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SPECIAL (GAINS) AND CHARGES

12 Months Ended

Dec. 31, 2022

3. SPECIAL (GAINS) AND CHARGES

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



(millions)	2022		2021		2020
Cost of sales
Restructuring activities		$21.4		$24.7		$7.4
Acquisition and integration activities		25.0		4.2		3.9
COVID-19 activities, net		16.3		64.7		12.5
Russia/Ukraine		7.2		-		-
Other		-		0.3		24.4
Cost of sales subtotal		69.9		93.9		48.2

Special (gains) and charges
Restructuring activities		85.8		11.9		71.4
Acquisition and integration activities		14.5		29.9		8.5
Disposal and impairment activities		-		-		41.4
COVID-19 activities, net		10.2		42.4		23.6
Russia/Ukraine		5.9		-		-
Other		24.1		18.4		34.7
Special (gains) and charges subtotal		140.5		102.6		179.6

Operating income subtotal		210.4		196.5		227.8

Other (income) expense		50.6		37.2		0.4
Interest expense, net		-		33.1		83.8

Total special (gains) and charges		$261.0		$266.8		$312.0

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 the Europe Program, 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, special (gains) and charges, other (income) expense and interest expense, net 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.

Europe Program

In November 2022 the Company approved a Europe cost savings program (the “Europe Program”). In connection with these actions, the Company expects to incur pre-tax charges of $130 million ($110 million after tax). The Europe Program charges are expected to be primarily cash expenditures related to severance and asset disposals. Actual costs may vary from these estimates depending on actions taken.

In 2022 the Company recorded total restructuring charges of $67.2 million ($56.0 million after tax) primarily related to severance. The liability related to the Europe Program was $62.0 million as of December 31, 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 Europe Program since inception of the underlying actions includes the following:

Employee

Termination

Asset

(millions)

Costs

Disposals

Other

Total

2022 Activity

Recorded expense and accrual

67.2

Net cash payments

(5.2)

Restructuring liability, December 31, 2022

$62.0

On February 14, 2023, the Company expanded its previously announced Europe cost savings program to focus on its Institutional and Healthcare businesses in other regions. In connection with the expanded program, the Company now expects to incur pre-tax charges of $195 million ($150 million after tax). The Company expects that these restructuring actions will be completed by 2024. Program actions include headcount reductions from terminations, not filing certain open positions and facility closures.The expanded program charges are expected to be primarily cash expenditures related to severance and asset disposals.

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 in 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 related costs 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 2022, 2021 and 2020, the Company recorded restructuring charges of $6.3 million ($4.8 million after tax), $12.6 million ($10.2 million after tax) and $35.2 million ($26.4 million after tax), respectively, primarily related to severance, disposals of equipment and office closures. The Company has recorded $54.1 million ($41.4 million after tax) of cumulative restructuring charges under the Institutional Plan. The liability related to the Institutional Plan was $1.9 million and $5.1 million as of December 31, 2022 and 2021, respectively, 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 Activity
Recorded expense and accrual		$25.6		$-		$9.6		$35.2
Net cash payments		(0.9)		-		(9.6)		(10.5)
Restructuring liability, December 31, 2020		24.7		-		-		24.7

2021 Activity
Recorded expense (income) and accrual		($1.8)		$8.5		$5.9		$12.6
Net cash payments		(19.0)				(4.7)		(23.7)
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		1.2		4.9		0.2		6.3
Net cash payments		(3.8)		-		(0.8)		(4.6)
Non-cash net charges		-		(4.9)		-		(4.9)
Restructuring liability, December 31, 2022		$1.3		$-		$0.6		$1.9

Accelerate 2020

During 2018, the Company formally commenced a restructuring plan Accelerate 2020 (“the A2020 Plan”), to leverage technology and systems 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. The Company completed the plan with actual costs of $254 million ($198 million after tax) when revised for continuing operations.

The Company recorded restructuring charges of $9.9 million ($8.4 million after tax), $5.3 million ($6.2 million after tax) and $41.8 million ($33.0 million after tax) in 2022, 2021 and 2020, respectively, primarily related to severance. Of these expenses, $0.3 million ($0.2 million after tax) during 2020 is recorded in other (income) expense and related to pension settlements and curtailments. The liability related to this Restructuring Plan was $18.1 million and $32.7 million as of December 31, 2022 and 2021, respectively. The Company has recorded $254.4 million ($198.4 million after tax) of cumulative restructuring charges under the Plan. 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.

Restructuring activity related to the A2020 Plan since inception of the underlying actions includes the following:


	Employee
	Termination		Asset
(millions)	Costs		Disposals		Other		Total
Restructuring liability, December 31, 2019		$94.0		$-		$1.5		$95.5
2020 Activity
Recorded expense and accrual		29.5		7.8		4.5		41.8
Net cash payments		(56.8)		-		(1.0)		(57.8)
Non-cash charges		-		(7.8)		-		(7.8)
Effect of foreign currency translation		0.1		-		-		0.1
Restructuring liability, December 31, 2020		66.8		-		5.0		71.8

2021 Activity
Recorded expense and accrual		4.3		0.3		0.7		5.3
Net cash payments		(39.1)		-		(5.0)		(44.1)
Non-cash charges		-		(0.3)		-		(0.3)
Restructuring liability, December 31, 2021		32.0		-		0.7		32.7

2022 Activity
Recorded expense (income) and accrual		5.4		1.9		2.6		9.9
Net cash payments		(21.8)		-		(0.8)		(22.6)
Non-cash charges		-		(1.9)		-		(1.9)
Restructuring liability, December 31, 2022		$15.6		$-		$2.5		$18.1

Other Restructuring Activities

During 2022, 2021, and 2020, the Company recorded other restructuring charges of $23.8 million ($17.9 million after tax), $18.7 million ($17.0 million after tax), and $1.8 million ($1.2 million after tax), respectively, related to other immaterial restructuring activity. The charges are comprised primarily of severance and asset write-offs.

