INGERSOLL-RAND PLC, 10-Q filed on 10/24/2018
Quarterly Report
v3.10.0.1
Document and Entity Information Document - shares
9 Months Ended
Sep. 30, 2018
Oct. 12, 2018
Entity Information [Line Items]    
Entity Registrant Name INGERSOLL-RAND PLC  
Entity Central Index Key 0001466258  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   245,656,287
v3.10.0.1
Condensed Consolidated Statements of Comprehensive Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Net revenues $ 4,030.9 $ 3,670.5 $ 11,773.1 $ 10,579.5
Cost of goods sold (2,718.3) (2,489.9) (8,102.6) (7,269.1)
Selling and administrative expenses (725.6) (674.5) (2,199.8) (2,031.7)
Operating income 587.0 506.1 1,470.7 1,278.7
Interest expense (48.5) (53.9) (171.7) (162.0)
Other income/(expense), net (8.5) (7.6) (16.0) (23.8)
Earnings before income taxes 530.0 444.6 1,283.0 1,092.9
Provision for income taxes 1.1 (76.4) (159.9) (243.2)
Earnings from continuing operations 531.1 368.2 1,123.1 849.7
Discontinued operations, net of tax (11.7) 3.7 (27.0) 5.5
Net earnings 519.4 371.9 1,096.1 855.2
Less: Net earnings attributable to noncontrolling interests (4.3) (4.9) (12.5) (12.5)
Net earnings attributable to Ingersoll-Rand plc 515.1 367.0 1,083.6 842.7
Amounts attributable to Ingersoll-Rand plc ordinary shareholders:        
Continuing operations 526.8 363.3 1,110.6 837.2
Discontinued operations (11.7) 3.7 (27.0) 5.5
Net earnings attributable to Ingersoll-Rand plc $ 515.1 $ 367.0 $ 1,083.6 $ 842.7
Basic:        
Continuing operations $ 2.14 $ 1.43 $ 4.48 $ 3.27
Discontinued operations (0.05) 0.02 (0.11) 0.02
Net earnings 2.09 1.45 4.37 3.29
Diluted:        
Continuing operations 2.11 1.41 4.43 3.22
Discontinued operations (0.05) 0.02 (0.11) 0.02
Net earnings $ 2.06 $ 1.43 $ 4.32 $ 3.24
Weighted-average shares outstanding        
Basic 246.4 253.3 248.1 256.4
Diluted 249.5 256.7 250.9 259.7
Total comprehensive income $ 504.0 $ 488.5 $ 952.2 $ 1,267.8
Less: Total comprehensive income attributable to noncontrolling interests 4.1 4.7 9.6 11.5
Total comprehensive income attributable to Ingersoll-Rand plc $ 499.9 $ 483.8 $ 942.6 $ 1,256.3
Dividends declared per ordinary share $ 0.00 $ 0.45 $ 1.43 $ 1.25
v3.10.0.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Millions
Sep. 30, 2018
Dec. 31, 2017
ASSETS    
Cash and cash equivalents $ 1,022.5 $ 1,549.4
Accounts and notes receivable, net 2,752.1 2,477.4
Inventories, net 1,821.4 1,555.4
Other current assets 486.6  
Total current assets 6,082.6 6,119.1
Property, plant and equipment, net 1,673.4 1,551.3
Goodwill 5,989.0 5,935.7
Intangible assets, net 3,679.7 3,742.9
Other noncurrent assets 879.8 824.3
Total assets 18,304.5 18,173.3
LIABILITIES AND EQUITY    
Accounts payable 1,748.7 1,556.1
Accrued compensation and benefits 504.4 509.7
Accrued expenses and other current liabilities 1,720.3 1,655.2
Short-term borrowings and current maturities of long-term debt 350.6 1,107.0
Total current liabilities 4,324.0 4,828.0
Long-term debt 3,739.8 2,957.0
Postemployment and other benefit liabilities 1,207.4 1,285.3
Deferred and noncurrent income taxes 610.2 757.5
Other noncurrent liabilities 1,079.9 1,138.6
Total liabilities 10,961.3 10,966.4
Equity:    
Ordinary shares 270.1 274.0
Treasury Stock, Value (1,719.4) (1,719.4)
Capital in excess of par value 52.4 461.3
Retained earnings 9,624.8 8,903.2
Accumulated other comprehensive income (loss) (919.8) (778.8)
Total Ingersoll-Rand plc shareholders’ equity 7,308.1 7,140.3
Noncontrolling interests 35.1 66.6
Total equity 7,343.2 7,206.9
Total liabilities and equity $ 18,304.5 $ 18,173.3
v3.10.0.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Cash flows from operating activities:    
Net earnings $ 1,096.1 $ 855.2
Discontinued operations, net of tax 27.0 (5.5)
Adjustments for non-cash transactions:    
Asset impairment 0.0 (8.4)
Depreciation and amortization 273.0 261.9
Changes in assets and liabilities, net (573.8) (391.0)
Other non-cash items, net 124.1 163.3
Net cash provided by (used in) continuing operating activities 946.4 890.8
Net cash provided by (used in) discontinued operating activities (49.0) (17.6)
Net cash provided by (used in) operating activities 897.4 873.2
Cash flows from investing activities:    
Capital expenditures (251.2) (149.9)
Acquisitions and equity method investments, net of cash acquired (281.5) (60.3)
Proceeds from sale of property, plant and equipment   3.8
Net cash provided by (used in) continuing investing activities (520.6) (206.4)
Cash flows from financing activities:    
Short-term borrowings (payments), net (6.4) (4.0)
Proceeds from long-term debt 1,147.0 0.0
Payments of long-term debt (1,122.9) (7.6)
Net proceeds (repayments) from debt 17.7 (11.6)
Dividends paid to ordinary shareholders (351.2) (318.0)
Dividends paid to noncontrolling interests (41.1) (15.5)
Repurchase of ordinary shares (514.1) (911.1)
Other, net 31.8 40.7
Net cash provided by (used in) continuing financing activities (868.9) (1,222.5)
Effect of exchange rate changes on cash and cash equivalents (34.8) 100.0
Net increase (decrease) in cash and cash equivalents (526.9) (455.7)
Cash and cash equivalents - beginning of period 1,549.4 1,714.7
Cash and cash equivalents - end of period $ 1,022.5 $ 1,259.0
v3.10.0.1
Basis of Presentation
9 Months Ended
Sep. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Ingersoll-Rand plc (Plc or Parent Company), a public limited company incorporated in Ireland in 2009, and its consolidated subsidiaries (collectively, the Company), reflect the consolidated operations of the Company and have been prepared in accordance with United States Securities and Exchange Commission (SEC) interim reporting requirements. Accordingly, the accompanying condensed consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP) for full financial statements and should be read in conjunction with the consolidated financial statements included in the Ingersoll-Rand plc Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which include only normal recurring adjustments, necessary to fairly state the condensed consolidated results for the interim periods presented. Certain reclassifications of amounts reported in prior periods have been made to conform with the current period presentation.
v3.10.0.1
Recent Accounting Pronouncements
9 Months Ended
Sep. 30, 2018
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]  
Recently Accounting Pronouncements
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) Accounting Standards Codification is the sole source of authoritative GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standards Update (ASU) to communicate changes to the codification. The Company considers the applicability and impact of all ASU's. ASU's not listed below were assessed and determined to be either not applicable or are not expected to have a material impact on the consolidated financial statements.
Recently Adopted Accounting Pronouncements
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory” (ASU 2016-16) which removed the prohibition in Topic 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. As a result, the income tax consequences of an intra-entity transfer of assets other than inventory will be recognized in the current period income statement rather than being deferred until the assets leave the consolidated group. The Company applied ASU 2016-16 on a modified retrospective basis through a cumulative-effect adjustment which reduced Retained earnings by $9.1 million as of January 1, 2018.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" (ASC 606), which created a comprehensive, five-step model for revenue recognition that requires a company to recognize revenue to depict the transfer of promised goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Under ASC 606, a company will be required to use more judgment and make more estimates when considering contract terms as well as relevant facts and circumstances when identifying performance obligations, estimating the amount of variable consideration in the transaction price and allocating the transaction price to each separate performance obligation. The Company adopted this standard on January 1, 2018 using the modified retrospective approach and recorded a cumulative effect adjustment to increase Retained earnings by $2.4 million with related amounts not materially impacting Net revenuesOperating income or the Balance Sheet. Refer to Note 11, “Revenue,” for a further discussion on the adoption of ASC 606.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract" (ASU 2018-15), which aligns the requirements for capitalizing implementation costs in a cloud-computing arrangement service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. In addition, the guidance also clarifies the presentation requirements for reporting such costs in the financial statements. ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2019 with early adoption permitted. The Company is currently assessing the impact of the ASU on its financial statements.
In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" (ASU 2018-02), which allows companies to reclassify stranded tax effects in Accumulated other comprehensive income (loss) that have been caused by the Tax Cuts and Jobs Act of 2017 (the Act) to Retained earnings for each period in which the effect of the change in the U.S. federal corporate income tax rate is recorded. The FASB has made the reclassification optional. ASU 2018-02 is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company is currently assessing the impact of the ASU on its financial statements and whether or not it will exercise the option to reclassify the stranded tax effects caused by the Act.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and hedging (Topic 815): Targeted improvements to accounting for hedging activities" (ASU 2017-12). This standard more closely aligns the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. This standard also addresses specific limitations in current GAAP by expanding hedge accounting for both nonfinancial and financial risk components and by refining the measurement of hedge results to better reflect an entity’s hedging strategies. Additionally, by aligning the timing of recognition of hedge results with the earnings effect of the hedged item for cash flow and net investment hedges, and by including the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is presented, the results of an entity’s hedging program and the cost of executing that program will be more visible to users of financial statements. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company adopted this standard on October 1, 2018 with no material impact to the financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases" (ASU 2016-02), which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. The standard also requires additional disclosures by lessees and contains targeted changes to accounting by lessors. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. In July 2018, the FASB issued ASU No. 2018-11, which provides an additional transition method to adopt ASU 2016-02. Under the new transition method, an entity initially applies the new leases standard at the adoption date versus at the beginning of the earliest period presented and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has elected to use this transition method at the adoption date of January 1, 2019. The Company continues to execute on its implementation plan to derive the impact of the ASU on its financial statements and expects to disclose the amount in its 2018 Form 10-K. The adoption is anticipated to have a material impact on assets and liabilities due to the recognition of lease rights and obligations on the Balance Sheet effective January 1, 2019. However, the Company does not expect the adoption to have a material impact to its Statement of Cash Flows or Statement of Comprehensive Income.
v3.10.0.1
Inventories
9 Months Ended
Sep. 30, 2018
Inventory, Net [Abstract]  
Inventories
Inventories
Depending on the business, U.S. inventories are stated at the lower of cost or market using the last-in, first-out (LIFO) method or the lower of cost or market using the first-in, first-out (FIFO) method. Non-U.S. inventories are primarily stated at the lower of cost or market using the FIFO method.
The major classes of inventory were as follows:
In millions
September 30,
2018
 
