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Ingersoll Investor Presentation

Ingersoll Rand is a $13 billion global company that operates in two business segments: Climate and Industrial. It advances quality of life by creating comfortable, sustainable, and efficient environments through its portfolio of brands such as Club Car, Ingersoll Rand, Thermo King, and Trane. The company works to enhance air quality and comfort in homes and buildings, transport and protect food and perishables, and increase industrial productivity and efficiency. It is committed to sustainable progress and enduring results.

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Ingersoll Rand advances the quality of life by creating comfortable, sustainable and efficient environments. Ingersoll Rand (NYSE:IR) advances the quality of life by creating comfortable, sustainable and efficient environments. Our people and our family of brands—including Club Car®, Ingersoll Rand®, Thermo King® and Trane®—work together to enhance the quality and comfort of air in homes and buildings; transport and protect food and perishables; and increase industrial productivity and efficiency. We are a $13 billion global business committed to a world of sustainable progress and enduring results.
2 Safe Harbor This presentation includes “forward-looking statements,” which are statements that are not historical facts, including statements that relate to the mix of and demand for our products; performance of the markets in which we operate; our share repurchase program including the amount of shares to be repurchased and timing of such repurchases; our projected 2017 full- year financial performance and targets including assumptions regarding our effective tax rate. These forward-looking statements are based on our current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from our current expectations. Such factors include, but are not limited to, global economic conditions, the outcome of any litigation, demand for our products and services, and tax law changes. Additional factors that could cause such differences can be found in our Form 10-K for the year ended December 31, 2015, Form 10-Q for the quarters ended March 31, 2016, June 30, 2016, and September 30, 2016, and other SEC filings. We assume no obligation to update these forward-looking statements. This presentation also includes non-GAAP financial information which should be considered supplemental to, not a substitute for, or superior to, the financial measure calculated in accordance with GAAP. The definitions of our non-GAAP financial information and reconciliation to GAAP is attached to the earnings news release that can be found at www.ingersollrand.com and are defined in footnotes at the end of this presentation. All data for beyond the fourth quarter of 2016 are estimates. 2
Key Facts • Ingersoll Rand has been listed continuously on the New York Stock Exchange since October 11, 1906 • Ingersoll Rand is the 16th oldest company and the 12th oldest continuously listed company on the NYSE • $20B Market cap Trades on NYSE • Ingersoll Rand is 145 years old and was first incorporated in 1905 • $13.5 Billion Revenue • Two business segments • Climate - Commercial and Residential HVAC and Transport Refrigeration • Industrial – Air compression, Industrial products, low speed vehicles Company Background • Ingersoll Rand is incorporated in Swords, Ireland • North American Headquarters in Davidson, NC • 40,000 employees • 51 manufacturing locations Company Background Key Facts 3
4 • A ~$10B group of six growth-oriented SBUs led by high-performing leaders and teams • Trane and Thermo King are world leaders in HVAC and refrigerated transportation • An outstanding network of global operations, channels and employees • Stronger together with BOS linkage and commercial synergies EMEA is Europe, Middle East, and Africa. Asia Pacific includes India. Services includes aftermarket parts, accessories, and all types of service. Commercial HVAC Residential HVAC HVAC Parts & Supply Transport Solutions 68% 15% 11% 6% North America EMEA Asia Pacific Latin America 60% 40% Equipment Services Climate Segment An Unmatched Strategic Position
5 • A $3.0B group of five growth-oriented Strategic Business Units • Ingersoll Rand, ARO and Club Car are #1 or #2 brands in their core markets • World-class engineered and mission-critical products, systems and services • Balanced across industries, geographic regions, equipment and aftermarket • SBUs are stronger together with BOS linkage and channel synergies EMEA is Europe, Middle East, India and Africa. Services includes aftermarket parts, accessories and service. AIR Power Tools Fluid Management Material Handling Club Car 55% 19% 21% 5% North America EMEIA Asia Pacific Latin America 65% 35% Equipment Services Our Industrial Businesses are in Leading Positions 5
2016 REVENUE: $13.5B 33% Aftermarket By End Markets 66% North America 15% Eur/ME 14% Asia 5% Latin America By Geography 5%Golf/Utility 16%Transport Refrigeration 16% Non-Res Building (Overseas) 31%Non-Res Building (N. America) 18%Industrial Process 14%Residential, (N. America) 67% New equipment Represents Diverse End Markets and Geography Climate 77% Industrial 23% By Segment 2016 Revenue Profile 2013 2014 2015 9.6 % 11.0 % Adjusted Operating Margins 2016 11.9 % 11.4 % 6
7 • Leading global brands and market positions • Strong long-term growth drivers - Macro drivers are energy efficiency and sustainability - Large installed base drives replacement business and parts and service growth - Global footprint and exposure to attractive growing markets - Organic growth enhanced by innovation - Market recoveries • Product/service offering underpinned by shared technologies, materials, manufacturing, processes and supply chain • Continued margin and cash flow improvement opportunity from operational/functional excellence A world leader in creating comfortable, sustainable and efficient environments Ingersoll Rand: Foundational Strengths 7
8 Urbanization Energy Consumption Food & Water Scarcity Climate Change Industrial Productivity & Efficiency Ingersoll Rand Possesses Expertise to Address Pressing World Challenges 8
9 Leading market sharesStrong, recognized brands Well positioned in both geographic and end markets Strategic Foundation Continues to Underpin Top-Quartile Performance Sustainable and Profitable Growth, Cash Flow and Shareholder Value Sustained Growth Operational Excellence Winning Culture Cash Flow / Dynamic Capital Allocation Strategic Foundation Continues to Underpin Top-Quartile Performance 9
