Form 10-K
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to          

Commission File No. 001-34400

INGERSOLL-RAND PLC

(Exact name of registrant as specified in its charter)

 

Ireland   98-0626632

(State or other jurisdiction of
incorporation or organization)

  (I.R.S. Employer
Identification No.)

170/175 Lakeview Dr.

Airside Business Park

Swords, Co. Dublin

Ireland (Address of principal executive offices)

Registrant’s telephone number, including area code: +(353) (0) 18707400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Name of each exchange on which registered

Ordinary Shares,

  New York Stock Exchange

Par Value $1.00 per Share

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES   X       NO        

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES            NO  X  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  X      NO        

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  X      NO        

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

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

 

Large accelerated filer  X  

  Accelerated filer             

Non-accelerated filer             

  Smaller reporting company             

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES             NO  X  

The aggregate market value of common stock held by nonaffiliates on June 30, 2010 was approximately $11,126,105,957 based on the closing price of such stock on the New York Stock Exchange.

The number of ordinary shares outstanding as of February 11, 2011 was 329,577,804.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement to be filed within 120 days of the close of the registrant’s fiscal year in connection with the registrant’s Annual General Meeting of Shareholders to be held June 2, 2011 are incorporated by reference into Part II and Part III of this Form 10-K.


Table of Contents

Form 10-K

For the Fiscal Year Ended December 31, 2010

TABLE OF CONTENTS

 

               Page  

Part I

   Item 1.    Business      4   
   Item 1A.    Risk Factors      11   
   Item 1B.    Unresolved Staff Comments      18   
   Item 2.    Properties      18   
   Item 3.    Legal Proceedings      20   

Part II

   Item 5.   

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     23   
   Item 6.    Selected Financial Data      25   
   Item 7.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     26   
   Item 7A.    Quantitative and Qualitative Disclosure About Market Risk      55   
   Item 8.    Financial Statements and Supplementary Data      57   
   Item 9.   

Changes in and Disagreements with Independent Accountants on Accounting and Financial Disclosure

     58   
   Item 9A.    Controls and Procedures      58   
   Item 9B.    Other Information      58   

Part III

   Item 14.    Principal Accountant Fees and Services      59   

Part IV

   Item 15.    Exhibits and Financial Statement Schedules      60   
   Signatures         73   


Table of Contents

CAUTIONARY STATEMENT FOR FORWARD LOOKING STATEMENTS

Certain statements in this report, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “forecast,” “outlook,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” or the negative thereof or variations thereon or similar terminology generally intended to identify forward-looking statements.

Forward-looking statements may relate to such matters as projections of revenue, margins, expenses, tax provisions, earnings, cash flows, benefit obligations, share repurchases or other financial items; any statements of the plans, strategies and objectives of management for future operations, including those relating to any statements concerning expected development, performance or market share relating to our products and services; any statements regarding future economic conditions or performance; any statements regarding pending investigations, claims or disputes, including those relating to the Internal Revenue Service audit of our consolidated subsidiaries’ tax filings in 2001 and 2002 and the Foreign Corrupt Practices Act and similar matters; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on our forward-looking statements. These statements are not guarantees of future performance. They are subject to future events, risks and uncertainties – many of which are beyond our control – as well as potentially inaccurate assumptions, that could cause actual results to differ materially from our expectations and projections.

Factors that might affect our forward-looking statements include, among other things:

 

   

overall economic and business conditions;

 

   

the demand for our products and services;

 

   

competitive factors in the industries in which we compete;

 

   

changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations);

 

   

the outcome of any litigation, governmental investigations or proceedings;

 

   

the outcome of any income tax audits or settlements;

 

   

interest rate fluctuations and other changes in borrowing costs;

 

   

other capital market conditions, including availability of funding sources and currency exchange rate fluctuations;

 

   

availability of and fluctuations in the prices of key raw materials;

 

   

economic and political conditions in international markets, including governmental changes and restrictions on the ability to transfer capital across borders;

 

   

the ability to achieve cost savings in connection with our productivity programs;

 

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potential further impairment of our goodwill, indefinite-lived intangible assets and/or our long-lived assets;

 

   

the impact of fluctuations in the price of our ordinary shares;

 

   

changes in U.S. and non-U.S. governmental laws and regulations; and

 

   

the possible effects on us of future legislation in the U.S. that may limit or eliminate potential U.S. tax benefits resulting from our incorporation in a non-U.S. jurisdiction, such as Ireland, or deny U.S. government contracts to us based upon our incorporation in such non-U.S. jurisdiction.

Some of the material risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described more fully in Item 1A “Risk Factors.” You should read that information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report and our Consolidated Financial Statements and related notes in Item 8 of this report. We note such information for investors as permitted by the Private Securities Litigation Reform Act of 1995. There also may be other factors that have not been anticipated or that are not described in this report, generally because we do not perceive them to be material, which could cause results to differ materially from our expectations.

Forward-looking statements speak only as of the date they are made, and we do not undertake to update these forward-looking statements. You are advised, however, to review any further disclosures we make on related subjects in our periodic filings with the Securities and Exchange Commission.

 

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PART I

Item 1.      BUSINESS

Overview

Ingersoll-Rand plc (IR-Ireland), an Irish public limited company, and its consolidated subsidiaries (we, our, 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. Our business segments consist of Climate Solutions, Residential Solutions, Industrial Technologies and Security Technologies, each with strong brands and leading positions within their respective markets. We generate revenue and cash primarily through the design, manufacture, sale and service of a diverse portfolio of industrial and commercial products that include well-recognized, premium brand names such as Club Car®, Hussmann®, Ingersoll-Rand®, Schlage®, Thermo King® and Trane®.

To achieve our mission of becoming a world leader in creating safe, comfortable and efficient environments, as well as to become a more diversified company with strong growth and profitability prospects, we transformed our enterprise portfolio by divesting cyclical, low-growth and asset-intensive businesses. In addition, our acquisition strategy has helped deliver more consistent revenue and earnings performance across all phases of the economic cycle. Aside from our portfolio transformation, we continue to focus on increasing our recurring revenue stream, which includes revenues from parts, service, used equipment and rentals. We also intend to continuously improve the efficiencies, capabilities, products and services of our high-potential businesses.

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 (the Ireland Reorganization). As a result, IR-Ireland replaced IR-Limited as the ultimate parent company effective July 1, 2009. In conjunction with the Ireland 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. All references related to the Company prior to July 1, 2009 relate to IR-Limited.

Ireland Reorganization

On March 5, 2009, our board of directors approved a reorganization of the Company that would change the jurisdiction of incorporation of our parent company from Bermuda to Ireland. The first step in the Ireland 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 Ireland Reorganization was 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 equity. As a result of the Ireland 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.

On July 1, 2009, IR-Limited completed the transfer of all the outstanding shares of Ingersoll-Rand Global Holding Company Limited (IR-Global) to Ingersoll-Rand International Holding Limited (IR-International), another wholly-owned indirect subsidiary of IR-Limited incorporated in Bermuda, 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, a wholly-owned indirect subsidiary of IR-Limited incorporated in New Jersey (IR-New Jersey), as the case may be, as the issuers of debt securities under these indentures. Neither IR-Ireland nor IR-Limited has issued or intends to issue guarantees in respect of any public 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.

 

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The Ireland Reorganization did not have a material impact on our financial results. Ingersoll-Rand plc continues to be subject to United States Securities and Exchange Commission reporting requirements and prepares financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Shares of Ingersoll-Rand plc 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.

Bermuda Reorganization

IR-New Jersey was organized in 1905 under the laws of the State of New Jersey as a consolidation of Ingersoll-Sergeant Drill Company and the Rand Drill Company, whose businesses were established in the early 1870s.

IR-Limited was the successor to IR-New Jersey following a corporate reorganization that became effective on December 31, 2001 (the Bermuda Reorganization). The Bermuda Reorganization was 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 equity.

Recent Acquisitions and Divestitures

On December 30, 2010, we completed the divestiture of our gas microturbine generator business, which was sold under the Energy Systems brand, to Flex Energy, LLC. The planned divestiture met both the component and held for sale criteria during the third quarter of 2010. Therefore, we have reported this business as a discontinued operation and classified the assets and liabilities as held for sale for all periods presented.

On October 4, 2010, we completed the divestiture of our European refrigerated display case business, which was sold under the KOXKA brand, to an affiliate of American Industrial Acquisition Corporation (AIAC Group). The planned divestiture met both the component and held for sale criteria during the second quarter of 2010. Therefore, we have reported this business as a discontinued operation and classified the assets and liabilities as held for sale for all periods presented.

On June 5, 2008 (the Acquisition Date), we completed our acquisition of 100% of the outstanding common shares of Trane Inc. (Trane). Trane, previously named American Standard Companies Inc., provides systems and services that enhance the quality and comfort of the air in homes and buildings around the world. Trane’s systems and services have leading positions in commercial, residential, institutional and industrial markets; a reputation for reliability, high quality and product innovation; and a powerful distribution network. The total cost of the acquisition was approximately $9.6 billion, which was funded by a combination of cash on hand, commercial paper and a 364-day senior unsecured bridge loan facility.

Business Segments

Our business segments provide products, services and solutions used to increase the efficiency and productivity of both industrial and commercial operations and homes, as well as improve the security, safety, health and comfort of people around the world.

On December 30, 2010, we completed the divestiture of our gas microturbine generator business, which was sold under the Energy Systems brand. The business, which was previously reported as part of the Industrial Technologies segment, designs, manufactures, markets, distributes, and services gas powered microturbine generators which feature energy efficient design and low emissions technology. Segment information has been revised to exclude the results of this business for all periods presented.

On October 4, 2010, we completed the divestiture of our European refrigerated display case business, which was sold under the KOXKA brand. The business, which was previously reported as part of the Climate Solutions segment, designs, manufactures and markets commercial refrigeration equipment through sales branches and a network of distributors throughout Europe, Africa and the Middle East. KOXKA had two manufacturing facilities in Spain and employed 445 people. Segment information has been revised to exclude the results of this business for all periods presented.

 

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Our business segments are as follows:

Climate Solutions

Our Climate Solutions segment delivers energy-efficient refrigeration and Heating, Ventilation and Air Conditioning (HVAC) solutions throughout the world. Encompassing the transport and stationary refrigeration markets as well as the commercial HVAC markets, this segment offers customers a broad range of products, services and solutions to manage controlled temperature environments. This segment, which had 2010 net revenues of $7.8 billion, includes the market-leading brands of Hussmann, Thermo King and Trane.

Residential Solutions

Our Residential Solutions segment provides safety, comfort and efficiency to homeowners throughout North America and parts of South America. It offers customers a broad range of products, services and solutions including mechanical and electronic locks, energy-efficient HVAC systems, indoor air quality solutions, advanced controls, portable security systems and remote home management. This segment, which had 2010 net revenues of $2.1 billion, is comprised of well-known brands like American Standard, Schlage and Trane.

Industrial Technologies

Our Industrial Technologies segment provides products, services and solutions that enhance energy efficiency, productivity and operations. It offers our global customers a diverse and innovative range of products including compressed air systems, tools, pumps, fluid handling systems, as well as golf, utility, and rough terrain vehicles. It also includes a diverse range of service offerings including full coverage and preventative maintenance service contracts, service parts, installation, and remanufactured compressors and tools. This segment, which had 2010 net revenues of $2.5 billion, includes the Club Car, Ingersoll Rand, and ARO market-leading brands.

Security Technologies

Our Security Technologies segment is a leading global provider of products and services that make environments safe, secure and productive. The segment’s market-leading products include electronic and biometric access control systems and software, locks and locksets, door closers, exit devices, steel doors and frames, portable security devices, as well as time, attendance and personnel scheduling systems. These products serve a wide range of markets including the commercial construction market, healthcare, retail, maritime and transport industries as well as educational and governmental facilities. This segment, which had 2010 net revenues of $1.7 billion, includes the CISA, LCN, Schlage and Von Duprin brands.

Products

Our principal products by business segment include the following:

 

Climate Solutions

Aftermarket parts and service

  

Diesel-powered temperature control systems

Air cleaners

  

Display merchandisers

Air conditioners

  

Furnaces

Air exchangers

  

Heat pumps

Air handlers

  

Humidifiers

Airside and terminal devices

  

Installation contracting

Applied systems

  

Package heating and cooling systems

Auxiliary idle reduction

  

Refrigerated containers

Auxiliary temperature management

  

Refrigeration and electrical houses

Boilers

  

Refrigeration systems

Building management systems

  

Surface and air sanitation

Bus and rail HVAC systems

  

Thermostats/controls

Coils and condensers

  

Unitary systems

Containers and gensets

  

Vehicle-powered truck refrigeration systems

Control systems

  

Walk-in coolers and freezers

Cryogenic temperature control systems

  

 

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Residential Solutions

Air cleaners

  

Furnaces

Air conditioners

  

Heat pumps

Air exchangers

  

Humidifiers

Air handlers

  

Package heating and cooling systems

Door locks, latches and locksets

  

Portable security products

Electrical security products

  

Thermostats/controls

Electronic access-control systems

  

Unitary systems

 

Industrial Technologies

Air and electric tools

  

Golf vehicles

Air balancers

  

Lubrication equipment

Air compressors & accessories

  

Material handling equipment

Air motors

  

On-Road Low Speed Vehicles

Air treatment

  

Piston pumps

Blowers

  

Rough Terrain (AWD) Vehicles

Diaphragm pumps

  

Utility vehicles

Engine-starting systems

  

Visage™ Mobile Golf Information Systems

Fluid-handling equipment

  

 

Security Technologies

Biometric access control systems

  

Electrical security products

Door closers and controls

  

Electronic access-control systems

Door locks, latches and locksets

  

Exit devices

Doors and door frames (steel)

  

These products are sold primarily under our name and under other names including American Standard®, CISA®, Club Car®, Hussmann®, LCN®, Schlage®, Thermo King®, Von Duprin® and Trane®.

Competitive Conditions

Our products are sold in highly competitive markets throughout the world. Due to the diversity of these products and the variety of markets served, we encounter a wide variety of competitors that vary by product line. They include well-established regional or specialized competitors, as well as larger U.S. and non-U.S. corporations or divisions of larger companies.

The principal methods of competition in these markets relate to price, quality, delivery, service and support, technology and innovation. We believe that we are one of the leading manufacturers in the world of HVAC systems and services, air compression systems, transport temperature control products, refrigerated display merchandisers, refrigeration systems and controls, air tools, and golf and utility vehicles. In addition, we believe we are a leading supplier in U.S. markets for architectural hardware products, mechanical locks and electronic and biometric access-control technologies.

Distribution

Our products are distributed by a number of methods, which we believe are appropriate to the type of product. U.S. sales are made through branch sales offices and through distributors, dealers and large retailers across the country. Non-U.S. sales are made through numerous subsidiary sales and service companies with a supporting chain of distributors throughout the world.

 

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Customers

We have no major customers that accounted for more than 10% of our consolidated net revenues in 2010, 2009 or 2008. No material part of our business is dependent upon a single customer or a small group of customers; therefore, the loss of any one customer would not have a material adverse effect on our operations.

Raw Materials

We manufacture many of the components included in our products, which requires us to employ a wide variety of raw materials. Principal raw materials, such as steel, copper and aluminum, are purchased from a large number of independent sources around the world. In the past, higher prices for some raw materials, particularly steel and non-ferrous metals, have caused pricing pressures in some of our businesses; we have historically been able to pass certain of these cost increases on to customers in the form of price increases.

We believe that available sources of supply will generally be sufficient for the foreseeable future. There have been no raw material shortages which have had a material adverse effect on our businesses. However, significant changes in certain material costs may have an adverse impact on our costs and operating margins. To mitigate this potential impact, we enter into long-term supply contracts in order to manage our exposure to potential supply disruptions.

Working Capital

We manufacture products that usually must be readily available to meet our customers’ rapid delivery requirements. Therefore, we maintain an adequate level of working capital to support our business needs and our customers’ requirements. Such working capital requirements are not, however, in the opinion of management, materially different from those experienced by our major competitors. Our sales and payment terms are generally similar to those of our competitors.

Research and Development

We engage in research and development activities in an effort to introduce new products, enhance existing product effectiveness, increase safety, improve ease of use and reliability as well as expand the various applications for which our products may be appropriate. In addition, we continually evaluate developing technologies in areas that we believe will enhance our business for possible investment or acquisition. We anticipate that we will continue to make significant expenditures for research and development activities as we look to maintain and improve our competitive position. Research and development expenditures, including qualifying engineering costs, were approximately $244.0 million in 2010, $255.0 million in 2009 and $201.1 million in 2008.

Patents and Licenses

We own numerous patents and patent applications, and are licensed under others. Although in aggregate we consider our patents and licenses to be valuable to our operations, we do not believe that our business is materially dependent on a single patent or license or any group of them. In our opinion, engineering, production skills and experience are more responsible for our market position than our patents and/or licenses.

Operations by Geographic Area

More than 35% of our 2010 net revenues were derived outside the U.S. and we sold products in more than 100 countries. Therefore, the attendant risks of manufacturing or selling in a particular country, such as nationalization and establishment of common markets, would not be expected to have a significant effect on our non-U.S. operations. For a discussion of risks attendant to our non-U.S. operations, see “Risk Factors – Currency exchange rate and commodity price fluctuations may adversely affect our results,” and “Risk Factors – Our global operations subject us to economic risks,” in Item 1A and “Quantitative and Qualitative Disclosure about Market Risk” in Item 7A.

 

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Backlog

Our approximate backlog of orders, believed to be firm, at December 31, 2010 and 2009, were as follows:

 

Dollar amounts in millions

     2010         2009   

Climate Solutions

   $ 1,653.0       $ 1,602.5   

Residential Solutions

     73.8         32.7   

Industrial Technologies

     412.3         332.1   

Security Technologies

     165.1         160.4   

Total

   $   2,304.2       $   2,127.7   

These backlog figures are based on orders received. While the major portion of our products are built in advance of order and either shipped or assembled from stock, orders for specialized machinery or specific customer application are submitted with extensive lead times and are often subject to revision, deferral, cancellation or termination. We expect to ship substantially the entire backlog at December 31, 2010 during 2011.

Environmental Matters

We continue to be dedicated to an environmental program intended to reduce the utilization and generation of hazardous materials during the manufacturing process as well as to remediate identified environmental concerns. As to the latter, we are currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at current and former manufacturing facilities.

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

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

During 2010, we spent $11.6 million for environmental remediation at sites presently or formerly owned or leased by us. As of December 31, 2010 and 2009, we have recorded reserves for environmental matters of $81.0 million and $91.4 million, respectively. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain.

For a further discussion of our potential environmental liabilities, see also Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Environmental and Asbestos Matters and also Note 22 to the Consolidated Financial Statements.

Asbestos Matters

Certain of our wholly-owned subsidiaries 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 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.

 

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See also the discussion under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Environmental and Asbestos Matters and also Note 22 to the Consolidated Financial Statements.

Employees

As of December 31, 2010, we employed approximately 59,000 people throughout the world.

Available Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The public can obtain any documents that are filed by us at http://www.sec.gov.

In addition, this Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to all of the foregoing reports, are made available free of charge on our Internet website (http://www.ingersollrand.com) as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The Board of Directors of the Company has also adopted and posted in the Investor Relations section of the Company’s website our Corporate Governance Guidelines and charters for each of the Board’s standing committees. The contents of the Company’s website are not incorporated by reference in this report.

Certifications

New York Stock Exchange Annual Chief Executive Officer Certification

The Company’s Chief Executive Officer submitted to the New York Stock Exchange the Annual CEO Certification as the Company’s compliance with the New York Stock Exchange’s corporate governance listing standards required by Section 303A.12 of the New York Stock Exchange’s listing standards.

Sarbanes-Oxley Act Section 302 Certification

The certifications of the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 have been filed as exhibits to this Annual Report on Form 10-K.

 

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Item 1A.    RISK FACTORS

The following are certain risk factors that could affect our business, financial condition, results of operations, and cash flows. The risk factors below are not the only risks faced by the Company. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements. Before you invest in our publicly traded securities, you should know that making such an investment involves some risks, including the risks described below. If any of the risks actually occur, our business, financial condition or results of operations could be negatively affected. In that case, the trading price of our ordinary shares could decline, and you may lose all or part of your investment.

Oil for Food Program and Foreign Corrupt Practices Act (FCPA) matters.

On November 10, 2004, the Securities and Exchange Commission (SEC) issued an Order directing that a number of public companies, including us, provide information relating to their participation in transactions under the United Nations’ Oil for Food Program. Upon receipt of the Order, we undertook a thorough review of our participation in the Oil for Food Program, provided the SEC with information responsive to the Order and provided additional information requested by the SEC. On October 31, 2007, we announced we had reached settlements with the SEC and the Department of Justice (DOJ) relating to this matter. Under the terms of the settlements, we paid a total of $6.7 million in penalties, interest and disgorgement of profits. We consented to the entry of a civil injunction in the SEC action and entered into a three-year deferred prosecution agreement (DPA) with the DOJ. The DPA expired on October 31, 2010. Under both settlements, we have implemented and will continue to implement improvements to our compliance program that are consistent with our longstanding policy against improper payments. On February 16, 2011, the DOJ filed a motion to dismiss the Oil for Food charges against us. In its motion, the DOJ noted that we fully cooperated with the investigation, and that we had met our obligations regarding improving our compliance policies and procedures relating to the FCPA.

Additionally, we have reported to the DOJ and SEC certain matters which raise potential issues under the FCPA and other applicable anti-corruption laws, including matters which were reported during the past year. We have conducted, and continue to conduct, investigations and have had preliminary discussions with respect to these matters with the SEC and DOJ, which are ongoing. The SEC has sought additional information and documents regarding certain of these and other matters. These matters may be deemed to violate the FCPA and other applicable anti-corruption laws. Such determinations could subject us to, among other things, civil and criminal penalties, material fines, equitable remedies (including profit disgorgement and injunctions on future conduct), securities litigation and a general loss of investor confidence, any one of which could adversely affect our business prospects, financial position, or the market value of our stock.