December 31,
2017
Raw materials
$
563.1

 
$
502.8

Work-in-process
220.1

 
180.5

Finished goods
1,108.7

 
941.0

 
1,891.9

 
1,624.3

LIFO reserve
(70.5
)
 
(68.9
)
Total
$
1,821.4

 
$
1,555.4


The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and records necessary provisions to reduce such inventories to net realizable value. Reserve balances, primarily related to obsolete and slow-moving inventories, were $120.9 million and $120.3 million at September 30, 2018 and December 31, 2017, respectively.
v3.10.0.1
Goodwill
9 Months Ended
Sep. 30, 2018
Goodwill Abstract  
Goodwill
Goodwill
The Company records as goodwill the excess of the purchase price over the fair value of the net assets acquired in a business combination. Measurement period adjustments may be recorded once a final valuation has been performed. Goodwill is tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset.
The changes in the carrying amount of goodwill for the nine months ended September 30, 2018 were as follows:
In millions
Climate
 
Industrial
 
Total
Net balance as of December 31, 2017
$
5,065.1

 
$
870.6

 
$
5,935.7

Acquisitions (1)
114.3

 
1.8

 
116.1

Currency translation
(56.0
)
 
(6.8
)
 
(62.8
)
Net balance as of September 30, 2018
$
5,123.4

 
$
865.6

 
$
5,989.0

(1) Refer to Note 16, "Acquisitions and Divestitures" for more information regarding acquisitions during the period.
The net goodwill balances at September 30, 2018 and December 31, 2017 include $2,496.0 million of accumulated impairment. The accumulated impairment relates entirely to a charge in the fourth quarter of 2008 associated with the Climate segment.
v3.10.0.1
Intangible Assets
9 Months Ended
Sep. 30, 2018
Intangible Assets Abstract  
Intangible Assets
Intangible Assets
Indefinite-lived intangible assets are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset. All other intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives.
The gross amount of the Company’s intangible assets and related accumulated amortization were as follows:
 
 
September 30, 2018
 
December 31, 2017
In millions
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
Completed technologies/patents
 
$
207.9

 
$
(181.5
)
 
$
26.4

 
$
209.4

 
$
(177.3
)
 
$
32.1

Customer relationships
 
2,098.6

 
(1,148.1
)
 
950.5

 
2,068.9

 
(1,056.9
)
 
