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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to          
Commission File No. 001-34400
INGERSOLL-RAND 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)
Registrant’s telephone number, including area code: +(353) (0) 18707400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Ordinary Shares,
 
New York Stock Exchange
Par Value $1.00 per Share
 
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES   X       NO        
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES            NO  X  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  X      NO        
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  X      NO        
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer  X  
Accelerated filer             
Non-accelerated filer             
Smaller reporting company             
(Do not check if a smaller reporting company)
Emerging growth company             
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.         
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES             NO  X  
The aggregate market value of ordinary shares held by nonaffiliates on June 30, 2017 was approximately $23.1 billion based on the closing price of such stock on the New York Stock Exchange.
The number of ordinary shares outstanding as of February 1, 2018 was 249,889,299.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement to be filed within 120 days of the close of the registrant’s fiscal year in connection with the registrant’s Annual General Meeting of Shareholders to be held June 7, 2018 are incorporated by reference into Part II and Part III of this Form 10-K.



Table of Contents

INGERSOLL-RAND PLC

Form 10-K
For the Fiscal Year Ended December 31, 2017
TABLE OF CONTENTS
 
 
 
 
Page
Part I
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 1B.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
Part II
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 
 
Item 7.
 
 
 
 
 
Item 7A.
 
 
 
 
 
Item 8.
 
 
 
 
 
Item 9.
 
 
 
 
 
Item 9A.
 
 
 
 
 
Item 9B.
 
 
 
 
Part III
Item 10.
 
 
 
 
 
Item 11.
 
 
 
 
 
Item 12.
 
 
 
 
 
Item 13.
 
 
 
 
 
Item 14.
 
 
 
 
Part IV
Item 15.
 
 
 
 
 
Item 16.
 
 
 
 
 
 


Table of Contents

CAUTIONARY STATEMENT FOR FORWARD LOOKING STATEMENTS
Certain statements in this report, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “forecast,” “outlook,” “intend,” “strategy,” “plan,” “may,” “could,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” or the negative thereof or variations thereon or similar terminology generally intended to identify forward-looking statements.
Forward-looking statements may relate to such matters as projections of revenue, margins, expenses, tax provisions, earnings, cash flows, benefit obligations, share or debt repurchases or other financial items; any statements of the plans, strategies and objectives of management for future operations, including those relating to any statements concerning expected development, performance or market share relating to our products and services; any statements regarding future economic conditions or our performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on our forward-looking statements. You are advised to review any further disclosures we make on related subjects in materials we file with or furnish to the SEC. Forward-looking statements speak only as of the date they are made and are not guarantees of future performance. They are subject to future events, risks and uncertainties - many of which are beyond our control - as well as potentially inaccurate assumptions, that could cause actual results to differ materially from our expectations and projections. We do not undertake to update any forward-looking statements.
Factors that might affect our forward-looking statements include, among other things:
overall economic, political and business conditions in the markets in which we operate;
the demand for our products and services;
competitive factors in the industries in which we compete;
changes in tax laws and requirements (including tax rate changes, new tax laws, new and/or revised tax law interpretations and any legislation that may limit or eliminate potential tax benefits resulting from our incorporation in a non-U.S. jurisdiction, such as Ireland);
the outcome of any litigation, governmental investigations, claims or proceedings;
the outcome of any income tax audits or settlements;
interest rate fluctuations and other changes in borrowing costs;
other capital market conditions, including availability of funding sources;
currency exchange rate fluctuations, exchange controls and currency devaluations;
availability of and fluctuations in the prices of key commodities;
impairment of our goodwill, indefinite-lived intangible assets and/or our long-lived assets;
climate change, changes in weather patterns, natural disasters and seasonal fluctuations;
the impact of potential information technology or data security breaches; and
the strategic acquisition or divestiture of businesses, product lines and joint ventures;
Some of the significant risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described more fully in Part I, Item 1A “Risk Factors.” You should read that information in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report and our Consolidated Financial Statements and related notes in Part II, Item 8 “Financial Statements and Supplementary Data” of this report. We note such information for investors as permitted by the Private Securities Litigation Reform Act of 1995.


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PART I
Item 1.      BUSINESS
Overview
Ingersoll-Rand plc (Plc or Parent Company), a public limited company incorporated in Ireland in 2009, and its consolidated subsidiaries (collectively, we, our, the Company) is a diversified, global company that provides products, services and solutions to enhance the quality, energy efficiency and comfort of air in homes and buildings, transport and protect food and perishables and increase industrial productivity and efficiency. Our business segments consist of Climate and Industrial, both with strong brands and highly differentiated products within their respective markets. We generate revenue and cash primarily through the design, manufacture, sale and service of a diverse portfolio of industrial and commercial products that include well-recognized, premium brand names such as Ingersoll-Rand®, Trane®, Thermo King®, American Standard®, ARO®, and Club Car®.
To achieve our mission of being a world leader in creating comfortable, sustainable and efficient environments, we continue to focus on growth by increasing our recurring revenue stream from parts, service, controls, used equipment and rentals; and to continuously improve the efficiencies and capabilities of the products and services of our businesses. We also continue to focus on operational excellence strategies as a central theme to improving our earnings and cash flow.
Business Segments
Our business segments provide products, services and solutions used to increase the efficiency and productivity of both industrial and commercial operations and homes, as well as improve the health and comfort of people around the world.
Our business segments are as follows:
Climate
Our Climate segment delivers energy-efficient products and innovative energy services. It includes Trane® and American Standard® Heating & Air Conditioning which provide heating, ventilation and air conditioning (HVAC) systems, and commercial and residential building services, parts, support and controls; energy services and building automation through Trane Building Advantage and Nexia; and Thermo King® transport temperature control solutions. This segment had 2017 net revenues of $11.2 billion.
Industrial
Our Industrial segment delivers products and services that enhance energy efficiency, productivity and operations. It includes compressed air and gas systems and services, power tools, material handling systems, ARO® fluid management equipment, as well as Club Car ® golf, utility and consumer low-speed vehicles. This segment had 2017 net revenues of $3.0 billion.
Segment Revenue and profit information and additional financial data and commentary on recent financial results for operating segments are provided in the Results of Operations section in Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” and in Note 18 to the Consolidated Financial Statements in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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Products and Services
Our principal products and services by business segment include the following:
Climate
Aftermarket and OEM parts and supplies
  
Ice energy storage solutions
Air conditioners
 
Indoor air quality
Air exchangers
 
Industrial refrigeration
Air handlers
 
Installation contracting
Airside and terminal devices
 
Large commercial unitary
Auxiliary power units
 
Light commercial unitary
Building management systems
 
Motor replacements
Bus and rail HVAC systems
 
Multi-pipe HVAC systems
Chillers
 
Package heating and cooling systems
Coils and condensers
 
Performance contracting
Container refrigeration systems and gensets
  
Rail refrigeration systems
Control systems
  
Refrigerant reclamation
Cryogenic refrigeration systems
  
Repair and maintenance services
Diesel-powered refrigeration systems
 
Rental services
Ductless systems
  
Self-powered truck refrigeration systems
Energy management services
  
Service agreements
Facility management services
  
Temporary heating and cooling systems
Furnaces
  
Thermostats/controls
Geothermal systems
  
Trailer refrigeration systems
Heat pumps
  
Transport heater products
Home automation
  
Unitary systems (light and large)
Humidifiers
 
Vehicle-powered truck refrigeration systems
Hybrid and non-diesel transport refrigeration solutions
 
Water source heat pumps
Industrial
Compressors (centrifugal, reciprocating, and rotary)
 
Fluid power components
Air treatment and air separation systems
 
Installation contracting
Aftermarket and OEM parts and supplies
 
Power tools (air, cordless and electric)
Aftermarket controls, parts, accessories and consumables
 
Precision fastening systems
Airends
 
Pumps (diaphragm and piston)
Blowers
 
Rental services
Dryers
 
Rough terrain (AWD) vehicles
Engine starting systems
 
Service agreements
Ergonomic material handling systems
 
Service break/fix
Filters
 
Utility and consumer low-speed vehicles
Fluid handling systems
 
Visage® mobile golf information systems
Golf vehicles
 
Winches (air, electric and hydraulic)
Hoists (air, electric and manual)
 
 
These products are sold primarily under our name and under other names including American Standard, ARO, Club Car, Nexia, Thermo King and Trane.
Acquisitions
On January 17, 2018, we entered into an agreement with Mitsubishi Electric Corporation (Mitsubishi) to establish a joint venture, pending regulatory review and approval, and customary closing conditions. The joint venture will focus on marketing, selling and supporting variable refrigerant flow (VRF) and ductless heating and air conditioning systems through Trane, American Standard and Mitsubishi channels in the U.S. and select Latin American countries. Both companies will have equal ownership in the joint venture. It is expected to be operational in the first half of 2018.

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On January 18, 2018, we acquired 100% of the outstanding stock of ICS Group Holdings Limited (ICS Cool Energy) for approximately £142 million, net of cash acquired. The acquired business specializes in the temporary rental of energy efficient chillers for commercial and industrial buildings across Europe. It also sells, permanently installs and services high performance temperature control systems for all types of industrial processes. The acquisition was funded through cash on hand. The results of ICS Cool Energy will be included in the Company's consolidated financial statements as of the date of the acquisition and reported within our Climate segment.
During 2017, we acquired several businesses, including channel acquisitions, that complement existing products and services. The aggregate cash paid, net of cash acquired, totaled $157.6 million and was funded through cash on hand. Acquisitions within the Climate segment primarily consisted of independent dealers which support the ongoing strategy to expand our distribution network in North America. Other acquisitions within the segment strengthen our product portfolio. Acquisitions within the Industrial segment primarily consisted of a telematics business which builds upon our growing portfolio of connected assets. In addition, other acquisitions within the segment expand sales and service channels across the globe.
On January 1, 2015, we completed the acquisition of the assets of Cameron International Corporation’s Centrifugal Compression (Engineered Centrifugal Compression) business for approximately $850 million. The acquired business manufactures centrifugal compression equipment and provides aftermarket parts and services for global industrial applications, air separation, gas transmission and process gas. The acquisition was funded through a combination of cash on hand and debt. The results of the Engineered Centrifugal Compression business have been included in our consolidated financial statements since the date of the acquisition and reported within our Industrial segment.
On March 4, 2015, we acquired 100% of the outstanding stock of FRIGOBLOCK for approximately €100 million (approximately $113 million). The acquisition was funded through a combination of cash on hand and debt. The acquired business manufactures and designs transport refrigeration units for trucks and trailers, which it sells primarily in Western Europe. The results of the FRIGOBLOCK business have been included in our consolidated financial statements since the date of the acquisition and reported within our Climate segment.
Competitive Conditions
Our products and services are sold in highly competitive markets throughout the world. Due to the diversity of these products and services and the variety of markets served, we encounter a wide variety of competitors that vary by product line and services. They include well-established regional or specialized competitors, as well as larger U.S. and non-U.S. corporations or divisions of larger companies.
The principal methods of competition in these markets relate to price, quality, delivery, service and support, technology and innovation. We believe that we are one of the leading manufacturers in the world of HVAC systems and services, air compression systems, transport temperature control products, power tools, and golf, utility and consumer low-speed vehicles.
Distribution
Our products are distributed by a number of methods, which we believe are appropriate to the type of product. U.S. sales are made through branch sales offices, distributors and dealers across the country. Non-U.S. sales are made through numerous subsidiary sales and service companies with a supporting chain of distributors throughout the world.
Operations by Geographic Area
Approximately 35% of our net revenues in 2017 were derived outside the U.S. and we sold products in more than 100 countries. Therefore, the attendant risks of manufacturing or selling in a particular country, such as currency devaluation, nationalization and establishment of common markets, may have an adverse impact on our non-U.S. operations. For a discussion of risks associated with our non-U.S. operations, see “Risk Factors – Our global operations subject us to economic risks,” and “Risk Factors – Currency exchange rate fluctuations and other related risks may adversely affect our results,” in Item 1A and “Quantitative and Qualitative Disclosure about Market Risk” in Item 7A. Additional geographic data is provided in Note 18 to the Consolidated Financial Statements.
Customers
We have no customer that accounted for more than 10% of our consolidated net revenues in 2017, 2016 or 2015. No material part of our business is dependent upon a single customer or a small group of customers; therefore, the loss of any one customer would not have a material adverse effect on our results of operations or cash flows.



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Raw Materials
We manufacture many of the components included in our products, which requires us to employ a wide variety of commodities. Principal commodities, such as steel, copper and aluminum, are purchased from a large number of independent sources around the world. In the past, variability in prices for some commodities, particularly steel and non-ferrous metals, have caused margin pressure in some of our businesses. We have historically been able to adjust pricing with customers to maintain our margins; however, we may not always be able to offset these cost changes with price changes.
We believe that available sources of supply will generally be sufficient for the foreseeable future. There have been no commodity shortages which have had a material adverse effect on our businesses. However, significant changes in certain material costs may have an adverse impact on our costs and operating margins. To mitigate this potential impact, we enter into long-term supply contracts in order to manage our exposure to potential supply disruptions.
Working Capital
We manufacture products that must be readily available to meet our customers’ rapid delivery requirements. Therefore, we maintain an adequate level of working capital to support our business needs and our customers’ requirements. Such working capital requirements are not, however, in the opinion of management, materially different from those experienced by our major competitors. We believe our sales and payment terms are competitive in and appropriate for the markets in which we compete.
Seasonality
Demand for certain of our products and services is influenced by weather conditions. For instance, sales in our commercial and residential HVAC businesses historically tend to be seasonally higher in the second and third quarters of the year because this represents summer in the U.S. and other northern hemisphere markets, which is the peak season for sales of air conditioning systems and services. Therefore, results of any quarterly period may not be indicative of expected results for a full year and unusual weather patterns or events could negatively or positively affect certain segments of our business and impact overall results of operations.
Research and Development
We engage in research and development activities in an effort to introduce new products, enhance existing product effectiveness, improve ease of use and reliability as well as expand the various applications for which our products may be appropriate. In addition, we continually evaluate developing technologies in areas that we believe will enhance our business for possible investment or acquisition. We anticipate that we will continue to make significant expenditures for research and development activities as we look to maintain and improve our competitive position.
Patents and Licenses
We own numerous patents and patent applications, and are licensed under others. Although in aggregate we consider our patents and licenses to be valuable to our operations, we do not believe that our business is materially dependent on a single patent or license or any group of them. In our opinion, engineering, production skills and experience are more responsible for our market position than our patents and/or licenses.
Backlog
Our approximate backlog of orders, believed to be firm, at December 31, was as follows:
In millions
 
2017
 
2016
Climate
 
$
1,972.4

 
$
1,754.4

Industrial
 
525.6

 
443.2

Total
 
$
2,498.0

 
$
2,197.6

These backlog figures are based on orders received. While the major portion of our products are built in advance of order and either shipped or assembled from stock, orders for specialized machinery or specific customer application are submitted with extensive lead times and are often subject to revision and deferral, and to a lesser extent cancellation or termination. We expect to ship substantially all of the December 31, 2017 backlog during 2018.

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Environmental Matters
We continue to be dedicated to environmental and sustainability programs to minimize the use of natural resources, and reduce the utilization and generation of hazardous materials from our manufacturing processes and to remediate identified environmental concerns. As to the latter, we are currently engaged in site investigations and remediation activities to address environmental cleanup from past operations at current and former manufacturing facilities.
We are sometimes a party to environmental lawsuits and claims and have received notices of potential violations of environmental laws and regulations from the Environmental Protection Agency and similar state authorities. We have 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, our involvement is minimal.
In estimating our liability, we have assumed that we will not bear the entire cost of remediation of any site to the exclusion of other PRPs who may be jointly and severally liable. The ability of other PRPs to participate has been taken into account, based on our understanding of 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.
For a further discussion of our potential environmental liabilities, see Note 19 to the Consolidated Financial Statements.
Asbestos-Related Matters
Certain of our wholly-owned subsidiaries and former companies are named as defendants in asbestos-related lawsuits in state and federal courts. In many of the lawsuits, a large number of other companies have also been named as defendants. The vast majority of those claims allege injury caused by exposure to asbestos contained in certain historical products, primarily pumps, boilers and railroad brake shoes. None of our existing or previously-owned businesses were a producer or manufacturer of asbestos.
See also the discussion under Part I, Item 3, "Legal Proceedings," and Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," "Contingent Liabilities," as well as further detail in Note 19 to the Consolidated Financial Statements.
Employees
As of December 31, 2017, we employed approximately 46,000 people throughout the world.
Available Information
We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Securities Exchange Act of 1934.
This Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to all of the foregoing reports, are made available free of charge on our Internet website (http://www.ingersollrand.com) as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The Board of Directors of the Company has also adopted and posted in the Investor Relations section of the Company’s website our Corporate Governance Guidelines and charters for each of the Board’s standing committees. The contents of the Company’s website are not incorporated by reference in this report.

