UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM 10-K
_______________________________________________________________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021, or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to_________
Commission File Number: 001-38095
_______________________________________________________________________
Ingersoll Rand Inc.
(Exact Name of Registrant as Specified in Its Charter)
_______________________________________________________________________
| | | | | |
| Delaware | 46-2393770 |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
800-A Beaty Street
Davidson, North Carolina 28036
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (704) 655-4000
_______________________________________________________________________
Securities Registered Pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
| Common Stock, $0.01 Par Value per share | | IR | | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2021 was approximately $18.9 billion based on the closing price of such common equity on the New York Stock Exchange on such date.
The registrant had outstanding 407,967,909 shares of Common Stock, par value $0.01 per share, as of February 18, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2022 Annual Meeting of Stockholders are incorporated by reference in Part III of this report.
Table of Contents
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K (this “Form 10-K”) may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-K, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements. Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates, and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties, and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-K. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-K. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. See “Item 1A. Risk Factors” for more information.
ITEM 1. BUSINESS
Ingersoll Rand Inc. is a diversified, global provider of mission-critical flow creation products and industrial solutions. The accompanying consolidated financial statements include the accounts of Ingersoll Rand Inc. and its majority-owned subsidiaries (collectively referred to herein as “Ingersoll Rand,” “Company,” “we,” “us,” “our,” or “ourselves”).
Merger of Gardner Denver and Ingersoll Rand Industrial
On February 29, 2020, Ingersoll Rand Inc. (formerly known as Gardner Denver Holdings, Inc.) completed the acquisition of and merger with the Industrial business of Ingersoll-Rand plc (“Ingersoll Rand Industrial”) and changed its name from Gardner Denver Holdings, Inc. to Ingersoll Rand Inc.
See Note 4 “Business Combinations” of Notes to Consolidated Financial Statements for additional information related to the Ingersoll Rand Industrial transaction.
Our Company
We are a global market leader with a broad range of innovative and mission-critical air, fluid, energy and medical technologies, providing services and solutions to increase industrial productivity and efficiency. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, when combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under more than 40 market-leading brands, including Ingersoll Rand and Gardner Denver, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service. We are driven by an entrepreneurial spirit and ownership mindset, dedicated to helping make life better for our employees, customers and communities.
These attributes, along with over 160 years of engineering heritage, generate strong brand loyalty for our products and foster long-standing customer relationships, resulting in leading market positions within each of our operating segments. We have sales in all major geographic markets and our diverse customer base utilizes our products across a wide array of end-markets, including industrial manufacturing, energy, transportation, medical and laboratory sciences, food and beverage packaging and chemical processing.
Our products and services are critical to the processes and systems in which they are utilized, which are often complex and function in harsh conditions where the cost of failure or downtime is high. However, our products typically represent only a small portion of the costs of the overall systems or functions that they support. As a result, our customers place a high value on
our application expertise, product reliability and the responsiveness of our service. To support our customers and market presence, we maintain significant global scale with 61 key manufacturing facilities, approximately 39 complementary service and repair centers across six continents and approximately 16,000 employees worldwide as of December 31, 2021.
The process-critical nature of our product applications, coupled with the standard wear and tear replacement cycles associated with the usage of our products, generates opportunities to support customers with our broad portfolio of aftermarket parts, consumables and services. Customers place a high value on minimizing any time their operations are offline. As a result, the availability of replacement parts, consumables and our repair and support services are key components of our value proposition. Our large installed base of products provides a recurring revenue stream through our aftermarket parts, consumables and services offerings. As a result, our aftermarket revenue is significant, representing 36.2% of total Company revenue and approximately 40.7% of our Industrial Technologies and Services segment’s revenue in 2021.
Our Segments
As a result of the HPS and SVT transactions described in Note 3 “Discontinued Operations” to our audited consolidated financial statements included elsewhere in this Form 10-K, the Company now operates with two reportable segments: Industrial Technologies and Services and Precision and Science Technologies. Industrial Technologies and Services
We design, manufacture, market and service a broad range of air and gas compression, vacuum and blower products, fluid transfer equipment, loading systems, power tools and lifting equipment, including associated aftermarket parts, consumables and services. We primarily sell under the Ingersoll Rand, Gardner Denver, Nash, CompAir, Elmo Rietschle, Robuschi, Emco Wheaton and Runtech Systems brands. Our customers deploy our products across a wide array of technologies and applications for use in diverse end-markets. Compressors are used to increase the pressure of air or gas, vacuum products are used to remove air or gas in order to reduce the pressure below atmospheric levels, and blower products are used to produce a high volume of air or gas at low pressure. Almost every manufacturing and industrial facility, and many service and process industry applications, use air compression, vacuum and blower products in a variety of process-critical applications such as the operation of pneumatic tools, pumps and motion control components, air and gas separation, vacuum packaging of food products and aeration of waste water, among others. Our liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, water extraction in mining and paper and chlorine compression in petrochemical operations. Our engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials. Our power tools and lifting equipment portfolio includes electric and cordless fastening systems, pneumatic bolting tools, drilling and material removal tools, hoists, winches and ergonomic handling devices. Typical applications for these products include the precision fastening of bolted joints in the production, assembly and servicing of industrial machinery, on-highway and off-highway vehicles, aircraft, electronics and other equipment.
Our compression products cover the full range of technologies, including rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Our vacuum products and blowers also cover the full technology spectrum; vacuum technologies include side channel, liquid ring, claw vacuum, screw, turbo and rotary vane vacuum pumps among others, while blower technologies include rotary lobe blowers, screw, claw and vane, side channel and radial blowers. Our liquid ring vacuum pumps and compressors are highly-engineered products specifically designed for continuous duty in harsh environments to serve a wide range of applications, including oil and gas refining and processing, mining, chemical processing and industrial applications. In addition to our vacuum and blower technology, our engineered fluid loading and transfer equipment and systems ensure the safe and efficient transportation and transfer of petroleum products as well as certain other liquid commodity products in a wide range of industries.
We complement these products with a broad portfolio of service options tailored to customer needs and a complete range of aftermarket parts, air treatment equipment, controls and other accessories delivered through our global network of manufacturing and service locations and distributor partners. The breadth and depth of our product offering creates incremental business opportunities by allowing us to cross-sell our full product portfolio and uniquely address customers’ needs in one complete solution.
We sell our products through an integrated network of direct sales representatives and independent distributors, which is strategically tailored to meet the dynamics of each target geography or end-market. Our large installed base also provides for a significant stream of recurring aftermarket revenue. For example, the useful life of a compressor is, on average, between 10 and 12 years. However, a customer typically services the compressor at regular intervals, starting within the first two years of
purchase and continuing throughout the life of the product. The cumulative aftermarket revenue generated by a compressor over the product’s life cycle will typically exceed its original sale price.
Precision and Science Technologies
We design, manufacture and market a broad range of highly-specialized positive displacement pumps, fluid management systems, accessories and aftermarket parts that provide liquid and gas dosing, transfer, dispensing, compression, sampling, pressure management and flow control in specialized or critical applications. Our offerings cover a range of pump and flow control technology types. This includes diaphragm pumps, piston pumps, water-powered pumps, peristaltic pumps, gear pumps, vane pumps, progressive cavity pumps, syringe pumps, gas boosters, hydrogen compression systems, automated liquid handling systems, odorant injection systems, controls, software and other related components and accessories. These offerings are sold under brands that are highly recognized in their end markets including Air Dimensions, Albin, ARO, Dosatron, Haskel, LMI, Maximus, Milton Roy, MP, Oberdorfer, Seepex, Thomas, Welch, Williams, Zinnser Analytic and YZ. Our customer base is composed of a wide range of end users in markets including medical, life sciences, industrial manufacturing, water and waste water, chemical processing, energy, food and beverage, agriculture and others. Our sales are realized primarily through a combination of independent specialty and national distributors and relationships directly with original equipment manufacturers (“OEM”), Engineering, Procurement and Construction (“EPC”) companies and end users.
Recent Developments
Sale of Majority Interest in HPS Business
On February 14, 2021, the Company entered into an agreement to sell a majority interest in its High Pressure Solutions (“HPS”) business to private equity firm American Industrial Partners. In exchange for its majority interest of 55%, the Company received cash of $278.3 million at closing and retains a 45% common equity interest in the newly-formed entity comprising the HPS business. This transaction was substantially completed on April 1, 2021.
The historical financial results of the HPS Segment are reflected in our consolidated financial statements as discontinued operations. Refer to Note 3 “Discontinued Operations” to our consolidated financial statements for additional discussion of the sale of the HPS segment.
Sale of Special Vehicle Technologies Segment
On April 9, 2021, the Company entered into an agreement to sell its Specialty Vehicle Technologies segment (“SVT” or “Club Car”) to private equity firm Platinum Equity Advisors, LLC for an aggregate purchase price of $1.68 billion. This transaction was substantially completed on June 1, 2021.
The historical financial results of the SVT Segment are reflected in our consolidated financial statements as discontinued operations. Refer to Note 3 “Discontinued Operations” to our consolidated financial statements for additional discussion of the SVT divestiture.
Recent Acquisitions
On January 31, 2021, the Company acquired the Vacuum and Blower Systems division of Tuthill Corporation for cash consideration of $184.0 million. The business operates under the tradenames M-D Pneumatics and Kinney Vacuum Pumps and is a leader in the design and manufacture of positive displacement blowers, mechanical vacuum pumps, vacuum boosters and engineered blower and vacuum systems.
On July 30, 2021, the Company acquired Maximus Solutions for cash consideration of $111.0 million. The business is a provider of digital controls and Industrial Internet of Things (IIoT) production management systems for the agritech market.
On August 31, 2021, the Company acquired Seepex GmbH (“Seepex”) for cash consideration of $482.1 million, net of cash acquired. The business is a global leader in progressive cavity pump solutions.
On October 29, 2021, the Company acquired Air Dimensions Inc. for a base purchase price of $70.6 million. The business is a manufacturer of vacuum diaphragm pumps for environmental applications.
On November 2, 2021, the Company acquired Tuthill Pumps, a division of Tuthill Corporation, for $85.5 million. The business is a manufacturer of gear and piston pumps that primarily serve the chemical, food and beverage, and wastewater markets.
Our Industries and Products
Industrial Technologies and Services
Our Industrial Technologies and Services segment designs, manufactures, markets and services a broad range of air compression, vacuum and blower products across a wide array of technologies. Compression, vacuum and blower products are used in a wide spectrum of applications in nearly all manufacturing and industrial facilities and many service and process industries in a variety of end-markets, including infrastructure, construction, transportation, food and beverage packaging and chemical processing.
Compression Products
Sales to industrial end-markets include industrial air compression products, as well as associated aftermarket parts, consumables and services. Industrial air compressors compress air to create pressure to power machinery, industrial tools, material handling systems and automated equipment. Compressed air is also used in applications as diversified as snow making and fish farming, on high-speed trains and in hospitals. Compressors can be either stationary or portable, depending on the requirements of the application or customer.
We focus on five basic types of air compression technologies: rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Rotary screw compressors are a newer technology than reciprocating compressors and exhibit better suitability for continuous processes due to a more compact size, less maintenance and better noise profile. We believe our reciprocating piston compressors provide one of the broadest ranges of pressures in the market and are supported by increasing demand across wide-ranging attractive end-markets. Scroll compressors are most commonly seen where less oil-free air is needed, and is most commonly used in medical and food applications where the need for pure, clean and precise air is of great importance. Rotary vane compressors feature high efficiency, compact compression technology and can be found throughout all sectors of industry, including automotive, food and beverage, energy and manufacturing with specialized solutions within transit, gas and snow making. Centrifugal compressors are most effective when in applications that demand larger quantities of oil-free air and are utilized across a wide range of industries.
Vacuum Products
Industrial vacuum products are integral to manufacturing processes in applications for packaging, pneumatic conveying, drying, holding / lifting, distillation, evacuation, forming / pressing, removal and coating. Within each of these processes are a multitude of sub-applications. As an example of one such end-process, within packaging, a vacuum will be used on blister packaging, foil handling, labeling, carton erection, stacking and palletizing (placing, stacking or transporting goods on pallets), as well as central vacuum supply for entire packaging departments.
We focus on five basic types of vacuum technologies: side channel, liquid ring, claw vacuum, screw and rotary vane vacuum pumps. Side channel vacuum pumps are used for conveying gases and gas-air mixtures in a variety of applications, including laser printers, packaging, soil treatment, textiles and food and beverage products. Liquid ring vacuum pumps are used for extreme conditions, which prevail in humid and wet processes across ceramics, environmental, medical and plastics applications. Claw vacuum pumps efficiently and economically generate contact-free vacuum for chemical, environmental and packaging applications. Screw vacuum pumps are a dry running technology used to reduce the carbon footprint and life cycle costs in drying and packaging applications. Rotary vane vacuum pumps are used for vacuum and combined pressure and vacuum applications in the environmental, woodworking, packaging and food and beverage end-markets.
Blower Products
Blower products are used for conveying high volumes of air and gas at various flow rates and at low pressures, and are utilized in a broad range of industrial and environmental applications, including waste water aeration, biogas upgrading and conveying, pneumatic transport and dehydrating applications for food and beverage, cement, pharmaceutical, petrochemical and mobile industrial applications. In many cases, blowers are a core component for the operation of the entire end-users’ systems. Management believes that we hold a leading position in our addressable portion of the global blower products market.
We focus on several key technologies within blower products: rotary lobe, screw, claw and vane, turbo, side channel and radial blowers. Rotary lobe blowers, screw blowers and claw and vane blowers are positive displacement technologies that have the ability to consistently move the same volume of gas or air and vary the volume flow according to the speed of the machine itself enabling it to adapt the flow condition in a flexible manner despite pressure in the system. Turbo blowers and side channel and radial blowers are dynamic technologies that have the ability to accelerate gas or air through an impeller and transform their kinetic energy at the discharge with some limitation on flexibility.
Fluid Transfer Equipment Products
Fluid transfer equipment products includes fluid loading systems, tank truck and fleet fueling products and couplers. Fluid loading systems are used in the transfer and loading of hydrocarbons and certain other liquid commodity products in marine and land applications. Tank truck and fleet fueling products allow for safe transfer of liquid products without spillage or contamination while safeguarding the operator and the environment. Operators use Dry-Break® technology couplers and adapters to provide a secure connection for the transfer of liquid products without spillage or contamination while safeguarding the operator and the environment.
Liquid Ring Vacuum Pumps and Compressors
Liquid ring vacuum pumps and compressors are designed for continuous duty in harsh environments, including vapor and flare gas recovery equipment (which recovers and compresses certain polluting gases to transmit them for further processing), primarily in downstream applications. The liquid ring technology utilizes a service liquid, typically water, oil or fuel, to evacuate or compress gas by forming a rotating ring of liquid that follows the contour of the body of the pump or compressor and acts like a piston to deliver an uninterrupted flow of gas without pulsation.
Precision and Science Technologies
The Precision and Science Technologies segment designs, manufactures and markets a broad range of flow control products for the water and wastewater, food & beverage, chemical processing, precision irrigation, energy, medical equipment, laboratory vacuum and automated liquid handling end-markets. Key technologies include positive displacement pumps, gas, liquid and precision syringe pumps, automated liquid handling systems and hydrogen refueling stations.
Positive Displacement (PD) Pumps
Positive displacement pumps are essential to highly specialized flow applications across many industries. We are a market leader in positive displacement, covering the main technology types including diaphragm, vane, piston, progressive cavity, peristaltic and gear. In the medical and life sciences end-market, our gas and liquid pumps are used for a wide range of applications, such as aspirators, blood analyzers, compression therapy, dialysis machines, gas monitors, ventilators, and scientific instrumentation within in vitro diagnostics and R&D laboratories. In the water and environmental end-market, our pumps and related equipment are used for water treatment in municipal and industrial facilities such as in dosing and sludge transfer. In agriculture, our pumps are used for nutrient and medicine dosing to livestock, plants and medicinals. In the emerging market of hydrogen powered vehicles, we are a leader in refueling stations that utilize our unique heritage in industrial gas compression pumps. Finally in the general industrial end-market, our pumps and accessories serve a broad range of niche applications such as in the handling of abrasive or chemically active fluids as well as gases.
Controls and Software
Equipment controls and software are of increasing importance in our flow control applications for both the optimization of current systems as well as to enable the anticipated Industrial Internet of Things (“IIOT”) evolution. In the agriculture market, we sell controllers and software that monitor and control the main functions within livestock and greenhouse facility operations with the benefit of reducing cost and improving yield. In natural gas pipelines and distribution, we sell monitoring devices connected to cloud-based software for real time monitoring of odor injection pumping systems which enhances safety and reduces costs. Similarly, on our positive displacement progressive cavity sludge pumps, we sell monitoring devices and cloud-based software for real-time pump health and performance monitoring, which prevents costly downtime in water treatment plants as well as in industrial installations.
Robotics
Our automated liquid handling products, which includes syringe pumps and accessories, are integrated into large-scale, automated liquid handling systems used within clinical, pharmaceutical and environmental applications. These automated systems provide accurate and efficient dosing, sampling and handling of critical fluids at increasingly ultra-low flow levels, which are required in lab and life science applications.
Competition
Industrial Technologies and Services
The industrial end-markets we serve are competitive, with an increasing focus on product quality, performance, energy efficiency, customer service and local presence. Although there are several large manufacturers of compression, vacuum and blower products, the marketplace for these products remains highly fragmented due to the wide variety of product technologies,
applications and selling channels. Our principal competitors in sales of compression, vacuum and blower products include Atlas Copco AB, Colfax Corp., Flowserve Corporation, IDEX Corporation and Kaeser Compressors, Inc. Our principal competitors in sales of fluid transfer equipment include Dover Corporation, SVT GmbH and TechnipFMC plc. Our principal competitors in the sale of liquid ring pumps and compressors are Flowserve Corporation and Busch-Holding GmbH.
Precision and Science Technologies
Competition in the market served by our Precision and Science Technologies segment is primarily based on product quality and performance, as most products must be qualified by the customer for a particular use. Further, there is an increasing demand for more efficient healthcare solutions, which is driving the adoption of premium and high performance systems. Our primary competitors include Dover Corporation, Graco, IDEX Corporation, KNF Neuberger, Inc., Netzsch, NOV, SPX Flow, Thermo Fisher Scientific, and Watson-Marlow, Inc., as well as other regional and local manufacturers.
Customers and Customer Service
We consider superior customer service to be one of our primary pillars of future success and view it as being built upon a foundation of critical application expertise, an industry leading range of compressor, pump, vacuum and blower products, a global manufacturing and sales presence and a long-standing reputation for quality and reliability. Intense customer focus is at the center of our vision of becoming the industry’s first choice for innovative and application-critical flow control and compression equipment, services and solutions. We strive to collaborate with our customers and become an essential part of their engineering process by drawing on our deep industry and application engineering experience to develop best-in-class products that are critical to the processes and systems in which they operate.
We have established strong and long-standing customer relationships with numerous industry leaders. We sell our products directly to end-use customers and to certain OEMs, and indirectly through independent distributors and sales representatives.
We use a direct sales force to serve end-use customers and OEMs because these customers typically require higher levels of technical assistance, more coordinated shipment scheduling and more complex product service than customers that purchase through distributors. We have distribution centers and warehouses that stock parts, accessories and certain products to provide adequate and timely availability.
In addition to our direct sales force, we are also committed to developing and supporting our global network of over 1,000 distributors and representatives who provide a competitive advantage in the markets and industries we serve. These distributors maintain an inventory of complete units and parts and provide aftermarket services to end-users. While most distributors provide a broad range of products from different suppliers, we view our distributors as exclusive at the product category level (e.g. compressor, vacuum and blower). For example, a distributor may exclusively carry our compressor technologies, and also source additional components of the broader industrial system in which those products operate from other suppliers. Our service personnel and product engineers provide the distributors’ service representatives with technical assistance and field training, particularly with respect to installation and repair of equipment. We also provide our distributors with sales and product literature, advertising and sales promotions, order-entry and tracking systems and an annual restocking program. Furthermore, we participate in major trade shows and directly market our offerings to generate sales leads and support the distributors’ sales personnel.
Our customer base is diverse, and we did not have any customers that individually provided more than 1% of 2021 consolidated revenues.