10 Steady operating performance improvement $11.5 $12.0 $12.5 $13.0 $13.5 $14.0 2013 2014 2015 2016 Net Revenue 3% CAGR In Billions $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2013 2014 2015 2016 Adjusted EPS 0% 5% 10% 15% 20% 25% 2013 2014 2015 2016 Cash Flow ROIC 6 Ppts 16% CAGR 2.3 Ppts Steady Operating Performance Improvement 10 0% 2% 4% 6% 8% 10% 12% 14% 2013 2014 2015 2016 Adjusted Operating Margin
11 2013 2014 2015 2016 1,345** 810 862 985** Strong Balance Sheet and Free Cash Flow $ Millions YE 13 YE 14 YE 15 YE 16 Cash 1,937 1,705 737 1,715 Debt 3,521 4,224 4,218 4,070 Net Debt 1,584 2,519 3,481 2,355 Free Cash Flow$ Millions *Reported – includes Allegion security business and excludes restructuring and one-time spin costs and refinancing premium **Excludes the impact of the IRS agreement and restructuring in 2015 and excludes restructuring and the proceeds on the sale of Hussmann in 2016 Post Security Spin 1,151* • 2011 to 2016 avg. FCF % of net income = 100% • 2016 FCF % of adjusted net income = 121% • FCF increase from higher operating results and working capital management. $5.14/share 11
12 Strategic Business Investment Maintained Strong Balance Sheet at BBB Metrics  Digital  Energy efficiency  Channel Expansion  No meaningful debt maturities until 2018 Building value through acquisitions  Working on our pipeline of targets $0.64 $0.84 $1.00 $1.16 $1.36 $1.60 2012 2013 2014 2015 2016 2017F Share Repurchase – Minimum Offset Dilution from Benefits Program  2016: Repurchased 4.9M shares for $250M  2016 dividend increased to $1.60/ share  20% annual CAGR 2012 to 2017 Competitive Dividend Payout 36 55 76 98 103 108 2011 2012 2013 2014 2015 2016 Cumulative share repurchase 2011 to 2016 --108 million shares 2016 Dynamic Capital Allocation Focused on Delivering High Returns 12
13 • Strong momentum and further upside ‒ Attractive end markets ‒ Leading brands and growth through innovation ‒ Substantial position in developing markets with significant potential • Excellent management team executing consistently on strategy • Value creation model delivers sustainable results and returns to shareholders ‒ Growth ‒ Operational Excellence ‒ Dynamic capital allocation Much Progress… More Opportunity Ahead 13
Appendix
RESIDENTIAL HVAC Heating, cooling, thermostat controls and home automation for the residential market COMMERCIAL HVAC Air conditioning systems, services and solutions. Innovative solutions geared toward making high performance buildings reliable and safe, as well as healthy, comfortable and efficient TRANSPORT REFRIGERATION Manufacturing and innovation of transport temperature control systems for a variety of mobile applications, including trailers, truck bodies, buses, shipboard containers and rail cars HVAC SERVICES AND PARTS A complete selection of innovative parts, options and accessories for optimal performance and reliability Our Climate Businesses 15
COMPRESSION TECHNOLOGIES AND SERVICES MATERIAL HANDLING FLUID MANAGEMENT CLUB CAR POWER TOOLS Rotary, centrifugal and reciprocating air compressors, and treatment products with Comprehensive multi- year service agreements, audits, parts, and accessories Hoists, winches and systems for moving and positioning loads Pumps and systems for fluid handling, transfer, and application Golf, commercial and utility vehicles for transportation Professional tools for fastening, drilling, and surface preparation Our Industrial Businesses 16
Fourth-Quarter 2016 Results February 1, 2017
18 Leading market sharesStrong, recognized brands Well positioned in both geographic and end markets Strategic Foundation Continues to Underpin Top-Quartile Performance Sustainable and Profitable Growth, Cash Flow and Shareholder Value Sustained Growth Operational Excellence Winning Culture Cash Flow / Dynamic Capital Allocation 2
19 Consistent Progress Against Key Metrics* Net Revenue Operating Margin Adj. Continuing EPS* Free Cash Flow* Versus 2015 +2% reported +3% organic +60 bps * Includes certain Non-GAAP financial measures. See the company’s Q4 2016 earnings release for additional details and reconciliations. +11% +37% Full Year 2016 $13,509M 11.6% $4.13 $1.35B >100% adj. net income • FCF was 121% of adjusted net income* • Full-year operating leverage of 44% • Repurchased ~4.9M shares for $250M in 2016 3
20 4 Steady Operating Performance Improvement $11.5 $12.0 $12.5 $13.0 $13.5 $14.0 2013 2014 2015 2016 Net Revenue 3% CAGR In Billions $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2013 2014 2015 2016 Adjusted EPS 0% 5% 10% 15% 20% 25% 2013 2014 2015 2016 Cash Flow ROIC 6 Ppts 16% CAGR 0% 2% 4% 6% 8% 10% 12% 14% 2013 2014 2015 2016 Adjusted Operating Margin 2.3 Ppts
21 • Continued strong operating results – FCF $353M in Q4; $1.35B 2016 – Combined operating results for segments exceeded guidance • EPS miss vs guidance driven by discrete items • Robust Commercial & Residential performance – Commercial bookings up high-single digits & Residential bookings up low-teens – Margin expansion in both Commercial and Residential Key Takeaways Q4 2016 • Industrial business steady on recovery path – Revenue up sequentially vs. Q3 5
22 Q4 2016 Guidance to Actual Bridge Q4 2016 Adjusted EPS Guidance (at mid-point) $0.91 Operations earnings 0.01 Corporate Costs (0.04) Foreign Exchange Losses (0.01) Higher Tax rate (0.03) Q4 Actual Adjusted EPS $0.84 • Combined operating results for Climate & Industrial exceeded guidance. • Higher than anticipated corporate costs were driven by stock-based and annual incentive-based compensation and increased IT infrastructure and security investments. • Higher than anticipated profits from high tax jurisdictions caused an increase in the tax rate. Highlights 6
23 Q4 Total Company Performance Operating MarginNet Revenue 10.8% 10.3% Q4 '15 Q4 '16 $3,326 $3,359 Q4 '15 Q4 '16 14.2% 13.4% Q4 '15 Q4 '16 +1% +2% Organic -50 bps Adj. Operating Margin* 11.3% 10.8% Adj. OI + D&A %** * Adjusted margin excludes restructuring in 2015 and 2016 ** Adjusted operating income + depreciation and amortization divided by revenue -80 bps • Revenue up 1%, +2% organic • Adj. margin 10.8%, down 50 bps Y-O-Y • Adj. EPS of $0.84 , down 11% Highlights 7
24 8 Y-O-Y % Change Reported Organic Q1 2015 3% 5% Q2 2% 4% Q3 (2%) 1% Q4 1% 2% Q1 2016 1% 4% Q2 2% 3% Q3 2% 3% Q4 6% 7% Climate C Commercial HVAC + low-teens - N. America + low-teens - L. America + low-teens - EMEA + mid-single digits - Asia + high-teens Residential HVAC + low-teens Transport + mid-single digits Total + 9%, +10% Organic Industrial Compression Tech - low-single digits Industrial Products - low-single digits Small Elec. Vehicle + low-single digits Total - 2%, -1% Organic Y-O-Y Change in Organic Bookings Very Strong Q4 Bookings Led by Commercial and Residential Businesses