Our global operations subject us to economic risks.

Our global operations are dependent upon products manufactured, purchased and sold in the U.S. and internationally, including Europe, China, Brazil, Venezuela, Africa, India and Turkey. These activities are subject to risks that are inherent in operating globally, including the following:

 

   

countries could change regulations or impose currency restrictions and other restraints;

 

   

in some countries, there is a risk that the government may expropriate assets;

 

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some countries impose burdensome tariffs and quotas;

 

   

national and international conflict, including terrorist acts, could significantly impact our financial condition and results of operations; and

 

   

economic downturns, political instability and war or civil disturbances may disrupt production and distribution logistics or limit sales in individual markets.

Currency exchange rate and commodity price fluctuations may adversely affect our results.

We are exposed to a variety of market risks, including the effects of changes in currency exchange rates, commodity prices and interest rates. See Part II Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

More than 35% of our 2010 net revenues were derived outside the U.S., and we expect sales to non-U.S. customers to continue to represent a significant portion of our consolidated net revenues. Although we enter into currency exchange contracts to reduce our risk related to currency exchange fluctuations, changes in the relative values of currencies occur from time to time and may, in some instances, have a significant effect on our results of operations. Because we do not hedge against all of our currency exposure, our business will continue to be susceptible to currency fluctuations.

Furthermore, the reporting currency for our financial statements is the U.S. dollar. We have assets, liabilities, revenues and expenses denominated in currencies other than the U.S. dollar. To prepare our consolidated financial statements, we must translate those assets, liabilities, revenues and expenses into U.S. dollars at the applicable exchange rates. Consequently, increases and decreases in the value of the U.S. dollar versus other currencies will affect the amount of these items in our consolidated financial statements, even if their value has not changed in their original currency.

We are also a large buyer of steel and non-ferrous metals, as well as other commodities required for the manufacture of our products. Volatility in the prices of these commodities could increase the costs of our products and services. We may not be able to pass on these costs to our customers and this could have a material adverse effect on our results of operations and cash flows. Although we do not currently, we may purchase commodity derivatives in the future which could reduce the near-term volatility of the commodity prices for supplier contracts where fixed pricing is not available. However, the Company’s hedging activities would not be designed to mitigate long-term commodity price fluctuations and, therefore, would not protect the Company from long-term commodity price increases.

Material adverse legal judgments, fines, penalties or settlements could adversely affect our results of operations or financial condition.

We are involved in a number of legal proceedings. Our business may be adversely affected by the outcome of these proceedings and other contingencies (including, without limitation, asbestos-related matters) that cannot be predicted with certainty. As required by generally accepted accounting principles in the United States, we establish reserves based on our assessment of contingencies. Subsequent developments in legal proceedings and other contingencies may affect our assessment and estimates of the loss contingency recorded as a reserve and we may be required to make additional material payments, which could result in an adverse effect on our results of operations or financial condition.

Such an outcome could have important consequences. For example, it could:

 

   

increase our vulnerability to general adverse economic and industry conditions;

 

   

limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate;

 

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restrict our ability to exploit business opportunities; and

 

   

make it more difficult for us to satisfy our payment obligations with respect to our outstanding indebtedness.

Significant shortages in the raw materials we use in our businesses and higher energy prices could increase our operating costs.

We rely on suppliers to secure raw materials, particularly steel and non-ferrous metals, required for the manufacture of our products. A disruption in deliveries from our suppliers or decreased availability of raw materials or commodities could have an adverse effect on our ability to meet our commitments to customers or increase our operating costs. We believe that available sources of supply will generally be sufficient for our needs for the foreseeable future. Nonetheless, the unavailability of some raw materials may have an adverse effect on our results of operations or financial condition.

Additionally, we are exposed to large fluctuations for the price of petroleum-based fuel due to the instability of current market prices. Higher energy costs increase our operating costs and the cost of shipping our products to, and supplying services to, customers around the world. Consequently, sharp price increases, the imposition of taxes or an interruption of supply, could cause us to lose the ability to effectively manage the risk of rising fuel prices and may have an adverse effect on our results of operations or financial condition.

Changes in weather patterns and seasonal fluctuations may adversely affect certain segments of the Company’s business and impact overall results of operations.

Demand for certain segments of the Company’s products and services is influenced by weather conditions. For instance, Trane’s sales have historically tended to be seasonally higher in the second and third quarters of the year because, in the U.S. and other northern hemisphere markets, summer is the peak season for sales of air conditioning systems and services. Additionally, while there is demand for Trane’s products and services throughout the year, a significant percentage of total sales are related to U.S. residential and commercial construction activity, which is generally higher in the second and third quarters of the year. Therefore, results of any quarterly period may not be indicative of expected results for a full year and unexpected cool trends or unseasonably warm trends during the summer season could negatively or positively affect certain segments of the Company’s business and impact overall results of operations.

If the distribution of WABCO’s shares by Trane on July 31, 2007 were to fail to qualify as tax-free for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code (the Code), then Trane and Trane’s shareholders who received WABCO common stock in the distribution may be required to pay U.S. federal income taxes.

On July 31, 2007, Trane (then known as American Standard Companies Inc.) completed the spinoff of its vehicle control systems business into a new publicly traded company named WABCO. At the time, Trane received a private letter ruling from the Internal Revenue Service (IRS) substantially to the effect that the distribution qualified as tax-free for U.S. federal income tax purposes under Section 355 of the Code. In addition, Trane received an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to Trane, substantially to the effect that the distribution will qualify as tax-free to Trane, WABCO and Trane shareholders under Section 355 and related provisions of the Code. The ruling and opinion were based on, among other things, certain assumptions as well as on the accuracy of certain factual representations and statements made by WABCO and Trane. In rendering its ruling, the IRS also relied on certain covenants that Trane and WABCO entered into, including the adherence to certain restrictions on WABCO’s and Trane’s future actions.

 

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In connection with our acquisition of Trane in June 2008, we received an opinion of Simpson Thacher & Bartlett LLP, tax counsel to us, substantially to the effect that the distribution should continue to qualify as tax-free to Trane, WABCO and Trane shareholders under Section 355 and related provisions of the Code. Notwithstanding receipt by Trane and us of the private letter ruling as well as the opinions of counsel, there can be no assurance that the IRS will not later assert that the distribution should be treated as a taxable transaction.

If the distribution fails to qualify for tax-free treatment, then Trane would recognize a gain in an amount equal to the excess of (i) the fair market value of WABCO’s common stock distributed to the Trane shareholders over (ii) Trane’s tax basis in such common stock. Under the terms of the Tax Sharing Agreement, in the event the distribution were to fail to qualify as a tax-free reorganization and such failure was not the result of actions taken after the distribution by Trane or any of its subsidiaries or shareholders, WABCO would be responsible for all taxes imposed on Trane as a result thereof. In addition, each Trane shareholder who received WABCO common stock in the distribution generally would be treated as having received a taxable distribution in an amount equal to the fair market value of WABCO’s common stock received (including any fractional share sold on behalf of the shareholder), which would be taxable as a dividend to the extent of the shareholder’s ratable share of Trane’s current and accumulated earnings and profits at the time (as increased to reflect any current income including any gain recognized by Trane on the taxable distribution). The balance, if any, of the distribution would be treated as a nontaxable return of capital to the extent of the Trane shareholder’s tax basis in its Trane stock, with any remaining amount being taxed as capital gain. If WABCO was unable to satisfy its obligations under the Tax Sharing Agreement or if Trane was unable to rely on the Tax Sharing Agreement for any reason, any potential liability arising from the distribution of WABCO’s shares by Trane could have a material adverse effect on our financial condition and results of operations.

Risks Relating to Our Past Reorganizations

We effected a corporate reorganization in December 2001 to become a Bermuda company (the “Bermuda Reorganization”) and a subsequent corporate reorganization in July 2009 to become an Irish public limited company (the “Ireland Reorganization”). These reorganizations exposed us and our shareholders to the risks described below. In addition, we cannot be assured that all of the anticipated benefits of the reorganizations will be realized.

Changes in tax laws, regulations or treaties, changes in our status under U.S. or other tax laws or adverse determinations by taxing authorities could increase our tax burden or otherwise affect our financial condition or operating results, as well as subject our shareholders to additional taxes.

The realization of any tax benefit related to our reorganizations could be impacted by changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by the U.S. tax authorities or any other tax authority. From time to time, proposals have been made and/or legislation has been introduced to change the tax laws of various jurisdictions that if enacted could increase our tax burden and could have a material adverse impact on our financial condition and results of operations. For instance, recent U. S. tax legislative proposals would broaden the circumstances under which we would be considered a U.S. resident, which would significantly diminish the realization of any tax benefit related to our reorganizations. There are other recent U.S. tax legislative proposals that could modify or eliminate the tax deductibility of various currently deductible payments, which could materially and adversely affect our effective tax rate and cash tax position. Moreover, other U.S. tax legislative proposals could potentially affect us by overriding certain tax treaties and limiting the treaty benefits on certain payments by our U.S. subsidiaries to our non-U.S. affiliates, which would adversely affect our effective tax rate. We cannot predict the outcome of any specific legislation in any jurisdiction. While we are currently monitoring these proposals and others and are investigating all options, we could still be subject to increased taxation on a going forward basis no matter what action we undertake if certain legislative proposals are enacted and/or certain tax treaties are amended.

 

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While our U.S. operations are subject to U.S. tax, we believe that a significant portion of our non-U.S. operations are generally not subject to U.S. tax other than withholding taxes. Our conclusions are based on, among other things, our determination that we, and a significant portion of our foreign subsidiaries, are not currently controlled foreign corporations (CFC) within the meaning of the U.S. tax laws, although the IRS or a court may not concur with our conclusions. A non-U.S. corporation, such as us, will constitute a CFC for U.S. federal income tax purposes if certain ownership criteria are met. If the IRS or a court determined that we (or any of our non-U.S. subsidiaries) were a CFC, then each of our U.S. shareholders who own (directly, indirectly, or constructively) 10% or more of the total combined voting power of all classes of our stock (or the stock of any of our non-U.S. subsidiaries) on the last day of the applicable taxable year (a “10% U.S. Voting Shareholder”) would be required to include in gross income for U.S. federal income tax purposes its pro rata share of our subpart F and other similar types of income (and the subpart F and other similar types of income of any of our subsidiaries determined to be a CFC) for the period during which we (and our non-U.S. subsidiaries) were a CFC. In addition, gain on the sale of our shares realized by such a shareholder may be treated as ordinary income to the extent of the shareholder’s proportionate share of our and our CFC subsidiaries’ undistributed earnings and profits accumulated during the shareholder’s holding period of the shares while we (or any of our non-U.S. subsidiaries) are a CFC. Treatment of us or any of our non-U.S. subsidiaries as a CFC could have a material adverse impact on our financial condition and results of operations.

On July 20, 2007, we received a notice from the IRS containing proposed adjustments to our tax filings in connection with an audit of the 2001 and 2002 tax years. The IRS did not contest the validity of our reincorporation in Bermuda. The most significant adjustments proposed by the IRS involve treating the entire intercompany debt incurred in connection with our reincorporation in Bermuda as equity. As a result of this recharacterization, the IRS disallowed the deduction of interest paid on the debt and imposed dividend withholding taxes on the payments denominated as interest. The IRS also asserted an alternative argument to be applied if the intercompany debt is respected as debt. In that circumstance, the IRS proposed to ignore the entities that hold the debt and to which the interest was paid, and impose 30% withholding tax on a portion of the interest payments as if they were made directly to a company that was not eligible for reduced U.S. withholding tax under a U.S. income tax treaty. The IRS asserted under this alternative theory that we owe additional taxes with respect to 2002 of approximately $84 million plus interest. If either of these positions were upheld in their entirety, we would be required to record additional charges. We strongly disagreed with the view of the IRS, and filed a protest with the IRS in the third quarter of 2007.

On January 12, 2010, we received an amended notice from the IRS eliminating its assertion that the intercompany debt incurred in connection with our reincorporation in Bermuda should be treated as equity. However, the IRS continues to assert the alternative position described above and proposes adjustments to our 2001 and 2002 tax filings. In addition, the IRS provided notice on January 19, 2010, that it is assessing penalties of 30% on the asserted underpayment of tax described above.

We have and intend to continue to vigorously contest these proposed adjustments. We, in consultation with our outside advisors, carefully considered the form and substance of our intercompany financing arrangements, including the actions necessary to qualify for the benefits of the applicable U.S. income tax treaties. We believe that these financing arrangements are in accordance with the laws of the relevant jurisdictions including the U.S., that the entities involved should be respected and that the interest payments qualify for the U.S. income tax treaty benefits claimed.

Although the outcome of this matter cannot be predicted with certainty, based upon an analysis of the strength of our position, we believe that we are adequately reserved for this matter. As we move forward to resolve this matter with the IRS, it is reasonably possible that the reserves established may be adjusted. However, we do not expect that the ultimate resolution will have a material adverse impact on our future results of operations or financial position. At this time, the IRS has not proposed any similar adjustments for years subsequent to 2002. However, if all or a portion of these adjustments proposed by the IRS are ultimately sustained, it is likely to also affect subsequent tax years.

 

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As noted above, the IRS did not contest the validity of the Bermuda Reorganization in the above-mentioned notices. We believe that neither we nor our consolidated subsidiary IR-New Jersey will incur significant U.S. federal income or withholding taxes as a result of the transfer of the shares of our subsidiaries that occurred as part of the Bermuda Reorganization. However, we cannot give any assurances that the IRS will agree with our determination.

The inability to realize any anticipated tax benefits related to our reorganizations could have a material adverse impact on our financial condition and results of operations.

Legislative and regulatory action could materially and adversely affect us.

Our tax position could be adversely impacted by changes in tax laws, tax treaties or tax regulations or the interpretation or enforcement thereof by the U.S. tax authorities or any other tax authority. From time to time, proposals have been made and/or legislation has been introduced to change the tax laws of various jurisdictions that if enacted could increase our tax burden and could have a material adverse impact on our financial condition and results of operations. For example, the Obama administration has recently announced various U.S. tax legislative proposals that, if adopted, could adversely impact the Company. Legislative action may be taken by the U.S. Congress which, if ultimately enacted, could potentially override U.S. tax treaties upon which we rely, broaden the circumstances under which we would be considered a U.S. resident or modify or eliminate the tax deductibility of various currently deductible payments, each of which could materially and adversely affect our effective tax rate and cash tax position. We cannot predict the outcome of any specific legislative proposals, whether in the U.S. or another jurisdiction. However, if these or similar proposals were enacted that had the effect of disregarding the Ireland Reorganization, limiting our ability to take advantage of tax treaties between Ireland and other jurisdictions (including the United States), modifying or eliminating the deductibility of various currently deductible payments, or increasing the tax burden of operating or being resident in a particular country, we could be subjected to increased taxation. In addition, any future amendments to current income tax treaties, including between Ireland and other jurisdictions (including the United States) could subject us to increased taxation.

Also, the U.S. federal government and various states and municipalities have enacted or may enact legislation intended to deny government contracts to U.S. companies that reincorporate outside of the U.S. or have reincorporated outside of the U.S.

For instance, the Homeland Security Act of 2002, as amended, includes a provision that prohibits “inverted domestic corporations” and their subsidiaries from entering into contracts with the Department of Homeland Security. In addition, the State of California adopted legislation intended to limit the eligibility of certain non-U.S. chartered companies to participate in certain state contracts. More recently, the 2008, 2009 and 2010 Consolidated Appropriations Acts prohibit any federal government agency from using funds appropriated by Congress for fiscal years 2008, 2009 and 2010 to pay an inverted domestic corporation or any of its subsidiaries for work performed or products provided under certain federal contracts (“Affected Contracts”). Although the amount of monies already paid to us or to be paid to us under the Affected Contracts is not material to the Company, we cannot provide any assurance that the impact of future actions taken by the government in this area will not be materially adverse to our operations.

In addition, there continues to be negative publicity regarding, and criticism of, companies that conduct business in the United States and in other countries but have changed their place of incorporation to another country.

Irish law differs from the laws in effect in the United States and may afford less protection to holders of our securities.

It may not be possible to enforce court judgments obtained in the United States against us in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear

 

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actions against us or those persons based on those laws. We have been advised that the United States currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.

As an Irish company, we are governed by the Irish Companies Act, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States.

In addition, Irish law allows shareholders to authorize share capital which then can be issued by a board of directors without shareholder approval. Also, subject to specified exceptions, Irish law grants statutory pre-emptive rights to existing shareholders to subscribe for new issuances of shares for cash, but allows shareholders to authorize the waiver of the statutory pre-emptive rights with respect to any particular allotment of shares. These authorizations must be renewed by the shareholders every five years and we cannot guarantee that these authorizations will always be approved.

A future transfer of our shares may be subject to Irish stamp duty.

In certain circumstances, the transfer of shares in an Irish incorporated company will be subject to Irish stamp duty (currently at the rate of 1% of the higher of the price paid or the market value of the shares acquired) payable by the buyer. Although in the majority of transactions there will be no stamp duty because both the seller and buyer hold the shares beneficially, this additional risk for the buyer could adversely affect the price of our shares. Although we currently intend to cause one of our affiliates to pay stamp duty in connection with share transfers made in the ordinary course of trading by a seller who holds shares directly to a buyer who holds the acquired shares beneficially, our articles of association provide that, in the event of any such payment, we (i) may seek reimbursement from the transferor or transferee (at our discretion), (ii) may set-off the amount of the stamp duty against future dividends payable to the transferor or transferee (at our discretion), and (iii) will have a lien against our shares on which we have paid stamp duty and any dividends paid on such shares.

Our effective tax rate may increase notwithstanding the Ireland Reorganization.

While the Ireland Reorganization is not anticipated to have any material impact on our effective tax rate, there is uncertainty regarding the tax policies of the jurisdictions where we operate (which include the potential legislative actions described above), and our effective tax rate may increase and any such increase may be material. Additionally, the tax laws of Ireland and other jurisdictions could change in the future, and such changes could cause a material change in our effective tax rate.

Dividends received by our shareholders may be subject to Irish dividend withholding tax.

In certain circumstances, as an Irish tax resident company, we are required to deduct Irish dividend withholding tax (currently at the rate of 20%) from dividends paid to our shareholders. In the majority of cases, shareholders resident in the United States will not be subject to Irish withholding tax, and shareholders resident in a number of other countries will not be subject to Irish withholding tax provided that they complete certain Irish dividend withholding tax forms. However, some shareholders may be subject to withholding tax, which could adversely affect the price of our shares.

 

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Dividends received by our shareholders could be subject to Irish income tax.

Dividends paid in respect of our shares will generally not be subject to Irish income tax where the beneficial owner of these dividends is exempt from dividend withholding tax, unless the beneficial owner of the dividend has some connection with Ireland other than his or her shareholding in Ingersoll Rand.

Our shareholders who receive their dividends subject to Irish dividend withholding tax will generally have no further liability to Irish income tax on the dividends unless the beneficial owner of the dividend has some connection with Ireland other than his or her shareholding in Ingersoll Rand.

Item 1B.    UNRESOLVED STAFF COMMENTS

None.

Item 2.    PROPERTIES

As of December 31, 2010, we owned or leased a total of approximately 20 million square feet of space worldwide. Manufacturing and assembly operations are conducted in 80 plants across the world. We also maintain various warehouses, offices and repair centers throughout the world.

The majority of our plant facilities are owned by us with the remainder under long-term lease arrangements. We believe that our plants have been well maintained, are generally in good condition and are suitable for the conduct of our business.

 

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The locations by segment of our major manufacturing facilities at December 31, 2010 were as follows:

 

Climate Solutions

  

Americas

  

Europe, Middle East, Africa

   Asia Pacific  

 Curitiba, Brazil

      Kolin, Czech Republic         Wujiang, China   

 Monterrey, Mexico

      Cairo, Egypt         Zhong Shan, China   

 Arecibo, Puerto Rico

      Charmes, France         Shenzen, China   

 Fort Smith, Arkansas

      Golbey, France         Taicang, China   

 Chino, California

      Galway, Ireland         Penang, Malaysia   

 Pueblo, Colorado

      Barcelona, Spain         Tauranga, New Zealand   

 Lynn Haven, Florida

     

 Louisville, Georgia

     

 Macon, Georgia

     

 Suwanee, Georgia

     

 Rushville, Indiana

     

 Lexington, Kentucky

     

 Minneapolis, Minnesota

     

 Bridgeton, Missouri

     

 Hastings, Nebraska

     

 Charlotte, North Carolina

     

 Columbia, South Carolina

     

 Clarksville, Tennesse

     

 Waco, Texas

     

 La Crosse, Wisconsin

     

 

Residential Solutions

Americas

  

  Europe, Middle East, Africa

    

Asia Pacific

Ensenada, Mexico

       

Monterrey, Mexico

       

Tecate, Mexico

       

Tijuana, Mexico

       

Fort Smith, Arkansas

       

Vidalia, Georgia

       

Trenton, New Jersey

       

Tyler, Texas

       

Caracas, Venezuela

       

 

Industrial Technologies

Americas

  

  Europe, Middle East, Africa

   Asia Pacific

Dorvae, Canada

     Unicov, Czech Republic      Changzhou, China

Augusta, Georgia

     Douai, France      Guilin, China

Campbellsville, Kentucky

     Wasquehal, France      Nanjing, China

Madison Heights, Michigan

     Oberhausen, Germany      Shanghai, China

Mocksville, North Carolina

  

  Fogliano Redipuglia, Italy

     Ahmedabad, India

Southern Pines, North Carolina

  

  Vignate, Italy

     Ghaziabad, India

West Chester, Pennsylvania

     

Seattle, Washington

     

 

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Security Technologies

Americas

  

Europe, Middle East, Africa

     Asia Pacific

Ensenada, Mexico

     Bricard, France        Shanghai, China

Tecate, Mexico

     Renchen, Germany        Auckland, New Zealand

Tijuana, Mexico

     Faenza, Italy     

Security, Colorado

     Monsampolo, Italy     

Princeton, Illinois

     Calatayud, Spain     

Indianapolis, Indiana

     Duzce, Turkey     

Cincinnati, Ohio

       

Item 3.    LEGAL PROCEEDINGS

In the normal course of business, we are involved in a variety of lawsuits, claims and legal proceedings, including commercial and contract disputes, employment matters, product liability claims, asbestos-related claims, environmental liabilities and intellectual property disputes. In our opinion, pending legal matters are not expected to have a material adverse effect on the results of operations, financial condition, liquidity or cash flows.