Patents, Tradenames, and Other Intellectual Property
We rely on a combination of intellectual property rights, including patents, tradenames, copyrights, trade secrets and contractual provisions to protect our intellectual property. While in the aggregate our more than 1,700 patents and our tradenames are of considerable importance to the manufacture and marketing of many of our products, we believe that the success of our business depends more on the technical competence, creativity and marketing abilities of our employees than on any individual patent or tradename, and therefore we do not consider any single patent or tradename, group of patents or tradenames, copyright or trade secret to be material to our business as a whole, except for the Ingersoll Rand and Gardner Denver tradenames. We have registered our tradenames in the countries we deem necessary or in our best interest. We also rely upon trade secret protection for our confidential and proprietary information and techniques, and we routinely enter into confidentiality agreements with our employees as well as our suppliers and other third parties receiving such information.
Pursuant to tradename license agreements, Cooper Industries has exclusive rights to use the Gardner Denver tradename for certain power tools and their components, meaning that we are prevented from using this mark in connection with those products.
Raw Materials and Suppliers
We purchase a wide variety of raw materials to manufacture our products. Our most significant commodity exposures are to cast iron, aluminum and steel. Additionally, we purchase a large number of motors and, therefore, are also exposed to changes in the price of copper, which is a primary component of motors. Most of our raw materials are generally available from a number of suppliers. We have a limited number of long-term contracts with some suppliers of key components, but we believe that our sources of raw materials and components are reliable and adequate for our needs. In response to recent tightness in the supply chain and in order to improve continuity of supply, for select materials and components, we have expanded our supplier network in areas we have historically sole sourced. We continue to use single sources of supply for certain castings, motors and other select engineered components. A disruption in deliveries from a given supplier could therefore have an adverse effect on our ability to meet commitments to our customers. Nevertheless, we believe that we have appropriately balanced this risk against the cost of maintaining a greater number of suppliers. Moreover, we have sought, and will continue to seek, cost reductions in purchases of materials and supplies by consolidating purchases and pursuing alternate sources of supply.
Human Capital Management
As of December 31, 2021, we had approximately 16,000 employees of which approximately 4,800 are located in the United States. Of those employees located outside of the United States, a significant portion are represented by works councils and labor unions; of those employees located in the United States, approximately 250 are represented by labor unions. We believe that our current relations with employees are satisfactory.
We evaluate several metrics to ensure the ongoing effectiveness of our human capital management practices, including voluntary turnover and engagement. In 2021, our voluntary turnover was 11.6% and 8.8% for hourly and salaried employees, respectively. In 2020, our voluntary turnover was 7.4% and 6.9% for hourly and salaried employees, respectively.
We introduced a new performance management and development process, which places a heavy emphasis on manager engagement and employee ownership. We highlight employee development and engagement as a standard part of our employee experience.
We have both a performance management process and a development planning process that are connected to reinforce the importance of continuous improvement over time. Our performance management and development planning process begins in January with setting aligned objectives and areas of development, and is then reviewed formally at mid-year and year-end. We track completion of each phase through our human resources system, to ensure that each employee discusses performance and professional development with the respective manager. We evaluate performance both in terms of what is accomplished (through metric achievement) and how it is accomplished (per our competencies), providing a more holistic view of effectiveness within the Company. Similarly, development plans are tied to descriptions and resources associated with our “Professional Contributor” and “People Leader” competencies. We believe that all employees have the right to develop and that such employee development will differentiate us as a company in the marketplace. Our development process is employee led, supported by managers and company enabled.
Health & Safety
Our Environmental, Health, and Safety culture is focused on ensuring the health of our employees by eliminating risks of serious injuries, illness and fatalities through the application of rigorous standards, controls, inspections and audits to help ensure that our operations and premises comply with national and local regulations.
In response to COVID-19, we implemented various measures to protect the health and safety of our employees and customers including work-from-home requirements (where practical), social distancing, contact tracing, enhanced hygiene education and deep-cleaning protocols at all of our facilities as well as travel restrictions, among other measures, complying with applicable governmental regulations and guidance.
Competitive Pay, Benefits and Equity
Our compensation and benefits philosophy is centered on two key fundamentals: (1) building long-term value and aligning to our stakeholders, and (2) driving employee engagement. We are committed to providing competitive pay, benefits, and equity that are valuable and meaningful to our employees. We provide a competitive total compensation package with a significant portion designed to foster a culture of ownership. In 2021, we announced that all new hires, regardless of level in the Company, will be eligible for a long-term equity grant. It is our goal to foster an environment where employees can think and act like owners.
Diversity, Equity & Inclusion
Ingersoll Rand’s Diversity, Equity and Inclusion (“DE&I”) commitment for our employees, partners and communities has been our focus over the past two years with a clear vision, measurable goals and specific levers to set the direction of our efforts:
•To be a DE&I leader within our industry that mirrors the communities and customers we serve. We will leverage diversity, equity and inclusion to exceed our business goals, attract and retain the best talent, and address today’s global challenges.
•To connect to our value of fostering inspired teams, we cultivate diversity, promote equity and pursue a more inclusive culture that strengthens the sense of belonging for all. We expect individuals to uphold these aspirations with humility, integrity and respect.
To solidify a successful execution of our strategy, we established a road map prioritizing initiatives through 2025 using our IRX process to build global accountability and timely execution.
In terms of diverse representation, we have two focus areas: (1) underrepresented populations in the United States and (2) women globally. Our current employee base consists of 16% underrepresented populations in the U.S. with a 2025 target to increase to 30%. Globally, women represent 22.6% of our employees, which exceeded our first year target of 22.25%, and keeps us on track to reach our stated goal of 25% by 2025. Our promotion rates have increased, surpassing our goal of 40% with a current promotion rate of 40.9%.
Ingersoll Rand expanded our employee inclusion groups to build stronger global connections, advocate for positive change and foster an inclusive culture in the organization. An executive leader sponsors each of the following groups and provides guidance to establish goals in support of our company strategies, culture and values to their global members:
•Black Employee Network Inclusion Group
•Veterans Inclusion Group
•Women Inclusion Group
•Hispanic/LatinX Organization of Leadership and Advancement
•Four regional inclusion groups (Europe and Asia Pacific)
•One DE&I council in Latin America
We deployed our unconscious bias training to more than 70% of our salaried employees and conducted personalized sessions to leaders on “DE&I Matters.” We have launched our next phase to train hourly employees, adapting the content to “Respect in the Workplace.” We continue creating a safe space for employees by participating in our “Lean into Change” sessions where social and cultural sensitive conversations occur, fostering trust, transparency and community. Profiles in Diversity Journal recognized our “Lean into Change” initiative by awarding us a Top 10 Innovations in Diversity Award.
Talent Development and Employee Engagement
We are committed to continuously improving the development and engagement of all employees in the company. To support the development of our employees, we have several resources and programs to enable their continued growth and development. All of our offerings are grounded in our values and strategies which are reflected in our competencies. We introduced an executive level program this past year called “Lead Like an Owner” to set the standard of leadership and build succession at the top of the organization. In addition, there were several new manager programs deployed by region to ensure that those who are new to managing people have the skills and capabilities to succeed. We have online learning content that can be accessed around the globe for a variety of topics and have recently initiated several mentoring programs to allow our own internal experts to teach and guide others. As mentioned above, our development planning process is tied to our performance management system which will ensure all employees have development conversations with their manager throughout the year.
Our employee engagement efforts have also produced substantive progress this year. Our last Connections/Engagement survey in October 2021 achieved a 91% participation rate, resulting in a 78% engagement level. While the overall market trended down with respect to employee engagement in 2021, we were able to make gains and maintain them throughout the year. All of our questions scored above the manufacturing benchmark collected by our engagement survey partner, with our key satisfaction measure scoring in the top 20%. One aspect that is central to our engagement strategy is to make all employees true owners of the Company. To that end, we also announced a process by which all new or acquired employees, like existing employees, will receive stock in the Company after one year of employment. We feel that the combination of a solid strategy, strong values and clear expectations, coupled with true employee ownership, provides us strong engagement and a competitive edge.
As a result of all of our Human Capital Management activities, we reflect our value of “We foster inspired teams.” We nurture and celebrate a culture that embraces diverse points of views, backgrounds and experiences. We are committed to equity in how people are treated and the opportunities available to them because we know that a workplace that cultivates a sense of inclusion, belonging and respect will develop the most talented and capable employees.
Environmental Matters
We are subject to numerous federal, state, local and foreign laws and regulations relating to the storage, handling, emission and disposal of materials and discharge of materials into the environment. We believe our existing environmental control procedures are adequate and we have no current plans for substantial capital expenditures in this area. We have an environmental policy that confirms our commitment to a clean environment and compliance with environmental laws. We have an active environmental management program aimed at complying with existing environmental regulations and reducing the generation of pollutants in the manufacturing processes. We are also subject to laws concerning the cleanup of hazardous substances and wastes, such as the U.S. federal “Superfund” and similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. We have been identified as a potentially responsible party with respect to several sites designated for cleanup under the “Superfund” or similar state laws. See “Item 3. Legal Proceedings.”
Where You Can Find More Information
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. Our SEC filings are also available free of charge on our website at http://www.irco.com as soon as reasonably practicable after they are filed with or furnished to the SEC.
We maintain an internet site at http://www.irco.com. From time to time, we may use our website as a distribution channel of material company information. Financial and other important information regarding us is routinely accessible through and posted on our website at www.investors.irco.com. In addition, you may automatically receive email alerts and other information about us when you enroll your email address by visiting the Email Alerts section at www.investors.irco.com. Our website and the information contained on or connected to that site are not incorporated into this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
The following risk factors as well as the other information included in this Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto should be carefully considered. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. The selected risks described below, however, are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations.
Risks Related to Our Business
The COVID-19 pandemic could have a material and adverse effect on our business, results of operations and financial condition in the future.
COVID-19 is a continuously evolving situation that has and could continue to impact the global economy in adverse or unpredictable ways. Our operating results will be subject to fluctuations based on general economic conditions, and the extent to which COVID-19 may ultimately impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the geographic spread of the disease, the emergence of variants, availability of vaccines and treatments and the duration of the outbreak and business closures or business disruptions for our Company, our suppliers and our customers.
The scale and scope of the COVID-19 pandemic may heighten the potential adverse effects on our business, operating results, cash flows and/or financial condition, described in the other risk factors contained in this report. For example, we have exposure to the risks associated with instability in the global economy and financial markets, which may negatively impact our revenues, liquidity, suppliers and customers. Our financial performance depends, in large part, on conditions in the markets we serve and on the general condition of the global economy, which impacts these markets. The impact of the COVID-19 pandemic has, at times, caused a decrease in demand for our products and services. A sustained weakness in demand for our products and services resulting from a contraction or uncertainty in the global economy due to the impact of the COVID-19 pandemic could adversely impact its revenues and profitability. In addition, the impact of the COVID-19 pandemic on the financial condition of our customers has and could in the future make them unable to pay for a product or service when payments become due, or they may decide not to pay us, either as a matter of corporate decision-making or in response to
changes in local laws and regulations. Although historically not material, we cannot be certain that, in the future, expenses or losses for uncollectible amounts will not have a material adverse effect on our revenues, earnings and cash flows. Further, we sell a significant portion of our products through independent distributors and sales representatives. The loss of, or disruption in, our distribution network in connection with the COVID-19 pandemic could have a negative impact on our abilities to ship products, meet customer demand and otherwise operate our business. In addition to the foregoing, the COVID-19 pandemic could also exacerbate or trigger other risks discussed herein, any of which could have a material and adverse effect on our business, results of operations and financial condition.
Due to the COVID-19 pandemic, we may experience different and additional risks not discussed herein such as decreased worker productivity as a result of remote working arrangements, increased medical, emergency or other leave. An extended period of remote working by our employees could strain our technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic. Further, we are experiencing increased costs and expenses, including as a result of (i) conducting daily “fitness-for-duty” assessments for all employees, including temperature and symptoms checks and providing personal protective equipment; (ii) the expansion of benefits to our employees, including the provision of additional paid time off for employees who have contracted COVID-19 or are required to be quarantined; and (iii) implementing increased health and safety protocols at all our facilities, including increased cleaning/sanitization of workspaces, restricting visitor access, mandating social distancing guidelines and increasing the availability of sanitization products. U.S and international government responses to the COVID-19 outbreak have included “shelter in place”, “stay at home” and similar types of orders. These orders typically exempt certain individuals and businesses needed to maintain continuity of operations of critical infrastructure sectors or that are deemed “essential” or contain similar exceptions and exemptions. Although we believe we are currently considered an “essential” business in our operating markets, if any of the applicable exceptions or exemptions are curtailed or revoked in the future, that would adversely impact our business, operating results and financial condition. Furthermore, to the extent these exceptions or exemptions do not extend to our key suppliers and customers, this would also adversely impact our business, operating results and financial condition.
We have exposure to the risks associated with instability in the global economy and financial markets, which may negatively impact our revenues, liquidity, suppliers and customers.
Our financial performance depends, in large part, on conditions in the markets we serve and on the general condition of the global economy, which impacts these markets. Any sustained weakness in demand for our products and services resulting from a contraction or uncertainty in the global economy, including due to the impact of the COVID-19 pandemic, could adversely impact our revenues and profitability.
In addition, we believe that many of our suppliers and customers access global credit markets to provide liquidity, and in some cases, utilize external financing to purchase products or finance operations. If our customers are unable to access credit markets or lack liquidity, it may impact customer demand for our products and services.
Furthermore, our products are sold in many industries, some of which are cyclical and may experience periodic contractions. Cyclical weakness in the industries that we serve could adversely affect demand for our products and affect our profitability and financial performance.
More than half of our sales and operations are in non-U.S. jurisdictions and we are subject to the economic, political, regulatory and other risks of international operations.
For the year ended December 31, 2021, approximately 61% of our revenues were from customers in countries outside of the United States. We have manufacturing facilities in Germany, the United Kingdom, China, Italy, India and other countries. We intend to continue to expand our international operations to the extent that suitable opportunities become available. Non-U.S. operations and United States export sales could be adversely affected as a result of: political or economic instability in certain countries; differences in foreign laws, including increased difficulties in protecting intellectual property and uncertainty in enforcement of contract rights; credit risks; currency fluctuations, in particular, changes in currency exchange rates between the U.S. dollar, Euro, British Pound and the Chinese Renminbi; exchange controls; changes in and uncertainties with respect to tariffs and import/export trade restrictions (including changes in United States trade policy toward other countries, such as the imposition of tariffs and the resulting consequences), as well as other changes in political policy in the United States, China, the U.K. and certain European countries (including the impacts of the U.K.’s national referendum resulting in the U.K.’s withdrawal from the European Union); royalty and tax increases; nationalization of private enterprises; civil unrest and protests, strikes, acts of terrorism, war or other armed conflict; shipping products during times of crisis or war; and other factors inherent in foreign operations.
In addition, our expansion into new countries may require significant resources and the efforts and attention of our management and other personnel, which will divert resources from our existing business operations. As we expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these risks associated with our international operations.
Shareholder and customer emphasis on environmental, social, and governance responsibility may impose additional costs on us or expose us to new risks.
Our shareholders, customers and employees continue to expect a more proactive response to environmental, social, and governance (“ESG”) matters. We may incur increased costs and may be exposed to new risks responding to these higher expectations. The Company has emphasized its commitment to making a positive impact on our shared planet with the announcement of environmental goals with respect to greenhouse gas emissions, renewable energy, water usage and landfill waste. We may face reputational challenges in the event that we are unable to achieve these goals or our ESG standards do not meet those set by certain constituencies. These reputational challenges could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our results of operations are subject to exchange rate and other currency risks. A significant movement in exchange rates could adversely impact our results of operations and cash flows.
We conduct our business in many different currencies. A significant portion of our revenue, approximately 59% for the year ended December 31, 2021, is denominated in currencies other than the U.S. dollar. Accordingly, currency exchange rates, and in particular unfavorable movement in the exchange rates between U.S. dollars and Euros, British Pounds and Chinese Renminbi, affect our operating results. The effects of exchange rate fluctuations on our future operating results are unpredictable because of the number of currencies in which we do business and the potential volatility of exchange rates. We are also subject to the risks of currency controls and devaluations. Although historically not significant, if currency controls were enacted in countries where the Company generates significant cash balances, these controls may limit our ability to convert currencies into U.S. dollars or other currencies, as needed, or to pay dividends or make other payments from funds held by subsidiaries in the countries imposing such controls, which could adversely affect our liquidity. Currency devaluations could also negatively affect our operating margins and cash flows.
We face competition in the markets we serve, which could materially and adversely affect our operating results.
We actively compete with many companies producing similar products. Depending on the particular product and application, we experience competition based on a number of factors, including price, quality, performance and availability. We compete against many companies, including divisions of larger companies with greater financial resources than we possess. As a result, these competitors may be both domestically and internationally better able to withstand a change in conditions within the markets in which we compete and throughout the global economy as a whole.
In addition, our ability to compete effectively depends on how successfully we anticipate and respond to various competitive factors, including new competitors entering our markets, new products and services that may be introduced by competitors, changes in customer preferences, pricing pressures and new government regulations. If we are unable to anticipate our competitors’ development of new products and services, identify customer needs and preferences on a timely basis, or successfully introduce new products and services or modify existing products and service offerings in response to such competitive factors, we could lose customers to competitors. If we cannot compete successfully, our sales and operating results could be materially and adversely affected.
Large or rapid increases in the cost of raw materials and component parts, substantial decreases in their availability or our dependence on particular suppliers of raw materials and component parts could materially and adversely affect our operating results.
Our primary raw materials, directly and indirectly, are cast iron, aluminum and steel. We also purchase a large number of motors and, therefore, also have exposure to changes in the price of copper, which is a primary component of motors. We have long-term contracts with only a few suppliers of key components. Consequently, we are vulnerable to fluctuations in prices and availability of such raw materials. Factors such as supply and demand, freight costs and transportation availability, inventory levels of brokers and dealers, the level of imports and general economic conditions may affect the price and availability of raw materials. In addition, we use single sources of supply for certain iron castings, motors and other select engineered components that are critical in the manufacturing of our products. We have experienced disruptions to our supply deliveries for raw materials and component parts due to reasons related to the pandemic and other recent economic conditions and may experience further supply disruptions. Any such disruption could have a material adverse effect on our ability to timely meet our commitments to customers and, therefore, our operating results.
Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.
We have acquired multiple businesses in recent years and will continue to pursue acquisition of businesses or assets in the future. The acquisition and integration of businesses or assets involves a number of risks. The core risks are valuation (negotiating a fair price for the business), integration (managing the process of integrating the acquired company’s people, products, technology and other assets to extract the value and synergies projected to be realized in connection with the acquisition), regulation (obtaining necessary regulatory or other government approvals that may be necessary to complete acquisitions) and diligence (identifying undisclosed or unknown liabilities or restrictions that will be assumed in the acquisition).
In addition, acquisitions outside of the United States often involve additional or increased risks including, for example:
•managing geographically separated organizations, systems and facilities;
•integrating personnel with diverse business backgrounds and organizational cultures;
•complying with non-U.S. regulatory requirements;
•fluctuations in currency exchange rates;
•enforcement of intellectual property rights in some non-U.S. countries;
•difficulty entering new non-U.S. markets due to, among other things, consumer acceptance and business knowledge of these new markets; and
•general economic and political conditions.
The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of our combined businesses and the possible loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with acquisitions and the integration of an acquired company’s operations could have an adverse effect on our business, results of operations, financial condition or prospects.
If we are unable to develop new products and technologies, our competitive position may be impaired, which could materially and adversely affect our sales and market share.
The markets in which we operate are characterized by changing technologies and introductions of new products and services. Our ability to develop new products based on technological innovation, including those that drive sustainability, energy reduction and the reduction and/or recycling of water in our customers’ processes, can affect our competitive position and often requires the investment of significant resources. Difficulties or delays in research, development or production of new products and technologies, or failure to gain market acceptance of new products and technologies, may significantly reduce future revenues and materially and adversely affect our competitive position. We may not have sufficient resources to continue to make the investment required to maintain or increase our market share or that our investments will be successful. If we do not compete successfully, our business, financial condition, results of operations and cash flows could be materially adversely affected.
Our operating results could be adversely affected by a loss or reduction of business with key customers or consolidation or the vertical integration of our customer base.
The loss or reduction of significant contracts with any of our key customers could result in a material decrease of our future profitability and cash flows. In addition, the consolidation or vertical integration of key customers may result in the loss of certain customer contracts or impact demand or competition for our products. Any changes in such customers’ purchasing practices, or decline in such customers’ financial condition, may have a material adverse impact on our business, results of operations and financial condition. Some of our customers are significantly larger than we are, have greater financial and other resources and also have the ability to purchase products from our competitors. As a result of their size and position in the marketplace, some of our customers have significant purchasing leverage and could cause us to materially reduce the price of our products, which could have a material adverse effect on our revenue and profitability. We are unable to predict what effect consolidation in our customers’ industries could have on prices, capital spending by customers, selling strategies, competitive position, our ability to retain customers or our ability to negotiate favorable agreements with customers.
