan Infracore for gross proceeds of approximately $4.9 billion, subject to post-closing purchase price adjustments. The sale was completed on November 30, 2007. We are currently in the process of resolving the final purchase price adjustments with Doosan Infracore.

Compact Equipment manufactured and sold compact equipment, including skid-steer loaders, compact track loaders, mini-excavators and telescopic tool handlers; portable air compressors, generators and light towers; general-purpose light construction equipment; and attachments. The Company accounted for Compact Equipment as discontinued operations within the income statement.

Road Development Divestiture

On February 27, 2007, the Company agreed to sell its Road Development business unit to AB Volvo (publ) for cash proceeds of approximately $1.3 billion. The sale was completed on April 30, 2007.

The Road Development business unit manufactured and sold asphalt paving equipment, compaction equipment, milling machines and construction-related material handling equipment. The Company accounted for the Road Development business unit as discontinued operations within the income statement.

 

Other Discontinued Operations

The Company also has retained costs from previously sold businesses that mainly include costs related to postretirement benefits, product liability and legal costs (mostly asbestos-related).

Note 19 - Earnings Per Share (EPS)
Note 19 - Earnings Per Share (EPS)

Note 19Earnings Per Share (EPS)

Basic EPS is calculated by dividing Net earnings (loss) attributable to Ingersoll-Rand plc by the weighted-average number of common shares outstanding for the applicable period. Diluted EPS is calculated after adjusting the denominator of the basic EPS calculation for the effect of all potentially dilutive common shares, which in the Company’s case, includes shares issuable under share-based compensation plans and the effects of the Exchangeable Senior Notes issued in April 2009. The following table summarizes the weighted-average number of ordinary shares outstanding for basic and diluted earnings per share calculations:

 

     Three months ended
September 30,
   Nine months ended
September 30,

In millions

   2009    2008    2009    2008

Weighted-average number of basic shares

   321.0    320.2    320.8    293.9

Shares issuable under incentive stock plans

   3.9    3.9    2.3    3.6

Exchangeable Senior Notes

   6.9    —      3.3    —  
                   

Weighted-average number of diluted shares

   331.8    324.1    326.4    297.5
                   

Anti-dilutive shares

   17.0    13.6    19.4    5.4
                   
Note 20 - Business Segment Information
Note 20 - Business Segment Information

Note 20Business Segment Information

The Company classifies its business into four reportable segments based on industry and market focus: Air Conditioning Systems and Services, Climate Control Technologies, Industrial Technologies and Security Technologies.

 

A summary of operations by reportable segment as of September 30 is as follows:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

In millions

   2009     2008     2009     2008  

Net revenues

        

Air Conditioning Systems and Services

   $ 1,770.8      $ 2,051.1      $ 4,946.8      $ 2,749.0   

Climate Control Technologies

     649.5        895.0        1,778.3        2,605.3   

Industrial Technologies

     512.1        718.3        1,589.4        2,267.8   

Security Technologies

     550.3        648.8        1,574.9        1,935.2   
                                

Total

   $ 3,482.7      $ 4,313.2      $ 9,889.4      $ 9,557.3   
                                

Operating income

        

Air Conditioning Systems and Services

   $ 151.7      $ 89.5      $ 242.5      $ 155.6   

Climate Control Technologies

     60.5        103.0        112.9        297.9   

Industrial Technologies

     43.0        81.4        98.4        283.4   

Security Technologies

     117.3        126.0        298.5        353.3   

Unallocated corporate expense

     (54.2     (52.5     (133.5     (134.2
                                

Total

   $ 318.3      $ 347.4      $ 618.8      $ 956.0   
                                

In the fourth quarter of 2009, the Company will be realigning its external reporting structure. The Company’s segments will be as follows: Climate Solutions, Industrial Technologies, Residential Solutions and Security Technologies. As part of the change, the Company will eliminate the Air Conditioning Systems and Services segment which represents the acquired Trane business and will create two new reportable segments, the Climate Solutions segment and the Residential Solutions segment.

The Climate Solutions segment will include Trane Commercial Systems as well as the Climate Control Technologies segment, which includes the Hussmann and Thermo King businesses. The combination of these businesses will provide industry leading heating, ventilation, air-conditioning (HVAC) and refrigeration solutions to commercial customers. The Residential Solutions segment will include the Company’s residential HVAC and residential security businesses, combined to provide ideal home environments that address the critical areas of safety, comfort and efficiency. The Security Technologies segment will include its commercial security businesses and the Industrial Technologies segment will remain unchanged with its Air and Productivity Solutions businesses and Club Car. The segment realignment will also create a more efficient and integrated operational footprint within each segment to better utilize internal resources and achieve cost synergies. The summary of operations provided above does not reflect these changes as they will not be effective for financial reporting purposes until the fourth quarter of 2009.

Note 21 - Commitments and Contingencies
Note 21 - Commitments and Contingencies

Note 21 – Commitments and Contingencies

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

 

Environmental Matters

The Company continues to be dedicated to an environmental program to reduce the utilization and generation of hazardous materials during the manufacturing process and to remediate identified environmental concerns. As to the latter, the Company is currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at current and former manufacturing facilities.

The Company is sometimes a party to environmental lawsuits and claims and has received notices of potential violations of environmental laws and regulations from the Environmental Protection Agency and similar state authorities. It has also been identified as a potentially responsible party (PRP) for cleanup costs associated with off-site waste disposal at federal Superfund and state remediation sites. For all such sites, there are other PRPs and, in most instances, the Company’s involvement is minimal.

In estimating its liability, the Company has assumed it will not bear the entire cost of remediation of any site to the exclusion of other PRPs who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account, based generally on the parties’ financial condition and probable contributions on a per site basis. Additional lawsuits and claims involving environmental matters are likely to arise from time to time in the future.

During the three and nine months ended September 30, 2009, the Company spent $2.9 million and $7.6 million, respectively, for environmental remediation expenditures at sites presently or formerly owned or leased by us. As of September 30, 2009 and December 31, 2008, the Company has recorded reserves for environmental matters of $94.6 million and $100.9 million, respectively. The Company believes that these expenditures will continue and may increase over time. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain.