Oil for Food Program and Foreign Corrupt Practices Act (FCPA) matters

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, we undertook a thorough review of our participation in the Oil for Food Program, provided the SEC with information responsive to the Order and provided additional information requested by the SEC. On October 31, 2007, we announced we had reached settlements with the SEC and the Department of Justice (DOJ) relating to this matter. Under the terms of the settlements, we paid a total of $6.7 million in penalties, interest and disgorgement of profits. We consented to the entry of a civil injunction in the SEC action and entered into a three-year deferred prosecution agreement (DPA) with the DOJ. The DPA expired on October 31, 2010. Under both settlements, we have implemented and will continue to implement improvements to our compliance program that are consistent with our longstanding policy against improper payments. On February 16, 2011, the DOJ filed a motion to dismiss the Oil for Food charges against us. In its motion, the DOJ noted that we fully cooperated with the investigation, and that we had met our obligations regarding improving our compliance policies and procedures relating to the FCPA.

Additionally, we have reported to the DOJ and SEC certain matters which raise potential issues under the FCPA and other applicable anti-corruption laws, including matters which were reported during the past year. We have conducted, and continue to conduct, investigations and have had preliminary discussions with respect to these matters with the SEC and DOJ, which are ongoing. The SEC has sought additional information and documents regarding certain of these and other matters. These matters may be deemed to violate the FCPA and other applicable anti-corruption laws. Such determinations could subject us to, among other things, civil and criminal penalties, material fines, equitable remedies (including profit disgorgement and injunctions on future conduct), securities litigation and a general loss of investor confidence, any one of which could adversely affect our business prospects, financial position, or the market value of our stock.

Tax Related Matters

On July 20, 2007, we received a notice from the IRS containing proposed adjustments to our tax filings in connection with an audit of the 2001 and 2002 tax years. The IRS did not contest the validity of our

 

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reincorporation in Bermuda. The most significant adjustments proposed by the IRS involve treating the entire intercompany debt incurred in connection with our reincorporation in Bermuda as equity. As a result of this recharacterization, the IRS disallowed the deduction of interest paid on the debt and imposed dividend withholding taxes on the payments denominated as interest. The IRS also asserted an alternative argument to be applied if the intercompany debt is respected as debt. In that circumstance, the IRS proposed to ignore the entities that hold the debt and to which the interest was paid, and impose 30% withholding tax on a portion of the interest payments as if they were made directly to a company that was not eligible for reduced U.S. withholding tax under a U.S. income tax treaty. The IRS asserted under this alternative theory that we owe additional taxes with respect to 2002 of approximately $84 million plus interest. If either of these positions were upheld in their entirety, we would be required to record additional charges. We strongly disagreed with the view of the IRS, and filed a protest with the IRS in the third quarter of 2007.

On January 12, 2010, we received an amended notice from the IRS eliminating its assertion that the intercompany debt incurred in connection with our reincorporation in Bermuda should be treated as equity. However, the IRS continues to assert the alternative position described above and proposes adjustments to our 2001 and 2002 tax filings. In addition, the IRS provided notice on January 19, 2010, that it is assessing penalties of 30% on the asserted underpayment of tax described above.

We have and intend to continue to vigorously contest these proposed adjustments. We, in consultation with our outside advisors, carefully considered the form and substance of our intercompany financing arrangements, including the actions necessary to qualify for the benefits of the applicable U.S. income tax treaties. We believe that these financing arrangements are in accordance with the laws of the relevant jurisdictions including the U.S., that the entities involved should be respected and that the interest payments qualify for the U.S. income tax treaty benefits claimed.

Although the outcome of this matter cannot be predicted with certainty, based upon an analysis of the strength of our position, we believe that we are adequately reserved for this matter. As we move forward to resolve this matter with the IRS, it is reasonably possible that the reserves established may be adjusted. However, we do not expect that the ultimate resolution will have a material adverse impact on our future results of operations or financial position. At this time, the IRS has not proposed any similar adjustments for years subsequent to 2002. However, if all or a portion of these adjustments proposed by the IRS are ultimately sustained, it is likely to also affect subsequent tax years. For a further discussion of tax matters, see Note 19 to the Consolidated Financial Statements.

Asbestos-Related 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.

See also the discussion under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Environmental and Asbestos Matters and also Note 22 to the Consolidated Financial Statements.

 

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Executive Officers of the Registrant

Pursuant to the General Instruction G(3) of Form 10-K, the following list of executive officers of the Company as of February 22, 2011 is included as an unnumbered item in Part I of this report in lieu of being included in the Company’s Proxy Statement for its 2011 Annual General Meeting of Shareholders.

 

Name and Age

    
 
 
 
Date of
Service as
an Executive
Officer
  
  
  
  
  

Principal Occupation and

Other Information for Past Five Years

Michael W. Lamach (47)

     2/16/2004       Chairman of the Board (since June 2010) and Chief Executive Officer and President (since February 2010); President and Chief Operating Officer (2009-2010); Senior Vice President and President, Trane Commercial (2008-2009); Senior Vice President and President, Security Technologies (2004-2008)
     

Steven R. Shawley (58)

     8/1/2005       Senior Vice President and Chief Financial Officer (since June 2008); Senior Vice President and President, Climate Control Technologies (2005-2008); President, Climate Control Americas (2003-2005)
     

Marcia J. Avedon (49)

     2/7/2007       Senior Vice President, Human Resources and Communication (since February 2007); Merck & Co., Inc., Senior Vice President, Human Resources (2003-2006)
     

John W. Conover IV (56)

     7/1/2009       Senior Vice President and President, Security Technologies (since July 2009); President, Trane Commercial Systems, Americas (2005-2009)
     

William B. Gauld (57)

     10/2/2006       Senior Vice President, Enterprise Services (since October 2006); Principal, The W Group (2005-2006); Pearson, plc, Chief Information Officer (2001-2005)
     

Steven B. Hochhauser (49)

     6/16/2008       Senior Vice President and President, Residential Solutions (since July 2009); Senior Vice President and President, Security Technologies (2008-2009); Johns Manville, Chairman, President and Chief Executive Officer (2004-2007) and Chief Operating Officer (2002-2004)
     

Robert L. Katz (48)

     11/1/2010       Senior Vice President and General Counsel (since November 2010); Federal- Mogul Corporation, Senior Vice President, General Counsel and Corporate Secretary (2007-2010); Delphi Corporation, General Counsel - EMEA (1999-2006)
     

Didier Teirlinck (54)

     6/4/2008       Senior Vice President and President, Climate Solutions (since October 2009); President, Climate Control Technologies (since June 2008); President, Climate Control Europe (2005-2008); President, Volvo Compact Equipment (2000-2005)
     

Todd D. Wyman (43)

     11/16/2009       Senior Vice President, Global Operations and Integrated Supply Chain: (since November 2009); GE Transportation, Vice President, Global Supply Chain (2007-2009); GE Transportation, General Manager, Global Supply Chain (2003-2007)
     

Robert G. Zafari (52)

     7/1/2010       Senior Vice President and President, Industrial Technologies (since July 2010); President, TCS and Climate Solutions EMEIA (2009-2010); President, Security Technologies ESA (2007-2008); President, Compact Vehicle Technologies ESA (2003-2006)
     

Richard J. Weller (54)

     9/8/2008       Vice President and Controller (since September 2008); Vice President, Finance (June-September 2008); Vice President, Finance, Security Technologies Sector (2005-2008)

No family relationship exists between any of the above-listed executive officers of the Company. All officers are elected to hold office for one year or until their successors are elected and qualified.

 

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PART II

 

Item 5.

   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Information regarding the principal market for our ordinary shares and related shareholder matters is as follows:

Our ordinary shares are traded on the New York Stock Exchange under the symbol IR. As of February 11, 2011, the approximate number of record holders of ordinary shares was 5,150. The high and low sales price per share and the dividend declared per share for the following periods were as follows:

 

     Ordinary shares   

2010

     High         Low         Dividend   

First quarter

   $     37.51       $     31.26       $ 0.07   

Second quarter

     40.01         34.49         0.07   

Third quarter

     38.15         32.53         0.07   

Fourth quarter

     47.36         35.91         0.07   

2009

     High         Low         Dividend   

First quarter

   $ 20.20       $ 11.46       $ 0.36   

Second quarter

     24.02         13.65         -     

Third quarter

     32.95         19.48         0.07   

Fourth quarter

     37.60         28.77         0.07   

The Bank of New York Mellon (BNY Mellon Shareowner Services, P.O. Box 358015, New York, NY 15252-8015, (800) 507-9357) is our transfer agent and registrar.

Future dividends on our ordinary shares, if any, will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that the Board of Directors may deem relevant, as well as our ability to pay dividends in compliance with the Irish Companies Act. Under the Irish Companies Act, dividends and distributions may only be made from distributable reserves. Distributable reserves, broadly, means the accumulated realized profits of IR-Ireland. In addition, no distribution or dividend may be made unless the net assets of IR-Ireland are equal to, or in excess of, the aggregate of IR-Ireland’s called up share capital plus undistributable reserves and the distribution does not reduce IR-Ireland’s net assets below such aggregate.

Information regarding equity compensation plans required to be disclosed pursuant to this Item is incorporated by reference from our definite Proxy Statement for the Annual General Meeting of Shareholders.

We treat ordinary shares of our parent owned by a subsidiary as treasury stock. These shares are recorded at cost and included in the Equity section of the Consolidated Balance Sheet. At December 31, 2007, Class A common shares of IR-Limited owned by the Company amounted to 97.4 million. As a result of the acquisition of Trane in June 2008, the Company issued 45.4 million IR-Limited Class A common shares to fund the equity portion of the consideration. In June 2009, IR-Limited cancelled the remaining 52.0 million shares in anticipation of the Ireland Reorganization that became effective on July 1, 2009.

 

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Performance Graph

The following graph compares the cumulative total shareholder return on our ordinary shares with the cumulative total return on (i) the Standard & Poor’s 500 Stock Index and (ii) the Standard & Poor’s 500 Industrial Index for the five years ended December 31, 2010. The graph assumes an investment of $100 in our ordinary shares, the Standard & Poor’s 500 Stock Index and the Standard & Poor’s 500 Industrial Index on December 31, 2005 and assumes the reinvestment of dividends.

LOGO

 

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Item 6.     SELECTED FINANCIAL DATA

In millions, except per share amounts:

 

At and for the years ended December 31,    2010     2009     2008     2007      2006  

Net revenues

   $  14,079.1      $  13,101.8      $  13,045.0      $ 8,548.1       $ 7,804.2   

Net earnings (loss) attributable to Ingersoll-Rand plc ordinary shareholders:

           

Continuing operations

     758.9        485.1        (2,528.3     765.2         784.5   

Discontinued operations

     (116.7     (33.8     (96.5     3,201.5         248.0   

Total assets

     19,990.9        19,991.0        20,924.5        14,376.2         12,145.9   

Total debt

     3,683.9        4,096.6        5,124.1        1,453.7         1,984.6   

Total Ingersoll-Rand plc shareholders’ equity

     7,964.3        7,071.8        6,661.4        7,907.9         5,404.8   

Earnings (loss) per share attributable to Ingersoll-Rand plc ordinary shareholders:

           
           

Basic:

           

Continuing operations

   $ 2.34      $ 1.51      $ (8.41   $ 2.63       $ 2.45   

Discontinued operations

     (0.36     (0.10     (0.32     11.01         0.78   

Diluted:

           

Continuing operations

   $ 2.23      $ 1.47      $ (8.41   $ 2.59       $ 2.43   

Discontinued operations

     (0.34     (0.10     (0.32     10.84         0.77   

Dividends per ordinary share

   $ 0.28      $ 0.50      $ 0.72      $ 0.72       $ 0.68   

 

1. 2006 amounts have been restated to reflect Compact Equipment and the Road Development business unit as discontinued operations. 2009-2006 amounts have been restated to reflect the KOXKA and Energy Systems businesses as discontinued operations.

 

2. 2008 amounts include the results of Trane subsequent to the acquisition date (June 5, 2008 through December 31, 2008).

 

3. 2008 Earnings (loss) from continuing operations include an after-tax, non-cash asset impairment charge of $3.4 billion that was recognized in the fourth quarter.

 

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Item 7.

   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under Item 1A. Risk Factors in this Annual Report on Form 10-K. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appears elsewhere in this Annual Report.

Overview

Organization

Ingersoll-Rand plc (IR-Ireland), an Irish public limited company, and its consolidated subsidiaries (we, our, 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. Our business segments consist of Climate Solutions, Residential Solutions, Industrial Technologies and Security Technologies, each with strong brands and leading positions within their respective markets. We generate revenue and cash primarily through the design, manufacture, sale and service of a diverse portfolio of industrial and commercial products that include well-recognized, premium brand names such as Club Car®, Hussmann®, Ingersoll-Rand®, Schlage®, Thermo King® and Trane®.

To achieve our mission of becoming a world leader in creating safe, comfortable and efficient environments, as well as to become a more diversified company with strong growth and profitability prospects, we transformed our enterprise portfolio by divesting cyclical, low-growth and asset-intensive businesses. In addition, our acquisition strategy has helped deliver more consistent revenue and earnings performance across all phases of the economic cycle. Aside from our portfolio transformation, we continue to focus on increasing our recurring revenue stream, which includes revenues from parts, service, used equipment and rentals. We also intend to continuously improve the efficiencies, capabilities, products and services of our high-potential businesses.

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 (the Ireland Reorganization). As a result, IR-Ireland replaced IR-Limited as the ultimate parent company effective July 1, 2009. In conjunction with the Ireland 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. All references related to the Company prior to July 1, 2009 relate to IR-Limited.

Ireland Reorganization

On March 5, 2009, our board of directors approved a reorganization of the Company that would change the jurisdiction of incorporation of our parent company from Bermuda to Ireland. The first step in the Ireland 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 Ireland Reorganization was 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 equity. As a result of the Ireland 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.

On July 1, 2009, IR-Limited completed the transfer of all the outstanding shares of Ingersoll-Rand Global Holding Company Limited (IR-Global) to Ingersoll-Rand International Holding Limited (IR-International), another wholly-owned indirect subsidiary of IR-Limited incorporated in Bermuda, whereupon IR-International assumed the obligations of IR-Limited as an issuer or guarantor, as the case may be, under the indentures

 

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governing our 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, a wholly-owned indirect subsidiary of IR-Limited incorporated in New Jersey (IR-New Jersey), as the case may be, as the issuers of debt securities under these indentures. Neither IR-Ireland nor IR-Limited has issued or intends to issue guarantees in respect of any public 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. The maximum aggregate amount under the program was reduced to $2.00 billion in November 2010 following the reduction in our available credit facilities in May 2010. 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. The Company had two credit facilities outstanding as of July 1, 2009. Pursuant to the terms of these credit facilities, which were entered into on August 12, 2005 and June 27, 2008, IR-Ireland and IR-International became guarantors to such credit facilities on July 1, 2009. In connection therewith, IR-Ireland and IR-International entered into Addendums on July 1, 2009 to become parties to these credit facilities. In May 2010, the 5-year $1.25 billion credit facility entered into on August 12, 2005 was replaced by a 3-year $1.0 billion Senior Unsecured Revolving Credit Facility. Each of IR-Ireland, IR-Limited and IR-International has provided an irrevocable and unconditional guarantee for the May 2010 credit facility.

In connection with the Ireland Reorganization, effective as of 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 have been amended 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 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.

The Ireland Reorganization did not have a material impact on our financial results. Ingersoll-Rand plc continues to be subject to United States Securities and Exchange Commission reporting requirements and prepares financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Shares of Ingersoll-Rand plc 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.

Trends and Economic Events

We are a global corporation with worldwide operations. As a global business, our operations are affected by worldwide, regional and industry-specific economic factors, as well as political factors, wherever we operate or do business. Our geographic and industry diversity, as well as the diversity of our product sales and services, has helped limit the impact of any one industry or the economy of any single country on our consolidated operating results.

Since the onset of the economic downturn in 2008, we have seen weaker demand for many of our products and services across each of our businesses. Consumers and businesses have reduced spending and investment. As a result of the reduced end-market activity, we initiated restructuring actions at the end of 2008 targeted at streamlining the footprint of manufacturing facilities and reducing the general and administrative cost base across all of our businesses.

Given the broad range of products manufactured and geographic markets served, management uses a variety of factors to predict the outlook for the Company. We monitor key competitors and customers in order to gauge

 

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relative performance and the outlook for the future. In addition, our order rates are indicative of future revenue and thus a key measure of anticipated performance. In those industry segments where we are a capital equipment provider, revenues depend on the capital expenditure budgets and spending patterns of our customers, who may delay or accelerate purchases in reaction to changes in their businesses and in the economy.

During 2010, current market conditions continued to impact our financial results. The U.S. and European non-residential construction markets remain weak. However, we experienced modest volume growth in some of our other major end markets. As economic conditions continue to stabilize, we expect this modest revenue growth to continue along with the continued benefits of restructuring savings and productivity programs.

Despite the current market environment, we have a solid foundation of global brands and leading market shares in all of our major product lines. Our growing geographic and industry diversity coupled with our large installed product base provides growth opportunities within our service, parts and replacement revenue streams. In addition, we are investing substantial resources to innovate and develop new products and services which will fuel our future growth.

Acquisition of Trane

At the close of business on June 5, 2008 (the Acquisition Date), we completed the acquisition of 100% of the outstanding common shares of Trane Inc. (Trane). Trane, previously named American Standard Companies Inc., provides systems and services that enhance the quality and comfort of the air in homes and buildings around the world. Trane’s systems and services have leading positions in premium commercial, residential, institutional and industrial markets, a reputation for reliability, high quality and product innovation and a powerful distribution network. Trane’s 2007 annual revenues were $7.5 billion.

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

The components of the purchase price were as follows:

 

In billions        

Cash consideration

   $             7.3   

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

     2.0   

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

     0.2   

Transaction costs

     0.1   

Total

   $ 9.6   

As a result of the acquisition, the results of the operations of Trane have been included in the statement of financial position at December 31, 2010 and 2009 and the consolidated statements of operations and cash flows for the full years of 2010 and 2009, and since the Acquisition Date in 2008. For further details on the acquisition of Trane, see Note 4 to the Consolidated Financial Statements.

Significant events in 2010

Business Divestitures

On December 30, 2010, we completed the divestiture of our gas microturbine generator business, which was sold under the Energy Systems brand, to Flex Energy, LLC. The business, which was previously reported as part of the Industrial Technologies segment, designs, manufactures, markets, distributes, and services gas powered microturbine generators which feature energy efficient design and low emissions technology. As a result of the sale, we have reported this business as a discontinued operation and have classified the assets and liabilities as held for sale for all periods presented.

 

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On October 4, 2010, we completed the divestiture of our European refrigerated display case business, which was sold under the KOXKA brand, to an affiliate of American Industrial Acquisition Corporation (AIAC Group). The business, which was previously reported as part of the Climate Solutions segment, designs, manufactures and markets commercial refrigeration equipment through sales branches and a network of distributors throughout Europe, Africa and the Middle East. KOXKA had two manufacturing facilities in Spain and employed 445 people. As a result of the sale, we have reported this business as a discontinued operation and have classified the assets and liabilities as held for sale for all periods presented.

Healthcare Reform

In March 2010, the Patient Protection and Affordable Care Act (the Act) and the Healthcare and Education Reconciliation Bill of 2010 (together with the Act, the Healthcare Reform Legislation) was signed into law. As a result, effective 2013, the tax benefits available to us will be reduced to the extent our prescription drug expenses are reimbursed under the Medicare Part D retiree drug subsidy program. Although the provisions of the Healthcare Reform Legislation relating to the retiree drug subsidy program do not take effect until 2013, we are required to recognize the full accounting impact in our financial statements in the reporting period in which the Healthcare Reform Legislation is enacted. As retiree healthcare liabilities and related tax impacts are already reflected in our financial statements, the Healthcare Reform Legislation resulted in a non-cash charge to income tax expense in the first quarter of 2010 of $40.5 million.

Currently, our retiree medical plans receive the retiree drug subsidy under Medicare Part D. No later than 2014, a significant portion of the drug coverage will be moved to an Employer Group Waiver Plan while retaining the same benefit provisions. This change resulted in an actuarial gain which decreased our December 31, 2010 retiree medical plan liability, as well as the net actuarial losses in other comprehensive income by $41.1 million. At this time, there were no other changes to our liabilities as a result of the Healthcare Reform Legislation. We will continue to monitor Healthcare Reform Legislation to review provisions which could impact our accounting for retiree medical benefits in future periods. We may consider future plan amendments, which may have accounting implications as further regulations are promulgated and interpretations of the legislation become available.

The Healthcare Reform Legislation could also impact our accounting for income taxes in future periods. We will continue to assess the accounting implications of the Healthcare Reform Legislation.

Venezuela Devaluation

During the fourth quarter of 2009, the blended Consumer Price Index/National Consumer Price Index of Venezuela reached a cumulative three-year inflation rate in excess of 100%. As a result, Venezuela was designated as highly inflationary effective January 1, 2010. Accordingly, the U.S. dollar was determined to be the functional currency of our Venezuelan subsidiaries and all foreign currency fluctuations during 2010 have been recorded in income.

At December 31, 2009, we remeasured our foreign currency receivables and payables associated with the Venezuelan Bolivar at the parallel rate of 6.0 Bolivars for each U.S. dollar. This was based on our inability to settle certain transactions through the official government channels in an expeditious manner. Previously, we remeasured all foreign currency transactions at the official rate of 2.15 Bolivars to the U.S. dollar. As a result, we recorded a $24 million charge in the fourth quarter of 2009 associated with the devaluation.