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Executive Officers of the Registrant
The following is a list of executive officers of the Company as of February 12, 2018.
Name and Age
  
Date of
Service as
an Executive
Officer
 
Principal Occupation and
Other Information for Past Five Years
Michael W. Lamach (54)
  
2/16/2004
 
Chairman of the Board (since June 2010) and Chief Executive Officer (since February 2010); President and Chief Operating Officer (2009-2010); Senior Vice President and President, Trane Commercial Systems (2008-2009); Senior Vice President and President, Security Technologies (2004-2008)
 
 
 
 
 
Susan K. Carter (59)
 
10/2/2013
  
Senior Vice President and Chief Financial Officer (since October 2013); Executive Vice President and Chief Financial Officer, KBR Inc. (a global engineering, construction and services business), (2009-2013); Executive Vice President and Chief Financial Officer, Lennox International Inc. (a heating, air conditioning and refrigeration company), (2004 to 2009)
 
 
 
 
 
David S. Regnery (55)
 
9/5/2017
 
Executive Vice President (since September 2017); Vice President, President of Commercial HVAC, North America and EMEA (2013 to 2017)
 
 
 
 
 
Marcia J. Avedon (56)
 
2/7/2007
 
Senior Vice President, Human Resources, Communications and Corporate Affairs (since June 2013); Senior Vice President, Human Resources and Communications (2007 - 2013)
 
 
 
 
 
Paul A. Camuti (56)
 
8/1/2011
 
Senior Vice President, Innovation and Chief Technology Officer (since August 2011); President, Smart Grid Applications, Siemens Energy, Inc. (an energy technology subsidiary of Siemens Corporation) (2010 -2011); President, Research Division, Siemens Corporation (a diversified global technology company) (2009 - 2010); President and Chief Executive Officer, Siemens Corporate Research, Inc. (the research subsidiary of Siemens Corporation) (2005 - 2009)
 
 
 
  
 
Maria C. Green (65)
 
11/2/2015
 
Senior Vice President and General Counsel (since November 2015); Senior Vice President, General Counsel and Secretary, Illinois Tool Works Inc. (a global manufacturer of a diversified range of industrial products and equipment), (2012-2015); Vice President, General Counsel & Secretary, Illinois Tool Works Inc. (2011-2012)
 
 
 
 
 
Keith A. Sultana (48)

 
10/12/2015

 
Senior Vice President, Global Operations and Integrated Supply Chain (since October 2015); Vice President, Global Procurement (January 2015 to October 2015); Vice President, Global Integrated Supply Chain (GISC) for Climate Solutions (2010 to 2014)
 
 
 
 
 
Christopher J. Kuehn (45)
 
6/1/2015
 
Vice President and Chief Accounting Officer (since June 2015); Vice President, Corporate Controller and Chief Accounting Officer, Whirlpool Corporation (a global manufacturer and marketer of major home appliances), (2012-2015); Vice President, Global CFO Thermal Equipment and Services Segment, SPX Corporation (a global supplier of infrastructure equipment platforms in heating, ventilation and air conditioning (HVAC)), (2008-2012)
No family relationship exists between any of the above-listed executive officers of the Company. All officers are elected to hold office for one year or until their successors are elected and qualified.

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Item 1A.    RISK FACTORS
Our business, financial condition, results of operations, and cash flows are subject to a number of risks that could cause the actual results and conditions to differ materially from those projected in forward-looking statements contained in this Annual Report on Form 10-K. The risks set forth below are those we consider most significant. We face other risks, however, that we do not currently perceive to be material which could cause actual results and conditions to differ materially from our expectations. You should evaluate all risks before you invest in our securities. If any of the risks actually occur, our business, financial condition, results of operations or cash flows could be adversely impacted. In that case, the trading price of our ordinary shares could decline, and you may lose all or part of your investment.
Our global operations subject us to economic risks.
Our global operations are dependent upon products manufactured, purchased and sold in the U.S. and internationally, including Europe, China, Brazil, Middle East, Africa, India, Argentina, Mexico and Russia. These activities are subject to risks that are inherent in operating globally, including:
changes in local laws and regulations or imposition of currency restrictions and other restraints;
limitation of ownership rights, including expropriation of assets by a local government, and limitation on the ability to repatriate earnings;
sovereign debt crises and currency instability in developed and developing countries;
trade protection measures such as import or export restrictions and requirements, the imposition of burdensome tariffs and quotas or revocation or material modification of trade agreements;
difficulty in staffing and managing global operations;
difficulty of enforcing agreements, collecting receivables and protecting assets through non-U.S. legal systems;
national and international conflict, including war, civil disturbances and terrorist acts; and
recessions, economic downturns, slowing economic growth and social and political instability.
These risks could increase our cost of doing business internationally, increase our counterparty risk, disrupt our operations, disrupt the ability of suppliers and customers to fulfill their obligations, limit our ability to sell products in certain markets and have a material adverse impact on our results of operations, financial condition, and cash flows.
We face significant competition in the markets that we serve and our growth is dependent, in part, on the development, commercialization and acceptance of new products and services.
The markets that we serve are highly competitive. We compete worldwide with a number of other manufacturers and distributors that produce and sell similar products. There has been consolidation and new entrants (including non-traditional competitors) within our industries and there may be future consolidation and new entrants which could result in increased competition and significantly alter the dynamics of the competitive landscape in which we operate. Due to our global footprint we are competing worldwide with large companies and with smaller, local operators who may have customer, regulatory or economic advantages in the geographies in which they are located. In addition, some of our competitors may employ pricing and other strategies that are not traditional.
In addition, we must develop and commercialize new products and services in a rapidly changing technological and business environment in order to remain competitive in our current and future markets and in order to continue to grow our business. The development and commercialization of new products and services require a significant investment of resources and an anticipation of the impact of new technologies and the ability to compete with others who may have superior resources. We cannot provide any assurance that any new product or service will be successfully commercialized in a timely manner, if ever, or, if commercialized, will result in returns greater than our investment. Investment in a product or service could divert our attention and resources from other projects that become more commercially viable in the market. We also cannot provide any assurance that any new product or service will be accepted by our current and future markets.  Failure to develop new products and services that are accepted by these markets could have a material adverse impact on our competitive position, results of operations, financial condition, and cash flows.
The capital and credit markets are important to our business.
Instability in U.S. and global capital and credit markets, including market disruptions, limited liquidity and interest rate volatility, or reductions in the credit ratings assigned to us by independent rating agencies could reduce our access to capital markets or increase the cost of funding our short and long term credit requirements. In particular, if we are unable to access capital and credit markets on terms that are acceptable to us, we may not be able to make certain investments or fully execute our business plans and strategies.

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Our suppliers and customers are also dependent upon the capital and credit markets. Limitations on the ability of customers, suppliers or financial counterparties to access credit at interest rates and on terms that are acceptable to them could lead to insolvencies of key suppliers and customers, limit or prevent customers from obtaining credit to finance purchases of our products and services and cause delays in the delivery of key products from suppliers.
Currency exchange rate fluctuations and other related risks may adversely affect our results.
We are exposed to a variety of market risks, including the effects of changes in currency exchange rates. See Part II Item 7A, "Quantitative and Qualitative Disclosure About Market Risk."
We have operations throughout the world that manufacture and sell products in various international markets. As a result, we are exposed to movements in exchange rates of various currencies against the U.S. dollar as well as against other currencies throughout the world.
Many of our non-U.S. operations have a functional currency other than the U.S. dollar, and their results are translated into U.S. dollars for reporting purposes. Therefore, our reported results will be higher or lower depending on the weakening or strengthening of the U.S. dollar against the respective foreign currency.
We use derivative instruments to hedge those material exposures that cannot be naturally offset. The instruments utilized are viewed as risk management tools, involve little complexity and are not used for trading or speculative purposes. To minimize the risk of counter party non-performance, derivative instrument agreements are made only through major financial institutions with significant experience in such derivative instruments.
We also face risks arising from the imposition of exchange controls and currency devaluations. Exchange controls may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing controls. Currency devaluations result in a diminished value of funds denominated in the currency of the country instituting the devaluation.
Material adverse legal judgments, fines, penalties or settlements could adversely affect our results of operations or financial condition.
We are currently and may in the future become involved in legal proceedings and disputes incidental to the operation of our business or the business operations of previously-owned entities. Our business may be adversely affected by the outcome of these proceedings and other contingencies (including, without limitation, contract claims or other commercial disputes, product liability, product defects and asbestos-related matters) that cannot be predicted with certainty. Moreover, any insurance or indemnification rights that we may have may be insufficient or unavailable to protect us against the total aggregate amount of losses sustained as a result of such proceedings and contingencies. As required by generally accepted accounting principles in the United States, we establish reserves based on our assessment of contingencies. Subsequent developments in legal proceedings and other events could affect our assessment and estimates of the loss contingency recorded as a reserve and we may be required to make additional material payments, which could have a material adverse impact on our liquidity, results of operations, financial condition, and cash flows.
Our reputation, ability to do business and results of operations could be impaired by improper conduct by any of our employees, agents or business partners.
We are subject to regulation under a wide variety of U.S. federal and state and non-U.S. laws, regulations and policies, including laws related to anti-corruption, export and import compliance, anti-trust and money laundering, due to our global operations. We cannot provide assurance our internal controls will always protect us from the improper conduct of our employees, agents and business partners. Any violations of law or improper conduct could damage our reputation and, depending on the circumstances, subject us to, among other things, civil and criminal penalties, material fines, equitable remedies (including profit disgorgement and injunctions on future conduct), securities litigation and a general loss of investor confidence, any one of which could have a material adverse impact on our business prospects, financial condition, results of operations, cash flows, and the market value of our stock.
We may be subject to risks relating to our information technology systems.
We rely extensively on information technology systems, some of which are supported by third party vendors including cloud services, to manage and operate our business. We are also investing in new information technology systems that are designed to continue improving our operations. If these systems cease to function properly, if these systems experience security breaches or disruptions or if these systems do not provide the anticipated benefits, our ability to manage our operations could be impaired, which could have a material adverse impact on our results of operations, financial condition, and cash flows.

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Security breaches or disruptions of our technology systems, infrastructure or products could negatively impact our business and financial results.
Our information technology systems and infrastructure and technology embedded in certain of our control products may be subject to cyber attacks and unauthorized security intrusions. It is possible for such vulnerabilities to remain undetected for an extended period. In addition, hardware, software or applications we develop or obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly result in security breaches or disruptions. The methods used to obtain unauthorized access, disable or degrade service, or sabotage systems are constantly changing and evolving. Despite having instituted security policies and business continuity plans, and implementing and regularly reviewing and updating processes and procedures to protect against unauthorized access, the ever-evolving threats mean we must continually evaluate and adapt our systems and processes, and there is no guarantee that they will be adequate to safeguard against all data security breaches or misuses of data. Our systems, networks and certain of our control products may be vulnerable to system damage, malicious attacks from hackers, employee errors or misconduct, viruses, power and utility outages, and other catastrophic events that could cause significant harm to our business by negatively impacting our business operations, compromising the security of our proprietary information or the personally identifiable data relating to our customers, employees and business partners and exposing us to litigation that could adversely affect our reputation. Such events could have a material adverse impact on our results of operations, financial condition and cash flows. Our insurance coverage may not be adequate to cover all the costs related to a cybersecurity attack or disruptions resulting from such attacks.
Commodity shortages and price increases could adversely affect our financial results.
We rely on suppliers to secure commodities, particularly steel and non-ferrous metals, required for the manufacture of our products. A disruption in deliveries from our suppliers or decreased availability of commodities could have an adverse effect on our ability to meet our commitments to customers or increase our operating costs. We believe that available sources of supply will generally be sufficient for our needs for the foreseeable future. Nonetheless, the unavailability of some commodities could have a material adverse impact on our results of operations and cash flows.
Volatility in the prices of these commodities or the impact of inflationary increases could increase the costs of our products and services. We may not be able to pass on these costs to our customers and this could have a material adverse impact on our results of operations and cash flows. Conversely, in the event there is deflation, we may experience pressure from our customers to reduce prices. There can be no assurance that we would be able to reduce our costs (through negotiations with suppliers or other measures) to offset any such price concessions which could adversely impact results of operations and cash flows. We do not currently use financial derivatives to hedge against this volatility. While we use fixed price contracts to mitigate this exposure, we expect any future hedging activity to seek to minimize near-term volatility of the commodity prices which would not protect us from long-term commodity price increases.
Some of our purchases are from sole or limited source suppliers for reasons of cost effectiveness, uniqueness of design or product quality. If these suppliers encounter financial or operating difficulties, we might not be able to quickly establish or qualify replacement sources of supply.
We may be required to recognize impairment charges for our goodwill and other indefinite-lived intangible assets.
At December 31, 2017, the net carrying value of our goodwill and other indefinite-lived intangible assets totaled $5.9 billion and $2.7 billion, respectively. In accordance with generally accepted accounting principles, we periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets, divestitures and sustained market capitalization declines may result in recognition of impairments to goodwill or other indefinite-lived assets. Any charges relating to such impairments could have a material adverse impact on our results of operations in the periods recognized.
Global climate change and related regulations could negatively affect our business.
Refrigerants are essential to many of our products and there is a growing awareness and concern regarding global warming potential of such materials. As such, national, regional and international regulations and policies are being considered to curtail their use. As we begin to see regulations impeding the use of the current class of widely used refrigerants we are planning for, and managing transitions to, sustainable solutions. We have committed to increase energy efficiency and reduce our climate impact with operational and product-related climate targets, including among other initiatives: (i) 50 percent reduction in the greenhouse gas emissions refrigerant footprint of our products for our customers by 2020 and lower global warming potential alternatives across our portfolio by 2030; (ii) $500 million investment in product-related research and development from 2015-2020 to fund the long-term reduction of greenhouse gas emissions; and (iii) 35 percent reduction in the greenhouse gas footprint of our office buildings, manufacturing facilities and fleet by 2020. While we are committed to pursuing these sustainable solutions, there can be no assurance that our commitments will be successful, that our products will be accepted by the market, that proposed regulation or deregulation will not have a negative competitive impact or that economic returns will match the investment that we are making in new product development.

