SPECIAL (GAINS) AND CHARGES

9 Months Ended

Sep. 30, 2022

SPECIAL (GAINS) AND CHARGES

SPECIAL (GAINS) AND CHARGES

2. SPECIAL (GAINS) AND CHARGES

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

	Third Quarter Ended				Nine Months Ended
	September 30				September 30
(millions)	2022		2021		2022		2021
Cost of sales
Restructuring activities		$2.1		$2.2		$5.5		$24.1
Acquisition and integration activities		4.2		-		32.7		-
COVID-19 activities, net		-		50.7		16.3		51.8
Russia/Ukraine activities		0.8		-		7.2		-
Other		-		-		-		0.3
Cost of sales subtotal		7.1		52.9		61.7		76.2
Special (gains) and charges
Restructuring activities		(0.3)		0.4		0.8		6.5
Acquisition and integration activities		4.1		0.8		15.0		3.3
COVID-19 activities, net		2.5		1.5		7.1		16.2
Russia/Ukraine activities		-		-		5.9		-
Other		11.5		3.6		16.7		10.7
Special (gains) and charges subtotal		17.8		6.3		45.5		36.7
Operating income subtotal		24.9		59.2		107.2		112.9
Other (income) expense		24.8		7.0		24.8		26.6
Interest expense, net		-		32.3		-		32.3
Total special (gains) and charges		$49.7		$98.5		$132.0		$171.8

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 relate to the Institutional Advancement Program, Accelerate 2020 and other immaterial restructuring programs which are described below. These activities have been included as a component of cost of sales and special (gains) and charges on the Consolidated Statements of Income. Restructuring liabilities have been classified as a component of other current and other noncurrent liabilities on the Consolidated Balance Sheets.

Institutional Advancement Program

The Company approved a restructuring plan in 2020 focused on the Institutional business (“the Institutional Plan”) which is intended to enhance the Company’s Institutional sales and service structure and allow the sales team to capture share and penetration while maximizing service effectiveness by leveraging the Company’s ongoing investments in digital technology. In February 2021, the Company expanded the Institutional Plan, and expect that these restructuring charges will be completed by 2023, with total anticipated costs of $70 million ($55 million after tax). The remaining costs are expected to be primarily cash expenditures for severance and non-cash costs related to equipment disposals. Actual costs may vary from these estimates depending on actions taken.

Certain activities contemplated in this Institutional Plan were previously approved in 2020 and included as part of Accelerate 2020. These activities were reclassified to the Institutional Plan. During the third quarter of 2022 and 2021, the Company recorded restructuring charges of $1.8 million ($1.3 million after tax) and $1.4 million ($1.4 million after tax), respectively, and in the first nine months of 2022 and 2021 $3.9 million ($2.9 million after tax) and $9.5 million ($7.5 million after tax), respectively, primarily related to severance, disposals of equipment and office closures. The Company has recorded $51.7 million ($39.5 million after tax) of cumulative restructuring charges under the Institutional Plan. The liability related to the Institutional Plan was $2.2 million as of September 30, 2022 and is expected to be paid over a period of a few months to several quarters and will continue to be funded from operating activities.

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

	Employee
	Termination		Asset
(millions)	Costs		Disposals		Other		Total
2020-2021 Activity
Recorded expense (income) and accrual		$23.8		$8.5		$15.5		$47.8
Net cash payments		(19.9)		-		(14.3)		(34.2)
Non-cash net charges		-		(8.5)		-		(8.5)
Restructuring liability, December 31, 2021		3.9		-		1.2		5.1
2022 Activity
Recorded expense (income) and accrual		0.4		2.9		0.6		3.9
Net cash payments		(3.6)		-		(0.3)		(3.9)
Non-cash net charges		-		(2.9)		-		(2.9)
Restructuring liability, September 30, 2022		$0.7		$-		$1.5		$2.2

Accelerate 2020

During 2018, the Company formally commenced a restructuring plan Accelerate 2020 (“the Plan”), to leverage technology and system investments and organizational changes. The goals of the Plan are to further 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. During 2020, the Company expanded the Plan for additional costs and savings to further leverage the technology and structural improvements. Following the establishment of the separate Institutional Plan, the Company expects that the restructuring activities will be completed by the end of 2022, with total anticipated costs of $255 million ($195 million after tax). The remaining 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 (gains) of ($0.6) million ($0.3 million after tax) and $1.5 million ($1.2 million after tax) in the third quarter of 2022 and 2021, respectively, and ($0.2) million ($0.1 million after tax) and $2.9 million ($2.8 million after tax) in the first nine months of 2022 and 2021, respectively. The liability related to the Plan was $15.5 million as of the end of the third quarter of 2022. The Company has recorded $244.3 million ($189.9 million after tax) of cumulative restructuring charges under the Plan. The remaining liability is expected to be paid over a period of several quarters and will continue to be funded from operating activities.