On May 17, 2010, the government of Venezuela effectively closed down the parallel market claiming it was a significant cause of inflation in Venezuela. On June 9, 2010, a new parallel market (SITME) opened under control of the Central Bank and the Company has utilized it for currency exchange, subject to any limitations under local regulations. At December 31, 2010, we continue to utilize the SITME rate for re-measurement purposes.

 

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Significant events in 2009

In the fourth quarter of 2009, we realigned our external reporting structure to more closely reflect our corporate and business strategies and to promote additional productivity and growth. Our segments are now as follows: Climate Solutions, Residential Solutions, Industrial Technologies and Security Technologies. As part of the change, we eliminated the Air Conditioning Systems and Services segment which represented the acquired Trane business and created two new reportable segments, the Climate Solutions segment and the Residential Solutions segment.

During 2009, we completed a comprehensive financing program that significantly enhanced our liquidity and debt profile. Significant actions included the repayment of the outstanding balance of our senior unsecured bridge loan facility with the proceeds from the issuance of $1.0 billion of long-term debt (Senior Notes and Exchangeable Senior Notes) and the expansion of our Trane accounts receivable purchase program to encompass originators from all four of our business segments. In addition, we reduced our quarterly stock dividend from $0.18 per share to $0.07 per share, effective with our September 2009 payment. On February 17, 2010, we terminated the expanded accounts receivable purchase program prior to its expiration in March 2010.

In the fourth quarter of 2008, we initiated enterprise-wide restructuring actions in order to streamline both our manufacturing footprint and our general and administrative cost base. We incurred approximately $109.6 million of costs associated with this program during 2009. These combined restructuring actions generated approximately $155 million of annual pretax savings for 2010. We continue to invest in ongoing restructuring activities in an effort to increase efficiencies across all of our businesses.

Significant events in 2008

As discussed in Acquisition of Trane above, on June 5, 2008, we acquired 100% of the outstanding common shares of Trane for approximately $9.6 billion.

In August 2008, we filed a universal shelf registration statement with the Securities and Exchange Commission (SEC) for an indeterminate amount of securities for future issuance and issued $1.6 billion of long-term debt pursuant to the shelf registration statement. Approximately, $1.4 billion remains outstanding as of December 31, 2010 as the Company repaid $250 million as it became due during 2010. The remaining balance consists of $600 million 6.000% Senior Notes due in 2013 and $750 million 6.875% Senior Notes due in 2018. These notes are fully and unconditionally guaranteed by IR-Limited, which directly owns 100% of the subsidiary issuer, IR-Global. The net proceeds from the offering were used to partially reduce the amount outstanding under the senior unsecured bridge loan facility, which had a balance of $754 million at December 31, 2008.

In the fourth quarter of 2008, we tested goodwill and other indefinite-lived intangible assets for impairment. As a result of decreased global equity valuations, the tightening of industrial and retail end markets and a resulting decline in our 2009 projected financial performance, we incurred a non-cash pre-tax impairment charge of $3,710.0 million, $3,385.0 million after-tax.

 

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Results of Operations

 

Dollar amounts in millions, except per share data

    2010       

 

 

% of

 

Revenues

  

 

  

    2009       

 

 

% of

 

Revenues

  

 

  

    2008       

 

 

% of

 

Revenues

  

 

  

Net revenues

  $   14,079.1        $   13,101.8        $   13,045.0     

Cost of goods sold

    (10,158.5     72.1     (9,542.2     72.8     (9,547.5     73.2

Selling and administrative expenses

    (2,673.1     19.0     (2,687.3     20.5     (2,308.9     17.7

Asset impairment

    -                  -                  (3,710.0        

Operating income (loss)

    1,247.5        8.9     872.3        6.7     (2,521.4     -19.3

Interest expense

    (283.2       (301.6       (243.2  

Other, net

    42.3                18.7                63.9           

Earnings (loss) before income taxes

    1,006.6          589.4          (2,700.7  

(Provision) benefit for income taxes

    (224.8             (79.6             192.3           

Earnings (loss) from continuing operations

    781.8          509.8          (2,508.4  

Discontinued operations, net of tax

    (116.7             (33.6             (96.4        

Net earnings (loss)

    665.1          476.2          (2,604.8  

Less: Net earnings attributable to noncontrolling interests

    (22.9             (24.9             (20.0        

Net earnings (loss) attributable to

           

Ingersoll-Rand plc

  $ 642.2              $ 451.3              $ (2,624.8        

 

Diluted net earnings (loss) per ordinary share attributable to Ingersoll-Rand plc ordinary shareholders:

           

Continuing operations

  $ 2.23        $ 1.47        $ (8.41  

Discontinued operations

    (0.34             (0.10             (0.32        

Net earnings (loss)

  $ 1.89              $ 1.37              $ (8.73        

Net Revenues

Net revenues for the year ended December 31, 2010 increased by 7.5%, or $977.3 million, compared with the same period of 2009, which primarily resulted from the following:

 

Volume/product mix

       7.4%   

Pricing

       0.2%   

Currency exchange rates

       0.3%   

Devaluation of Venezuelan Bolivar

       -0.5%   

Acquisitions

       0.1%   

Total

       7.5%   

The increase in revenues was primarily driven by higher volumes experienced within the Climate Solutions, Residential Solutions, and Industrial Technologies business segments, as well as favorable foreign currency impacts. However, the devaluation of the Venezuelan Bolivar had a $70.0 million impact on reported revenues during 2010.

Net revenues for the year ended December 31, 2009 increased by 0.4%, or $56.8 million, compared with the same period of 2008, which primarily resulted from the following:

 

Volume/product mix

       -15.1

Pricing

       0.8

Currency exchange rates

       -1.4

Acquisitions

       16.1

Total

       0.4

 

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The acquisition of Trane increased net revenues by $2,096.3 million compared with the same period of 2008. The increase, which contributed 16.1% to the year-over-year change in revenues, was a consequence of 2008 reported results only reflecting activity since the Acquisition Date. Excluding the results of Trane, revenues decreased by $2,039.5 million, which had a 15.7% effect on total company revenues. This decrease resulted from lower volumes and product mix (15%) and an unfavorable currency impact (1%). These reductions were partially offset by improved pricing (1%). The Trane commercial and residential HVAC businesses also experienced substantial volume declines during the year.

Cost of Goods Sold

For the year ended December 31, 2010, cost of goods sold increased by $616.3 million, or 6.5% compared to the same period in 2009. The increase was primarily due to higher volumes, increases in material and other costs and unfavorable foreign currency impacts. However, these costs were partially offset by productivity actions and restructuring programs implemented during 2009. These actions helped to mitigate the impact of the depressed economic climate in several of our major end markets. As a result, cost of goods sold as a percentage of revenue decreased to 72.1% from 72.8%. In addition, restructuring costs had a 0.2 point and 0.4 point impact on cost of goods sold as a percentage of revenue in 2010 and 2009, respectively.

For the year ended December 31, 2009, cost of goods sold decreased by $5.3 million, or 0.1% compared to the same period in 2008, which included the results of Trane since the Acquisition Date. Trane increased cost of goods sold by $1,421.8 million, which contributed 14.8% to the year-over-year change. Excluding the results of Trane, cost of goods sold decreased by $1,427.1 million, which had a 14.9% effect on total company cost of goods sold. This decrease was a result of increased productivity actions and expense reduction across the businesses, and lower volumes due to the continued global weakness in our major end markets. Cost of goods sold as a percentage of revenue decreased to 72.8% from 73.2%. In addition, cost of goods sold included $56.9 million of restructuring costs compared to restructuring and integration costs of $40.0 million in 2008.

Selling and Administrative Expenses

For the year ended December 31, 2010, selling and administrative expense decreased by $14.2 million, or 0.5% compared to the same period in 2009. The decrease was primarily due to benefits from productivity actions and restructuring programs implemented during 2009. These actions helped to mitigate the impact of the depressed economic climate in several of our major end markets. As a result, selling and administrative expense as a percentage of revenue decreased to 19.0% from 20.5% in 2009. In addition, restructuring costs had a 0.1 point and 0.4 point impact on selling and administrative expense as a percentage of revenue in 2010 and 2009, respectively.

For the year ended December 31, 2009, selling and administrative expense increased by $378.4 million, or 16.4% compared to the same period in 2008, which included the results of Trane since the Acquisition Date. Trane increased selling and administrative expenses by $558.5 million, which contributed 24.2% to the year-over-year change. Excluding the results of Trane, selling and administrative expense decreased by $180.1 million, or 7.8% as a result of increased productivity actions and expense reduction across the businesses. As a result of the dramatic decline in volume experienced during 2009 and the resulting reduction in revenue, selling and administrative expense as a percentage of revenue increased to 20.5% compared with 17.7% for the same period of 2008. In addition, selling and administrative expense included $52.7 million of restructuring costs compared to $30.3 million of restructuring and integration costs in 2008.

Asset Impairment

During the fourth quarter of 2008, we tested goodwill and other indefinite-lived intangible assets for impairment. As a result of decreased global equity valuations, the tightening of industrial and retail end markets and a resulting decline in our 2009 projected financial performance, we incurred a non-cash pre-tax impairment charge of $3,710.0 million, $3,385.0 million after-tax.

 

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The following table summarizes the impairment charges that were taken by segment during 2008:

 

In millions

     Goodwill        
 
Intangible
Assets
  
  
    
 
Marketable
Securities
  
  
     Total   

Climate Solutions

   $ 839.8       $     400.0       $             -         $   1,239.8   

Residential Solutions

     1,656.2         454.0         -           2,110.2   

Security Technologies

     344.0         6.0         10.0         360.0   

Total

   $   2,840.0       $ 860.0       $ 10.0       $ 3,710.0   

For a further discussion of impairment-related matters, see Goodwill and Indefinite-Lived Intangible Assets under Critical Accounting Policies and Notes 5, 8 and 9 to the Consolidated Financial Statements.

Operating Margin

Operating margin for the year ended December 31, 2010 increased to 8.9% from 6.7% for the same period in 2009. The benefit of higher volumes, productivity actions and restructuring programs more than offset the negative effect of increased material and other costs. Also, included in operating income was $45.3 million of charges associated with ongoing restructuring actions compared to $109.6 million recorded in 2009. These costs had a 0.3 point and 0.8 point impact on operating margin in 2010 and 2009, respectively.

Operating margin for the year ended December 31, 2009 increased to 6.7% from a negative 19.3% for the same period in 2008, which included the results of Trane since the Acquisition Date. Operating margin for the year ended December 31, 2008 was impacted by a non-cash charge of $3,710.0 million related to an asset impairment recognized in the fourth quarter. Excluding the asset impairment, which had a 28.4 point impact on 2008 operating margins, year-over-year operating margins decreased by 2.4 points. The primary drivers of the decrease related to lower volumes, an unfavorable currency impact and lower margins in the acquired Trane businesses. Results were further impacted by $109.6 million of restructuring costs which impacted operating margins in 2009 by 0.8 points. Productivity actions, expense reduction and improved pricing helped to mitigate the impact of the continued global weakness in our major end markets.

Interest Expense

Interest expense for the year ended December 31, 2010 decreased $18.4 million compared with the same period of 2009 as a result of lower average debt balances in 2010.

Interest expense for the year ended December 31, 2009 increased $58.4 million compared with the same period of 2008. The increase is primarily related to higher average debt levels as a result of the funding of the acquisition of Trane in June 2008.

Other, Net

The year-over-year changes in Other, net primarily resulted from the following:

 

In millions

     2010         2009        2008   

Interest income

   $          15.2       $          12.6      $          95.1   

Exchange gain (loss)

     0.9         (36.2     (41.1

Earnings from equity investments

     11.5         8.0        3.4   

Other

     14.7         34.3        6.5   

Other, net

   $ 42.3       $ 18.7      $ 63.9   

For the year ended December 31, 2010, Other, net increased by $23.6 million compared with the same period of 2009. The increase was primarily driven by lower currency losses, which partially resulted from a $24 million charge recorded in 2009 associated with the devaluation of the Venezuelan Bolivar. The increase was partially

 

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offset by $25 million of income recorded in the fourth quarter of 2009 primarily related to a favorable settlement with an insurance carrier associated with a portion of our asbestos obligation. The settlement is included in Other in the table above.

For the year ended December 31, 2009, Other, net decreased by $45.2 million compared with the same period of 2008. The decrease was primarily related to lower interest income as a result of lower average cash balances during the year. The decrease was partially offset by income of approximately $25 million in the fourth quarter of 2009 primarily related to a favorable settlement with an insurance carrier associated with a portion of our asbestos obligation. The settlement is included in Other in the table above.

Included in Exchange gain (loss) in 2009 is a $24 million charge associated with the devaluation in the Venezuelan Bolivar. At December 31, 2009, we remeasured our foreign currency receivables and payables associated with the Venezuelan Bolivar at the parallel rate of 6.0 Bolivars for each U.S. dollar. This was based on our inability to settle certain transactions through the official government channels in an expeditious manner. Previously, we remeasured all foreign currency transactions at the official rate of 2.15 Bolivars to the U.S. dollar.

Provision for Income Taxes

For the year ended December 31, 2010, the effective tax rate was 22.3% compared to 13.5% in 2009. The 2010 tax rate was below the U.S. Statutory rate of 35.0% primarily due to earnings in non-U.S. jurisdictions, which, in aggregate, have a lower effective rate. The 8.8 point increase in the effective rate is primarily the result of a $40.5 million non-cash charge to income tax expense related to the Healthcare Reform Legislation as well as changes in geographical mix of earnings, offset by net changes in our valuation allowances.

For the year ended December 31, 2009, the effective tax rate was 13.5% compared to 7.1% in 2008. The 2009 tax rate was below the U.S. Statutory rate of 35.0% primarily due to earnings in non-U.S. jurisdictions, which, in aggregate, have a lower effective rate. The 6.4 point increase in the effective rate is primarily the result of an increase in valuation allowances as well as changes in earnings mix offset by a reduction in our liability for unrecognized tax benefits. See Note 19 to the Consolidated Financial Statements for further discussion of tax matters.

Review of Business Segments

The segment discussions that follow describe the significant factors contributing to the changes in results for each segment included in continuing operations.

Climate Solutions

Our Climate Solutions segment delivers energy-efficient refrigeration and Heating, Ventilation and Air Conditioning (HVAC) solutions throughout the world. Encompassing the transport and stationary refrigeration markets as well as the commercial HVAC markets, this segment offers customers a broad range of products, services and solutions to manage controlled temperature environments. This segment includes the market-leading brands of Hussmann, Thermo King and Trane.

On October 4, 2010, we completed the divestiture of our European refrigerated display case business, which was sold under the KOXKA brand, to an affiliate of American Industrial Acquisition Corporation (AIAC Group). The business, which was previously reported as part of the Climate Solutions segment, designs, manufactures and markets commercial refrigeration equipment through sales branches and a network of distributors throughout Europe, Africa and the Middle East. KOXKA had two manufacturing facilities in Spain and employed 445 people. Segment information has been revised to exclude the results of this business for all periods presented.

 

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Reported results include revenue and operating income from the Trane commercial HVAC business for the six months and 25 days since the acquisition of Trane in 2008 and for the full year in 2009 and 2010.

 

Dollar amounts in millions

     2010         % change         2009         % change         2008   

Net revenues

   $   7,800.8         8.2%       $   7,211.2         9.6%       $   6,582.0   

Operating income (loss)

     598.2         38.8%         430.9         n/a         (726.7 ) * 

Operating margin

     7.7%                  6.0%                  -11.0%   

* Amount includes a non-cash impairment charge of $1,240 million.

2010 vs 2009

Net revenues for the year ended December 31, 2010 increased by 8.2% or $589.6 million, compared with the same period of 2009, which primarily resulted from the following:

 

Volume/product mix

       7.5%   

Pricing

       0.1%   

Currency exchange rates

       0.7%   

Devaluation of the Venezuelan Bolivar

       -0.3%   

Acquisitions

       0.2%   

Total

       8.2%   

Trane commercial HVAC revenues continue to be impacted by declining activity in non-residential construction markets, which has affected our commercial HVAC revenues in all geographic areas, except Asia. Both equipment and systems revenue were impacted by the decrease in end-market activity. However, increased revenue for parts, services and solutions helped to mitigate these declines. Net revenues in our transport and stationary refrigeration businesses experienced strong improvements in all geographic areas due to the refrigerated trailer and truck markets. In addition, sea-going container revenues and worldwide bus revenues have begun to improve due to an increase in end-market activity. Worldwide display cases and contracting revenue also increased due to recovering supermarket capital expenditures.

Operating income for the year ended December 31, 2010 increased by 38.8%, or $167.3 million, compared with the same period of 2009. The increase, which improved operating margins to 7.7% from 6.0%, was primarily related to improved productivity actions ($280 million) as well as higher volumes and product mix ($178 million). However, the benefits resulting from these improvements were partially offset by increases in material and other costs ($266 million). Included in 2010 operating income was $23.7 million of charges associated with ongoing restructuring actions, which had a 0.3 point impact on operating margins. The comparable amount recorded in 2009 was $35.9 million, which had a 0.5 point impact on operating margins.

2009 vs 2008

Net revenues for the year ended December 31, 2009 increased by 9.6% or $629.2 million, compared with the same period of 2008, which primarily resulted from the following:

 

Volume/product mix

     -13.0%   

Pricing

     0.5%   

Currency exchange rates

     -1.0%   

Acquisitions

     23.1%   

Total

     9.6%   

Net revenues in the Trane commercial HVAC business increased $1,522.2 million compared with the same period of 2008. The increase, which represented 23.1% of the segment’s year-over-year increase, was a consequence of 2008 reported results only reflecting activity since the Acquisition Date.

 

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Net revenues in the transport and stationary refrigeration business decreased 28.0%, or $893.0 million, compared with the same period of 2008. The decrease, which had a 13.5% impact on the segment’s year-over-year results, was primarily due to lower volumes and product mix (13%) and an unfavorable currency impact (1%). These reductions were slightly offset by improved pricing (1%).

Trane commercial HVAC revenues were impacted by a continued decline in activity in non-residential construction markets in all major geographic areas, except Asia. Both equipment and service revenue, as well as parts, services and solutions were impacted by the decrease in end-market activity. Net revenues in our transport and stationary refrigeration businesses decreased primarily as a result of the continued decline in the heavy truck market in Europe. However, improved activity in the U.S. and Asian refrigerated trailer and truck markets during the fourth quarter helped to mitigate the declines in Europe. In addition, sea-going container revenues and worldwide bus revenues began to improve in the fourth quarter due to an increase in end market activity. Worldwide display cases and contracting revenue were impacted by continued slower supermarket capital expenditures in both the U.S. and Europe.

Operating income for the year ended December 31, 2009 increased by $1,157.6 million, compared with the same period of 2008. This increase was a result of a non-cash charge of $1,240 million recognized in the fourth quarter of 2008 related to the impairment of goodwill and other indefinite-lived intangible assets. Excluding the impairment, which had an 18.8 point impact on 2008 operating margins, year-over-year operating income decreased 16.1% or $82.4 million.

Excluding the asset impairment charge of $1,200 million in 2008, operating income in the Trane commercial HVAC business increased $101.7 million compared with the same period in 2008, which only included the results of Trane for the six months and 25 days since the Acquisition Date. This increase had a 19.8% impact to segment operating income. The Trane commercial HVAC business was negatively impacted by a significant reduction in volumes and pricing, which was partially offset by increased productivity and improved material costs.

Included in 2009 operating income within the Trane commercial HVAC business was $97.3 million of ongoing purchase accounting charges primarily related to the amortization of intangible assets. In addition, we recorded $26.1 million of restructuring charges in 2009 associated with employee termination benefits and other costs associated with announced restructuring plans. These costs had a combined 1.7 point impact on the segment’s 2009 operating margins. 2008 comparable amounts were $48.1 million related to ongoing purchase accounting costs and $14.6 million related to severance and other business integration costs. In addition, 2008 operating income included $147.4 million in non-recurring purchase accounting charges associated with the fair value allocation of purchase price to backlog, inventory and in-process research and development costs. These costs had a combined 3.2 point impact on the segment’s 2008 operating margins.

Operating income in our transport and stationary refrigeration business decreased by 50.6%, or $184.1 million, compared with the same period of 2008, excluding the $40 million asset impairment charge in 2008. This decrease, which had a 35.9% impact on segment operating income, resulted from lower volumes and product mix ($297 million) and an unfavorable currency impact. This decrease was partially offset by increased productivity ($116 million) and improved pricing ($34 million). In addition, we recorded $9.8 million and $14.9 million of restructuring charges in 2009 and 2008, respectively, associated with employee termination benefits and other costs associated with announced restructuring plans.

Residential Solutions

Our Residential Solutions segment provides safety, comfort and efficiency to homeowners throughout North America and parts of South America. It offers customers a broad range of products, services and solutions including mechanical and electronic locks, energy-efficient HVAC systems, indoor air quality solutions, advanced controls, portable security systems and remote home management. This segment is comprised of well-known brands like American Standard, Schlage and Trane.

 

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Reported results include revenue and operating income from the Trane residential HVAC business for the six months and 25 days since the acquisition of Trane in 2008 and for the full year in 2009 and 2010.

 

Dollar amounts in millions    2010      % change      2009      % change      2008  

Net revenues

   $   2,121.7         6.0%       $ 2,001.5         35.8%       $ 1,473.7   

Operating income (loss)

     181.6         47.8%         122.9         n/a         (2,037.0 ) * 

Operating margin

     8.6%                  6.1%                  -138.2%   

* Amount includes a non-cash impairment charge of $2,110 million.