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Concerns regarding global climate change have resulted in the Kigali amendment to the Montreal Protocol, pursuant to which countries have agreed to a scheduled phase down of certain high global warming potential refrigerants. National regulations are expected to be set globally to reduce the use of these refrigerants. These regulations could be even more restrictive than the international agreement. Some countries including the U.S. have not yet ratified the amendment and there could be lower customer demand for next generation products in these countries. There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty. In addition, the U.S. withdrawal from the Paris Accord could affect our competitiveness in certain markets. Such regulatory uncertainty extends to future incentives for energy efficient buildings and vehicles and costs of compliance, which may impact the demand for our products, obsolescence of our products and our results of operations.
Natural disasters or other unexpected events may disrupt our operations, adversely affect our results of operations and financial condition, and may not be covered by insurance.
The occurrence of one or more unexpected events, including hurricanes, fires, earthquakes, floods and other forms of severe weather in the U.S. or in other countries in which we operate or are located could adversely affect our operations and financial performance. Natural disasters, power outages or other unexpected events could result in physical damage to and complete or partial closure of one or more of our plants, temporary or long-term disruption of our operations by causing business interruptions or by impacting the availability and cost of materials needed for manufacturing. Existing insurance arrangements may not provide protection for the costs that may arise from such events, particularly if such events are catastrophic in nature or occur in combination. The occurrence of any of these events could increase our insurance and other operating costs.
Some of the markets in which we operate are cyclical and seasonal and demand for our products and services could be adversely affected by downturns in these industries.
Demand for most of our products and services depends on the level of new capital investment and planned maintenance expenditures by our customers. The level of capital expenditures by our customers fluctuates based on planned expansions, new builds, repairs, commodity prices, general economic conditions, availability of credit, inflation, interest rates, market forecasts, tax and regulatory developments, trade policies, fiscal spending and sociopolitcal factors among others.
Our commercial and residential HVAC businesses, which collectively represent 64% of our 2017 net revenues, provide products and services to a wide range of markets, including significant sales to the commercial and residential construction markets. Weakness in either or both of these construction markets may negatively impact the demand for our products and services.
Demand for our commercial and residential HVAC business is also influenced by weather conditions. For instance, sales in our commercial and residential HVAC businesses historically tend to be seasonally higher in the second and third quarters of the year because, in the U.S. and other northern hemisphere markets, summer is the peak season for sales of air conditioning systems and services. The results of any quarterly period may not be indicative of expected results for a full year and unusual weather patterns or events could negatively or positively affect our business and impact overall results of operations.
The business of many of our industrial customers, particularly oil and gas companies are to varying degrees cyclical and have experienced periodic downturns. During such economic downturns, customers in these industries historically have tended to delay major capital projects, maintenance projects and upgrades.
Decrease in the demand or our products and services could have a material adverse impact on our results of operations and cash flow.

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Our business strategy includes acquiring and divesting companies, product lines, plants and assets, entering into joint ventures and making investments that complement our existing businesses. We may not identify acquisition, disposition or joint venture candidates at the same rate as the past. Acquisitions, dispositions, joint ventures and investments that we identify could be unsuccessful or consume significant resources, which could adversely affect our operating results.
We continue to analyze and evaluate the acquisition and divestiture of strategic businesses and product lines, technologies and capabilities, plants and assets, joint ventures and investments with the potential to strengthen our industry position, enhance our existing set of product and services offerings, to increase productivity and efficiencies, or to grow or protect revenues, earnings and cash flow or to reduce costs. There can be no assurance that we will identify or successfully complete transactions with suitable candidates in the future, that we will consummate these transactions at rates similar to the past or that completed transactions will be successful. Strategic transactions may involve significant cash expenditures, debt incurrence, operating losses and expenses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. Such transactions involve numerous other risks, including:
diversion of management time and attention from daily operations;
difficulties integrating acquired businesses, technologies and personnel into our business;
difficulties in obtaining and verifying the financial statements and other business information of acquired businesses;
inability to obtain required regulatory approvals and/or required financing on favorable terms;
potential loss of key employees, key contractual relationships or key customers of either acquired businesses or our business;
assumption of the liabilities and exposure to unforeseen or undisclosed liabilities of acquired businesses and exposure to regulatory sanctions;
inheriting internal control deficiencies;
dilution of interests of holders of our common shares through the issuance of equity securities or equity-linked securities; and
in the case of joint ventures and other investments, interests that diverge from those of our partners without the ability to direct the management and operations of the joint venture or investment in the manner we believe most appropriate.
It may be difficult for us to complete transactions quickly and to integrate acquired operations efficiently into our business operations. Any acquisitions, divestitures, joint ventures or investments may ultimately harm our business, financial condition, results of operations and cash flows, as such transactions may not be successful and may ultimately result in impairment charges.
Our operations are subject to regulatory risks.
Our U.S. and non-U.S. operations are subject to a number of laws and regulations, including among others, laws related to the environment and health and safety. We have made, and will be required to continue to make, significant expenditures to comply with these laws and regulations. Any violations of applicable laws and regulations could lead to significant penalties, fines or other sanctions. Changes in current laws and regulations could require us to increase our compliance expenditures, cause us to significantly alter or discontinue offering existing products and services or cause us to develop new products and services. Altering current products and services or developing new products and services to comply with changes in the applicable laws and regulations could require significant research and development investments, increase the cost of providing the products and services and adversely affect the demand for our products and services. The U.S. federal government and various states and municipalities have enacted or may enact legislation intended to deny government contracts to U.S. companies that reincorporate outside of the U.S. or have reincorporated outside of the U.S or may take other actions negatively impacting such companies. If we are unable to effectively respond to changes to applicable laws and regulations, interpretations of applicable laws and regulations, or comply with existing and future laws and regulations, our competitive position, results of operations, financial condition and cash flows could be materially adversely impacted.
Risks Relating to our Past Spin-off Transaction
In December 2013, we completed the spin-off of our former commercial and residential security businesses to our shareholders (the spin-off) pursuant to which each shareholder as of the record date for the spin-off received one ordinary share of Allegion plc (Allegion) for every three Ingersoll-Rand plc ordinary shares. Allegion is now an independent public company. This spin-off exposed us and our shareholders to the risks described below. In addition, we cannot be assured that all of the anticipated benefits of the spin-off and subsequent to the spin-off will be realized.

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If the distribution or certain internal transactions undertaken in anticipation of the spin-off are determined to be taxable for U.S. federal income tax purposes, we, our shareholders as of the time of the distribution that are subject to U.S. federal income tax and/or Allegion could incur significant U.S. federal income tax liabilities.
We received a ruling from the U.S. Internal Revenue Service (IRS) substantially to the effect that, among other things, the distribution of Allegion plc’s ordinary shares, together with certain related transactions, will qualify for tax-free treatment under Sections 355 and 368(a) of the U.S. Internal Revenue Code of 1986, as amended (the Code), with the result that we and our shareholders will not recognize any taxable income, gain or loss for U.S. federal income tax purposes as a result of the spin-off, except to the extent of cash received in lieu of fractional shares (the IRS Ruling). The IRS Ruling also provides that specified internal transactions undertaken in anticipation of the distribution will qualify for favorable treatment under the Code. In addition, we received opinions from the law firm of Simpson Thacher & Bartlett LLP substantially to the effect that specified requirements, including certain requirements that the IRS will not rule on, necessary to obtain tax-free treatment have been satisfied, such that the distribution for U.S. federal income tax purposes and certain other matters relating to the distribution, including certain internal transactions undertaken in anticipation of the distribution, will receive tax-free treatment under Section 355 of the Code. The IRS Ruling and the opinions relied on certain facts and assumptions and certain representations and undertakings from us and Allegion regarding the past and future conduct of our respective businesses and other matters.
Notwithstanding the IRS Ruling and the opinions, the IRS could determine on audit that the distribution or the internal transactions should be treated as taxable transactions if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated, or that the distribution or the internal transactions should be taxable for other reasons, including as a result of significant changes in shares or asset ownership after the distribution. A legal opinion represents the tax adviser’s best legal judgment and is not binding on the IRS or the courts, and the IRS or the courts may not agree with the opinion. In addition, the opinion is based on current law and cannot be relied upon if current law changes with retroactive effect. If the distribution, and/or internal transactions, ultimately is determined to be taxable, we or Allegion could incur significant U.S. federal income tax liabilities, which could cause a material adverse impact on our business, financial condition, results of operations and cash flows in future reporting periods.
Furthermore, if, notwithstanding receipt of the IRS Ruling and opinions, the spin-off were determined to be a taxable transaction, each shareholder subject to U.S. federal income tax who received shares of Allegion in the spin-off would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the Allegion shares received. That distribution would be taxable as a dividend to the extent of our then-current and accumulated earnings and profits. Any amount that exceeded our earnings and profits would be treated first as a non-taxable return of capital to the extent of the applicable shareholder's tax basis in our ordinary shares with any remaining amount being taxed as a capital gain.
Under the terms of the Tax Matters Agreement between us and Allegion executed in connection with the spin-off, in the event the distribution or the internal transactions were determined to be taxable as a result of actions taken after the distribution by us or Allegion, the party responsible for such failure would be responsible for all taxes imposed on us or Allegion as a result thereof. If such failure is not the result of actions taken after the distribution by us or Allegion, then Allegion would be responsible for any taxes imposed on us or Allegion as a result of such determination. Such tax amounts could be significant. If Allegion were to default in its obligation to us to pay such taxes, we could be legally liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our agreed-upon share of tax liabilities. To the extent we are responsible for any liability under the Tax Matters Agreement, there could be a material adverse impact on our business, financial condition, results of operations and cash flows in future reporting periods.
If the distribution is determined to be taxable for Irish tax purposes, significant Irish tax liabilities may arise.
We received an opinion of Irish Revenue regarding the Irish tax consequences of the distribution to the effect that certain reliefs and exemptions for corporate reorganizations apply. In addition to obtaining the opinion from Irish Revenue, we also received opinions from the law firm of Arthur Cox confirming the applicability of the relevant exemptions and reliefs to the distribution as well as received opinions from other external advisers that certain internal transactions will not trigger Irish tax costs as well. These opinions relied on certain facts and assumptions and certain representations and undertakings from us and Allegion regarding the past and future conduct of our respective businesses and other matters. Notwithstanding the opinions, Irish Revenue could determine on audit that the distribution or the internal transactions do not qualify for the relevant exemptions or reliefs if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated. A legal opinion represents the tax adviser’s best legal judgment and is not binding on Irish Revenue or the courts and Irish Revenue or the courts may not agree with the legal opinion. In addition, the legal opinion is based on current law and cannot be relied upon if current law changes with retroactive effect. If the distribution ultimately is determined not to fall within certain exemptions or reliefs, the distribution could result in certain of our shareholders having an Irish tax liability as a result of the distribution, or we or Allegion could incur Irish tax liabilities. To the extent we are responsible for any such liability under the Tax Matters Agreement, there could be a material adverse impact on our business, financial condition, results of operations and cash flows in future reporting periods.

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Risks Relating to Our Operations and Corporate Structure
Our corporate structure has resulted from prior corporate reorganizations and related transactions. These various transactions exposed us and our shareholders to the risks described below. In addition, we cannot be assured that all of the anticipated benefits of our operations and corporate structure will be realized.
Changes in tax or other laws, regulations or treaties, including the recent enactment of the U.S. Tax Cuts and Jobs Act, changes in our status under U.S. or non-U.S. laws or adverse determinations by taxing or other governmental authorities could increase our tax burden or otherwise affect our financial condition or operating results, as well as subject our shareholders to additional taxes.
The realization of any tax benefit related to our operations and corporate structure could be impacted by changes in tax or other laws, treaties or regulations or the interpretation or enforcement thereof by the U.S. or non-U.S. tax or other governmental authorities. Recently enacted comprehensive tax reform legislation known as the Tax Cuts and Jobs Act (TCJA) makes broad and complex changes to the U.S. tax code. As part of the migration from a worldwide system of taxation to a modified territorial system for corporations, the TCJA imposes a transition tax on certain unrepatriated earnings of non-U.S. subsidiaries. We have taken a charge in connection with the mandatory deemed repatriation of earnings of certain of our non-U.S. subsidiaries, and we have recorded other charges and benefits, set forth in greater detail in Note 15 to the Consolidated Financial Statements. We are also continuing to evaluate any additional impact on the Company from the TCJA. The full impact of the changes is not currently determinable, as we are expecting future guidance to be issued by the U.S. Department of Treasury and/or the IRS, which we expect will provide better clarity regarding the interpretation and application of these rules; however, the new law’s substantial limitations on, and/or elimination of, certain tax deductions and the introduction of new taxing provisions, among other items, may increase our overall tax burden or otherwise negatively impact the Company. Moreover, our overall tax burden may also be adversely impacted by any tax law changes implemented by other countries.
Notwithstanding this change in U.S. tax law, we continue to monitor for other tax changes, U.S. and non-U.S. related. From time to time, proposals have been made and/or legislation has been introduced to change the tax laws, regulations or interpretations thereof of various jurisdictions or limit tax treaty benefits that if enacted or implemented could materially increase our tax burden and/or effective tax rate and could have a material adverse impact on our financial condition and results of operations. Moreover, the Organisation for Economic Co-operation and Development has released proposals to create an agreed set of international rules for fighting base erosion and profit shifting, such that tax laws in countries in which we do business could change on a prospective or retroactive basis, and any such changes could adversely impact us. Finally, the European Commission has been very active in investigating whether various tax regimes or private tax rulings provided by a country to particular taxpayers may constitute State Aid. We cannot predict the outcome of any of these potential changes or investigations in any of the jurisdictions, but if any of the above occurs and impacts us, this could materially increase our tax burden and/or effective tax rate and could have a material adverse impact on our financial condition and results of operations.
While we monitor proposals and other developments that would materially impact our tax burden and/or effective tax rate and investigate our options, we could still be subject to increased taxation on a going forward basis no matter what action we undertake if certain legislative proposals or regulatory changes are enacted, certain tax treaties are amended and/or our interpretation of applicable tax or other laws is challenged and determined to be incorrect. In particular, any changes and/or differing interpretations of applicable tax law that have the effect of disregarding the shareholders' decision to reorganize in Ireland, limiting our ability to take advantage of tax treaties between jurisdictions, modifying or eliminating the deductibility of various currently deductible payments, or increasing the tax burden of operating or being resident in a particular country, could subject us to increased taxation.
While our U.S. operations are subject to U.S. tax, we believe that a significant portion of our non-U.S. operations are generally not subject to U.S. tax other than withholding taxes. For pre-TCJA years, the IRS or a court, however, may not concur with our conclusions including our determination that we, and a significant number of our foreign subsidiaries, are not controlled foreign corporations (CFC) within the meaning of the U.S. tax laws. A contrary determination could also potentially cause U.S. holders (direct, indirect or constructive owners) of 10% or more of our stock (or the voting stock of our non-U.S. subsidiaries) to include in their gross income their pro rata share of certain of our and our non-U.S. subsidiary income for the period during which we (and our non-U.S. subsidiaries) were a CFC. In addition, a gain (or a portion of such gain) realized on CFC shares sold by such shareholders may be treated as ordinary income depending on certain facts. Treatment of us or any of our non-U.S. subsidiaries as a CFC for such years could have a material adverse impact on our results of operations, financial condition, and cash flows.
The inability to realize any anticipated tax benefits related to our operations and corporate structure could have a material adverse impact on our results of operations, financial condition, and cash flows.
In addition, tax authorities periodically review income tax returns filed by us and can raise issues regarding our filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which we operate. These examinations on their own, or any subsequent litigation related to the examinations, may result in additional taxes or penalties

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against us. If the ultimate result of these audits differ from our original or adjusted estimates, they could have a material impact on our tax provision.
Irish law differs from the laws in effect in the United States and may afford less protection to holders of our securities.
The United States currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. As such, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against us or our directors or officers based on U.S. federal or state civil liability laws, including the civil liability provisions of the U.S. federal or state securities laws, or hear actions against us or those persons based on those laws.
As an Irish company, we are governed by the Irish Companies Act, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited circumstances. Accordingly, holders of our securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States.
In addition, Irish law allows shareholders to authorize share capital which then can be issued by a board of directors without shareholder approval. Also, subject to specified exceptions, Irish law grants statutory pre-emptive rights to existing shareholders to subscribe for new issuances of shares for cash, but allows shareholders to authorize the waiver of the statutory pre-emptive rights with respect to any particular allotment of shares. Under Irish law, we must have authority from our shareholders to issue any shares, including shares that are part of the Company’s authorized but unissued share capital. In addition, unless otherwise authorized by its shareholders, when an Irish company issues shares for cash to new shareholders, it is required first to offer those shares on the same or more favorable terms to existing shareholders on a pro-rata basis. If we are unable to obtain these authorizations from our shareholders, or are otherwise limited by the terms of our authorizations, our ability to issue shares or otherwise raise capital could be adversely affected.
Dividends received by our shareholders may be subject to Irish dividend withholding tax.
In certain circumstances, we are required to deduct Irish dividend withholding tax (currently at the rate of 20%) from dividends paid to our shareholders. In the majority of cases, shareholders resident in the United States will not be subject to Irish withholding tax, and shareholders resident in a number of other countries will not be subject to Irish withholding tax provided that they complete certain Irish dividend withholding tax forms. However, some shareholders may be subject to withholding tax, which could have an adverse impact on the price of our shares.
Dividends received by our shareholders could be subject to Irish income tax.
Dividends paid in respect of our shares will generally not be subject to Irish income tax where the beneficial owner of these dividends is exempt from dividend withholding tax, unless the beneficial owner of the dividend has some connection with Ireland other than his or her shareholding in Ingersoll-Rand plc.
Our shareholders who receive their dividends subject to Irish dividend withholding tax will generally have no further liability to Irish income tax on the dividends unless the beneficial owner of the dividend has some connection with Ireland other than his or her shareholding in Ingersoll-Rand plc.
Item 1B.    UNRESOLVED STAFF COMMENTS
None.
Item 2.    PROPERTIES
As of December 31, 2017, we owned or leased a total of approximately 31 million square feet of space worldwide. Manufacturing and assembly operations are conducted in 53 plants across the world. We also maintain various warehouses, offices and repair centers throughout the world. The majority of our plant facilities are owned by us with the remainder under long-term lease arrangements. We believe that our plants have been well maintained, are generally in good condition and are suitable for the conduct of our business.

