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.

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-related diseases such as mesothelioma and lung cancer;


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


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


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


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


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


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

At December 31, 2010, over 90 percent of the open claims against the Company were non-malignancy claims, many of which have been placed on inactive or deferral dockets and the vast majority of which have little or no settlement value against the Company, particularly in light of recent changes in the legal and judicial treatment of such claims.

The Company’s liability for asbestos-related matters and the asset for probable asbestos-related insurance recoveries are included in the following balance sheet accounts:



In millions	September 30, 2011		December 31, 2010
Accrued expenses and other current liabilities	$	75.5	$	75.5
Other noncurrent liabilities	877.9		945.0
Total asbestos-related liabilities	$	953.4	$	1,020.5
Other current assets	$	28.8	$	26.3
Other noncurrent assets	290.5		319.9
Total asset for probable asbestos-related insurance recoveries	$	319.3	$	346.2

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



	Three months ended						Nine months ended
In millions	2011			2010			2011			2010
Continuing operations	$	0.3		$	0.4		$	(2.3	)	$	(2.2	)
Discontinued operations	(3.0		)	(1.7		)	(8.6		)	(10.5		)
Total	$	(2.7	)	$	(1.3	)	$	(10.9	)	$	(12.7	)

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

Trane has now settled claims regarding asbestos coverage with most of its insurers, including the New Jersey litigation described below. The settlements collectively account for approximately 95% of its recorded asbestos-related liability insurance receivable as of September 30, 2011. Most, although not all, of Trane’s settlement agreements constitute “coverage-in-place” arrangements, in which the insurer signatories agree to reimburse Trane for specified portions of its costs for asbestos bodily injury claims and Trane agrees to certain claims-handling protocols and grants to the insurer signatories certain releases and indemnifications.

In April 1999, Trane filed an action in the Superior Court of New Jersey, Middlesex County, against various primary and lower layer excess insurance carriers (the NJ Litigation). The NJ Litigation originally sought coverage for environmental claims and later was expanded to include claims for coverage for asbestos-related liabilities. The environmental claims against the insurers in the NJ Litigation have been resolved or dismissed without prejudice for later resolution. Similarly, Trane has resolved all claims against the insurers for asbestos-related liabilities, having settled with the last remaining defendant in the NJ Litigation, effective June 29, 2011. By order entered on August 3, 2011, the court in the NJ Litigation dismissed the last remaining claims by or against Trane.

Trane remains in litigation in an action that Trane filed in November 2010 in the Circuit Court for La Crosse County, Wisconsin, relating to claims for insurance coverage for a subset of Trane's historical asbestos-related liabilities. Trane also is pursuing claims against the estates of insolvent insurers in connection with its costs for asbestos bodily injury claims.

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

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

Other

The Company is a party to a lawsuit initiated by current and former Dresser-Rand employees (DR Employees) relating to an incentive plan associated with the sale of its Dresser-Rand business in 2004. At the time of the sale, the Company paid a total of $23.5 million in cash as well as millions of dollars in additional consideration in the form of accelerated stock options to certain DR Employees pursuant to an incentive plane created in connection with the sale (the 2004 Plan). Most of the 130 DR Employees in the current lawsuit received payment under this 2004 Plan. These DR Employees are nonetheless now claiming payment under a plan established in 2000 (2000 Plan) in connection with an earlier planned sale of Dresser-Rand. The Company believes that the 2000 Plan terminated in 2002, when it stopped actively soliciting buyers for Dresser-Rand and integrated Dresser-Rand's operations into the Company. After receiving an unsolicited offer to purchase Dresser-Rand in 2004, the Company established the 2004 Plan, which was intended to be a successor plan to the expired 2000 Plan. In May 2011, the court issued a ruling in favor of most of the DR Employees, finding that the 2000 Plan did not expire in 2002 and resulting in the Company recording a $21 million after tax ($33.5 million pre-tax) charge during the second quarter. The Company disagrees with the ruling and plans to appeal it at the first available opportunity, which will not occur until after there is a jury verdict in the trial on damages. In September 2011, the court issued a ruling in the Company's favor that limited the maximum damages to approximately $95 million but the court also issued another ruling that resulted in the Company recording an additional $4 million after tax ($6.0 million pre-tax) charge during the third quarter of 2011. The Company had argued that it should be able to subtract the payments made under the 2004 Plan from any payments that the court may order it to pay under the 2000 Plan so that the DR Employees do not receive an unintended double recovery. The court disagreed, and the Company plans to also appeal this ruling at the first available opportunity, which will be post-verdict.

Product warranty accruals are recorded at the time of sale and are estimated based upon product warranty terms and historical experience. The Company assesses the adequacy of its liabilities and will make adjustments as necessary based on known or anticipated warranty claims, or as new information becomes available. Product warranty liabilities are classified as Accrued expenses and other current liabilities or Other noncurrent liabilities based on their expected term.

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



In millions	2011			2010
Balance at beginning of period	$	632.1		$	620.2
Reductions for payments	(169.9		)	(202.6		)
Accruals for warranties issued during the current period	179.4			212.1
Changes to accruals related to preexisting warranties	(0.6		)	(0.4		)
Translation	0.5			(0.6		)
Balance at end of period	$	641.5		$	628.7

Trane has commitments and performance guarantees, including energy savings guarantees, totaling $306.6 million extending from 2011-2031. These guarantees are provided under long-term service and maintenance contracts related to its air conditioning equipment and system controls. Through September 30, 2011, the Company has experienced no significant losses under such arrangements and considers the probability of any significant future losses to be remote.

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 the aggregate principal amount of $300 million. The guarantee is unsecured and provided on an unsubordinated basis. The guarantee ranks equally in right of payment with all of the existing and future unsecured and unsubordinated debt of IR-New Jersey. 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.