2010 vs. 2009

Net revenues for the year ended December 31, 2010 increased by 6.0% or $120.2 million, compared with the same period of 2009, which primarily resulted from the following:

 

Volume/product mix

     9.2%   

Pricing

     -0.7%   

Devaluation of the Venezuelan Bolivar

     -2.5%   

Total

     6.0%   

Trane residential HVAC revenues were impacted by continued weakness in the U.S. new residential construction market. However, improved sales to the replacement market more than offset the effect of the new construction market. Excluding the impact of the devaluation of the Venezuelan Bolivar, revenues in the residential security business increased primarily as a result of improving remodeling markets and an increase in end-market activity in the U.S. new builder channel.

Operating income for the year ended December 31, 2010 increased by 47.8%, or $58.7 million, compared with the same period of 2009. The increase, which improved operating margins to 8.6% from 6.1%, was primarily related to improved productivity actions ($97 million) and higher volumes and product mix ($43 million). However, the benefits resulting from these improvements were partially offset by increased material and other costs ($50 million) and unfavorable pricing ($15 million). In addition, the devaluation of the Venezuelan Bolivar negatively impacted year-over-year results by $18.0 million.

2009 vs. 2008

Net revenues for the year ended December 31, 2009 increased by 35.8% or $527.8 million, compared with the same period of 2008, which primarily resulted from the following:

 

Volume/product mix

     -3.8%   

Pricing

     0.6%   

Acquisition of Trane residential HVAC business

     39.0%   

Total

     35.8%   

Net revenues in the Trane residential HVAC business increased $574.1 million compared with the same period of 2008. The increase, which represented 39.0% of the segment’s year-over-year increase, was a consequence of 2008 reported results only reflecting activity since the Acquisition Date. Net revenues for the Trane residential HVAC business for the year ended December 31, 2009 were impacted by lower volumes and reduced pricing.

Net revenues in the residential security business decreased by 9.9%, or $46.3 million, compared with the same period of 2008. The decrease, which had a 3.2% impact on the segment’s year-over-year results, was primarily due to lower volumes and product mix (4%). These reductions were slightly offset by improved pricing (1%).

Trane residential HVAC revenues were impacted by continued weakness in the U.S. housing market. However, improved fourth quarter sales to the replacement market helped to mitigate the slower end market activity. Residential security revenues were impacted by lower same store sales at large customers and ongoing weakness

 

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in the new homebuilder channel. In the fourth quarter, these declines were more than offset by new product revenues and market share gains.

Operating income for the year ended December 31, 2009 increased by $2,159.9 million, compared with the same period of 2008. This increase was a result of a non-cash charge of $2,110 million recognized in the fourth quarter of 2008 related to the impairment of goodwill and other indefinite-lived intangible assets within the Trane residential HVAC business. Excluding the impairment, which had a 143.2 point impact on 2008 operating margins, year-over-year operating income increased by 68.4% or $49.9 million.

Excluding the asset impairment charge in 2008, operating income in the Trane residential HVAC business increased $43.1 million compared with the same period in 2008, which included the results of Trane for the six months and 25 days since the Acquisition Date. This increase had a 59.0% impact to segment operating income, excluding impairment. The Trane residential HVAC business was impacted by a reduction in volumes and pricing, which was offset by increased productivity and improved material costs.

Included in 2009 operating income for the Trane residential HVAC business was $80.6 million of ongoing purchase accounting charges primarily related to the amortization of intangible assets. In addition, we recorded $7.5 million of restructuring charges in 2009 associated with employee termination benefits and other costs associated with announced restructuring plans. These costs had a combined 4.4 point impact on the segment’s 2009 operating margins. 2008 comparable amounts were $33.0 million related to ongoing purchase accounting costs and $5.6 million related to severance and other business integration costs. In addition, 2008 operating income included $11.0 million in non-recurring purchase accounting charges associated with the fair value allocation of purchase price to backlog, inventory and in-process research and development costs. These costs had a combined 3.4 point impact on the segment’s 2008 operating margins.

Operating income in our residential security business increased by 11.7%, or $6.8 million, compared with the same period of 2008. This increase, which had a 9.3% impact on segment operating income, resulted from increased productivity ($18 million) and improved pricing ($10 million). This increase was partially offset by lower volumes and product mix ($16 million). In addition, we recorded $1.4 million and $6.3 million of restructuring charges in 2009 and 2008, respectively, associated with employee termination benefits and other costs associated with announced restructuring plans.

Industrial Technologies

Our Industrial Technologies segment provides products, services and solutions that enhance energy efficiency, productivity and operations. It offers our global customers a diverse and innovative range of products including compressed air systems, tools, pumps, fluid handling systems, as well as golf, utility, and rough terrain vehicles. It also includes a diverse range of service offerings including full coverage and preventative maintenance service contracts, service parts, installation, and remanufactured compressors and tools. This segment includes the Club Car, Ingersoll Rand, and ARO market-leading brands.

On December 30, 2010, we completed the divestiture of our gas microturbine generator business, which was sold under the Energy Systems brand, to Flex Energy, LLC. The business, which was previously reported as part of the Industrial Technologies segment, designs, manufactures, markets, distributes, and services gas powered microturbine generators which feature energy efficient design and low emissions technology. Segment information has been revised to exclude the results of this business for all periods presented.

 

Dollar amounts in millions    2010      % change      2009      % change      2008  

Net revenues

   $ 2,485.2         14.5%       $ 2,170.0         -25.8%       $ 2,924.5   

Operating income

     310.4         73.9%         178.5         -50.6%         361.0   

Operating margin

     12.5%                  8.2%                  12.3%   

 

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2010 vs 2009

Net revenues for the year ended December 31, 2010 increased by 14.5% or $315.2 million, compared with the same period of 2009, which primarily resulted from the following:

 

Volume/product mix

     13.6%   

Pricing

     1.1%   

Currency exchange rates

     -0.2%   

Total

     14.5%   

Air and Productivity revenues outside of the U.S. increased as improved aftermarket activity in Asia was partially offset by weaker markets in Europe. U.S. markets increased as the equipment market continues to improve. Club Car revenues increased as a result of improving golf markets.

Operating income increased by 73.9% or $131.9 million during 2010. The increase, which improved operating margins to 12.5% from 8.2% was primarily related to improved productivity actions ($104 million), higher volumes and product mix ($91 million), and favorable pricing ($23 million). However, these improvements were partially offset by increased material and other costs ($68 million). Included in 2010 operating income was $17.9 million of charges associated with ongoing restructuring actions, which had a 0.7 point impact on operating margins. The comparable amount recorded in 2009 was $27.1 million, which had a 1.2 point impact on 2009 operating margins.

2009 vs 2008

Net revenues for the year ended December 31, 2009 decreased by 25.8% or $754.5 million, compared with the same period of 2008, which primarily resulted from the following:

 

Volume/product mix

     -24.5%   

Pricing

     0.5%   

Currency exchange rates

     -1.8%   

Total

     -25.8%   

Revenues in the Air and Productivity Solutions business declined in all geographic areas. The decrease in the U.S. was a result of volume declines in major industrial, process and fluid handling end markets as well as lower aftermarket results. Non-U.S. revenues were also impacted by volume declines in industrial activity. Club Car revenues sharply decreased in all geographic areas due to weakening economic fundamentals in key golf, hospitality and recreation markets. In addition, the decline was impacted by customers deferring golf car replacement by extending their leases. Market share gains and growth in low-speed vehicle sales at Club Car helped to offset some of the slow end market activity.

Operating income decreased by 50.6% or $182.5 million during 2009. During 2009, we recorded $27.1 million of restructuring charges associated with employee termination benefits and other cost associated with announced restructuring plans, which had a 1.2 point impact on operating margins. The remaining decrease was primarily related to lower volumes and product mix ($263 million), an unfavorable currency impact ($20 million) and higher material costs ($17 million). These reductions were partially offset by increased productivity ($122 million) and improved pricing ($16 million).

 

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Security Technologies

Our Security Technologies segment is a leading global provider of products and services that make environments safe, secure and productive. The segment’s market-leading products include electronic and biometric access control systems and software, locks and locksets, door closers, exit devices, steel doors and frames, portable security devices, as well as time, attendance and personnel scheduling systems. These products serve a wide range of markets including the commercial construction market, healthcare, retail, maritime and transport industries as well as educational and governmental facilities. This segment includes the CISA, LCN, Schlage and Von Duprin brands.

 

Dollar amounts in millions    2010      % change      2009      % change      2008  

Net revenues

   $ 1,671.4         -2.8%       $ 1,719.1         -16.7%       $ 2,064.8   

Operating income

     323.9         0.1%         323.7         663.4%         42.4  * 

Operating margin

     19.4%                  18.8%                  2.1%   

*Amount includes a non-cash impairment charge of $360 million.

2010 vs 2009

Net revenues for the year ended December 31, 2010 decreased by 2.8% or $47.7 million, compared with the same period of 2009, which primarily resulted from the following:

 

Volume/product mix

     -3.2%   

Pricing

     0.8%   

Currency exchange rates

     -0.4%   

Total

     -2.8%   

The decline in worldwide commercial building and remodeling markets continue to impact segment revenues, especially in the United States. Slight improvement in Europe and modest volume increases in Asia helped mitigate continued weakness in the United States.

Operating income for the year ended December 31, 2010 increased by 0.1% or $0.2 million, compared with the same period of 2009. Operating margins improved to 19.4% from 18.8%. The segment’s operating results benefitted from improved productivity actions ($79 million) and a reduction in restructuring activities in 2010. Included in 2010 operating income was $3.1 million of charges associated with ongoing restructuring actions, which had a 0.2 point impact on operating margins. The comparable amount recorded in 2009 was $24.5 million, which had a 1.4 point impact on 2009 operating margins. These improvements were offset by a reduction in volumes and product mix ($46 million) and increases in material and other costs ($38 million).

2009 vs 2008

Net revenues for the year ended December 31, 2009 decreased by 16.7% or $345.7 million, compared with the same period of 2008, which primarily resulted from the following:

 

Volume/product mix

     -16.5%   

Pricing

     -2.5%   

Currency exchange rates

     2.2%   

Other

     0.1%   

Total

     -16.7%   

The decrease in net revenues was a result of the decline in the worldwide contracting of construction markets. Revenues were impacted by the decline in new building and remodeling markets in the United States and Europe.

Operating income for the year ended December 31, 2009 increased by 663.4% or $281.3 million, compared with the same period of 2008. This increase was a result of a non-cash charge of $360 million recognized in the

 

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fourth quarter of 2008 related to the impairment of goodwill, other indefinite-lived intangible assets and marketable securities within the segment. The charge had a 17.4 point impact on 2008 operating margins.

Excluding the asset impairment charge, operating income for the year ended December 31, 2009 decreased by 19.6% or $78.7 million, compared with the same period in 2008. The decrease was primarily a result of lower volumes and product mix ($179 million) and an unfavorable currency impact ($14 million). These reductions were partially offset by increased productivity ($75 million), improved pricing ($46 million) and lower material costs ($15 million). We also recorded $24.5 million and $6.8 million of restructuring charges in 2009 and 2008, respectively, associated with employee termination benefits and other costs associated with announced restructuring plans.

Discontinued Operations

The components of discontinued operations for the years ended December 31 are as follows:

 

In millions

     2010        2009        2008   

Revenues

   $ 65.6      $ 93.4      $ 197.6   
   

Pre-tax earnings (loss) from operations

     (169.3     (90.7     (105.7

Pre-tax gain (loss) on sale

     (5.4     (28.6     (5.2

Tax benefit (expense)

           58.0              85.7              14.5   

Discontinued operations, net

   $ (116.7   $ (33.6   $ (96.4

During 2009, we recorded a tax benefit of $22 million primarily associated with reducing our liability for unrecognized tax benefits, and a tax charge of $29 million associated with correcting immaterial accounting errors. See Note 19 to the Consolidated Financial Statements for a further description of these tax matters.

Discontinued operations by business for the years ended December 31 are as follows:

 

In millions

     2010        2009        2008   

Energy Systems, net of tax

   $ (17.6   $ (4.3   $ (4.6

Koxka Business, net of tax

     (54.0     (17.7     (34.4

Compact Equipment, net of tax

     (2.7     (30.6     (11.7

Road Development, net of tax

     (0.2     9.0        (29.8

Other discontinued operations, net of tax

     (42.2         10.0            (15.9

Total discontinued operations, net of tax

     $    (116.7   $ (33.6   $ (96.4

Energy Systems Divestiture

On December 30, 2010, we completed the divestiture of our gas microturbine generator business, which was sold under the Energy Systems brand, to Flex Energy, LLC. The business, which was previously reported as part of the Industrial Technologies segment, designs, manufactures, markets, distributes, and services gas powered microturbine generators which feature energy efficient design and low emissions technology.

The planned divestiture met both the component and held for sale criteria in accordance with GAAP during the third quarter of 2010. Therefore, we reported this business as a discontinued operation and classified the assets and liabilities as held for sale for all periods presented. During 2010, the Company recognized an $8.3 million after-tax impairment loss within discontinued operations related to the write-down of the net assets to their estimated fair value.

 

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Net revenues and after-tax earnings of the Energy Systems business for the years ended December 31 were as follows:

 

In millions

     2010        2009        2008   

Net revenues

   $ 8.9      $ 10.9      $ 13.7   
   

After-tax earnings (loss) from operations

   $ (14.4 ) *    $ (4.3   $ (4.6

Gain (loss) on sale, net of tax

     (3.2     -          -     

Total discontinued operations, net of tax

   $ (17.6   $ (4.3   $ (4.6

* Included in 2010 is an after-tax impairment loss of $8.3 million recorded within discontinued operations.

The components of assets and liabilities recorded as held for sale on the Consolidated Balance Sheet as of December 31, 2009 are as follows:

 

In millions

    
 
December 31,
2009
  
  

Assets

  

Current assets

   $ 7.7   

Property, plant and equipment, net

     6.1   

Other assets and deferred income taxes

     -     

Assets held for sale

   $ 13.8   

Liabilities

  

Current liabilities

   $ 0.5   

Noncurrent liabilities

     -     

Liabilities held for sale

   $ 0.5   

KOXKA Divestiture

On October 4, 2010, we completed the divestiture of our European refrigerated display case business, which was sold under the KOXKA brand, to an affiliate of American Industrial Acquisition Corporation (AIAC Group). The business, which was previously reported as part of the Climate Solutions segment, designs, manufactures and markets commercial refrigeration equipment through sales branches and a network of distributors throughout Europe, Africa and the Middle East. KOXKA had two manufacturing facilities in Spain and employed 445 people.

The planned divestiture met both the component and held for sale criteria in accordance with GAAP during the second quarter of 2010. Therefore, we reported this business as a discontinued operation and classified the assets and liabilities as held for sale for all periods presented. During 2010, we recognized a $53.9 million after-tax impairment loss within discontinued operations related to the write-down of the net assets to their estimated fair value.

Net revenues and after-tax earnings of the KOXKA business for the years ended December 31 were as follows:

 

In millions

     2010        2009        2008   

Net revenues

   $ 56.7      $ 82.5      $ 168.6   
   

After-tax earnings (loss) from operations

   $ (53.1 ) *    $ (17.7   $ (34.4)   

Gain (loss) on sale, net of tax

     (0.9     -          -     

Total discontinued operations, net of tax

   $ (54.0   $ (17.7   $ (34.4)   

* Included in 2010 is an after-tax impairment loss of $53.9 million recorded within discontinued operations. Also included in 2010 is a $12.2 million tax benefit resulting from a reduction in the Company’s deferred tax asset valuation allowance for net operating losses.

 

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The components of assets and liabilities recorded as held for sale on the Consolidated Balance Sheet as of December 31, 2009 are as follows:

 

In millions

    
 
December 31,
2009
  
  

Assets

  

Current assets

   $ 36.6   

Property, plant and equipment, net

     17.8   

Other assets and deferred income taxes

     18.9   

Assets held for sale

   $ 73.3   

Liabilities

  

Current liabilities

   $ 25.2   

Noncurrent liabilities

     4.3   

Liabilities held for sale

   $ 29.5   

Compact Equipment Divestiture

On July 29, 2007, we agreed to sell our Bobcat, Utility Equipment and Attachments business units (collectively, Compact Equipment) to Doosan Infracore for gross proceeds of approximately $4.9 billion, subject to post closing purchase price adjustments. The sale was completed on November 30, 2007. We are currently in the process of resolving post-closing matters relating to the final purchase price adjustments and other items 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. We accounted for Compact Equipment as discontinued operations within the income statement.

Net revenues and after-tax earnings of Compact Equipment for the years ended December 31 were as follows:

 

In millions

     2010         2009         2008   

Net revenues

   $ -         $ -         $15.3   
   

After-tax earnings (loss) from operations

   $ (2.9)       $ 7.2       $ (0.6)   

Gain (loss) on sale, net of tax

     0.2         (37.8)         (11.1)   

Total discontinued operations, net of tax

   $   (2.7)       $   (30.6)       $   (11.7)   

Road Development Divestiture

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

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

 

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Net revenues and after-tax earnings of the Road Development business unit for the years ended December 31 were as follows:

 

In millions

     2010        2009         2008   

Net revenues

   $ -          $ -           $ -     
   

After-tax earnings (loss) from operations

   $   0.1      $ 0.8       $ (0.4

Gain (loss) on sale, net of tax

     (0.3     8.2         (29.4

Total discontinued operations, net of tax

   $ (0.2   $   9.0       $   (29.8

Other Discontinued Operations

We also have retained costs from previously sold businesses that mainly include costs related to postretirement benefits, product liability and legal costs (mostly asbestos-related). The components of other discontinued operations for the years ended December 31 were as follows:

 

In millions

     2010        2009         2008   

Retained costs, net of tax

   $   (42.2   $   4.4       $ (16.7

Net gain (loss) on disposals, net of tax

     -          5.6         0.8   

Total discontinued operations, net of tax

   $ (42.2     $10.0         $  (15.9

Retained costs, net of tax for the year ended December 31, 2008 includes $6.5 million of after-tax costs related to an adverse verdict in a product liability lawsuit associated with a previously divested business.

Liquidity and Capital Resources

During 2009, we completed a comprehensive financing program that significantly enhanced our liquidity and debt profile. Significant actions included the repayment of the outstanding balance of our senior unsecured bridge loan facility with the proceeds from the issuance of $1.0 billion of long-term debt (Senior Notes and Exchangeable Senior Notes) and the expansion of our Trane accounts receivable purchase program to encompass originators from all four of our business segments. In addition, we reduced our quarterly stock dividend from $0.18 per share to $0.07 per share, effective with our September 2009 payment. During 2010, we repaid a $260 million debt maturity in February and a $250 million Senior Note maturity in August. Additionally, on February 17, 2010, we terminated the expanded accounts receivable purchase program prior to its expiration in March 2010.

We currently believe that our cash and cash equivalents balance, the cash generated by our operations, our committed credit lines as well as our expected ability to access the capital markets will be sufficient to meet our operating and capital needs for the foreseeable future.

Liquidity

The following table contains several key measures to gauge our financial condition and liquidity at the period ended December 31:

 

In millions

     2010        2009        2008   

Cash and cash equivalents

   $     1,014.3      $     876.7      $     550.2   

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

     761.6        1,191.7        2,350.4   

Long-term debt

     2,922.3        2,904.9        2,773.7   

Total debt

     3,683.9        4,096.6        5,124.1   

Total Ingersoll-Rand plc shareholders’ equity

     7,964.3        7,071.8        6,661.4   

Total equity

     8,059.1        7,175.7        6,762.1   

Debt-to-total capital ratio

     31.3     36.2     43.1

 

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

 

In millions

     2010         2009   

Debentures with put feature

   $ 343.6       $ 343.6   

Exchangeable Senior Notes

     328.3         315.0   

Current maturities of long-term debt

     48.4         526.5   

Other short-term borrowings

     41.3         6.6   

Total

   $     761.6       $     1,191.7   

Commercial Paper Program

We use borrowings under our commercial paper program for general corporate purposes. As of December 31, 2010 and 2009, we had no amounts outstanding after repaying $998.7 million during 2009. These payments were funded primarily using cash generated from our operations.

Debentures with Put Feature

At December 31, 2010 and 2009, we had outstanding $343.6 million of fixed rate debentures, which only requires early repayment at the option of the holder. These debentures contain a put feature that the holders may exercise on each anniversary of the issuance date. If exercised, we are 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 exercised, the final maturity dates would range between 2027 and 2028.

In 2010, holders of these debentures chose to exercise the put feature on less than $0.1 million of the outstanding debentures. On February 15, 2011, holders of these debentures had the option to exercise the put feature on $37.2 million of the outstanding debentures. The holders chose not to exercise the put feature at that date. Based on our cash flow forecast, we believe we will have sufficient liquidity to repay any amounts redeemable as a result of these put features.

Exchangeable Senior Notes Due 2012

In April 2009, we issued $345 million of 4.5% Exchangeable Senior Notes (the Notes) through our 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 Notes is paid twice a year in arrears. In addition, 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 any 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, 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 our operations.

We account for the Notes in accordance with GAAP, which requires us to allocate the proceeds between debt and equity, in a manner that reflects our nonconvertible debt borrowing rate. We 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, we are amortizing the discount into earnings over a three-year period.

During the fourth quarter of 2010, the sales price condition set forth in the indenture agreement for the Notes continues to be satisfied. As a result, the Notes may be exchangeable at the holders’ option during the first quarter of 2011. Therefore, we classified the debt portion of the Notes as short-term in the Consolidated Balance Sheet at December 31, 2010. In addition, we classified the equity portion of the Notes as Temporary equity to reflect the amount that could result in cash settlement at the balance sheet date.

 

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Long-Term Debt

In August 2008, we filed a universal shelf registration statement with the SEC for an indeterminate amount of securities for future issuance and issued $1.6 billion of long-term debt pursuant to the shelf registration statement through our wholly-owned subsidiary, IR-Global. Approximately $1.4 billion remains outstanding as of December 31, 2010 as the Company repaid $250 million as it became due during 2010. The remaining balance consists of $600 million 6.000% Senior Notes due in 2013 and $750 million 6.875% Senior Notes due in 2018. These notes are fully and unconditionally guaranteed by IR-Limited. The net proceeds from the offering were used to reduce the amount outstanding under the senior unsecured bridge loan facility.