Asbestos Matters

Certain wholly owned subsidiaries of the Company are named as defendants in asbestos-related lawsuits in state and federal courts. In virtually all of the suits, a large number of other companies have also been named as defendants. The vast majority of those claims has been filed against either Ingersoll-Rand Company (IR-New Jersey) or Trane and generally allege injury caused by exposure to asbestos contained in certain historical products sold by IR-New Jersey or Trane, primarily pumps, boilers and railroad brake shoes. Neither IR-New Jersey nor Trane was a producer or manufacturer of asbestos, however, some formerly manufactured products utilized asbestos-containing components such as gaskets and packings purchased from third-party suppliers.

Prior to the fourth quarter of 2007, the Company recorded a liability (which it periodically updated) for its actual and anticipated future asbestos settlement costs projected seven years into the future. The Company did not record a liability for future asbestos settlement costs beyond the seven-year period covered by its reserve because such costs previously were not reasonably estimable for the reasons detailed below.

In the fourth quarter of 2007, the Company again reviewed its history and experience with asbestos-related litigation and determined that it had now become possible to make a reasonable estimate of its total liability for pending and unasserted potential future asbestos-related claims. This determination was based upon the Company’s analysis of developments in asbestos litigation, including the substantial and continuing decline in the filing of non-malignancy claims against the Company, the establishment in many jurisdictions of inactive or deferral dockets for such claims, the decreased value of non-malignancy claims because of changes in the legal and judicial treatment of such claims, increasing focus of the asbestos litigation upon malignancy claims, primarily those involving mesothelioma, a cancer with a known historical and predictable future annual incidence rate, and the Company’s substantial accumulated experience with respect to the resolution of malignancy claims, particularly mesothelioma claims, filed against it.

Accordingly, in the fourth quarter of 2007, the Company retained Dr. Thomas Vasquez of Analysis, Research & Planning Corporation (collectively, “ARPC”) to assist it in calculating an estimate of the Company’s total liability for pending and unasserted future asbestos-related claims. ARPC is a respected expert in performing complex calculations such as this. ARPC has been involved in many asbestos-related valuations of current and future liabilities, and its valuation methodologies have been accepted by numerous courts.

The methodology used by ARPC to project the Company’s total liability for pending and unasserted potential future asbestos-related claims relied upon and included the following factors, among others:

 

   

ARPC’s interpretation of a widely accepted forecast of the population likely to have been occupationally exposed to asbestos;

 

   

epidemiological studies estimating the number of people likely to develop asbestos-related diseases such as mesothelioma and lung cancer;

 

   

the Company’s historical experience with the filing of non-malignancy claims against it and the historical ratio between the numbers of non-malignancy and lung cancer claims filed against the Company;

 

   

ARPC’s analysis of the number of people likely to file an asbestos-related personal injury claim against the Company based on such epidemiological and historical data and the Company’s most recent three-year claims history;

 

   

an analysis of the Company’s pending cases, by type of disease claimed;

 

   

an analysis of the Company’s most recent three-year history to determine the average settlement and resolution value of claims, by type of disease claimed;

 

   

an adjustment for inflation in the future average settlement value of claims, at a 2.5% annual inflation rate, adjusted downward to 1.5% to take account of the declining value of claims resulting from the aging of the claimant population;

 

   

an analysis of the period over which the Company has and is likely to resolve asbestos-related claims against it in the future.

Based on these factors, ARPC calculated a total estimated liability of $755 million for the Company to resolve all pending and unasserted potential future claims through 2053, which is ARPC’s reasonable best estimate of the time it will take to resolve asbestos-related claims. This amount is on a pre-tax basis, not discounted for the time-value of money, and excludes the Company’s defense fees (which will continue to be expensed by the Company as they are incurred). After considering ARPC’s analysis and the factors listed above, in the fourth quarter of 2007, the Company increased its recorded liability for asbestos claims by $538 million, from $217 million to $755 million.

In addition, during the fourth quarter of 2007, the Company recorded an $89 million increase in its assets for probable asbestos-related insurance recoveries to $250 million. This represents amounts due to the Company for previously paid and settled claims and the probable reimbursements relating to its estimated liability for pending and future claims. In calculating this amount, the Company used the estimated asbestos liability for pending and projected future claims calculated by ARPC. It also considered the amount of insurance available, gaps in coverage, allocation methodologies, solvency ratings and creditworthiness of the insurers, the amounts already recovered from and the potential for settlements with insurers, and the terms of existing settlement agreements with insurers.

During the fourth quarter of 2007, the Company recorded a non-cash charge to earnings of discontinued operations of $449 million ($277 million after-tax), which is the difference between the amount by which the Company increased its total estimated liability for pending and projected future asbestos-related claims and the amount that the Company expects to recover from insurers with respect to that increased liability.

In connection with our acquisition of Trane, the Company requested ARPC to assist in calculating Trane’s asbestos-related valuations of current and future liabilities. As required by SFAS No. 141, “Business Combinations,” the Company is required to record the assumed asbestos obligations and associated insurance-related assets at their fair value at the Acquisition Date. The Company estimates that the assumed asbestos obligation and associated insurance-related assets at the Acquisition Date to be $494 million and $249 million, respectively. These amounts were estimated based on certain assumptions and factors consistent with those described above.

Trane continues to be in litigation against certain carriers whose policies it believes provide coverage for asbestos claims. The insurance carriers named in this suit have challenged Trane’s right to recovery. Trane filed the action in April 1999 in the Superior Court of New Jersey, Middlesex County, against various primary and lower layer excess insurance carriers, seeking coverage for environmental claims (the “NJ Litigation”). The NJ Litigation was later expanded to also seek coverage for asbestos-related liabilities from twenty-one primary and lower layer excess carriers and underwriting syndicates. The environmental claims against most of the insurers in the NJ Litigation have been settled. On September 19, 2005, the court granted Trane’s motion to add claims for insurance coverage for asbestos-related liabilities against 16 additional insurers and 117 new insurance policies to the NJ Litigation. The court also required the parties to submit all contested matters to mediation. Trane engaged in its first mediation session with the NJ Litigation defendants on January 18, 2006 and has engaged in active discussions since that time.

