IR-10Q-Q3-9/30/2011
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_______________________________
FORM 10-Q
_______________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 001-34400
_______________________________ 
INGERSOLL-RAND PUBLIC LIMITED COMPANY
(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, including zip code)
+(353) (0) 18707400
(Registrant’s telephone number, including area code)
_______________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” "accelerated filer," and "smaller reporting company," in Rule 12b-2 of the Exchange Act.

Large accelerated filer
x
 
Accelerated filer
¨
 
 
 
 
 
Non-accelerated filer
¨
 
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     YES  ¨    NO  x
The number of ordinary shares outstanding of Ingersoll-Rand plc as of October 14, 2011 was 312,176,652.


Table of Contents

INGERSOLL-RAND PLC
FORM 10-Q
INDEX

 
 
 
 
 
 
Item 1 -
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2 -
 
 
 
Item 3 -
 
 
 
Item 4 -
 
 
 
 
 
Item 1 -
 
 
 
Item 1A -
 
 
 
Item 2 -
 
 
 
Item 6 -
 
 


Table of Contents

PART I-FINANCIAL INFORMATION

Item 1.
Financial Statements

INGERSOLL-RAND PLC
CONDENSED CONSOLIDATED INCOME STATEMENT
(Unaudited)

 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
In millions, except per share amounts
2011
 
2010
 
2011
 
2010
Net revenues
$
3,928.5

 
$
3,730.3

 
$
11,328.2

 
$
10,367.4

Cost of goods sold
(2,771.8
)
 
(2,643.8
)
 
(8,032.6
)
 
(7,436.1
)
Selling and administrative expenses
(712.2
)
 
(675.8
)
 
(2,125.2
)
 
(1,988.6
)
Loss on sale/asset impairment
(264.8
)
 

 
(651.6
)
 

Operating income
179.7

 
410.7

 
518.8

 
942.7

Interest expense
(69.7
)
 
(70.2
)
 
(209.7
)
 
(212.3
)
Other, net
21.3

 
8.7

 
28.6

 
22.3

Earnings before income taxes
131.3

 
349.2

 
337.7

 
752.7

Provision for income taxes
(29.2
)
 
(72.1
)
 
(168.4
)
 
(189.4
)
Earnings from continuing operations
102.1

 
277.1

 
169.3

 
563.3

Discontinued operations, net of tax
(8.6
)
 
(39.5
)
 
(48.1
)
 
(117.7
)
Net earnings
93.5

 
237.6

 
121.2

 
445.6

Less: Net earnings attributable to noncontrolling interests
(7.3
)
 
(5.4
)
 
(20.3
)
 
(15.5
)
Net earnings attributable to Ingersoll-Rand plc
$
86.2

 
$
232.2

 
$
100.9

 
$
430.1

Amounts attributable to Ingersoll-Rand plc ordinary shareholders:
 
 
 
 
 
 
 
Continuing operations
$
94.8

 
$
271.7

 
$
149.0

 
$
547.7

Discontinued operations
(8.6
)
 
(39.5
)
 
(48.1
)
 
(117.6
)
Net earnings
$
86.2

 
$
232.2

 
$
100.9

 
$
430.1

Earnings (loss) per share attributable to Ingersoll-Rand plc ordinary shareholders:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
0.29

 
$
0.84

 
$
0.45

 
$
1.69

Discontinued operations
(0.03
)
 
(0.12
)
 
(0.15
)
 
(0.36
)
Net earnings
$
0.26

 
$
0.72

 
$
0.30

 
$
1.33

Diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.28

 
$
0.80

 
$
0.43

 
$
1.62

Discontinued operations
(0.03
)
 
(0.12
)
 
(0.14
)
 
(0.35
)
Net earnings
$
0.25

 
$
0.68

 
$
0.29

 
$
1.27

Weighted-average shares outstanding
 
 
 
 
 
 
 
Basic
327.7

 
324.7

 
331.0

 
323.7

Diluted
340.2

 
339.0

 
347.1

 
338.2

Dividends declared per ordinary share
$
0.12

 
$
0.07

 
$
0.31

 
$
0.21

See accompanying notes to condensed consolidated financial statements.



1

Table of Contents

INGERSOLL-RAND PLC
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
 
In millions
September 30,
2011
 
December 31,
2010
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,403.8

 
$
1,014.3

Accounts and notes receivable, net
2,366.1

 
2,237.6

Inventories
1,512.9

 
1,289.0

Other current assets
608.8

 
603.7

Assets held for sale
44.5

 
1,136.0

Total current assets
5,936.1

 
6,280.6

Property, plant and equipment, net
1,601.2

 
1,669.0

Goodwill
6,159.8

 
6,152.8

Intangible assets, net
4,386.3

 
4,483.4

Other noncurrent assets
1,419.0

 
1,405.1

Total assets
$
19,502.4

 
$
19,990.9

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,345.0

 
$
1,261.1

Accrued compensation and benefits
525.1

 
545.4

Accrued expenses and other current liabilities
1,659.2

 
1,550.7

Short-term borrowings and current maturities of long-term debt
760.0

 
761.6

Liabilities held for sale
44.0

 
167.1

Total current liabilities
4,333.3

 
4,285.9

Long-term debt
2,881.0

 
2,922.3

Postemployment and other benefit liabilities
1,416.2

 
1,439.1

Deferred and noncurrent income taxes
1,657.8

 
1,675.2

Other noncurrent liabilities
1,528.7

 
1,592.6

Total liabilities
11,817.0

 
11,915.1

Temporary equity
6.7

 
16.7

Equity:
 
 
 
Ingersoll-Rand plc shareholders’ equity:
 
 
 
Ordinary shares
316.0

 
328.2

Capital in excess of par value
2,154.7

 
2,571.7

Retained earnings
5,388.8

 
5,389.4

Accumulated other comprehensive income (loss)
(270.2
)
 
(325.0
)
Total Ingersoll-Rand plc shareholders’ equity
7,589.3

 
7,964.3

Noncontrolling interests
89.4

 
94.8

Total equity
7,678.7

 
8,059.1

Total liabilities and equity
$
19,502.4

 
$
19,990.9

See accompanying notes to condensed consolidated financial statements.


2

Table of Contents

INGERSOLL-RAND PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 
 
Nine months ended
 
September 30,
In millions
2011
 
2010
Cash flows from operating activities:
 
 
 
Net earnings
$
121.2

 
$
445.6

(Income) loss from discontinued operations, net of tax
48.1

 
117.7

Adjustments to arrive at net cash provided by (used in) operating activities:
 
 
 
Loss on sale/asset impairment
651.6

 

Depreciation and amortization
302.1

 
329.4

Stock settled share-based compensation
31.0

 
46.5

(Gain) loss on sale of property, plant and equipment
(24.2
)
 

Changes in other assets and liabilities, net
(428.8
)
 
(437.1
)
Other, net
62.0

 
80.4

Net cash provided by (used in) continuing operating activities
763.0

 
582.5

Net cash provided by (used in) discontinued operating activities
(22.2
)
 
(65.6
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(129.1
)
 
(117.3
)
Acquisition of businesses, net of cash acquired
(1.8
)
 
(5.5
)
Proceeds from sale of property, plant and equipment
49.3

 
12.2

Proceeds from business dispositions, net of cash sold
336.7

 

Net cash provided by (used in) continuing investing activities
255.1

 
(110.6
)
Net cash provided by (used in) discontinued investing activities
44.4

 
0.4

Cash flows from financing activities:
 
 
 
Short-term borrowings, net
25.5

 
23.9

Proceeds from long-term debt
2.1

 
51.6

Payments of long-term debt
(80.1
)
 
(523.1
)
Net proceeds (repayments) in debt
(52.5
)
 
(447.6
)
Debt issuance costs
(2.4
)
 
(5.5
)
Dividends paid to ordinary shareholders
(101.5
)
 
(67.7
)
Dividends paid to noncontrolling interests
(22.9
)
 
(9.4
)
Acquisition of noncontrolling interest
(1.3
)
 
(8.0
)
Proceeds from shares issued under incentive plans
107.4

 
47.5

Repurchase of ordinary shares
(575.6
)
 

Other, net
(1.5
)
 

Net cash provided by (used in) continuing financing activities
(650.3
)
 
(490.7
)
Effect of exchange rate changes on cash and cash equivalents
(0.5
)
 
18.0

Net increase (decrease) in cash and cash equivalents
389.5

 
(66.0
)
Cash and cash equivalents - beginning of period
1,014.3

 
876.7

Cash and cash equivalents - end of period
$
1,403.8

 
$
810.7

See accompanying notes to condensed consolidated financial statements.