Restructuring activity related to the Accelerate 2020 Plan since inception of the underlying actions includes the following:

	Employee
	Termination		Asset
(millions)	Costs		Disposals		Other		Total
2018-2021 Activity
Recorded expense (income) and accrual		$216.3		$8.3		$19.9		$244.5
Net cash payments		(183.4)		1.2		(17.2)		(199.4)
Non-cash charges		-		(9.5)		(2.0)		(11.5)
Effect of foreign currency translation		(0.9)		-		-		(0.9)
Restructuring liability, December 31, 2021		32.0		-		0.7		32.7
2022 Activity
Recorded expense (income) and accrual		(1.3)		-		1.1		(0.2)
Net cash payments		(15.3)		-		(1.7)		(17.0)
Restructuring liability, September 30, 2022		$15.4		$-		$0.1		$15.5

Other Restructuring Activities

During the third quarter of 2022 and 2021, the Company recorded restructuring charges (gains) of $0.6 million ($0.5 million after tax) and ($0.3) million ($0.5 million after tax), respectively, and during the first nine months of 2022 and 2021 $2.6 million ($2.0 million after tax) and $18.2 million ($16.9 million after tax), respectively, related to other immaterial restructuring activity. The charges are primarily related to severance and asset write-offs.

The restructuring liability balance for all plans other than the Accelerate 2020 and Institutional Plan were $4.0 million and $4.6 million as of September 30, 2022 and December 31, 2021, respectively. 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 2022 related to all other restructuring plans excluding the Accelerate 2020 and Institutional Plan were $3.2 million.

Subsequent event

In November 2022, the Company announced a Europe cost savings program (the “Europe Program”) targeting $80 million of annualized pre-tax savings after completion of the program. In connection with these actions, the Company expects to incur pre-tax charges of $130 million ($110 million after tax), beginning with approximately $60 million of pre-tax charges in the fourth quarter of 2022. The Europe Program charges are expected to be primarily cash expenditures related to severance and asset disposals.

Acquisition and integration related costs

Acquisition and integration related costs reported in product and equipment cost of sales on the Consolidated Statements of Income in the third quarter and first nine months of 2022 include $4.2 million ($3.9 million after tax) and $32.7 million ($25.8 million after tax), respectively, related primarily to the recognition of fair value step-up in the Purolite Corporation (“Purolite”) inventory and other integration costs.

Acquisition and integration related costs reported in special (gains) and charges on the Consolidated Statements of Income include $4.1 million ($3.9 million after tax) and $0.8 million ($0.8 million after tax) during the third quarter of 2022 and 2021, respectively and $15.0 million ($11.9 million after tax) and $3.3 million ($2.9 million after tax) during the first nine months of 2022 and 2021, respectively. Charges are related to the Purolite, Copal Invest NV, including its primary operating entity CID Lines (collectively, “CID Lines”), and Bioquell PLC (“Bioquell”) acquisitions and consist of integration costs, advisory and legal fees.

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

COVID-19 activities

The Company recorded charges of $1.3 million and $2.6 million during the third quarter of 2022 and 2021, respectively, and $1.3 million and $12.6 million during the first nine months of 2022 and 2021, respectively, to protect the wages of certain employees directly impacted by the COVID-19 pandemic. The Company recorded charges of $1.6 million and $3.1 million related to employee COVID-19 testing and related expenses during the third quarter of 2022 and 2021, respectively, and $7.7 million and $11.5 million during the first nine months of 2022 and 2021, respectively. In addition, the Company received immaterial amounts of subsidies and government assistance, which were recorded in special (gains) and charges in the first nine months of both 2022 and 2021. The Company recorded $15.0 million in inventory reserves related to excess sanitizer inventory and estimated disposal costs during the first quarter of 2022. COVID-19 pandemic charges are recorded in product and equipment cost of sales and special (gains) and charges on the Consolidated Statements of Income. After tax net charges related to the COVID-19 pandemic were $2.1 million and $40.6 million during the third quarter of 2022 and 2021, respectively, and $17.9 million and $51.9 million during the first nine months of 2022 and 2021, respectively.

Russia/Ukraine activities

In light of Russia’s invasion of Ukraine and the sanctions against Russia by the United States and other countries, the Company has made the determination that it will limit its Russian business to operations that are essential to life, providing minimal support for its healthcare, life sciences, food and beverage and certain water businesses. The Company recorded charges of $0.8 million ($0.7 million after tax) and charges of $13.1 million ($14.0 million after tax) in the third quarter and first nine months of 2022, respectively, primarily related to recoverability risk of certain assets in both Russia and Ukraine.

Other operating activities

Other special charges of $11.5 million ($8.7 million after tax) and $16.7 million ($12.6 million after tax) recorded in the third quarter and first nine months of 2022, respectively, relate primarily to certain legal charges, which are recorded in special (gains) and charges on the Consolidated Statements of Income.

Other special charges of $3.6 million ($2.7 million after tax) and $10.7 million ($8.3 million after tax) recorded in the third quarter and first nine months of 2021, respectively, related to certain legal charges in addition to tax consulting fees associated with the ChampionX separation, which are recorded in special (gains) and charges and product and equipment cost of sales on the Consolidated Statements of Income.

Other (income) expense

The Company incurred settlement expense recorded in other expense (income) on the Consolidated Statements of Income of $24.8 million ($18.8 million after tax) and $7.0 million ($5.3 million after tax) during the third quarter of 2022 and 2021, respectively, and $24.8 million ($18.8 million after tax) and $26.6 million ($20.2 million after tax) during the first nine months of 2022 and 2021, respectively. Expenses are related to U.S. pension plan lump-sum payments to retirees.

Interest expense

Other special charges of $32.3 million ($28.4 million after tax) in the third quarter of 2021 in interest expense on the Consolidated Statement of Income primarily related to debt refinancing charges.