Credit and counterparty risks could harm our business.
The financial condition of our customers could affect our ability to market our products or collect receivables. In addition, financial difficulties faced by our customers as a result of an adverse economic event or other market factors may lead to cancellation or delay of orders. Our customers may suffer financial difficulties that make them unable to pay for a product or solution when payments become due, or they may decide not to pay us, either as a matter of corporate decision-making or in response to changes in local laws and regulations. Although historically not material, we cannot be certain that, in the future, expenses or losses for uncollectible amounts will not have a material adverse effect on our revenues, earnings and cash flows.
We may not realize all of the expected benefits of the acquisition of and merger with Ingersoll Rand Industrial.
The anticipated benefits of the Ingersoll Rand Industrial acquisition may not be realized fully or at all and may take longer to realize than expected. The integration process is complex, costly and time-consuming, which could adversely affect our businesses, financial results and financial condition. The merger may not result in the realization of the full benefits of anticipated cost synergies, innovation, operational efficiencies and incremental revenue growth opportunities that we expect to realize or these benefits may not be achieved within a reasonable period of time. Moreover, the combined company may be unable to implement its business strategy or retain and hire key personnel. See also “Risks Related to Our Business—Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.”
Dispositions create certain risks and may affect our operating results.
Dispositions involve a number of risks and present financial, managerial and operational challenges, including diversion of management attention from running our core businesses, increased expense associated with the dispositions, potential disputes with the customers or suppliers of the disposed businesses, potential disputes with the acquirers of the disposed businesses and a potential dilutive effect on our earnings per share.
If dispositions are not completed in a timely manner, there may be a negative effect on our cash flows and/or our ability to execute our strategy. In addition, we may not realize some or all of the anticipated benefits of our dispositions.
On February 14, 2021, the Company entered into an agreement to sell its majority interest in High Pressure Solutions to private equity firm American Industrial Partners. In exchange for its majority interest of 55%, the Company received net cash proceeds of $278.3 million and retained a 45% common equity interest in the newly-formed entity comprising the HPS business. This sale was substantially completed on April 1, 2021.
On April 9, 2021, the Company entered into an agreement to sell Specialty Vehicle Technologies to private equity firm Platinum Equity Advisors, LLC (“Platinum Equity”) for $1.68 billion in cash. The sale was substantially completed on June 1, 2021.
See Note 3 “Discontinued Operations” of Notes to Consolidated Financial Statements for additional information related to these transactions.
Information systems failure or disruption, due to cyber terrorism or other actions, may adversely impact our business and result in financial loss to the Company or liability to our customers.
Our business is highly dependent on financial, accounting and other data-processing systems and other communications and information systems, including our enterprise resource planning tools. We process a large number of transactions on a daily basis and rely upon the proper functioning of computer systems. If any of these systems fail, whether caused by fire, other natural disaster, power or telecommunications failure, acts of cyber terrorism or war or otherwise, or they do not function correctly, we could suffer financial loss, business disruption, liability to our customers, regulatory intervention or damage to our reputation. If our systems are unable to accommodate an increasing volume of transactions, our ability to grow could be limited. Although we have backup systems, procedures and capabilities in place, they may also fail or be inadequate. Further, to the extent that we may have customer information in our databases, any unauthorized disclosure of, or access to, such information could result in claims under data protection laws and regulations. If any of these risks materialize, our reputation and our ability to conduct our business may be materially adversely affected.
Third parties may infringe upon our intellectual property or may claim we have infringed their intellectual property, and we may expend significant resources enforcing or defending our rights or suffer competitive injury.
Our success depends in part on the creation, maintenance and protection of our proprietary technology and intellectual property rights. We rely on a combination of patents, tradenames, trade secrets, copyrights, confidentiality provisions, contractual restrictions and licensing arrangements to establish and protect our proprietary rights. Our nondisclosure agreements and confidentiality agreements may not effectively prevent disclosure of our proprietary information, technologies and processes, and may not provide an adequate remedy in the event of breach of such agreements or unauthorized disclosure of such information, and if a competitor lawfully obtains or independently develops our trade secrets, we would have no right to prevent such competitor from using such technology or information to compete with us, either of which could harm our competitive position. Our applications for patent and tradename protection may not be granted, or the claims or scope of such issued patents or registered tradenames may not be sufficiently broad to protect our products. In addition, effective patent, copyright, tradename and trade secret protection may be unavailable or limited for some of our tradenames and patents in some foreign countries. We may be required to spend significant resources to monitor and police our intellectual property rights, and we cannot guarantee that such efforts will be successful in preventing infringement or misappropriation. If we fail to
successfully enforce these intellectual property rights, our competitive position could suffer, which could harm our operating results.
Although we make a significant effort to avoid infringing known proprietary rights of third parties, the steps we take to prevent misappropriation, infringement or other violation of the intellectual property of others may not be successful and from time to time we may receive notice that a third party believes that our products may be infringing certain patents, tradenames or other proprietary rights of such third party. Responding to and defending such claims, regardless of their merit, can be costly and time-consuming, can divert management’s attention and other resources, and we may not prevail. Depending on the resolution of such claims, we may be barred from using a specific technology or other rights, may be required to redesign or re-engineer a product which may require significant resources, may be required to enter into licensing arrangements from the third party claiming infringement (which may not be available on commercially reasonable terms, or at all), or may become liable for significant damages.
If any of the foregoing occurs, our ability to compete could be affected or our business, financial condition and results of operations may be materially adversely affected.
The loss of, or disruption in, our distribution network could have a negative impact on our abilities to ship products, meet customer demand and otherwise operate our business.
We sell a significant portion of our products through independent distributors and sales representatives. We rely in large part on the orderly operation of this distribution network, which depends on adherence to shipping schedules and effective management. We conduct all of our shipping through independent third parties. Although we believe that our receiving, shipping and distribution process is efficient and well-positioned to support our operations and strategic plans, we cannot provide assurance that we have anticipated all issues or that events beyond our control, such as natural disasters or other catastrophic events, labor disagreements, acquisition of distributors by a competitor, consolidation within our distributor network or shipping problems, will not disrupt our distribution network. If complications arise within a segment of our distribution network, the remaining network may not be able to support the resulting additional distribution demands. Any of these disruptions or complications could negatively impact our revenues and costs.
A natural disaster, catastrophe, pandemic or other event could adversely affect our operations.
Some of our operations involve risks of, among other things, property damage, which could curtail our operations. For example, if one or more of our manufacturing facilities are damaged by severe weather or any other disaster, accident, catastrophe or event, our operations could be significantly interrupted impacting our ability to produce products and sell products to customers. These interruptions might involve significant damage to, among other things, property, and repairs might take from a week or less for a minor incident to many months for a major interruption. In addition, disruptions in our supply chain due to natural disasters, catastrophes, pandemic or other events could reduce our ability to produce products and satisfy customer demand. Similar interruptions could result from damage to production or other facilities that provide supplies or other raw materials to our plants. Interruptions to our operations and supply chain could also result from pandemic which could adversely impact our workforce or that of our suppliers, causing disruption to the manufacturing process or our supply chain, and last a week or months depending on the severity of the disruption.
Our ongoing and expected restructuring plans and other cost savings initiatives may not be as effective as we anticipate, and we may fail to realize the cost savings and increased efficiencies that we expect to result from these actions. Our operating results could be negatively affected by our inability to effectively implement such restructuring plans and other cost savings initiatives.
We continually seek ways to simplify or improve processes, eliminate excess capacity and reduce costs in all areas of our operations, which from time to time includes restructuring activities. We have implemented significant restructuring activities across our global manufacturing, sales and distribution footprint, which include workforce reductions and facility consolidations. We incurred restructuring charges of $13.4 million and $83.0 million in the years ended December 31, 2021 and 2020, respectively. Costs of future initiatives may be material and the savings associated with them are subject to a variety of risks, including our inability to effectively eliminate duplicative back office overhead and overlapping sales personnel, rationalize manufacturing capacity, synchronize information technology systems, consolidate warehousing and distribution facilities and shift production to more economical facilities. As a result, the contemplated costs to effect these initiatives may materially exceed estimates. The initiatives we are contemplating may require consultation with various employees, labor representatives or regulators, and such consultations may influence the timing, costs and extent of expected savings and may result in the loss of skilled employees in connection with the initiatives.
Although we have considered the impact of local regulations, negotiations with employee representatives and the related costs associated with our restructuring activities, factors beyond the control of management may affect the timing of these projects and therefore affect when savings will be achieved under the plans. There can be no assurance that we will be able to successfully implement these cost savings initiatives in the time frames contemplated (or at all) or that we will realize the projected benefits of these and other restructuring and cost savings initiatives. If we are unable to implement our cost savings initiatives, our business may be adversely affected. Moreover, our continued implementation of cost savings initiatives may have a material adverse effect on our business, results of operations and financial condition.
In addition, as we consolidate facilities and relocate manufacturing processes to lower-cost regions, our success will depend on our ability to continue to meet customer demand and maintain a high level of quality throughout the transition. Failure to adequately meet customer demand or maintain a high level or quality could have a material adverse effect on our business, results of operations and financial condition.
Our success depends on our executive management and other key personnel and our ability to attract and retain top talent throughout the Company.
Our future success depends to a significant degree on the skills, experience and efforts of our executive management and other key personnel and their ability to provide us with uninterrupted leadership and direction. The failure to retain our executive officers and other key personnel or a failure to provide adequate succession plans could have an adverse impact. Our future success also depends on our ability to attract, retain and develop qualified personnel at all levels of the organization. The availability of highly qualified talent is limited in a number of the jurisdictions in which we operate, and the competition for talent is robust. A failure to attract, retain and develop new qualified personnel throughout the organization could have an adverse effect on our operations and implementation of our strategic plan.
Cost overruns, delays, penalties or liquidated damages could negatively impact our results, particularly with respect to fixed-price contracts for custom engineered products.
A portion of our revenues and earnings is generated through fixed-price contracts for custom engineered products. Certain of these contracts provide for penalties or liquidated damages for failure to timely perform our obligations under the contract, or require that we, at our expense, correct and remedy to the satisfaction of the other party certain defects. Because substantially all of our custom engineered product contracts are at a fixed price, we face the risk that cost overruns, delays, penalties or liquidated damages may exceed, erode or eliminate our expected profit margin, or cause us to record a loss on our projects.
The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results of operations, financial condition or strategic objectives.
Our global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies, which could result in conflicting legal requirements. These laws and regulations are complex, change frequently, have become more stringent over time and increase our cost of doing business. These laws and regulations include import and export control, environmental, health and safety regulations, data privacy requirements, international labor laws and work councils and anti-corruption and bribery laws such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, the U.N. Convention Against Bribery and local laws prohibiting corrupt payments to government officials.
We are subject to the risk that we, our employees, our affiliated entities, contractors, agents or their respective officers, directors, employees and agents may take actions determined to be in violation of any of these laws, for which we might be held responsible, particularly as we expand our operations geographically through organic growth and acquisitions. An actual or alleged violation could result in substantial fines, sanctions, civil or criminal penalties, debarment from government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our results of operations, financial condition or strategic objectives.
Changes in tax or other laws, regulations, or adverse determinations by taxing or other governmental authorities could increase our effective tax rate and cash taxes paid or otherwise affect our financial condition or operating results.
In 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017 and 2018, including, but not limited to (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified property. The Tax Act also established new tax laws that significantly affected recent and future tax years.
While we monitor proposals and other developments that would materially impact our tax burden and/or effective tax rate and investigate our options, we could still be subject to increased taxation on a going forward basis no matter what action we
undertake if certain legislative proposals or regulatory changes are enacted, certain tax treaties are amended and/or our interpretation of applicable tax or other laws is challenged and determined to be incorrect. The inability to realize any anticipated tax benefits related to our operations and corporate structure could have a material adverse impact on our results of operations, financial condition and cash flows. See Note 1 “Summary of Significant Accounting Policies” and Note 16 “Income Taxes” to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to our accounting for income tax matters.
The inability to realize any anticipated tax benefits related to our operations and corporate structure could have a material adverse impact on our results of operations, financial condition and cash flows. Further, the specific future impacts of the Tax Act on holders of our common shares are uncertain and could in certain instances be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our common stock.
Our business could suffer if we experience employee work stoppages, union and work council campaigns or other labor difficulties.
As of December 31, 2021, we had approximately 16,000 employees of which approximately 4,800 were located in the United States. Of those employees located outside of the United States, a significant portion are represented by works councils and labor unions, and of those employees located in the United States, approximately 250 are represented by labor unions. Although we believe that our relations with employees are satisfactory and have not experienced any material work stoppages, work stoppages have occurred, and may in the future occur, and we may not be successful in negotiating new collective bargaining agreements. In addition, negotiations with our union employees may (1) result in significant increases in our cost of labor, (2) divert management’s attention away from operating our business or (3) break down and result in the disruption of our operations. The occurrence of any of the preceding conditions could impair our ability to manufacture our products and result in increased costs and/or decreased operating results.
We are a defendant in certain asbestos and silica-related personal injury lawsuits, which could adversely affect our financial condition.
We have been named as a defendant in many asbestos and silica-related personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources, and typically we are one of approximately 25 or more named defendants. We believe that, given our financial reserves and anticipated insurance recoveries, the pending and potential future lawsuits are not likely to have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, future developments, including, without limitation, potential insolvencies of insurance companies or other defendants, an adverse determination in the Adams County Case, or other inability to collect from our historical insurers or indemnitors, could cause a different outcome. In addition, even if any damages payable by us in any individual lawsuit are not material, the aggregate damages and related defense costs could be material and could materially adversely affect our financial condition if we were to receive an adverse judgment in a number of these lawsuits. Accordingly, the resolution of pending or future lawsuits may have a material adverse effect on our consolidated financial position, results of operations or liquidity. See Note 21 “Contingencies” to our audited consolidated financial statements included elsewhere in this Form 10-K.
The nature of our products creates the possibility of significant product liability and warranty claims, which could harm our business.
Customers use some of our products in potentially hazardous applications that can cause injury or loss of life and damage to property, equipment or the environment. In addition, our products are integral to the production process for some end-users and any failure of our products could result in a suspension of operations. Although we maintain quality controls and procedures, we cannot be certain that our products will be completely free from defects. We maintain amounts and types of insurance coverage that we believe are currently adequate and consistent with normal industry practice for a company of our relative size, and we limit our liability by contract wherever possible. However, we cannot guarantee that insurance will be available or adequate to cover all liabilities incurred. We also may not be able to maintain insurance in the future at levels we believe are necessary and at rates we consider reasonable. We may be named as a defendant in product liability or other lawsuits asserting potentially large claims if an accident occurs at a location where our equipment and services have been or are being used.
A significant portion of our assets consists of goodwill and other intangible assets, the value of which may be reduced if we determine that those assets are impaired.
We have substantial goodwill as a result of past acquisitions. As of December 31, 2021, the net carrying value of goodwill and other intangible assets, net represented $9.9 billion, or 65%, of our total assets. Goodwill and indefinite-lived intangible assets are evaluated for impairment annually, or more frequently if circumstances indicate impairment may have occurred.
Impairments, if any, could have a material adverse effect to our consolidated financial position or results of operations. In 2020, we recognized an impairment charge related to other intangible assets of $19.9 million within the Industrial Technologies and Services segment. See Note 9 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to impairment testing for goodwill and other intangible assets and the associated charges taken.
Environmental compliance costs and liabilities could adversely affect our financial condition.
Our operations and properties are subject to increasingly stringent domestic and foreign laws and regulations relating to environmental protection, including laws and regulations governing air emissions, water discharges, waste management and workplace safety. Under such laws and regulations, we can be subject to substantial fines and sanctions for violations and be required to install costly pollution control equipment or put into effect operational changes to limit pollution emissions or decrease the likelihood of accidental hazardous substance releases.
We use and generate hazardous substances and waste in our manufacturing operations. In addition, many of our current and former properties are, or have been, used for industrial purposes. We have been identified as a potentially responsible party with respect to several sites designated for cleanup under U.S. federal “Superfund” or similar state laws that may impose joint and several liability for cleanup of certain waste sites and for related natural resource damages. A liability on our balance sheet reflects costs that are probable and estimable for our projected financial obligations relating to these matters. If we have underestimated our remaining financial obligations, we may face greater exposure that could have an adverse effect on our financial condition, results of operations or liquidity.
We have experienced, and expect to continue to experience, operating costs to comply with environmental laws and regulations. In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new cleanup requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition, results of operations or liquidity.
We face risks associated with our pension and other postretirement benefit obligations.
We have both funded and unfunded pension and other postretirement benefit plans worldwide. As of December 31, 2021, our projected benefit obligations under our pension and other postretirement benefit plans exceeded the fair value of plan assets by an aggregate of approximately $194.7 million (“unfunded status”). Estimates for the amount and timing of the future funding obligations of these benefit plans are based on various assumptions. These assumptions include discount rates, rates of compensation increases, expected long-term rates of return on plan assets and expected healthcare cost trend rates. If our assumptions prove incorrect, our funding obligations may increase, which may have a material adverse effect on our financial results.
We have invested the plan assets of our funded benefit plans in various equity and debt securities. A deterioration in the value of plan assets could cause the unfunded status of these benefit plans to increase, thereby increasing our obligation to make additional contributions to these plans. An obligation to make contributions to our benefit plans could reduce the cash available for working capital and other corporate uses, and may have an adverse impact on our operations, financial condition and liquidity.
Risks Related to Our Indebtedness
Our substantial indebtedness could have important adverse consequences and adversely affect our financial condition.
We have a significant amount of indebtedness. As of December 31, 2021, we had total indebtedness of $3,440.6 million, and we had availability under the Revolving Credit Facility of $1,093.4 million. Our high level of debt could have important consequences, including: making it more difficult for us to satisfy our obligations with respect to our debt; limiting our ability to obtain additional financing to fund future working capital, capital expenditures, investments or acquisitions, or other general corporate requirements; requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions and other general corporate purposes; increasing our vulnerability to adverse changes in general economic, industry and competitive conditions; exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the Senior Secured Credit Facilities, are at variable rates of interest; limiting our flexibility in planning for and reacting to changes in the industries in which we compete; placing us at a disadvantage compared to other, less leveraged competitors; increasing our cost of borrowing; and hampering our ability to execute on our growth strategy. For a complete description of the Company’s credit facilities and definitions of capitalized terms used in this section, see Note 11 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K.
We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on, or refinance, our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic, industry and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control (as well as and including those factors discussed under “Risks Related to Our Business” above). We may be unable to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flow and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital, or restructure or refinance our indebtedness. We may not be able to implement any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations.
If we cannot make scheduled payments on our debt, we will be in default and the lenders under the Revolving Credit Facility could terminate their commitments to loan money, and our secured lenders (including the lenders under the Senior Secured Credit Facilities) could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.
Despite our level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt, including off-balance sheet financing, contractual obligations and general and commercial liabilities. This could further exacerbate the risks to our financial condition described above.
We and our subsidiaries may be able to incur significant additional indebtedness in the future, including off-balance sheet financings, contractual obligations and general and commercial liabilities. Although the credit agreement governing the Senior Secured Credit Facilities contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. In addition, we can increase the borrowing availability under the Senior Secured Credit Facilities by up to $1,600.0 million in the form of additional commitments under the Revolving Credit Facility and/or incremental term loans plus an additional amount so long as we do not exceed a specified senior secured leverage ratio. We also can incur additional secured indebtedness under the Senior Secured Credit Facilities if certain specified conditions are met under the credit agreement governing the Senior Secured Credit Facilities. If new debt is added to our current debt levels, the related risks that we now face could intensify. For a complete description of the Company’s credit facilities and definitions of capitalized terms used in this section, see Note 11 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K.
The terms of the credit agreement governing the Senior Secured Credit Facilities may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
The credit agreement governing the Senior Secured Credit Facilities contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our best interest, including restrictions on our ability to: incur additional indebtedness and guarantee indebtedness; pay dividends, make other distributions in respect of, or repurchase or redeem capital stock; prepay, redeem or repurchase certain debt; make loans, investments and other restricted payments; sell or otherwise dispose of assets; incur liens; enter into transactions with affiliates; enter into agreements restricting our subsidiaries’ ability to pay dividends; consolidate, merge or sell all or substantially all of our assets; make needed capital expenditures; make strategic acquisitions, investments or enter into joint ventures; plan for or react to market conditions or otherwise execute our business strategies; and engage in business activities, including future opportunities, that may be in our interest.