3

Table of Contents

INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – Description of Company
Ingersoll-Rand plc (IR-Ireland), an Irish public limited company, and its consolidated subsidiaries (the Company) is a diversified, global company that provides products, services and solutions to enhance the quality and comfort of air in homes and buildings, transport and protect food and perishables, secure homes and commercial properties, and increase industrial productivity and efficiency. The Company’s business segments consist of Climate Solutions, Residential Solutions, Industrial Technologies and Security Technologies, each with strong brands and leading positions within their respective markets. The Company generates revenue and cash primarily through the design, manufacture, sale and service of a diverse portfolio of industrial and commercial products that include well-recognized, premium brand names such as Club Car®, Ingersoll-Rand®, Schlage®, Thermo King® and Trane®.
On July 1, 2009, Ingersoll-Rand Company Limited (IR-Limited), a Bermuda company, completed a reorganization to change the jurisdiction of incorporation of the parent company of Ingersoll Rand from Bermuda to Ireland (the Ireland Reorganization). As a result, IR-Ireland replaced IR-Limited as the ultimate parent company effective July 1, 2009. 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. 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. Unless otherwise indicated, all references to the Company prior to July 1, 2009 relate to IR-Limited.
The Ireland Reorganization did not have a material impact on the Company’s financial results. IR-Ireland continues to be subject to United States Securities and Exchange Commission (SEC) reporting requirements and prepare financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Shares of IR-Ireland continue to trade on the New York Stock Exchange under the symbol “IR”, the same symbol under which the IR-Limited Class A common shares previously traded.
Note 2 – Basis of Presentation
The accompanying condensed consolidated financial statements reflect the consolidated operations of the Company and have been prepared in accordance with GAAP as defined by the Financial Accounting Standards Board (FASB) within the FASB Accounting Standards Codification (FASB ASC). In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to present fairly the consolidated unaudited results for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the IR-Ireland Annual Report on Form 10-K for the year ended December 31, 2010.
Certain reclassifications of amounts reported in prior years have been made to conform to the 2011 classification. The Company reclassified its earnings from equity investments from Other, net to Cost of goods sold, as the related investments have been deemed to be integral to the Company’s operations. This reclassification had a $2.5 million and $8.8 million impact, respectively, on the Condensed Consolidated Income Statement for the three and nine months ended September 30, 2010. The Company also made certain reclassifications of research and development costs and information technology costs within Operating income. These reclassifications resulted in a net $5.1 million and $12.8 million decrease, respectively, to Cost of goods sold with a corresponding increase to Selling and administrative expenses for the three and nine months ended September 30, 2010.
On September 30, 2011, the Company completed a transaction to sell its Hussmann refrigerated display case business to a newly-formed affiliate (Hussmann Parent) of private equity firm Clayton Dubilier & Rice, LLC (CD&R). This transaction included the equipment business and certain of the service branches in the U.S. and Canada, and the equipment, service and installation businesses in Mexico, Chile, Australia, New Zealand, and Japan (Hussmann Business). The final transaction allowed Hussmann Parent the option to acquire the remaining North American Hussmann service and installation branches (Hussmann Branches). Hussmann Parent exercised its option on October 13, 2011. The Hussmann Business and Branches, which are reported as part of the Climate Solutions segment, manufacture, market, distribute, install, and service refrigerated display merchandising equipment, refrigeration systems, over the counter parts, and other commercial and industrial refrigeration applications.
The Hussmann Business divestiture, which was originally announced on April 21, 2011 and anticipated to be a sale of 100% of the Company's interest in the Hussmann Business, with no retained ongoing interest, met the criteria for classification as held for sale and for treatment as discontinued operations in accordance with GAAP during the first and second quarters of 2011. Therefore, the Company reported the Hussmann Business as a discontinued operation and classified the assets and liabilities as held for sale in those periods.  During the third quarter of 2011, the Company negotiated the final terms of a transaction to sell the Hussmann

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Table of Contents
INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Business and Branches to CD&R in exchange for $370 million in cash, subject to purchase price adjustments, and common stock of Hussmann Parent, such that following the sale, CD&R would own cumulative convertible participating preferred stock of Hussmann Parent, initially representing 60% of the outstanding capital stock (on an as-converted basis) of Hussmann Parent, and the Company would own all of the common stock, representing the remaining 40% of the outstanding capital stock (on an as-converted basis) of Hussmann Parent.  At September 30, 2011, the Hussmann Branches met the held for sale criteria outlined in GAAP.  However, the Hussmann Business and Branches did not qualify for treatment as a discontinued operation as the Company's equity interest in the Hussmann Parent represents significant continuing involvement.  Therefore, the results of the Hussmann Business and Branches have been presented as continuing operations beginning with this third quarter 2011 Form 10-Q for all periods presented.
On December 30, 2010, the Company completed the divestiture of its gas microturbine generator business, which was sold under the Energy Systems brand, to Flex Energy, Inc. On October 4, 2010, the Company completed the divestiture of its European refrigerated display case business, which was sold under the KOXKA brand, to an affiliate of American Industrial Acquisition Corporation (AIAC Group). As a result of these sales, the Company has reported these businesses as discontinued operations for all periods presented.
Note 3Inventories
Depending on the business, U.S. inventories are stated at the lower of cost or market using the last-in, first-out (LIFO) method or the lower of cost or market using the first-in, first-out (FIFO) method. Non-U.S. inventories are primarily stated at the lower of cost or market using the FIFO method.
The major classes of inventory are as follows:
In millions
September 30,
2011
 
December 31,
2010
Raw materials
$
424.7

 
$
357.3

Work-in-process
222.8

 
215.3

Finished goods
960.3

 
802.3

 
1,607.8

 
1,374.9

LIFO reserve
(94.9
)
 
(85.9
)
Total
$
1,512.9

 
$
1,289.0


Note 4Goodwill
The changes in the carrying amount of Goodwill for the nine months ended September 30, 2011 are as follows:  
In millions
Climate
Solutions
 
Residential
Solutions
 
Industrial
Technologies
 
Security
Technologies
 
Total
Beginning balance (gross)
$
5,381.8

 
$
2,326.4

 
$
368.1

 
$
916.5

 
$
8,992.8

Acquisitions and adjustments *
(8.7
)
 
(5.7
)
 
(0.3
)
 
0.3

 
(14.4
)
Currency translation
13.6

 

 
1.7

 
6.1

 
21.4

Ending balance (gross)
5,386.7

 
2,320.7

 
369.5

 
922.9

 
8,999.8

Accumulated impairment **
(839.8
)
 
(1,656.2
)
 

 
(344.0
)
 
(2,840.0
)
Goodwill (net)
$
4,546.9

 
$
664.5

 
$
369.5

 
$
578.9

 
$
6,159.8

* During 2011 the Company corrected certain purchase accounting errors within the Climate Solutions and Residential Solutions sectors.
** Accumulated impairment relates to a charge of $2,840.0 million recorded in the fourth quarter of 2008 as a result of the Company’s annual impairment testing.
As a result of the planned divestiture of Hussmann, the Company was required to test Goodwill within the Climate Solutions segment for impairment in the first quarter of 2011, and no impairment charge was required.


5

Table of Contents
INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Based on year to date operational results, and management turnover within the Residential HVAC reporting unit, the Company updated its fair value assessment of the reporting unit in the third quarter of 2011 and concluded that the fair value of the reporting unit continued to exceed its carrying amount.
Note 5 – Intangible Assets
The following table sets forth the gross amount of the Company’s intangible assets and related accumulated amortization:
In millions
September 30,
2011
 
December 31,
2010
Completed technologies/patents
$
207.9

 
$
199.4

Customer relationships
1,974.2

 
1,967.2

Trademarks (finite-lived)
100.5

 
98.6

Other
71.0

 
178.2

Total gross finite-lived intangible assets
2,353.6

 
2,443.4

Accumulated amortization
(578.3
)
 
(571.0
)
Total net finite-lived intangible assets
1,775.3

 
1,872.4

Trademarks (indefinite-lived)
2,611.0

 
2,611.0

Total
$
4,386.3

 
$
4,483.4

Intangible asset amortization expense was $36.2 million and $38.3 million for the three months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, intangible asset amortization expense was $110.0 million and $115.5 million, respectively. Estimated amortization expense on existing intangible assets is approximately $140 million for each of the next five fiscal years.
Note 6 – Debt and Credit Facilities
Short-term borrowings and current maturities of long-term debt consisted of the following:
In millions
September 30,
2011
 
December 31,
2010
Debentures with put feature
$
343.6

 
$
343.6

Exchangeable Senior Notes
338.0

 
328.3

Current maturities of long-term debt
10.7

 
13.3

Other short-term borrowings
67.7

 
76.4

Total
$
760.0

 
$
761.6

Commercial Paper Program
The Company uses borrowings under its commercial paper program for general corporate purposes. The Company had no amounts outstanding as of September 30, 2011 and December 31, 2010.
Debentures with Put Feature
At September 30, 2011 and December 31, 2010, the Company 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, the Company is obligated to repay in whole or in part, at the holder’s option, the outstanding principal amount (plus accrued and unpaid interest) of the debentures held by the holder. If these options are not exercised, the final maturity dates would range between 2027 and 2028.
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.

