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SPECIAL (GAINS) AND CHARGES

3 Months Ended

Mar. 31, 2023

2. SPECIAL (GAINS) AND CHARGES

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


	First Quarter Ended
	March 31
(millions)	2023		2022
Cost of sales
Restructuring activities		$3.2		$2.6
Acquisition and integration activities		-		27.6
Russia/Ukraine		-		6.4
Other		-		16.3
Cost of sales subtotal		3.2		52.9

Special (gains) and charges
Restructuring activities		12.6		0.8
Acquisition and integration activities		5.0		7.5
Russia/Ukraine		0.3		11.6
Other		6.6		4.2
Special (gains) and charges subtotal		24.5		24.1

Total special (gains) and charges		$27.7		$77.0

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 Combined 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 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.

Combined Program

In November 2022 the Company approved a Europe cost savings program. In connection with these actions, the Company expected to incur pre-tax charges of $130 million ($110 million after tax). In February 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 (“Combined Program”), the Company now expects to incur total pre-tax charges of $195 million ($150 million after tax). The Company expects that these restructuring charges will be completed by 2024. Program actions include headcount reductions from terminations, not

filling certain open positions, and facility closures. The Combined Program charges are expected to be primarily cash expenditures related to severance and asset disposals.

In anticipation of this Combined Program, a limited number of actions were taken in the fourth quarter of 2022. As a result, the Company reclassified $19.3 million ($14.5 million after tax) from other restructuring to the Combined Program in the first quarter of 2023.

During the first quarter of 2023 the Company recorded total restructuring charges of $13.4 million ($10.2 million after tax) primarily related to severance. The net liability related to the Combined Program was $56.3 million and $62.0 million as of March 31, 2023 and December 31, 2022, 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.

Restructuring activity related to the Combined Program since inception of the underlying actions includes the following items:

Employee

Asset

(millions)

Costs

Disposals

Total

2022 Activity

Recorded expense and accrual

$67.2

Net cash payments

(5.2)

Net restructuring liability, December 31, 2022

62.0

2023 Activity

Recorded expense and accrual

11.4

2.0

13.4

Net cash payments

(36.4)

Non-cash charges

(2.0)

Reclassification

19.3

Net restructuring liability, March 31, 2023

$56.3

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 non-cash costs related to equipment disposals. Actual costs may vary from these estimates depending on actions taken.

During the first quarter of 2023 and 2022, the Company recorded restructuring charges of $2.4 million ($1.8 million after tax) and $1.4 million ($1.0 million after tax), respectively, primarily related to disposals of equipment. The Company has recorded $56.5 million ($43.2 million after tax) of cumulative restructuring charges under the Institutional Plan. Net cash payments were $2.4 million and non-cash net charges were $1.7 million for the first quarter of 2023. The liability related to the Institutional Plan was $0.2 million and $1.9 million as of March 31, 2023 and December 31, 2022.

Accelerate 2020

During 2018, the Company formally commenced a restructuring plan Accelerate 2020 (“the A2020 Plan”), to leverage technology and system investments and organizational changes. The goals of the Plan were 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. The restructuring activities were completed at the end of 2022, with total costs of $254.4 million ($198.4 million after tax).

Net cash payments were $4.1 million for the first quarter of 2023. The liability related to the Plan was $14.0 million and $18.1 million as of the March 31, 2023 and December 31, 2022, respectively. The remaining liability is expected to be paid over a period of several quarters and will continue to be funded from operating activities.

Other Restructuring Activities

During the first quarter of 2022, the Company recorded restructuring charges of $1.7 million ($1.3 million after tax) related to other immaterial restructuring activity.

The restructuring liability balance for all other restructuring plans excluding Combined Program, the A2020 Plan and the Institutional Plan were $3.7 million and $23.2 million as of March 31, 2023 and December 31, 2022, respectively. The decrease in liability was driven primarily by the reclass of $19.3 million from other restructuring to the Combined Program in the first quarter of 2023. Cash payments during the first quarter of 2023 related to all other restructuring plans excluding the Combined Program, the A2020 Plan and the Institutional Plan were $0.2 million.

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 first quarter of 2022 include $27.6 million ($21.4 million after tax) related primarily to the recognition of fair value step-up in the Purolite Corporation (“Purolite”) inventory.

Acquisition and integration related costs reported in special (gains) and charges on the Consolidated Statements of Income include $5.0 million ($3.7 million after tax) and $7.5 million ($5.5 million after tax) during the first quarter of 2023 and 2022, respectively. Charges are integration related costs primarily related to the Purolite acquisition.

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

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 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 $0.3 million ($0.3 million after tax) and $18.0 million ($19.0 million after tax) in the first quarter of 2023 and 2022, respectively, primarily related to recoverability risk of certain assets in both Russia and Ukraine.

Other operating activities

Other special charges of $6.6 million ($5.1 million after tax) recorded in the first quarter of 2023 relate primarily to certain legal charges, which are recorded in special (gains) and charges on the Consolidated Statements of Income.

Other special charges of $20.5 million ($15.3 million after tax) recorded in the first quarter of 2022 relate primarily to COVID-19 related inventory charges and certain legal charges, which are recorded in product and equipment cost of sales and special (gains) and charges on the Consolidated Statements of Income.