1,012.0

Other
 
84.7

 
(52.6
)
 
32.1

 
93.9

 
(52.7
)
 
41.2

Total finite-lived intangible assets
 
2,391.2

 
(1,382.2
)
 
1,009.0

 
2,372.2

 
(1,286.9
)
 
1,085.3

Trademarks (indefinite-lived)
 
2,670.7

 

 
2,670.7

 
2,657.6

 

 
2,657.6

Total
 
$
5,061.9

 
$
(1,382.2
)
 
$
3,679.7

 
$
5,029.8

 
$
(1,286.9
)
 
$
3,742.9


Intangible asset amortization expense was $34.7 million and $33.3 million for the three months ended September 30, 2018 and 2017, respectively. Intangible asset amortization expense was $105.1 million and $98.1 million for the nine months ended September 30, 2018 and 2017, respectively.
v3.10.0.1
Debt and Credit Facilities
9 Months Ended
Sep. 30, 2018
Debt Credit Facilities  
Debt and Credit Facilities
Debt and Credit Facilities
Short-term borrowings and current maturities of long-term debt consisted of the following:
In millions
September 30,
2018
 
December 31,
2017
Debentures with put feature
$
343.0

 
$
343.0

6.875% Senior notes due 2018 (1)


749.6

Other current maturities of long-term debt
7.6

 
7.7

Short-term borrowings

 
6.7

Total
$
350.6

 
$
1,107.0


(1) During the first quarter of 2018, the Company redeemed its 6.875% senior notes due 2018.
Commercial Paper Program
The Company uses borrowings under its commercial paper program for general corporate purposes. The maximum aggregate amount of unsecured commercial paper notes available to be issued, on a private placement basis, under the commercial paper program is $2.0 billion as of September 30, 2018. The Company had no outstanding balance under its commercial paper program as of September 30, 2018 and December 31, 2017.
Debentures with Put Feature
At September 30, 2018 and December 31, 2017, the Company had $343.0 million of fixed rate debentures outstanding which contain a put feature that the holders may exercise on each anniversary of the issuance date.  If exercised, the Company is obligated to repay in whole or in part, at the holder’s option, the outstanding principal amount of the debentures plus accrued interest. If these options are not exercised, the final contractual maturity dates would range between 2027 and 2028. Holders of these debentures had the option to exercise the put feature on $37.2 million of the outstanding debentures in February 2018, subject to the notice requirement. No material exercises were made.
Long-term debt, excluding current maturities, consisted of the following:
In millions
September 30,
2018
 
December 31,
2017
2.875% Senior notes due 2019 (1)

 
349.4

2.625% Senior notes due 2020
299.3

 
298.9

2.900% Senior notes due 2021
298.1

 

9.000% Debentures due 2021
124.9

 
124.9

4.250% Senior notes due 2023
697.0

 
696.5

7.200% Debentures due 2019-2025
44.8

 
52.3

3.550% Senior notes due 2024
495.7

 
495.2

6.480% Debentures due 2025
149.7

 
149.7

3.750% Senior notes due 2028
544.3

 

5.750% Senior notes due 2043
494.2

 
494.0

4.650% Senior notes due 2044
295.7

 
295.6

4.300% Senior notes due 2048
295.8

 

Other loans and notes
0.3

 
0.5

Total
$
3,739.8

 
$
2,957.0


(1) During the first quarter of 2018, the Company redeemed its 2.875% senior notes due 2019.
Issuance and Redemption of Senior Notes
In February 2018, the Company issued $1.15 billion principal amount of senior notes in three tranches through an indirect, wholly-owned subsidiary. The tranches consist of $300 million aggregate principal amount of 2.900% senior notes due 2021, $550 million aggregate principal amount of 3.750% senior notes due 2028 and $300 million aggregate principal amount of 4.300% senior notes due 2048. The notes are fully and unconditionally guaranteed by each of Ingersoll Rand plc, Ingersoll-Rand Irish Holdings Unlimited Company, Ingersoll-Rand Lux International Holding Company S.à.r.l, Ingersoll-Rand Company and Ingersoll-Rand Luxembourg Finance S.A. The Company has the option to redeem the notes in whole or in part at any time, prior to their stated maturity date at redemption prices set forth in the indenture agreement. The notes are subject to certain customary covenants, however, none of these covenants are considered restrictive to the Company’s operations. In March 2018, the Company used the proceeds to fund the redemption of $750 million aggregate principal amount of 6.875% senior notes due 2018 and $350 million aggregate principal amount of 2.875% senior notes due 2019, with the remainder used for general corporate purposes. As a result of the early redemption, the Company recognized $15.4 million of premium expense and $1.2 million of unamortized costs in Interest expense.
Other Credit Facilities
The Company maintains two 5-year, $1.0 billion revolving credit facilities (the Facilities) through its wholly-owned subsidiaries, Ingersoll-Rand Global Holding Company Limited and Ingersoll-Rand Luxembourg Finance S.A. (collectively, the Borrowers). Each senior unsecured credit facility provides support for the Company's commercial paper program and can be used for working capital and other general corporate purposes. Ingersoll-Rand plc, Ingersoll-Rand Irish Holdings Unlimited Company, Ingersoll-Rand Lux International Holding Company S.à.r.l. and Ingersoll-Rand Company each provide irrevocable and unconditional guarantees for these Facilities.  In addition, each Borrower will guarantee the obligations under the Facilities of the other Borrower. Total commitments of $2.0 billion were unused at September 30, 2018 and December 31, 2017. On April 17, 2018, the Company entered into a new 5-year, $1.0 billion senior unsecured credit facility and terminated its 5-year, $1.0 billion facility set to expire in March 2019. As a result, the current maturity dates of the Facilities are March 2021 and April 2023.
Fair Value of Debt
The carrying value of the Company's short-term borrowings is a reasonable estimate of fair value due to the short-term nature of the instruments. The fair value of the Company's debt instruments at September 30, 2018 and December 31, 2017 was $4.2 billion and $4.4 billion, respectively. The Company measures the fair value of its long-term debt instruments for disclosure purposes based upon observable market prices quoted on public exchanges for similar assets. These fair value inputs are considered Level 2 within the fair value hierarchy. The methodologies used by the Company to determine the fair value of its long-term debt instruments at September 30, 2018 are the same as those used at December 31, 2017.
v3.10.0.1
Financial Instruments
9 Months Ended
Sep. 30, 2018
Financial Instruments Abstract  
Financial Instruments
Financial Instruments
In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors. These fluctuations can increase the cost of financing, investing and operating the business. The Company may use various financial instruments, including derivative instruments, to manage the risks associated with interest rate and currency rate exposures. These financial instruments are not used for trading or speculative purposes.
On the date a derivative contract is entered into, the Company designates the derivative instrument as a cash flow hedge of a forecasted transaction or as an undesignated derivative. The Company formally documents its hedge relationships, including identification of the derivative instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking derivative instruments that are designated as hedges to specific assets, liabilities or forecasted transactions.
The Company assesses at inception, and at least quarterly thereafter, whether the derivatives used in cash flow hedging transactions are highly effective in offsetting the changes in the cash flows of the hedged item. To the extent the derivative is deemed to be a highly effective hedge, the fair market value changes of the instrument are recorded in Accumulated other comprehensive income (AOCI). Any ineffective portion of a derivative instrument’s change in fair value is recorded in Net earnings in the period of change. If the hedging relationship ceases to be highly effective, or it becomes probable that a forecasted transaction is no longer expected to occur, the hedging relationship will be undesignated and any future gains and losses on the derivative instrument will be recorded in Net earnings.
The fair values of derivative instruments included within the Condensed Consolidated Balance Sheets were as follows:
 