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Table of Contents
INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Exchangeable Senior Notes Due 2012
In April 2009, the Company issued $345.0 million of 4.5% Exchangeable Senior Notes (the Notes) through its wholly-owned subsidiary, Ingersoll-Rand Global Holding Company Limited (IR-Global). The Notes are fully and unconditionally guaranteed by each of IR-Ireland, IR-Limited and Ingersoll-Rand International Holding Limited (IR-International). 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, the Company’s ordinary shares or a combination thereof at the option of the Company. The Notes are subject to certain customary covenants, however, none of these covenants are considered restrictive to the Company’s operations.
The Company accounts for the Notes in accordance with GAAP, which required the Company to allocate the proceeds between debt and equity at the issuance date, in a manner that reflects the Company’s nonconvertible debt borrowing rate. The Company allocated approximately $305 million of the gross proceeds to debt, with the remaining discount of approximately $40 million (approximately $39 million after allocated fees) recorded within Equity. Additionally, the Company is amortizing the discount into earnings over a three-year period.
During the third quarter of 2011, the sales price condition set forth in the indenture agreement for the Notes continued to be satisfied. As a result, the Notes may be exchangeable at the holders’ option during the fourth quarter 2011. Therefore, the Company 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.
Long-term debt excluding current maturities consisted of the following:
In millions
September 30,
2011
 
December 31,
2010
6.000% Senior notes due 2013
$
599.9

 
$
599.9

9.500% Senior notes due 2014
655.0

 
655.0

5.50% Senior notes due 2015
199.8

 
199.7

4.75% Senior notes due 2015
299.5

 
299.4

6.875% Senior notes due 2018
749.3

 
749.2

9.00% Debentures due 2021
125.0

 
125.0

7.20% Debentures due 2013-2025
97.5

 
105.0

6.48% Debentures due 2025
149.7

 
149.7

Other loans and notes
5.3

 
39.4

Total
$
2,881.0

 
$
2,922.3

The fair value of the Company’s debt was $4,156.5 million and $4,131.8 million at September 30, 2011 and December 31, 2010, respectively. The fair value of debt was primarily based upon quoted market values.
Credit Facilities
On May 20, 2011, the Company entered into a 4-year, $1.0 billion revolving credit facility through its wholly-owned subsidiary, IR-Global. This new facility replaced the Company's pre-existing $1.0 billion, 3-year revolving credit facility that was scheduled to mature in June 2011.
At September 30, 2011, the Company’s committed revolving credit facilities totaled $2.0 billion, of which $1.0 billion expires in May 2013 and $1.0 billion expires in May 2015. These lines are unused and provide support for the Company’s commercial paper program as well as for other general corporate purposes.


7

Table of Contents
INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Note 7 – Financial Instruments
In the normal course of business, the Company uses various financial instruments, including derivative instruments, to manage the risks associated with interest rate, currency rate, commodity price and share-based compensation exposures. These financial instruments are not used for trading or speculative purposes.
On the date a derivative contract is entered into, the Company designates the derivative instrument either as a cash flow hedge of a forecasted transaction, a cash flow hedge of a recognized asset or liability, or as an undesignated derivative. The Company formally documents its hedge relationships, including identification of the derivative instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivative instruments that are designated as hedges to specific assets, liabilities or forecasted transactions.
The fair market value of derivative instruments is determined through market-based valuations and may not be representative of the actual gains or losses that will be recorded when these instruments mature due to future fluctuations in the markets in which they are traded.
The Company also assesses both at the inception and at least quarterly thereafter, whether the derivatives used in cash flow hedging transactions are highly effective in offsetting the changes in the cash flows of the hedged item. To the extent the derivative is deemed to be a highly effective hedge, the fair market value changes of the instrument are recorded to Accumulated other comprehensive income (AOCI).
Any ineffective portion of a derivative instrument’s change in fair value is recorded in the income statement in the period of change. If the hedging relationship ceases to be highly effective, or it becomes probable that a forecasted transaction is no longer expected to occur, the hedging relationship will be undesignated and any future gains and losses on the derivative instrument would be recorded in the income statement.
Currency and Commodity Hedging Instruments
The notional amounts of the Company’s currency derivatives were $1,359.0 million and $1,280.4 million at September 30, 2011 and December 31, 2010, respectively. At September 30, 2011 and December 31, 2010, a gain of $3.1 million and $0.3 million, net of tax, respectively, was included in AOCI related to the fair value of the Company’s currency derivatives designated as accounting hedges. The amount expected to be reclassified into earnings over the next twelve months is a gain of $3.1 million. The actual amounts that will be reclassified to earnings may vary from this amount as a result of changes in market conditions. Gains and losses associated with the Company’s currency derivatives not designated as hedges are recorded in earnings as changes in fair value occur. At September 30, 2011, the maximum term of the Company’s currency derivatives was approximately 12 months.
The Company had no commodity derivatives outstanding as of September 30, 2011 and December 31, 2010. During 2008, the Company discontinued the use of hedge accounting for its commodity hedges at which time the Company recognized into the income statement all deferred gains and losses related to its existing commodity hedges at the time of discontinuance. All further gains and losses associated with the Company’s commodity derivatives were recorded in earnings as changes in fair value occurred.
Other Derivative Instruments
During the third quarter of 2008, the Company entered into interest rate locks for the forecasted issuance of approximately $1.4 billion of Senior Notes due in 2013 and 2018. These interest rate locks met the criteria to be accounted for as cash flow hedges of a forecasted transaction. Consequently, the changes in fair value of the interest rate locks were deferred in AOCI. No further gain or loss will be deferred in AOCI related to these interest rate locks as the contracts were effectively terminated upon issuance of the underlying debt. However, the amount of AOCI associated with these interest rate locks at the time of termination will be recognized into Interest expense over the term of the notes. At September 30, 2011 and December 31, 2010, $9.4 million and $10.8 million, respectively, of deferred losses remained in AOCI related to these interest rate locks. The amount expected to be reclassified into Interest expense over the next twelve months is $1.8 million.
In March 2005, the Company entered into interest rate locks for the forecasted issuance of $300 million of Senior Notes due 2015. These interest rate locks met the criteria to be accounted for as cash flow hedges of a forecasted transaction. Consequently, the changes in fair value of the interest rate locks were deferred in AOCI. No further gain or loss will be deferred in AOCI related to these interest rate locks as the contracts were effectively terminated upon issuance of the underlying debt. However, the amount of AOCI associated with these interest rate locks at the time of termination will be recognized into Interest expense over the term of the notes. At September 30, 2011 and December 31, 2010, $4.6 million and $5.4 million, respectively, of deferred losses remained

8

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


in AOCI related to these interest rate locks. The amount expected to be reclassified into Interest expense over the next twelve months is $1.2 million.
The following table presents the fair values of derivative instruments included within the Condensed Consolidated Balance Sheet as of September 30, 2011 and December 31, 2010:
 
Asset derivatives
 
Liability derivatives
In millions
September 30,
2011
 
December 31,
2010
 
September 30,
2011
 
December 31,
2010
Derivatives designated as hedges:

 

 

 

Currency derivatives
$
4.3

 
$
1.9

 
$
0.1

 
$
1.7

Derivatives not designated as hedges:

 

 

 