Trane has now settled with a substantial number of its insurers, collectively accounting for approximately 80% of its recorded asbestos-related liability insurance receivable as of January 31, 2009. More specifically, effective August 26, 2008, Trane entered into a coverage-in-place agreement (“August 26 Agreement”) with the following five insurance companies or groups: 1) Hartford; 2) Travelers; 3) Allstate (solely in its capacity as successor-in-interest to Northbrook Excess & Surplus Insurance Company); 4) Dairyland Insurance Company; and 5) AIG. The August 26 Agreement provides for the reimbursement by the insurer signatories of a portion of Trane’s costs for asbestos bodily injury claims under specified terms and conditions and in exchange for certain releases and indemnifications from Trane. In addition, on September 12, 2008, Trane entered into a settlement agreement with Mt. McKinley Insurance Company and Everest Reinsurance Company, both members of the Everest Re group, resolving all claims in the NJ Litigation involving policies issued by those companies (“Everest Re Agreement”). The Everest Re Agreement contains a number of elements, including policy buy-outs and partial buy-outs in exchange for a cash payment along with coverage-in-place features similar to those contained in the August 26 Agreement, in exchange for certain releases and indemnifications by Trane. More recently, on January 26, 2009, Trane entered into a coverage-in-place agreement with Columbia Casualty Company, Continental Casualty Company, and Continental Insurance Company in its own capacity and as successor-in-interest to Harbor Insurance Company and London Guarantee & Accident Company of New York (“CNA Agreement”). The CNA Agreement provides for the reimbursement by the insurer signatories of a portion of Trane’s costs for indemnification from Trane. Trane remains in settlement negotiations with the insurer defendants in the NJ Litigation not encompassed within the August 26 Agreement, Everest Re Agreement, and the CNA Agreement. Once concluded, we believe the NJ Litigation will resolve coverage issues with respect to approximately 95% of Trane’s recorded insurance receivable in connection with asbestos-related liabilities.

The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets are based on currently available information. The Company’s actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Company’s or ARPC’s calculations vary significantly from actual results. Key variables in these assumptions are identified above and include the number and type of new claims to be filed each year, the average cost of resolution of each such new claim, the resolution of coverage issues with insurance carriers, and the solvency risk with respect to the Company’s insurance carriers. Furthermore, predictions with respect to these variables are subject to greater uncertainty as the projection period lengthens. Other factors that may affect the Company’s liability include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and federal courts, and the passage of state or federal tort reform legislation.

The aggregate amount of the stated limits in insurance policies available to the Company for asbestos-related claims acquired over many years and from many different carriers, is substantial. However, limitations in that coverage, primarily due to the considerations described above, are expected to result in the projected total liability to claimants substantially exceeding the probable insurance recovery.

From receipt of its first asbestos claims more than twenty five years ago to December 31, 2008, the Company has resolved (by settlement or dismissal) approximately 253,000 claims arising from the legacy Ingersoll Rand businesses. The total amount of all settlements paid by the Company (excluding insurance recoveries) and by its insurance carriers is approximately $351 million, for an average payment per resolved claim of $1,387. The average payment per claim resolved during the year ended December 31, 2008 was $952. Because claims are frequently filed and settled in large groups, the amount and timing of settlements, as well as the number of open claims, can fluctuate significantly from period to period.

 

The table below provides additional information regarding asbestos-related claims filed against the legacy Ingersoll Rand businesses, excluding those filed against Trane, reflecting updated information for the last three years.

 

     2006     2007     2008  

Open claims - January 1

   102,968      101,709      100,623   

New claims filed

   6,457      5,398      4,567   

Claims settled

   (6,558   (5,005   (3,693

Claims dismissed *

   (1,158   (1,479   (38,189
                  

Open claims - December 31

   101,709      100,623      63,308   
                  

 

* The significant increase in dismissals in 2008 is attributed to the dismissal of large numbers of dormant and/or inactive cases in Mississippi and New York. This amount reflects the Company’s emphasis on resolution of higher value malignancy claims, particularly mesothelioma claims, rather than lower value non-malignancy claims, which are more heavily represented in the Company’s historical settlements.

From receipt of the first asbestos claim more than twenty years ago through December 31, 2008, approximately 74,000 (by settlement or dismissal) claims were resolved arising from the legacy Trane business. The Company and its insurance carriers have paid settlements of approximately $125.4 million on these claims, which represents an average payment per resolved claim of $1,694. Because claims are frequently filed and settled in large groups, the amount and timing of settlements, as well as the number of open claims, can fluctuate significantly from period to period.

The table below provides additional information regarding asbestos-related claims filed against the legacy Trane businesses, reflecting updated information for the last three years.

 

     2006     2007     2008  

Open claims - January 1

   113,730      104,570      105,023   

New claims filed

   4,440      3,019      3,626   

Claims settled

   (848   (740   (600

Claims dismissed

   (12,752   (1,826   (9,710
                  

Open claims - December 31

   104,570      105,023      98,339   
                  

At December 31, 2008, over 90 percent of the open claims against the Company are non-malignancy claims, many of which have been placed on inactive or deferral dockets and the vast majority of which have little or no settlement value against the Company, particularly in light of recent changes in the legal and judicial treatment of such claims.

At September 30, 2009, the Company’s liability for asbestos-related matters and the asset for probable asbestos-related insurance recoveries totaled $1,147.1 million and $409.3 million, respectively, compared to $1,195.2 million and $423.8 million at December 31, 2008.

 

The (costs) income associated with the settlement and defense of asbestos-related claims after insurance recoveries for the three and nine months ended September 30 were as follows:

 

     Three months ended
September 30,
    Nine months ended
September 30,
 

In millions

   2009     2008     2009     2008  

Continuing operations

   $ (2.4   $ 1.7      $ (2.6   $ 0.9   

Discontinued operations

     2.6        (2.5     (1.2     (2.4
                                

Total

   $ 0.2      $ (0.8   $ (3.8   $ (1.5
                                

The Company records certain income and expenses associated with its asbestos liabilities and corresponding insurance recoveries within discontinued operations, as they relate to previously divested businesses, primarily Ingersoll-Dresser Pump, which was sold in 2000. Income and expenses associated with Trane’s asbestos liabilities and corresponding insurance recoveries are recorded within continuing operations.