25 North America Europe Asia Latin America Climate Industrial Climate Industrial Revenue change Y-O-Y Q4 Reported Q4 Organic Climate +3% +4% Industrial -4% -3% Total +1% +2% Climate Industrial Climate Industrial Middle East/Africa Climate Industrial C O N S O L I D A T E D R E S U L T S Q4 Segment Organic Revenue Change by Region 9
26 E n t e r p r i s e Lower Q4 Margin Primarily due to Steel Inflation and Higher Than Anticipated Corporate Costs • Improvements in material productivity offset by other inflation, including higher than anticipated corporate costs resulted in a 40 bps headwind • Solid operational performance offset by steel inflation • The company continues to invest in products, while expanding channels Highlights 10.8% (0.2) (0.3) 10.3% 4Q 2015 Volume / Mix / FX Price/Material Inflation Productivity/Other Inflation Investment/Other 4Q 2016 0.4 (0.4) (0.2) Investment (0.1) Other/Rest -50 bps 10
27 C L I M A T E S E G M E N T Q4 Strong Commercial and Residential HVAC Offsetting Transport Results Operating MarginNet Revenue 12.9% 13.6% Q4 '15 Q4 '16 $2,492 $2,559 Q4 '15 Q4 '16 15.4% 15.8% Q4 '15 Q4 '16 +3% +4% Organic +70 bps Adj. OI + D&A %** +40 bps Adj. Operating Margin* 12.9% 13.6% * Adjusted margin excludes restructuring in 2015 and 2016 ** Adjusted operating income + depreciation and amortization divided by revenue • Strong Commercial and Residential HVAC revenue growth • Strong unitary and aftermarket • Operations performance delivered 70 bps of adjusted operating margin improvement Highlights 11
28 I N D U S T R I A L S E G M E N T Q4 Organic Revenues Declined by 3% 12.7% 10.5% Q4 '15 Q4 '16 Operating Margin $834 $800 Q4 '15 Q4 '16 Net Revenue 15.8% 13.5% Q4 '15 Q4 '16 -4% -3% Organic -220 bps Adj. OI + D&A %** -230 bps Adj. Operating Margin* 13.8% 11.4% * Adjusted operating margin excludes restructuring in 2015 and 2016 ** Adjusted operating income + depreciation and amortization divided by revenue • Q4 performance slightly exceeds revenue and operating margin guidance • Continuing initiatives to drive margin improvements Highlights 12
29 2013 2014 2015 2016 1,345** 810 862 985** Strong Balance Sheet and Free Cash Flow $ Millions YE 13 YE 14 YE 15 YE 16 Cash 1,937 1,705 737 1,715 Debt 3,521 4,224 4,218 4,070 Net Debt 1,584 2,519 3,481 2,355 Free Cash Flow$ Millions *Reported – includes Allegion security business and excludes restructuring and one-time spin costs and refinancing premium **Excludes the impact of the IRS agreement and restructuring in 2015 and excludes restructuring and the proceeds on the sale of Hussmann in 2016 Post Security Spin 1,151* • 2011 to 2016 avg. FCF % of net income = 100% • 2016 FCF % of adjusted net income = 121% • FCF increase from higher operating results and working capital management $5.14/share 13
30 2016 Dynamic Capital Allocation Focused on Delivering High Returns Strategic Business Investment Maintained Strong Balance Sheet at BBB Metrics  Digital  Energy efficiency  Channel Expansion  No meaningful debt maturities until 2018 Building value through acquisitions  Working on our pipeline of targets $0.64 $0.84 $1.00 $1.16 $1.36 $1.60 2012 2013 2014 2015 2016 2017F Share Repurchase – Minimum Offset Dilution from Benefits Program  YTD 2016: Repurchased 4.9M shares for $250M  Dividend increased to $1.60 / share  20% annual CAGR 2012 to 2017 Competitive Dividend Payout 36 55 76 98 103 108 2011 2012 2013 2014 2015 2016 Cumulative share repurchase 2011 to 2016 --108 million shares 14
Guidance
32 2017 Forecast for End-Market Performance End Markets Americas EMEA Asia Guidance Commercial HVAC Up mid-single digits Residential HVAC Up mid-single digits Transport Down low-single digits Compression-related & Industrial Products Down low-single digits Golf / Utility Flat/Up low-single digits Organic Revenue 16
33 2017 Enterprise Guidance FY Guidance Climate ‒ Revenue Reported ‒ Revenue Organic ~3% ~4% Adjusted Operating Margin 14.5% to 15.0% Industrial ‒ Revenue Reported ‒ Revenue Organic ~-2% ~-1% Adjusted Operating Margin 11.0% to 12.0% Total ‒ Revenue Reported ‒ Revenue Organic ~2% ~3% Adjusted Operating Margin 12.2% to 12.6% 17
34 2017 Guidance: Full-year Continuing Adjusted EPS $4.30 to $4.50 Full Year Y-O-Y change in revenue • Reported • Organic ~2% ~3% EPS continuing $4.15 to $4.35 Restructuring – (add back) ($0.15) EPS continuing – adjusted $4.30 to $4.50 EPS – discontinued ($0.13) Share Count – Millions ~262 Free Cash Flow $1.1B to $1.2B Tax Rate 21% to 22% Corporate G&A ~$240M CAPEX ~$250M 18
35 2017 Capital Allocation Priorities • 2017 expected FCF range of $1.1B to $1.2B • Continued investment in the core business - Technology, channel expansion and productivity enhancements • Dividends of ~$420M ($1.60 per share, annualized) • Target deployment of $1.5B for share buybacks and acquisitions combined - EPS guidance includes $250M (of $1.5B) share buyback to offset dilution 19
36 • U.S. Manufacturing - In-region for-region manufacturing and supply chain strategy - Sourcing with local U.S. vendors to lower manufacturing cycle time - ~95% of finished goods sold in U.S. are manufactured in the U.S.  Net Exporter • U.S. Corporate Tax Rate Reduction - ~65% of revenues from the U.S. - Pay significant U.S. taxes - Reduction in the U.S. tax rate benefits Ingersoll Rand’s U.S.- based earnings Topics of Interest for 2017 20
37 Topics of Interest for 2017 • Status of Industrial Segment - Solid Q4 results - Growth in food, pharma and tech verticals and aftermarket soft in general industrial, large compressors and energy - OPEX gains, restructuring and cost reductions drive improved operating margins in 2017 despite low-single digit revenue decline • Status of Climate Segment - Commercial and Residential HVAC markets continue upward momentum - Expect Transport revenues to be down low-single digits Y-o-Y - N. America trailer industry down low-teens - Growth in Europe, Asia and in aftermarket partially offset lower North American trailer revenues 21
38 Topics of Interest for 2017 • Currency impact on 2017 - ~35% of revenues outside U.S. - Expect weaker Euro and Asian currencies - Net currency expected to have a ~1 percentage point drag on revenues and a ~10 cent negative impact on 2017 EPS • Price/Cost 2017 - Material inflation in Q4 results - 2017 - Expect flat nonferrous cost, inflation in steel - Targeting price/material inflation gap of 10 to 20 basis points positive 22
