SPECIAL (GAINS) AND CHARGES

3 Months Ended

Mar. 31, 2020

SPECIAL (GAINS) AND CHARGES

SPECIAL (GAINS) AND CHARGES

2. SPECIAL (GAINS) AND CHARGES

Special (gains) and charges reported on the Consolidated Statement of Income include the following:

	First Quarter Ended
	March 31
(millions)	2020		2019
Cost of sales
Restructuring activities		3.0		3.4
Acquisition and integration activities		0.4		0.2
Other		5.7		-
Cost of sales subtotal		9.1		3.6
Special (gains) and charges
Restructuring activities		4.3		37.1
ChampionX separation		36.6		4.3
Acquisition and integration activities		5.4		2.5
Other		6.1		(3.6)
Special (gains) and charges subtotal		52.4		40.3
Operating income subtotal		61.5		43.9
Interest expense, net		-		0.2
Total special (gains) and charges		$61.5		$44.1

For segment reporting purposes, special (gains) and charges are not allocated to reportable segments, which is consistent with the Company’s internal management reporting.

Restructuring activities

Restructuring activities are primarily related to Accelerate 2020 (described below). Restructuring activities have been included as a component of both cost of sales and special (gains) and charges on the Consolidated Statement of Income. Restructuring liabilities have been classified as a component of other current and other noncurrent liabilities on the Consolidated Balance Sheet.

Accelerate 2020

During the third quarter of 2018, the Company formally commenced a restructuring plan Accelerate 2020 (“the Plan”), to leverage technology and system investments and organizational changes. During the first quarter of 2019, the Company raised its goals for the Plan to simplify and automate processes and tasks, reduce complexity and management layers, consolidate facilities and focus on key long-term growth areas by further leveraging technology and structural improvements. The Company expects that the restructuring activities will be completed by the end of 2020, with total anticipated costs of $260 million ($200 million after tax) over this period of time. The costs are expected to be primarily cash expenditures for severance costs and some facility closure costs relating to team reorganizations. Actual costs may vary from these estimates depending on actions taken.

The Company recorded restructuring charges of $6.4 million ($5.4 million after tax) in the first quarter of 2020, primarily related to severance. The liability related to the Plan was $87.2 million as of the end of the first quarter of 2020. The Company has recorded $247.6 million ($189.4 million after tax) of cumulative restructuring charges under the Plan.

Restructuring activity related to the Plan since inception of the underlying actions includes the following:

	Employee
	Termination		Asset
(millions)	Costs		Disposals		Other		Total
2018 - 2019 Activity
Recorded expense		216.1		5.2		19.9		241.2
Net cash payments		(112.6)		1.2		(16.4)		(127.8)
Non-cash charges		-		(6.4)		(2.0)		(8.4)
Effect of foreign currency translation		(1.0)		-		-		(1.0)
Restructuring liability, December 31, 2019		102.5		-		1.5		104.0
2020 Activity
Recorded expense		4.3		-		2.1		6.4
Net cash payments		(22.1)		-		(1.1)		(23.2)
Non-cash charges		-		-		-		-
Effect of foreign currency translation		-		-		-		-
Restructuring liability, March 31, 2020		$84.7		$-		$2.5		$87.2

Other Restructuring Activities

During the first quarter of 2020, the Company incurred restructuring charges of $0.9 million ($0.7 million after tax) related to an immaterial restructuring plan. The charges are primarily related to severance. Prior to 2018, the Company engaged in a number of restructuring plans. During the first quarters of 2020 and 2019, net restructuring charges related to prior year plans were minimal. The restructuring liability balance for all plans other than Accelerate 2020 was $7.4 million and $7.7 million as of March 31, 2020 and December 31, 2019, respectively. The reduction in liability was driven primarily by severance payments. The remaining liability is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities.

Cash payments during 2020 related to all other restructuring plans excluding Accelerate 2020 were $0.4 million.

ChampionX Separation

On December 18, 2019, the Company entered into definitive agreements with ChampionX and Apergy pursuant to which the Company will separate the Upstream Energy business and combine it with Apergy in a tax-efficient Reverse Morris Trust transaction. During the first quarter of 2020 and 2019, the charges associated with the separation reported in special (gains) and charges on the Consolidated Statement of Income include $36.6 million ($31.8 million after tax) and $4.3 million ($3.3 million after tax), respectively, which are primarily related to professional fees to support the separation.

Acquisition and integration related costs

Acquisition and integration costs reported in special (gains) and charges on the Consolidated Statement of Income include $5.4 million ($3.6 million after tax) and $2.5 million ($1.8 million after tax) in the first quarter of 2020 and 2019, respectively. Charges are related to the Bioquell, PLC (“Bioquell”) and the Laboratoires Anios (“Anios”) acquisitions and consist of integration costs, advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales of $0.4 million ($0.3 million after tax) and $0.2 million ($0.1 million after tax) on the Consolidated Statement of Income in the first quarter of 2020 and 2019, respectively, related to severance related to the closure of a facility. The Company also incurred $0.2 million ($0.1 million after tax) of interest expense in the first quarter of 2019.

Further information related to the Company’s acquisitions is included in Note 3.

Other

During the first quarter of 2020, the Company recorded special charges of $5.7 million ($3.8 million after tax) in product and equipment cost of sales on the Consolidated Statement of Income related to a Healthcare product recall in Europe. Other special charges of $6.1 million ($4.6 million after tax) recorded in the first quarter of 2020 relate primarily to legal charges and are recorded in special (gains) and charges on the Consolidated Statement of Income.

During the first quarter of 2019, the Company recorded other special gains in special (gains) and charges on the Consolidated Statement of Income, of $3.6 million ($4.3 million after tax) which primarily related to a litigation settlement which was offset with other legal charges.

.