The restructuring liability balance for all other restructuring plans excluding Europe Program, the A2020 Plan and the Institutional Plan was $23.2 million and $4.6 million as of December 31, 2022 and 2021, respectively. The increase in liability was driven primarily by severance expense. 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 Europe Program, the A2020 Plan and Institutional Plan were $5.2 million.

Acquisition and integration related costs

Acquisition and integration related costs reported in special (gains) and charges on the Consolidated Statements of Income in 2022 include $14.5 million ($11.4 million after tax) related primarily to the Purolite Corporation (“Purolite”) acquisition and consist of integration related costs and advisory and legal fees. Acquisition and integration related costs reported in product and equipment cost of sales on the Consolidated Statements of Income in 2022 included $25.0 million ($19.6 million after tax) related primarily to the recognition of fair value step-up in Purolite inventory and other integration related costs.

Acquisition and integration related costs reported in special (gains) and charges on the Consolidated Statements of Income include $29.9 million ($23.5 million after tax) in 2021. Charges are related primarily to the Purolite acquisition and consisted of deal costs, integration costs and advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statements of Income in 2021 include $4.2 million ($3.3 million after tax) and are related to the recognition of fair value step-up in the Purolite inventory. In conjunction with its acquisitions, the Company incurred $0.8 million ($0.6 million after tax) of special (gains) and charges reported in interest expense in 2021.

During 2020, acquisition and integration related costs reported in special (gains) and charges on the Consolidated Statements of Income include $8.5 million ($6.9 million after tax). Charges are related to the Copal Invest NV, including its primary operating entity CID Lines (collectively, “CID Lines”), Bioquell PLC (“Bioquell”) and the Laboratoires Anios (“Anios”) acquisitions and consist of integration costs and advisory and legal fees. Acquisition and integration costs reported in product and equipment cost of sales on the Consolidated Statements of Income in 2020 include $3.9 million ($3.2 million after tax) and are related to recognition of fair value step-up in CID Lines inventory, severance and the closure of a facility. In conjunction with its acquisitions, the Company incurred $0.7 million ($0.6 million after tax) of special (gains) and charges reported in interest expense in 2020.

Disposal and impairment charges

Disposal and impairment charges reported in special (gains) and charges on the Consolidated Statements of Income include $41.4 million ($41.5 million after tax) in 2020. During 2020, the Company recorded a $28.6 million ($28.6 million after tax) impairment for a minority equity method investment due to the COVID-19 impact on the economic environment and the liquidity of the minority equity method investment. In addition, the Company recorded charges of $12.8 million ($12.9 million after tax) related to the disposal of Holchem Group Limited (“Holchem”) for the loss on sale and related transaction fees during 2020.

COVID-19 activities

The Company recorded inventory reserves of $15.0 million and $60.0 million during 2022 and 2021, respectively, for excess sanitizer inventory and estimated disposal costs. The Company recorded charges of $2.4 million, $36.8 million and $57.1 million during 2022, 2021 and 2020, respectively, to protect the wages of certain employees directly impacted by the COVID-19 pandemic. The Company recorded charges of $9.8 million, $16.5 million and $2.4 million related to employee COVID-19 testing and related expenses during 2022, 2021 and 2020, respectively. In addition, the Company received subsidies and government assistance, which were recorded as a special (gain) and charges of ($0.7) million, ($6.2) million and ($23.4) million during 2022, 2021 and 2020, respectively. COVID-19 pandemic charges are recorded in product and equipment cost of sales, service and lease cost of sales, and special (gains) and charges on the Consolidated Statements of Income. Total after tax net charges related to COVID-19 pandemic were $20.2 million, $81.3 million and $27.4 million during 2022, 2021 and 2020, respectively.

Russia/Ukraine

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 the Company’s Russian business to operations that are essential to life, providing minimal support for the Company’s healthcare, life sciences, food and beverage and certain water businesses. The Company incurred charges of $13.1 million ($12.6 million after tax) during 2022, primarily related to recoverability risk of certain assets in both Russia and Ukraine.

Other operating activities

Other operating activities recorded in special charges of $24.1 million ($18.2 million after tax) in 2022, $18.4 million ($14.1 million after tax) in 2021 and $34.7 million ($33.9 million after tax) in 2020 relate primarily to legal reserves and certain legal charges, which are recorded in special (gains) and charges on the Consolidated Statements of Income. In 2020, other operating activities recorded in special charges of $24.4 million ($16.0 million after tax) were recorded in product and equipment cost of sales on the Consolidated Statements of Income related to a Healthcare product recall in Europe.

The Company also recorded a $7.2 million special charge in 2020 related to the separation of ChampionX as a tax expense on the Consolidated Statements of Income.

Other (income) expense

During 2022 and 2021, the Company incurred pension settlement expense recorded in other (income) expense on the Consolidated Statements of Income of $50.6 million ($38.2 million after tax) and $37.2 million ($28.7 million after tax), respectively, related to U.S. pension plan lump-sum payments to retirees.

Interest expense, net

During 2021 and 2020, the Company recorded special charges of $32.3 million ($28.4 million after tax) and $83.1 million ($64.0 million after tax), respectively, in interest expense on the Consolidated Statements of Income related to debt issuance and refinancing charges.