The European Commission Investigation

In November 2004, Trane was contacted by the European Commission as part of a multi-company investigation into possible infringement of European Union competition law relating to the distribution of bathroom fixtures and fittings in certain European countries. On March 28, 2007, Trane, along with a number of other companies, received a Statement of Objections from the European Commission. The Statement of Objections, an administrative complaint, alleges infringements of European Union competition rules by numerous bathroom fixture and fittings companies, including Trane and certain of its former European subsidiaries engaged in the Bath and Kitchen business. These former subsidiaries were transferred (i) to WABCO on July 31, 2007 as part of a legal reorganization in connection with the spinoff of Trane’s Vehicle Control Systems business and (ii) to Bain Capital Partners LLC on October 31, 2007 in connection with the sale of Trane’s Bath & Kitchen business. Trane and certain of its former European subsidiaries will be jointly and severally liable for any fines that result from the investigation. However, pursuant to an Indemnification and Cooperation Agreement among Trane and certain other parties (Indemnification Agreement), American Standard Europe BVBA (renamed WABCO Europe BVBA) (WABCO Europe), which is a subsidiary of WABCO following the reorganization, will be responsible for, and will indemnify Trane and its subsidiaries (including certain subsidiaries formerly engaged in the Bath and Kitchen business) and their respective affiliates against any fines related to this investigation. Trane and the charged subsidiaries responded to the European Commission on August 1, 2007 and July 31, 2007, respectively. A hearing with the European Commission regarding the response to the Statement of Objections was conducted from November 12-14, 2007, in Brussels. WABCO Europe and other former Trane subsidiaries participated in the hearing. Trane, however, did not participate in the hearing.

In 2006, the European Commission adopted new fining guidelines (2006 Guidelines) and stated its intention to apply these guidelines in all cases in which a Statement of Objections is issued after September 2006. In applying the 2006 Guidelines, the Commission retains considerable discretion in calculating the fine although the European Union regulations provide for a cap on the maximum fine equal to ten percent of Trane’s worldwide revenue attributable to all of its products for the fiscal year prior to the year in which the fine is imposed. If the maximum fine is levied in 2009, the total liability could be as high as $1.1 billion based on Trane’s last full fiscal year of worldwide revenue attributable to all of its product lines owned at the time the Statement of Objections was issued, subject to a probable reduction for leniency of at least 20 percent provided WABCO Europe, as the leniency applicant, fulfilled all conditions set forth in the European Commission’s leniency notice. WABCO has stated in its Form 10-K for the fiscal year ended December 31, 2008 and Form 10-Q for the quarters ended March 31, 2009, June 30, 2009 and September 30, 2009, that its ability to satisfy its obligations under the Indemnification Agreement is contingent on its funding capability at the time of the fine, which could be affected by, among other things, its ability to access its then existing credit facilities, its ability to obtain alternative sources of financing, its ability to obtain some payment relief from the European Commission or its ability to obtain a suspension of the payment obligation from the European Court of First Instance.

Oil for Food Program

As previously reported, on November 10, 2004, the Securities and Exchange Commission (SEC) issued an Order directing that a number of public companies, including the Company, provide information relating to their participation in transactions under the United Nations’ Oil for Food Program. Upon receipt of the Order, the Company undertook a thorough review of its participation in the Oil for Food Program, provided the SEC with information responsive to the Order and provided additional information requested by the SEC. During a March 27, 2007 meeting with the SEC, at which a representative of the Department of Justice (DOJ) was also present, the Company began discussions concerning the resolution of this matter with both the SEC and DOJ. On October 31, 2007, the Company announced it had reached settlements with the SEC and DOJ relating to this matter. Under the terms of the settlements, the Company paid a total of $6.7 million in penalties, interest and disgorgement of profits. The Company has consented to the entry of a civil injunction in the SEC action and has entered into a three-year deferred prosecution agreement (“DPA”) with the DOJ. Under both settlements, the Company has implemented and will continue to implement improvements to its compliance program that are consistent with its longstanding policy against improper payments. In the settlement documents, the Government noted that the Company thoroughly cooperated with the investigation, that the Company had conducted its own complete investigation of the conduct at issue, promptly and thoroughly reported its findings to them, and took prompt remedial measures.

Additionally, we have reported to the DOJ and SEC certain matters involving Trane, including one relating to the Oil for Food Program, and which raise potential issues under the Foreign Corrupt Practices Act (FCPA) and other applicable anti-corruption laws. With respect to these matters, the Company has conducted a thorough investigation, which began in earnest promptly after our acquisition of Trane in June 2008. Previously, we had reported to the SEC and DOJ potential FCPA issues relating to one of our businesses in China, and we have reported back to them and shared our audit report, which indicated no FCPA violations. With respect to that same business in China, we have discussed with the DOJ and SEC another matter which raises potential FCPA issues. We have had preliminary discussions concerning the foregoing with the SEC and DOJ, to be followed by further discussions about them and possibly other matters which raise potential FCPA concerns. These matters (and others which may arise or of which we become aware in the future) may be deemed to violate the FCPA and other applicable anti-corruption laws. Such determinations could subject us to, among other things, further enforcement actions by the SEC or the DOJ (if, for example, the DOJ deems us to have violated the DPA), securities litigation and a general loss of investor confidence, any one of which could adversely affect our business prospects and the market value of our stock.

 

Other

The following table represents the changes in the product warranty liability for the nine months ended September 30:

 

In millions

   2009     2008  

Balance at beginning of period

   $ 640.7      $ 146.9   

Reductions for payments

     (223.9     (130.2

Accruals for warranties issued during the current period

     203.2        137.3   

Changes to accruals related to preexisting warranties

     12.4        (0.7

Acquisitions

     —          476.0   

Translation

     3.5        (2.6
                

Balance at end of period

   $ 635.9      $ 626.7   
                

Trane has commitments and performance guarantees, including energy savings guarantees, totaling $160.3 million extending from 2009-2030. These guarantees are provided under long-term service and maintenance contracts related to its air conditioning equipment and system controls. Through September 30, 2009, the Company has experienced one insignificant loss under such arrangements and considers the probability of any significant future losses to be remote.