A breach of the covenants under the credit agreement governing the Senior Secured Credit Facilities could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt principal and/or related interest payments and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our Senior Secured Credit Facilities would permit the lenders under our Revolving Credit Facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our Senior Secured Credit Facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or noteholders accelerate the repayment of our borrowings and/or interest, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under our Senior Secured Credit Facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed will remain the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.
We utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable rate indebtedness and we will be exposed to risks related to counterparty credit worthiness or non-performance of these instruments.
We may enter into pay-fixed interest rate swap instruments from time to time to limit our exposure to changes in variable interest rates. Such instruments will result in economic losses should interest rates not rise above the pay-fixed interest rate in the derivative contracts. We will be exposed to credit-related losses which could impact the results of operations in the event of fluctuations in the fair value of the interest rate swaps due to a change in the credit worthiness or non-performance by the counterparties to the interest rate swaps. See Note 19 “Hedging Activities, Derivative Instruments and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.
If the financial institutions that are part of the syndicate of our Revolving Credit Facility fail to extend credit under our Revolving Credit Facility, our liquidity and results of operations may be adversely affected.
We have access to capital through our Revolving Credit Facility, which is part of our Senior Secured Credit Facilities. Each financial institution which is part of the syndicate for our Revolving Credit Facility is responsible on a several, but not joint, basis for providing a portion of the loans to be made under our facility. If any participant or group of participants with a significant portion of the commitments in our Revolving Credit Facility fails to satisfy its or their respective obligations to extend credit under the facility and we are unable to find a replacement for such participant or participants on a timely basis (if at all), our liquidity may be adversely affected.
The Company may face risk associated with the discontinuation of and transition from currently used financial reference rates.
LIBOR and certain other floating rate benchmark indices to which our floating rate debt is tied(collectively, “IBORs”) are the subject of recent national, international and regulatory guidance and proposals for reform. On November 30, 2020, the Financial Conduct Authority of the U.K., or the FCA, announced that subject to confirmation following its consultation with the administrator of LIBOR, it would cease publication of the one-week and two-month USD LIBOR immediately after December 31, 2021 and cease publication of the remaining tenors immediately after June 30, 2023. Additionally, the U.S. Federal Reserve Board has advised banks to stop entering into new USD LIBOR based contracts. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR. At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates as the transition away from the IBOR benchmarks is anticipated in coming years.
As of December 31, 2021, we had $3.4 billion of floated rate debt with maximum maturities extending past 2021 tied to IBOR benchmarks. There is currently no definitive information regarding the future utilization of any IBOR benchmark or of any particular replacement rate. In addition, any IBOR benchmark may perform differently during any phase-out period than in the past. As such, the potential effect of any such event on our cost of capital cannot yet be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations and cash flows. In addition, we may need to renegotiate certain of our debt agreements with lenders, which could require us to incur significant expense and may subject us to disputes or litigation over the appropriateness or comparability to the relevant IBOR benchmark of the replacement reference rates. We are assessing the impact of a potential transition from IBOR; however, we cannot reasonably estimate the impact of the transition at this time.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate headquarters is a leased facility located at 800-A Beaty Street, Davidson, North Carolina 28036. The number of significant properties used by each of our segments is summarized by segment, type and geographic location in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Type of Significant Property |
| Manufacturing | | Warehouse | | Other(3) | | Total |
| Industrial Technologies and Services | | | | | | | |
| Americas | 18 | | | 2 | | | 31 | | | 51 | |
EMEA(1) | 19 | | | 1 | | | 16 | | | 36 | |
APAC(2) | 7 | | | — | | | 5 | | | 12 | |
| Industrial Technologies and Services Total | 44 | | | 3 | | | 52 | | | 99 | |
| | | | | | | |
| Precision and Science Technologies | | | | | | | |
| Americas | 6 | | | 1 | | | — | | | 7 | |
EMEA(1) | 7 | | | — | | | 1 | | | 8 | |
APAC(2) | 4 | | | — | | | — | | | 4 | |
| Precision and Science Technologies Total | 17 | | | 1 | | | 1 | | | 19 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total (All Segments) | | | | | | | |
| Americas | 24 | | | 3 | | | 31 | | | 58 | |
EMEA(1) | 26 | | | 1 | | | 17 | | | 44 | |
APAC(2) | 11 | | | — | | | 5 | | | 16 | |
| Company Total | 61 | | | 4 | | | 53 | | | 118 | |
(1)Europe, Middle East and Africa (“EMEA”)
(2)Asia Pacific (“APAC”)
(3)Other facilities includes service centers and sales offices
Of the 118 significant properties included in the above table, 68 of the properties are leased and 50 of the properties are owned. We believe that our properties, taken as a whole, are in good operating condition and are suitable for our business operations.
ITEM 3. LEGAL PROCEEDINGS
We are a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of our size and sector. We believe that such proceedings, lawsuits and administrative actions will not materially adversely affect our operations, financial condition, liquidity or competitive position. For a detailed discussion of certain of these proceedings, lawsuits and administrative actions, see Note 21, “Contingencies” to our audited consolidated financial statements included elsewhere in this Form 10-K.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Common Stock, $0.01 par value per share, trades on the New York Stock Exchange (“NYSE”) under the symbol “IR.” As of January 31, 2022, there were 2,568 holders of record of our common stock. This stockholder figure does not include a substantially greater number of holders whose shares are held of record by banks, brokers, and other financial institutions.
Dividend Policy
We declared and paid a dividend of $0.02 per share to the holders of our common stock in the year ended December 31, 2021. We did not declare or pay dividends to the holders of our common stock in the year ended December 31, 2020. Any future dividends will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions contained in current or future financing instruments and other factors that our board of directors deem relevant.
Company Purchases
The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter ended December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 Fourth Quarter Months | Total Number of Shares Purchased(1) | | Average Price Paid Per Share(2) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3) | | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(3) |
| October 1, 2021 - October 31, 2021 | — | | | $ | — | | | — | | | $ | 750,000,000 | |
| November 1, 2021 - November 30, 2021 | — | | | $ | — | | | — | | | $ | 750,000,000 | |
| December 1, 2021 - December 31, 2021 | 4,712 | | | $ | 61.85 | | | — | | | $ | 750,000,000 | |
(1)All of the shares purchased during the quarter ended December 31, 2021 were in connection with net exercises of stock options or the surrender to us of shares of common stock to satisfy tax withholding obligations in connection with the vesting of certain restricted stock units.
(2)The average price paid per share includes brokerage commissions.
(3)On August 24, 2021, our Board of Directors approved a share repurchase program which authorized the repurchase of up to $750.0 million of the Company’s outstanding common stock.
ITEM 6. [Reserved]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with our audited consolidated financial statements and related notes to our consolidated financial statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth under the “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Form 10-K.
Executive Overview
Our Company
Ingersoll Rand is a global market leader with a broad range of innovative and mission-critical air, fluid, energy and medical technologies, providing services and solutions to increase industrial productivity and efficiency. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, when combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under a collection of premier, market-leading brands, including Ingersoll Rand, Gardner Denver, Nash, CompAir, Thomas, Milton Roy, Seepex, Elmo Rietschle, ARO, Robuschi, Emco Wheaton and Runtech Systems,
which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service.
These attributes, along with over 160 years of engineering heritage, generate strong brand loyalty for our products and foster long-standing customer relationships, which we believe have resulted in leading market positions within each of our operating segments. We have sales in all major geographic markets and our diverse customer base utilizes our products across a wide array of end-markets that have favorable near- and long-term growth prospects, including industrial manufacturing, energy, transportation, medical and laboratory sciences, food and beverage packaging and chemical processing.
Our products and services are critical to the processes and systems in which they are utilized, which are often complex and function in harsh conditions where the cost of failure or downtime is high. However, our products and services typically represent only a small portion of the costs of the overall systems or functions that they support. As a result, our customers place a high value on our application expertise, product reliability and the responsiveness of our service. To support our customers and market presence, we maintain significant global scale with 61 key manufacturing facilities, approximately 39 complementary service and repair centers across six continents and approximately 16,000 employees worldwide as of December 31, 2021.
The process-critical nature of our product applications, coupled with the standard wear and tear replacement cycles associated with the usage of our products, generates opportunities to support customers with our broad portfolio of aftermarket parts, consumables and services. Customers place a high value on minimizing any time their operations are offline. As a result, the availability of replacement parts, consumables and our repair and support services are key components of our value proposition. Our large installed base of products provides a recurring revenue stream through our aftermarket parts, consumables and services offerings. As a result, our aftermarket revenue is significant, representing 36.2% of total Company revenue and approximately 40.7% of our Industrial Technologies and Services segment’s revenue in 2021.
Components of Our Revenue and Expenses
Revenues
We generate revenue from sales of original equipment and associated aftermarket parts, consumables and services. We sell our products and deliver services both directly to end-users and through independent distribution channels, depending on the product line and geography. Revenue derived from short duration contracts is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or as services are performed. Certain contracts involve significant design engineering unique to customer specifications, and depending upon the contractual terms, revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer.
Expenses
Cost of Sales
Cost of sales includes the costs we incur, including purchased materials, labor and overhead related to manufactured products and aftermarket parts sold during a period. Depreciation related to manufacturing equipment and facilities is included in cost of sales. Purchased materials represent the majority of costs of sales, with steel, aluminum, copper and partially finished castings representing our most significant material inputs. Stock-based compensation expense for employees associated with the manufacture of products or delivery of services to customers is included in cost of sales. We have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations.
Cost of sales for services includes the direct costs we incur, including direct labor, parts and other overhead costs including depreciation of equipment and facilities, to deliver repair, maintenance and other field services to our customers.
Selling and Administrative Expenses
Selling and administrative expenses consist of (i) salaries and other employee-related expenses for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; (ii) facility operating expenses for selling and administrative activities, including office rent, maintenance, depreciation and insurance; (iii) marketing and direct costs of selling products and services to customers including internal and external sales commissions; (iv) research and development expenditures; (v) professional and consultant fees; (vi) employee related stock-based compensation for our selling and administrative functions and (vii) other miscellaneous expenses. Certain corporate expenses, including those related to our shared service centers in the United States and Europe, that directly benefit our businesses are allocated to our business segments. Certain corporate administrative expenses, including corporate executive compensation, treasury, certain information technology, internal audit and tax compliance, are not allocated to the business segments.
Amortization of Intangible Assets
Amortization of intangible assets includes the periodic amortization of intangible assets — including customer relationships, tradenames, developed technology, backlog and internally developed software.
Impairment of Other Intangible Assets
Impairment of other intangible assets represents the recognition of non-cash charges to reduce the carrying value of intangible assets other than goodwill to their fair value.
Other Operating Expense, Net
Other operating expense, net includes foreign currency transaction gains and losses, net, restructuring charges, certain shareholder litigation settlement recoveries, acquisition and other transaction related expenses and non-cash charges, losses and gains on asset disposals and other miscellaneous operating expenses.
Provision (Benefit) for Income Taxes
The provision or benefit for income taxes includes U.S. federal, state and local income taxes and all non-U.S. income taxes. We are subject to income tax in approximately 47 jurisdictions outside of the United States. Because we conduct operations on a global basis, our effective tax rate depends, and will continue to depend, on the geographic distribution of our pre-tax earnings among several different taxing jurisdictions. Our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions, the availability of tax credits and non-deductible items.
Items Affecting our Reported Results
General Economic Conditions and Capital Spending in the Industries We Serve
Our financial results closely follow changes in the industries and end-markets we serve. Demand for most of our products depends on the level of new capital investment and planned and unplanned maintenance expenditures by our customers. The level of capital expenditures depends, in turn, on the general economic conditions as well as access to capital at reasonable cost. In particular, demand for our Industrial Technologies and Services products generally correlates with the rate of total industrial capacity utilization and the rate of change of industrial production. Capacity utilization rates above 80% have historically indicated a strong demand environment for industrial equipment. In the midstream and downstream portions of our Industrial Technologies and Services segment, overall economic growth and industrial production, as well as secular trends, impact demand for our products. In our Precision and Science Technologies segment, we expect demand for our products to be driven by favorable trends, including the growth in healthcare spend and expansion of healthcare systems due to an aging population requiring medical care and increased investment in health solutions and safety infrastructures in emerging economies. Over longer time periods, we believe that demand for all of our products also tends to follow economic growth patterns indicated by the rates of change in the GDP around the world, as augmented by secular trends in each segment. Our ability to grow and our financial performance will also be affected by our ability to address a variety of challenges and opportunities that are a consequence of our global operations, including efficiently utilizing our global sales, manufacturing and distribution capabilities and engineering innovative new product applications for end-users in a variety of geographic markets.
Foreign Currency Fluctuations
A significant portion of our revenues, approximately 59% for the year ended December 31, 2021, was denominated in currencies other than the U.S. dollar. Because much of our manufacturing facilities and labor force costs are outside of the United States, a significant portion of our costs are also denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates can therefore impact our results of operations and are quantified when significant to our discussion.
Factors Affecting the Comparability of our Results of Operations
As a result of a number of factors, our historical results of operations are not comparable from period to period and may not be comparable to our financial results of operations in future periods. Key factors affecting the comparability of our results of operations are summarized below.
Acquisition of Ingersoll Rand Industrial
On February 29, 2020, we completed the acquisition of Ingersoll Rand Industrial. Ingersoll Rand Industrial is included in our results of operations beginning on the acquisition date (close of business February 29, 2020). Comparability between the years
ended December 31, 2021 and 2020 will be affected by the inclusion of twelve months of activity from Ingersoll Rand Industrial in 2021 compared to only ten months of activity in 2020.
See Note 4 “Business Combinations” to our audited consolidated financial statements included elsewhere in this Form 10-K for further discussion of the acquisition of Ingersoll Rand Industrial.
Other acquisitions
Part of our strategy for growth is to acquire complementary flow control and compression equipment businesses, which provide access to new technologies or geographies or improve our aftermarket offerings. In addition to the Ingersoll Rand Industrial transaction discussed above, we have acquired several other businesses during the three year period ended December 31, 2021. While these acquisitions are not individually significant or significant in the aggregate, they may be relevant when comparing our results from period to period.
See Note 4 “Business Combinations” to our audited consolidated financial statements included elsewhere in this Form 10-K for further discussion of these acquisitions.
Impact of Coronavirus (COVID-19)
We continue to assess and actively manage the impact of the ongoing COVID-19 pandemic on our global operations and also the operations of our suppliers and customers. Demand for our products was negatively impacted throughout the majority of 2020 as a result of the pandemic. Demand began to improve in the fourth quarter of 2020 and accelerated in the first half of 2021 as markets strengthened and gained greater visibility to vaccine roll-out strategies in various regions. Order rates in the first half of 2021 were particularly strong and we believe represent some deferred demand from 2020. In order to position ourselves to fulfill demand we continue to monitor the supply chain closely and are taking proactive steps to ensure continuity of supply. We are adhering to all state and country mandates and guidelines wherever we operate. Currently all our major manufacturing locations are operational. We have taken certain actions to reduce costs and preserve cash given the uncertain environment. The degree to which the pandemic will continue to impact our operations, and the operations of our customers and suppliers remains uncertain. See “The COVID-19 pandemic could have a material and adverse effect on our business, results of operations and financial condition in the future” in Part II Item 1A. “Risk Factors” included elsewhere in this Form 10-K.
Restructuring and Other Business Transformation Initiatives
We continue to implement business transformation initiatives. A key element of those business transformation initiatives was restructuring programs within our Industrial Technologies and Services and Precision and Science Technologies segments, as well as at the Corporate level. Restructuring charges, program related facility reorganization, relocation and other costs, and related capital expenditures were impacted most significantly.
Subsequent to the acquisition of Ingersoll Rand Industrial, we announced a restructuring program (“2020 Plan”) to drive efficiencies and synergies, reduce the number of facilities and optimize operating margin within the merged Company. For the years ended December 31, 2021 and 2020, $13.4 million and $83.0 million, respectively, were charged to expense related to this restructuring program. Through December 31, 2021, we recognized expense related to the 2020 Plan of $78.7 million, $6.9 million and $10.8 million for Industrial Technologies and Services, Precision and Science Technologies and Corporate, respectively.
Stock-Based Compensation Expense
For the years ended December 31, 2021 and 2020, we incurred stock-based compensation expense of approximately $87.2 million and $47.5 million, respectively. The increase from 2020 was primarily due to the $150 million equity grant to nearly 16,000 employees worldwide announced in the third quarter of 2020. See Note 18 “Stock-Based Compensation” to our audited consolidated financial statements included elsewhere in this Form 10-K for further discussion around our stock-based compensation expense. How We Assess the Performance of Our Business
We manage operations through the two business segments described above. In addition to our consolidated GAAP financial measures, we review various non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income and Free Cash Flow.
We believe Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily
correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions.
We use Free Cash Flow to review the liquidity of our operations. We measure Free Cash Flow as cash flows from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities.
Management and our board of directors regularly use these measures as tools in evaluating our operating and financial performance and in establishing discretionary annual compensation. Such measures are provided in addition to, and should not be considered to be a substitute for, or superior to, the comparable measures under GAAP. In addition, we believe that Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are frequently used by investors and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity.
Adjusted EBITDA, Adjusted Net Income and Free Cash Flow should not be considered as alternatives to net income (loss) or any other performance measure derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA, Adjusted Net Income and Free Cash Flow have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.
Included in our discussion of our consolidated and segment results below are changes in revenues and Adjusted EBITDA on a Constant Currency basis. Constant Currency information compares results between periods as if exchange rates had remained constant period over period. We define Constant Currency revenues and Adjusted EBITDA as total revenues and Adjusted EBITDA excluding the impact of foreign exchange rate movements and use it to determine the Constant Currency revenue and Adjusted EBITDA growth on a year-over-year basis. Constant Currency revenues and Adjusted EBITDA are calculated by translating current period revenues and Adjusted EBITDA using corresponding prior period exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a Constant Currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.
For further information regarding these measures, see “Non-GAAP Financial Measures” below.
Results of Continuing Operations
Consolidated results should be read in conjunction with segment results and the Segment Information notes to our audited consolidated financial statements included elsewhere in this Form 10-K, which provide more detailed discussions concerning certain components of our consolidated statements of operations. All intercompany accounts and transactions have been eliminated within the consolidated results.
This section discusses our results of continuing operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020. For a discussion and analysis of the year ended December 31, 2020, compared to the same in 2019, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021.
Consolidated Results of Operations for the Years Ended December 31, 2021 and 2020
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| Consolidated Statements of Operations | | | |
| Revenues | $ | 5,152.4 | | | $ | 3,973.2 | |
| Cost of sales | 3,163.9 | | | 2,568.3 | |
| Gross Profit | 1,988.5 | | | 1,404.9 | |
| Selling and administrative expenses | 1,028.0 | | | 789.3 | |
| Amortization of intangible assets | 332.9 | | | 335.1 | |
| Impairment of other intangible assets | — | | | 19.9 | |
| Other operating expense, net | 61.9 | | | 201.0 | |
| Operating Income | 565.7 | | | 59.6 | |
| Interest expense | 87.7 | | | 111.1 | |
| Loss on extinguishment of debt | 9.0 | | | 2.0 | |
| Other income, net | (44.0) | | | (8.1) | |
| Income (Loss) Before Income Taxes | 513.0 | | | (45.4) | |
| Provision (benefit) for income taxes | (21.8) | | | 11.4 | |
| Loss on equity method investments | (11.4) | | | — | |
| Income (Loss) from Continuing Operations | 523.4 | | | (56.8) | |
| Income from discontinued operations, net of tax | 41.6 | | | 24.4 | |
| Net Income (Loss) | 565.0 | | | (32.4) | |
| Less: Net income attributable to noncontrolling interests | 2.5 | | | 0.9 | |
| Net Income (Loss) Attributable to Ingersoll Rand Inc. | $ | 562.5 | | | $ | (33.3) | |
| | | |
| Percentage of Revenues | | | |
| Gross profit | 38.6 | % | | 35.4 | % |
| Selling and administrative expenses | 20.0 | % | | 19.9 | % |
| Operating income | 11.0 | % | | 1.5 | % |
| Income (loss) from continuing operations | 10.2 | % | | (1.4) | % |
Adjusted EBITDA(1) | 23.1 | % | | 22.1 | % |
| | | |
| Other Financial Data | | | |
Adjusted EBITDA(1) | $ | 1,191.9 | | | $ | 878.1 | |
Adjusted net income(1) | 881.4 | | | 520.0 | |
| Cash flows - operating activities | 627.8 | | | 653.5 | |
| Cash flows - investing activities | (1,029.4) | | | (31.3) | |
| Cash flows - financing activities | (1,157.0) | | | 328.7 | |
Free cash flow(1) | 563.7 | | | 611.5 | |
(1)See “Non-GAAP Financial Measures” below for a reconciliation to the most directly comparable GAAP measure.