Currency derivatives
4.9

 
19.6

 
43.6

 
0.9

Total derivatives
$
9.2

 
$
21.5

 
$
43.7

 
$
2.6

Asset and liability derivatives included in the table above are recorded within Other current assets and Accrued expenses and other current liabilities, respectively, on the Condensed Consolidated Balance Sheet.
The following table represents the amounts associated with derivatives designated as hedges affecting the Condensed Consolidated Income Statement and AOCI for the three months ended September 30:
  
Amount of gain (loss)
deferred in AOCI
 
Location of gain
(loss) reclassified from
AOCI and recognized
into earnings
 
Amount of gain (loss)
reclassified from AOCI and
recognized into earnings
In millions
2011
 
2010
 
 
2011
 
2010
Currency derivatives
$
5.7

 
$
(0.4
)
 
Other, net
 
$
0.2

 
$
0.8

Interest rate locks

 

 
Interest expense
 
(0.8
)
 
(0.7
)
Total
$
5.7

 
$
(0.4
)
 

 
$
(0.6
)
 
$
0.1

The following table represents the amounts associated with derivatives not designated as hedges affecting the Condensed Consolidated Income Statement for the three months ended September 30:
  
Location of gain (loss)         
recognized in earnings
 
Amount of gain (loss)         
recognized in earnings
In millions
2011
 
2010
Currency derivatives
Other, net
 
$
(38.4
)
 
$
22.7

Total

 
$
(38.4
)
 
$
22.7

The gains and losses associated with the Company’s undesignated currency derivatives are materially offset in the Condensed Consolidated Income Statement by changes in the fair value of the underlying transactions.
The following table represents the amounts associated with derivatives designated as hedges affecting the Condensed Consolidated Income Statement and AOCI for the nine months ended September 30:
  
Amount of gain (loss)
deferred in AOCI
 
Location of gain
(loss) reclassified from
AOCI and recognized
into earnings
 
Amount of gain (loss)
reclassified from AOCI and
recognized into earnings
In millions
2011
 
2010
 
2011
 
2010
Currency derivatives
$
2.9

 
$
2.3

 
Other, net
 
$
(1.1
)
 
$
(0.8
)
Interest rate locks

 

 
Interest expense
 
(2.2
)
 
(2.1
)
Total
$
2.9

 
$
2.3

 

 
$
(3.3
)
 
$
(2.9
)

9

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The following table represents the amounts associated with derivatives not designated as hedges affecting the Condensed Consolidated Income Statement for the nine months ended September 30:
  
Location of gain (loss)         
recognized in earnings
 
Amount of gain (loss)         
recognized in earnings
In millions
2011
 
2010
Currency derivatives
Other, net
 
$
(18.0
)
 
$
34.0

Total

 
$
(18.0
)
 
$
34.0

The gains and losses associated with the Company’s undesignated currency derivatives are materially offset in the Condensed Consolidated Income Statement by changes in the fair value of the underlying transactions.
Concentration of Credit Risk
The counterparties to the Company’s forward contracts consist of a number of investment grade major international financial institutions. The Company could be exposed to losses in the event of nonperformance by the counterparties. However, the credit ratings and the concentration of risk in these financial institutions are monitored on a continuous basis and present no significant credit risk to the Company.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable, short-term borrowings and accounts payable are a reasonable estimate of their fair value due to the short-term nature of these instruments.
Note 8 – Pensions and Postretirement Benefits Other than Pensions
The Company sponsors several U.S. defined benefit and defined contribution pension plans covering substantially all of our U.S. employees. Additionally, the Company has many non-U.S. defined benefit and defined contribution pension plans covering non-U.S. locations. Postretirement benefits other than pensions provide healthcare benefits, and in some instances, life insurance benefits for certain eligible employees.
Pension Plans
The Company has noncontributory defined benefit pension plans covering substantially all U.S. employees. Most of the plans for non-collectively bargained U.S. employees provide benefits on an average pay formula while most plans for collectively bargained U.S. employees provide benefits on a flat benefit formula. Effective January 1, 2010, non-collectively bargained U.S. employees of Trane began to participate in the Company’s pension plan for U.S. non-collectively bargained employees. In addition, the Company maintains pension plans for certain non-U.S. employees in other countries. These plans generally provide benefits based on earnings and years of service. The Company also maintains additional other supplemental benefit plans for officers and other key employees.

10

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


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

Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Service cost
$
23.1

 
$
14.1

 
$
71.4

 
$
65.4

Interest cost
46.3

 
48.3

 
141.8

 
145.6

Expected return on plan assets
(55.8
)
 
(49.0
)
 
(167.8
)
 
(147.1
)
Net amortization of:

 

 

 

Prior service costs
1.5

 
2.2

 
4.3

 
6.2

Plan net actuarial losses
12.0

 
13.5

 
39.4

 
41.5

Net periodic pension benefit cost
27.1

 
29.1

 
89.1

 
111.6

Net curtailment and settlement (gains) losses
1.6

 
(0.2
)
 
7.4

 
6.0

Net periodic pension benefit cost after net curtailment and  settlement (gains)  losses
$
28.7

 
$
28.9

 
$
96.5

 
$
117.6

Amounts recorded in continuing operations
$
28.1

 
$
27.5

 
$
95.5

 
$
112.6

Amounts recorded in discontinued operations
0.6

 
1.4

 
1.0

 
5.0

Total
$
28.7

 
$
28.9

 
$
96.5

 
$
117.6

The Company made required and discretionary employer contributions of $45.3 million and $286.1 million to its defined benefit pension plans during the nine months ended September 30, 2011 and 2010, respectively.
The curtailment and settlement losses in 2011 and 2010 are associated with lump sum distributions under supplemental benefit plans for officers and other key employees.
Included in the Hussmann divestiture, as discussed in Note 15, are the Hussmann U.S. and non-U.S. pension plans approximating $39.7 million of net pension benefit obligations and $95.3 million of related accumulated other comprehensive loss.
Postretirement Benefits Other Than Pensions
The Company sponsors several postretirement plans that provide for healthcare benefits, and in some instances, life insurance benefits that cover certain eligible employees. These plans are unfunded and have no plan assets, but are instead funded by the Company on a pay-as-you-go basis in the form of direct benefit payments. Generally, postretirement health benefits are contributory with contributions adjusted annually. Life insurance plans for retirees are primarily noncontributory.
In March 2010, the Patient Protection and Affordable Care Act and the Healthcare and Education Reform Reconciliation Bill of 2010 (collectively, the Healthcare Reform Legislation) was signed into law. The Healthcare Reform Legislation contains provisions which could impact our accounting for retiree medical benefits in future periods. The retiree medical plans currently 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 allowable under the Healthcare Reform Legislation resulted in an actuarial gain which decreased the December 31, 2010 retiree medical plan liability, as well as the net actuarial losses in other comprehensive income by $41.1 million. There were no other changes to our liabilities as a result of the Healthcare Reform Legislation; however, the Healthcare Reform Legislation will continue to be monitored for provisions which potentially could impact our accounting for retiree medical benefits in future periods.

11

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


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

Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Service cost
$
2.2

 
$
1.8

 
$
6.4

 
$
6.7

Interest cost
10.6

 
10.1

 
31.8

 
35.9

Net amortization of:
 
 
 
 
 
 
 
Prior service gains
(0.9
)
 
(0.7
)
 
(2.6
)
 
(2.5
)
Net actuarial losses
0.7

 

 
2.2

 
8.3

Net periodic postretirement benefit cost
$
12.6

 
$
11.2

 
$
37.8

 
$
48.4

Amounts recorded in continuing operations
$
8.5

 
$
7.3

 
$
25.3

 
$
29.5

Amounts recorded in discontinued operations
4.1

 
3.9

 
12.5

 
18.9

Total
$
12.6

 
$
11.2

 
$
37.8

 
$
48.4

Included in the Hussmann divestiture, as discussed in Note 15, are approximately $12.0 million of U.S. and non-U.S. net postretirement benefit obligations and $1.0 million of related accumulated other comprehensive loss.