Derivative assets
 
Derivative liabilities
In millions
September 30,
2018
 
December 31,
2017
 
September 30,
2018
 
December 31,
2017
Derivatives designated as hedges:
 
 
 
 
 
 
 
Currency derivatives designated as hedges
$
0.1

 
$

 
$
1.6

 
$
1.3

Derivatives not designated as hedges:
 
 
 
 
 
 
 
Currency derivatives not designated as hedges
2.4

 
7.2

 
1.0

 
1.2

Total derivatives
$
2.5

 
$
7.2

 
$
2.6

 
$
2.5

Asset and liability derivatives included in the table above are recorded within Other current assets and Accrued expenses and other current liabilities, respectively.
Currency Derivative Instruments
The notional amount of the Company’s currency derivatives was $0.5 billion and $0.7 billion at September 30, 2018 and December 31, 2017, respectively. At September 30, 2018 and December 31, 2017, a net loss of $1.3 million and a net gain of $1.2 million, net of tax, respectively, was included in AOCI related to the fair value of the Company’s currency derivatives designated as accounting hedges. The amount expected to be reclassified into Net earnings over the next twelve months is a loss of $1.3 million. The actual amounts that will be reclassified to Net earnings may vary from this amount as a result of changes in market conditions. Gains and losses associated with the Company’s currency derivatives not designated as hedges are recorded in Net earnings as changes in fair value occur. At September 30, 2018, the maximum term of the Company’s currency derivatives was approximately 12 months.
Other Derivative Instruments
Prior to 2015, the Company utilized forward-starting interest rate swaps and interest rate locks to manage interest rate exposure in periods prior to the anticipated issuance of certain fixed-rate debt. These instruments were designated as cash flow hedges and had a notional amount of $1.3 billion. Consequently, when the contracts were settled upon the issuance of the underlying debt, any realized gains or losses in the fair values of the instruments were deferred into AOCI. These deferred gains or losses are subsequently recognized in Interest expense over the term of the related notes. The net unrecognized gain in AOCI was $6.8 million at September 30, 2018 and $6.6 million at December 31, 2017. The net deferred gain at September 30, 2018 will continue to be amortized over the term of notes with maturities ranging from 2023 to 2044. The amount expected to be amortized over the next twelve months is a net gain of $0.7 million. The Company has no forward-starting interest rate swaps or interest rate lock contracts outstanding at September 30, 2018 or December 31, 2017.

The following table represents the amounts associated with derivatives designated as hedges affecting Net earnings and AOCI for the three months ended September 30:
  
Amount of gain (loss)
recognized in AOCI
 
Location of gain (loss) reclassified from
AOCI and recognized
into Net earnings
 
Amount of gain (loss)
reclassified from AOCI and
recognized into Net earnings
In millions
2018
 
2017
 
 
2018
 
2017
Currency derivatives designated as hedges
$
(1.9
)
 
$
(0.7
)
 
Cost of goods sold
 
$
(0.1
)
 
$
(1.3
)
Interest rate swaps & locks

 

 
Interest expense
 
0.2

 
(0.1
)
Total
$
(1.9
)
 
$
(0.7
)
 
 
 
$
0.1

 
$
(1.4
)
The following table represents the amounts associated with derivatives not designated as hedges affecting Other income/(expense), net for the three months ended September 30:
  
 
Amount of gain (loss)         
recognized in Net earnings
In millions
2018
 
2017
Currency derivatives not designated as hedges
 
$
(6.0
)
 
$
14.5

Total
 
$
(6.0
)
 
$
14.5

The following table represents the amounts associated with derivatives designated as hedges affecting Net earnings and AOCI for the nine months ended September 30:
  
Amount of gain (loss)
recognized in AOCI
 
Location of gain (loss) reclassified from
AOCI and recognized
into Net earnings
 
Amount of gain (loss)
reclassified from AOCI and
recognized into Net earnings
In millions
2018
 
2017
 
 
2018
 
2017
Currency derivatives designated as hedges
$
(0.5
)
 
$
(1.3
)
 
Cost of goods sold
 
$
(0.4
)
 
$
(2.0
)
Interest rate swaps & locks

 

 
Interest expense
 
(0.2
)
 
(0.4
)
Total
$
(0.5
)
 
$
(1.3
)
 

 
$
(0.6
)
 
$
(2.4
)

The following table represents the amounts associated with derivatives not designated as hedges affecting Other income/(expense), net for the nine months ended September 30:
  
 
Amount of gain (loss)
recognized in Net earnings
In millions
2018
 
2017
Currency derivatives not designated as hedges
 
$
(29.1
)
 
$
48.3

Total
 
$
(29.1
)
 
$
48.3


The gains and losses associated with the Company’s undesignated currency derivatives are materially offset in Other income/(expense), net by changes in the fair value of the underlying transactions.

Concentration of Credit Risk
The counterparties to the Company’s forward contracts consist of a number of investment grade major international financial institutions. The Company could be exposed to losses in the event of nonperformance by the counterparties. However, the credit ratings and the concentration of risk in these financial institutions are monitored on a continuous basis and present no significant credit risk to the Company.
v3.10.0.1
Fair Value Measurements
9 Months Ended
Sep. 30, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]  
Fair Value Disclosures [Text Block]
Fair Value Measurements
ASC 820, "Fair Value Measurement," (ASC 820) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2018:
In millions
Fair Value
 
Fair value measurements
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Derivative instruments
$
2.5

 
$

 
$
2.5

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative instruments
$
2.6

 
$

 
$
2.6

 
$


The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2017:
In millions
Fair Value
 
Fair value measurements
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Derivative instruments
$
7.2

 
$

 
$
7.2

 
$

Liabilities:
 
 
 
 
 
 
 