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The locations by segment of our principal plant facilities at December 31, 2017 were as follows:
Climate
Americas
 
Europe and Middle East
 
Asia Pacific and India
Arecibo, Puerto Rico
 
Barcelona, Spain
 
Bangkok, Thailand
Charlotte, North Carolina
 
Bari, Italy
 
Penang, Malaysia
Clarksville, Tennessee
 
Charmes, France
 
Taicang, China
Columbia, South Carolina
 
Essen, Germany
 
Zhongshan, China
Curitiba, Brazil
 
Galway, Ireland
 
 
Fairlawn, New Jersey
 
Golbey, France
 
 
Fort Smith, Arkansas
 
King Abdullah Economic City, Saudi Arabia
 
 
Grand Rapids, Michigan
 
Kolin, Czech Republic
 
 
Hastings, Nebraska
 
 
 
 
La Crosse, Wisconsin
 
 
 
 
Lexington, Kentucky
 
 
 
 
Lynn Haven, Florida
 
 
 
 
Macon, Georgia
 
 
 
 
Monterrey, Mexico
 
 
 
 
Pueblo, Colorado
 
 
 
 
Rushville, Indiana
 
 
 
 
St. Paul, Minnesota
 
 
 
 
Trenton, New Jersey
 
 
 
 
Tyler, Texas
 
 
 
 
Vidalia, Georgia
 
 
 
 
Waco, Texas
 
 
 
 
Industrial
Americas
 
Europe and Middle East
 
Asia Pacific and India
Augusta, Georgia
 
Fogliano Redipuglia, Italy
 
Changzhou, China
Buffalo, New York
 
Logatec, Slovenia
 
Guilin, China
Campbellsville, Kentucky
 
Oberhausen, Germany
 
Naroda, India
Dorval, Canada
 
Sin le Noble, France
 
Sahibabad, India
Kent, Washington
 
Vignate, Italy
 
Wujiang, China
Mocksville, North Carolina
 
Wasquehal, France
 
 
Sarasota, Florida
 
 
 
 
Southern Pines, North Carolina
 
 
 
 
West Chester, Pennsylvania
 
 
 
 
Item 3. LEGAL PROCEEDINGS
In the normal course of business, we are involved in a variety of lawsuits, claims and legal proceedings, including commercial and contract disputes, employment matters, product liability and product defect claims, asbestos-related claims, environmental liabilities, intellectual property disputes, and tax-related matters. In our opinion, pending legal matters are not expected to have a material adverse impact on our results of operations, financial condition, liquidity or cash flows.
Asbestos-Related Matters
Certain of our wholly-owned subsidiaries and former companies 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 allege injury caused by exposure to asbestos contained in certain historical products, primarily pumps, boilers and railroad brake shoes. None of our existing or previously-owned businesses were a producer or manufacturer of asbestos.
See also the discussion under Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," "Contingent Liabilities," and also Note 19 to the Consolidated Financial Statements.

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Item 4. MINE SAFETY DISCLOSURES

Not applicable.
PART II
 
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Information regarding the principal market for our ordinary shares and related shareholder matters is as follows:
Our ordinary shares are traded on the New York Stock Exchange under the symbol IR. As of February 1, 2018, the approximate number of record holders of ordinary shares was 3,272.
The high and low sales price per share and the dividend declared per share for the following periods were as follows:
 
 
 
Ordinary shares
2017
 
High
 
Low
 
Dividend
First quarter
 
$
82.17

 
$
74.35

 
$
0.40

Second quarter
 
93.17

 
80.48

 
0.40

Third quarter
 
94.39

 
83.07

 
0.45

Fourth quarter
 
96.23

 
83.30

 
0.45

2016
 
High
 
Low
 
Dividend
First quarter 
 
$
62.48

 
$
47.08

 
$
0.32

Second quarter
 
67.48

 
59.10

 
0.32

Third quarter
 
68.97

 
62.40

 
0.32

Fourth quarter
 
79.21

 
63.87

 
0.40


Future dividends on our ordinary shares, if any, will be at the discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that the Board of Directors may deem relevant, as well as our ability to pay dividends in compliance with the Irish Companies Act 2014. Under the Irish Companies Act 2014, dividends and distributions may only be made from distributable reserves. Distributable reserves, broadly, means the accumulated realized profits (so far as not previously distributed or capitalized) less its accumulated, realized losses (so far as not previously written off in a reduction or reorganization of its share capital) of Ingersoll-Rand plc. In addition, no distribution or dividend may be made unless the net assets of Ingersoll-Rand plc are equal to, or in excess of, the aggregate of Ingersoll-Rand plc’s called up share capital plus undistributable reserves and the distribution does not reduce Ingersoll-Rand plc's net assets below such aggregate.
Information regarding equity compensation plans required to be disclosed pursuant to this Item is incorporated by reference from our definitive proxy statement for the Annual General Meeting of Shareholders.


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Issuer Purchases of Equity Securities
The following table provides information with respect to purchases by us of our ordinary shares during the quarter ended December 31, 2017:
Period
 
Total number of shares purchased (000's) (a) (b)
 
Average price paid per share (a) (b)
 
Total number of shares purchased as part of program (000's) (a)
 
Approximate dollar value of shares still available to be purchased under the program ($000's) (a)
October 1 - October 31
 
1,157.7

 
$
91.25

 
1,156.8

 
$
900,020

November 1 - November 30
 
0.2

 
86.38

 

 
$
900,020

December 1 - December 31
 
1.1

 
86.51

 

 
$
900,020

Total
 
1,159.0

 
$
91.25

 
1,156.8

 
 
(a) In February 2017, our Board of Directors authorized the repurchase of up to $1.5 billion of our ordinary shares under a new share repurchase program upon completion of the prior authorized share repurchase program. Repurchases under the new share repurchase program began in May 2017. Share repurchases are made from time to time in accordance with management's capital allocation strategy, subject to market conditions and regulatory requirements. The repurchase program does not have a prescribed expiration date.
(b) We may also reacquire shares outside of the repurchase program from time to time in connection with the surrender of shares to cover taxes on vesting of share based awards. We reacquired 912 shares in October, 160 shares in November, and 1,120 shares in December in transactions outside the repurchase programs.



19

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Performance Graph
The following graph compares the cumulative total shareholder return on our ordinary shares with the cumulative total return on (i) the Standard & Poor’s 500 Stock Index and (ii) the Standard & Poor’s 500 Industrial Index for the five years ended December 31, 2017. The graph assumes an investment of $100 in our ordinary shares, the Standard & Poor’s 500 Stock Index and the Standard & Poor’s 500 Industrial Index on December 31, 2012 and assumes the reinvestment of dividends.
chart-8921e52510185fb08b8a01.jpg
Company/Index
2012
2013
2014
2015
2016
2017
Ingersoll Rand
100
163
170
151
209
253
S&P 500
100
132
150
152
170
206
S&P 500 Industrials Index
100
140
154
150
178
215

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Item 6.     SELECTED FINANCIAL DATA
In millions, except per share amounts:
At and for the years ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
14,197.6

 
$
13,508.9

 
$
13,300.7

 
$
12,891.4

 
$
12,350.5

 
 
 
 
 
 
 
 
 
 
 
Net earnings (loss) attributable to Ingersoll-Rand plc ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
1,328.0

 
1,443.3

 
688.9

 
897.0

 
620.1

Discontinued operations
 
(25.4
)
 
32.9

 
(24.3
)
 
34.7

 
(1.3
)
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
18,173.3

 
17,397.4

 
16,717.6

 
17,274.6

 
17,641.5

 
 
 
 
 
 
 
 
 
 
 
Total debt
 
4,064.0

 
4,070.2

 
4,217.8

 
4,200.5

 
3,504.6

 
 
 
 
 
 
 
 
 
 
 
Total Ingersoll-Rand plc shareholders’ equity
 
7,140.3

 
6,643.8

 
5,816.7

 
5,987.4

 
7,068.9

 
 
 
 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Ingersoll-Rand plc ordinary shareholders:
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
5.21

 
$
5.57

 
$
2.60

 
$
3.32

 
$
2.11

Discontinued operations
 
(0.10
)
 
0.13

 
(0.09
)
 
0.12

 

 
 
 
 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
5.14

 
$
5.52

 
$
2.57

 
$
3.27

 
$
2.08

Discontinued operations
 
(0.09
)
 
0.13

 
(0.09
)
 
0.13

 
(0.01
)
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per ordinary share
 
$
1.70

 
$
1.36

 
$
1.16

 
$
1.00

 
$
0.63



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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under Item 1A. Risk Factors in this Annual Report on Form 10-K. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appears elsewhere in this Annual Report.
Overview
Organization
We are a diversified, global company that provides products, services and solutions to enhance the quality, energy efficiency and comfort of air in homes and buildings, transport and protect food and perishables and increase industrial productivity and efficiency. Our business segments consist of Climate and Industrial, both with strong brands and highly differentiated products within their respective markets. We generate revenue and cash primarily through the design, manufacture, sale and service of a diverse portfolio of industrial and commercial products that include well-recognized, premium brand names such as Ingersoll-Rand®, Trane®, Thermo King®, American Standard®, ARO®, and Club Car®.
To achieve our mission of being a world leader in creating comfortable, sustainable and efficient environments, we continue to focus on growth by increasing our recurring revenue stream from parts, service, controls, used equipment and rentals; and to continuously improve the efficiencies and capabilities of the products and services of our businesses. We also continue to focus on operational excellence strategies as a central theme to improving our earnings and cash flows.
Trends and Economic Events
We are a global corporation with worldwide operations. As a global business, our operations are affected by worldwide, regional and industry-specific economic factors, as well as political factors, wherever we operate or do business. Our geographic and industry diversity, and the breadth of our product and services portfolios, have helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results.
Given the broad range of products manufactured and geographic markets served, management uses a variety of factors to predict the outlook for the Company. We monitor key competitors and customers in order to gauge relative performance and the outlook for the future. We regularly perform detailed evaluations of the different market segments we are serving to proactively detect trends and to adapt our strategies accordingly. In addition, we believe our order rates are indicative of future revenue and thus a key measure of anticipated performance. In those industry segments where we are a capital equipment provider, revenues depend on the capital expenditure budgets and spending patterns of our customers, who may delay or accelerate purchases in reaction to changes in their businesses and in the economy.
Current economic conditions continue to show mixed trends in each of the segments in which we participate. Heating, Ventilation, and Air Conditioning (HVAC) equipment replacement and aftermarket continue to experience strong demand. In addition, Residential and Commercial new construction have seen continued momentum in the United States which is positively impacting the results of our HVAC businesses. However, non-residential markets in both Europe and Asia remain mixed. Global Industrial markets appear to be improving with positive signs in our shorter-cycle businesses. Going forward, we expect moderate growth within our Climate segment and market improvements in our Industrial segment, each benefiting from operational excellence initiatives, new product launches and continued productivity programs.
We believe we have a solid foundation of global brands that are highly differentiated in all of our major product lines. Our growing geographic and industry diversity coupled with our large installed product base provides growth opportunities within our service, parts and replacement revenue streams. In addition, we are investing substantial resources to innovate and develop new products and services which we expect will drive our future growth.
Significant Events
Tax Cuts and Job Act
In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”) which makes widespread changes to the Internal Revenue Code. The Act, among other things, reduced the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a transition tax on earnings of certain foreign subsidiaries that were previously not subject to U.S. tax and creates new income taxes on certain foreign sourced earnings. The SEC issued Staff Accounting Bulletin No. 118 (SAB 118) which provides guidance on accounting for the tax effects of the Act and allows for adjustments to provisional amounts during a measurement period of up to one year.  In accordance with SAB 118, we have made reasonable estimates related to (1) the remeasurement of U.S. deferred tax balances for the reduction in the tax rate (2) the liability for the transition tax and (3) the taxes accrued relating

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to the change in permanent reinvestment assertion for unremitted earnings of certain foreign subsidiaries. As a result, we recognized a net provisional income tax benefit of $21.0 million associated with these items in 2017. We are continuing to evaluate how the provisions of the Act will be accounted for under ASC 740, “Income Taxes” (ASC 740).  The analysis is provisional and is subject to change due to the additional time required to accurately calculate and review the complex tax law. Any measurement period adjustments will be reported as a component of Provision for income taxes in the reporting period the amounts are determined. The final accounting will be completed no later than one year from the enactment of the Act.
Share Repurchase Program and Dividends
Share repurchases are made from time to time in accordance with management's capital allocation strategy, subject to market conditions and regulatory requirements. In February 2014, our Board of Directors authorized the repurchase of up to $1.5 billion of our ordinary shares under a share repurchase program that began in April 2014 and was completed in the second quarter of 2017.
In February 2017, our Board of Directors authorized the repurchase of up to $1.5 billion of our ordinary shares under a new share repurchase program upon completion of the prior share repurchase program. Repurchases under this program began in May 2017 and total approximately $600 million at December 31, 2017. As a result, we have approximately $900 million remaining under this program. We repurchased approximately $1.0 billion of our ordinary shares during 2017.
In August 2017, we announced an increase in our quarterly share dividend from $0.40 to $0.45 per ordinary share. This reflects a 12.5% increase that began with our September 2017 payment and a 55% increase since the beginning of 2016.
Acquisitions
During 2017, we acquired several businesses, including channel acquisitions, that complement existing products and services. The aggregate purchase price, net of cash acquired, totaled $157.6 million and was funded through cash on hand. Acquisitions within the Climate segment primarily consisted of independent dealers which support the ongoing strategy to expand our distribution network in North America. Other acquisitions within the segment strengthen our product portfolio. Acquisitions within the Industrial segment primarily consisted of a telematics business which builds upon our growing portfolio of connected assets. In addition, other acquisitions within the segment expand sales and service channels across the globe.
On January 1, 2015, we completed the acquisition of the assets of Cameron International Corporation’s Centrifugal Compression (Engineered Centrifugal Compression) business for approximately $850 million. The acquired business manufactures centrifugal compression equipment and provides aftermarket parts and services for global industrial applications, air separation, gas transmission and process gas. The acquisition was funded through a combination of cash on hand and debt. The results of the Engineered Centrifugal Compression business have been included in our consolidated financial statements since the date of the acquisition and reported within our Industrial segment.
On March 4, 2015, we acquired 100% of the outstanding stock of FRIGOBLOCK for approximately €100 million (approximately $113 million). The acquisition was funded through a combination of cash on hand and debt. The acquired business manufactures and designs transport refrigeration units for trucks and trailers, which it sells primarily in Western Europe. The results of the FRIGOBLOCK business have been included in our consolidated financial statements since the date of the acquisition and reported within our Climate segment.
Sale of Hussmann Equity Investment
During 2011, we completed the sale of a controlling interest of our Hussmann refrigerated display case business (Hussmann) to a newly-formed affiliate of private equity firm Clayton Dubilier & Rice, LLC (CD&R).  Per the terms of the agreement, CD&R’s ownership interest in Hussmann at the acquisition date was 60% with the remaining 40% being retained by us. As a result, we accounted for our interest in Hussmann using the equity method of accounting.
On December 21, 2015, we announced we would sell our remaining equity interest in Hussmann as part of a transaction in which Panasonic Corporation would acquire 100 percent of Hussmann's outstanding shares. The transaction was completed on April 1, 2016. We received net proceeds of $422.5 million for our interest and recognized a gain of $397.8 million on the sale.
IRS Exam Results
In July 2015, we entered into an agreement with the U.S. Internal Revenue Service (IRS) to resolve disputes related to withholding and income taxes for years 2002 through 2011 (the IRS Agreement). The IRS had previously disagreed with our tax treatment of intercompany debt and distributions and asserted we owed income and withholding tax relating to the 2002-2006 period totaling $774 million, not including interest and penalties. We also provided a substantial amount of information to the IRS in connection with its audit of the 2007-2011 tax periods. We expected the IRS to propose similar adjustments to these periods, although it was not known how the IRS would apply its position to the different facts presented in these years or whether the IRS would take a similar position to intercompany debt instruments not outstanding in prior years.