Revenues
Revenues for 2021 were $5,152.4 million, an increase of $1,179.2 million, or 29.7%, compared to $3,973.2 million in 2020. The increase in revenues was primarily due to acquisitions, including Ingersoll Rand Industrial, of $537.5 million and organic volume growth in our Industrial Technologies and Services segment of $330.3 million. The increase due to acquisitions is impacted by the inclusion of twelve months of activity from Ingersoll Rand Industrial in 2021 compared to only ten months of activity in 2020. Organic volume growth in 2021 partially reflects the adverse impact of COVID-19 in 2020. The percentage of consolidated revenues derived from aftermarket parts and services was 36.2% in 2021 compared to 35.5% in 2020.
Gross Profit
Gross profit in 2021 was $1,988.5 million, an increase of $583.6 million, or 41.5%, compared to $1,404.9 million in 2020, and as a percentage of revenues was 38.6% in 2021 and 35.4% in 2020. The increase in gross profit is primarily due to acquisitions, including Ingersoll Rand Industrial, higher volumes in our Industrial Technologies and Services segment, and the runoff of the fair valuation adjustments related to the acquisition of Ingersoll Rand Industrial impacting cost of sales in 2020 that did not recur in 2021. The increase due to acquisitions is impacted by the inclusion of twelve months of activity from Ingersoll Rand Industrial in 2021 compared to only ten months of activity in 2020. The increase in gross profit as a percentage of revenues is primarily due to the runoff of the fair valuation adjustments related to the acquisition of Ingersoll Rand Industrial impacting cost of sales in 2020 that did not recur in 2021.
Selling and Administrative Expenses
Selling and administrative expenses were $1,028.0 million in 2021, an increase of $238.7 million, or 30.2%, compared to $789.3 million in 2020. Selling and administrative expenses as a percentage of revenues increased to 20.0% in 2021 from 19.9% in 2020. This increase in selling and administrative expenses was primarily due to acquisitions, including Ingersoll Rand Industrial, and increased incentive compensation.
Amortization of Intangible Assets
Amortization of intangible assets was $332.9 million in 2021, a decrease of $2.2 million compared to $335.1 million in 2020. The decrease was primarily due to certain intangible assets, primarily backlog, related to the acquisition of Ingersoll Rand Industrial becoming fully amortized, partially offset by the inclusion of twelve months of activity from Ingersoll Rand Industrial in 2021 compared to only ten months of activity in 2020 as well as intangible assets acquired in 2021.
Impairment of Intangible Assets
Impairment of intangible assets was $19.9 million in 2020 due to the impairment of two tradenames in the Industrial Technologies and Services segment. There were no impairments recognized during the year ended December 31, 2021. See Note 9 “Goodwill and Other Intangible Assets” to our consolidated financial statements included elsewhere in this Form 10-K for further details.
Other Operating Expense, Net
Other operating expense, net was $61.9 million in 2021, a decrease of $139.1 million compared to $201.0 million in 2020. The decrease was primarily due to lower restructuring charges of $69.6 million, lower acquisition related expenses of $38.0 million, and higher foreign currency transaction gains, net of $30.6 million.
Interest Expense
Interest expense was $87.7 million in 2021, a decrease of $23.4 million, compared to $111.1 million in 2020. The decrease was primarily due to the decrease in the weighted-average interest rate as well as the payoff of the Dollar Term Loan Series A in the third quarter of 2021. The weighted-average interest rate was approximately 2.0% in 2021 and 3.5% in 2020.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $9.0 million in 2021, which was related to the payoff of the Dollar Term Loan Series A. Loss on extinguishment of debt was $2.0 million in 2020, which was related to the refinancing of the Original Dollar Term Loan and the Original Euro Term Loan. See Note 11 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
Other Income, Net
Other income, net, was $44.0 million in 2021, an increase of $35.9 million compared to $8.1 million in 2020. The increase in other income, net was primarily due to recognition of a $30.0 million gain upon settling post-acquisition contingencies related to the Ingersoll Rand Industrial transaction outside of the measurement period in the second quarter of 2021.
Provision for Income Taxes
The benefit for income taxes was $21.8 million resulting in a (4.2)% effective tax rate in 2021 compared to a provision for income taxes of $11.4 million resulting in a (25.1)% effective tax provision rate in 2020. The decrease in the tax provision and the change in the effective tax rate is primarily due to an increase in the pre-tax book income in jurisdictions with lower effective
tax rates combined with lower earnings in jurisdictions with higher tax rates. The rate increase was mitigated by the release of unrecognized tax reserves as a result of the lapse of the limitation on statutes, a benefit associated with the final settlement on the merger transaction, a one-time restructuring benefit, and foreign tax credit utilization.
Net Income (Loss)
Net income was $565.0 million in 2021 compared to net loss of $(32.4) million in 2020. The increase in net income was primarily due to higher gross profit on increased revenues and lower other operating expenses, net, partially offset by higher selling and administrative expenses.
Adjusted EBITDA
Adjusted EBITDA increased $313.8 million to $1,191.9 million in 2021 compared to $878.1 million in 2020. Adjusted EBITDA as a percentage of revenues increased 100 basis points to 23.1% in 2021 from 22.1% in 2020. The increase in Adjusted EBITDA was primarily due to higher organic sales volume of $157.6 million, improved pricing of $139.0 million and acquisitions, including Ingersoll Rand Industrial, of $127.5 million, partially offset by increased selling and administrative expenses. The increase in Adjusted EBITDA as a percentage of revenues is primarily attributable to organic growth in our Industrial Technologies and Services segment.
Adjusted Net Income
Adjusted Net Income increased $361.4 million to $881.4 million in 2021 compared to $520.0 million in 2020. The increase was primarily due to higher Adjusted EBITDA, lower income tax provision, as adjusted and lower interest expense.
Non-GAAP Financial Measures
Set forth below are reconciliations of net income (loss) to Adjusted EBITDA and Adjusted Net Income and cash flows from operating activities to Free Cash Flow. For additional information regarding Adjusted EBITDA and Adjusted Net Income, see “How We Assess the Performance of Our Business” above.
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| Net Income (Loss) | $ | 565.0 | | | $ | (32.4) | |
| Less: Income from discontinued operations | 121.0 | | | 26.0 | |
| Less: Income tax provision from discontinued operations | (79.4) | | | (1.6) | |
| Income (loss) from continuing operations, net of tax | 523.4 | | | (56.8) | |
| Plus: | | | |
| Interest expense | 87.7 | | | 111.1 | |
| Provision for income taxes | (21.8) | | | 11.4 | |
Depreciation expense(a) | 85.1 | | | 75.3 | |
Amortization expense(b) | 332.9 | | | 335.1 | |
| Impairment of other intangible assets | — | | | 19.9 | |
Restructuring and related business transformation costs(c) | 18.8 | | | 88.0 | |
Acquisition related expenses and non-cash charges(d) | 65.2 | | | 181.5 | |
Stock-based compensation(e) | 95.9 | | | 47.0 | |
| Foreign currency transaction losses (gains), net | (12.0) | | | 18.6 | |
| Loss on equity method investments | 11.4 | | | — | |
| Loss on extinguishment of debt | 9.0 | | | 2.0 | |
Adjustments to LIFO inventories(f) | 33.2 | | | 39.8 | |
| Gain on settlement of post-acquisition contingencies | (30.1) | | | — | |
| | | |
Other adjustments(g) | (6.8) | | | 5.2 | |
| Adjusted EBITDA | $ | 1,191.9 | | | $ | 878.1 | |
| Minus: | | | |
| Interest expense | $ | 87.7 | | | $ | 111.1 | |
Income tax provision, as adjusted(h) | 120.7 | | | 163.6 | |
| Depreciation expense | 85.1 | | | 75.3 | |
| Amortization of non-acquisition related intangible assets | 17.0 | | | 8.1 | |
| Adjusted Net Income | $ | 881.4 | | | $ | 520.0 | |
| | | |
| Free Cash Flow from Continuing Operations: | | | |
| Cash flows from operating activities from continuing operations | $ | 627.8 | | | $ | 653.5 | |
| Minus: | | | |
| Capital expenditures | 64.1 | | | 42.0 | |
| Free Cash Flow from Continuing Operations | $ | 563.7 | | | $ | 611.5 | |
(a)Depreciation expense excludes $4.1 million and $2.1 million of depreciation of rental equipment for the years ended December 31, 2021 and 2020, respectively.
(b)Represents $315.9 million and $327.0 million of amortization of intangible assets arising from the acquisition of Ingersoll Rand Industrial and other acquisitions (customer relationships, technology, tradenames and backlog) and $17.0 million and $8.1 million of amortization of non-acquisition related intangible assets, in each case for the years ended December 31, 2021 and 2020, respectively.
(c)Restructuring and related business transformation costs consisted of the following.
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| Restructuring charges | $ | 13.4 | | | $ | 83.0 | |
| Facility reorganization, relocation and other costs | 3.1 | | | 2.1 | |
| Other, net | 2.3 | | | 2.9 | |
| Total restructuring and related business transformation costs | $ | 18.8 | | | $ | 88.0 | |
(d)Represents costs associated with successful and abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs), and non-cash charges and credits arising from fair value purchase accounting adjustments.
(e)Represents stock-based compensation expense recognized for the year ended December 31, 2021 of $87.2 million and associated employer taxes of $8.7 million.
Represents stock-based compensation expense recognized for the year ended December 31, 2020 of $47.5 million, decreased by $0.5 million due to costs associated with employer taxes.
(f)For the year ended December 31, 2021, represents $33.2 million of LIFO reserve changes. For the year ended December 31, 2020, includes $4.2 million of LIFO reserve changes and $35.6 million to reduce the carrying value of inventories acquired in the merger with Ingersoll Rand Industrial accounted for under the LIFO method. We have reclassified the amounts in 2020 from “Other adjustments” and “Acquisition related expenses and non-cash charges,” respectively, to conform to the current year presentation.
(g)Includes (i) effects of the amortization of prior service costs and amortization of losses in pension and other postemployment (“OPEB”) expense, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.
(h)Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of applicable discrete tax items. The tax effect of pre-tax items excluded from Adjusted Net Income is computed using the statutory tax rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances. Discrete tax items include changes in tax laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances.
The income tax provision, as adjusted for each of the periods presented below consists of the following.
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| Provision (benefit) for income taxes | $ | (21.8) | | | $ | 11.4 | |
| Tax impact of pre-tax income adjustments | 97.6 | | | 156.6 | |
| | | |
| Discrete tax items | 44.9 | | | (4.4) | |
| Income tax provision, as adjusted | $ | 120.7 | | | $ | 163.6 | |
Segment Results
We classify our business into two segments: Industrial Technologies and Services and Precision and Science Technologies. Our Corporate operations (as described below) are not discussed separately as any results that had a significant impact on operating results are included in the consolidated results discussion above.
We evaluate the performance of our segments based on Segment Revenues and Segment Adjusted EBITDA. Segment Adjusted EBITDA is indicative of operational performance and ongoing profitability. Our management closely monitors Segment Adjusted EBITDA to evaluate past performance and identify actions required to improve profitability.
The segment measurements provided to, and evaluated by, the Chief Operating Decision Maker (“CODM”) are described in Note 23 “Segment Information” to our audited consolidated financial statements included elsewhere in this Form 10-K.
Included in our discussion of our segment results below are changes in Segment Revenues and Segment Adjusted EBITDA on a Constant Currency basis. Constant Currency information compares results between periods as if exchange rates had remained constant period over period. We define Constant Currency as changes in Segment Revenues and Segment Adjusted EBITDA excluding the impact of foreign exchange rate movements. We use these measures to determine the Constant Currency Segment Revenues and Segment Adjusted EBITDA growth on a year-on-year basis. Constant Currency Segment Revenues and Segment Adjusted EBITDA are calculated by translating current period Segment Revenues and Segment Adjusted EBITDA using prior period exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.
Segment Results for Years Ended December 31, 2021 and 2020
The following tables display Segment Revenues, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin (Segment Adjusted EBITDA as a percentage of Segment Revenues) for each of our Segments and illustrates, on a percentage basis, the impact of foreign currency fluctuations on Segment Revenues and Segment Adjusted EBITDA growth.
Industrial Technologies and Services Segment Results
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | Percent Change |
| 2021 | | 2020 | | 2021 vs. 2020 |
| Segment Revenues | $ | 4,161.0 | | | $ | 3,248.2 | | | 28.1 | % |
| Segment Adjusted EBITDA | $ | 1,033.7 | | | $ | 759.8 | | | 36.0 | % |
| Segment Margin | 24.8 | % | | 23.4 | % | | 140 bps |
2021 vs. 2020
Segment Revenues for 2021 were $4,161.0 million, an increase of $912.8 million, or 28.1%, compared to $3,248.2 million in 2020. The increase in Segment Revenues was primarily due to acquisitions, including Ingersoll Rand Industrial, of $377.5 million or 11.6%, higher volume of $330.3 million or 10.2%, improved pricing of $118.7 million or 3.7% and favorable impact of foreign currencies of $86.3 million or 2.7%. The percentage of Segment Revenues derived from aftermarket parts and service was 40.7% in 2021 compared to 40.2% in 2020.
Segment Adjusted EBITDA in 2021 was $1,033.7 million, an increase of $273.9 million, or 36.0%, from $759.8 million in 2020. Segment Adjusted EBITDA Margin increased 140 bps to 24.8% from 23.4% in 2020. The increase in Segment Adjusted EBITDA was primarily due to higher organic sales volumes of $125.9 million or 16.6%, improved pricing of $118.7 million or 15.6%, acquisitions, including Ingersoll Rand Industrial, of $93.4 million or 12.3% and favorable impact of foreign currencies of $23.0 million or 3.0%, partially offset by higher selling and administrative expenses of $60.9 million or 8.0% and unfavorable margin mix of $20.7 million or 2.7%.
Precision and Science Technologies Segment Results
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | Percent Change |
| 2021 | | 2020 | | 2021 vs. 2020 |
| Segment Revenues | $ | 991.4 | | | $ | 725.0 | | | 36.7 | % |
| Segment Adjusted EBITDA | $ | 291.4 | | | $ | 220.2 | | | 32.3 | % |
| Segment Margin | 29.4 | % | | 30.4 | % | | (100) bps |
2021 vs. 2020
Segment Revenues for 2021 were $991.4 million, an increase of $266.4 million, or 36.7%, compared to $725.0 million in 2020. The increase in Segment Revenues was primarily due to acquisitions, including Ingersoll Rand Industrial, of $160.0 million or 22.1%, higher volume of $70.4 million or 9.7%, improved pricing of $20.3 million or 2.8% and favorable impact of foreign currencies of $15.7 million or 2.2%. The percentage of Segment Revenues derived from aftermarket parts and service was 17.1% in 2021 compared to 14.6% in 2020.
Segment Adjusted EBITDA in 2021 was $291.4 million, an increase of $71.2 million, or 32.3%, from $220.2 million in 2020. Segment Adjusted EBITDA Margin decreased 100 bps to 29.4% from 30.4% in 2020. The increase in Segment Adjusted EBITDA was due primarily to acquisitions, including Ingersoll Rand Industrial, of $36.1 million or 16.4%, higher volume of $31.7 million or 14.4%, improved pricing of $20.3 million or 9.2%, partially offset by higher selling and administrative expenses of $13.0 million or 5.9%.
Orders
Industrial Technologies and Services
The mission-critical nature of our Industrial Technologies and Services segment products across manufacturing processes drives a demand environment and outlook that are correlated with global and regional industrial production, capacity utilization and long-term GDP growth. In the fourth quarter of 2021, we had $1,201.1 million of orders in our Industrial Technologies and Services segment, an increase of 20.5% over the fourth quarter of 2020.
Precision and Science Technologies Segment
During 2021, the Precision and Science Technologies segment has seen increased demand for our products, particularly related to life science and specialty applications. In the fourth quarter of 2021, we booked $305.9 million of orders in our Precision and Science Technologies segment, an increase of 38.9% over the fourth quarter of 2020.
Results of Discontinued Operations
Results of Discontinued Operations - SVT
The following table presents selected Consolidated Results of Operations of our business for the years ended December 31, 2021 and 2020.
| | | | | | | | | | | |
| |
| 2021 | | 2020 |
| Revenues | $ | 430.9 | | | $ | 741.4 | |
| Cost of sales | 321.3 | | | 564.6 | |
| Gross profit | 109.6 | | | 176.8 | |
| Selling and administrative expenses | 35.7 | | | 63.0 | |
| Amortization of intangible assets | 10.4 | | | 37.1 | |
| Gain on sale | (298.3) | | | — | |
| Other operating expense, net | 18.1 | | | 1.7 | |
| | | |
| | | |
| | | |
| | | |
| Income Before Income Taxes | 343.7 | | | 75.0 | |
| Provision for income taxes | 87.1 | | | 12.9 | |
| Income from Discontinued Operations, Net of Tax | $ | 256.6 | | | $ | 62.1 | |
Revenues
Revenues for 2021 were $430.9 million, a decrease of $310.5 million, or 41.9%, compared to $741.4 million in 2020. The decrease in revenues from discontinued operations was primarily due to the sale of SVT being substantially completed on June 1, 2021. Refer to Note 3 “Discontinued Operations” to our consolidated financial statements for additional discussion.
Gross Profit
Gross profit for 2021 was $109.6 million, a decrease of $67.2 million, or 38.0%, compared to $176.8 million for 2020, and as a percentage of revenues was 25.4% for the year ended December 31, 2021 and 23.8% in 2020. The decrease in gross profit is primarily due to the sale being substantially completed on June 1, 2021.
Gain on Sale
Gain on sale for the year ended December 31, 2021 of $298.3 million was due to the purchase price exceeding the carrying value of the SVT business.
Other Operating Expense (Income), Net
Other operating expense, net was $18.1 million for the year ended December 31, 2021, an increase of $16.4 million, compared to $1.7 million in 2020. The increase was primarily due to higher separation related expenses and non-cash charges of $17.2 million, partially offset by lower restructuring charges of $0.8 million.
Provision (Benefit) for Income Taxes
The provision for income taxes for income taxes was $87.1 million, resulting in a 25.3% effective income tax rate for the year ended December 31, 2021, compared to a provision for income taxes of $12.9 million resulting in a 17.2% effective income tax rate in the same period in 2020. The increase in the tax provision in 2021 is primarily due to one-time discrete items associated with the sale of the SVT business.
Results of Discontinued Operations - HPS
The following table presents selected Consolidated Results of Operations of our business for the years ended December 31, 2021 and 2020.
| | | | | | | | | | | | | | | |
| | | |
| | | | | 2021 | | 2020 |
| Revenues | | | | | $ | 71.9 | | | $ | 195.6 | |
| Cost of sales | | | | | 60.2 | | | 163.9 | |
| Gross profit | | | | | 11.7 | | | 31.7 | |
| Selling and administrative expenses | | | | | 5.3 | | | 42.5 | |
| Amortization of intangible assets | | | | | 2.4 | | | 23.6 | |
| Loss on sale | | | | | 207.7 | | | — | |
| Other operating expense, net | | | | | 19.0 | | | 14.5 | |
| Operating Loss | | | | | (222.7) | | | (48.9) | |
| | | | | | | |
| | | | | | | |
| Other expense, net | | | | | — | | | 0.1 | |
| Loss Before Income Taxes | | | | | (222.7) | | | (49.0) | |
| Benefit for income taxes | | | | | (7.7) | | | (11.3) | |
| Loss from Discontinued Operations, Net of Tax | | | | | $ | (215.0) | | | $ | (37.7) | |
Revenues
Revenues for 2021 were $71.9 million, a decrease of $123.7 million, or 63.2%, compared to $195.6 million in 2020. The decrease in revenues from discontinued operations was primarily due to the sale of HPS being substantially completed on April 1, 2021. Refer to Note 3 “Discontinued Operations” to our consolidated financial statements for additional discussion.
Gross Profit
Gross profit for 2021 was $11.7 million, a decrease of $20.0 million, or 63.1%, compared to $31.7 million in 2020, and as a percentage of revenues was 16.3% for the year ended December 31, 2021 and 16.2% in 2020. The decrease in gross profit is primarily due to the sale being substantially completed on April 1, 2021.
Loss on Sale
Loss on sale for 2021 of $207.7 million was a charge taken to reduce the carrying value of the HPS business to the estimated fair value of the net proceeds and residual equity interest from the transaction.
Other Operating Expense, Net
Other operating expense, net were $19.0 million for 2021, an increase of $4.5 million, compared to $14.5 million in 2020. The increase was primarily due to expenses incurred in connection with the separation of $14.4 million, partially offset by lower restructuring charges of $8.5 million.
