2009 Annual Report 2010 Notice and Proxy Statement Creating and Sustaining Safe, Comfortable and Efficient Environments Our Vision We are dedicated to driving progress for our shareholders, employees and communities by achieving: Dramatic Growth, by focusing on innovative solutions for our customers Operational Excellence, by pursuing continuous improvement in all of our operations Dual Citizenship, by bringing together the talents of all Ingersoll Rand people to leverage the capabilities of our global enterprise Ingersoll Rand (NYSE:IR) is a world leader in creating and sustaining safe, comfortable and efficient environments in commercial, residential and industrial markets. Our people and our family of brands—including Club Car®, Hussmann®, Ingersoll Rand®, Schlage®, Thermo King® and Trane® —work together 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. We are a $13 billion global business committed to sustainable business practices within our company and for our customers. Message from the Chairman and the President and Chief Executive Officer We will long remember the lessons we learned Our productivity performance, combined with in 2009. In what was the most challenging economic synergies that we continue to derive from the Trane climate since the Great Depression, and certainly acquisition and a significant reduction in working the most difficult business environment many capital, contributed to $1.6 billion of available cash Ingersoll Rand people have ever experienced, we flow* in 2009, which was substantially greater than discovered more about our capabilities and commitment the amount of cash we expected to generate for the to persevere than we could have under less daunting year. We reduced working capital as a percentage of circumstances. The progress our people achieved sales from the previous annual range of 7% to 9% to a despite the difficulties we faced gives us great level of 2% to 3% by the end of 2009. We are confident confidence about our company’s future and our that we have permanently removed a sizable amount ability to build upon Ingersoll Rand’s long history of working capital from our balance sheet, which will of success. further enhance our cash generation capability. Despite extraordinarily turbulent markets and By outperforming our cash-generation target, challenging global economic conditions throughout we were able to dramatically improve our balance 2009, our company delivered upon its commitments sheet and liquidity. We met all of our debt maturities to customers and shareholders and emerged well in 2009, paid off our short-term commercial paper and positioned as a leading diversified industrial firm. receivables securitization program, and exceeded our We realized significant benefits from the first full year debt reduction targets. Most importantly, we continued of Trane as part of Ingersoll Rand, and have uncovered to support our growth imperative by investing in substantially greater long-term opportunities for our innovation, refreshing core product technologies, and combined businesses. We achieved unprecedented increasing the overall value we offer to customers improvement in key operational and financial areas, through enhanced service offerings. notably in productivity, working capital and cash generation, and we are confident that we can consistently achieve similar levels of performance Revenues Segment Operating Income (In Millions) (In Millions) in these areas on an annual basis. Our 2009 revenues declined by 19% compared 13% 31% with 2008 on a pro forma basis, reflecting the 15% 40% substantial reduction in demand across the global 55% 17% 12% markets we serve. We did not expect that rate of 17% decline when we began the year, but we quickly realized that the economic climate was much worse than even some of the more pessimistic predictions. ● Climate Solutions ● Climate Solutions Accordingly, by the end of the first quarter of 2009 we $7,293.7 $406.9 recalibrated our revenue and earnings expectations. ● Industrial Technologies ● Industrial Technologies Despite a continued slide in revenue projections, we $2,181.0 $171.8 ● Residential Solutions ● Residential Solutions achieved the midpoint of our revised earnings forecast, $2,001.5 $122.9 driven largely by outstanding productivity performance, ● Security Technologies ● Security Technologies and again demonstrated that our people are well $1,719.1 $323.7 prepared to meet and surpass difficult challenges. Total Revenues: $13,195.3 *Cash flow from operating activities of both continuing operations and discontinued operations, less capital expenditures of $204.2 million, and excluding $62.8 million of cash outflow from the repurchase of receivables under the trade receivables securitization program. 2009 Annual Report 1 The newly introduced Trane® XB300 residential air conditioning system provides a reliable, efficient and cost- competitive solution to meet a variety of consumer needs, from single-family new construction, multi-family housing or homeowners who require a lower cost option. Building a Top-Tier Performer Having met the challenges of a difficult year, our Currently, our plant capacity utilization rate is company is poised to consistently deliver operating and well below where we want it to be, which results in a financial results that characterize a top-tier diversified sizable amount of unabsorbed overhead that burdens industrial company. We know what we need to our company’s cost structure. Fundamentally, accomplish, year-in and year-out, to rank among the addressing capacity utilization will require reducing upper echelon of diversified industrial companies, and our manufacturing footprint to more appropriately we are making the moves necessary to achieve that goal. reflect foreseeable demand trends across our markets Primarily, we are continuing our focus on and leveraging our overall improved plant performance. productivity to drive cost reduction, margin expansion In addition, we have many opportunities across our and cash generation, and we are accelerating our company to establish multi-business and multi-brand Trane® introduced more pursuit of innovation, which will drive revenue growth manufacturing facilities. For example, our new facility new commercial products in by enabling market-changing solutions, expanded in Wujiang, China, hosts manufacturing for five of 2009 than in its previous 20 years combined, share of our markets, and improved pricing based our businesses, where historically we would have including this Precedent™ on superior value. had four or five smaller plants dedicated to each rooftop unit, which individual business. delivers high reliability, easy installation, low Creating a Productivity Culture Our business integration initiatives are primarily maintenance, and reduced Our success in generating substantial productivity intended to organize around key end markets, improve operating costs and upfront our customer focus and leverage manufacturing, expense for commercial improvement in 2009 gave us important insight into building owners. the methods and mindsets necessary to create a engineering and market-facing activities. Reorganizing productivity culture within Ingersoll Rand. A productivity our businesses also enables us to reduce costs. culture recognizes that although economic and market By combining our heating, ventilating, air conditioning conditions may fluctuate, competition and costs will and refrigeration (HVAC+R) businesses into one, continue to apply pressure on gross margins and which we call Climate Solutions, and our consumer- profitability. With that mindset, we are tackling three facing businesses into a platform we call Residential major areas of opportunity to generate real cost Solutions, we have made important progress in our reduction on a year-over-year basis: plant capacity long-term plan to improve our cost structure. utilization, business integration, and continued For example, today the Climate Solutions business synergies resulting from common and improved comprises a world-class HVAC+R organization that Trane and Ingersoll Rand business activities, features the market-leading Hussmann, Thermo King including global sourcing. and Trane brands. At the same time, the new organization enabled a reduction in overhead costs of approximately $80 million. The Residential Solutions business presents a unified face to the consumer, led by our Schlage and Trane brands and the strength of a technology platform that enables homeowners to take control of the way they manage energy efficiency and security. At the same time, by integrating these businesses, we reduced overhead costs by approximately $10 million. We continue to benefit from ongoing synergies related to the acquisition of Trane, even beyond the A new Ingersoll Rand® centrifugal air compressor benefits of business integration. Through 2009 we platform with more than 50 design improvements advances industry standards for reliability, efficiency have generated approximately $300 million in synergy and productivity. savings and expect to realize another $100 million in 2 Ingersoll Rand 2010. In total, along with the savings associated with Whether the focus is reducing emissions, reducing the creation of Climate Solutions and Residential energy costs, using products that are engineered to Solutions, we are on target to achieve cumulative reduce material waste,