Interest on the fixed rate notes will be paid twice a year. We have 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 debt offering documents. The notes are subject to certain customary covenants, however, none of these covenants are considered restrictive to our operations.

Senior Notes Due 2014

In April 2009, we issued $655 million of 9.5% Senior Notes through our 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 fixed rate notes will be paid twice a year in arrears. We have 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 our operations.

Accounts Receivable Purchase Program

On March 31, 2009, we expanded our existing Trane accounts receivable purchase program to encompass originators from all four of our business segments. The increase in originators allowed us to increase the program size from $150 million to $325 million. At December 31, 2009, the outstanding balance of eligible trade receivables sold to the master special purpose vehicle was $544.2 million. However, no net interests were sold to any of the three conduits administered by unaffiliated financial institutions. On February 17, 2010, we terminated the expanded facility prior to its expiration in March 2010. See Note 10 to the Consolidated Financial Statements for a further description of the program.

Pension Plans

Our investment objectives in managing defined benefit plan assets are to ensure that present and future benefit obligations to all participants and beneficiaries are met as they become due; to provide a total return that, over the long-term, minimizes our required contributions at the appropriate levels of risk; and to meet any statutory or regulatory requirements.

We monitor the impact of market conditions on our funding requirements on a quarterly basis. None of our defined benefit pension plans have experienced any significant impact on their liquidity due to the volatility in the markets. For further details on pension plan activity, see Note 13 to the Consolidated Financial Statements.

Cash Flows

The following table reflects the major categories of cash flows for the years ended December 31, respectively. For additional details, please see the Consolidated Statements of Cash Flows in the Consolidated Financial Statements.

 

In millions

     2010        2009        2008   

Operating cash flow provided by (used in) continuing operations

   $ 756.3      $ 1,764.9      $ 423.5   

Investing cash flow provided by (used in) continuing operations

     (179.0     (183.1     (7,307.0

Financing cash flow provided by (used in) continuing operations

     (403.7     (1,208.1     2,760.6   

 

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Operating Activities

Net cash provided by operating activities from continuing operations was $756.3 million for the year ended December 31, 2010 compared with $1,764.9 million in 2009. As a result of the severe economic downturn, positive operating cash flows for 2009 reflected decreased volume levels and our increased focus on working capital management, including improvements in accounts receivable collections and inventory management. While we continued to actively manage working capital in 2010, our operating cash flows reflect increased inventory levels from 2009 as several of our end markets have stabilized and we anticipate improvement in several of our key end markets during 2011. Additionally, during 2010 the Company made discretionary cash contributions to its pension fund of $444 million ($359 million after tax benefit received).

Net cash provided by operating activities from continuing operations was $1,764.9 million for the year ended December 31, 2009 compared with $423.5 million in 2008. 2008 operating cash flows were impacted by a tax payment of approximately $700 million in the first quarter of 2008 paid to various taxing authorities primarily associated with the Compact Equipment divestiture. Cash flows from operating activities for the year ended December 31, 2009 include significant improvements in accounts receivable collections and inventory management, in addition to the results of Trane for the entire period.

Investing Activities

Net cash used in investing activities from continuing operations was $179.0 million for the year ended December 31, 2010 compared with $183.1 million in 2009. The change in investing activities is primarily attributable to a reduction in capital expenditures during 2010.

Net cash used in investing activities from continuing operations was $183.1 million for the year ended December 31, 2009 compared with $7,307.0 million in 2008. The change is primarily attributable to cash used for the acquisition of Trane in 2008.

Financing Activities

Net cash used in financing activities during the year ended December 31, 2010 was $403.7 million, compared with $1,208.1 million during 2009. The change in financing activities is primarily related to less debt repayments in 2010, additional stock options exercised and a reduction of the quarterly stock dividend.

Net cash used in financing activities from continuing operations was $1,208.1 million for the year ended December 31, 2009 compared with $2,760.6 million of net cash provided by financing activities during 2008. The change in financing activities is primarily related to the proceeds received from the bridge loan facility and commercial paper used to finance the acquisition of Trane in June 2008. During the year ended December 31, 2009, we refinanced the bridge loan facility and repaid the amounts outstanding on our commercial paper program.

Capital Resources

Based on historical performance and current expectations, we believe our cash and cash equivalents balance, the cash generated from our operations, our committed credit lines and our expected ability to access capital markets will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations for the foreseeable future.

Capital expenditures were $179.5 million, $204.1 million and $305.0 million for 2010, 2009 and 2008, respectively. Our investments continue to improve manufacturing productivity, reduce costs and provide environmental enhancements and advanced technologies for existing facilities. The capital expenditure program for 2011 is estimated to be approximately $250 million, including amounts approved in prior periods. Many of these projects are subject to review and cancellation at our option without incurring substantial charges.

We announced plans to initiate enterprise-wide restructuring actions in October 2008. These actions included streamlining the footprint of manufacturing facilities and reducing the general and administrative cost base. During 2009, we incurred approximately $109.6 million of costs associated with this restructuring program. During 2010, we incurred costs of $45.3 million associated with ongoing restructuring actions.

 

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For financial market risk impacting the Company, see Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

Capitalization

In addition to cash on hand and operating cash flow, we maintain significant credit availability under our commercial paper programs. Our ability to borrow at a cost-effective rate under the commercial paper programs is contingent upon maintaining an investment-grade credit rating. As of December 31, 2010, our credit ratings were as follows:

 

     Short-term    Long-term

Moody’s

   P-2    Baa1

Standard and Poor’s

   A-2    BBB+

The credit ratings set forth above are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal by the assigning rating organization. Each rating should be evaluated independently of any other rating.

On May 26, 2010, we entered into a 3-year, $1.0 billion Senior Unsecured Revolving Credit Facility through our wholly-owned subsidiary, IR-Global. This new facility replaced our pre-existing $1.25 billion, 5-year revolving credit facility that was scheduled to mature on August 12, 2010.

At December 31, 2010, our committed revolving credit facilities totaled $2.0 billion, of which $1.0 billion expires in June 2011 and $1.0 billion expires in May 2013. These lines are unused and provide support for our commercial paper program as well as for other general corporate purposes. Other available non-U.S. lines of credit were $699.2 million, of which $524.7 million were unused at December 31, 2010. These lines provide support for bank guarantees, letters of credit and other general corporate purposes.

Our public debt does not contain any financial covenants and our revolving credit lines have a debt-to-total capital covenant of 65%. As of December 31, 2010, our debt-to-total capital ratio was significantly beneath this limit.

Guarantees

As part of the reorganization of IR-New Jersey in 2001, 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 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. In addition, public debt securities issued by IR-Global are fully and unconditionally guaranteed by IR-Limited.

As a part of the reorganization of IR-Limited in 2009, 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 IR-International, IR-Global and IR-New Jersey. Neither IR-Ireland nor IR-Limited has issued or intends to issue guarantees in respect of any public indebtedness incurred by Trane.

 

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Contractual Obligations

The following table summarizes our contractual cash obligations by required payment periods, in millions:

 

      
 
Less than
1 year
  
  
   
 
1 - 3
years
  
  
    
 
3 - 5
years
  
  
    
 
More than
5 years
  
  
     Total   

Short-term debt

   $ 41.3      $ -         $ -         $ -         $ 41.3   

Long-term debt

     737.0  *      654.4         1,168.4         1,101.3         3,661.1   

Interest payments on long-term debt

     246.2        460.2         269.7         603.3         1,579.4   

Purchase obligations

     885.2        18.6         -           -           903.8   

Operating leases

     157.2        214.5         131.2         102.8         605.7   

Total contractual cash obligations

   $   2,066.9      $   1,347.7       $   1,569.3       $   1,807.4       $   6,791.3   

* Includes $343.6 million of debt redeemable at the option of the holder. The scheduled maturities of these bonds range between 2027 and 2028. Also includes $345 million related to the Exchangeable Senior Notes due in 2012. See Note 11 to the Consolidated Financial Statements for additional information.

Future expected obligations under our pension and postretirement benefit plans, income taxes, environmental and asbestos-related matters have not been included in the contractual cash obligations table above.

Pensions

At December 31, 2010, we had net obligations of $550.9 million, which consist of noncurrent pension assets of $5.1 million and current and non-current pension benefit liabilities of $556 million. It is our objective to contribute to the pension plans to ensure adequate funds are available in the plans to make benefit payments to plan participants and beneficiaries when required. We currently project that we will contribute approximately $51.2 million to our plans worldwide in 2011. Because the timing and amounts of long-term funding requirements for pension obligations are uncertain, they have been excluded from the preceding table. See Note 13 to the Consolidated Financial Statements for additional information.

Postretirement Benefits Other than Pensions

At December 31, 2010, we had postretirement benefit obligations of $883 million. We fund postretirement benefit costs principally on a pay-as-you-go basis as medical costs are incurred by covered retiree populations. Benefit payments, which are net of expected plan participant contributions and Medicare Part D subsidy, are expected to be approximately $76.8 million in 2011. Because the timing and amounts of long-term funding requirements for postretirement obligations are uncertain, they have been excluded from the preceding table. See Note 13 to the Consolidated Financial Statements for additional information.

Income Taxes

At December 31, 2010, we have total unrecognized tax benefits for uncertain tax positions of $534.1 million and $100.4 million of related accrued interest and penalties. The liability has been excluded from the preceding table as we are unable to reasonably estimate the amount and period in which these liabilities might be paid. See Note 19 to the Consolidated Financial Statements for additional information regarding matters relating to income taxes, including unrecognized tax benefits and Internal Revenue Service (IRS) tax disputes.

Environmental and Asbestos Matters

We are involved in various litigations, claims and administrative proceedings, including those related to environmental, asbestos-related, and product liability matters. We believe that these liabilities are subject to the uncertainties inherent in estimating future costs for contingent liabilities, and will likely be resolved over an extended period of time. Because the timing and amounts of potential future cash flows are uncertain, they have been excluded from the preceding table. See Note 22 to the Consolidated Financial Statements for additional information.

See Note 11 and Note 22 for additional information on matters affecting our liquidity.

 

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Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires management to use judgment in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from estimates. The following is a summary of certain accounting estimates and assumptions made by management that we consider critical.

 

   

Allowance for doubtful accounts – The Company has provided an allowance for doubtful accounts receivable which represents the best estimate of probable loss inherent in the Company’s accounts receivable portfolio. This estimate is based upon the Company’s policy, derived from its knowledge of its end markets, customer base and products.

 

   

Goodwill and indefinite-lived intangible assets – We have significant goodwill and indefinite-lived intangible assets on our balance sheet related to acquisitions. Our goodwill and other indefinite-lived intangible assets are tested and reviewed annually during the fourth quarter for impairment or when there is a significant change in events or circumstances that indicate that the fair value of an asset may be less than the carrying amount of the asset.

Recoverability of goodwill is measured at the reporting unit level and determined using a two step process. The first step compares the carrying amount of the reporting unit to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit’s carrying value of goodwill is compared to the implied fair value of goodwill. To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized.

As quoted market prices are not available for our reporting units, the calculation of their estimated fair value in step one is based on two valuation techniques, a discounted cash flow model (income approach) and a market adjusted multiple of earnings and revenues (market approach), with each method being equally weighted in the calculation. In step 2, the implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The estimated fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit, as determined in the first step of the goodwill impairment test, was the price paid to acquire that reporting unit.

Recoverability of other intangible assets with indefinite useful lives is measured by a comparison of the carrying amount of the intangible assets to the estimated fair value of the respective intangible assets. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess. The calculation of estimated fair value is determined on a relief from royalty methodology (income approach) which is based on the implied royalty paid, at an appropriate discount rate, to license the use of an asset rather than owning the asset. The present value of the after-tax cost savings (i.e. royalty relief) indicates the estimated fair value of the asset.

The determination of estimated fair value and the implied fair value of goodwill requires management to make assumptions about estimated cash flows, including profit margins, long-term forecasts, discount rates and terminal growth rates. Management developed these assumptions based on the market and geographic risks unique to each reporting unit.

 

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2010 Impairment Test

For our annual impairment testing during the fourth quarter of 2010, we determined that the fair value of the reporting units and indefinite-lived intangible assets exceeded their respective carrying values.

The estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporates management assumptions about expected future cash flows. Under the income approach, we assumed a forecasted cash flow period of five years with discount rates generally ranging from 11.5% to 18% and terminal growth rates generally ranging from 2.5% to 4%. Under the market approach, management used an adjusted multiple of earnings and revenues based on the market information of comparable companies. Additionally, management compared the estimated aggregate fair value of its reporting units to the Company’s overall market capitalization.

For all reporting units except three, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value) was a minimum of 15%. The three reporting units with a percentage of carrying value less than 15%, reported within the Climate Solutions segment, exceeded their carrying value by 4.4%, 9.4%, and 10.8%. These reporting units have goodwill of approximately $243 million, $1,075 million, and $561 million, respectively. A significant increase in the discount rate, decrease in the long-term growth rate, or substantial reductions in our end markets and volume assumptions could have a negative impact on the estimated fair value of these reporting units.

2009 Impairment Test

For our annual impairment testing during the fourth quarter of 2009, we determined that the fair value of the reporting units and indefinite-lived intangible assets exceeded their respective carrying values.

The estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporates management assumptions about expected future cash flows. Under the income approach, we assumed a forecasted cash flow period of five years with discount rates generally ranging from 11% to 15% and terminal growth rates generally ranging from 2% to 5%. Under the market approach, management used an adjusted multiple of earnings and revenues based on the market information of comparable companies. Additionally, management compared the estimated aggregate fair value of its reporting units to the Company’s overall market capitalization.

For all reporting units except one, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value) was a minimum of 15%. The one reporting unit with a percentage of carrying value less than 15%, reported within the Climate Solutions segment, exceeded its carrying value by 8%. This reporting unit had goodwill of approximately $840 million. A significant increase in the discount rate, decrease in the long-term growth rate, or substantial reductions in our end markets and volume assumptions could have a negative impact on the estimated fair value of the reporting unit.

 

   

Long-lived assets and finite-lived intangibles – Long-lived assets and finite-lived intangibles are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. Assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows can be generated. Impairment in the carrying value of an asset would be recognized whenever anticipated future undiscounted cash flows from an asset are less than its carrying value. The impairment is measured as the amount by which the carrying value exceeds the fair value of the asset as determined by an estimate of discounted cash flows. The Company believes that its use of estimates and assumptions are reasonable and comply with generally accepted accounting principles. Changes in business conditions could potentially require future adjustments to these valuations.

 

   

Loss contingencies – Liabilities are recorded for various contingencies arising in the normal course of business, including litigation and administrative proceedings, environmental and asbestos matters and product liability, product warranty, worker’s compensation and other claims. The Company has recorded reserves in the financial statements related to these matters, which are developed using input derived from

 

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actuarial estimates and historical and anticipated experience data depending on the nature of the reserve, and in certain instances with consultation of legal counsel, internal and external consultants and engineers. Subject to the uncertainties inherent in estimating future costs for these types of liabilities, the Company believes its estimated reserves are reasonable and does not believe the final determination of the liabilities with respect to these matters would have a material effect on the financial condition, results of operations, liquidity or cash flows of the Company for any year.

 

   

Asbestos matters – Certain of our wholly-owned subsidiaries are named as defendants in asbestos-related lawsuits in state and federal courts. The Company records a liability for its actual and anticipated future claims as well as an asset for anticipated insurance settlements. Although the Company was neither a manufacturer nor producer of asbestos, some of its formerly manufactured components from third party suppliers utilized asbestos-related components. As a result, the Company records certain income and expenses associated with our asbestos liabilities and corresponding insurance recoveries within discontinued operations, net of tax, as they relate to previously divested businesses. Income and expenses associated with Trane’s asbestos liabilities and corresponding insurance recoveries are recorded within continuing operations. Refer to Note 22 to the Consolidated Financial Statements for further details of asbestos-related matters.

 

   

Revenue recognition – Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. Delivery generally occurs when the title and the risks and rewards of ownership have substantially transferred to the customer. Revenue from maintenance contracts or extended warranties is recognized on a straight-line basis over the life of the contract, unless another method is more representative of the costs incurred. The Company enters into agreements that contain multiple elements, such as equipment, installation and service revenue. For multiple-element arrangements, the revenue relating to undelivered elements is deferred until delivery of the deferred elements. The Company recognizes revenue for delivered elements when the delivered item has stand-alone value to the customer, customer acceptance has occurred, and there are only customary refund or return rights related to the delivered elements. Revenues from certain of our equipment and the related installation sold under construction-type contracts are recorded using the percentage-of-completion method in accordance with GAAP.

 

   

Income taxes – Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. The Company recognizes future tax benefits, such as net operating losses and non-U.S. tax credits, to the extent that realizing these benefits is considered in its judgment to be more likely than not. The Company regularly reviews the recoverability of its deferred tax assets considering its historic profitability, projected future taxable income, timing of the reversals of existing temporary differences and the feasibility of its tax planning strategies. Where appropriate, the Company records a valuation allowance with respect to a future tax benefit.

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. The Company believes that it has adequately provided for any reasonably foreseeable resolution of these matters. The Company will adjust its estimate if significant events so dictate. 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 in the period that the matter is finally resolved.

 

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Employee benefit plans – The Company provides a range of benefits to eligible employees and retired employees, including pensions, postretirement and postemployment benefits. Determining the cost associated with such benefits is dependent on various actuarial assumptions including discount rates, expected return on plan assets, compensation increases, employee mortality, turnover rates and healthcare cost trend rates. Actuarial valuations are performed to determine expense in accordance with generally accepted accounting principles in the United States. Actual results may differ from the actuarial assumptions and are generally accumulated and amortized into earnings over future periods. The Company reviews its actuarial assumptions at each measurement date and makes modifications to the assumptions based on current rates and trends, if appropriate. The discount rate, the rate of compensation increase and the expected long-term rates of return on plan assets are determined as of each measurement date. A discount rate reflects a rate at which pension benefits could be effectively settled. For U.S. plans, the discount rates are established primarily based on bond studies using the Citigroup Pension Liability index. Beginning with the 2010 year-end remeasurement, the discount rates for non-U.S. plans are established using hypothetical yield curves based on yields of corporate bonds rated AA quality. Spot rates are developed from the yield curve and used to discount future benefit payments. Previously for non-U.S. plans, the discount rates were based upon a review of the current yields reported on AA corporate bonds or the yields of high-quality fixed-income investments available and expected to be available during the life of the plans. The rate of compensation increase is dependent on expected future compensation levels. The expected long-term rate of return on plan assets reflects the average rate of returns expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The expected long-term rate of return on plan assets is based on what is achievable given the plan’s investment policy, the types of assets held and the target asset allocation. The expected long-term rate of return is determined as of each measurement date. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on input from its actuaries, outside investment advisors and information as to assumptions used by plan sponsors.

Changes in any of the assumptions can have an impact on the net periodic pension cost or postretirement benefit cost. Estimated sensitivities to the expected 2011 net periodic pension cost of a 0.25% rate decline in the two basic assumptions are as follows: the discount rate would increase expense by approximately $10.2 million and the estimated return on assets assumption would increase expense by approximately $7.8 million. A 0.25% rate decrease in the discount rate for postretirement benefits would increase expected 2011 net periodic postretirement benefit cost by $0.8 million and a 1.0% increase in the healthcare cost trend rate would increase the cost by approximately $1.9 million.

The preparation of financial statements includes the use of estimates and assumptions that affect a number of amounts included in the Company’s Consolidated Financial Statements. If actual amounts are ultimately different from previous estimates, the revisions are included in the Company’s results for the period in which the actual amounts become known. Historically, the aggregate differences, if any, between the Company’s estimates and actual amounts in any year have not had a material impact on the Consolidated Financial Statements.

Recently Adopted Accounting Pronouncements:

FASB ASC 715, “Compensation – Retirement Benefits,” (ASC 715) requires an entity to measure its defined benefit plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position. The measurement date provisions of ASC 715 were effective for the Company for the fiscal year ending December 31, 2008. The Company adopted the measurement provisions of ASC 715, which resulted in an after-tax charge to Retained earnings in the amount of $3.7 million ($6.5 million pre-tax) in 2008. Plans acquired during 2008 were not impacted by this change.

In September 2006, the FASB issued revised guidance within FASB ASC 820, “Fair Value Measurements and Disclosures” (ASC 820) to provide a framework for measuring fair value that is based on the assumptions market participants would use when pricing an asset or liability. ASC 820 also establishes a fair value hierarchy that prioritizes the information to develop those assumptions. Additionally, the guidance expands the disclosures about fair value measurements to include disclosing the fair value measurements of assets or liabilities within

 

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each level of the fair value hierarchy. These provisions of ASC 820 were effective for the Company starting on January 1, 2008, with the exception of non-financial assets and liabilities not measured at fair value on a recurring basis, which became effective January 1, 2009. Refer to Note 14 to the Consolidated Financial Statements for a full discussion of these provisions of ASC 820.

In February 2007, the FASB issued revised guidance within FASB ASC 825, “Financial Instruments” (ASC 825) which allows companies the option, at specified election dates, to measure financial assets and liabilities at their current fair value, with the corresponding changes in fair value from period to period recognized in the income statement. Additionally, ASC 825 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. These provisions of ASC 825 were effective for the Company starting on January 1, 2008. The Company has not elected this option available under ASC 825.

In December 2007, the FASB issued revised guidance to address the financial accounting and reporting for business combinations, which can be found in FASB ASC 805, “Business Combinations” (ASC 805). ASC 805 supersedes SFAS 141, “Business Combinations” and retains the fundamental requirements set forth therein regarding the purchase method of accounting. However, it expands the guidance to enable proper recognition and measurement, at fair value, the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquired business. In addition, ASC 805 introduces new accounting guidance on how to recognize and measure contingent consideration, contingencies, acquisition and restructuring costs. These provisions of ASC 805 were effective for acquisitions occurring after January 1, 2009.