39 • Continued strong 2016 results driven by execution of our business operating system • Strong 2016 full-year cash conversion resulted in $1.35B of FCF • Top-quartile organic growth, EPS growth and cash flow percentage of net income • Commercial HVAC business is strong driven by customer demand trends for energy efficiency and productivity • Expect continued progress through 2017 for Industrial, albeit quarterly results may show some cyclicality • Commodity inflation expected in 2017, primarily driven by steel. We expect positive price/material cost spread of 10 to 20 basis points. • 2017 targeted cash deployment of ~$1.5B for share buybacks and acquisitions and ~$420M of dividends • Adjusted EPS guidance tied to strength of business; adjusted EPS range of $4.30 - $4.50 Summary: Top Quartile Performance with Industrial Improving 23
Appendix
41 Q4 Organic Revenue Up 2% Year-Over-Year Reported 2015 2016 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Climate 6% 2% 4% 2% 3% 3% 4% 3% 3% 3% Industrial 7% (1%) (2%) 5% 2% (7%) (4%) Flat (4%) (4%) Total 6% 2% 3% 3% 3% Flat 2% 2% 1% 2% 2013 Organic* 2015 2016 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 4Q FY Climate 9% 5% 8% 5% 7% 4% 5% 3% 4% 4% Industrial 4% (4%) (2%) (2%) (1%) (5%) (3%) 1% (3%) (3%) Total 8% 3% 6% 3% 5% 2% 3% 3% 2% 3% *Organic revenues excludes acquisitions and currency 25
42 Flat Organic -7% 5% -3% -10% 5% Reported Organic* *Organic revenues excludes acquisitions and currency Q4 Revenue Up 1% and Organic Up 2% 3% 4% -3% Climate Industrial Reported Organic*-4% Segment Revenue Change Geographic Revenue Change Americas Europe, Middle East, Africa Asia N.A. Organic +6% 26
43 Q4 2016 Y-O-Y Revenue Change Reported Organic Climate - Commercial HVAC + Low-single + Mid-single - Residential HVAC + Low teens + Low-teens - Transport - Mid-single - Mid-single Total Climate 3% 4% Industrial - Compression-related Products - Mid-single - Low-single - Industrial Products - High-single - High-single - Small Electric Vehicle + Low-single + Low-single Total Industrial - 4% - 3% Total Company 1% 2% 27
44 Full-Year 2017 Guidance Bridge 2016 EPS Continuing Operations (GAAP) 2016 Restructuring + other one-time items* $5.52 (1.39) Operations – includes ($0.15) of restructuring 0.29 to 0.49 Currency (0.10) Investments (0.15) Tax rate/other (0.02) 2017 EPS Continuing Reported (GAAP) $4.15 to $4.35 2017 forecast restructuring (add back) (0.15) 2017 Continuing EPS (Adjusted) $4.30 to $4.50 *Includes restructuring, Hussmann gain on sale and 4Q legal settlement 28
45 Non-GAAP Measures Definitions Organic revenue is defined as GAAP net revenues adjusted for the impact of currency and acquisitions. Organic bookings is defined as reported orders closed/completed in the current period adjusted for the impact of currency and acquisitions. • Currency impacts on net revenues and bookings are measured by applying the prior year’s foreign currency exchange rates to the current period’s net revenues and bookings reported in local currency. This measure allows for a direct comparison of operating results excluding the year-over-year impact of foreign currency translation. • Acquisition growth rate impacts from 2015 versus 2014 for both net revenues and orders are calculated by excluding the net revenues and orders from companies acquired in 2015. We are adjusting the 2015 to 2014 growth rate comparisons for the Engineered Centrifugal Compression business acquired in January 2015 and reported in our Industrial segment, and the Frigoblock acquisition completed in March 2015 and reported in our Climate segment, to allow for a direct comparison of operating results to prior periods. Adjusted operating margin is defined as the ratio of adjusted operating income divided by net revenues. • Adjusted operating income is defined as GAAP operating income plus restructuring expenses in 2016. In 2015 acquisition-related Inventory Step-up costs were also excluded from this measure. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 3 & 4 of the news release. In 2016 Adjusted EPS is defined as GAAP EPS plus restructuring expenses and legal settlement, less the gain recognized on the sale of the Hussmann equity interest in Q2 2016, net of tax impacts and a legal matter. In 2015 Adjusted EPS was defined as GAAP EPS plus restructuring expenses, acquisition inventory step-up costs, Venezuela re- measurement of monetary assets and the IRS agreement, net of tax impacts. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 3 & 4 of the news release. Legal 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 U.S. Inc. and the charge in the fourth quarter of 2016 represents the settlement and related legal costs. 29
46 Non-GAAP Measures Definitions Free cash flow in 2016 and 2015 is defined as net cash provided by operating activities, less capital expenditures, plus cash payments for restructuring. In 2015 this definition also excluded the cash impact of the IRS agreement which occurred in the third and fourth quarters. Please refer to the free cash flow reconciliation on table 8 of the news release. Cash flow return on invested capital is defined as annual free cash flow divided by the sum of gross fixed assets, receivables and inventory less accounts payables Working Capital measures a firm’s operating liquidity position and its overall effectiveness in managing the enterprises’ current accounts. • Working capital is calculated by adding net accounts and notes receivables and inventories and subtracting total current liabilities that exclude short term debt, dividend payables and income tax payables. • Working capital as a percent of revenue is calculated by dividing the working capital balance (e.g. as of December 31) by the annualized revenue for the period (e.g. reported revenues for the three months ended December 31 multiplied by 4 to annualize for a full year). Adjusted effective tax rate for Q4 2016 is defined as the ratio of income tax expense, plus or minus the tax effect of adjustments for restructuring costs and legal settlement, divided by earnings from continuing operations before income taxes plus restructuring expenses and legal settlement. Q4 2015 adjustments were comprised of restructuring costs and acquisition inventory step-up charges. This measure allows for a direct comparison of the effective tax rate between periods excluding adjustments. Adjusted OI + D&A is defined as adjusted operating income plus depreciation and amortization expense. Operating leverage is defined as the ratio of the change in adjusted operating income for the current period (e.g. Q4 2016) less the prior period (e.g. Q4 2015), divided by the change in net revenues for the current period less the prior period. 30
Ingersoll Investor Presentation

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Ingersoll Investor Presentation

  • 1.