Derivative instruments
$
2.5

 
$

 
$
2.5

 
$


Derivative instruments include forward foreign currency contracts and instruments related to non-functional currency balance sheet exposures. The fair value of the derivative instruments are determined based on a pricing model that uses spot rates and forward prices from actively quoted currency markets that are readily accessible and observable.
The carrying values of cash and cash equivalents, accounts receivable, and accounts payable are a reasonable estimate of their fair value due to the short-term nature of these instruments. These methodologies used by the Company to determine the fair value of its financial assets and liabilities at September 30, 2018 are the same as those used at December 31, 2017. There have been no transfers between levels of the fair value hierarchy.
v3.10.0.1
Pensions and Postretirement Benefits Other than Pensions
9 Months Ended
Sep. 30, 2018
Retirement Benefits, Description [Abstract]  
Pensions and Postretirement Benefits Other than Pensions
Pensions and Postretirement Benefits Other than Pensions
The Company sponsors several U.S. defined benefit and defined contribution plans covering substantially all of the Company's U.S. employees. Additionally, the Company has many non-U.S. defined benefit and defined contribution plans covering eligible non-U.S. employees. Postretirement benefits other than pensions (OPEB) provide healthcare benefits, and in some instances, life insurance benefits for certain eligible employees.
Pension Plans
The noncontributory defined benefit pension plans covering non-collectively bargained U.S. employees provide benefits on a final average pay formula while plans for most collectively bargained U.S. employees provide benefits on a flat dollar benefit formula or a percentage of pay formula. The non-U.S. pension plans generally provide benefits based on earnings and years of service. The Company also maintains additional other supplemental plans for officers and other key or highly compensated employees.
The components of the Company’s net periodic pension benefit cost for the three and nine months ended September 30 were as follows:
 
Three months ended
 
Nine months ended
In millions
2018
 
2017
 
2018
 
2017
Service cost
$
19.0

 
$
17.1

 
$
54.8

 
$
52.8

Interest cost
27.4

 
27.3

 
81.3

 
81.3

Expected return on plan assets
(36.7
)
 
(35.6
)
 
(110.3
)
 
(106.0
)
Net amortization of:
 
 
 
 
 
 
 
Prior service costs
1.1

 
0.9

 
3.2

 
2.8

Net actuarial losses
13.8

 
14.3

 
38.8

 
41.4

Net periodic pension benefit cost
$
24.6

 
$
24.0

 
$
67.8

 
$
72.3

Net curtailment and settlement (gains) losses
1.1

 
1.3

 
2.3

 
3.6

Net periodic pension benefit cost after net curtailment and settlement (gains) losses
$
25.7

 
$
25.3

 
$
70.1

 
$
75.9

Amounts recorded in continuing operations:


 


 


 


      Operating income
$
18.5

 
$
16.3

 
$
53.0

 
$
50.6

      Other income/(expense), net
5.0

 
6.4

 
10.7

 
17.9

Amounts recorded in discontinued operations
2.2

 
2.6

 
6.4

 
7.4

Total
$
25.7

 
$
25.3

 
$
70.1

 
$
75.9


During the nine months ended September 30, 2018, the Company recognized a settlement loss associated with lump sum distributions of a non-US defined benefit plan. During the nine months ended September 30, 2017, the Company recognized a curtailment loss associated with certain defined benefit plan freezes that is effective on January 1, 2022.
The Company made contributions to its defined benefit pension plans of $71.3 million and $77.8 million during the nine months ended September 30, 2018 and 2017, respectively. The Company currently projects that it will contribute approximately $80 million to its plans worldwide in 2018.
Postretirement Benefits Other Than Pensions
The Company sponsors several postretirement plans that provide for healthcare benefits, and in some instances, life insurance benefits that cover certain eligible employees. These plans are unfunded and have no plan assets, but are instead funded by the Company on a pay-as-you-go basis in the form of direct benefit payments. Generally, postretirement health benefits are contributory with contributions adjusted annually. Life insurance plans for retirees are primarily noncontributory.
The components of net periodic postretirement benefit cost for the three and nine months ended September 30 were as follows:
 
Three months ended
 
Nine months ended
In millions
2018
 
2017
 
2018
 
2017
Service cost
$
0.7

 
$
0.8

 
$
2.1

 
$
2.3

Interest cost
3.2

 
3.2

 
10.8

 
11.7

Net amortization of:
 
 
 
 
 
 
 
Prior service gains
(1.0
)
 
(2.2
)
 
(3.0
)
 
(6.5
)
Net actuarial losses
(0.7
)
 

 
(0.7
)
 

Net periodic postretirement benefit cost
$
2.2

 
$
1.8

 
$
9.2

 
$
7.5

Amounts recorded in continuing operations:


 


 


 


     Operating income
$
0.7

 
$
0.8

 
$
2.1

 
$
2.3

     Other income/(expense), net
1.3

 
0.9

 
5.3

 
3.8

Amounts recorded in discontinued operations
0.2

 
0.1

 
1.8

 
1.4

Total
$
2.2

 
$
1.8

 
$
9.2

 
$
7.5

v3.10.0.1
Equity
9 Months Ended
Sep. 30, 2018
Stockholders' Equity Note [Abstract]  
Equity
Equity
The authorized share capital of Ingersoll-Rand plc is 1,185,040,000 shares, consisting of (1) 1,175,000,000 ordinary shares, par value $1.00 per share, (2) 40,000 ordinary shares, par value EUR 1.00 and (3) 10,000,000 preference shares, par value $0.001 per share. There were no Euro-denominated ordinary shares or preference shares outstanding at September 30, 2018 or December 31, 2017.
Changes in ordinary shares and treasury shares for the nine months ended September 30, 2018 are as follows:
In millions
Ordinary shares issued
 
Ordinary shares held in treasury
December 31, 2017
274.0

 
24.5

Shares issued under incentive plans, net
1.9

 

Repurchase of ordinary shares
(5.8
)
 

September 30, 2018
270.1

 
24.5


Share repurchases are made from time to time in accordance with the Company's capital allocation strategy, subject to market conditions and regulatory requirements. In April 2017, the Company completed a $1.5 billion share repurchase program that began in April 2014. Shares repurchased prior to October 2014 were canceled upon repurchase and accounted for as a reduction of Ordinary shares and Capital in excess of par value, or Retained earnings to the extent Capital in excess of par value was exhausted. Beginning in October 2014, repurchased shares were held in treasury, recognized at cost and presented separately on the balance sheet as a reduction to Equity. In February 2017, the Company's Board of Directors authorized the repurchase of up to $1.5 billion of its ordinary shares (the 2017 Authorization) upon completion of the prior authorized program. Repurchases under the 2017 Authorization, which began in May 2017, totaled approximately $600 million at December 31, 2017 and are held in treasury. During the nine months ended September 30, 2018, the Company repurchased and canceled approximately $514 million of its ordinary shares leaving approximately $386 million remaining under the 2017 Authorization at September 30, 2018. In October 2018, the Company's Board of Directors authorized the repurchase of up to $1.5 billion of its ordinary shares upon completion of the 2017 Authorization.
The components of Equity for the nine months ended September 30, 2018 were as follows:
In millions
Shareholders’
equity
 