Provision (Benefit) for Income Taxes
The benefit for income taxes was $7.7 million, resulting in a 3.5% effective income tax rate for year ended December 31, 2021, compared to a benefit for income taxes of $11.3 million resulting in a 23.1% effective income tax rate in 2020. The decrease in the tax benefit in 2021 is primarily due to one-time discrete items associated with the sale of the HPS business.
Unaudited Quarterly Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | Year Ended December 31, 2021(1) | | Year Ended December 31, 2020 |
| Q1 | | Q2 | | Q3 | | Q4 | | Q1 | | Q2 | | Q3 | | Q4 |
| Revenues | $ | 1,129.5 | | | $ | 1,279.1 | | | $ | 1,325.0 | | | $ | 1,418.8 | | | $ | 616.8 | | | $ | 1,025.4 | | | $ | 1,112.5 | | | $ | 1,218.5 | |
| Gross profit | $ | 452.1 | | | $ | 512.7 | | | $ | 514.3 | | | $ | 509.4 | | | $ | 203.3 | | | $ | 308.6 | | | $ | 430.0 | | | $ | 463.0 | |
| Operating income (loss) | $ | 121.3 | | | $ | 140.1 | | | $ | 163.9 | | | $ | 140.4 | | | $ | (79.3) | | | $ | (45.0) | | | $ | 69.0 | | | $ | 114.9 | |
| Income (loss) from continuing operations, net of tax | $ | 90.1 | | | $ | 138.3 | | | $ | 131.0 | | | $ | 164.0 | | | $ | (41.3) | | | $ | (151.9) | | | $ | 30.0 | | | $ | 106.4 | |
| Income (loss) from discontinued operations, net of tax | $ | (180.2) | | | $ | 96.3 | | | $ | (4.2) | | | $ | 129.7 | | | $ | 4.4 | | | $ | (24.6) | | | $ | (0.1) | | | $ | 44.7 | |
| Net income (loss) | $ | (90.1) | | | $ | 234.6 | | | $ | 126.8 | | | $ | 293.7 | | | $ | (36.9) | | | $ | (176.5) | | | $ | 29.9 | | | $ | 151.1 | |
| Net income (loss) attributable to Ingersoll Rand Inc. | $ | (90.4) | | | $ | 233.9 | | | $ | 126.0 | | | $ | 293.0 | | | $ | (36.8) | | | $ | (177.6) | | | $ | 29.5 | | | $ | 151.6 | |
| Weighted average shares, basic | 419.2 | | | 419.9 | | | 412.3 | | | 407.8 | | | 277.3 | | | 417.0 | | | 417.6 | | | 418.4 | |
| Weighted average shares, diluted | 425.9 | | | 426.8 | | | 418.5 | | | 413.4 | | | 277.3 | | | 417.0 | | | 422.0 | | | 424.5 | |
| Basic earnings (loss) per share of common stock from continuing operations | $ | 0.21 | | | $ | 0.33 | | | $ | 0.32 | | | $ | 0.40 | | | $ | (0.15) | | | $ | (0.37) | | | $ | 0.07 | | | $ | 0.26 | |
| Basic earnings (loss) per share of common stock from discontinued operations | $ | (0.43) | | | $ | 0.23 | | | $ | (0.01) | | | $ | 0.32 | | | $ | 0.02 | | | $ | (0.06) | | | $ | — | | | $ | 0.11 | |
| Basic earnings (loss) per share of common stock | $ | (0.22) | | | $ | 0.56 | | | $ | 0.31 | | | $ | 0.72 | | | $ | (0.13) | | | $ | (0.43) | | | $ | 0.07 | | | $ | 0.36 | |
| Diluted earnings (loss) per share of common stock from continuing operations | $ | 0.21 | | | $ | 0.32 | | | $ | 0.31 | | | $ | 0.40 | | | $ | (0.15) | | | $ | (0.37) | | | $ | 0.07 | | | $ | 0.25 | |
| Diluted earnings (loss) per share of common stock from discontinued operations | $ | (0.42) | | | $ | 0.23 | | | $ | (0.01) | | | $ | 0.31 | | | $ | 0.02 | | | $ | (0.06) | | | $ | — | | | $ | 0.11 | |
| Diluted earnings (loss) per share of common stock | $ | (0.21) | | | $ | 0.55 | | | $ | 0.30 | | | $ | 0.71 | | | $ | (0.13) | | | $ | (0.43) | | | $ | 0.07 | | | $ | 0.36 | |
Adjusted EBITDA(2) | $ | 244.0 | | | $ | 292.1 | | | $ | 313.7 | | | $ | 342.1 | | | $ | 112.2 | | | $ | 217.5 | | | $ | 251.7 | | | $ | 296.7 | |
(1)See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting the Comparability of our Results of Operations.”
(2)Set forth below are the reconciliations of Net Income to Adjusted EBITDA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| Q1 | | Q2 | | Q3 | | Q4 | | Q1 | | Q2 | | Q3 | | Q4 |
| Net Income (Loss) | $ | (90.1) | | | $ | 234.6 | | | $ | 126.8 | | | $ | 293.7 | | | $ | (36.9) | | | $ | (176.5) | | | $ | 29.9 | | | $ | 151.1 | |
| Less: Income (loss) from discontinued operations | (177.8) | | | 258.5 | | | (7.6) | | | 47.9 | | | 12.5 | | | (7.2) | | | 5.3 | | | 15.4 | |
| Less: Income tax benefit (provision) from discontinued operations | (2.4) | | | (162.2) | | | 3.4 | | | 81.8 | | | (8.1) | | | (17.4) | | | (5.4) | | | 29.3 | |
| Income (loss) from continuing operations, net of tax | 90.1 | | | 138.3 | | | 131.0 | | | 164.0 | | | (41.3) | | | (151.9) | | | 30.0 | | | 106.4 | |
| Plus: | | | | | | | | | | | | | | | |
| Interest expense | 23.1 | | | 22.7 | | | 22.5 | | | 19.4 | | | 27.1 | | | 30.8 | | | 28.8 | | | 24.4 | |
| Provision (benefit) for income taxes | 10.6 | | | 12.5 | | | 2.7 | | | (47.6) | | | (66.9) | | | 78.4 | | | 12.8 | | | (12.9) | |
| Depreciation expense | 20.3 | | | 21.0 | | | 21.2 | | | 22.6 | | | 12.3 | | | 22.5 | | | 19.8 | | | 20.7 | |
| Amortization expense | 84.2 | | | 80.3 | | | 80.3 | | | 88.1 | | | 46.7 | | | 96.4 | | | 97.0 | | | 95.0 | |
| Impairment of other intangible assets | — | | | — | | | — | | | — | | | — | | | — | | | 19.9 | | | — | |
Restructuring and related business transformation costs(a) | 2.7 | | | 6.7 | | | 3.1 | | | 6.3 | | | 38.6 | | | 31.0 | | | 10.0 | | | 8.4 | |
Acquisition related expenses and non-cash charges(b) | 10.5 | | | 14.3 | | | 14.4 | | | 26.0 | | | 89.5 | | | 54.7 | | | 14.7 | | | 22.6 | |
Stock-based compensation(c) | 21.6 | | | 21.5 | | | 29.8 | | | 23.0 | | | 2.8 | | | 12.1 | | | 11.9 | | | 20.2 | |
| Loss on equity method investments | — | | | 0.7 | | | 2.2 | | | 8.5 | | | — | | | — | | | — | | | — | |
| Loss on extinguishment of debt | — | | | — | | | 9.0 | | | — | | | 2.0 | | | — | | | — | | | — | |
| Foreign currency transaction losses (gains), net | (18.1) | | | 3.4 | | | 1.1 | | | 1.6 | | | 2.0 | | | 4.9 | | | 5.8 | | | 5.9 | |
Adjustments to LIFO inventories(d) | — | | | — | | | — | | | 33.2 | | | — | | | 35.6 | | | — | | | 4.2 | |
Gain on settlement of post-acquisition contingencies(e) | — | | | (30.1) | | | — | | | — | | | — | | | — | | | — | | | — | |
Other adjustments(f) | (1.0) | | | 0.8 | | | (3.6) | | | (3.0) | | | (0.6) | | | 3.0 | | | 1.0 | | | 1.8 | |
| Adjusted EBITDA | $ | 244.0 | | | $ | 292.1 | | | $ | 313.7 | | | $ | 342.1 | | | $ | 112.2 | | | $ | 217.5 | | | $ | 251.7 | | | $ | 296.7 | |
(a)Restructuring and related business transformation costs consist of (i) restructuring charges, (ii) severance, sign-on, relocation and executive search costs, (iii) facility reorganization, relocation and other costs, (iv) information technology infrastructure transformation, (v) gains and losses on asset disposals, (vi) consultant and other advisor fees and (vii) other miscellaneous costs.
(b)Represents costs associated with successful and abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs) and non-cash charges and credits arising from fair value purchase accounting adjustments.
(c)Represents stock-based compensation expense recognized for stock options outstanding for the year ended December 31, 2021 of $87.2 million and associated employer taxes of $8.7 million.
Represents stock-based compensation expense recognized for the year ended December 31, 2020 of $47.5 million, decreased by $0.5 million due to costs associated with employer taxes.
(d)For the year ended December 31, 2021, represents $33.2 million of LIFO reserve changes. For the year ended December 31, 2020, includes $4.2 million of LIFO reserve changes and $35.6 million to reduce the carrying value of inventories acquired in the merger with Ingersoll Rand Industrial accounted for under the LIFO method. We have reclassified the amounts in 2020 from “Other adjustments” and “Acquisition related expenses and non-cash charges,” respectively, to conform to the current year presentation.
(e)Represents a gain on settlement of post-acquisition contingencies outside of the measurement period related to adjustments to the transaction price for retirement plan funding and net working capital.
(f)Includes (i) effects of amortization of prior service costs and amortization of losses in pension and other postemployment (“OPEB”) expense, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.
Liquidity and Capital Resources
Our investment resources include cash on hand, cash generated from operations and borrowings under our Revolving Credit Facility. We also have the ability to seek additional secured and unsecured borrowings, subject to Credit Agreement restrictions.
For a description of our material indebtedness, see Note 11 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K.
As of December 31, 2021, we had no outstanding borrowings, $6.6 million of outstanding letters of credit under the New Revolving Credit Facility and unused availability of $1,093.4 million.
As of December 31, 2021, we were in compliance with all of our debt covenants and no event of default had occurred or was ongoing.
Liquidity
A substantial portion of our liquidity needs arise from debt service requirements, and from the ongoing cost of operations, working capital and capital expenditures.
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| Cash and cash equivalents | $ | 2,109.6 | | | $ | 1,750.9 | |
| | | |
| Short-term borrowings and current maturities of long-term debt | $ | 38.8 | | | $ | 40.4 | |
| Long-term debt | 3,401.8 | | | 3,859.1 | |
| Total debt | $ | 3,440.6 | | | $ | 3,899.5 | |
We can increase the borrowing availability under the Senior Secured Credit Facilities by up to $1,600.0 million in the form of additional commitments under the Revolving Credit Facility and/or incremental term loans plus an additional amount so long as we do not exceed a specified senior secured leverage ratio. We can incur additional secured indebtedness under the Senior Secured Credit Facilities if certain specified conditions are met under the credit agreement governing the Senior Secured Credit Facilities. Our liquidity requirements are significant primarily due to debt service requirements. See Note 11 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
Our principal sources of liquidity have been existing cash and cash equivalents, cash generated from operations and borrowings under the Senior Secured Credit Facilities. Our principal uses of cash will be to provide working capital, meet debt service requirements, fund capital expenditures and finance strategic plans, including possible acquisitions. We may also seek to finance capital expenditures under capital leases or other debt arrangements that provide liquidity or favorable borrowing terms. We continue to consider acquisition opportunities, but the size and timing of any future acquisitions and the related potential capital requirements cannot be predicted. In the event that suitable businesses are available for acquisition upon acceptable terms, we may obtain all or a portion of the necessary financing through the incurrence of additional long-term borrowings. We may from time to time, seek to repay loans that we have borrowed, including the borrowings under the Senior Secured Credit Facilities. Based on our current level of operations and available cash, we believe our cash flow from operations, together with availability under the Revolving Credit Facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, debt service requirements and capital spending requirements for the foreseeable future. Our ability to do so depends on, among other factors, prevailing economic conditions, many of which are beyond our control. In addition, upon the occurrence of certain events, such as a change in control, we could be required to repay or refinance our indebtedness. We may not be able to refinance any of our indebtedness, including the Senior Secured Credit Facilities, on commercially reasonable terms or at all. Any future acquisitions, joint ventures, or other similar transactions may require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms or at all.
We may from time to time repurchase shares of our common stock in the open market at prevailing market prices (including through a Rule 10b5-1 plan), in privately negotiated transactions, a combination thereof or through other transactions. The actual timing, number, manner and value of any shares repurchased will depend on several factors, including the market price of our stock, general market and economic conditions, our liquidity requirements, applicable legal requirements and other business considerations.
A substantial portion of our cash is in jurisdictions outside the United States. We do not assert ASC 740-30 (formerly APB 23) indefinite reinvestment of our historical non-U.S. earnings or future non-U.S. earnings. The Company records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the United States. Our deferred income tax liability as of December 31, 2021 is $49.6 million which consists mainly of withholding taxes.
Working Capital
| | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 |
| Net Working Capital | | | |
| Current assets | $ | 4,114.9 | | | $ | 3,862.1 | |
| Less: Current liabilities | 1,467.7 | | | 1,498.6 | |
| Net working capital | $ | 2,647.2 | | | $ | 2,363.5 | |
| | | |
| Operating Working Capital | | | |
| Accounts receivable and contract assets | $ | 1,009.4 | | | $ | 922.2 | |
| Plus: Inventories (excluding LIFO) | 878.6 | | | 707.9 | |
| Less: Accounts payable | 670.5 | | | 536.4 | |
| Less: Contract liabilities | 242.1 | | | 164.6 | |
| Operating working capital | $ | 975.4 | | | $ | 929.1 | |
Net working capital increased $283.7 million to $2,647.2 million as of December 31, 2021 from $2,363.5 million as of December 31, 2020. Operating working capital increased $46.3 million to $975.4 million as of December 31, 2021 from $929.1 million as of December 31, 2020. Operating working capital as of December 31, 2021 was 18.9% of 2021 revenues as compared to 23.4% as of December 31, 2020 as a percentage of 2020 revenues. The increase in operating working capital was primarily due to higher inventories and higher accounts receivable, partially offset by higher accounts payable and higher contract liabilities. The increase in accounts receivable was primarily due to the increase in revenue in the fourth quarter of 2021 compared to the fourth quarter of 2020 and to acquisitions completed in 2021. The increase in inventory was primarily attributable to additions to inventory in anticipation of increased demand for certain products and to acquisitions completed in 2021. The increase in accounts payable was primarily due to the timing of vendor cash disbursements. The increase in contract liabilities was due to the timing of customer milestone payments for in-process engineered to order contracts.
Cash Flows
The following table reflects the major categories of cash flows for the years ended December 31, 2021 and 2020, respectively.
| | | | | | | | | | | |
| |
| 2021 | | 2020 |
| Cash flows provided by (used in) continuing operations: | | | |
| Cash flows provided by operating activities | $ | 627.8 | | | $ | 653.5 | |
| Cash flows used in investing activities | (1,029.4) | | | (31.3) | |
| Cash flows provided by (used in) financing activities | (1,157.0) | | | 328.7 | |
| Net cash provided by discontinued operations | 1,931.4 | | | 254.2 | |
Free cash flow (1) | 563.7 | | | 611.5 | |
(1)See “Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP measure.
Operating activities
Cash provided by operating activities decreased $25.7 million to $627.8 million in 2021 from $653.5 million in 2020, primarily due to changes in accrued liabilities and cash used in operating working capital partially offset by higher income from continuing operations.
Operating working capital used cash of $3.0 million in 2021 compared to generating cash of $171.3 million in 2020. Changes in account receivables used cash of $62.5 million in 2021 compared to generating cash of $52.4 million in 2020. Changes in contract assets used cash of $0.4 million in 2021 compared to using cash of $11.7 million in 2020. Changes in inventory used cash of $134.4 million in 2021 compared to generating cash of $159.0 million in 2020. Changes in accounts payable generated cash of $118.2 million in 2021 compared to using cash of $43.4 million in 2020. Changes in contract liabilities generated cash of $76.1 million in 2021 compared to generating cash of $15.0 million in 2020.
Investing activities
Cash flows used in investing activities included capital expenditures of $64.1 million (1.2% of consolidated revenues) and $42.0 million (1.1% of consolidated revenues) in 2021 and 2020, respectively. We expect capital expenditures will be approximately
2% of consolidated revenues in 2022. Cash acquired (paid) in business combinations was $(974.8) million in 2021 and $9.0 million in 2020. Net proceeds from the disposal of property, plant and equipment were $9.5 million and $1.7 million in 2021 and 2020, respectively.
Financing activities
Cash used in financing activities of $1,157.0 million in 2021 is primarily due to purchases of treasury stock of $736.8 million, repayments of long-term debt of $435.7 million, and cash dividends on common stock of $8.2 million, offset by proceeds from stock option exercises of $23.7 million.
Cash provided by financing activities of $328.7 million in 2020 is primarily due to proceeds from long-term debt of $1,980.1 million, offset by repayments of long-term debt of $1,619.1 million and payments of debt issuance costs of $47.8 million. Also included are proceeds from stock option exercises of $22.7 million and a net usage of cash of $3.0 million related to the purchase and sale of noncontrolling interests of our India subsidiary. See Note 13 “Stockholders’ Equity and Noncontrolling Interests” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
Discontinued Operations
Cash provided by discontinued operations increased $1,677.2 million to $1,931.4 million in 2021 from $254.2 million in 2020, primarily due to proceeds from sale of discontinued operations.
Free cash flow
Free cash flow decreased $47.8 million to $563.7 million in 2021 from $611.5 million in 2020 primarily due to the decrease in cash provided by operating activities discussed above.
Purchase Obligations
Purchase obligations consist primarily of agreements to purchase inventory or services made in the normal course of business to meet operational requirements. As of December 31, 2021, the Company had purchase of obligations of $441.2 million, with $371.5 million payable in the next 12 months. The purchase obligation amounts do not represent the entire anticipated purchases in the future, but represent only those items for which we are contractually obligated as of December 31, 2021. For this reason, these amounts will not provide a complete and reliable indicator of our expected future cash outflows.
Contingencies
We are a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of our size and in our sector. We believe that such proceedings, lawsuits and administrative actions will not materially adversely affect our operations, financial condition, liquidity or competitive position. We have accrued liabilities and other liabilities on our consolidated balance sheet, including a total litigation reserve of $136.9 million as of December 31, 2021 with respect to potential liability arising from our asbestos-related litigation. Other than our asbestos-related litigation reserves, we only have de minimis accrued liabilities and other liabilities on our consolidated balance sheet with respect to other legal proceedings, lawsuits and administrative actions. A more detailed discussion of certain of these proceedings, lawsuits and administrative actions is set forth in “Item 3. Legal Proceedings.”
Critical Accounting Policies
Accounting policies discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. Certain of these policies include estimates and assumptions. These estimates reflect our best judgment about current, and for some estimates, future economic and market conditions and their effect based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of goodwill, intangibles and long-lived assets, increases in reserves for contingencies, establishment of valuation allowances on deferred tax assets and increase in tax liabilities, among other effects. Also see Note 1 “Summary of Significant Accounting Policies” to our audited consolidated financial statements included elsewhere in this Form 10-K, which discusses the significant accounting policies that we have selected from acceptable alternatives.
Business Combinations
We apply the acquisition method of accounting with respect to the identifiable assets and liabilities of a business combination and record the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date. The excess of the
cost of the acquired business and the fair value of the assets acquired and liabilities assumed is recognized as goodwill. Estimates of fair value represent management’s best estimate of assumptions and about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates and customer attrition rates, market comparables and others. Inputs used are generally obtained from historical data supplemented by current and anticipated market conditions and growth rates.
Significant judgment is required in estimating the fair value of identifiable intangible assets and in assigning their respective useful lives. The fair value estimates are based on historical information and on future expectations and assumptions deemed reasonable by management, but which are inherently uncertain. See Note 3 “Business Combinations” to our consolidated financial statements included elsewhere in this Form 10-K for further information regarding the fair value determination of each of the classes of identifiable intangible assets. Determining the useful life of an intangible asset also requires judgment. Certain intangibles are expected to have indefinite lives while certain other identifiable intangible assets have determinable lives. The useful lives of identifiable intangibles with determinable useful lives are based on a variety of factors, including but not limited to, the competitive environment, product cycles, order life cycles, historical customer attrition rates, market share, operating plans and the macroeconomic environment. The costs of determinable-lived intangible assets are amortized to expense over the estimated useful life.