    Ingersoll Rand advancesthe quality of life by creating comfortable, sustainable and efficient environments. Ingersoll Rand (NYSE:IR) advances the quality of life by creating comfortable, sustainable and efficient environments. Our people and our family of brands—including Club Car®, Ingersoll Rand®, Thermo King® and Trane®—work together to enhance the quality and comfort of air in homes and buildings; transport and protect food and perishables; and increase industrial productivity and efficiency. We are a $13 billion global business committed to a world of sustainable progress and enduring results.
  • 2.
    2 Safe Harbor This presentationincludes “forward-looking statements,” which are statements that are not historical facts, including statements that relate to the mix of and demand for our products; performance of the markets in which we operate; our share repurchase program including the amount of shares to be repurchased and timing of such repurchases; our projected 2017 full- year financial performance and targets including assumptions regarding our effective tax rate. These forward-looking statements are based on our current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from our current expectations. Such factors include, but are not limited to, global economic conditions, the outcome of any litigation, demand for our products and services, and tax law changes. Additional factors that could cause such differences can be found in our Form 10-K for the year ended December 31, 2015, Form 10-Q for the quarters ended March 31, 2016, June 30, 2016, and September 30, 2016, and other SEC filings. We assume no obligation to update these forward-looking statements. This presentation also includes non-GAAP financial information which should be considered supplemental to, not a substitute for, or superior to, the financial measure calculated in accordance with GAAP. The definitions of our non-GAAP financial information and reconciliation to GAAP is attached to the earnings news release that can be found at www.ingersollrand.com and are defined in footnotes at the end of this presentation. All data for beyond the fourth quarter of 2016 are estimates. 2
  • 3.
    Key Facts • IngersollRand has been listed continuously on the New York Stock Exchange since October 11, 1906 • Ingersoll Rand is the 16th oldest company and the 12th oldest continuously listed company on the NYSE • $20B Market cap Trades on NYSE • Ingersoll Rand is 145 years old and was first incorporated in 1905 • $13.5 Billion Revenue • Two business segments • Climate - Commercial and Residential HVAC and Transport Refrigeration • Industrial – Air compression, Industrial products, low speed vehicles Company Background • Ingersoll Rand is incorporated in Swords, Ireland • North American Headquarters in Davidson, NC • 40,000 employees • 51 manufacturing locations Company Background Key Facts 3
  • 4.
    4 • A ~$10Bgroup of six growth-oriented SBUs led by high-performing leaders and teams • Trane and Thermo King are world leaders in HVAC and refrigerated transportation • An outstanding network of global operations, channels and employees • Stronger together with BOS linkage and commercial synergies EMEA is Europe, Middle East, and Africa. Asia Pacific includes India. Services includes aftermarket parts, accessories, and all types of service. Commercial HVAC Residential HVAC HVAC Parts & Supply Transport Solutions 68% 15% 11% 6% North America EMEA Asia Pacific Latin America 60% 40% Equipment Services Climate Segment An Unmatched Strategic Position
  • 5.
    5 • A $3.0Bgroup of five growth-oriented Strategic Business Units • Ingersoll Rand, ARO and Club Car are #1 or #2 brands in their core markets • World-class engineered and mission-critical products, systems and services • Balanced across industries, geographic regions, equipment and aftermarket • SBUs are stronger together with BOS linkage and channel synergies EMEA is Europe, Middle East, India and Africa. Services includes aftermarket parts, accessories and service. AIR Power Tools Fluid Management Material Handling Club Car 55% 19% 21% 5% North America EMEIA Asia Pacific Latin America 65% 35% Equipment Services Our Industrial Businesses are in Leading Positions 5
  • 6.
    2016 REVENUE: $13.5B33% Aftermarket By End Markets 66% North America 15% Eur/ME 14% Asia 5% Latin America By Geography 5%Golf/Utility 16%Transport Refrigeration 16% Non-Res Building (Overseas) 31%Non-Res Building (N. America) 18%Industrial Process 14%Residential, (N. America) 67% New equipment Represents Diverse End Markets and Geography Climate 77% Industrial 23% By Segment 2016 Revenue Profile 2013 2014 2015 9.6 % 11.0 % Adjusted Operating Margins 2016 11.9 % 11.4 % 6
  • 7.
    7 • Leading globalbrands and market positions • Strong long-term growth drivers - Macro drivers are energy efficiency and sustainability - Large installed base drives replacement business and parts and service growth - Global footprint and exposure to attractive growing markets - Organic growth enhanced by innovation - Market recoveries • Product/service offering underpinned by shared technologies, materials, manufacturing, processes and supply chain • Continued margin and cash flow improvement opportunity from operational/functional excellence A world leader in creating comfortable, sustainable and efficient environments Ingersoll Rand: Foundational Strengths 7
  • 8.
    8 Urbanization Energy Consumption Food &Water Scarcity Climate Change Industrial Productivity & Efficiency Ingersoll Rand Possesses Expertise to Address Pressing World Challenges 8
  • 9.
    9 Leading market sharesStrong,recognized brands Well positioned in both geographic and end markets Strategic Foundation Continues to Underpin Top-Quartile Performance Sustainable and Profitable Growth, Cash Flow and Shareholder Value Sustained Growth Operational Excellence Winning Culture Cash Flow / Dynamic Capital Allocation Strategic Foundation Continues to Underpin Top-Quartile Performance 9
  • 10.
    10 Steady operating performanceimprovement $11.5 $12.0 $12.5 $13.0 $13.5 $14.0 2013 2014 2015 2016 Net Revenue 3% CAGR In Billions $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2013 2014 2015 2016 Adjusted EPS 0% 5% 10% 15% 20% 25% 2013 2014 2015 2016 Cash Flow ROIC 6 Ppts 16% CAGR 2.3 Ppts Steady Operating Performance Improvement 10 0% 2% 4% 6% 8% 10% 12% 14% 2013 2014 2015 2016 Adjusted Operating Margin
  • 11.
    11 2013 2014 20152016 1,345** 810 862 985** Strong Balance Sheet and Free Cash Flow $ Millions YE 13 YE 14 YE 15 YE 16 Cash 1,937 1,705 737 1,715 Debt 3,521 4,224 4,218 4,070 Net Debt 1,584 2,519 3,481 2,355 Free Cash Flow$ Millions *Reported – includes Allegion security business and excludes restructuring and one-time spin costs and refinancing premium **Excludes the impact of the IRS agreement and restructuring in 2015 and excludes restructuring and the proceeds on the sale of Hussmann in 2016 Post Security Spin 1,151* • 2011 to 2016 avg. FCF % of net income = 100% • 2016 FCF % of adjusted net income = 121% • FCF increase from higher operating results and working capital management. $5.14/share 11
  • 12.