Noncontrolling
interests
 
Total
equity
Balance at December 31, 2017
$
7,140.3

 
$
66.6

 
$
7,206.9

Net earnings
1,083.6

 
12.5

 
1,096.1

Currency translation
(175.2
)
 
(2.9
)
 
(178.1
)
Derivatives qualifying as cash flow hedges, net of tax
0.1

 

 
0.1

Pension and OPEB adjustments, net of tax
34.1

 

 
34.1

Total comprehensive income (loss)
942.6

 
9.6

 
952.2

Share-based compensation
62.3

 

 
62.3

Adoption of ASC 606
2.4

 

 
2.4

Adoption of ASU 2016-16
(9.1
)
 

 
(9.1
)
Dividends declared to noncontrolling interests

 
(41.1
)
 
(41.1
)
Dividends declared to ordinary shareholders
(352.6
)
 

 
(352.6
)
Shares issued under incentive plans, net of tax benefit
36.3

 

 
36.3

Repurchase of ordinary shares
(514.1
)
 

 
(514.1
)
Balance at September 30, 2018
$
7,308.1

 
$
35.1

 
$
7,343.2

The components of Equity for the nine months ended September 30, 2017 were as follows:
In millions
Shareholders’
equity
 
Noncontrolling
interests
 
Total
equity
Balance at December 31, 2016
$
6,643.8

 
$
74.5

 
$
6,718.3

Net earnings
842.7

 
12.5

 
855.2

Currency translation
401.4

 
(1.0
)
 
400.4

Derivatives qualifying as cash flow hedges, net of tax
1.1

 

 
1.1

Pension and OPEB adjustments, net of tax
11.1

 

 
11.1

Total comprehensive income (loss)
1,256.3

 
11.5

 
1,267.8

Share-based compensation
53.2

 

 
53.2

Adoption of ASU 2016-09 (1)
15.1

 

 
15.1

Acquisition/divestiture of noncontrolling interests
(5.0
)
 
(2.3
)
 
(7.3
)
Dividends declared to noncontrolling interests

 
(15.5
)
 
(15.5
)
Dividends declared to ordinary shareholders
(318.0
)
 

 
(318.0
)
Shares issued under incentive plans, net of tax benefit
41.9

 

 
41.9

Repurchase of ordinary shares
(911.1
)
 

 
(911.1
)
Balance at September 30, 2017
$
6,776.2

 
$
68.2

 
$
6,844.4


(1) The Company adopted ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (ASU 2016-09) on January 1, 2017.
Accumulated Other Comprehensive Income (Loss)
The changes in Accumulated other comprehensive income (loss) for the nine months ended September 30, 2018 are as follows:
In millions
 
Derivative Instruments
 
Pension and OPEB
 
Foreign Currency Translation
 
Total
Balance at December 31, 2017
 
$
4.7

 
$
(494.3
)
 
$
(289.2
)
 
$
(778.8
)
Other comprehensive income (loss) before reclassifications
 
(0.5
)
 
5.2

 
(175.2
)
 
(170.5
)
Amounts reclassified from AOCI
 
0.4

 
38.3

 

 
38.7

Provision for income taxes
 
0.2

 
(9.4
)
 

 
(9.2
)
Net current period other comprehensive income (loss)
 
$
0.1

 
$
34.1

 
$
(175.2
)
 
$
(141.0
)
Balance at September 30, 2018
 
$
4.8

 
$
(460.2
)
 
$
(464.4
)
 
$
(919.8
)
The changes in Accumulated other comprehensive income (loss) for the nine months ended September 30, 2017 are as follows:
In millions
 
Derivative Instruments
 
Pension and OPEB
 
Foreign Currency Translation
 
Total
Balance at December 31, 2016
 
$
2.9

 
$
(554.4
)
 
$
(739.0
)
 
$
(1,290.5
)
Other comprehensive income (loss) before reclassifications
 
(1.3
)
 
(13.8
)
 
401.4

 
386.3

Amounts reclassified from AOCI
 
2.4

 
37.7

 

 
40.1

Provision for income taxes
 

 
(12.8
)
 

 
(12.8
)
Net current period other comprehensive income (loss)
 
$
1.1

 
$
11.1

 
$
401.4

 
$
413.6

Balance at September 30, 2017
 
$
4.0

 
$
(543.3
)
 
$
(337.6
)
 
$
(876.9
)

The reclassifications out of Accumulated other comprehensive income (loss) for the three and nine months ended September 30 were as follows:
 
 
Three months ended
 
Nine months ended
In millions
 
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
 
Derivative Instruments
 
 
 
 
 
 
 
 
Reclassifications of deferred (gains) losses (1)
 
$
(0.1
)
 
$
1.4

 
$
0.6

 
$
2.4

Provision for (benefit from) income taxes
 
(0.2
)
 
0.1

 

 
0.3

Reclassifications, net of taxes
 
$
(0.3
)
 
$
1.5

 
$
0.6

 
$
2.7

 
 
 
 
 
 
 
 
 
Pension and Postretirement benefits
 
 
 
 
 
 
 
 
Amortization of service costs (2)
 
$
0.1

 
$
(1.3
)
 
$
0.2

 
$
(3.7
)
Amortization of actuarial losses (2)
 
13.1

 
14.3

 
38.1

 
41.4

Provision for (benefit from) income taxes
 
(2.9
)
 
(4.1
)
 
(9.4
)
 
(12.8
)
Reclassifications, net of taxes
 
$
10.3

 
$
8.9

 
$
28.9

 
$
24.9

 
 
 
 
 
 
 
 