In December 2007, the FASB issued revised guidance within FASB ASC 810, “Consolidations” (ASC 810) which clarifies that a noncontrolling interest in a subsidiary represents an ownership interest that should be reported as a separate component of Equity in the Consolidated Financial Statements. In addition, ASC 810 requires expanded income statement presentation and disclosures that clearly identify and distinguish between the interests of the Company and the interests of the non-controlling owners of the subsidiary. ASC 810, as it relates to noncontrolling interests, was effective for the Company starting on January 1, 2009.

In March 2008, the FASB issued revised guidance within FASB ASC 815, “Derivatives and Hedging” (ASC 815) which amends and expands the disclosures previously required. ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The expanded disclosure requirements found in ASC 815 as they relate to the modifications made in March 2008 were effective for the Company starting on January 1, 2009. See Note 12 to the Consolidated Financial Statements for these expanded disclosures.

In May 2008, the FASB issued revised guidance within FASB ASC 470, “Debt” (ASC 470) which requires us to allocate between debt and equity the proceeds of the Company’s exchangeable notes, in a manner that reflects the Company’s nonconvertible debt borrowing rate. In addition, the Company is required to amortize any discount into earnings over the term of the notes. These provisions of ASC 470 became applicable to the Company during the second quarter of 2009, upon issuance of the Exchangeable Senior Notes in April 2009.

In June 2009, the FASB issued revised guidance within ASC 810. These revisions eliminate FASB Interpretation 46(R)’s exceptions to consolidating qualifying special purpose entities, contain new criteria for determining the primary beneficiary, and increase the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. ASC 810 also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded in applying FASB Interpretation 46(R)’s provisions. The elimination of the qualifying special purpose entity concept and its consolidation exceptions means more entities will be subject to consolidation assessments and reassessments. These provisions of ASC 810 were effective as of the beginning of the first fiscal year beginning after November 15, 2009, and for interim periods within that

 

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first period, with earlier adoption prohibited. The provisions of ASC 810 did not have a material impact on the Company’s Consolidated Financial Statements.

In June 2009, the FASB issued revised guidance within FASB ASC 860, “Transfers and Servicing” (ASC 860). These revisions eliminate the concept of a qualifying special purpose entity, create more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarify other sale-accounting criteria, and change the initial measurement of a transferor’s interest in transferred financial assets. These provisions of ASC 860 were effective for transfers of financial assets in fiscal years beginning after November 15, 2009 and in interim periods within those fiscal years with earlier adoption prohibited. The provisions of ASC 860 did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2010, the FASB issued revised guidance within FASB ASC 820, “Fair Value Measurements and Disclosures” (ASC 820). The revisions require interim disclosures regarding the amounts and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements, as well as disclosures for each class of assets and liabilities and about the inputs and valuation techniques used to measure fair value for both recurring and non-recurring fair value measurements. These disclosures are required for fair value measurements that fall in either Level 2 or Level 3. Additionally, the revision also requires separate presentation of Level 3 activity for the fair value measurements, using significant unobservable inputs. These revisions were effective as of January 1, 2010, with the exception of the separate presentation of Level 3 activity, which is not effective until fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. See Note 14 to the Consolidated Financial Statements for these additional disclosures.

In July 2010, the FASB issued ASU 2010-20 which revised guidance within ASC 310, “Receivables” (ASC 310). These revisions include additional disclosures regarding the credit quality of financing receivables to aid financial statement users in their appraisal of credit risk exposure and the adequacy of the allowance for credit losses. The new disclosure requirements were effective for the Company as of December 31, 2010, and new disclosures regarding reporting period activity are effective for interim and annual periods thereafter. The provisions of ASU 2010-20 did not have a material impact on the Company’s Consolidated Financial Statements.

Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to fluctuations in currency exchange rates, interest rates and commodity prices which could impact our results of operations and financial condition. To manage certain of those exposures, we use derivative instruments, primarily forward contracts. Derivative instruments utilized by us in our hedging activities are viewed as risk management tools, involve little complexity and are not used for trading or speculative purposes. To minimize the risk of counter party non-performance, derivative instrument agreements are made only through major financial institutions with significant experience in such derivative instruments.

Foreign Currency Exposures

We have operations throughout the world that manufacture and sell their products in various international markets. As a result, we are exposed to movements in exchange rates of various currencies against the U.S. dollar as well as against other currencies throughout the world. We actively manage the currency exposures that are associated with purchases and sales and other assets and liabilities at the operating unit level. Exposures that cannot be naturally offset to an insignificant amount are hedged with foreign currency derivatives. We also have non-U.S. currency net asset exposures, which we currently do not hedge with any derivative instrument.

We evaluate our exposure to changes in currency exchange rates on our foreign currency derivatives using a sensitivity analysis. The sensitivity analysis is a measurement of the potential loss in fair value based on a percentage change in exchange rates. Based on the firmly committed currency derivative instruments in place at December 31, 2010, a hypothetical change in fair value of those derivative instruments assuming a 10% decrease in exchange rates would result in an unrealized loss of approximately $53.5 million, as compared with $68.4 million at December 31, 2009. These amounts would be offset by changes in the fair value of the underlying currency transactions.

 

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Commodity Price Exposures

We are exposed to volatility in the prices of raw materials used in some of our products and we use fixed price contracts to manage this exposure. We do not have any committed commodity derivative instruments in place at December 31, 2010.

Interest Rate Exposure

Our debt portfolio mainly consists of fixed-rate instruments, and therefore any fluctuation in market interest rates would not have a material effect on our results of operations.

 

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Item 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

(a) The following Consolidated Financial Statements and the report thereon of PricewaterhouseCoopers LLP dated February 22, 2011, are presented following Item 15 of this Annual Report on Form 10-K.

Consolidated Financial Statements:

Report of independent registered public accounting firm

Consolidated statements of income for the years ended December 31, 2010, 2009 and 2008

Consolidated balance sheets at December 31, 2010 and 2009

For the years ended December 31, 2010, 2009 and 2008:

Consolidated statements of equity

Consolidated statements of cash flows

Notes to Consolidated Financial Statements

Financial Statement Schedule:

Consolidated schedule for the years ended December 31, 2010, 2009 and 2008:

Schedule II – Valuation and Qualifying Accounts

 

(b) The unaudited quarterly financial data for the two years ended December 31, is as follows:

 

In millions, except per share amounts

     2010   
    
 
First
Quarter
  
  
   
 
Second
Quarter
  
  
    
 
Third
Quarter
  
  
    
 
Fourth
Quarter
  
  

Net revenues

   $ 2,935.0      $ 3,702.1       $ 3,730.3       $ 3,711.7   

Cost of goods sold

     2,153.4        2,652.9         2,651.4         2,700.8   

Operating income (loss)

     140.4        385.3         408.2         313.6   

Net earnings (loss)

     6.0        201.9         237.6         219.6   

Net earnings (loss) attributable to Ingersoll-Rand plc

     1.4        196.4         232.2         212.1   

Earnings (loss) per share attributable to Ingersoll-Rand plc ordinary shareholders:

          

Basic

   $ -        $ 0.61       $ 0.72       $ 0.65   

Diluted

   $ -        $ 0.58       $ 0.68       $ 0.62   
       2009   
    
 
First
Quarter
  
  
   
 
Second
Quarter
  
  
    
 
Third
Quarter
  
  
    
 
Fourth
Quarter
  
  

Net revenues

   $ 2,911.5      $ 3,450.4       $ 3,458.9       $ 3,281.0   

Cost of goods sold

     2,181.7        2,512.5         2,462.6         2,385.4   

Operating income (loss)

     59.2        261.4         324.6         227.1   

Net earnings (loss)

     (21.8     127.6         222.6         147.8   

Net earnings (loss) attributable to Ingersoll-Rand plc

     (26.7     122.1         216.6         139.4   

Earnings (loss) per share attributable to Ingersoll-Rand plc ordinary shareholders:

          

Basic

   $ (0.08   $ 0.38       $ 0.67       $ 0.43   

Diluted

   $ (0.08   $ 0.38       $ 0.65       $ 0.42   

 

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Item 9.      CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2010, that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this Annual Report on Form 10-K has been recorded, processed, summarized and reported when required and the information is accumulated and communicated, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined under Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management has assessed the effectiveness of internal control over financial reporting as of December 31, 2010. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control – Integrated Framework. Management concluded that based on its assessment, the Company’s internal control over financial reporting was effective as of December 31, 2010.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal controls over financial reporting during the quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.    OTHER INFORMATION

None.

 

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PART III

The information called for by Part III (Items 10, 11, 12, and 13) of Form 10-K will be included in the Company’s Proxy Statement for the Company’s 2011 Annual General Meeting of Shareholders, which the Company intends to file within 120 days after the close of its fiscal year ended December 31, 2010 and is hereby incorporated by reference to such Proxy Statement, except that the information as to the Company’s executive officers which follows Item 3 in this Annual Report on Form 10-K, is incorporated by reference into Items 10 and 12, respectively, of this Report.

Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the information contained under the caption “Fees of the Independent Auditors” in our 2011 Proxy Statement.

 

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PART IV

Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a) 1. and 2.     

Financial statements and financial statement schedule

See Item 8.

3.      Exhibits
     The exhibits listed on the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K.

 

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INGERSOLL-RAND PLC

INDEX TO EXHIBITS

(Item 15(a))

Description

Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), Ingersoll-Rand plc (the “Company”) has filed certain agreements as exhibits to this Annual Report on Form 10-K. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.

On July 1, 2009, Ingersoll-Rand Company 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, Ingersoll-Rand plc replaced Ingersoll-Rand Company Limited as the ultimate parent company effective July 1, 2009. All references related to the Company prior to July 1, 2009 relate to Ingersoll-Rand Company Limited.

(a) Exhibits

 

Exhibit No.

  

Description

  

Method of Filing

2.1    Agreement and Plan of Merger, dated as of October 31, 2001, among Ingersoll-Rand Company Limited, Ingersoll-Rand Company and IR Merger Corporation    Incorporated by reference to Annex I to the proxy statement/prospectus included as part of the Registration Statement on Form S-4 (File No. 333-71642) initially filed by Ingersoll-Rand Company (the predecessor company to Ingersoll-Rand Company Limited) with the SEC on October 16, 2001 and subsequently amended on October 30, 2001.
2.2    Asset and Stock Purchase Agreement, dated as of February 27, 2007, among Ingersoll-Rand Company limited, on behalf of itself and the other sellers named therein, and AB Volvo (publ), on behalf of itself and the other buyers named therein    Incorporated by reference to Exhibit 2.01 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on February 28, 2007.
2.3    Asset and Stock Purchase Agreement, dated as of July 29, 2007, among Ingersoll-Rand Company Limited, on behalf of itself and certain of its subsidiaries, and Doosan Infracore Co., Ltd. and Doosan Engine Co., Ltd., on behalf of themselves and certain of their subsidiaries    Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on July 31, 2007.
2.4    Agreement and Plan of Merger, dated as of December 15, 2007, among the Company, Indian Merger Sub, Inc. and Trane Inc.   

Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on December 17, 2007.

 

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2.5    Separation and Distribution Agreement, dated as of July 16, 2007, by and between Trane Inc. (formerly American Standard Companies Inc.) and WABCO Holdings Inc.   

Incorporated by reference to Exhibit 2.1 to Trane Inc.’s Form 8-K (File No. 001-11415) filed with the SEC on July 20, 2007.

3.1    Memorandum of Association of Ingersoll-Rand plc    Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
3.2    Articles of Association of Ingersoll-Rand plc    Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
3.3    Certificate of Incorporation of Ingersoll-Rand plc    Incorporated by reference to Exhibit 3.3 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
   The Company and its subsidiaries are parties to several long-term debt instruments under which, in each case, the total amount of securities authorized does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.   

Pursuant to paragraph 4 (iii)(A) of Item 601 (b) of Regulation S-K, the Company agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request.

4.1    Indenture, dated as of August 12, 2008, among the Company, Ingersoll-Rand Global Holding Company Limited and Wells Fargo Bank, N.A., as Trustee (replacing the Indenture originally filed as Exhibit 4.1 to the Company’s Form 10-Q (File No. 001-16831) for the period ended September 30, 2008 as filed with the SEC on 11/07/2008)   

Incorporated by reference to Exhibit 4.4 to the Company’s Form 10-K for the fiscal year ended 2008 (File No. 001-16831) filed with the SEC on March 2, 2009.

4.2    First Supplemental Indenture, dated as of August 15, 2008, among the Company, Ingersoll-Rand Global Holding Company Limited and Wells Fargo Bank, N.A., as trustee, to that certain Indenture, dated as of August 12, 2008, among the Company, Ingersoll-Rand Global Holding Company Limited and Wells Fargo Bank, N.A., as trustee    Incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on August 18, 2008.

 

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4.3    Second Supplemental Indenture, dated as of April 3, 2009, among the Company, Ingersoll-Rand Global Holding Company Limited and Wells Fargo Bank, N.A., as trustee, to that certain Indenture, dated as of August 12, 2008, among the Company, Ingersoll-Rand Global Holding Company Limited and Wells Fargo Bank, N.A., as trustee    Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on April 6, 2009.
4.4    Third Supplemental Indenture, dated as of April 6, 2009, among the Company, Ingersoll-Rand Global Holding Company Limited and Wells Fargo Bank, N.A., as trustee, to that certain Indenture, dated as of August 12, 2008, among the Company, Ingersoll-Rand Global Holding Company Limited and Wells Fargo Bank, N.A., as trustee    Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on April 6, 2009.
4.5    Fourth Supplemental Indenture, dated as of June 29, 2009, among Ingersoll-Rand Global Holding Company Limited, a Bermuda exempted company, Ingersoll-Rand Company Limited, a Bermuda exempted company, Ingersoll-Rand International Holding Limited, a Bermuda exempted company, Ingersoll-Rand plc, an Irish public limited company, and Wells Fargo Bank, N.A., as Trustee, to the Indenture dated as of August 12, 2008    Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
4.6    Fifth Supplemental Indenture, dated as of June 29, 2009, among Ingersoll-Rand Company, a New Jersey corporation, Ingersoll-Rand plc, an Irish public limited company, Ingersoll-Rand International Holding Limited, a Bermuda exempted company, and The Bank of New York Mellon, as Trustee, to the Indenture dated as of August 1, 1986    Incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
4.7    Indenture, dated as of May 24. 2005, among Ingersoll-Rand Company Limited, Ingersoll-Rand Company and Wells Fargo Bank, N.A., as trustee    Incorporated by reference to Exhibit 10.2 to the Company’s 8-K (File No. 001-16831) filed with the SEC on May 27, 2005.

 

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4.8    First Supplemental Indenture, dated as of June 29, 2009, among Ingersoll-Rand Company Limited, a Bermuda exempted company, Ingersoll-Rand Company, a New Jersey corporation, Ingersoll-Rand International Holding Limited, a Bermuda exempted company, Ingersoll-Rand plc, an Irish public limited company, and Wells Fargo Bank, N.A., as Trustee, to the Indenture dated as of May 24, 2005   

Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.

4.9    Indenture, dated as of April 1, 2005, among the American Standard Inc., Trane Inc. (formerly American Standard Companies Inc.), American Standard International Inc. and The Bank of New York Trust Company, N.A., as trustee   

Incorporated by reference to Exhibit 4.1 to Trane, Inc.’s 8-K (File No. 001-11415) filed with the SEC on April 1, 2005.

4.10    Form of Ordinary Share Certificate of Ingersoll-Rand plc    Incorporated by reference to Exhibit 4.6 to the Company’s Form S-3 (File No. 333-161334) filed with the SEC on August 13, 2009.
10.1    Form of IR Stock Option Grant Agreement (February 2010)    Filed herewith.
10.2    Form of IR Restricted Share Unit Grant Agreement (February 2010)    Filed herewith.
10.3    Form of IR Performance Share Unit Grant Agreement (February 2010)    Filed herewith.
10.4    Credit Agreement dated as of May 26, 2010 among the Company, Ingersoll-Rand Global Holding Company Limited, Ingersoll-Rand Company Limited, Ingersoll-Rand International Holding Limited, J.P. Morgan Chase Bank, N.A., as Administrative Agent, Citibank, N.A., as Syndication Agent, Bank of America, N.A., BNP Paribas, Deutsche Bank Securities Inc., Goldman Sachs Bank US and Morgan Stanley MUFG Loan Partners, LLC, as Documentation Agents, and J.P. Morgan Securities Inc. and Citigroup Global Markets Inc., as joint lead arrangers and joint bookrunners; and certain lending institutions from time to time parties thereto    Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on June 2, 2010.

 

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10.5    Credit Agreement dated as of June 27, 2008 among the Company; Ingersoll-Rand Global Holding Company Limited; J.P. Morgan Chase Bank, N.A., as Administrative Agent, Citibank, N.A., as Syndication Agent, Bank of America, N.A., Deutsche Bank Securities Inc., The Bank of Tokyo Mitsubishi, Ltd., New York Branch, BNP Paribas and William Street LLC, as Documentation Agents, and J.P. Morgan Securities Inc. and Citigroup Global Markets Inc., as joint lead arrangers and joint bookrunners; and certain lending institutions from time to time parties thereto    Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on June 30, 2008.
10.6    Amendment No. 1 dated as of March 2, 2009 to the Credit Agreement dated as of June 27, 2008 among the Company; Ingersoll-Rand Global Holding Company Limited; J.P. Morgan Chase Bank, N.A., as Administrative Agent, Citibank, N.A., as Syndication Agent, Bank of America, N.A., Deutsche Bank Securities Inc., The Bank of Tokyo Mitsubishi, Ltd., New York Branch, BNP Paribas and William Street LLC, as Documentation Agents, and J.P. Morgan Securities Inc. and Citigroup Global Markets Inc., as joint lead arrangers and joint bookrunners; and certain lending institutions from time to time parties thereto    Incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on March 5, 2009.
10.7    Addendum, dated as of July 1, 2009, between Ingersoll-Rand plc and JPMorgan Chase Bank, N.A., as Administrative Agent under the Credit Agreement, to the Credit Agreement dated as of June 27, 2008    Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.8    Issuing and Paying Agency Agreement by and among Ingersoll-Rand Global Holding Company Limited, Ingersoll-Rand plc, Ingersoll-Rand Company Limited, Ingersoll-Rand International Holding Limited and JPMorgan Chase Bank, National Association, dated as of July 1, 2009    Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 6, 2009.
10.9    Amended and Restated Commercial Paper Dealer Agreement among Ingersoll-Rand Global Holding Company Limited, Ingersoll-Rand Company Limited, Ingersoll-Rand plc, Ingersoll-Rand International Holding Limited and J.P. Morgan Securities Inc., dated as of July 1, 2009    Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 6, 2009.

 

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10.10    Amended and Restated Commercial Paper Dealer Agreement among Ingersoll-Rand Global Holding Company Limited, Ingersoll-Rand Company Limited, Ingersoll-Rand plc, Ingersoll-Rand International Holding Limited and Banc of America Securities LLC, dated as of July 1, 2009    Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 6, 2009.
10.11    Amended and Restated Commercial Paper Dealer Agreement among Ingersoll-Rand Global Holding Company Limited, Ingersoll-Rand Company Limited, Ingersoll-Rand plc, Ingersoll-Rand International Holding Limited and Citigroup Global Markets Inc., dated as of July 1, 2009    Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 6, 2009.
10.12    Amended and Restated Commercial Paper Dealer Agreement among Ingersoll-Rand Global Holding Company Limited, Ingersoll-Rand Company Limited, Ingersoll-Rand plc, Ingersoll-Rand International Holding Limited and Deutsche Bank Securities Inc., dated as of July 1, 2009    Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 6, 2009.
10.13    Deferred Prosecution Agreement between Ingersoll-Rand Company Limited and the United States Department of Justice, Criminal Division, Fraud Section filed as of October 31, 2007    Incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on November 1, 2007.
10.14    Deed Poll Indemnity of Ingersoll-Rand plc, an Irish public limited company, as to the directors, secretary and officers and senior executives of Ingersoll-Rand plc and the directors and officers of Ingersoll-Rand plc’s subsidiaries    Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.15    Deed Poll Indemnity of Ingersoll-Rand Company Limited, a Bermuda company, as to the directors, secretary and officers and senior executives of Ingersoll-Rand plc and the directors and officers of Ingersoll-Rand plc’s subsidiaries    Incorporated by reference to Exhibit 10.6 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.16    Tax Sharing Agreement, dated as of July 16, 2007, by and among American Standard Companies Inc. and certain of its subsidiaries and WABCO Holdings Inc. and certain of its subsidiaries    Incorporated by reference to Exhibit 10.1 to Trane Inc.’s Form 8-K (File No. 001-11415) filed with the SEC on July 20, 2007.

 

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10.17    Indemnification and Cooperation Agreement, dated as of July 16, 2007, by and among American Standard Companies Inc. and certain of its subsidiaries and WABCO Holdings Inc. and certain of its subsidiaries    Incorporated by reference to Exhibit 10.4 to Trane Inc.’s Form 8-K (File No. 001-11415) filed with the SEC on July 20, 2007.
10.18    Ingersoll-Rand plc Incentive Stock Plan of 2007 (amended and restated as of December 1, 2010)    Filed herewith.
10.19    Ingersoll-Rand plc Incentive Stock Plan of 1998 (amended and restated as of July 1, 2009)    Incorporated by reference to Exhibit 10.8 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.20    Ingersoll-Rand Company Incentive Stock Plan of 1995 (amended and restated effective July 1, 2009)    Incorporated by reference to Exhibit 10.7 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.21    IR Executive Deferred Compensation Plan (as amended and restated effective July 1, 2009)    Incorporated by reference to Exhibit 10.9 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.22    IR Executive Deferred Compensation Plan II (as amended and restated effective July 1, 2009)    Incorporated by reference to Exhibit 10.10 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.23    IR-plc Director Deferred Compensation and Stock Award Plan (as amended and restated effective July 1, 2009)    Incorporated by reference to Exhibit 10.11 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.24    IR-plc Director Deferred Compensation and Stock Award Plan II (as amended and restated effective July 1, 2009)    Incorporated by reference to Exhibit 10.12 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.25    Ingersoll-Rand Company Supplemental Employee Savings Plan (amended and restated effective July 1, 2009)    Incorporated by reference to Exhibit 10.13 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.26    Ingersoll-Rand Company Supplemental Employee Savings Plan II (effective January 1, 2005 and amended and restated through July 1, 2009)    Incorporated by reference to Exhibit 10.14 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.