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The resolution reached in July 2015 covered intercompany debt and related issues for the entire period from 2002 through 2011 and includes all aspects of the dispute with the U.S. Tax Court, the Appeals Division and the Examination Division of the IRS. The resolution was subsequently reported to the Congressional Joint Committee on Taxation (JCT), as required, for its review. The JCT concluded its review without objection in December 2015 and the settlement was finalized with the IRS in December 2015.
Pursuant to the agreement with the IRS, we agreed to pay withholding tax and interest of $412 million in respect to the 2002-2006 years. We owed no additional tax with respect to intercompany debt and related matters for the years 2007-2011. No penalties were applied to any of the tax years 2002 through 2011. The resolution resulted in a net cash outflow in 2015 of approximately $364 million, consisting of $230 million in tax and $134 million of interest, net of a tax benefit of $48 million.


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Table of Contents

Results of Operations
Our Climate segment delivers energy-efficient products and innovative energy services. It includes Trane® and American Standard® Heating & Air Conditioning which provide heating, ventilation and air conditioning (HVAC) systems, and commercial and residential building services, parts, support and controls; energy services and building automation through Trane Building Advantage and Nexia; and Thermo King® transport temperature control solutions.
Our Industrial segment delivers products and services that enhance energy efficiency, productivity and operations. It includes compressed air and gas systems and services, power tools, material handling systems, ARO® fluid management equipment, as well as Club Car ® golf, utility and consumer low-speed vehicles.
Segment operating income is the measure of profit and loss that our 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, we believe that Segment operating income represents the most relevant measure of segment profit and loss. We define Segment operating margin as Segment operating income as a percentage of Net revenues.
On January 1, 2017, we adopted Accounting Standards Update (ASU) No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (ASU 2016-09) which simplifies several aspects of the accounting for employee share-based payment transactions. The standard makes several modifications to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. In addition, ASU 2016-09 clarifies the statement of cash flows presentation for certain components of share-based awards. We applied the cash flow presentation requirements retrospectively.
On January 1, 2017, we adopted ASU No. 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" (ASU 2017-07) which requires a company to present the service cost component of net periodic benefit cost in the same income statement line as other employee compensation costs with the remaining components of net periodic benefit cost presented separately from the service cost component and outside of any subtotal of operating income, if one is presented. We applied the presentation requirements retrospectively.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Dollar amounts in millions
 
2017
 
2016
 
Period Change
 
2017
 % of Revenues
 
2016
 % of Revenues
Net revenues
 
$
14,197.6

 
$
13,508.9

 
$
688.7

 
 
 
 
Cost of goods sold
 
(9,811.6
)
 
(9,307.9
)
 
(503.7
)
 
69.1%
 
68.9%
Selling and administrative expenses
 
(2,720.7
)
 
(2,597.8
)
 
(122.9
)
 
19.2%
 
19.2%
Operating income
 
1,665.3

 
1,603.2

 
62.1

 
11.7%
 
11.9%
Interest expense
 
(215.8
)
 
(221.5
)
 
5.7

 
 
 
 
Other income/(expense), net
 
(31.6
)
 
359.6

 
(391.2
)
 
 
 
 
Earnings before income taxes
 
1,417.9

 
1,741.3

 
(323.4
)
 
 
 
 
Provision for income taxes
 
(80.2
)
 
(281.5
)
 
201.3

 
 
 
 
Earnings from continuing operations
 
1,337.7

 
1,459.8

 
(122.1
)
 
 
 
 
Discontinued operations, net of tax
 
(25.4
)
 
32.9

 
(58.3
)
 
 
 
 
Net earnings
 
$
1,312.3

 
$
1,492.7

 
$
(180.4
)
 
 
 
 
Net Revenues
Net revenues for the year ended December 31, 2017 increased by 5.1%, or $688.7 million, compared with the same period of 2016. The components of the period change are as follows:
Volume/product mix
4.4
%
Pricing
0.3
%
Currency translation
0.4
%
Total
5.1
%
The increase was primarily driven by higher volumes in both our Climate and Industrial segments. Additionally, improved pricing and favorable foreign currency exchange rate movements further contributed to the year-over-year increase.

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Table of Contents

Our Revenues by segment are as follows:
Dollar amounts in millions
2017
 
2016
 
% change
Climate
$
11,167.5

 
$
10,545.0

 
5.9%
Industrial
3,030.1

 
2,963.9

 
2.2%
Total
$
14,197.6

 
$
13,508.9

 
 
Climate
Net revenues for the year ended December 31, 2017 increased by 5.9% or $622.5 million, compared with the same period of 2016. The components of the period change are as follows:
Volume/product mix
5.4
%
Pricing
0.2
%
Currency translation
0.3
%
Total
5.9
%
The primary driver of the increase related to incremental volumes from solid order growth in the Commercial HVAC and Residential HVAC businesses. Pricing improvements in these businesses further contributed to segment results. The segment also realized favorable foreign currency exchange rate movements in a majority of our businesses.
Industrial
Net revenues for the year ended December 31, 2017 increased by 2.2% or $66.2 million, compared with the same period of 2016. The components of the period change are as follows:
Volume/product mix
0.7
%
Pricing
1.0
%
Currency translation
0.5
%
Total
2.2
%
The primary driver of the increase related to improved pricing in our Compression Technologies and Small Electric Vehicle businesses. In addition, overall volumes increased but were partially offset by a decline in large compressor volumes in our Compression Technologies business. Segment results were also positively impacted by overall favorable foreign currency exchange rate movements.
Operating Income/Margin
Operating margin decreased to 11.7% for the year ended December 31, 2017, compared to 11.9% for the same period of 2016. The decrease was primarily the result of material inflation in excess of pricing improvements (0.7%) and the timing of investment and restructuring spending (0.7%). These amounts were partially offset by productivity benefits in excess of other inflation (0.6%) and increased volume and favorable product mix (0.6%).
Our Operating income and Operating margin by segment are as follows:
Dollar amounts in millions
 
2017 Operating Income (Expense)
 
2016 Operating Income (Expense)
 
Period Change
2017 Operating Margin
 
2016 Operating Margin
Climate
 
$
1,572.7

 
$
1,537.5

 
$
35.2

14.1
%
 
14.6
%
Industrial
 
357.6

 
300.3

 
57.3

11.8
%
 
10.1
%
Unallocated corporate expense
 
(265.0
)
 
(234.6
)
 
(30.4
)
N/A

 
N/A

Total
 
$
1,665.3

 
$
1,603.2

 
$
62.1

11.7
%
 
11.9
%
Climate
Operating margin decreased to 14.1% for the year ended December 31, 2017, compared to 14.6% for the same period of 2016. The decrease was primarily the result of material inflation in excess of pricing improvements (0.9%) and the timing of investment and restructuring spending (0.8%). These amounts were partially offset by productivity benefits in excess of other inflation (0.9%) and increased volumes and favorable product mix (0.3%).

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Table of Contents

Industrial
Operating margin increased to 11.8% for the year ended December 31, 2017 compared to 10.1% for the same period of 2016. The increase was primarily due to increased volumes and favorable product mix (0.9%) and productivity benefits in excess of other inflation (0.4%), the non-recurrence of capitalized costs related to new product engineering and development that were reclassified to the income statement (0.4%), pricing improvements in excess of material inflation (0.2%) and favorable foreign currency exchange rate movements (0.1%). These amounts were partially offset by the timing of investment and restructuring spending (0.3%).
Unallocated Corporate Expense
Unallocated corporate expense for the year ended December 31, 2017 increased by 13.0% or $30.4 million, compared with the same period of 2016. The increase in expenses primarily relates to costs associated with acquisition efforts, higher employee benefit costs and stock-based compensation as well as planned incubator investments in technologies that benefit our business.
Interest Expense
Interest expense for the year ended December 31, 2017 decreased by $5.7 million compared with the same period of 2016. The decrease relates primarily to changes in short-term financing arrangements and other items.
Other income/(expense), net
The components of Other income/(expense), net, for the years ended December 31 are as follows:
In millions
 
2017
 
2016
 
Period Change
Interest income
 
$
9.4

 
$
8.0

 
$
1.4

Exchange gain (loss)
 
(8.8
)
 
(2.0
)
 
(6.8
)
Other components of net periodic benefit cost
 
(31.0
)
 
(30.1
)
 
(0.9
)
Income (loss) from equity investment
 

 
(0.8
)
 
0.8

Gain on sale of Hussmann equity investment
 

 
397.8

 
(397.8
)
Other activity, net
 
(1.2
)
 
(13.3
)
 
12.1

Other income/(expense), net
 
$
(31.6
)
 
$
359.6

 
$
(391.2
)
Other income /(expense), net includes the results from activities other than normal business operations such as interest income and foreign currency gains and losses on transactions that are denominated in a currency other than an entity’s functional currency. In addition, we include the components of net periodic benefit cost for pension and post retirement obligations other than the service cost component as a result of the adoption of ASU 2017-07. Other activity, net include costs associated with Trane U.S. Inc. (Trane) for the settlement and defense of asbestos-related claims, insurance settlements on asbestos-related matters and the revaluation of its liability for potential future claims. Other activity, net for the year ended December 31, 2016 includes a charge of $16.4 million for the settlement of a lawsuit originally filed by a customer in 2012. The lawsuit related to a commercial HVAC contract entered into in 2001, prior to our acquisition of Trane. The charge represents the settlement and related legal costs recognized during the fourth quarter of 2016.
Provision for Income Taxes
The 2017 effective tax rate was 5.7% which is lower than the U.S. Statutory rate of 35% primarily due to the remeasurement of our net U.S. deferred tax liabilities, the premium paid related to the early retirement of certain intercompany debt obligations, the recognition of a claim for refund related to previously paid interest and the recognition of excess tax benefits from employee shared based payments as a result of the adoption of ASU 2016-09 on January 1, 2017. In the aggregate, these items decreased the effective tax rate by 37.9%. This decrease was partially offset by the transition tax cost, a change in permanent reinvestment assertion on the unremitted earnings of certain foreign subsidiaries and a non-cash charge related to the establishment of a valuation allowance on certain net deferred tax assets in Brazil. In the aggregate these items increased the effective tax rate by 13.7%. In addition, the reduction was also driven by earnings in non-U.S. jurisdictions, which in aggregate, have a lower effective tax rate. Revenues from non-U.S. jurisdictions account for approximately 35% of our total revenues, such that a material portion of our pretax income is earned and taxed outside the U.S. at rates ranging from 0% to 38%. When comparing the results of multiple reporting periods, among other factors, the mix of earnings between U.S. and foreign jurisdictions can cause variability on our overall effective tax rate.

27

Table of Contents

The 2016 effective tax rate was 16.2% which is lower than the U.S. Statutory rate of 35% primarily due to the tax treatment of the Hussmann gain. The gain, which is not subject to tax under the relevant local tax laws, decreased the effective tax rate by 4.8%. In addition, the reduction was also driven by earnings in non-U.S. jurisdictions, which in aggregate, have a lower effective tax rate. Revenues from non-U.S. jurisdictions account for approximately 35% of our total revenues, such that a material portion of our pretax income is earned and taxed outside the U.S. at rates ranging from 0% to 38%. When comparing the results of multiple reporting periods, among other factors, the mix of earnings between U.S. and foreign jurisdictions can cause variability on our overall effective tax rate.
Discontinued Operations
The components of Discontinued operations, net of tax for the years ended December 31 are as follows:
In millions
 
2017
 
2016
 
Period Change
Pre-tax earnings (loss) from discontinued operations
 
$
(34.0
)
 
$
28.1

 
$
(62.1
)
Tax benefit (expense)
 
8.6

 
4.8

 
3.8

Discontinued operations, net of tax
 
$
(25.4
)
 
$
32.9

 
$
(58.3
)
Discontinued operations are retained costs from previously sold businesses including postretirement benefits, product liability and legal costs (mostly asbestos-related). In addition, we include costs for the settlement and defense of asbestos-related claims, insurance settlements on asbestos-related matters and the revaluation of its liability for potential future claims. For the year ended December 31, 2016, ongoing costs were more than offset by asbestos-related settlements with various insurance carriers. A portion of the tax benefits (expense) in each period represent adjustments for certain tax matters associated with the 2013 spin-off of our commercial and residential security business, now an independent public company operating under the name of Allegion plc (Allegion).

Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015
Dollar amounts in millions
 
2016
 
2015
 
Period Change
 
2016
 % of Revenues
 
2015
 % of Revenues
Net revenues
 
$
13,508.9

 
$
13,300.7

 
$
208.2

 
 
 
 
Cost of goods sold
 
(9,307.9
)
 
(9,277.4
)
 
(30.5
)
 
68.9%
 
69.8%
Selling and administrative expenses
 
(2,597.8
)
 
(2,531.6
)
 
(66.2
)
 
19.2%
 
19.0%
Operating income
 
1,603.2

 
1,491.7

 
111.5

 
11.9%
 
11.2%
Interest expense
 
(221.5
)
 
(223.0
)
 
1.5

 
 
 
 
Other income/(expense), net
 
359.6

 
(20.8
)
 
380.4

 
 
 
 
Earnings before income taxes
 
1,741.3

 
1,247.9

 
493.4

 
 
 
 
Provision for income taxes
 
(281.5
)
 
(540.8
)
 
259.3

 
 
 
 
Earnings from continuing operations
 
1,459.8

 
707.1

 
752.7

 
 
 
 
Discontinued operations, net of tax
 
32.9

 
(24.3
)
 
57.2

 
 
 
 
Net earnings
 
$
1,492.7

 
$
682.8

 
$
809.9

 
 
 
 
Net Revenues
Net revenues for the year ended December 31, 2016 increased by 1.6%, or $208.2 million, compared with the same period of 2015, which primarily resulted from the following:
Volume/product mix
2.2
 %
Acquisitions
0.1
 %
Pricing
0.3
 %
Currency translation
(1.0
)%
Total
1.6
 %
The increase was primarily driven by higher volumes in our Climate segment. Improved pricing, along with incremental revenues from acquisitions, further contributed to the year-over-year increase. These amounts were partially offset by lower volumes in our Industrial segment and overall unfavorable foreign currency exchange rate movements.