Impairment of Goodwill and Other Identified Intangible Assets
We test goodwill for impairment annually in the fourth quarter of each year using data as of October 1 of that year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Upon adoption of ASU 2019-04, the impairment test consists of comparing the fair value of the reporting unit to the carrying value of the reporting unit. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; provided, the loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit. If applicable, we consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. We determined fair values for all of the reporting units using a combination of the income and market multiples approaches which are weighted 75% and 25%, respectively.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our 2021 reporting unit valuations ranged from 8.5% to 9.5%. Additionally, we assumed 3.0% terminal growth rates for all reporting units, except a single reporting unit in which we determined it most appropriate to assume an 2.0% terminal growth rate due to it being closely aligned to the GDP percentage growth rate.
Under the market multiples approach, fair value is determined based on multiples derived from the stock prices of publicly traded guideline companies to develop a business enterprise value (“BEV”) for our reporting units. The application of the market multiples method entails the development of book value multiples based on the market value of the guideline companies. The multiples are developed by first calculating the market value of equity of the guideline companies and then adjusting these multiples for cash and debt to arrive at a BEV multiple. Identifying appropriate guideline companies and computing appropriate market multiples is subjective. We considered various public companies that had reasonably similar qualitative factors as our reporting units while also considering quantitative factors such as revenue growth, profitability and total assets.
With the exception of one reporting unit formed through a recent acquisition, the estimated fair values of our reporting units were well in excess of their carrying values. The carrying value of the recently-formed reporting unit was approximately equal to its fair value due to the close proximity of the acquisition date to the impairment testing date. The estimated fair values of all other reporting units were at least 47% higher than their carrying values and therefore, no impairments were identified.
We test intangible assets with indefinite lives for impairment annually utilizing a discounted cash flow valuation referred to as the relief from royalty method. We estimated forecasted revenues for a period of five years with discount rates ranging from 9.0% to 10.0%, terminal growth rates of 2.0 % to 3.0%, and royalty rates ranging from 0.5% to 4.0%. As a result of this test, there were no impairments recognized during the year ended December 31, 2021.
We review identified intangible assets with defined useful lives and subject to amortization for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset.
Also see Note 9 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K.
Income Taxes
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available.
The Tax Cuts and Jobs Act, enacted on December 22, 2017, created a new requirement that certain income (i.e., Global intangible low taxed income (“GILTI”)) earned by controlled foreign corporations (“CFC”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.
Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company has determined that it will follow the period cost method (option 1 above) going forward. The tax provision for the year ended December 31, 2021 reflects this decision. All of the additional calculations and rule changes found in the Tax Act have been considered in the tax provision for the year ended December 31, 2021. The Company recorded a tax expense of $11.7 million in 2021 for the GILTI provisions of the Tax Act.
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. Amounts recorded for deferred tax assets related to tax attribute carryforwards, net of valuation allowances, were $38.0 million and $40.7 million as of December 31, 2021 and 2020, respectively, with the decrease related to utilizing the attributes.
Loss Contingencies
Loss contingencies are uncertain and unresolved matters that arise in the ordinary course of business and result from events or actions by others that have the potential to result in a future loss. Such contingencies include, but are not limited to, asbestos and silica related litigation, environmental obligations, litigation, regulatory proceedings, product quality and losses resulting from other events and developments.
When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. In particular, as it relates to estimating asbestos and silica contingencies, there are a number of key variables and assumptions including the number and type of new claims to be filed each year, the resolution or outcome of these claims, the average cost of resolution of each new claim, the amount of insurance available, allocation methodologies, the contractual terms with each insurer with whom we have reached settlements, the resolution of coverage issues with other excess insurance carriers with whom we have not yet achieved settlements and the solvency risk with respect to our insurance carriers. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure is provided.
Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We regularly review all contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on
negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low.
Recent Accounting Pronouncements
See Note 2 “New Accounting Standards” to our audited consolidated financial statements included elsewhere in this Form 10-K for a discussion of recent accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to interest rate risk as a result of our variable-rate borrowings. We manage our exposure to interest rate risk by maintaining a mixture of fixed and variable debt, and from time to time, use pay-fixed interest rate swaps as cash flow hedges of our variable rate debt in order to adjust the relative fixed and variable portions.
As of December 31, 2021, we had variable rate debt outstanding of $3,449.4 million at a current weighted average interest rate of approximately 1.9%, substantially all of which was incurred under our Senior Secured Credit Facility, under which an aggregate of $2,778.1 million was outstanding under the $1,900.0 million Dollar Term Loan B and $927.6 million Dollar Term Loan, as well as €590.6 million outstanding under the €601.2 million Euro Term Loan Facility.
The Dollar Term Loan Facility and the Euro Term Loan Facility bear interest primarily based on LIBOR and EURIBOR, respectively, plus a spread. The Dollar Term Loan Facility is subject to a 0% LIBOR base rate floor and the Euro Term Loan Facility is subject to a 0% EURIBOR base rate floor. Thus, the interest rate on the Dollar Term Loan Facility and the Euro Term Loan Facility will fluctuate when LIBOR or EURIBOR, respectively, exceeds that percentage. As of December 31, 2021, LIBOR was higher than the 0% floor and EURIBOR was lower than the 0% floor.
We use interest rate swaps from time to time to offset our exposure to interest rate movements. These outstanding interest rate swaps qualify and are designated as cash flow hedges of forecasted LIBOR-based interest payments. As of December 31, 2021, we had no fixed-floating interest rate swaps. See Note 19 “Hedging Activities, Derivative Instruments and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.
The following table presents the impact of hypothetical changes in market interest rates across the yield curve by 100 basis points, including the effect of our interest rate swaps for the years ended December 31, 2021 and 2020 on our interest expense.
| | | | | | | | | | | |
| |
| 2021 | | 2020 |
| Increase (decrease) in market interest rates | | | |
| 100 basis points | $ | 30.1 | | | $ | 35.1 | |
(100) basis points(1) | (2.5) | | | (4.7) | |
(1)A decrease in interest rates would not have impacted our interest expense in 2021 or 2020 on EURO debt which was lower than the 0% base rate floor under the Senior Secured Credit Facility for the entire fiscal year 2021 and 2020, but would have impacted interest expense in 2021 and 2020 on LIBOR debt which was higher than the 0% based rate floors under the Senior Secured Credit Facility for the year ended December 31, 2021 and 2020.
Foreign Currency Risk
We are exposed to foreign currency risks that arise from our global business operations. Changes in foreign currency exchange rates affect the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries and transactions denominated in currencies other than a subsidiary’s functional currency. In 2021 and 2020, the relative weakening of the U.S. dollar against foreign currencies had a favorable impact on our revenues and results of operations. While future changes in foreign currency exchange rates are difficult to predict, our revenues and earnings may be adversely affected if the U.S. dollar strengthens against foreign currencies.
We seek to minimize our exposure to foreign currency risks through a combination of normal operating activities, including by conducting our international business operations primarily in their functional currencies to match expenses with revenues and the use of foreign currency forward exchange contracts and net investment hedges. In addition, to mitigate the risk arising from entering into transactions in currencies other than our functional currencies, we typically settle intercompany trading balances at least quarterly.
The table below presents the percentage of revenues and gross profit by functional currency for the years ended December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Dollar | | Euro | | British Pound | | Chinese Renminbi | | Other |
| Year Ended December 31, 2021 | | | | | | | | | |
| Revenues | 41 | % | | 27 | % | | 4 | % | | 16 | % | | 12 | % |
| Gross profit | 42 | % | | 28 | % | | 3 | % | | 17 | % | | 10 | % |
| | | | | | | | | |
| Year Ended December 31, 2020 | | | | | | | | | |
| Revenues | 41 | % | | 29 | % | | 4 | % | | 15 | % | | 11 | % |
| Gross profit | 40 | % | | 30 | % | | 4 | % | | 17 | % | | 9 | % |
We utilize foreign currency denominated debt obligations supplemented from time to time with cross currency interest rate swaps designated as net investment hedges to selectively hedge portions of our investment in non-U.S. subsidiaries. The currency effects of the designated debt obligations and cross currency interest rate swaps are reflected in accumulated other comprehensive income within our stockholders’ equity, where they partially offset the currency translation effects of our investments in non-U.S. subsidiaries, which in turn partially offset gains and losses recorded on our net investments globally. These currency translation effects and offsetting impacts of our derivatives for the years ended December 31, 2021 and 2020 are summarized in Note 14 “Accumulated Other Comprehensive Income (Loss)” to our audited consolidated financial statements included elsewhere in this Form 10-K.
We also enter into foreign currency forward contracts to manage the risk arising from transaction gains and losses associated with intercompany loans with foreign subsidiaries. Our foreign currency forward contracts are typically short-term and are rolled forward as necessary upon settlement. As of December 31, 2021, we were party to five foreign currency forward contracts, all of which are carried on our balance sheet at fair value. See Note 19 “Hedging Activities, Derivative Instruments and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.
The table below presents, for the year ended December 31, 2021, the hypothetical effect of a 10% appreciation in the average exchange rate of the U.S. dollar relative to the principal foreign currencies in which our revenues and gross profit are denominated.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Euro | | British Pound | | Chinese Renminbi |
| Revenues | $ | 140.2 | | | $ | 21.0 | | | $ | 79.9 | |
| Gross profit | 55.2 | | | 6.0 | | | 35.2 | |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INGERSOLL RAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenues | $ | 5,152.4 | | | $ | 3,973.2 | | | $ | 2,017.5 | |
| Cost of sales | 3,163.9 | | | 2,568.3 | | | 1,239.2 | |
| Gross Profit | 1,988.5 | | | 1,404.9 | | | 778.3 | |
| Selling and administrative expenses | 1,028.0 | | | 789.3 | | | 409.6 | |
| Amortization of intangible assets | 332.9 | | | 335.1 | | | 105.3 | |
| Impairment of other intangible assets | — | | | 19.9 | | | — | |
| Other operating expense, net | 61.9 | | | 201.0 | | | 69.3 | |
| Operating Income | 565.7 | | | 59.6 | | | 194.1 | |
| Interest expense | 87.7 | | | 111.1 | | | 88.4 | |
| Loss on extinguishment of debt | 9.0 | | | 2.0 | | | 0.2 | |
| Other income, net | (44.0) | | | (8.1) | | | (4.7) | |
| Income (Loss) Before Income Taxes | 513.0 | | | (45.4) | | | 110.2 | |
| Provision (benefit) for income taxes | (21.8) | | | 11.4 | | | 12.9 | |
| Loss on equity method investments | (11.4) | | | — | | | — | |
| Income (Loss) from Continuing Operations | 523.4 | | | (56.8) | | | 97.3 | |
| Income from discontinued operations, net of tax | 41.6 | | | 24.4 | | | 61.8 | |
| Net Income (Loss) | 565.0 | | | (32.4) | | | 159.1 | |
| Less: Net income attributable to noncontrolling interests | 2.5 | | | 0.9 | | | — | |
| Net Income (Loss) Attributable to Ingersoll Rand Inc. | $ | 562.5 | | | $ | (33.3) | | | $ | 159.1 | |
| | | | | |
| Amounts attributable to Ingersoll Rand Inc. common stockholders: | | | | | |
| Income (loss) from continuing operations, net of tax | $ | 520.9 | | | $ | (57.7) | | | $ | 97.3 | |
| Income from discontinued operations, net of tax | 41.6 | | | 24.4 | | | 61.8 | |
| Net income (loss) attributable to Ingersoll Rand Inc. | $ | 562.5 | | | $ | (33.3) | | | $ | 159.1 | |
| | | | | |
| Basic earnings (loss) per share of common stock: | | | | | |
| Earnings (loss) from continuing operations | $ | 1.26 | | | $ | (0.15) | | | $ | 0.48 | |
| Earnings from discontinued operations | 0.10 | | | 0.06 | | | 0.30 | |
| Net earnings (loss) | 1.36 | | | (0.09) | | | 0.78 | |
| | | | | |
| Diluted earnings (loss) per share of common stock: | | | | | |
| Earnings (loss) from continuing operations | $ | 1.24 | | | $ | (0.15) | | | $ | 0.47 | |
| Earnings from discontinued operations | 0.10 | | | 0.06 | | | 0.30 | |
| Net earnings (loss) | 1.34 | | | (0.09) | | | 0.76 | |
The accompanying notes are an integral part of these consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Comprehensive Income Attributable to Ingersoll Rand Inc. | | | | | |
| Net income (loss) attributable to Ingersoll Rand Inc. | $ | 562.5 | | | $ | (33.3) | | | $ | 159.1 | |
| Other comprehensive income (loss), net of tax: | | | | | |
| Foreign currency translation adjustments, net | (103.0) | | | 268.2 | | | (1.5) | |
| Unrecognized gains on cash flow hedges, net | — | | | 10.9 | | | 7.2 | |
| Pension and other postretirement prior service cost and gain (loss), net | 48.7 | | | (8.9) | | | (6.5) | |
| Other comprehensive income (loss), net of tax | (54.3) | | | 270.2 | | | (0.8) | |
| Comprehensive income attributable to Ingersoll Rand Inc. | $ | 508.2 | | | $ | 236.9 | | | $ | 158.3 | |
| Comprehensive Income (Loss) Attributable to Noncontrolling Interests | | | | | |
| Net income attributable to noncontrolling interests | $ | 2.5 | | | $ | 0.9 | | | $ | — | |
| Other comprehensive loss, net of tax: | | | | | |
| Foreign currency translation adjustments, net | (2.3) | | | (1.4) | | | — | |
| Total other comprehensive loss, net of tax | (2.3) | | | (1.4) | | | — | |
| Comprehensive income (loss) attributable to noncontrolling interests | $ | 0.2 | | | $ | (0.5) | | | $ | — | |
| Total Comprehensive Income | $ | 508.4 | | | $ | 236.4 | | | $ | 158.3 | |
The accompanying notes are an integral part of these consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 2,109.6 | | | $ | 1,750.9 | |
| Accounts receivable, net of allowance for credit losses of $42.3 and $50.9, respectively | 948.6 | | | 861.8 | |
| Inventories | 854.2 | | | 716.7 | |
| Other current assets | 186.9 | | | 195.3 | |
| Assets of discontinued operations - current | 15.6 | | | 337.4 | |
| Total current assets | 4,114.9 | | | 3,862.1 | |
| Property, plant and equipment, net of accumulated depreciation of $357.7 and $291.1, respectively | 648.6 | | | 609.0 | |
| Goodwill | 5,981.6 | | | 5,582.6 | |
| Other intangible assets, net | 3,912.7 | | | 3,797.2 | |
| Deferred tax assets | 28.0 | | | 15.6 | |
| Other assets | 468.7 | | | 329.3 | |
| Assets of discontinued operations - long-term | — | | | 1,862.8 | |
| Total assets | $ | 15,154.5 | | | $ | 16,058.6 | |
| Liabilities and Equity | | | |
| Current liabilities | | | |
| Short-term borrowings and current maturities of long-term debt | $ | 38.8 | | | $ | 40.4 | |
| Accounts payable | 670.5 | | | 536.4 | |
| Accrued liabilities | 741.3 | | | 708.9 | |
| Liabilities of discontinued operations - current | 17.1 | | | 212.9 | |
| Total current liabilities | 1,467.7 | | | 1,498.6 | |
| Long-term debt, less current maturities | 3,401.8 | | | 3,859.1 | |
| Pensions and other postretirement benefits | 195.1 | | | 272.5 | |
| Deferred income taxes | 708.6 | | | 702.4 | |
| Other liabilities | 310.1 | | | 343.7 | |
| Liabilities of discontinued operations - long-term | — | | | 192.8 | |
| Total liabilities | 6,083.3 | | | 6,869.1 | |
| Commitments and contingencies (Note 21) | 0 | | 0 |
| Stockholders’ equity | | | |
| Common stock, $0.01 par value; 1,000,000,000 shares authorized; 423,785,571 and 420,123,978 shares issued as of December 31, 2021 and 2020, respectively | 4.3 | | | 4.2 | |
| Capital in excess of par value | 9,408.6 | | | 9,310.3 | |
| Retained earnings (accumulated deficit) | 378.6 | | | (175.7) | |
| Accumulated other comprehensive income (loss) | (41.6) | | | 14.2 | |
| Treasury stock at cost; 16,000,364 and 1,496,169 shares as of December 31, 2021 and 2020, respectively | (748.4) | | | (33.3) | |
| Total Ingersoll Rand Inc. stockholders’ equity | 9,001.5 | | | 9,119.7 | |
| Noncontrolling interests | 69.7 | | | 69.8 | |
| Total equity | 9,071.2 | | | 9,189.5 | |
| Total liabilities and equity | $ | 15,154.5 | | | $ | 16,058.6 | |
The accompanying notes are an integral part of these consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Capital in Excess of Par Value | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Total Ingersoll Rand Inc. Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares Issued | | Par | | | | | | | |
| Balance at December 31, 2018 | 201.1 | | | $ | 2.0 | | | $ | 2,282.7 | | | $ | (308.7) | | | $ | (247.0) | | | $ | (53.0) | | | $ | 1,676.0 | | | $ | — | | | $ | 1,676.0 | |
| Net income | — | | | — | | | — | | | 159.1 | | | — | | | — | | | 159.1 | | | — | | | 159.1 | |
| Issuance of common stock for stock-based compensation plans | 5.7 | | | 0.1 | | | 34.5 | | | — | | | — | | | — | | | 34.6 | | | — | | | 34.6 | |
| Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | (18.6) | | | (18.6) | | | — | | | (18.6) | |
| Issuance of treasury stock for stock-based compensation plans | — | | | — | | | (26.4) | | | — | | | — | | | 34.8 | | | 8.4 | | | — | | | 8.4 | |
| Stock-based compensation | — | | | — | | | 11.2 | | | — | | | — | | | — | | | 11.2 | | | — | | | 11.2 | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (0.8) | | | — | | | (0.8) | | | — | | | (0.8) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Adoption of new accounting standard (ASU 2018-02) | — | | | — | | | — | | | 8.2 | | | (8.2) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
| Balance at December 31, 2019 | 206.8 | | | $ | 2.1 | | | $ | 2,302.0 | | | $ | (141.4) | | | $ | (256.0) | | | $ | (36.8) | | | $ | 1,869.9 | | | $ | — | | | $ | 1,869.9 | |
| Net income (loss) | — | | | — | | | — | | | (33.3) | | | — | | | — | | | (33.3) | | | 0.9 | | | (32.4) | |
| Issuance of common stock for stock-based compensation plans | 2.3 | | | — | | | 20.1 | | | — | | | — | | | — | | | 20.1 | | | — | | | 20.1 | |
| Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | (2.1) | | | (2.1) | | | — | | | (2.1) | |
| Issuance of treasury stock for stock-based compensation plans | — | | | — | | | (3.2) | | | — | | | — | | | 5.6 | | | 2.4 | | | — | | | 2.4 | |
| Acquisition of Ingersoll Rand Industrial (Note 4) | 211.0 | | | 2.1 | | | 6,934.9 | | | — | | | — | | | — | | | 6,937.0 | | | 73.3 | | | 7,010.3 | |
| Costs of issuing equity securities (Note 4) | — | | | — | | | (1.0) | | | — | | | — | | | — | | | (1.0) | | | — | | | (1.0) | |
| Stock-based compensation | — | | | — | | | 57.5 | | | — | | | — | | | — | | | 57.5 | | | — | | | 57.5 | |
| Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | 270.2 | | | — | | | 270.2 | | | (1.4) | | | 268.8 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Adoption of new accounting standard (ASU 2016-13) | — | | | — | | | — | | | (1.0) | | | — | | | — | | | (1.0) | | | — | | | (1.0) | |
| Adjustments for shares tendered in open offer (Note 13) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14.9) | | | (14.9) | |
| Adjustments for shares sold in offer for sale (Note 13) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 11.9 | | | 11.9 | |
| Balance at December 31, 2020 | 420.1 | | | $ | 4.2 | | | $ | 9,310.3 | | | $ | (175.7) | | | $ | 14.2 | | | $ | (33.3) | | | $ | 9,119.7 | | | $ | 69.8 | | | $ | 9,189.5 | |
| Net income | — | | | — | | | — | | | 562.5 | | | — | | | — | | | 562.5 | | | 2.5 | | | 565.0 | |
| Dividends declared | — | | | — | | | — | | | (8.2) | | | — | | | — | | | (8.2) | | | — | | | (8.2) | |
| Issuance of common stock for stock-based compensation plans | 3.7 | | | 0.1 | | | 20.3 | | | — | | | — | | | — | | | 20.4 | | | — | | | 20.4 | |
| Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | (736.8) | | | (736.8) | | | — | | | (736.8) | |
| Issuance of treasury stock for stock-based compensation plans | — | | | — | | | (19.9) | | | — | | | — | | | 21.7 | | | 1.8 | | | — | | | 1.8 | |
| Stock-based compensation | — | | | — | | | 97.9 | | | — | | | — | | | — | | | 97.9 | | | — | | | 97.9 | |
| Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (54.3) | | | — | | | (54.3) | | | (2.3) | | | (56.6) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Divestiture of foreign subsidiaries | — | | | — | | | — | | | — | | | (1.5) | | | — | | | (1.5) | | | — | | | (1.5) | |
| Dividends attributable to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (0.3) | | | (0.3) | |
| Balance at December 31, 2021 | 423.8 | | | $ | 4.3 | | | $ | 9,408.6 | | | $ | 378.6 | | | $ | (41.6) | | | $ | (748.4) | | | $ | 9,001.5 | | | $ | 69.7 | | | $ | 9,071.2 | |
INGERSOLL RAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cash Flows From Operating Activities | | | | | |
| Net income (loss) | $ | 565.0 | | | $ | (32.4) | | | $ | 159.1 | |
| Income from discontinued operations, net of tax | 41.6 | | | 24.4 | | | 61.8 | |
| Income (loss) from continuing operations | 523.4 | | | (56.8) | | | 97.3 | |
| Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities from continuing operations: | | | | | |
| Amortization of intangible assets | 332.9 | | | 335.1 | | | 105.3 | |
| Depreciation | 89.2 | | | 77.4 | | | 41.2 | |
| Impairment of other intangible assets | — | | | 19.9 | | | — | |
| Non-cash restructuring charges | 1.1 | | | 6.2 | | | 0.4 | |
| Stock-based compensation expense | 87.2 | | | 47.5 | | | 18.7 | |
| Loss on equity method investments | 11.4 | | | — | | | — | |
| Foreign currency transaction losses (gains), net | (12.0) | | | 18.6 | | | 7.3 | |
| Loss on extinguishment of debt | 9.0 | | | 2.0 | | | 0.2 | |
| Non-cash adjustments to carrying value of LIFO inventories | 33.2 | | | 39.8 | | | 0.2 | |
| Deferred income taxes | (103.6) | | | (83.1) | | | (21.3) | |
| Other non-cash adjustments | (0.2) | | | — | | | 0.8 | |
| Changes in assets and liabilities | | | | | |
| Receivables | (62.5) | | | 52.4 | | | (14.5) | |
| Inventories | (134.4) | | | 159.0 | | | 27.4 | |
| Accounts payable | 118.2 | | | (43.4) | | | 44.2 | |
| Accrued liabilities | (220.0) | | | 115.7 | | | (25.0) | |
| Other assets and liabilities, net | (45.1) | | | (36.8) | | | (58.7) | |
| Net cash provided by operating activities from continuing operations | 627.8 | | | 653.5 | | | 223.5 | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures | (64.1) | | | (42.0) | | | (37.9) | |
| Net cash (paid) acquired in business combinations | (974.8) | | | 9.0 | | | (12.0) | |
| Disposals of property, plant and equipment | 9.5 | | | 1.7 | | | 0.4 | |
| Net cash used in investing activities from continuing operations | (1,029.4) | | | (31.3) | | | (49.5) | |
| Cash Flows From Financing Activities | | | | | |
| Principal payments on long-term debt | (435.7) | | | (1,619.1) | | | (32.6) | |
| Proceeds from long-term debt | — | | | 1,980.1 | | | — | |
| Cash dividends on common stock | (8.2) | | | — | | | — | |
| Purchases of treasury stock | (736.8) | | | (2.1) | | | (18.6) | |
| Proceeds from stock option exercises | 23.7 | | | 22.7 | | | 42.7 | |
| Payments of debt issuance costs | — | | | (47.8) | | | (0.5) | |
| Purchase of shares from noncontrolling interests | — | | | (14.9) | | | — | |
| Proceeds from sale of noncontrolling interests | — | | | 11.9 | | | — | |
| Other financing | — | | | (2.1) | | | (1.3) | |
| Net cash (used in) provided by financing activities from continuing operations | (1,157.0) | | | 328.7 | | | (10.3) | |
| Cash Flows From Discontinued Operations: | | | | | |
| Net cash provided by (used in) operating activities | (12.3) | | | 260.8 | | | 119.8 | |
| Net cash provided by (used in) investing activities | 1,943.7 | | | (6.6) | | | (4.8) | |
| Net cash used in financing activities | — | | | — | | | (1.2) | |
| Net cash provided by discontinued operations | 1,931.4 | | | 254.2 | | | 113.8 | |
| Effect of exchange rate changes on cash and cash equivalents | (14.1) | | | 40.3 | | | 6.8 | |
| Net increase in cash and cash equivalents | 358.7 | | | 1,245.4 | | | 284.3 | |
| Cash and cash equivalents, beginning of year | 1,750.9 | | | 505.5 | | | 221.2 | |
| Cash and cash equivalents, end of year | $ | 2,109.6 | | | $ | 1,750.9 | | | $ | 505.5 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Supplemental Cash Flow Information | | | | | |
| Cash paid for income taxes | $ | 427.9 | | | $ | 106.3 | | | $ | 61.6 | |
| Cash paid for interest | 79.8 | | | 98.7 | | | 85.6 | |
| | | | | |
| | | | | |
| Capital expenditures in accounts payable | 3.5 | | | 4.0 | | | 4.8 | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
INGERSOLL RAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share amounts)
Note 1: Summary of Significant Accounting Policies
Overview and Basis of Presentation
Ingersoll Rand Inc. is a global market leader with a broad range of innovative and mission-critical air, fluid, energy, specialty vehicle and medical technologies, providing services and solutions to increase industrial productivity and efficiency. The accompanying consolidated financial statements include the accounts of Ingersoll Rand Inc. and its consolidated subsidiaries (collectively referred to herein as “Ingersoll Rand” or the “Company”).