    12 Strategic Business Investment Maintained Strong BalanceSheet at BBB Metrics  Digital  Energy efficiency  Channel Expansion  No meaningful debt maturities until 2018 Building value through acquisitions  Working on our pipeline of targets $0.64 $0.84 $1.00 $1.16 $1.36 $1.60 2012 2013 2014 2015 2016 2017F Share Repurchase – Minimum Offset Dilution from Benefits Program  2016: Repurchased 4.9M shares for $250M  2016 dividend increased to $1.60/ share  20% annual CAGR 2012 to 2017 Competitive Dividend Payout 36 55 76 98 103 108 2011 2012 2013 2014 2015 2016 Cumulative share repurchase 2011 to 2016 --108 million shares 2016 Dynamic Capital Allocation Focused on Delivering High Returns 12
  • 13.
    13 • Strong momentumand further upside ‒ Attractive end markets ‒ Leading brands and growth through innovation ‒ Substantial position in developing markets with significant potential • Excellent management team executing consistently on strategy • Value creation model delivers sustainable results and returns to shareholders ‒ Growth ‒ Operational Excellence ‒ Dynamic capital allocation Much Progress… More Opportunity Ahead 13
  • 14.
  • 15.
    RESIDENTIAL HVAC Heating, cooling,thermostat controls and home automation for the residential market COMMERCIAL HVAC Air conditioning systems, services and solutions. Innovative solutions geared toward making high performance buildings reliable and safe, as well as healthy, comfortable and efficient TRANSPORT REFRIGERATION Manufacturing and innovation of transport temperature control systems for a variety of mobile applications, including trailers, truck bodies, buses, shipboard containers and rail cars HVAC SERVICES AND PARTS A complete selection of innovative parts, options and accessories for optimal performance and reliability Our Climate Businesses 15
  • 16.
    COMPRESSION TECHNOLOGIES ANDSERVICES MATERIAL HANDLING FLUID MANAGEMENT CLUB CAR POWER TOOLS Rotary, centrifugal and reciprocating air compressors, and treatment products with Comprehensive multi- year service agreements, audits, parts, and accessories Hoists, winches and systems for moving and positioning loads Pumps and systems for fluid handling, transfer, and application Golf, commercial and utility vehicles for transportation Professional tools for fastening, drilling, and surface preparation Our Industrial Businesses 16
  • 17.
  • 18.
    18 Leading market sharesStrong,recognized brands Well positioned in both geographic and end markets Strategic Foundation Continues to Underpin Top-Quartile Performance Sustainable and Profitable Growth, Cash Flow and Shareholder Value Sustained Growth Operational Excellence Winning Culture Cash Flow / Dynamic Capital Allocation 2
  • 19.
    19 Consistent Progress AgainstKey Metrics* Net Revenue Operating Margin Adj. Continuing EPS* Free Cash Flow* Versus 2015 +2% reported +3% organic +60 bps * Includes certain Non-GAAP financial measures. See the company’s Q4 2016 earnings release for additional details and reconciliations. +11% +37% Full Year 2016 $13,509M 11.6% $4.13 $1.35B >100% adj. net income • FCF was 121% of adjusted net income* • Full-year operating leverage of 44% • Repurchased ~4.9M shares for $250M in 2016 3
  • 20.
    20 4 Steady Operating PerformanceImprovement $11.5 $12.0 $12.5 $13.0 $13.5 $14.0 2013 2014 2015 2016 Net Revenue 3% CAGR In Billions $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 2013 2014 2015 2016 Adjusted EPS 0% 5% 10% 15% 20% 25% 2013 2014 2015 2016 Cash Flow ROIC 6 Ppts 16% CAGR 0% 2% 4% 6% 8% 10% 12% 14% 2013 2014 2015 2016 Adjusted Operating Margin 2.3 Ppts
  • 21.
    21 • Continued strongoperating results – FCF $353M in Q4; $1.35B 2016 – Combined operating results for segments exceeded guidance • EPS miss vs guidance driven by discrete items • Robust Commercial & Residential performance – Commercial bookings up high-single digits & Residential bookings up low-teens – Margin expansion in both Commercial and Residential Key Takeaways Q4 2016 • Industrial business steady on recovery path – Revenue up sequentially vs. Q3 5
  • 22.
    22 Q4 2016 Guidanceto Actual Bridge Q4 2016 Adjusted EPS Guidance (at mid-point) $0.91 Operations earnings 0.01 Corporate Costs (0.04) Foreign Exchange Losses (0.01) Higher Tax rate (0.03) Q4 Actual Adjusted EPS $0.84 • Combined operating results for Climate & Industrial exceeded guidance. • Higher than anticipated corporate costs were driven by stock-based and annual incentive-based compensation and increased IT infrastructure and security investments. • Higher than anticipated profits from high tax jurisdictions caused an increase in the tax rate. Highlights 6
  • 23.
    23 Q4 Total CompanyPerformance Operating MarginNet Revenue 10.8% 10.3% Q4 '15 Q4 '16 $3,326 $3,359 Q4 '15 Q4 '16 14.2% 13.4% Q4 '15 Q4 '16 +1% +2% Organic -50 bps Adj. Operating Margin* 11.3% 10.8% Adj. OI + D&A %** * Adjusted margin excludes restructuring in 2015 and 2016 ** Adjusted operating income + depreciation and amortization divided by revenue -80 bps • Revenue up 1%, +2% organic • Adj. margin 10.8%, down 50 bps Y-O-Y • Adj. EPS of $0.84 , down 11% Highlights 7
  • 24.
    24 8 Y-O-Y % Change Reported Organic Q1 20153% 5% Q2 2% 4% Q3 (2%) 1% Q4 1% 2% Q1 2016 1% 4% Q2 2% 3% Q3 2% 3% Q4 6% 7% Climate C Commercial HVAC + low-teens - N. America + low-teens - L. America + low-teens - EMEA + mid-single digits - Asia + high-teens Residential HVAC + low-teens Transport + mid-single digits Total + 9%, +10% Organic Industrial Compression Tech - low-single digits Industrial Products - low-single digits Small Elec. Vehicle + low-single digits Total - 2%, -1% Organic Y-O-Y Change in Organic Bookings Very Strong Q4 Bookings Led by Commercial and Residential Businesses
  • 25.
    25 North America Europe Asia Latin America Climate Industrial Climate Industrial Revenuechange Y-O-Y Q4 Reported Q4 Organic Climate +3% +4% Industrial -4% -3% Total +1% +2% Climate Industrial Climate Industrial Middle East/Africa Climate Industrial C O N S O L I D A T E D R E S U L T S Q4 Segment Organic Revenue Change by Region 9
  • 26.