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Our Revenues by segment are as follows:
Dollar amounts in millions
 
2016
 
2015
 
% change
Climate
 
$
10,545.0

 
$
10,224.3

 
3.1%
Industrial
 
2,963.9

 
3,076.4

 
(3.7)%
Total
 
$
13,508.9

 
$
13,300.7

 
 
Climate
Net revenues for the year ended December 31, 2016 increased by 3.1% or $320.7 million, compared with the same period of 2015. The components of the period change are as follows:
Volume/product mix
3.8
 %
Acquisitions
0.1
 %
Pricing
0.2
 %
Currency translation
(1.0
)%
Total
3.1
 %
The primary driver of the increase related to incremental volumes in both the Commercial HVAC and Residential HVAC businesses. Commercial HVAC results reflect continued improvements in equipment, parts and services while Residential HVAC results increased with strong order growth and improved pricing. In addition, revenues associated with acquisitions added incremental volume during the current period. Improvements in price across the majority of our businesses further contributed to segment results. However, overall revenue improvements were partially offset by unfavorable foreign currency exchange rate movements.
Industrial
Net revenues for the year ended December 31, 2016 decreased by 3.7%, or $112.5 million, compared with the same period of 2015. The components of the period change are as follows:
Volume/product mix
(3.2
)%
Acquisitions
0.1
 %
Pricing
0.6
 %
Currency translation
(1.2
)%
Total
(3.7
)%
The primary driver of the decrease related to lower overall volumes in the majority of our businesses due to continued weakness in the industrial markets. Segment results were also negatively impacted by unfavorable foreign currency exchange rate movements. However, the decline was partially offset by improvements in pricing with the majority of our businesses as well as incremental revenue provided by acquisitions.
Operating Income/Margin
Operating margin improved to 11.9% for the year ended December 31, 2016, compared to 11.2% for the same period of 2015.
The increase was primarily the result of pricing improvements in excess of material inflation (0.7%), increased volume and favorable product mix (0.2%), the non-recurrence of acquisition related step-up amortization (0.2%) and productivity benefits in excess of other inflation (0.1%). These amounts were partially offset by increased investment and restructuring spending (0.3%), capitalized costs related to new product engineering and development that were reclassified to the income statement (0.1%) and unfavorable foreign currency exchange rate movements (0.1%).

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Our Operating income and Operating margin by segment are as follows:
Dollar amounts in millions
 
2016 Operating Income (Expense)
 
2015 Operating Income (Expense)
 
Period Change
2016 Operating Margin
 
2015 Operating Margin
Climate
 
$
1,537.5

 
$
1,314.4

 
$
223.1

14.6
%
 
12.9
%
Industrial
 
300.3

 
378.3

 
(78.0
)
10.1
%
 
12.3
%
Unallocated corporate expense
 
(234.6
)
 
(201.0
)
 
$
(33.6
)
N/A

 
N/A

Total
 
$
1,603.2

 
$
1,491.7

 
$
111.5

11.9
%
 
11.2
%
Climate
Operating margin improved to 14.6% for the year ended December 31, 2016, compared to 12.9% for the same period of 2015. The improvement was primarily the result of pricing improvements in excess of material inflation (0.7%), increased volume and favorable product mix (0.7%) and productivity benefits in excess of other inflation (0.5%). These amounts were partially offset by increased investment and restructuring spending (0.2%).
Industrial
Operating margin decreased to 10.1% for the year ended December 31, 2016, compared to 12.3% for the same period of 2015. The decrease was primarily due to lower volume and unfavorable product mix (2.1%). The segment was also impacted by higher investment and restructuring spending (0.4%), lower productivity in excess of other inflation (0.4%), capitalized costs related to new product engineering and development that were reclassified to the income statement (0.3%) and unfavorable foreign currency exchange rate movements (0.2%). These amounts were partially offset by non-recurrence of acquisition related step-up amortization (0.6%) and pricing improvements in excess of material inflation (0.6%).
Unallocated Corporate Expense
Unallocated corporate expense for the year ended December 31, 2016 increased by 16.7% or $33.6 million, compared with the same period of 2015. The increase in expenses relates to higher compensation and benefit charges related to variable compensation during 2016. In addition, higher restructuring charges impacted the current period.
Interest Expense
Interest expense for the year ended December 31, 2016 decreased by $1.5 million compared with the same period of 2015. The decrease relates primarily to changes in short-term financing arrangements and other items.
Other income/(expense), net
The components of Other income/(expense), net, for the years ended December 31 are as follows:
In millions
 
2016
 
2015
 
Period Change
Interest income
 
$
8.0

 
$
10.6

 
$
(2.6
)
Exchange gain (loss)
 
(2.0
)
 
(36.2
)
 
34.2

Other components of net periodic benefit cost
 
(30.1
)
 
(33.7
)
 
3.6

Income (loss) from equity investment
 
(0.8
)
 
12.6

 
(13.4
)
Gain on sale of Hussmann equity investment
 
397.8

 

 
397.8

Other activity, net
 
(13.3
)
 
25.9

 
(39.2
)
Other income/(expense), net
 
$
359.6

 
$
(20.8
)
 
$
380.4

Other income /(expense), net includes the results from activities other than normal business operations such as interest income and foreign currency gains and losses on transactions that are denominated in a currency other than an entity’s functional currency. In addition, we include the components of net periodic benefit cost for pension and post retirement obligations other than the service cost component as a result of the adoption of ASU 2017-07. Other activity, net include costs associated with Trane for the settlement and defense of asbestos-related claims, insurance settlements on asbestos-related matters and the revaluation of its liability for potential future claims. Amounts recorded during 2015 include a settlement with an insurance carrier. In addition, other activity, net for the year ended December 31, 2016 includes $16.4 million for the settlement of a lawsuit originally filed by a customer in 2012. The lawsuit related to a commercial HVAC contract entered into in 2001, prior to our acquisition of Trane. The charge represents the settlement and related legal costs recognized during 2016.

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During the year ended December 31, 2015, we recognized a loss on foreign currency exchange of $36.2 million. This loss is comprised of a $42.6 million pre-tax charge recorded in the first quarter related to the remeasurement of net monetary assets denominated in Venezuelan bolivar. This loss was partially offset by $6.4 million of foreign currency transaction gains resulting from the re-measurement of non-functional balance sheet positions into their functional currency.
Sale of Hussmann Equity Investment
During 2011, we completed the sale of a controlling interest of our Hussmann refrigerated display case business (Hussmann) to a newly-formed affiliate of private equity firm Clayton Dubilier & Rice, LLC (CD&R).  Per the terms of the agreement, CD&R’s ownership interest in Hussmann at the acquisition date was 60% with the remaining 40% being retained by us. As a result, we accounted for our interest in Hussmann using the equity method of accounting.
On December 21, 2015, we announced we would sell our remaining equity interest in Hussmann as part of a transaction in which Panasonic Corporation would acquire 100 percent of Hussmann's outstanding shares. The transaction was completed on April 1, 2016. We received net proceeds of $422.5 million for our interest and recognized a gain of $397.8 million on the sale.
Provision for Income Taxes
The 2016 effective tax rate was 16.2% which is lower than the U.S. Statutory rate of 35% primarily due to the tax treatment of the Hussmann gain. The gain, which is not subject to tax under the relevant local tax laws, decreased the effective tax rate by 4.8%. In addition, the reduction was also driven by earnings in non-U.S. jurisdictions, which in aggregate, have a lower effective tax rate. Revenues from non-U.S. jurisdictions account for approximately 35% of our total revenues, such that a material portion of our pretax income is earned and taxed outside the U.S. at rates ranging from 0% to 38%. When comparing the results of multiple reporting periods, among other factors, the mix of earnings between U.S. and foreign jurisdictions can cause variability on our overall effective tax rate.
The 2015 effective tax rate was 43.3% which is higher than the U.S. Statutory rate of 35% primarily due to the $227 million charge taken to settle the IRS Agreement, which increased our effective tax rate by 18.1%. This effect was partially offset by a $65 million benefit from the settlement of an audit in a major tax jurisdiction, less a tax charge of $52 million from a change in permanent reinvestment assertions on earnings from certain of our subsidiaries in non-U.S. jurisdictions.
Discontinued Operations
The components of Discontinued operations, net of tax for the years ended December 31 are as follows:
In millions
 
2016
 
2015
 
Period Change
Pre-tax earnings (loss) from discontinued operations
 
$
28.1

 
$
(23.2
)
 
$
51.3

Tax benefit (expense)
 
4.8

 
(1.1
)
 
5.9

Discontinued operations, net of tax
 
$
32.9

 
$
(24.3
)
 
$
57.2

Discontinued operations are retained costs from previously sold businesses including postretirement benefits, product liability and legal costs (mostly asbestos-related). In addition, we include costs for the settlement and defense of asbestos-related claims, insurance settlements on asbestos-related matters and the revaluation of its liability for potential future claims. For the year ended December 31, 2016, ongoing costs were more than offset by asbestos-related settlements with various insurance carriers. A portion of the tax benefits (expense) in each period represent adjustments for certain tax matters associated with the 2013 spin-off of Allegion.
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments and income tax payments. Our cash requirements primarily consist of the following:

Funding of working capital
Funding of capital expenditures
Debt service requirements

Our primary sources of liquidity include cash balances on hand, cash flows from operations, proceeds from debt offerings, commercial paper, and borrowing availability under our existing credit facilities. We earn a significant amount of our operating income in jurisdictions where it is deemed to be permanently reinvested. Our most prominent jurisdiction of operation is the U.S. We expect existing cash and cash equivalents available to the U.S. operations, the cash generated by our U.S. operations, our committed credit lines as well as our expected ability to access the capital and debt markets will be sufficient to fund our U.S.

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operating and capital needs for at least the next twelve months and thereafter for the foreseeable future. In addition, we expect existing non-U.S. cash and cash equivalents and the cash generated by our non-U.S. operations will be sufficient to fund our non-U.S. operating and capital needs for at least the next twelve months and thereafter for the foreseeable future.
As of December 31, 2017, we had approximately $1.5 billion of cash and cash equivalents on hand, of which approximately $1.1 billion was held by non-U.S. subsidiaries. Cash and cash equivalents held by our non-U.S. subsidiaries are generally available for use in our U.S. operations via intercompany loans, equity infusions or via distributions from direct or indirectly owned non-U.S. subsidiaries for which we do not elect permanent reinvestment. We currently have no plans to repatriate funds from subsidiaries for which we elect permanent reinvestment to fund our U.S. operations. However, if we decided to repatriate such funds to fund our U.S. operations, we would be required to accrue and pay applicable taxes.
Share repurchases are made from time to time in accordance with management's capital allocation strategy, subject to market conditions and regulatory requirements. In February 2014, our Board of Directors authorized the repurchase of up to $1.5 billion of our ordinary shares under a share repurchase program that began in April 2014 and was completed in the second quarter of 2017.
In February 2017, our Board of Directors authorized the repurchase of up to $1.5 billion of our ordinary shares under a share repurchase program upon completion of the prior share repurchase program. Repurchases under this program began in May 2017 and total approximately $600 million at December 31, 2017. As a result, we have approximately $900 million remaining under this program. We repurchased approximately $1.0 billion of our ordinary shares during 2017.
In August 2017, we announced an increase in our quarterly share dividend from $0.40 to $0.45 per ordinary share. This reflects a 12.5% increase that began with our September 2017 payment and a 55% increase since the beginning of 2016. In addition, we incur ongoing costs associated with restructuring initiatives intended to result in improved operating performance, profitability and working capital levels. Actions associated with these initiatives may include workforce reduction, improving manufacturing productivity, realignment of management structures and rationalizing certain assets. We continue to be active with acquisitions. During 2017, we acquired several businesses, including channel acquisitions, that complement existing products and services further growing our product portfolio. We expect that our available cash flow, committed credit lines and access to the capital markets will be sufficient to fund share repurchases, the increased dividends, acquisitions and ongoing restructuring actions.
Liquidity
The following table contains several key measures of our financial condition and liquidity at the periods ended December 31:
In millions
 
2017
 
2016
 
2015
Cash and cash equivalents
 
$
1,549.4

 
$
1,714.7

 
$
736.8

Short-term borrowings and current maturities of long-term debt (1)
 
1,107.0

 
360.8

 
504.2

Long-term debt
 
2,957.0

 
3,709.4

 
3,713.6

Total debt
 
4,064.0

 
4,070.2

 
4,217.8

Total Ingersoll-Rand plc shareholders’ equity
 
7,140.3

 
6,643.8

 
5,816.7

Total equity
 
7,206.9

 
6,718.3

 
5,879.2

Debt-to-total capital ratio
 
36.1
%
 
37.7
%
 
41.8
%
(1) During the third quarter of 2017, we reclassified our 6.875% Senior notes of $750 million due August 2018 from noncurrent to current. We intend to refinance the notes prior to their maturity date.
Debt and Credit Facilities
Our short-term obligations primarily consists of current maturities of long-term debt.  In addition, we have outstanding $343.0 million of fixed rate debentures that contain a put feature that the holders may exercise on each anniversary of the issuance date.  If exercised, we are obligated to repay in whole or in part, at the holder’s option, the outstanding principal amount (plus accrued and unpaid interest) of the debentures held by the holder.  We also maintain a commercial paper program which is used for general corporate purposes.  Under the program, the maximum aggregate amount of unsecured commercial paper notes available to be issued, on a private placement basis, is $2.0 billion as of December 31, 2017. We had no commercial paper outstanding at December 31, 2017 and December 31, 2016.  See Note 7 to the Consolidated Financial Statements for additional information regarding the terms of our short-term obligations.
Our long-term obligations primarily consist of long-term debt with final maturity dates ranging between 2019 and 2044.  In addition, we maintain two 5-year, $1.0 billion revolving credit facilities.  Each senior unsecured credit facility, one of which matures in March 2019 and the other in March 2021, provides support for our commercial paper program and can be used for working capital and other general corporate purposes. Total commitments of $2.0 billion were unused at December 31, 2017 and

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December 31, 2016. See Note 7 and Note 20 to the Consolidated Financial Statements for additional information regarding the terms of our long-term obligations and their related guarantees.
Pension Plans
Our investment objective in managing defined benefit plan assets is to ensure that all present and future benefit obligations are met as they come due. We seek to achieve this goal while trying to mitigate volatility in plan funded status, contribution and expense by better matching the characteristics of the plan assets to that of the plan liabilities. Our approach to asset allocation is to increase fixed income assets as the plan's funded status improves. We monitor plan funded status and asset allocation regularly in addition to investment manager performance. In addition, we monitor the impact of market conditions on our defined benefit plans on a regular basis. None of our defined benefit pension plans have experienced a significant impact on their liquidity due to the volatility in the markets. See Note 10 to the Consolidated Financial Statements for additional information regarding pensions.
Cash Flows
The following table reflects the major categories of cash flows for the years ended December 31, respectively. For additional details, please see the Consolidated Statements of Cash Flows in the Consolidated Financial Statements.
In millions
 
2017
 
2016
 
2015
Net cash provided by (used in) continuing operating activities
 
$
1,561.6

 
$
1,433.0

 
$
923.5

Net cash provided by (used in) investing activities
 
(374.7
)
 
240.1

 
(1,192.9
)
Net cash provided by (used in) financing activities
 
(1,432.5
)
 
(726.9
)
 
(527.6
)
Operating Activities
Net cash provided by continuing operating activities for the year ended December 31, 2017 was $1,561.6 million, of which net income provided $1,642.1 million after adjusting for non-cash transactions. Changes in other assets and liabilities used $80.5 million. Improvements in accounts payable were offset by higher accounts receivable and inventory balances. Net cash provided by continuing operating activities for the year ended December 31, 2016 was $1,433.0 million, of which net income provided $1,449.8 million after adjusting for non-cash transactions. Changes in other assets and liabilities used $16.8 million. Improvements in accounts payable were offset by higher accounts receivable balances. Net cash provided by continuing operating activities for the year ended December 31, 2015 was $923.5 million, of which net income provided $1,228.9 million after adjusting for non-cash transactions. Changes in other assets and liabilities used $305.4 million which was primarily driven by the net cash outflow for the IRS Agreement of approximately $364 million and higher working capital balances.
Investing Activities
Cash flows from investing activities represents inflows and outflows regarding the purchase and sale of assets.  Primary activities associated with these items include capital expenditures, proceeds from the sale of property, plant and equipment, acquisitions and divestitures. During the year ended December 31, 2017, net cash used in investing activities from continuing operations was $374.7 million. The primary driver of the outflow is attributable to capital expenditures of $221.3 million. In addition, we acquired several businesses that complement existing products and services. Cash paid for acquisitions, net of cash acquired, was $157.6 million during the year. Net cash provided by investing activities from continuing operations for the year ended December 31, 2016 was $240.1 million. The primary driver of the balance is attributable to the proceeds of $422.5 million received from the sale of our Hussmann equity interest during the year. This amount was partially offset by capital expenditures during the year.  During the year ended December 31, 2015, net cash used in investing activities from continuing operations was $1,192.9 million. The primary driver of the outflow related to the acquisition of the Engineered Centrifugal Compression business for approximately $850 million and the acquisition of FRIGOBLOCK for approximately €100 million (approximately $113 million). In addition, capital expenditures contributed to the outflow during the year.
Financing Activities
Cash flows from financing activities represent inflows and outflows that account for external activities affecting equity and debt.  Primary activities associated with these actions include paying dividends to shareholders, repurchasing our own shares, issuing our stock and debt transactions. During the year ended December 31, 2017, net cash used in financing activities from continuing operations was $1,432.5 million. Primary drivers of the cash outflow related to the repurchase of 11.8 million ordinary shares and dividends paid to ordinary shareholders. During the year ended December 31, 2016, net cash used in financing activities from continuing operations was $726.9 million. Primary drivers of the cash outflow related to the repurchase of 4.9 million ordinary shares and dividends paid to ordinary shareholders. In addition, we repaid our outstanding commercial paper balance during the year.  Net cash used in financing activities from continuing operations for the year ended December 31, 2015 was $527.6 million. Primary drivers of the cash outflow includes dividends paid to ordinary shareholders and the repurchase of 4.4 million ordinary shares.