The Company has other contingent liabilities of $3.9 million. These liabilities include performance bonds, guarantees and stand-by letters of credit associated with the prior sale of products by divested businesses as well as existing loan guarantees and residual values of equipment.

Note 22 - Guarantor Financial Information
Note 22 - Guarantor Financial Information

Note 22 – Guarantor Financial Information

Ingersoll-Rand plc, an Irish public limited company (IR-Ireland), is the successor to Ingersoll-Rand Company Limited, a Bermuda company (IR-Limited), following a corporate reorganization that became effective on July 1, 2009 (the 2009 Reorganization). IR-Limited is the successor to Ingersoll-Rand Company, a New Jersey corporation (IR-New Jersey), following a corporate reorganization that occurred on December 31, 2001 (the 2001 Reorganization). Both the 2009 Reorganization and 2001 Reorganization were accounted for as a reorganization of entities under common control and accordingly, did not result in any changes to the consolidated amounts of assets, liabilities and shareholders’ equity.

As a part of the 2001 Reorganization, IR-Limited issued non-voting, Class B common shares to IR-New Jersey and certain IR-New Jersey subsidiaries in exchange for a $3.6 billion note and shares of certain IR-New Jersey subsidiaries. The note, which is due in 2011, has a fixed rate of interest of 11% per annum payable semi-annually and imposes certain restrictive covenants upon IR-New Jersey. At September 30, 2009, $1.0 billion of the original $3.6 billion note remains outstanding. In 2002, IR-Limited contributed the note to a wholly owned subsidiary, which subsequently transferred portions of the note to several other subsidiaries, all of which are included in the “Other Subsidiaries” below. Accordingly, the subsidiaries of IR-Limited remain creditors of IR-New Jersey.

In addition, as part of the 2001 Reorganization, IR-Limited fully and unconditionally guaranteed all of the issued public debt securities of IR-New Jersey. IR-New Jersey unconditionally guaranteed payment of the principal, premium, if any, and interest on IR-Limited’s 4.75% Senior Notes due in 2015 in the aggregate principal amount of $300 million. The guarantee is unsecured and provided on an unsubordinated basis. The guarantee ranks equally in right of payment with all of the existing and future unsecured and unsubordinated debt of IR-New Jersey.

 

During 2008, the Company revised the guarantor financial statements for all periods presented in order to reflect Ingersoll-Rand Global Holding Company Limited (IR-Global) as a stand-alone subsidiary. IR-Global issued public debt that is guaranteed by IR-Limited.

As part of the 2009 Reorganization, the guarantor financial statements were further revised to present IR-Ireland as the ultimate parent company and Ingersoll-Rand International Holding Limited (IR-International) as a stand-alone subsidiary. In addition, the guarantee structure was updated to reflect the newly created legal structure under which (i) IR-International assumed the obligations of IR-Limited as issuer or guarantor, as the case may be, and (ii) IR-Ireland and IR-Limited fully and unconditionally guaranteed the obligations under the various indentures covering the currently outstanding public debt of Ingersoll-Rand plc and its subsidiaries. Neither IR-Ireland nor IR-Limited has issued or intends to issue guarantees in respect of any indebtedness incurred by Trane. Also as part of the 2009 Reorganization, IR-Limited transferred all the shares of IR-Global to IR-International in exchange for a note payable that initially approximated $15.0 billion, which was then immediately reduced by the settlement of net intercompany payables of $4.1 billion. At September 30, 2009, $10.8 billion remains outstanding.

The condensed consolidating financial statements present the investments of IR-Ireland, IR-Limited, IR-Global, IR-International and IR-New Jersey and their subsidiaries using the equity method of accounting. Intercompany investments in the non-voting Class B common shares are accounted for on the cost method and are reduced by intercompany dividends. In accordance with generally accepted accounting principles, the amounts related to the issuance of the Class B shares have been recorded as a reduction of Total shareholders’ equity. The notes payable continue to be reflected as a liability on the balance sheet of IR-New Jersey and are enforceable in accordance with their terms.

The following condensed consolidated financial information for IR-Ireland, IR-Limited, IR-International, IR-Global, IR-New Jersey, and all their other subsidiaries is included so that separate financial statements of IR-Ireland, IR-Limited, IR-International, IR-Global and IR-New Jersey are not required to be filed with the U.S. Securities and Exchange Commission.

 

Condensed Consolidating Income Statement

For the three months ended September 30, 2009

 

In millions

   IR
Ireland
    IR
Limited
    IR
International
    IR Global
Holding
    IR New
Jersey
    Other
Subsidiaries
    Consolidating
Adjustments
    IR Ireland
Consolidated
 

Net revenues

   $ —        $ —        $ —        $ —        $ 153.5      $ 3,329.2      $ —        $ 3,482.7   

Cost of goods sold

     —          —          —          —          (131.0     (2,355.6     —          (2,486.6

Selling and administrative expenses

     (2.1     (2.1     —          (0.2     (81.2     (592.2     —          (677.8
                                                                

Operating income

     (2.1     (2.1     —          (0.2     (58.7     381.4        —          318.3   

Equity earnings in affiliates (net of tax)

     218.5        220.8        312.2        289.4        16.6        121.8        (1,179.3     —     

Interest expense

     —          —          (3.9     (48.9     (13.2     (10.5     —          (76.5

Intercompany interest and fees

     —          —          (44.9     (16.9     (31.0     92.8        —          —     

Other, net

     0.2        (0.2     0.2        (143.6     3.3        31.3        109.3        0.5   
                                                                

Earnings (loss) before income taxes

     216.6        218.5        263.6        79.8        (83.0     616.8        (1,070.0     242.3   

Benefit (provision) for income taxes

     —          —          —          —          (27.7     16.3        —          (11.4
                                                                

Continuing operations

     216.6        218.5        263.6        79.8        (110.7     633.1        (1,070.0     230.9   