Note 9 – Fair Value Measurement
FASB ASC 820, “Fair Value Measurements and Disclosures” (ASC 820) establishes a framework for measuring fair value that is based on the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy outlined in ASC 820 is comprised of three levels that are described below:
Level 1 – Inputs based on quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3 – Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability based on the best information available under the circumstances. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

12

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Assets and liabilities measured at fair value on a recurring basis at September 30, 2011 are as follows:
 
 
Fair value measurements
 
Total
fair value
In millions
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,403.8

 
$

 
$

 
$
1,403.8

Marketable securities
10.6

 

 

 
10.6

Derivative instruments

 
9.2

 

 
9.2

Benefit trust assets
15.3

 
153.0

 

 
168.3

Total
$
1,429.7

 
$
162.2

 
$

 
$
1,591.9

Liabilities:

 

 

 

Derivative instruments
$

 
$
43.7

 
$

 
$
43.7

Benefit trust liabilities
15.8

 
154.1

 

 
169.9

Total
$
15.8

 
$
197.8

 
$

 
$
213.6

Assets and liabilities measured at fair value on a recurring basis at December 31, 2010 are as follows:
 
Fair value measurements
 
Total
fair value
In millions
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,014.3

 
$

 
$

 
$
1,014.3

Marketable securities
15.5

 

 

 
15.5

Derivative instruments

 
21.5

 

 
21.5

Benefit trust assets
17.3

 
155.2

 

 
172.5

Total
$
1,047.1

 
$
176.7

 
$

 
$
1,223.8

Liabilities:

 

 

 

Derivative instruments
$

 
$
2.6

 
$

 
$
2.6

Benefit trust liabilities
17.4

 
178.4

 

 
195.8

Total
$
17.4

 
$
181.0

 
$

 
$
198.4

ASC 820 defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company determines the fair value of its financial assets and liabilities using the following methodologies:
Cash and cash equivalents – These amounts include cash on hand, demand deposits and all highly liquid investments with original maturities at the time of purchase of three months or less and are held in U.S and non-U.S. currencies.
Marketable securities – These securities include investments in publicly traded stock of non-U.S. companies held by non-U.S. subsidiaries of the Company. The fair value is obtained for the securities based on observable market prices quoted on public stock exchanges.
Derivative instruments – These instruments include forward contracts related to non-U.S. currencies. The fair value of the derivative instruments are determined based on a pricing model that uses inputs from actively quoted currency markets that are readily accessible and observable.
Benefit trust assets – These assets include money market funds and insurance contracts that are the underlying for the benefit assets. The fair value of the assets is based on observable market prices quoted in a readily accessible and observable market.



13

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Benefit trust liabilities – These liabilities include deferred compensation and executive death benefits. The fair value is based on the underlying investment portfolio of the deferred compensation and the specific benefits guaranteed in a death benefit contract with each executive.
These methodologies used by the Company to determine the fair value of its financial assets and liabilities at September 30, 2011 are the same as those used at December 31, 2010. As a result, there have been no significant transfers between Level 1 and Level 2 categories.

Note 10 – Equity
IR-Ireland is the successor to IR-Limited, following the Ireland Reorganization which became effective on July 1, 2009. Upon consummation, the IR-Limited Class A common shares were cancelled and all previous holders were issued ordinary shares of IR-Ireland. 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.
In the second quarter of 2011, the Board of Directors authorized the repurchase of up to $2.0 billion of the Company's ordinary shares under a new share repurchase program. On June 8, 2011, the Company commenced share repurchases under this program. During the nine months ended September 30, 2011, the Company repurchased 17.3 million shares for $575.6 million. These repurchases were accounted for as a reduction of Ordinary shares and Capital in excess of par value as they were canceled upon repurchase.
The reconciliation of Ordinary shares is as follows:
In millions
Total
December 31, 2010
328.2

Shares issued under incentive plans
5.1

Repurchase of ordinary shares
(17.3
)
September 30, 2011
316.0

The components of Equity for the nine months ended September 30, 2011 are as follows:
In millions
IR-Ireland
shareholders’
equity
 
Noncontrolling
interests
 
Total
equity
Balance at December 31, 2010
$
7,964.3

 
$
94.8

 
$
8,059.1

Net earnings
100.9

 
20.3

 
121.2

Currency translation
(38.9
)
 

 
(38.9
)
Change in value of marketable securities and derivatives qualifying as cash flow hedges, net of tax
1.3

 

 
1.3

Pension and OPEB adjustments, net of tax
92.4

 

 
92.4

Total comprehensive income
155.7

 
20.3

 
176.0

Share-based compensation
31.0

 

 
31.0

Acquisition/divestiture of noncontrolling interests
(1.3
)
 
(1.2
)
 
(2.5
)
Dividends to noncontrolling interests

 
(22.9
)
 
(22.9
)
Dividends to ordinary shareholders
(101.5
)
 

 
(101.5
)
Accretion of Exchangeable Senior Notes from Temporary equity
10.0

 

 
10.0

Shares issued under incentive plans
107.4

 

 
107.4

Repurchase of ordinary shares
(575.6
)
 

 
(575.6
)
       Other
(0.7
)
 
(1.6
)
 
(2.3
)
Balance at September 30, 2011
$
7,589.3

 
$
89.4

 
$
7,678.7


14

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The components of Equity for the nine months ended September 30, 2010 are as follows:
In millions
IR-Ireland
shareholders’
equity
 
Noncontrolling
interests
 
Total
equity
Balance at December 31, 2009
$
7,071.8

 
$
103.9

 
$
7,175.7

Net earnings
430.1

 
15.5

 
445.6

Currency translation
(13.1
)
 

 
(13.1
)
Change in value of marketable securities and derivatives qualifying as cash flow hedges, net of tax
4.8

 

 
4.8

Pension and OPEB adjustments, net of tax
48.9

 

 
48.9

Total comprehensive income
470.7

 
15.5

 
486.2

Share-based compensation
46.5

 

 
46.5

Acquisition of noncontrolling interest
(5.0
)
 
(3.0
)
 
(8.0
)
Dividends to noncontrolling interests

 
(9.4
)
 
(9.4
)
Dividends to ordinary shareholders
(67.7
)
 

 
(67.7
)
Accretion of Exchangeable Senior Notes from Temporary equity
10.0

 

 
10.0

Shares issued under incentive plans
47.5

 

 
47.5

Other

 
(7.3
)
 
(7.3
)
Balance at September 30, 2010
$
7,573.8

 
$
99.7

 
$
7,673.5


Note 11 – Share-Based Compensation
The Company records share-based compensation awards using a fair value method and recognizes compensation expense for an amount equal to the fair value of the share-based payment issued in its financial statements. The Company’s share-based compensation plans include programs for stock options, restricted stock units (RSUs), stock appreciation rights (SARs), performance share units (PSUs) and deferred compensation.
Compensation Expense
Share-based compensation expense related to continuing operations is included in Selling and administrative expenses within the Condensed Consolidated Income Statement. The following table summarizes the expenses recognized for the three and nine months ended September 30:
 
Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Stock options
$
4.4

 
$
5.6

 
$
17.6

 
$
25.6

RSUs
3.9

 
2.8

 
16.4

 
11.0

Performance shares
(3.8
)
 
3.6

 
(2.7
)
 
9.2

Deferred compensation
0.2

 
0.3

 
0.6

 
1.0

SARs and other
(1.8
)
 
0.1

 
(1.3
)
 
0.8

Pre-tax expense
2.9

 
12.4

 
30.6

 
47.6

Tax benefit
(1.1
)
 
(4.7
)
 
(11.7
)
 
(18.2
)
After-tax expense
$
1.8

 
$
7.7

 
$
18.9

 
$
29.4


15

Table of Contents
INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Stock Options/RSUs
The Company’s equity grant approach allows for eligible participants to receive (i) stock options, (ii) RSUs or (iii) a combination of both stock options and RSUs. Since annual equity grants are made in February, the Company grants a significant number of options and RSUs during the first quarter of the year. The following table illustrates those granted during the nine months ended September 30:
 
2011
 
2010
 
Number
granted
 
Weighted-
average fair
value per award
 
Number
granted
 
Weighted-
average fair
value per award
Stock options
1,591,738

 
$
14.59

 
2,614,967

 
$
10.14

RSUs
542,881

 
$
47.05

 
833,465

 
$
32.19

The fair value of each of the Company’s stock option and RSU awards is expensed on a straight-line basis over the required service period, which is generally the three-year vesting period. However, for stock options and RSUs granted to retirement eligible employees, the Company recognizes expense for the fair value at the grant date.
SARs
All SARs outstanding as of September 30, 2011 are vested and expire ten years from the date of grant. All SARs exercised are settled with the Company’s ordinary shares. The Company did not grant SARs during the nine months ended September 30, 2011 and does not anticipate additional grants in the future.
Performance Shares
The Company has a Performance Share Program for key employees. The program provides awards in the form of PSUs based on performance against pre-established objectives. The annual target award level is expressed as a number of the Company’s ordinary shares. All PSUs are settled in the form of ordinary shares. As of September 30, 2011, the Company’s target award level for eligible employees is approximately 1.3 million shares.
Deferred Compensation
The Company allows key employees to defer a portion of their eligible compensation into a number of investment choices, including its ordinary share equivalents. Any amounts invested in ordinary share equivalents will be settled in ordinary shares of the Company at the time of distribution.
Other Plans
The Company maintains a shareholder-approved Management Incentive Unit Award Plan. Under the plan, participating key employees were awarded incentive units. When dividends are paid on ordinary shares, phantom dividends are awarded to unit holders, one-half of which is paid in cash, the remaining half of which is credited to the participants’ accounts in the form of ordinary share equivalents. The value of the actual incentive units is never paid to participants, and only the fair value of accumulated ordinary share equivalents is paid in cash upon the participants’ retirement.
The Company has issued stock grants as an incentive plan to certain key employees, with varying vesting periods. All stock grants are settled with the Company’s ordinary shares.