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Discontinued Operations
Cash flows from discontinued operations primarily represent costs associated with postretirement benefits, product liability and legal costs (mostly asbestos-related) from previously sold businesses. Net cash used in discontinued operating activities during the year ended December 31, 2017 was $38.1 million. Ongoing costs were partially offset by asbestos-related settlements reached with various insurance carriers during the year. Net cash provided by discontinued operating activities for the year ended December 31, 2016 was $88.9 million and included asbestos-related settlements reached with various insurance carriers during the year as well as a realized gain on the sale of property related to a previously sold business. These amounts more than offset ongoing costs. Net cash used in discontinued operating activities during the year ended December 31, 2015 was $35.1 million and primarily related to ongoing costs.
Capital Resources
Based on historical performance and current expectations, we believe our cash and cash equivalents balance, the cash generated from our operations, our committed credit lines and our expected ability to access capital markets will satisfy our working capital needs, capital expenditures, dividends, share repurchase programs, upcoming debt maturities, and other liquidity requirements associated with our operations for the foreseeable future.
Capital expenditures were $221.3 million, $182.7 million and $249.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. Our investments continue to improve manufacturing productivity, reduce costs, provide environmental enhancements, upgrade information technology infrastructure and security and advanced technologies for existing facilities. The capital expenditure program for 2018 is estimated to be approximately $300 million, including amounts approved in prior periods. Many of these projects are subject to review and cancellation at our option without incurring substantial charges.
For financial market risk impacting the Company, see Item 7A. "Quantitative and Qualitative Disclosure About Market Risk."
Capitalization
In addition to cash on hand and operating cash flow, we maintain significant credit availability under our Commercial Paper Program. Our ability to borrow at a cost-effective rate under the Commercial Paper Program is contingent upon maintaining an investment-grade credit rating. As of December 31, 2017, our credit ratings were as follows:
 
 
Short-term
 
Long-term
Moody’s
 
P-2
 
Baa2
Standard and Poor’s
 
A-2
 
BBB
The credit ratings set forth above are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal by the assigning rating organization. Each rating should be evaluated independently of any other rating.
Our public debt does not contain financial covenants and our revolving credit lines have a debt-to-total capital covenant of 65%. As of December 31, 2017, our debt-to-total capital ratio was significantly beneath this limit.

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Contractual Obligations
The following table summarizes our contractual cash obligations by required payment period:
In millions
 
Less than
1 year
 
1 - 3
years
 
3 - 5
years
 
More than
5 years
 
Total
Short-term debt
 
$
6.7

  
$

 
$

 
$

 
$
6.7

Long-term debt
 
1,100.7

(a) 
665.3

 
140.1

 
2,172.2

 
$
4,078.3

Interest payments on long-term debt
 
206.4

(b) 
287.9

 
257.6

 
1,082.0

 
1,833.9

Purchase obligations
 
866.0

  

 

 

 
866.0

Operating leases
 
194.3

 
255.4

 
125.8

 
53.6

 
629.1

Total contractual cash obligations
 
$
2,374.1

  
$
1,208.6

 
$
523.5

 
$
3,307.8

 
$
7,414.0

(a)
Includes $343.0 million of debt redeemable at the option of the holder. The scheduled maturities of these bonds range between 2027 and 2028.
(b)
Includes nominal amount related to interest of short-term debt.
Future expected obligations under our pension and postretirement benefit plans, income taxes, environmental, asbestos-related, and product liability matters have not been included in the contractual cash obligations table above.
Pensions
At December 31, 2017, we had a net unfunded liability of $679.1 million, which consists of noncurrent pension assets of $61.7 million and current and non-current pension benefit liabilities of $740.8 million. It is our objective to contribute to the pension plans to ensure adequate funds are available in the plans to make benefit payments to plan participants and beneficiaries when required. We currently project that we will contribute approximately $75.2 million to our plans worldwide in 2018. The timing and amounts of future contributions are dependent upon the funding status of the plan, which is expected to vary as a result of changes in interest rates, returns on underlying assets, and other factors. Therefore, pension contributions have been excluded from the preceding table. See Note 10 to the Consolidated Financial Statements for additional information regarding pensions.
Postretirement Benefits Other than Pensions
At December 31, 2017, we had postretirement benefit obligations of $528.0 million. We fund postretirement benefit costs principally on a pay-as-you-go basis as medical costs are incurred by covered retiree populations. Benefit payments, which are net of expected plan participant contributions and Medicare Part D subsidy, are expected to be approximately $49.4 million in 2018. Because benefit payments are not required to be funded in advance, and the timing and amounts of future payments are dependent on the cost of benefits for retirees covered by the plan, they have been excluded from the preceding table. See Note 10 to the Consolidated Financial Statements for additional information regarding postretirement benefits other than pensions.
Income Taxes
At December 31, 2017, we have total unrecognized tax benefits for uncertain tax positions of $120.5 million and $32.5 million of related accrued interest and penalties, net of tax. The liability has been excluded from the preceding table as we are unable to reasonably estimate the amount and period in which these liabilities might be paid. See Note 15 to the Consolidated Financial Statements for additional information regarding income taxes, including unrecognized tax benefits.
Contingent Liabilities
We are involved in various litigation, claims and administrative proceedings, including those related to environmental, asbestos-related, and product liability matters. We believe that these liabilities are subject to the uncertainties inherent in estimating future costs for contingent liabilities, and will likely be resolved over an extended period of time. Because the timing and amounts of potential future cash flows are uncertain, they have been excluded from the preceding table. See Note 19 to the Consolidated Financial Statements for additional information regarding contingent liabilities.
Critical Accounting Policies
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in conformity with those accounting principles requires management to use judgment in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from estimates. If updated information or actual amounts are different from previous estimates, the revisions are included in our results for the period in which they become known.

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The following is a summary of certain accounting estimates and assumptions made by management that we consider critical.
Allowance for doubtful accounts – We maintain an allowance for doubtful accounts receivable which represents our best estimate of probable loss inherent in our accounts receivable portfolio. This estimate is based upon our two step policy that results in the total recorded allowance for doubtful accounts. The first step is to record a portfolio reserve based on the aging of the outstanding accounts receivable portfolio and our historical experience with our end markets, customer base and products. The second step is to create a specific reserve for significant accounts as to which the customer's ability to satisfy their financial obligation to us is in doubt due to circumstances such as bankruptcy, deteriorating operating results or financial position. In these circumstances, management uses its judgment to record an allowance based on the best estimate of probable loss, factoring in such considerations as the market value of collateral, if applicable. Actual results could differ from those estimates. These estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the statement of operations in the period that they are determined.
Goodwill and indefinite-lived intangible assets – We have significant goodwill and indefinite-lived intangible assets on our balance sheet related to acquisitions. Our goodwill and other indefinite-lived intangible assets are tested and reviewed annually during the fourth quarter for impairment or when there is a significant change in events or circumstances that indicate that the fair value of an asset is more likely than not less than the carrying amount of the asset.
Impairment of goodwill is assessed at the reporting unit level and begins with a qualitative assessment to determine if it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment test under ASC 350, "Intangibles-Goodwill and Other," (ASC 350). For those reporting units that bypass or fail the qualitative assessment, the test compares the carrying amount of the reporting unit to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss will be recognized for the amount by which the reporting unit's carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.
As quoted market prices are not available for our reporting units, the calculation of their estimated fair value is determined using three valuation techniques: a discounted cash flow model (an income approach), a market-adjusted multiple of earnings and revenues (a market approach), and a similar transactions method (also a market approach). The discounted cash flow approach relies on our estimates of future cash flows and explicitly addresses factors such as timing, growth and margins, with due consideration given to forecasting risk. The earnings and revenue multiple approach reflects the market's expectations for future growth and risk, with adjustments to account for differences between the guideline publicly traded companies and the subject reporting units. The similar transactions method considers prices paid in transactions that have recently occurred in our industry or in related industries. These methods are weighted 50%, 40% and 10%, respectively.
Impairment of other intangible assets with indefinite useful lives is first assessed using a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. This assessment is used as a basis for determining whether it is necessary to calculate the fair value of an indefinite-lived intangible asset. For those indefinite-lived assets where it is required, a fair value is determined on a relief from royalty methodology (income approach) which is based on the implied royalty paid, at an appropriate discount rate, to license the use of an asset rather than owning the asset. The present value of the after-tax cost savings (i.e. royalty relief) indicates the estimated fair value of the asset. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess.
The determination of the estimated fair value and the implied fair value of goodwill and other indefinite-lived intangible assets requires us to make assumptions about estimated cash flows, including profit margins, long-term forecasts, discount rates and terminal growth rates. We developed these assumptions based on the market and geographic risks unique to each reporting unit.
For our annual impairment testing performed during the fourth quarter of 2017, we calculated the fair value for each of the reporting units and indefinite-lived intangibles. Based on the results of these calculations, we determined that the fair value of the reporting units and indefinite-lived intangible assets exceeded their respective carrying values. The estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporates management assumptions about expected future cash flows.
Goodwill - Under the income approach, we assumed a forecasted cash flow period of five years with discount rates ranging from 10.0% to 13.0% and terminal growth rates ranging from 3.0% to 3.5%. Under the guideline public company method, we used an adjusted multiple ranging from 6.5 to 13.5 of projected earnings before interest, taxes, depreciation and amortization (EBITDA) based on the market information of comparable companies. Additionally, we compared the estimated aggregate fair value of our reporting units to our overall market capitalization. For all reporting units, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value) was a minimum of 40%. A

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significant increase in the discount rate, decrease in the long-term growth rate, or substantial reductions in our end markets and volume assumptions could have a negative impact on the estimated fair value of these reporting units.
Other Indefinite-lived intangible assets - In testing our other indefinite-lived intangible assets for impairment, we assumed forecasted revenues for a period of five years with discount rates ranging from 10.0% to 11.0%, terminal growth rate of 3.0%, and royalty rates ranging from 0.5% to 4.5%. For all tradenames, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value) was a minimum of 81%, with the exception of a recently acquired tradename. That tradename, reported within our Climate segment, had an excess of the estimated fair value over carrying value of approximately 9% (5% in 2016) and an approximate carrying value of $16 million at December 31, 2017. A significant increase in the discount rate, decrease in the long-term growth rate, decrease in the royalty rate or substantial reductions in our end markets and volume assumptions could have a negative impact on the estimated fair values of any of our tradenames.
Long-lived assets and finite-lived intangibles – Long-lived assets and finite-lived intangibles are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. Assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows can be generated. Impairment in the carrying value of an asset would be recognized whenever anticipated future undiscounted cash flows from an asset are less than its carrying value. The impairment is measured as the amount by which the carrying value exceeds the fair value of the asset as determined by an estimate of discounted cash flows. We believe that our use of estimates and assumptions are reasonable and comply with generally accepted accounting principles. Changes in business conditions could potentially require future adjustments to these valuations.
Loss contingencies – Liabilities are recorded for various contingencies arising in the normal course of business, including litigation and administrative proceedings, environmental and asbestos matters and product liability, product warranty, worker’s compensation and other claims. We have recorded reserves in the financial statements related to these matters, which are developed using input derived from actuarial estimates and historical and anticipated experience data depending on the nature of the reserve, and in certain instances with consultation of legal counsel, internal and external consultants and engineers. Subject to the uncertainties inherent in estimating future costs for these types of liabilities, we believe our estimated reserves are reasonable and do not believe the final determination of the liabilities with respect to these matters would have a material effect on our financial condition, results of operations, liquidity or cash flows for any year. 
Asbestos matters – Certain of our wholly-owned subsidiaries and former companies are named as defendants in asbestos-related lawsuits in state and federal courts. We record a liability for our actual and anticipated future claims as well as an asset for anticipated insurance settlements. Asbestos related defense costs are excluded from the asbestos claims liability and are recorded separately as services are incurred. None of our existing or previously-owned businesses were a producer or manufacturer of asbestos. We record certain income and expenses associated with our asbestos liabilities and corresponding insurance recoveries within Discontinued operations, net of tax, as they relate to previously divested businesses, except for amounts associated with Trane’s asbestos liabilities and corresponding insurance recoveries which are recorded within continuing operations. See Note 19 to the Consolidated Financial Statements for further information regarding asbestos-related matters.
Revenue recognition – Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) the price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. Delivery generally occurs when the title and the risks and rewards of ownership have substantially transferred to the customer. Both the persuasive evidence of a sales arrangement and fixed or determinable price criteria are deemed to be satisfied upon receipt of an executed and legally binding sales agreement or contract that clearly defines the terms and conditions of the transaction including the respective obligations of the parties. If the defined terms and conditions allow variability in all or a component of the price, revenue is not recognized until such time that the price becomes fixed or determinable. At the point of sale, we validate that existence of an enforceable claim that requires payment within a reasonable amount of time and assess the collectability of that claim. If collectability is not deemed to be reasonably assured, then revenue recognition is deferred until such time that collectability becomes probable or cash is received. Delivery is not considered to have occurred until the customer has taken title and assumed the risks and rewards of ownership. Service and installation revenue are recognized when earned. In some instances, customer acceptance provisions are included in sales arrangements to give the buyer the ability to ensure the delivered product or service meets the criteria established in the order. In these instances, revenue recognition is deferred until the acceptance terms specified in the arrangement are fulfilled through customer acceptance or a demonstration that established criteria have been satisfied. If uncertainty exists about customer acceptance, revenue is not recognized until acceptance has occurred.
We offer various sales incentive programs to our customers, dealers, and distributors. Sales incentive programs do not preclude revenue recognition, but do require an accrual for the Company's best estimate of expected activity. Examples of the sales incentives that are accrued for as a contra receivable and sales deduction at the point of sale include, but are not limited to, discounts (i.e. net 30 type), coupons, and rebates where the customer does not have to provide any additional