Discontinued operations, net of tax

     —          —          —          —          (30.9     22.6        —          (8.3
                                                                

Net earnings (loss)

     216.6        218.5        263.6        79.8        (141.6     655.7        (1,070.0     222.6   

Less: Net earnings attributable to noncontrolling interests

     —          —          —          —          —          (40.6     34.6        (6.0
                                                                

Net earnings (loss) attributable to Ingersoll-Rand plc

   $ 216.6      $ 218.5      $ 263.6      $ 79.8      $ (141.6   $ 615.1      $ (1,035.4   $ 216.6   
                                                                

Condensed Consolidating Income Statement

For the nine months ended September 30, 2009

 

In millions

   IR
Ireland
    IR
Limited
    IR
International
    IR Global
Holding
    IR New
Jersey
    Other
Subsidiaries
    Consolidating
Adjustments
    IR Ireland
Consolidated
 

Net revenues

   $ —        $ —        $ —        $ —        $ 482.7      $ 9,406.7      $ —        $ 9,889.4   

Cost of goods sold

     —          (0.7     —          —          (401.0     (6,831.7     —          (7,233.4

Selling and administrative expenses

     (2.1     (35.5     —          (1.2     (211.0     (1,787.4     —          (2,037.2
                                                                

Operating income

     (2.1     (36.2     —          (1.2     (129.3     787.6        —          618.8   

Equity earnings in affiliates (net of tax)

     218.5        368.0        312.9        647.9        (21.5     (52.6     (1,473.2     —     

Interest expense

     —          (7.8     (3.9     (138.5     (40.2     (35.4     —          (225.8

Intercompany interest and fees

     —          (4.2     (101.6     (55.5     (101.1     262.4        —          —     

Other, net

     0.2        (6.0     0.8        (230.9     90.4        (48.4     210.2        16.3   
                                                                

Earnings (loss) before income taxes

     216.6        313.8        208.2        221.8        (201.7     913.6        (1,263.0     409.3   

Benefit (provision) for income taxes

     —          —          —          —          (22.1     (32.5     —          (54.6
                                                                

Continuing operations

     216.6        313.8        208.2        221.8        (223.8     881.1        (1,263.0     354.7   

Discontinued operations, net of tax

     —          —          —          —          (36.9     10.5        —          (26.4
                                                                

Net earnings (loss)

     216.6        313.8        208.2        221.8        (260.7     891.6        (1,263.0     328.3   

Less: Net earnings attributable to noncontrolling interests

     —          —          —          —          —          (38.5     22.1        (16.4
                                                                

Net earnings (loss) attributable to Ingersoll-Rand plc

   $ 216.6      $ 313.8      $ 208.2      $ 221.8      $ (260.7   $ 853.1      $ (1,240.9   $ 311.9   
                                                                

 

Condensed Consolidating Income Statement

For the three months ended September 30, 2008

 

In millions

   IR
Limited
    IR
International
   IR Global
Holding
    IR New
Jersey
    Other
Subsidiaries
    Consolidating
Adjustments
    IR Limited
Consolidated
 

Net revenues

   $ —        $ —      $ —        $ 230.3      $ 4,082.9      $ —        $ 4,313.2   

Cost of goods sold

     —          —        —          (176.8     (3,032.6     —          (3,209.4

Selling and administrative expenses

     (8.3     —        (0.4     (69.8     (677.9     —          (756.4
                                                       

Operating income

     (8.3     —        (0.4     (16.3     372.4        —          347.4   

Equity earnings in affiliates (net of tax)

     263.5        —        328.9        52.6        (19.0     (626.0     —     

Interest expense

     (3.8     —        (44.0     (16.5     (19.4     —          (83.7

Intercompany interest and fees

     (24.3     —        (31.9     (67.5     123.7        —          —     

Other, net

     0.6        —        (0.4     (0.7     8.8        (6.5     1.8   
                                                       

Earnings (loss) before income taxes

     227.7        —        252.2        (48.4     466.5        (632.5     265.5   

Benefit (provision) for income taxes

     —          —        —          31.4        (57.7     —          (26.3
                                                       

Continuing operations

     227.7        —        252.2        (17.0     408.8        (632.5     239.2   

Discontinued operations, net of tax

     —          —        —          (2.0     (4.0     —          (6.0
                                                       

Net earnings (loss)

     227.7        —        252.2        (19.0     404.8        (632.5     233.2   

Less: Net earnings attributable to noncontrolling interests

     —          —        —          —          (12.0     6.5        (5.5
                                                       

Net earnings (loss) attributable to Ingersoll-Rand plc

   $ 227.7      $ —      $ 252.2      $ (19.0   $ 392.8      $ (626.0   $ 227.7   
                                                       

Condensed Consolidating Income Statement

For the nine months ended September 30, 2008

 

In millions

   IR
Limited
    IR
International
   IR Global
Holding
    IR New
Jersey
    Other
Subsidiaries
    Consolidating
Adjustments
    IR Limited
Consolidated
 

Net revenues

   $ —        $ —      $ —        $ 679.8      $ 8,877.5      $ —        $ 9,557.3   

Cost of goods sold

     —          —        —          (500.9     (6,445.5     —          (6,946.4

Selling and administrative expenses

     (34.7     —        (0.6     (226.4     (1,393.2     —          (1,654.9
                                                       

Operating income

     (34.7     —        (0.6     (47.5     1,038.8        —          956.0   

Equity earnings in affiliates (net of tax)

     748.7        —        856.0        155.8        (60.2     (1,700.3     —     

Interest expense

     (11.6     —        (54.7     (50.2     (39.9     —          (156.4

Intercompany interest and fees

     (68.9     —        (137.5     (196.2     402.6        —          —     

Other, net

     31.9        —        26.3        6.8        54.8        (42.5     77.3   
                                                       

Earnings (loss) before income taxes

     665.4        —        689.5        (131.3     1,396.1        (1,742.8     876.9   

Benefit (provision) for income taxes

     —          —        —          95.2        (248.4     —          (153.2
                                                       

Continuing operations

     665.4        —        689.5        (36.1     1,147.7        (1,742.8     723.7   

Discontinued operations, net of tax

     —          —        —          (24.1     (18.3     —          (42.4
                                                       

Net earnings (loss)