 

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10.27    Ingersoll Rand plc Incentive Stock Plan of 2007—Rules for the Grant of Options to Participants in France (as amended and restated effective July 1, 2009)    Incorporated by reference to Exhibit 10.16 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.28    Trane Inc. 2002 Omnibus Incentive Plan (restated to include all amendments through July 1, 2009)    Incorporated by reference to Exhibit 10.17 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.29    Trane Inc. Stock Incentive Plan (restated to include all amendments through July 1, 2009)    Incorporated by reference to Exhibit 10.18 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.30    Trane Inc. Deferred Compensation Plan (as amended and restated as of July 1, 2009, except where otherwise stated)    Incorporated by reference to Exhibit 10.19 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.31    Trane Inc. Supplemental Savings Plan (restated to include all amendments through July 1, 2009)    Incorporated by reference to Exhibit 10.20 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.32    Ingersoll-Rand Company Supplemental Pension Plan (Amended and Restated Effective January 1, 2005)    Incorporated by reference to Exhibit 10.28 to the Company’s Form 10-K for the fiscal year ended 2008 (File No. 001-16831) filed with the SEC on March 2, 2009.
10.33    First Amendment to the Ingersoll-Rand Company Supplemental Pension Plan, dated as of July 1, 2009    Incorporated by reference to Exhibit 10.21 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.34    Ingersoll-Rand Company Supplemental Pension Plan II (Effective January 1, 2005)    Incorporated by reference to Exhibit 10.29 to the Company’s Form 10-K for the fiscal year ended 2008 (File No. 001-16831) filed with the SEC on March 2, 2009.
10.35    First Amendment to the Ingersoll-Rand Company Supplemental Pension Plan II, dated as of July 1, 2009    Incorporated by reference to Exhibit 10.22 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.36    Amendment to the Ingersoll-Rand Company Management Incentive Unit Plan, dated as of June 5, 2009    Incorporated by reference to Exhibit 10.34 to the Company’s Form 10-Q for the period ended June 30, 2009 (File No. 001-34400) filed with the SEC on August 6, 2009.

 

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10.37    Amendment to the Ingersoll-Rand Company Management Incentive Unit Plan, dated as of July 1, 2009    Incorporated by reference to Exhibit 10.23 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.38    Amended and Restated Elected Officers Supplemental Plan, dated December 31, 2004    Incorporated by reference to Exhibit 10.24 to the Company’s Form 10-K for the fiscal year ended December 31, 2004 (File No. 001-16831) filed with the SEC on March 16, 2005.
10.39    Amendment, dated February 1, 2006, to Amended and Restated Elected Officers Supplemental Plan, dated December 31, 2004    Incorporated by reference to Exhibit 10.25 to the Company’s Form 10-K for the fiscal year ended December 31, 2005 (File No. 001-16831) filed with the SEC on March 1, 2006.
10.40    Second Amendment to the Ingersoll-Rand Company Elected Officer Supplemental Program, dated as of July 1, 2009    Incorporated by reference to Exhibit 10.24 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.41    Ingersoll-Rand Company Elected Officers Supplemental Plan II (Effective January 1, 2005 and Amended and Restated through January 1, 2009)    Incorporated by reference to Exhibit 10.36 to the Company’s Form 10-K for the fiscal year ended 2008 (File No. 001-16831) filed with the SEC on March 2, 2009.
10.42    First Amendment to the Ingersoll-Rand Company Elected Officer Supplemental Program II through July 1, 2009    Incorporated by reference to Exhibit 10.25 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.43    Second Amendment to the Ingersoll-Rand Company Elected Officer Supplemental Program II dated July 2, 2010    Filed herewith.
10.44    Herbert L. Henkel Letter, dated February 4, 2009, relating to his benefits under the Ingersoll-Rand Company Elected Officers Supplemental Plan II    Incorporated by reference to Exhibit 10.37 to the Company’s Form 10-K for the fiscal year ended 2008 (File No. 001-16831) filed with the SEC on March 2, 2009.
10.45    Amended and Restated Estate Enhancement Program, dated June 1, 1998, and the related form agreements    Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the period ended March 31, 2006 (File No. 001-16831) filed with the SEC on May 5, 2006.
10.46    First Amendment to the Amended and Restated Estate Enhancement Program, dated December 31, 2001    Incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the period ended March 31, 2006 (File No. 001-16831) filed with the SEC on May 5, 2006.

 

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10.47    Second Amendment to the Ingersoll-Rand Company Estate Enhancement Program, dated as of July 1, 2009    Incorporated by reference to Exhibit 10.26 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
10.48    Senior Executive Performance Plan    Incorporated by reference to Appendix A to Ingersoll-Rand Company’s Notice of 2000 Annual Meeting of Shareholders and Proxy Statement of Ingersoll-Rand Company dated March 7, 2000.
10.49    Executive Supplementary Retirement Agreement for selected executive officers of Ingersoll- Rand Company    Incorporated by reference to Ingersoll-Rand Company’s Form 10-K for the fiscal year ended December 31, 1993 (File No. 1-985) filed with the SEC on March 30, 1994.
10.50    Executive Supplementary Retirement Agreement for selected executive officers of Ingersoll- Rand Company    Incorporated by reference to Ingersoll-Rand Company’s Form 10-K for the fiscal year ended December 31, 1996 (File No. 1-985) filed with the SEC on March 26, 1997.
10.51    Amendment to Executive Supplementary Retirement Agreement dated December 22, 2008    Incorporated by reference to Exhibit 10.26 to the Company’s Form 10-K for the fiscal year ended 2008 (File No. 001-16831) filed with the SEC on March 2, 2009.
10.52    Description of Annual Incentive Arrangements for Chairman, President, Sector Presidents and other Staff Officers of Ingersoll-Rand Company Limited    Incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K for the fiscal year ended December 31, 2005 (File No. 001-16831) filed with the SEC on March 1, 2006.
10.53    Description of Performance Share Program for Chairman, President and Chief Executive Officer and the other Participants of Ingersoll-Rand Company Limited    Incorporated by reference to Exhibit 10.4 to the Company’s Form 10-K for the fiscal year ended December 31, 2007 (File No. 001-16831) filed with the SEC on February 29, 2008.
10.54    Form of Tier 1 Change in Control Agreement    Incorporated by reference to Exhibit 10.32 to the Company’s Form 10-Q for the period ended June 30, 2009 (File No. 001-34400) filed with the SEC on August 6, 2009.
10.55    Form of Tier 2 Change in Control Agreement    Incorporated by reference to Exhibit 10.33 to the Company’s Form 10-Q for the period ended June 30, 2009 (File No. 001-34400) filed with the SEC on August 6, 2009.

 

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10.56    Employment Agreement with Marcia J. Avedon, Senior Vice President, dated January 8, 2007    Incorporated by reference to Exhibit 10.45 to the Company’s Form 10-K for the fiscal year ended December 31, 2006 (File No. 001-16831) filed with the SEC on March 1, 2007.
10.57    Steven B. Hochhauser Offer Letter, dated June 6, 2008 (as revised on June 10, 2008)    Incorporated by reference to Exhibit 10.14 to the Company’s Form 10-Q for the period ended June 30, 2008 (File No. 001-16831) filed with the SEC on August 8, 2008.
10.58    Steven R. Shawley Offer Letter, dated June 5, 2008    Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on June 10, 2008.
10.59    Addendum to Steven R. Shawley Offer Letter, dated August 7, 2008    Incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q for the period ended June 30, 2008 (File No. 001-16831) filed with the SEC on August 8, 2008.
10.60    Didier Teirlinck Offer Letter, dated June 5, 2008    Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on June 10, 2008.
10.61    Addendum to Didier Teirlinck Offer Letter, dated July 17, 2008    Incorporated by reference to Exhibit 10.13 to the Company’s Form 10-Q for the period ended June 30, 2008 (File No. 001-16831) filed with the SEC on August 8, 2008.
10.62    Michael W. Lamach Letter, dated February 4, 2009    Incorporated by reference to Exhibit 10.43 to the Company’s Form 10-K for the fiscal year ended 2008 (File No. 001-16831) filed with the SEC on March 2, 2009.
10.63    Michael W. Lamach Letter, dated February 3, 2010    Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on February 5, 2010.
10.64    Robert Zafari Letter and Addendum, dated as of August 25, 2010    Incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q for the period ended September 30, 2010 (File No. 001-34400) filed with the SEC on November 1, 2010.
10.65    Robert L. Katz Letter    Filed herewith.

 

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12    Computations of Ratios of Earnings to Fixed Charges    Filed herewith.
21    List of Subsidiaries of Ingersoll-Rand plc    Filed herewith.
23.1    Consent of Independent Registered Public Accounting Firm    Filed herewith.
23.2    Consent of Analysis, Research & Planning Corporation    Filed herewith.
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.    Filed herewith.
31.2    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.    Filed herewith.
32    Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    Furnished herewith.
101    The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Income Statement, (ii) the Consolidated Balance Sheet, (iii) the Consolidated Statement of Equity, (iv) the Consolidated Statement of Cash Flows, and (v) Notes to Consolidated Financial Statements.    Furnished herewith.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INGERSOLL-RAND PLC

(Registrant)

 

By:   /S/ Michael W. Lamach
          Michael W. Lamach
          Chief Executive Officer

Date:

          February 22, 2011

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature    Title   Date

/S/ Michael W. Lamach

(Michael W. Lamach)

   Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)  

February 22, 2011

 

/S/ Steven R. Shawley

(Steven R. Shawley)

   Senior Vice President and Chief Financial Officer (Principal Financial Officer)  

February 22, 2011

 

/S/ Richard J. Weller

(Richard J. Weller)

   Vice President and Controller (Principal Accounting Officer)  

February 22, 2011

 

/S/ Ann C. Berzin

(Ann C. Berzin)

   Director   February 22, 2011

/S/ John Bruton

(John Bruton)

   Director   February 22, 2011

/S/ Jared L. Cohon

(Jared L. Cohon)

   Director   February 22, 2011

/S/ Gary D. Forsee

(Gary D. Forsee)

   Director   February 22, 2011

/S/ Peter C. Godsoe

(Peter C. Godsoe)

   Director   February 22, 2011

/S/ Edward E. Hagenlocker

(Edward E. Hagenlocker)

   Director  

February 22, 2011

 

/S/ Constance J. Horner

(Constance J. Horner)

   Director   February 22, 2011

 

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Signature    Title   Date

/S/ Theodore E. Martin

(Theodore E. Martin)

   Director   February 22, 2011

/S/ Orin R. Smith

(Orin R. Smith)

   Director   February 22, 2011

/S/ Richard J. Swift

(Richard J. Swift)

   Director   February 22, 2011

/S/ Tony L. White

(Tony L. White)

   Director   February 22, 2011

 

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INGERSOLL-RAND PLC

Index to Consolidated Financial Statements

 

       Page  

Report of Independent Registered Public Accounting Firm

       F-2   

Consolidated Statements of Income

       F-3   

Consolidated Balance Sheets

       F-4   

Consolidated Statements of Equity

       F-5   

Consolidated Statements of Cash Flows

       F-6   

Notes to Consolidated Financial Statements

       F-7   

Schedule II – Valuation and Qualifying Accounts

       F-63   

 

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Ingersoll-Rand plc:

In our opinion, the Consolidated Financial Statements listed in the accompanying index present fairly, in all material respects, the financial position of Ingersoll-Rand plc and its subsidiaries (the “Company”) at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related Consolidated Financial Statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 13, the Company has changed the manner in which it accounts for its defined benefit pension and other postretirement plans in 2008.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Charlotte, North Carolina

February 22, 2011

 

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Ingersoll-Rand plc

Consolidated Statements of Income

In millions, except per share amounts

 

For the years ended December 31,    2010     2009     2008  

Net revenues

   $ 14,079.1      $ 13,101.8      $ 13,045.0   

Cost of goods sold

     (10,158.5     (9,542.2     (9,547.5

Selling and administrative expenses

     (2,673.1     (2,687.3     (2,308.9

Asset impairment

     -          -          (3,710.0

Operating income (loss)

     1,247.5        872.3        (2,521.4

Interest expense

     (283.2     (301.6     (243.2

Other, net

     42.3        18.7        63.9   

Earnings (loss) before income taxes

     1,006.6        589.4        (2,700.7

Benefit (provision) for income taxes

     (224.8     (79.6     192.3   

Earnings (loss) from continuing operations

     781.8        509.8        (2,508.4

Discontinued operations, net of tax

     (116.7     (33.6     (96.4

Net earnings (loss)

     665.1        476.2        (2,604.8

Less: Net earnings attributable to noncontrolling interests

     (22.9     (24.9     (20.0

Net earnings (loss) attributable to Ingersoll-Rand plc

   $ 642.2      $ 451.3      $ (2,624.8

Amounts attributable to Ingersoll-Rand plc ordinary shareholders:

      

Continuing operations

   $ 758.9      $ 485.1      $ (2,528.3

Discontinued operations

     (116.7     (33.8     (96.5

Net earnings (loss)

   $ 642.2      $ 451.3      $ (2,624.8

Earnings (loss) per share attributable to Ingersoll-Rand plc ordinary shareholders:

      

Basic:

      

Continuing operations

   $ 2.34      $ 1.51      $ (8.41

Discontinued operations

     (0.36     (0.10     (0.32

Net earnings (loss)

   $ 1.98      $ 1.41      $ (8.73

Diluted:

      

Continuing operations

   $ 2.23      $ 1.47      $ (8.41

Discontinued operations

     (0.34     (0.10     (0.32

Net earnings (loss)

   $ 1.89      $ 1.37      $ (8.73

See accompanying notes to consolidated financial statements.

 

F-3


Table of Contents

Ingersoll-Rand plc

Consolidated Balance Sheets

In millions, except share amounts

 

December 31,    2010     2009  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 1,014.3      $ 876.7   

Accounts and notes receivable, net

     2,344.2        2,094.2   

Inventories

     1,400.8        1,176.1   

Other current assets

     610.2        635.4   

Assets held for sale

     1.2        87.1   

Total current assets

     5,370.7        4,869.5   

Property, plant and equipment, net

     1,776.5        1,888.8   

Goodwill

     6,560.2        6,606.0   

Intangible assets, net

     4,872.9        5,042.8   

Other noncurrent assets

     1,410.6        1,583.9   

Total assets

   $ 19,990.9      $ 19,991.0   

LIABILITIES AND EQUITY

    

Current liabilities:

    

Accounts payable

   $ 1,318.6      $ 1,065.3   

Accrued compensation and benefits

     561.8        489.7   

Accrued expenses and other current liabilities

     1,582.9        1,520.9   

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

     761.6        1,191.7   

Liabilities held for sale

     -          30.0   

Total current liabilities

     4,224.9        4,297.6   

Long-term debt

     2,922.3        2,904.9   

Postemployment and other benefit liabilities

     1,490.8        1,954.2   

Deferred and noncurrent income taxes

     1,675.4        1,930.3   

Other noncurrent liabilities

     1,601.7        1,698.3   

Total liabilities

     11,915.1        12,785.3   

Temporary Equity

     16.7        30.0   

Equity:

    

Ingersoll-Rand plc shareholders’ equity

    

Ordinary shares, $1 par value (328,190,352 and
320,616,056 shares issued at December 31, 2010 and
2009, respectively, and net of 25,429 and 26,074
shares owned by subsidiary at December 31, 2010 and
2009, respectively)

     328.2        320.6   

Capital in excess of par value

     2,571.7        2,347.6   

Retained earnings

     5,389.4        4,837.9   

Accumulated other comprehensive income (loss)

     (325.0     (434.3

Total Ingersoll-Rand plc shareholders’ equity

     7,964.3        7,071.8   

Noncontrolling interests

     94.8        103.9   

Total equity

     8,059.1        7,175.7   

Total liabilities and equity

   $ 19,990.9      $ 19,991.0   

See accompanying notes to consolidated financial statements.

 

F-4


Table of Contents

Ingersoll-Rand plc

Consolidated Statements of Equity

      Ingersoll-Rand plc shareholders’ equity         
In millions, except per share amounts  

Total

equity

    Common
stock
   

Capital in

excess of

par value

   

Retained

earnings

   

Accumulated other

comprehensive

income (loss)

   

Noncontrolling

Interest

         

Comprehensive

income

 
    Amount     Shares                   

Balance at December 31, 2007

  $ 8,005.4      $ 272.6        272.6      $ -        $ 7,388.8        $246.5      $ 97.5       

Net earnings (loss)

    (2,604.8     -          -          -          (2,624.8     -          20.0        $ (2,604.8

Currency translation

    (245.8     -          -          -          -          (238.8)        (7.0       (245.8

Change in value of marketable securities and cash flow hedges, net of tax of $2.7

    3.5        -          -          -          -          3.5        -            3.5   

Pension and OPEB adjustments, net of tax of $254.8

    (463.3     -          -          -          -          (463.3     -            (463.3

Total comprehensive income

                  $ (3,310.4

Effects of measurement date change pursuant to FASB Statement No. 158
Service cost, interest cost and expected return on plan assets for December 1 – December 31, 2007, net of tax of $1.4

    (2.4     -          -          -          (2.4     -          -         

Amortization of net transition obligation, prior service cost and net actuarial losses for December 1 – December 31, 2007, net of tax of $1.4

    -          -          -          -          (1.3     1.3        -         

Shares issued under incentive stock plans

    32.0        0.8        0.8        31.2        -          -          -         

Repurchase of common shares by subsidiary

    (2.0     -          -          (2.0     -          -          -         

Treasury shares issued as Trane merger consideration

    2,035.1        45.4        45.4        1,989.7        -          -          -         

Conversion of Trane options to IR options

    184.0        -          -          184.0        -          -          -         

Share-based compensation

    43.1        -          -          43.1        -          -          -         

Acquisition of noncontrolling interests

    7.7        -          -          -          -          -          7.7       

Dividends to noncontrolling interests

    (17.5     -          -          -          -          -          (17.5    

Cash dividends, declared and paid ($0.72 per share)

    (212.9     -          -          -          (212.9     -          -                     

Balance at December 31, 2008

    6,762.1        318.8        318.8        2,246.0        4,547.4        (450.8)        100.7       

Net earnings

    476.2        -          -          -          451.3        -          24.9        $ 476.2   

Currency translation

    67.3        -          -          -          -          67.3        -            67.3   

Change in value of marketable securities and cash flow hedges, net of tax of $0.8

    (0.8     -          -          -          -          (0.8)        -            (0.8

Pension and OPEB adjustments, net of tax of ($4.6)

    (50.0     -          -          -          -          (50.0     -            (50.0

Total comprehensive income

                  $ 492.7   

Shares issued under incentive stock plans

    27.9        1.8        1.8        26.1        -          -          -         

Accretion of exchangeable senior notes

    10.0        -          -          10.0        -          -          -         

Share-based compensation

    68.2        -          -          68.2        -          -          -         

Acquisition of noncontrolling interests

    (1.5     -          -          (0.1     -          -          (1.4    

Dividends to noncontrolling interests

    (20.2     -          -          -          -          -          (20.2    

Cash dividends, declared and paid ($0.50 per share)

    (160.8     -          -          -          (160.8     -          -         

Other

    (2.7     -          -          (2.6     -          -          (0.1                

Balance at December 31, 2009

    7,175.7        320.6        320.6        2,347.6        4,837.9        (434.3)        103.9       

Net earnings

    665.1        -          -          -          642.2        -          22.9        $ 665.1   

Currency translation

    1.8        -          -          -          -          1.8        -            1.8   

Change in value of marketable securities and cash flow hedges, net of tax of $0.1

    7.9        -          -          -          -          7.9        -            7.9   

Pension and OPEB adjustments, net of tax of $11.4

    99.6        -          -          -          -          99.6        -            99.6   

Total comprehensive income

                  $ 774.4   

Shares issued under incentive stock plans

    149.4        7.6        7.6        141.8        -          -          -         

Accretion of exchangeable senior notes

    13.3        -          -          13.3        -          -          -         

Share-based compensation

    73.5        -          -          73.5        -          -          -         

Acquisition/divestiture of noncontrolling interests

    (8.4     -          -          (4.5     -          -          (3.9    

Dividends to noncontrolling interests

    (20.2     -          -          -          -          -          (20.2    

Cash dividends, declared and paid ($0.28 per share)

    (90.7     -          -          -          (90.7     -          -         

Other

    (7.9     -          -          -          -          -          (7.9    

Balance at December 31, 2010

  $ 8,059.1      $ 328.2        328.2      $ 2,571.7      $ 5,389.4      $ (325.0   $ 94.8                   

See accompanying notes to consolidated financial statements.

 

F-5


Table of Contents

Ingersoll-Rand plc

Consolidated Statements of Cash Flows

In millions

 

For the years ended December 31,    2010     2009     2008  

Cash flows from operating activities:

      

Net earnings (loss)

   $ 665.1      $ 476.2      $ (2,604.8

Loss (income) from discontinued operations, net of tax

     116.7        33.6        96.4   

Adjustments to arrive at net cash provided by (used in) operating activities:

      

Asset impairment charge

     -          -          3,710.0   

Depreciation and amortization

     437.1        421.8        449.0   

(Gain)/loss on sale of property, plant and equipment

     4.6        2.4        (0.2

Equity earnings, net of dividends

     0.8        3.2        9.9   

Stock settled share-based compensation

     73.5        68.3        42.3   

Deferred income taxes

     81.0        (38.8     (331.0

Other items

     101.2        161.5        (35.8

Changes in other assets and liabilities

      

(Increase) decrease in:

      

Accounts and notes receivable

     (240.3     396.3        241.6   

Inventories

     (219.0     420.6        118.7   

Other current and noncurrent assets