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requirements to receive the discount. Sales returns and customer disputes involving a question of quantity or price are also accounted for as a reduction in revenue and a contra receivable. At December 31, 2017 and 2016, we had a customer claim accrual (contra receivable) of $3.2 million and $3.7 million, respectively. All other incentives or incentive programs where the customer is required to reach a certain sales level, remain a customer for a certain period of time, provide a rebate form or is subject to additional requirements are accounted for as a reduction of revenue and establishment of a liability. At December 31, 2017 and 2016, we had a sales incentive accrual of $107.3 million and $87.5 million, respectively. Each of these accruals represents the best estimate we expect to pay related to previously sold units. These estimates are reviewed regularly for accuracy. If updated information or actual amounts are different from previous estimates, the revisions are included in our results for the period in which they become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material impact on the Consolidated Financial Statements.
We enter into maintenance and extended warranty contracts with customers. Revenue related to these services is recognized on a straight-line basis over the life of the contract, unless sufficient historical evidence indicates that the cost of providing these services is incurred on an other than straight-line basis. In these circumstances, revenue is recognized over the contract period in proportion to the costs expected to be incurred in performing the service.
We, primarily through our Climate segment, provide equipment (e.g. HVAC, controls), integrated solutions, and installation designed to customer specifications through construction-type contracts. The term of these types of contracts is typically less than one year, but can be as long as three years. Revenues related to these contracts are recognized using the percentage-of-completion method in accordance with GAAP. This measure of progress toward completion, utilized to recognize sales and profits, is based on the proportion of actual cost incurred to date as compared to the total estimate of contract costs at completion. The timing of revenue recognition often differs from the invoicing schedule to the customer, with revenue recognition in advance of customer invoicing recorded to unbilled accounts receivable and invoicing in advance of revenue recognition recorded to deferred revenue. At December 31, 2017, all recorded receivables (billed and unbilled) are due within one year. We re-evaluate our contract estimates periodically and reflect changes in estimates in the current period using the cumulative catch-up method. These periodic reviews have not historically resulted in significant adjustments. If estimated contract costs are in excess of contract revenues, then the excess costs are accrued.
We enter into sales arrangements that contain multiple elements, such as equipment, installation and service revenue. For multiple element arrangements, each element is evaluated to determine the separate units of accounting. The total arrangement consideration is then allocated to the separate units of accounting based on their relative selling price at the inception of the arrangement. The relative selling price is determined using vendor specific objective evidence (VSOE) of selling price, if it exists; otherwise, third-party evidence (TPE) of selling price is used. If neither VSOE nor TPE of selling price exists for a deliverable, a best estimate of the selling price is developed for that deliverable. We primarily utilize VSOE to determine its relative selling price. We recognize revenue for delivered elements when the delivered item has stand-alone value to the customer, the basic revenue recognition criteria have been met, and only customary refund or return rights related to the delivered elements exist.
Income taxes – Deferred tax assets and liabilities are determined based on temporary differences between financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. We recognize future tax benefits, such as net operating losses and non-U.S. tax credits, to the extent that realizing these benefits is considered in our judgment to be more likely than not. We regularly review the recoverability of our deferred tax assets considering our historic profitability, projected future taxable income, timing of the reversals of existing temporary differences and the feasibility of our tax planning strategies. Where appropriate, we record a valuation allowance with respect to a future tax benefit.
The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which we operate. Future changes in applicable laws, projected levels of taxable income, and tax planning could change the effective tax rate and tax balances recorded by us. In addition, tax authorities periodically review income tax returns filed by us and can raise issues regarding our filing positions, timing and amount of income or deductions, and the allocation of income among the jurisdictions in which we operate. 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. We believe that we have adequately provided for any reasonably foreseeable resolution of these matters. We will adjust our estimate if significant events so dictate. To the extent that the ultimate results differ from our original or adjusted estimates, the effect will be recorded in the provision for income taxes in the period that the matter is finally resolved.
Employee benefit plans – We provide a range of benefits to eligible employees and retirees, including pensions, postretirement and postemployment benefits. Determining the cost associated with such benefits is dependent on various actuarial assumptions including discount rates, expected return on plan assets, compensation increases, mortality, turnover rates and healthcare cost trend rates. Actuarial valuations are performed to determine expense in accordance with GAAP. Actual results may differ from the actuarial assumptions and are generally accumulated and amortized into earnings over

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future periods. We review our actuarial assumptions at each measurement date and make modifications to the assumptions based on current rates and trends, if appropriate. The discount rate, the rate of compensation increase and the expected long-term rates of return on plan assets are determined as of each measurement date.
The rate of compensation increase is dependent on expected future compensation levels. The expected long-term rate of return on plan assets reflects the average rate of returns expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The expected long-term rate of return on plan assets is based on what is achievable given the plan’s investment policy, the types of assets held and the target asset allocation. The expected long-term rate of return is determined as of each measurement date. We believe that the assumptions utilized in recording our obligations under our plans are reasonable based on input from our actuaries, outside investment advisors and information as to assumptions used by plan sponsors.
Changes in any of the assumptions can have an impact on the net periodic pension cost or postretirement benefit cost. Estimated sensitivities to the expected 2018 net periodic pension cost of a 0.25% rate decline in the two basic assumptions are as follows: the decline in the discount rate would increase expense by approximately $8.4 million and the decline in the estimated return on assets would increase expense by approximately $7.5 million. A 0.25% rate decrease in the discount rate for postretirement benefits would decrease expected 2018 net periodic postretirement benefit cost by $0.8 million and a 1.0% increase in the healthcare cost trend rate would increase the service and interest cost by approximately $0.7 million.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.
Item 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to fluctuations in currency exchange rates, interest rates and commodity prices which could impact our results of operations and financial condition.
Foreign Currency Exposures
We have operations throughout the world that manufacture and sell products in various international markets. As a result, we are exposed to movements in exchange rates of various currencies against the U.S. dollar as well as against other currencies throughout the world.
Many of our non-U.S. operations have a functional currency other than the U.S. dollar, and their results are translated into U.S. dollars for reporting purposes. Therefore, our reported results will be higher or lower depending on the weakening or strengthening of the U.S. dollar against the respective foreign currency. Our largest concentration of revenues from non-U.S. operations as of December 31, 2017 are in Euros and Chinese Yuan. A hypothetical 10% unfavorable change in the average exchange rate used to translate Net revenues for the year ended December 31, 2017 from either Euros or Chinese Yuan-based operations into U.S. dollars would not have a material impact on our financial statements.
We use derivative instruments to hedge those material exposures that cannot be naturally offset. The instruments utilized are viewed as risk management tools, involve little complexity and are not used for trading or speculative purposes. To minimize the risk of counter party non-performance, derivative instrument agreements are made only through major financial institutions with significant experience in such derivative instruments.
We evaluate our exposure to changes in currency exchange rates on our foreign currency derivatives using a sensitivity analysis. The sensitivity analysis is a measurement of the potential loss in fair value based on a percentage change in exchange rates. Based on the firmly committed currency derivative instruments in place at December 31, 2017, a hypothetical change in fair value of those derivative instruments assuming a 10% adverse change in exchange rates would result in an unrealized loss of approximately $58.3 million, as compared with $81.0 million at December 31, 2016. These amounts, when realized, would be offset by changes in the fair value of the underlying transactions.
Commodity Price Exposures
We are exposed to volatility in the prices of commodities used in some of our products and we use fixed price contracts to manage this exposure. We do not have committed commodity derivative instruments in place at December 31, 2017.
Interest Rate Exposure
Our debt portfolio mainly consists of fixed-rate instruments, and therefore any fluctuation in market interest rates is not expected to have a material effect on our results of operations.

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Item 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
(a)
The following Consolidated Financial Statements and Financial Statement Schedules and the report thereon of PricewaterhouseCoopers LLP dated February 12, 2018, are presented under Item 16 of this Annual Report on Form 10-K.
Consolidated Financial Statements:
Report of independent registered public accounting firm
Consolidated Statements of comprehensive income for the years ended December 31, 2017, 2016 and 2015
Consolidated balance sheets at December 31, 2017 and 2016
For the years ended December 31, 2017, 2016 and 2015:
Consolidated statements of equity
Consolidated statements of cash flows
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2017, 2016 and 2015
 
(b)
The unaudited selected quarterly financial data for the two years ended December 31, is as follows:

 
 
2017
In millions, except per share amounts
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Net revenues
 
$
3,000.6

 
$
3,908.4

 
$
3,670.5

 
$
3,618.1

Cost of goods sold
 
(2,126.1
)
 
(2,653.1
)
 
(2,489.9
)
 
(2,542.5
)
Operating income
 
215.0

 
557.6

 
506.1

 
386.6

Net earnings
 
121.1

 
362.2

 
371.9

 
457.1

Net earnings attributable to Ingersoll-Rand plc
 
117.1

 
358.6

 
367.0

 
459.9

Earnings per share attributable to Ingersoll-Rand plc ordinary shareholders:
 
 
 
 
 
 
 
 
Basic
 
$
0.45

 
$
1.40

 
$
1.45

 
$
1.84

Diluted
 
$
0.45

 
$
1.38

 
$
1.43

 
$
1.81

 
 
2016
 
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Net revenues
 
$
2,894.1

 
$
3,688.2

 
$
3,567.8

 
$
3,358.8

Cost of goods sold
 
(2,041.2
)
 
(2,506.5
)
 
(2,412.9
)
 
(2,347.3
)
Operating income
 
225.4

 
513.3

 
511.7

 
352.8

Net earnings
 
155.6

 
752.4

 
381.9

 
202.8

Net earnings attributable to Ingersoll-Rand plc
 
152.4

 
747.6

 
377.4

 
198.8

Earnings per share attributable to Ingersoll-Rand plc ordinary shareholders:
 
 
 
 
 
 
 
 
Basic
 
$
0.58

 
$
2.88

 
$
1.45

 
$
0.76

Diluted
 
$
0.58

 
$
2.86

 
$
1.44

 
$
0.75




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Item 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A.    CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures
The Company's management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2017, that the Company's disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act has been recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and that such information has been accumulated and communicated to the Company's management including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b)
Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined under Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by the Company's Board of Directors to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management has assessed the effectiveness of internal control over financial reporting as of December 31, 2017. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control - Integrated Framework (2013). Management concluded that based on its assessment, the Company's internal control over financial reporting was effective as of December 31, 2017.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
(c)
Changes in Internal Control Over Financial Reporting
There were no changes in internal control over financial reporting (as defined by Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B.    OTHER INFORMATION
None.


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PART III
Item 10.     DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information regarding our executive officers is included in Part I under the caption “Executive Officers of Registrant.”
The other information required by this item is incorporated herein by reference to the information contained under the headings “Item 1. Election of Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in our definitive proxy statement for the 2018 annual general meeting of shareholders (2018 Proxy Statement).
Item 11.     EXECUTIVE COMPENSATION
The other information required by this item is incorporated herein by reference to the information contained under the headings “Compensation Discussion and Analysis,” “Compensation of Directors,” “Executive Compensation,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in our 2018 Proxy Statement.
Item 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The other information required by this item is incorporated herein by reference to the information contained under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” of our 2018 Proxy Statement.
Item 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The other information required by this item is incorporated herein by reference to the information contained under the headings “Corporate Governance” and “Certain Relationships and Related Person Transactions” of our 2018 Proxy Statement.
Item 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the information contained under the caption “Fees of the Independent Auditors” in our 2018 Proxy Statement.

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PART IV
Item 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a) 1. and 2.
Financial statements and financial statement schedule
See Item 8.
 
 
3.
Exhibits
 
The exhibits listed on the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K.

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INGERSOLL-RAND PLC
INDEX TO EXHIBITS
(Item 15(a))
Description
Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), Ingersoll-Rand plc (the “Company”) has filed certain agreements as exhibits to this Annual Report on Form 10-K. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.
On July 1, 2009, Ingersoll-Rand Company Limited, a Bermuda company, completed a reorganization to change the jurisdiction of incorporation of the parent company from Bermuda to Ireland. As a result, Ingersoll-Rand plc replaced Ingersoll-Rand Company Limited as the ultimate parent company effective July 1, 2009. All references related to the Company prior to July 1, 2009 relate to Ingersoll-Rand Company Limited.
(a) Exhibits
 
Exhibit No.
 
Description
  
Method of Filing
 
 
 
 
 
 
 
 
 
 
 
 
 
2.1
 
  
Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on December 2, 2013.
 
 
 
 
 
 
 
3.1
 
  
Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on June 7, 2016.
 
 
 
 
 
 
 
 
 
The Company and its subsidiaries are parties to several long-term debt instruments under which, in each case, the total amount of securities authorized does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
  
Pursuant to paragraph 4 (iii)(A) of Item 601 (b) of Regulation S-K, the Company agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request.
 
 
 
 
 
 
 
4.1
 
  
Incorporated by reference to Exhibit 4.4 to the Company’s Form 10-K for the fiscal year ended 2008 (File No. 001-16831) filed with the SEC on March 2, 2009.
 
 
 
 
 
 
 

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Exhibit No.
 
Description
  
Method of Filing
 
4.2
 
  
Incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on August 18, 2008.
 
 
 
 
 
 
 
4.3
 
  
Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on April 6, 2009.
 
 
 
 
 
 
 
4.4
 
  
Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K (File No. 001-16831) filed with the SEC on April 6, 2009.
 
 
 
 
 
 
 
4.5
 
  
Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
 
 
 
 
 
 
 
4.6
 
 
Incorporated by reference to Exhibit 4.2 to the Company's Form 8-K (File No. 001-34400) filed with the SEC on November 26, 2013.
 
 
 
 
 
 
 

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Exhibit No.
 
Description
  
Method of Filing
 
4.7
 
 
Incorporated by reference to Exhibit 4.6 to the Company's Form 8-K (File No. 001-34400) filed with the SEC on October 29, 2014.
 
 
 
 
 
 
 
4.8
 
 
Incorporated by reference to Exhibit 4.8 to the Company's Form 10-K for the fiscal years ended 2015 (File No. 001-34400) filed with the SEC on February 12, 2016.

 
 
 
 
 
 
 
4.9
 

 
Incorporated by reference to Exhibit 4.9 to the Company’s Form 10-K for the fiscal year ended 2016 (File No. 001-34400) filed with the SEC on February 13, 2017.

 
 
 
 
 
 
 
4.10
 
  
Incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on July 1, 2009.
 
 
 
 
 
 
 

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Exhibit No.
 
Description
  
Method of Filing
 
4.11
 
 
Incorporated by reference to Exhibit 4.7 to the Company's Form 8-K (File No. 001-34400) filed with the SEC on October 29, 2014.
 
 
 
 
 
 
 
4.12
 
 
Incorporated by reference to Exhibit 4.1 to the Company's Form 8-K (File No. 001-34400) filed with the SEC on June 26, 2013.
 
 
 
 
 
 
 
4.13
 
 
Incorporated by reference to Exhibit 4.2 to the Company's Form 8-K (File No. 001-34400) filed with the SEC on June 26, 2013.
 
 
 
 
 
 
 
4.14
 
 
Incorporated by reference to Exhibit 4.3 to the Company's Form 8-K (File No. 001-34400) filed with the SEC on June 26, 2013.
 
 
 
 
 
 
 
4.15
 
 
Incorporated by reference to Exhibit 4.4 to the Company's Form 8-K (File No. 001-34400) filed with the SEC on June 26, 2013.
 
 
 
 
 
 
 

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Exhibit No.
 
Description
  
Method of Filing
 
4.16
 
 
Incorporated by reference to Exhibit 4.1 to the Company's Form 8-K (File No. 001-34400) filed with the SEC on November 26, 2013.
 
 
 
 
 
 
 
4.17
 
 
Incorporated by reference to Exhibit 4.5 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on October 29, 2014.
 
 
 
 
 
 
 
4.18
 
 
Incorporated by reference to Exhibit 4.21 to the Company's Form 10-K for the fiscal year ended 2015 (File No. 001-34400) filed with the SEC on February 12, 2016.
 
 
 
 
 
 
 
4.19
 

 
Incorporated by reference to Exhibit 4.19 to the Company’s Form 10-K for the fiscal year ended 2016 (File No. 001-34400) filed with the SEC on February 13, 2017.

 
 
 
 
 
 
 

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Exhibit No.
 
Description
  
Method of Filing
 
4.20
 
 
Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on October 29, 2014.
 
 
 
 
 
 
 
4.21
 
 
Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on October 29, 2014.
 
 
 
 
 
 
 
4.22
 
 
Incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K (File No. 001-34400) filed with the SEC on October 29, 2014.
 
 
 
 
 
 
 
4.23
 
&#