     665.4        —        689.5        (60.2     1,129.4        (1,742.8     681.3   

Less: Net earnings attributable to noncontrolling interests

     —          —        —          —          (58.4     42.5        (15.9
                                                       

Net earnings (loss) attributable to Ingersoll-Rand plc

   $ 665.4      $ —      $ 689.5      $ (60.2   $ 1,071.0      $ (1,700.3   $ 665.4   
                                                       

 

Condensed Consolidating Balance Sheet

September 30, 2009

 

In millions

   IR
Ireland
   IR
Limited
   IR
International
   IR Global
Holding
   IR New
Jersey
   Other
Subsidiaries
   Consolidating
Adjustments
    IR Ireland
Consolidated

Current assets:

                      

Cash and cash equivalents

   $ 0.1    $ —      $ —      $ 73.3    $ 113.2    $ 557.3    $ —        $ 743.9

Accounts and notes receivable, net

     —        —        —        —        190.2      1,940.2      —          2,130.4

Inventories

     —        —        —        —        48.4      1,255.3      —          1,303.7

Other current assets

     0.3      1.4      4.0      0.3      162.9      425.3      —          594.2

Accounts and notes receivable affiliates

     12.3      238.9      17.1      2,676.7      3,616.8      41,795.1      (48,356.9     —  
                                                        

Total current assets

     12.7      240.3      21.1      2,750.3      4,131.5      45,973.2      (48,356.9     4,772.2

Investment in affiliates

     7,181.2      6,716.8      15,894.2      13,161.8      7,477.2      65,150.8      (115,582.0     —  

Property, plant and equipment, net

     —        —        —        —        167.9      1,742.0      —          1,909.9

Intangible assets, net

     —        —        —        —        72.3      11,694.6      —          11,766.9

Other noncurrent assets

     —        —        1.1      21.9      1,474.8      186.3      —          1,684.1
                                                        

Total assets

   $ 7,193.9    $ 6,957.1    $ 15,916.4    $ 15,934.0    $ 13,323.7    $ 124,746.9    $ (163,938.9   $ 20,133.1
                                                        

Current liabilities:

                      

Accounts payable and accruals

   $ 8.0    $ 0.1    $ 5.3    $ 52.4    $ 47.0    $ 2,994.8    $ —        $ 3,107.6

Short term borrowings and current maturities of long-term debt

     —        —        —        250.0      351.1      321.3      —          922.4

Accounts and note payable affiliates

     —        9.0      4,465.4      6,286.8      5,714.2      31,568.8      (48,044.2     —  
                                                        

Total current liabilities

     8.0      9.1      4,470.7      6,589.2      6,112.3      34,884.9      (48,044.2     4,030.0

Long-term debt

     —        —        299.3      2,315.5      388.2      207.0      —          3,210.0

Note payable affiliate

     —        —        10,820.2      —        1,047.4      —        (11,867.6     —  

Other noncurrent liabilities

     —        9.0      3.8      273.1      2,364.6      3,327.6      (270.9     5,707.2
                                                        

Total liabilities

     8.0      18.1      15,594.0      9,177.8      9,912.5      38,419.5      (60,182.7     12,947.2
                                                        

Shareholders’ equity:

                      

Total shareholders’ equity

     7,185.9      6,939.0      322.4      6,756.2      3,411.2      86,327.4      (103,756.2     7,185.9
                                                        

Total liabilities and equity

   $ 7,193.9    $ 6,957.1    $ 15,916.4    $ 15,934.0    $ 13,323.7    $ 124,746.9    $ (163,938.9   $ 20,133.1
                                                        

 

Condensed Consolidating Balance Sheet

December 31, 2008

 

In millions

   IR
Limited
    IR
International
   IR Global
Holding
   IR New
Jersey
   Other
Subsidiaries
   Consolidating
Adjustments
    IR Limited
Consolidated

Current assets:

                  

Cash and cash equivalents

   $ —        $ —      $ 1.1    $ 8.6    $ 540.5    $ —        $ 550.2

Accounts and notes receivable, net

     —          —        —        224.7      2,287.4      —          2,512.1

Inventories

     —          —        —        71.4      1,543.7      —          1,615.1

Other current assets

     5.0        —        3.3      166.5      547.5      —          722.3

Accounts and notes receivable affiliates

     442.1        —        1,911.5      4,370.0      36,804.4      (43,528.0     —  
                                                  

Total current assets

     447.1        —        1,915.9      4,841.2      41,723.5      (43,528.0     5,399.7

Investment in affiliates

     10,185.5        —        12,337.4      7,420.0      65,156.2      (95,099.1     —  

Property, plant and equipment, net

     —          —        —        161.9      1,806.6      —          1,968.5

Intangible assets, net

     —          —        —        72.6      11,761.6      —          11,834.2

Other noncurrent assets

     (3.0     —        12.1      742.3      970.7      —          1,722.1
                                                  

Total assets

   $ 10,629.6      $ —      $ 14,265.4    $ 13,238.0    $ 121,418.6    $ (138,627.1   $ 20,924.5
                                                  

Current liabilities:

                  

Accounts payable and accruals

   $ 0.5      $ —      $ 37.4    $ 194.0    $ 2,929.1    $ —        $ 3,161.0

Short term borrowings and current maturities of long-term debt

     —          —        1,752.7      353.2      244.5      —          2,350.4

Accounts and note payable affiliates

     3,409.8        —        5,230.6      5,526.5      29,070.7      (43,237.6     —  
                                                  

Total current liabilities

     3,410.3        —        7,020.7      6,073.7      32,244.3      (43,237.6     5,511.4

Long-term debt

     299.2        —        1,598.7      395.7      480.1      —          2,773.7

Note payable affiliate

     —          —        —        1,047.4      —        (1,047.4     —  

Other noncurrent liabilities

     158.0        —        2.9      2,194.7      3,521.7      —          5,877.3
                                                  

Total liabilities

     3,867.5        —        8,622.3      9,711.5      36,246.1      (44,285.0     14,162.4
                                                  