    26 E n te r p r i s e Lower Q4 Margin Primarily due to Steel Inflation and Higher Than Anticipated Corporate Costs • Improvements in material productivity offset by other inflation, including higher than anticipated corporate costs resulted in a 40 bps headwind • Solid operational performance offset by steel inflation • The company continues to invest in products, while expanding channels Highlights 10.8% (0.2) (0.3) 10.3% 4Q 2015 Volume / Mix / FX Price/Material Inflation Productivity/Other Inflation Investment/Other 4Q 2016 0.4 (0.4) (0.2) Investment (0.1) Other/Rest -50 bps 10
  • 27.
    27 C L IM A T E S E G M E N T Q4 Strong Commercial and Residential HVAC Offsetting Transport Results Operating MarginNet Revenue 12.9% 13.6% Q4 '15 Q4 '16 $2,492 $2,559 Q4 '15 Q4 '16 15.4% 15.8% Q4 '15 Q4 '16 +3% +4% Organic +70 bps Adj. OI + D&A %** +40 bps Adj. Operating Margin* 12.9% 13.6% * Adjusted margin excludes restructuring in 2015 and 2016 ** Adjusted operating income + depreciation and amortization divided by revenue • Strong Commercial and Residential HVAC revenue growth • Strong unitary and aftermarket • Operations performance delivered 70 bps of adjusted operating margin improvement Highlights 11
  • 28.
    28 I N DU S T R I A L S E G M E N T Q4 Organic Revenues Declined by 3% 12.7% 10.5% Q4 '15 Q4 '16 Operating Margin $834 $800 Q4 '15 Q4 '16 Net Revenue 15.8% 13.5% Q4 '15 Q4 '16 -4% -3% Organic -220 bps Adj. OI + D&A %** -230 bps Adj. Operating Margin* 13.8% 11.4% * Adjusted operating margin excludes restructuring in 2015 and 2016 ** Adjusted operating income + depreciation and amortization divided by revenue • Q4 performance slightly exceeds revenue and operating margin guidance • Continuing initiatives to drive margin improvements Highlights 12
  • 29.
    29 2013 2014 20152016 1,345** 810 862 985** Strong Balance Sheet and Free Cash Flow $ Millions YE 13 YE 14 YE 15 YE 16 Cash 1,937 1,705 737 1,715 Debt 3,521 4,224 4,218 4,070 Net Debt 1,584 2,519 3,481 2,355 Free Cash Flow$ Millions *Reported – includes Allegion security business and excludes restructuring and one-time spin costs and refinancing premium **Excludes the impact of the IRS agreement and restructuring in 2015 and excludes restructuring and the proceeds on the sale of Hussmann in 2016 Post Security Spin 1,151* • 2011 to 2016 avg. FCF % of net income = 100% • 2016 FCF % of adjusted net income = 121% • FCF increase from higher operating results and working capital management $5.14/share 13
  • 30.
    30 2016 Dynamic CapitalAllocation Focused on Delivering High Returns Strategic Business Investment Maintained Strong Balance Sheet at BBB Metrics  Digital  Energy efficiency  Channel Expansion  No meaningful debt maturities until 2018 Building value through acquisitions  Working on our pipeline of targets $0.64 $0.84 $1.00 $1.16 $1.36 $1.60 2012 2013 2014 2015 2016 2017F Share Repurchase – Minimum Offset Dilution from Benefits Program  YTD 2016: Repurchased 4.9M shares for $250M  Dividend increased to $1.60 / share  20% annual CAGR 2012 to 2017 Competitive Dividend Payout 36 55 76 98 103 108 2011 2012 2013 2014 2015 2016 Cumulative share repurchase 2011 to 2016 --108 million shares 14
  • 31.
  • 32.
    32 2017 Forecast forEnd-Market Performance End Markets Americas EMEA Asia Guidance Commercial HVAC Up mid-single digits Residential HVAC Up mid-single digits Transport Down low-single digits Compression-related & Industrial Products Down low-single digits Golf / Utility Flat/Up low-single digits Organic Revenue 16
  • 33.
    33 2017 Enterprise Guidance FYGuidance Climate ‒ Revenue Reported ‒ Revenue Organic ~3% ~4% Adjusted Operating Margin 14.5% to 15.0% Industrial ‒ Revenue Reported ‒ Revenue Organic ~-2% ~-1% Adjusted Operating Margin 11.0% to 12.0% Total ‒ Revenue Reported ‒ Revenue Organic ~2% ~3% Adjusted Operating Margin 12.2% to 12.6% 17
  • 34.
    34 2017 Guidance: Full-yearContinuing Adjusted EPS $4.30 to $4.50 Full Year Y-O-Y change in revenue • Reported • Organic ~2% ~3% EPS continuing $4.15 to $4.35 Restructuring – (add back) ($0.15) EPS continuing – adjusted $4.30 to $4.50 EPS – discontinued ($0.13) Share Count – Millions ~262 Free Cash Flow $1.1B to $1.2B Tax Rate 21% to 22% Corporate G&A ~$240M CAPEX ~$250M 18
  • 35.
    35 2017 Capital AllocationPriorities • 2017 expected FCF range of $1.1B to $1.2B • Continued investment in the core business - Technology, channel expansion and productivity enhancements • Dividends of ~$420M ($1.60 per share, annualized) • Target deployment of $1.5B for share buybacks and acquisitions combined - EPS guidance includes $250M (of $1.5B) share buyback to offset dilution 19
  • 36.
    36 • U.S. Manufacturing -In-region for-region manufacturing and supply chain strategy - Sourcing with local U.S. vendors to lower manufacturing cycle time - ~95% of finished goods sold in U.S. are manufactured in the U.S.  Net Exporter • U.S. Corporate Tax Rate Reduction - ~65% of revenues from the U.S. - Pay significant U.S. taxes - Reduction in the U.S. tax rate benefits Ingersoll Rand’s U.S.- based earnings Topics of Interest for 2017 20
  • 37.
    37 Topics of Interestfor 2017 • Status of Industrial Segment - Solid Q4 results - Growth in food, pharma and tech verticals and aftermarket soft in general industrial, large compressors and energy - OPEX gains, restructuring and cost reductions drive improved operating margins in 2017 despite low-single digit revenue decline • Status of Climate Segment - Commercial and Residential HVAC markets continue upward momentum - Expect Transport revenues to be down low-single digits Y-o-Y - N. America trailer industry down low-teens - Growth in Europe, Asia and in aftermarket partially offset lower North American trailer revenues 21
  • 38.