 
Total reclassifications, net of taxes
 
$
10.0

 
$
10.4

 
$
29.5

 
$
27.6

(1) Reclassifications of interest rate swaps and locks are reflected within Interest expense; reclassifications of currency derivatives designated as hedges are reflected in Cost of goods sold.
(2) Reclassifications of the service cost component of pension and postretirement benefit costs are reflected within Operating income; the remaining components are included within Other income/(expense), net.
v3.10.0.1
Revenue (Notes)
9 Months Ended
Sep. 30, 2018
Revenue from Contract with Customer [Abstract]  
Revenue
Revenue
The Company recognizes revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. A majority of the Company's revenues are recognized at a point-in-time as control is transferred at a distinct point in time per the terms of a contract. However, a portion of the Company's revenues are recognized over time as the customer simultaneously receives control as the Company performs work under a contract.
Performance Obligations
A performance obligation is a distinct good, service or a bundle of goods and services promised in a contract. The Company identifies performance obligations at the inception of a contract and allocates the transaction price to individual performance obligations to faithfully depict the Company’s performance in transferring control of the promised goods or services to the customer.
The following are the primary performance obligations identified by the Company:
Equipment and parts. The Company principally generates revenue from the sale of equipment and parts to customers and recognizes revenue at a point in time when control transfers to the customer. Transfer of control is generally determined based on the shipping terms of the contract. However, certain transactions within the Industrial segment include contracts to design, deliver and build highly engineered or customized equipment which have no alternative use for the Company in the event the customer cancels the contract. In addition, the Company has the right to payment for performance completed to date. As a result, revenues related to these contracts are recognized over time with progress towards completion measured using an input method as the basis to recognize revenue and an estimated profit. To-date efforts for work performed corresponds with and faithfully depicts transfer of control to the customer.
Contracting and Installation. The Company enters into various construction-type contracts to design, deliver and build integrated solutions to meet customer specifications. These transactions, primarily included within the Climate segment, provide services that range from the development and installation of new HVAC systems to the design and integration of critical building systems to optimize energy efficiency and overall performance. These contracts have a typical term of less than one year and are considered a single performance obligation as multiple combined goods and services promised in the contract represent a single output delivered to the customer. Revenues associated with contracting and installation contracts are recognized over time with progress towards completion measured using an input method as the basis to recognize revenue and an estimated profit. To-date efforts for work performed corresponds with and faithfully depicts transfer of control to the customer. 
Services and Maintenance. The Company provides various levels of preventative and/or repair and maintenance type service agreements for its customers. The typical length of a contract is 12 months but can be as long as 60 months. Revenues associated with these performance obligations are primarily recognized over time on a straight-line basis over the life of the contract as the customer simultaneously receives and consumes the benefit provided by the Company. However, if historical evidence indicates that the cost of providing these services on a straight-line basis is not appropriate, revenue is recognized over the contract period in proportion to the costs expected to be incurred while performing the service. Certain repair services do not meet the definition of over time revenue recognition as the Company does not transfer control to the customer until the service is completed. As a result, revenue related to these services is recognized at a point in time.
Extended warranties. The Company enters into various warranty contracts with customers related to its products. A standard warranty generally warrants that a product is free from defects in workmanship and materials under normal use and conditions for a certain period of time. The Company’s standard warranty is not considered a distinct performance obligation as it does not provide services to customers beyond assurance that the covered product is free of initial defects. An extended warranty provides a customer with additional time that the Company is liable for covered incidents associated with its products. Extended warranties are purchased separately and can last up to five years. As a result, they are considered separate performance obligations for the Company. Revenue associated with these performance obligations are primarily recognized over time on a straight-line basis over the life of the contract as the customer simultaneously receives and consumes the benefit provided by the Company. However, if historical evidence indicates that the cost of providing these services on a straight-line basis is not appropriate, revenue is recognized over the contract period in proportion to the costs expected to be incurred while performing the service. Refer to Note 19, "Commitments and Contingencies," for more information related to product warranties.
The transaction price allocated to performance obligations reflects the Company’s expectations about the consideration it will be entitled to receive from a customer. To determine the transaction price, variable and noncash consideration are assessed as well as whether a significant financing component exists. The Company’s contracts with customers, dealers and distributors include several forms of sales incentive programs (variable consideration) which are estimated and included in the transaction price. They 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 requirements to receive the discount. The Company records an accrual (contra receivable) and a sales deduction for its best estimate determined using the expected value method. In addition, sales returns and customer disputes involving a question of quantity or price are also accounted for as variable consideration. 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 for its best estimate determined using the expected value method. The Company considers historical data in determining its best estimates of variable consideration. These estimates are reviewed regularly for appropriateness, considering also whether the estimates should be constrained in order to avoid a significant reversal of revenue recognition in a future period. If updated information or actual amounts are different from previous estimates of variable consideration, the revisions are included in the results for the period in which they become known through a cumulative effect adjustment to revenue.  The Company has performance guarantees related to energy savings contracts that are provided under the maintenance portion of contracting and installation agreements extending from 2018-2038. The Company has experienced no significant losses under such arrangements and considers the probability of any significant future losses to be remote.
The Company enters into sales arrangements that contain multiple goods and services, such as equipment, installation and extended warranties. For these arrangements, each good or service is evaluated to determine whether it represents a distinct performance obligation. The total transaction price is then allocated to the distinct performance obligations based on their relative standalone selling price at the inception of the arrangement. If available, the Company utilizes observable prices for goods or services sold separately to similar customers in similar circumstances to determine its relative standalone selling price. Otherwise, list prices are used if they are determined to be representative of standalone selling prices. If neither of these items are available at contract inception, judgment may be required and the Company will estimate standalone selling price based on its best estimate. The Company recognizes revenue for delivered goods or services when the delivered good or service is distinct, control of the good or service has transferred to the customer, and only customary refund or return rights related to the goods or services exist. The Company excludes from revenues taxes it collects from a customer that are assessed by a government authority. Excluding noncurrent contract liabilities, unsatisfied (or partially unsatisfied) performance obligations as of the end of the reporting period are expected to be recognized as revenue within the next 12 months.
Disaggregated Revenue
A summary of Net revenues by destination for the three and nine months ended September 30, 2018 is as follows:
In millions
Three months ended
 
Nine months ended
Climate
 
 
 
     United States
$
2,223.1

 
$
6,345.3

     Non-U.S.
1,015.6

 
2,997.0

Total Climate
$
3,238.7

 
$
9,342.3

Industrial
 
 
 
     United States
$
411.9

 
$
1,277.1

     Non-U.S.
380.3

 
1,153.7

Total Industrial
$
792.2

 
$
2,430.8

A summary of Net revenues by major type of good or service for the three and nine months ended September 30, 2018 is as follows:
In millions
Three months ended
 
Nine months ended
Climate
 
 
 
     Equipment
$
2,153.3

 
$
6,379.6

     Services and parts
1,085.4

 
2,962.7

Total Climate
$
3,238.7

 
$
9,342.3

Industrial
 
 
 
     Equipment
$
466.7

 
$
1,472.2

     Services and parts
325.5

 
958.6

Total Industrial
$
792.2

 
$
2,430.8


Revenue from goods and services transferred to customers at a point in time accounted for approximately 84% of the Company's revenue for the nine months ended September 30, 2018.
Contract Balances
The opening and closing balances of contract assets and contract liabilities arising from contracts with customers for the period ended September 30, 2018 and December 31, 2017 were as follows:
In millions
September 30, 2018
 