Shareholders’ equity:

                  

Total shareholders’ equity

     6,762.1        —        5,643.1      3,526.5      85,172.5      (94,342.1     6,762.1
                                                  

Total liabilities and equity

   $ 10,629.6      $ —      $ 14,265.4    $ 13,238.0    $ 121,418.6    $ (138,627.1   $ 20,924.5
                                                  

 

Condensed Consolidating Statement of Cash Flows

For the nine months ended September 30, 2009

 

In millions

   IR
Ireland
    IR
Limited
    IR
International
    IR Global
Holding
    IR New
Jersey
    Other
Subsidiaries
    IR Ireland
Consolidated
 

Net cash provided by (used in) continuing operating activities

   $ (1.9   $ (49.9   $ (3.1   $ (370.5   $ (61.9   $ 1,989.6      $ 1,502.3   

Net cash provided by (used in) discontinued operating activities

     —          —          —          —          (36.9     14.8        (22.1
                                                        

Cash flows from investing activities:

              

Capital expenditures

     —          —          —          —          (18.1     (138.0     (156.1

Proceeds from sale of property, plant and equipment

     —          —          —          —          2.9        16.1        19.0   

Other, net

     —          —          —          —          —          (0.2     (0.2
                                                        

Net cash provided by (used in) continuing investing activities

     —          —          —          —          (15.2     (122.1     (137.3

Net cash provided by (used in) discontinued investing activities

     —          —          —          —          —          —          —     
                                                        

Cash flows from financing activities:

              

Net change in debt

     —          —          —          (752.7     (9.5     (210.3     (972.5

Debt issuance costs

     —          —          —          (16.1     —          —          (16.1

Net inter-company proceeds (payments)

     24.3        251.3        3.1        1,202.1        218.2        (1,699.0     —     

Dividends (paid) received

     (22.3     (209.7     —          9.4        9.9        74.9        (137.8

Acquisition of noncontrolling interest

     —          —          —          —          —          (1.5     (1.5

Proceeds from the exercise of stock options

     —          8.3        —          —          —          —          8.3   

Settlement of cross currency swap

     —          —          —          —          —          (26.9     (26.9

Other, net

     —          —          —          —          —          (12.0     (12.0
                                                        

Net cash provided by (used in) continuing financing activities

     2.0        49.9        3.1        442.7        218.6        (1,874.8     (1,158.5

Net cash provided by (used in) discontinued financing activities

     —          —          —          —          —          —          —     
                                                        

Effect of exchange rate changes on cash and cash equivalents

     —          —          —          —          —          9.3        9.3   
                                                        

Net increase (decrease) in cash and cash equivalents

     0.1        —          —          72.2        104.6        16.8        193.7   

Cash and cash equivalents - beginning of period

     —          —          —          1.1        8.6        540.5        550.2   
                                                        

Cash and cash equivalents - end of period

   $ 0.1      $ —        $ —        $ 73.3      $ 113.2      $ 557.3      $ 743.9   
                                                        

 

Condensed Consolidating Statement of Cash Flows

For the nine months ended September 30, 2008

 

In millions

   IR
Limited
    IR
International
   IR Global
Holding
    IR New
Jersey
    Other
Subsidiaries
    IR Limited
Consolidated
 

Net cash provided by (used in) continuing operating activities

   $ (14.3   $ —      $ (28.9   $ (1,045.9   $ 1,102.6      $ 13.5   

Net cash provided by (used in) discontinued operating activities

     —          —        —          (2.6     (23.5     (26.1
                                               

Cash flows from investing activities:

             

Capital expenditures

     —          —        —          (25.7     (170.5     (196.2

Proceeds from sale of property, plant and equipment

     —          —        —          (7.6     67.3        59.7   

Acquisitions, net of cash

     —          —        —          —          (7,105.4     (7,105.4

Proceeds from business disposition, net of cash

     —          —        —          54.7        18.6        73.3   

Other, net

     —          —        —          5.4        (47.9     (42.5
                                               

Net cash provided by (used in) continuing investing activities

     —          —        —          26.8        (7,237.9     (7,211.1

Net cash provided by (used in) discontinued investing activities

     —          —        —          —          —          —     
                                               

Cash flows from financing activities:

             

Net change in debt

     —          —        3,506.8        (8.0     (152.0     3,346.8   

Debt issuance costs

     —          —        (23.2     —          —          (23.2

Net inter-company proceeds (payments)

     341.5        —        (5,426.9     503.5        4,581.9        —     

Dividends (paid) received

     (346.0     —        44.4        12.3        133.8        (155.5

Proceeds from the exercise of stock options

     18.2        —        —          —          —          18.2   

Repurchase of ordinary shares by subsidiary

     —          —        (2.0     —          —          (2.0

Other, net

     —          —        —          18.5        (12.2     6.3   
                                               

Net cash provided by (used in) continuing financing activities

     13.7        —        (1,900.9     526.3        4,551.5        3,190.6   

Net cash provided by (used in) discontinued financing activities

     —          —        —          —          —          —     
                                               

Effect of exchange rate changes on cash and cash equivalents

     —          —        —          —          39.3        39.3   
                                               

Net increase (decrease) in cash and cash equivalents

     (0.6     —        (1,929.8     (495.4     (1,568.0     (3,993.8

Cash and cash equivalents - beginning of period

     0.6        —        1,979.1        545.4        2,210.2        4,735.3   
                                               

Cash and cash equivalents - end of period

   $ —        $ —      $ 49.3      $ 50.0      $ 642.2      $ 741.5   
                                               

 

Document Information
9 Months Ended
Sep. 30, 2009
Document Information [Text Block]
 
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
09/30/2009 
Entity Information
Oct. 30, 2009
9 Months Ended
Sep. 30, 2009
Entity [Text Block]
 
 
Trading Symbol
 
IR 
Entity Registrant Name
 
Ingersoll-Rand plc 
Entity Central Index Key
 
0001466258 
Current Fiscal Year End Date
 
12/31 
Entity Filer Category
 
Large Accelerated Filer 
Entity Common Stock, Shares Outstanding
320,059,548