    38 Topics of Interestfor 2017 • Currency impact on 2017 - ~35% of revenues outside U.S. - Expect weaker Euro and Asian currencies - Net currency expected to have a ~1 percentage point drag on revenues and a ~10 cent negative impact on 2017 EPS • Price/Cost 2017 - Material inflation in Q4 results - 2017 - Expect flat nonferrous cost, inflation in steel - Targeting price/material inflation gap of 10 to 20 basis points positive 22
  • 39.
    39 • Continued strong2016 results driven by execution of our business operating system • Strong 2016 full-year cash conversion resulted in $1.35B of FCF • Top-quartile organic growth, EPS growth and cash flow percentage of net income • Commercial HVAC business is strong driven by customer demand trends for energy efficiency and productivity • Expect continued progress through 2017 for Industrial, albeit quarterly results may show some cyclicality • Commodity inflation expected in 2017, primarily driven by steel. We expect positive price/material cost spread of 10 to 20 basis points. • 2017 targeted cash deployment of ~$1.5B for share buybacks and acquisitions and ~$420M of dividends • Adjusted EPS guidance tied to strength of business; adjusted EPS range of $4.30 - $4.50 Summary: Top Quartile Performance with Industrial Improving 23
  • 40.
  • 41.
    41 Q4 Organic RevenueUp 2% Year-Over-Year Reported 2015 2016 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Climate 6% 2% 4% 2% 3% 3% 4% 3% 3% 3% Industrial 7% (1%) (2%) 5% 2% (7%) (4%) Flat (4%) (4%) Total 6% 2% 3% 3% 3% Flat 2% 2% 1% 2% 2013 Organic* 2015 2016 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 4Q FY Climate 9% 5% 8% 5% 7% 4% 5% 3% 4% 4% Industrial 4% (4%) (2%) (2%) (1%) (5%) (3%) 1% (3%) (3%) Total 8% 3% 6% 3% 5% 2% 3% 3% 2% 3% *Organic revenues excludes acquisitions and currency 25
  • 42.
    42 Flat Organic -7% 5% -3% -10% 5% Reported Organic* *Organic revenuesexcludes acquisitions and currency Q4 Revenue Up 1% and Organic Up 2% 3% 4% -3% Climate Industrial Reported Organic*-4% Segment Revenue Change Geographic Revenue Change Americas Europe, Middle East, Africa Asia N.A. Organic +6% 26
  • 43.
    43 Q4 2016 Y-O-YRevenue Change Reported Organic Climate - Commercial HVAC + Low-single + Mid-single - Residential HVAC + Low teens + Low-teens - Transport - Mid-single - Mid-single Total Climate 3% 4% Industrial - Compression-related Products - Mid-single - Low-single - Industrial Products - High-single - High-single - Small Electric Vehicle + Low-single + Low-single Total Industrial - 4% - 3% Total Company 1% 2% 27
  • 44.
    44 Full-Year 2017 GuidanceBridge 2016 EPS Continuing Operations (GAAP) 2016 Restructuring + other one-time items* $5.52 (1.39) Operations – includes ($0.15) of restructuring 0.29 to 0.49 Currency (0.10) Investments (0.15) Tax rate/other (0.02) 2017 EPS Continuing Reported (GAAP) $4.15 to $4.35 2017 forecast restructuring (add back) (0.15) 2017 Continuing EPS (Adjusted) $4.30 to $4.50 *Includes restructuring, Hussmann gain on sale and 4Q legal settlement 28
  • 45.
    45 Non-GAAP Measures Definitions Organicrevenue is defined as GAAP net revenues adjusted for the impact of currency and acquisitions. Organic bookings is defined as reported orders closed/completed in the current period adjusted for the impact of currency and acquisitions. • Currency impacts on net revenues and bookings are measured by applying the prior year’s foreign currency exchange rates to the current period’s net revenues and bookings reported in local currency. This measure allows for a direct comparison of operating results excluding the year-over-year impact of foreign currency translation. • Acquisition growth rate impacts from 2015 versus 2014 for both net revenues and orders are calculated by excluding the net revenues and orders from companies acquired in 2015. We are adjusting the 2015 to 2014 growth rate comparisons for the Engineered Centrifugal Compression business acquired in January 2015 and reported in our Industrial segment, and the Frigoblock acquisition completed in March 2015 and reported in our Climate segment, to allow for a direct comparison of operating results to prior periods. Adjusted operating margin is defined as the ratio of adjusted operating income divided by net revenues. • Adjusted operating income is defined as GAAP operating income plus restructuring expenses in 2016. In 2015 acquisition-related Inventory Step-up costs were also excluded from this measure. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 3 & 4 of the news release. In 2016 Adjusted EPS is defined as GAAP EPS plus restructuring expenses and legal settlement, less the gain recognized on the sale of the Hussmann equity interest in Q2 2016, net of tax impacts and a legal matter. In 2015 Adjusted EPS was defined as GAAP EPS plus restructuring expenses, acquisition inventory step-up costs, Venezuela re- measurement of monetary assets and the IRS agreement, net of tax impacts. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 3 & 4 of the news release. Legal 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 U.S. Inc. and the charge in the fourth quarter of 2016 represents the settlement and related legal costs. 29
  • 46.
    46 Non-GAAP Measures Definitions Freecash flow in 2016 and 2015 is defined as net cash provided by operating activities, less capital expenditures, plus cash payments for restructuring. In 2015 this definition also excluded the cash impact of the IRS agreement which occurred in the third and fourth quarters. Please refer to the free cash flow reconciliation on table 8 of the news release. Cash flow return on invested capital is defined as annual free cash flow divided by the sum of gross fixed assets, receivables and inventory less accounts payables Working Capital measures a firm’s operating liquidity position and its overall effectiveness in managing the enterprises’ current accounts. • Working capital is calculated by adding net accounts and notes receivables and inventories and subtracting total current liabilities that exclude short term debt, dividend payables and income tax payables. • Working capital as a percent of revenue is calculated by dividing the working capital balance (e.g. as of December 31) by the annualized revenue for the period (e.g. reported revenues for the three months ended December 31 multiplied by 4 to annualize for a full year). Adjusted effective tax rate for Q4 2016 is defined as the ratio of income tax expense, plus or minus the tax effect of adjustments for restructuring costs and legal settlement, divided by earnings from continuing operations before income taxes plus restructuring expenses and legal settlement. Q4 2015 adjustments were comprised of restructuring costs and acquisition inventory step-up charges. This measure allows for a direct comparison of the effective tax rate between periods excluding adjustments. Adjusted OI + D&A is defined as adjusted operating income plus depreciation and amortization expense. Operating leverage is defined as the ratio of the change in adjusted operating income for the current period (e.g. Q4 2016) less the prior period (e.g. Q4 2015), divided by the change in net revenues for the current period less the prior period. 30