16

Table of Contents
INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)



Note 12 – Restructuring Activities
Restructuring charges recorded during the three and nine months ended September 30, were as follows:
 
Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Climate Solutions
$
8.3

 
$
8.0

 
$
13.9

 
$
20.2

Residential Solutions
2.2

 
0.2

 
2.4

 
1.1

Industrial Technologies
1.9

 
6.3

 
3.1

*
10.4

Security Technologies
0.7

 
(0.1
)
 
(0.4
)
**
2.4

Corporate and Other
0.3

 
0.6

 
0.3

 
0.5

Total
$
13.4

 
$
15.0

 
$
19.3

 
$
34.6

Cost of goods sold
$
5.6

 
$
8.8

 
$
4.1

 
$
23.5

Selling and administrative expenses
7.8

 
6.2

 
15.2

 
11.1

Total
$
13.4

 
$
15.0

 
$
19.3

 
$
34.6

The changes in the restructuring reserve during the nine months ended September 30, 2011 were as follows:
In millions
Climate
Solutions
 
Residential
Solutions
 
Industrial
Technologies
 
Security
Technologies
 
Corporate
and Other
 
Total
December 31, 2010
$
3.2

 
$
3.2

 
$
10.1

 
$
8.1

 
$
3.4

 
$
28.0

Additions, net of reversals
13.9

 
2.4

 
3.1

*
(0.4
)
**
0.3

 
19.3

Cash and non-cash uses
(11.5
)
 
(3.7
)
 
(7.7
)
 
(6.3
)
 
(0.6
)
 
(29.8
)
Currency translation

 

 

 
0.2

 

 
0.2

September 30, 2011
$
5.6

 
$
1.9

 
$
5.5

 
$
1.6

 
$
3.1

 
$
17.7

* Amount includes the reversal of $6.7 million of previously accrued restructuring charges.
** Amount includes the reversal of $2.2 million of previously accrued restructuring charges.
During the nine months ended September 30, 2011 and 2010, the Company incurred costs of $19.3 million and $34.6 million, respectively, associated with ongoing restructuring actions. These actions included workforce reductions as well as the consolidation of manufacturing facilities in an effort to increase efficiencies across multiple lines of business. Due to changes in various economic factors, the Company made a decision in the first quarter of 2011 to continue operating a facility for which the Company had previously accrued approximately $6.7 million of restructuring charges. In the second quarter of 2011, the Company released approximately $2.2 million of previously accrued restructuring charges as a result of the decision to discontinue a portion of the Company's restructuring plans. As of September 30, 2011, the Company had $17.7 million accrued for costs associated with its ongoing restructuring actions, of which a majority will be paid within one year.

Note 13 – Other, Net
The components of Other, net for the three and nine months ended September 30 are as follows:
 
Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Interest income
$
8.0

 
$
2.8

 
$
19.8

 
$
10.4

Exchange gain (loss)
11.2

 
2.3

 
3.6

 
1.7

Other
2.1

 
3.6

 
5.2

 
10.2

Other, net
$
21.3

 
$
8.7

 
$
28.6

 
$
22.3



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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


The Company reclassified its earnings from equity investments from Other, net to Cost of goods sold, as the related investments have been deemed to be integral to the Company’s operations. This reclassification had a $2.5 million and $8.8 million impact, respectively, on the Condensed Consolidated Income Statement for the three and nine months ended September 30, 2010.
Note 14 – Income Taxes
The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Brazil, Canada, Germany, Ireland, Italy, the Netherlands and the United States. In general, the examination of the Company’s material tax returns is completed for the years prior to 2000, with certain matters being resolved through appeals and litigation.
On July 20, 2007, the Company received a notice from the IRS containing proposed adjustments to the Company’s tax filings in connection with an audit of the 2001 and 2002 tax years. The IRS did not contest the validity of the Company’s reincorporation in Bermuda. The most significant adjustments proposed by the IRS involve treating the entire intercompany debt incurred in connection with the Company’s reincorporation in Bermuda as equity. As a result of this recharacterization, the IRS 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 the Company owes additional taxes with respect to 2002 of approximately $84 million plus interest. The Company 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, the Company received an amended notice from the IRS eliminating its assertion that the intercompany debt incurred in connection with the Company’s reincorporation in Bermuda should be treated as equity. However, the IRS continues to assert the alternative position described above and proposes adjustments to the Company’s 2001 and 2002 tax filings. If this alternative position is upheld, the Company would be required to record additional charges. 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.
The Company has and intends to continue to vigorously contest these proposed adjustments. The Company, in consultation with its outside advisors, carefully considered the form and substance of the Company’s intercompany financing arrangements including the actions necessary to qualify for the benefits of the applicable U.S. income tax treaties. The Company believes 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 its position, the Company believes that it is adequately reserved for this matter. As the Company moves forward to resolve this matter with the IRS, it is reasonably possible that the reserves established may be adjusted within the next 12 months. However, the Company does not expect that the ultimate resolution will have a material adverse impact on its future results of operations or financial position. 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.
The Company believes that it has adequately provided for any reasonably foreseeable resolution of any tax disputes, but will adjust its reserves if events so dictate in accordance with GAAP. To the extent that the ultimate results differ from the original or adjusted estimates of the Company, the effect will be recorded in the provision for income taxes.
Total unrecognized tax benefits as of September 30, 2011 and December 31, 2010 were $561.2 million and $534.1 million, respectively.
As a result of the Healthcare Reform Legislation, defined in Note 8, effective 2013, the tax benefits available to the Company will be reduced to the extent its 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, the Company is required to recognize the full accounting impact in its financial statements in the reporting period in which

18

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


the Healthcare Reform Legislation is enacted. As retiree healthcare liabilities and related tax impacts are already reflected in the Company’s 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.
The Healthcare Reform Legislation contains provisions which could impact our accounting for income taxes in future periods. We will continue to assess the accounting implications of the Healthcare Reform Legislation. In addition, we may consider plan amendments in future periods that may have accounting implications.
During the nine months ended September 30, 2011, the Company identified certain accounting errors associated with its previously reported income tax balances and tax positions.  The Company corrected these errors in 2011 resulting in a tax charge of approximately $35 million, of which $30 million was recorded in the third quarter, primarily related to the accrual of a previously unrecorded future withholding tax liability.  The Company does not believe that the accounting errors are material to 2011 or to any of its previously issued financial statements.  As a result, the Company did not adjust any prior period amounts.
Note 15 – Divestitures and Discontinued Operations
Divested Operations
Hussmann Divestiture
On September 30, 2011, the Company completed a transaction to sell its Hussmann refrigerated display case business to a newly-formed affiliate (Hussmann Parent) of private equity firm Clayton Dubilier & Rice, LLC (CD&R).  This transaction included the equipment business and certain of the service branches in the U.S. and Canada, and the equipment, service and installation businesses in Mexico, Chile, Australia, New Zealand, and Japan (Hussmann Business).  The final transaction allowed Hussmann Parent the option to acquire the remaining North American Hussmann service and installation branches (Hussmann Branches).  Hussmann Parent exercised its option on October 13, 2011.  The Hussmann Business and Branches, which are reported as part of the Climate Solutions segment, manufacture, market, distribute, install, and service refrigerated display merchandising equipment, refrigeration systems, over the counter parts, and other commercial and industrial refrigeration applications.