December 31, 2017
Contract assets
$
194.8

 
$
166.0

Contract liabilities
857.6

 
814.2


The timing of revenue recognition, billings and cash collections results in accounts receivable, contract assets, and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheet. In general, the Company receives payments from customers based on a billing schedule established in its contracts. Contract assets relate to the conditional right to consideration for any completed performance under the contract when costs are incurred in excess of billings under the percentage-of-completion methodology. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities relate to payments received in advance of performance under the contract or when the Company has a right to consideration that is unconditional before it transfers a good or service to the customer. Contract liabilities are recognized as revenue as (or when) the Company performs under the contract. During the three and nine months ended September 30, 2018, changes in contract asset and liability balances were not materially impacted by any other factors.
Approximately 35% of the contract liability balance at the beginning of the period is expected to be recognized as revenue during 2019 or thereafter. As a result, substantially all of the remaining balance is expected to be recognized as revenue during 2018. During the three and nine months ended September 30, 2018, approximately 10% and 50% was recognized as revenue, respectively.
ASC 606 adoption impact
Under ASC 606, the majority of the Company’s revenue continues to be recognized on a similar basis as previous accounting standards. However, certain highly engineered products sold to customers within the Industrial segment for which revenue was previously recognized at a point in time meet the criteria of a performance obligation satisfied over time. These contracts consist of equipment that is highly engineered or customized to meet the customer’s requirements. In the event the customer cancels the contract, the Company will have no alternative use for the equipment as well as the right to payment for performance completed to date. This change results in accelerated recognition of revenue and increases the balance of contract assets compared to the previous revenue recognition standard.
The Company adopted ASC 606 on January 1, 2018 using the modified retrospective approach with a cumulative effect adjustment to increase Retained earnings by $2.4 million. As a result, the Company applied ASC 606 only to contracts that were not completed as of January 1, 2018. Comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods presented. The Company elected to reflect the aggregate effect of all contract modifications that occurred before the beginning of the earliest period presented in determining the transaction price, identifying the satisfied and unsatisfied performance obligations and allocating the transaction price to the satisfied and unsatisfied performance obligations for the modified contract at transition. The effects of this relief are immaterial.
The following table summarizes the impact of adopting ASC 606 on the Company’s Condensed Consolidated Statements of Comprehensive Income:
 
Three months ended September 30, 2018
 
Nine months ended September 30, 2018
In millions
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
Net revenues
$
4,030.9

 
$
4,028.7

 
$
2.2

 
$
11,773.1

 
$
11,763.6

 
$
9.5

Cost of goods sold
(2,718.3
)
 
(2,716.2
)
 
2.1

 
(8,102.6
)
 
(8,094.1
)
 
8.5

Selling and administrative expenses
(725.6
)
 
(725.6
)
 

 
(2,199.8
)
 
(2,199.8
)
 

Operating income
587.0

 
586.9

 
0.1

 
1,470.7

 
1,469.7

 
1.0

Interest expense
(48.5
)
 
(48.5
)
 

 
(171.7
)
 
(171.7
)
 

Other income/(expense), net
(8.5
)
 
(8.5
)
 

 
(16.0
)
 
(16.0
)
 

Earnings before income taxes
530.0

 
529.9

 
0.1

 
1,283.0

 
1,282.0

 
1.0

Benefit (provision) for income taxes
1.1

 
1.1

 

 
(159.9
)
 
(159.7
)
 
0.2

Earnings from continuing operations
$
531.1

 
$
531.0

 
$
0.1

 
$
1,123.1

 
$
1,122.3

 
$
0.8

The following table summarizes the impact of adopting ASC 606 on the Company’s Balance Sheet:
 
September 30, 2018
In millions
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change Higher/(Lower)
Assets
 
 
 
 
 
     Accounts and notes receivable, net
$
2,752.1

 
$
2,756.6

 
$
(4.5
)
     Inventories, net
1,821.4

 
1,829.9

 
(8.5
)
     Other current assets
486.6

 
473.6

 
13.0

     Other noncurrent assets
879.8

 
879.8

 

 
 
 
 
 
 
Liabilities
 
 
 
 
 
     Accrued expenses and other current liabilities
$
1,720.3

 
$
1,721.1

 
$
(0.8
)
     Deferred and noncurrent income taxes
610.2

 
610.2

 

     Other noncurrent liabilities
1,079.9

 
1,079.9

 

 
 
 
 
 
 
Equity
 
 
 
 
 
     Retained earnings
$
9,624.8

 
$
9,624.0

 
$
0.8

v3.10.0.1
Share-Based Compensation
9 Months Ended
Sep. 30, 2018
Share-based Compensation [Abstract]  
Share-Based Compensation
Share-Based Compensation
The Company accounts for stock-based compensation plans in accordance with ASC 718, "Compensation - Stock Compensation" (ASC 718), which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured once at the date of grant and is not adjusted for subsequent changes. The Company’s share-based compensation plans include programs for stock options, restricted stock units (RSUs), performance share units (PSUs) and deferred compensation.
Compensation Expense
Share-based compensation expense is related to continuing operations and is included in Selling and administrative expenses. The expense recognized for the three and nine months ended September 30 was as follows:
 
Three months ended
 
Nine months ended
In millions
2018
 
2017
 
2018
 
2017
Stock options
$
3.1

 
$
3.6

 
$
21.1

 
$
16.3

RSUs
4.6

 
5.0

 
26.6

 
21.9

Performance shares
4.7

 
4.7

 
16.0

 
15.9

Other
1.9

 
0.7

 
3.9

 
3.8

Pre-tax expense
14.3

 
14.0

 
67.6

 
57.9

Tax benefit
(3.5
)
 
(5.4
)
 
(16.5
)
 
(22.2
)
After-tax expense
$
10.8

 
$
8.6

 
$
51.1

 
$
35.7

Grants issued during the nine months ended September 30 were as follows:
 
2018
 
2017
 
Number
granted
 
Weighted-
average fair
value per award
 
Number
granted
 
Weighted-
average fair
value per award
Stock options
1,524,625

 
$
15.49

 
1,517,235

 
$
13.46

RSUs
317,073

 
$
89.69

 
335,743

 
$
80.36

Performance shares (1)
357,096

 
$
106.06

 
391,772

 
$
93.17


(1) The number of performance shares represents the maximum award level.
Stock Options / RSUs
Eligible participants may receive (i) stock options, (ii) RSUs or (iii) a combination of both stock options and RSUs. The fair value of each of the Company’s stock option and RSU awards is expensed on a straight-line basis over the required service period, which is generally the 3-year vesting period. However, for stock options and RSUs granted to retirement eligible employees, the Company recognizes an expense for the entire fair value at the grant date.
The average fair value of the stock options granted is determined using the Black-Scholes option-pricing model. The following assumptions were used during the nine months ended September 30:
 
 
2018
 
2017
Dividend yield