The Hussmann Business divestiture, which was originally announced on April 21, 2011 and anticipated to be a sale of 100% of the Company's interest in the Hussmann Business, with no retained ongoing interest, met the criteria for classification as held for sale and for treatment as discontinued operations in accordance with GAAP during the first and second quarters of 2011. Therefore, the Company reported the Hussmann Business as a discontinued operation, classified the assets and liabilities as held for sale, and recognized $384 million of after-tax impairment losses in the first half of 2011 to write the net assets of the Hussmann Business down to their estimated fair value.  During the third quarter of 2011, the Company negotiated the final terms of a transaction to sell the Hussmann Business and Branches to CD&R in exchange for $370 million in cash, subject to purchase price adjustments, and common stock of Hussmann Parent, such that following the sale, CD&R would own cumulative convertible participating preferred stock of Hussmann Parent, initially representing 60% of the outstanding capital stock (on an as-converted basis) of Hussmann Parent, and the Company would own all of the common stock, representing the remaining 40% of the outstanding capital stock (on an as-converted basis) of Hussmann Parent.  At September 30, 2011, the Hussmann Branches met the held for sale criteria outlined in GAAP.  However, the Hussmann Business and Branches did not qualify for treatment as a discontinued operation as the Company's equity interest in the Hussmann Parent represents significant continuing involvement.  Therefore, the results of the Hussmann Business and Branches have been presented as continuing operations beginning with this third quarter 2011 Form 10-Q for all periods presented. 

On September 30, 2011, the Company received consideration of $433 million for the Hussmann Business and Branches, which included cash consideration, after purchase price adjustments, of $354 million as well as the equity interest valued at $79 million.  Accordingly, the Company recorded a pre-tax loss on sale/asset impairment charge of $265 million ($171 million after-tax), which reflected net assets of $580 million, an accumulated other comprehensive loss of $85 million, an estimated indemnification obligation assumed of $25 million, and transaction costs of $8 million.

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Results for the Hussmann Business and Hussmann Branches for the periods ended September 30 are as follows:
 
Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Net revenues
$
281.8

 
$
319.4

 
$
781.7

 
$
839.1

Loss on sale/asset impairment
(264.8
)
*

 
(651.6
)
*

Net earnings (loss) attributable to Ingersoll-Rand plc
(157.9
)
 
26.8

 
(528.3
)
 
49.8

Diluted earnings (loss) per share attributable to Ingersoll-Rand plc ordinary shareholders:
(0.46
)
 
0.08

 
(1.52
)
 
0.15

* Included in Loss on sale/asset impairment for the three and nine months ended September 30, 2011 are transaction costs of $8.4 million and $11.6 million, respectively.
The Company's ownership interest in Hussmann will be reported using the equity method of accounting for the fourth quarter of 2011 and going forward.  The Company's equity investment in the Hussmann Parent is reported within Other noncurrent assets in the Condensed Consolidated Balance Sheet and the related equity earnings will be reported within Other, net in the Company's Condensed Consolidated Income Statement.
The assets and liabilities held for sale for Hussmann at September 30, 2011 represent those related to the Hussmann Branches as they will be sold to Hussmann Parent subsequent to the balance sheet date. The components of assets and liabilities recorded as held for sale on the Condensed Consolidated Balance Sheet are as follows:
In millions
September 30,
2011
 
December 31,
2010
Assets
 
 
 
Current assets
$
66.6

 
$
225.0

Property, plant and equipment, net
0.3

 
107.4

Goodwill

 
407.4

Intangible assets, net

 
389.5

Other assets and deferred income taxes
0.1

 
5.5

Assets held for sale before asset impairment
$
67.0

 
$
1,134.8

Asset impairment
(23.0
)
 

Assets held for sale
$
44.0

 
$
1,134.8

Liabilities
 
 
 
Current liabilities
$
43.6

 
$
106.1

Noncurrent liabilities
0.4

 
61.0

Liabilities held for sale
$
44.0

 
$
167.1

Discontinued operations
The components of discontinued operations for the three and nine months ended September 30 are as follows:  
 
Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Net revenues
$

 
$
24.2

 
$

 
$
62.4

Pre-tax earnings (loss) from operations
$
(12.9
)
 
$
(49.2
)
 
$
(37.2
)
 
$
(133.9
)
Pre-tax gain (loss) on sale
(7.2
)
 
(0.3
)
 
(40.8
)
 
(0.7
)
Tax benefit (expense)
11.5

 
10.0

 
29.9

 
16.9

Discontinued operations, net of tax
$
(8.6
)
 
$
(39.5
)
 
$
(48.1
)
 
$
(117.7
)

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Discontinued operations by business for the three and nine months ended September 30 are as follows:  
 
Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Energy Systems, net of tax
$
(0.5
)
 
$
(9.5
)
 
$

 
$
(12.5
)
KOXKA, net of tax
(0.3
)
 
(19.5
)
 
(1.0
)
 
(68.9
)
Other discontinued operations, net of tax
(7.8
)
 
(10.5
)
 
(47.1
)
 
(36.3
)
Discontinued operations, net of tax
$
(8.6
)
 
$
(39.5
)
 
$
(48.1
)
 
$
(117.7
)
Energy Systems Divestiture
On December 30, 2010, the Company completed the divestiture of its gas microturbine generator business, which was sold under the Energy Systems brand, to Flex Energy, Inc. 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. During the third quarter of 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.
Net revenues and after-tax earnings of the Energy Systems business for the three and nine months ended September 30 were as follows:
 
Three months ended
 
Nine months ended
 
In millions
2011
 
2010
 
2011
 
2010
 
Net revenues
$

 
$
3.9

 
$

 
$
5.7

 
After-tax earnings (loss) from operations
$
(0.3
)
 
$
(9.5
)
*
$

 
$
(12.5
)
*
Gain (loss) on sale, net of tax
(0.2
)
 

 

 

 
Discontinued operations, net of tax
$
(0.5
)
 
$
(9.5
)
 
$

 
$
(12.5
)
 
* Included in discontinued operations for Energy Systems for the three and nine months ended September 30, 2010 is an after-tax impairment loss of $8.3 million related to the initial write-down of the net assets to their estimated fair value.
KOXKA Divestiture
On October 4, 2010, the Company completed the divestiture of its 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. During the second and third quarters of 2010, the Company recognized a combined $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 three and nine months ended September 30 were as follows:
 
Three months ended
 
Nine months ended
 
In millions
2011
 
2010
 
2011
 
2010
 
Net revenues
$

 
$
20.3

 
$

 
$
56.7

 
After-tax earnings (loss) from operations
$
(0.3
)
 
$
(19.5
)
*
$
(1.0
)
 
$
(68.9
)
*
Gain (loss) on sale, net of tax

 

 

 

 
Discontinued operations, net of tax
$
(0.3
)
 
$
(19.5
)
 
$
(1.0
)
 
$
(68.9
)
 
* Included in discontinued operations for KOXKA for the three and nine months ended September 30, 2010 is an after-tax impairment loss of $15.1 million and $53.9 million, respectively, related to the write-down of the net assets to their estimated fair value.

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


Other Discontinued Operations
On November 30, 2007, the Company completed the sale of its Bobcat, Utility Equipment and Attachments businesses (collectively, Compact Equipment) to Doosan Infracore for gross proceeds of approximately $4.9 billion, subject to post-closing purchase price adjustments. Compact Equipment manufactured and sold compact equipment, including skid-steer loaders, compact track loaders, mini-excavators and telescopic tool handlers; portable air compressors, generators and light towers; general-purpose light construction equipment; and attachments. The Company is in dispute regarding post-closing matters with Doosan Infracore. During the second quarter of 2011, the Company collected approximately $48.3 million of its outstanding receivable from Doosan Infracore related to certain purchase price adjustments. The Company is continuing to pursue other claims against Doosan Infracore.
The Company is a party to a dispute relating to an incentive plan associated with the sale of one of its businesses in 2004. During the three and nine months ended September 30, 2011, the Company recorded $4 million ($6.0 million before tax) and $25 million ($39.5 million before tax) of after-tax charges, respectively, within discontinued operations as a result of certain associated court rulings. The Company disagrees with these rulings and plans to appeal. See Note 18 for additional details regarding this dispute.
The Company also recorded retained costs from previously sold businesses, which are mainly those related to postretirement benefits, product liability and legal costs (mostly asbestos-related).
Note 16Earnings Per Share (EPS)
Basic EPS is calculated by dividing Net earnings (loss) attributable to IR-Ireland by the weighted-average number of ordinary shares outstanding for the applicable period. Diluted EPS is calculated after adjusting the denominator of the basic EPS calculation for the effect of all potentially dilutive ordinary shares, which in the Company’s case, includes shares issuable under share-based compensation plans and the effects of the Exchangeable Senior Notes issued in April 2009. The following table summarizes the weighted-average number of ordinary shares outstanding for basic and diluted earnings per share calculations for the three and nine months ended September 30:
 
Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Weighted-average number of basic shares
327.7

 
324.7

 
331.0

 
323.7

Shares issuable under incentive stock plans
2.9

 
4.9

 
4.7

 
4.9

Exchangeable Senior Notes
9.6

 
9.4

 
11.4

 
9.6

Weighted-average number of diluted shares
340.2

 
339.0

 
347.1

 
338.2

Anti-dilutive shares
10.6

 
13.9

 
3.0

 
13.9

Note 17Business Segment Information
The Company classifies its businesses into the following four reportable segments based on industry and market focus: Climate Solutions, Residential Solutions, Industrial Technologies and Security Technologies.
Segment operating income is the measure of profit and loss that the Company's chief operating decision maker uses to evaluate the financial performance of the business and as the basis for performance reviews, compensation and resource allocation. For these reasons, the Company believes that Segment operating income represents the most relevant measure of segment profit and loss. The Company may exclude certain charges or gains from Operating income to arrive at a Segment operating income that is a more meaningful measure of profit and loss upon which to base its operating decisions.
On September 30, 2011, the Company completed a transaction to sell its Hussmann refrigerated display case business to a newly-formed affiliate (Hussmann Parent) of private equity firm Clayton Dubilier & Rice, LLC (CD&R). This transaction included the equipment business and certain of the service branches in the U.S. and Canada, and the equipment, service and installation businesses in Mexico, Chile, Australia, New Zealand, and Japan (Hussmann Business). The final transaction allowed Hussmann Parent the option to acquire the remaining North American Hussmann service and installation branches (Hussmann Branches). Hussmann Parent exercised its option on October 13, 2011. The Hussmann Business and Branches, which are reported as part of the Climate Solutions segment, manufacture, market, distribute, install, and service refrigerated display merchandising equipment, refrigeration systems, over the counter parts, and other commercial and industrial refrigeration applications.
The Hussmann Business divestiture, which was originally announced on April 21, 2011 and anticipated to be a sale of 100% of the Company's interest in the Hussmann Business, with no retained ongoing interest, met the criteria for classification as held for

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


sale and for treatment as discontinued operations in accordance with GAAP during the first and second quarters of 2011. Therefore, the Company reported the Hussmann Business as a discontinued operation and classified the assets and liabilities as held for sale in those periods.  During the third quarter of 2011, the Company negotiated the final terms of a transaction to sell the Hussmann Business and Branches to CD&R in exchange for $370 million in cash, subject to purchase price adjustments, and common stock of Hussmann Parent, such that following the sale, CD&R would own cumulative convertible participating preferred stock of Hussmann Parent, initially representing 60% of the outstanding capital stock (on an as-converted basis) of Hussmann Parent, and the Company would own all of the common stock, representing the remaining 40% of the outstanding capital stock (on an as-converted basis) of Hussmann Parent.  At September 30, 2011, the Hussmann Branches met the held for sale criteria outlined in GAAP.  However, the Hussmann Business and Branches did not qualify for treatment as a discontinued operation as the Company's equity interest in the Hussmann Parent represents significant continuing involvement.  Therefore, the results of the Hussmann Business and Branches have been presented as continuing operations beginning with this third quarter 2011 Form 10-Q for all periods presented.
 
The operating results for the Hussmann Business and Hussmann Branches, which are included in Net revenues and Segment operating income for the Climate Solutions segment, are as follows:
 
Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Net revenues
$
281.8

 
$
319.4

 
$
781.7

 
$
839.1

Segment operating income
$
30.1

 
$
37.3

 
$
56.1

 
$
72.7

On December 30, 2010, the Company completed the divestiture of its gas microturbine generator business, which was sold under the Energy Systems brand, to Flex Energy, Inc. 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, the Company completed the divestiture of its 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. Segment information has been revised to exclude the results of this business for all periods presented.

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INGERSOLL-RAND PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


A summary of operations by reportable segment for the three and nine months ended September 30 is as follows:
 
Three months ended
 
Nine months ended
In millions
2011
 
2010
 
2011
 
2010
Net revenues
 
 
 
 
 
 
 
Climate Solutions
$
2,289.7

 
$
2,120.8

 
$
6,380.0

 
$
5,739.6

Residential Solutions
504.4

 
575.4

 
1,569.8

 
1,611.4

Industrial Technologies
696.5

 
624.3

 
2,108.9

 
1,793.2

Security Technologies
437.9

 
409.8

 
1,269.5

 
1,223.2

Total
$
3,928.5

 
$
3,730.3

 
$
11,328.2

 
$
10,367.4

Segment operating income
 
 
 
 
 
 
 
Climate Solutions
$
264.3

*
$
219.8

 
$
631.7

*
$
451.6

Residential Solutions
19.0

 
57.8

 
67.2

 
143.2

Industrial Technologies
95.9

 
79.4

 
301.6

 
219.8

Security Technologies
88.4

 
90.5

 
250.0

 
243.7

Total
$
467.6

 
$
447.5

 
$
1,250.5

 
$
1,058.3

Reconciliation to Operating income
 
 
 
 
 
 
 
Loss on sale/asset impairment
(264.8
)
*

 
(651.6
)
*

Unallocated corporate expense
(23.1
)
 
(36.8
)
 
(80.1
)
 
(115.6
)
Operating income
$
179.7

 
$
410.7

 
$
518.8

 
$
942.7

* During the three and nine months ended September 30, 2011, the Company recorded a pre-tax loss on sale and impairment charges related to the Hussmann divestiture totaling $264.8 million and $651.6 million, respectively. These charges have been excluded from Segment operating income within the Climate Solutions segment as management excludes these charges from Operating income when making operating decisions about the business.
Included in Segment operating income for Climate Solutions for nine months ended September 30, 2011 is a $23 million gain associated with the sale of assets from a restructured business in China.
Note 18 – Commitments and Contingencies
The Company is involved in various litigations, claims and administrative proceedings, including those related to environmental and product liability matters. Amounts recorded for identified contingent liabilities are estimates, which are reviewed periodically and adjusted to reflect additional information when it becomes available. Subject to the uncertainties inherent in estimating future costs for contingent liabilities, except as expressly set forth in this note, management believes that any liability which may result from these legal matters would not have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.
Environmental Matters
The Company continues to be dedicated to an environmental program to reduce the utilization and generation of hazardous materials during the manufacturing process and to remediate identified environmental concerns. As to the latter, the Company is currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at current and former manufacturing facilities.
The Company is sometimes a party to environmental lawsuits and claims and has received notices of potential violations of environmental laws and regulations from the Environmental Protection Agency and similar state authorities. It has also been identified as a potentially responsible party (PRP) for cleanup costs associated with off-site waste disposal at federal Superfund and state remediation sites. For all such sites, there are other PRPs and, in most instances, the Company’s involvement is minimal.
In estimating its liability, the Company has assumed it will not bear the entire cost of remediation of any site to the exclusion of other PRPs who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account, based generally on the parties’ financial condition and probable contributions on a per site basis. Additional lawsuits and claims involving environmental matters are likely to arise from time to time in the future.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)


During the three and nine months ended September 30, 2011, the Company spent $2.4 million and $7.0 million, respectively, for environmental remediation at sites presently or formerly owned or leased by us. As of September 30, 2011 and December 31, 2010, the Company has recorded reserves for environmental matters of $73.8 million and $78.6 million, respectively. Given the evolving nature of environmental laws, regulations and technology, the ultimate cost of future compliance is uncertain.
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.
The Company engages an outside expert to assist in calculating an estimate of the Company’s total liability for pending and unasserted future asbestos-related claims and annually performs a detailed analysis with the assistance of its outside expert to update its estimated asbestos-related assets and liabilities. The methodology used to project the Company’s total liability for pending and unasserted potential future asbestos-related claims relied upon and included the following factors, among others:
the outside expert’s interpretation of a widely accepted forecast of the population likely to have been occupationally exposed to asbestos;
epidemiological studies estimating the number of people likely to develop asbestos-rela