On February 29, 2020, Ingersoll Rand Inc. (formerly known as Gardner Denver Holdings, Inc.) completed the acquisition of the Ingersoll Rand Industrial business (“Ingersoll Rand Industrial”) by way of merger and changed its name from Gardner Denver Holdings, Inc. to Ingersoll Rand Inc. The consolidated financial statements as of and for the year ended December 31, 2020 include the financial results of Ingersoll Rand Industrial from the date of acquisition.
Principles of Consolidation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The Company regularly evaluates the estimates and assumptions related to the allowance for credit losses, inventory valuation, warranty reserves, fair value of stock-based awards, goodwill, intangible asset, and long-lived asset valuations, employee benefit plan liabilities, over time revenue recognition, income tax liabilities and deferred tax assets and related valuation allowances, uncertain tax positions, restructuring reserves, and litigation and other loss contingencies. Actual results could differ materially and adversely from those estimates and assumptions, and such results could affect the Company’s consolidated net income, financial position, or cash flows.
Foreign Currency Translation
Assets and liabilities of the Company’s foreign subsidiaries, where the functional currency is not the U.S. Dollar (“USD”), are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the year. Adjustments resulting from the translation of the assets and liabilities of foreign operations into USD are excluded from the determination of net income (loss), and are reported in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, and included as a component of other comprehensive income (loss). Assets and liabilities of subsidiaries that are denominated in currencies other than the subsidiaries’ functional currency are remeasured into the functional currency using end of period exchange rates, or historical rates for certain balances, where applicable. Gains and losses related to these remeasurements are recorded within the Consolidated Statements of Operations as a component of “Other operating expense, net.”
Revenue Recognition
The Company recognizes revenue when the Company has satisfied its obligation and control is transferred to the customer. The majority of the Company’s revenues are derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or services have been rendered. The Company also has certain contracts in which revenue is recognized over time based on the Company’s progress in satisfying the contractual performance obligations. See Note 15 “Revenue from Contracts with Customers” for additional information regarding revenue recognition.
Cost of Sales
Cost of sales includes the costs the Company incurs, including purchased materials, labor and overhead related to manufactured products and aftermarket parts sold during a period. Depreciation related to manufacturing equipment and facilities is included in cost of sales. Purchased materials represent the majority of costs of sales, with steel, aluminum, copper and partially finished
castings representing the most significant materials inputs. Cost of sales for services includes the direct costs the Company incurs including direct labor, parts and other overhead costs including depreciation of equipment and facilities to deliver repair, maintenance, and other field services to the Company’s customers.
Selling and Administrative Expenses
Selling and administrative expenses consist of (i) employee related salary, stock-based compensation expense, benefits and other expenses for selling, administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; (ii) the costs of marketing and direct costs of selling products and services to customers including internal and external sales commissions; (iii) facilities costs including office rent, maintenance, depreciation, and insurance for selling and administrative activities; (iv) research and development expenditures; (v) professional and consultant fees; and (vi) other miscellaneous expenses.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments primarily consisting of demand deposits and have original maturities of three months or less. Accordingly, the carrying amount of such instruments is considered a reasonable estimate of fair value. As of December 31, 2021 and 2020, cash of $2.5 million and $3.1 million, respectively, was pledged to financial institutions as collateral to support the issuance of standby letters of credit and similar instruments on behalf of the Company.
Accounts Receivable
Trade accounts receivable consist of amounts owed for products shipped to or services performed for customers. Reviews of customers’ creditworthiness are performed prior to order acceptance or order shipment.
Trade accounts receivable are recorded net of an allowance for expected credit losses. The allowance for credit losses is based on the Company’s assessment of losses that will result from its customers’ inability or unwillingness to pay amounts owed to the Company. The allowance is determined using a combination of factors, including historical credit loss experience and the length of time that the trade receivables are past due, supplemented by the Company’s knowledge of customer-specific information, current market conditions and reasonable and supportable forecasts of future events and economic conditions.
Inventories
Inventories, which consist primarily of raw materials and finished goods, are carried at the lower of cost or net realizable value. Fixed manufacturing overhead is allocated to the cost of inventory based on the normal capacity of production facilities. Unallocated overhead during periods of abnormally low production levels is recognized as cost of sales in the period in which it is incurred.
Property, Plant and Equipment
Property, plant and equipment includes the historical cost of land, buildings, equipment, and significant improvements to existing plant and equipment or in the case of acquisitions, a fair market value of assets at the time of acquisition. Repair and maintenance costs that do not extend the useful life of an asset are recorded as an expense as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are generally as follows: buildings — 10 to 30 years, machinery and equipment — 7 to 10 years, and office furniture and equipment — 3 to 10 years.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired, liabilities assumed, and non-controlling interests, if any. Intangible assets, including goodwill, are assigned to the Company’s reporting units based upon their fair value at the time of acquisition. Goodwill and indefinite-lived intangibles such as tradenames are not subject to amortization but are assessed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired or that there is a probable reduction in the fair value of a reporting unit below its aggregate carrying value.
The Company tests goodwill for impairment annually in the fourth quarter of each year using data as of October 1 of that year and whenever events or changes in circumstances indicate the carrying value may not be recoverable. The impairment test consists of comparing the fair value of the reporting unit to the carrying value of the reporting unit. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; provided, the loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit. If applicable, the Company considers income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment
loss. The Company determined fair values for each of the reporting units using a combination of the income and market multiple approaches which are weighted 75% and 25%, respectively.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company uses its internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on its most recent views of the long-term outlook for each reporting unit. Actual results may differ from those assumed in the Company’s forecasts. The Company derives its discount rates using a capital asset pricing model and analyzing published rates for industries relevant to its reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in its internally developed forecasts. Under the market approach, the Company applies performance multiples from comparable public companies, adjusted for relative risk, profitability, and growth considerations, to the reporting units to estimate fair value.
The Company tests intangible assets with indefinite lives annually for impairment using a relief from royalty discounted cash flow fair value model. The quantitative impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The relief from royalty method requires the Company to estimate forecasted revenues and determine appropriate discount rates, royalty rates, and terminal growth rates.
See Note 9 “Goodwill and Other Intangible Assets” for additional information related to impairment testing for goodwill and other intangible assets.
Long-Lived Assets Including Intangible Assets With Finite Useful Lives
Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives, which vary depending on the type of intangible assets. In determining the estimated useful lives of definite-lived intangibles, we consider the nature, competitive position, life cycle position and historical and expected future operating cash flows of each acquired assets, as well as our commitment to support these assets through continued investment and legal infringement protection.
The Company reviews long-lived assets, including identified intangible assets with finite useful lives and subject to amortization for impairment, whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. Such events and circumstances include the occurrence of an adverse change in the market involving the business employing the related long-lived assets or a situation in which it is more likely than not that the Company will dispose of such assets. If the comparison indicates that there is impairment, the impairment loss to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying amount of the assets exceeds their fair value and the impaired assets are written down to their fair value or, if fair value is not readily determinable, to an estimated fair value based on discounted expected future cash flows. Assets to be disposed are reported at the lower of the carrying amount or fair value, less costs to dispose.
Warranty Reserves
Most of the Company’s product sales are covered by warranty provisions that generally provide for the repair or replacement of qualifying defective items for a specified period after the time of sale, typically 12 months. The Company establishes reserves for estimated product warranty costs at the time revenue is recognized based upon historical warranty experience and additionally for any known product warranty issues. The Company’s warranty obligation has been and may in the future be affected by product failure rates, repair or field replacement costs, and additional costs incurred in correcting any product failure.
Stock-Based Compensation
Stock-based compensation is measured for all stock-based equity awards made to employees and non-employee directors based on the estimated fair value as of the grant date. The determination of the fair values of stock-based awards at the grant date requires judgment, including estimating the expected term of the relevant stock-based payment awards and the expected volatility of the Company’s stock. The fair value of each stock option grant under the stock-based compensation plans is estimated on the date of grant or modification using the Black-Scholes-Merton option-pricing model. The expected stock volatility assumption was based on an average of the historical volatility over the expected term of the stock options. Forfeitures of stock options are accounted for as they occur. Restricted stock units are valued at the share price on the date of grant.
See Note 18 “Stock-Based Compensation Plans” for additional information regarding the Company’s equity compensation plans.
Pension and Other Postretirement Benefits
The Company sponsors a number of pension plans and other postretirement benefit plans worldwide. The calculation of the pension and other postretirement benefit obligations and net periodic benefit cost under these plans requires the use of actuarial valuation methods and assumptions. These assumptions include the discount rates used to value the projected benefit obligations, future rate of compensation increases, expected rates of return on plan assets and expected healthcare cost trend rates. The discount rates selected to measure the present value of the Company’s benefit obligations as of December 31, 2021 and 2020 were derived by examining the rates of high-quality, fixed income securities whose cash flows or duration match the timing and amount of expected benefit payments under the plans. In accordance with GAAP, actual results that differ from the Company’s assumptions are recorded in accumulated other comprehensive income (loss) and amortized through net periodic benefit cost over future periods. While management believes that the assumptions are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension and other postretirement benefit obligations and future net periodic benefit cost.
See Note 12 “Benefit Plans” for disclosures related to the Company’s benefit plans, including quantitative disclosures reflecting the impact that changes in certain assumptions would have on service and interest costs and benefit obligations.
Income Taxes
The Company has determined income tax expense and other deferred income tax information based on the asset and liability method. Deferred income taxes are provided on temporary differences between assets and liabilities for financial and tax reporting purposes as measured by enacted tax rates expected to apply when temporary differences are settled or realized. A valuation allowance is established for the portion of deferred tax assets for which it is not more likely than not that a tax benefit will be realized.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company believes that its income tax liabilities, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in income tax expense and, therefore, could have a material impact on the Company’s tax provision, net income, and cash flows. The Company reviews its liabilities quarterly, and may adjust such liabilities due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning transfer prices, the resolution of audits, or the expiration of statutes of limitations. Adjustments are most likely to occur in the year during which major audits are closed.
The Tax Cuts and Jobs Act, enacted on December 22, 2017, created a new requirement that certain income (i.e., Global intangible low taxed income (“GILTI”)) earned by controlled foreign corporations (“CFC”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.
Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company has determined that it will follow the period cost method (option 1 above) going forward. The tax provision for the year ended December 31, 2021 reflects this decision. All of the additional calculations and rule changes found in the Tax Act have been considered in the tax provision for the year ended December 31, 2021. The Company recorded a tax expense of $11.7 million in 2021 for the GILTI provisions of the Tax Act.
Research and Development
For the years ended December 31, 2021, 2020 and 2019, the Company spent approximately $74 million, $58 million, and $22 million, respectively, on research activities relating to the development of new products and new product applications. All such expenditures were funded by the Company, expensed as incurred and recorded to “Selling and administrative expenses” in the Consolidated Statements of Operations.
Derivative Financial Instruments
All derivative financial instruments are reported on the balance sheet at fair value. For derivative instruments that are not designated as hedges, any gain or loss on the derivatives is recognized in earnings in the current period. A derivative instrument may be designated as a hedge of the exposure to: (1) changes in the fair value of an asset, liability, or firm commitment, or (2) variability in expected future cash flows, if the hedging relationship is expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk during the period of designation or as a hedge of a net investment in a foreign operation. If a derivative is designated as a fair value hedge, the gain or loss on the derivative and the offsetting loss or gain on the hedged asset, liability, or firm commitment are recognized in earnings. For derivative instruments designated as a cash flow hedge or an eligible net investment in a foreign operation, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified to earnings in the same period that the hedged transaction affects earnings. The ineffective portion of the gain or loss is immediately recognized in earnings. Gains or losses on derivative instruments recognized in earnings are reported in the same line item as the associated hedged transaction in the Consolidated Statements of Operations.
Hedge accounting is discontinued prospectively when (1) it is determined that a derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative is sold, terminated, or exercised; (3) the hedged item no longer meets the definition of a firm commitment; or (4) it is unlikely that a forecasted transaction will occur within two months of the originally specified time period.
When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative continues to be carried on the balance sheet at its fair value, and the changes in the fair value of the hedged asset or liability is recorded to the Consolidated Statements of Operations. When cash flow hedge accounting is discontinued because the derivative is sold, terminated, or exercised, the net gain or loss remains in accumulated other comprehensive income and is reclassified into earnings in the same period that the hedged transaction affects earnings or until it becomes unlikely that a hedged forecasted transaction will occur within two months of the originally scheduled time period. When hedge accounting is discontinued because a hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the Consolidated Balance Sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the balance sheet and recognized as a gain or loss currently in earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur within two months of the originally specified time period, the derivative continues to be carried on the balance sheet at its fair value, and gains and losses reported in accumulated other comprehensive income are recognized immediately in the Consolidated Statements of Operations.
Comprehensive Income
The Company’s comprehensive income consists of net income (loss) and other comprehensive income (loss), consisting of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations; (ii) realized and unrealized foreign currency gains and losses on intercompany notes of a long-term nature and hedges of net investments in foreign operations, net of income taxes; (iii) unrealized gains and losses on cash flow hedges, net of income taxes; and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes. See Note 14 “Accumulated Other Comprehensive Income (Loss).”
Restructuring Charges
The Company incurs costs in connection with workforce reductions, facility consolidations and other actions. Such costs include employee termination benefits (one-time arrangements and benefits attributable to prior service), termination of contractual obligations, non-cash asset charges and other direct incremental costs.
A liability is established through a charge to operations for (i) one-time employee termination benefits when management commits to a plan of termination; (ii) employee termination benefits that accumulate or vest based on prior service when it becomes probable that such termination benefits will be paid and the amount of the payment can be reasonably estimated; and (iii) contract termination costs when the contract is terminated or the Company becomes contractually obligated to make such payment. Other direct incremental costs are charged to operations as incurred.
Charges recorded in connection with restructuring plans are included in “Other operating expense, net” in the Consolidated Statements of Operations.
Business Combinations
The Company accounts for business combinations by applying the acquisition method. The Company’s consolidated financial statements include the operating results of acquired entities from the respective dates of acquisition. The Company recognizes and measures the identifiable assets acquired, liabilities assumed, and any non-controlling interest as of the acquisition date at fair value. The excess, if any, of total consideration transferred in a business combination over the fair value of identifiable assets acquired, liabilities assumed, and any non-controlling interest is recognized as goodwill in the Consolidated Balance Sheets. Costs incurred by the Company to effect a business combination other than costs related to the issuance of debt or equity securities are included in the Consolidated Statements of Operations in the period the costs are incurred.
Earnings per Share
The calculation of earnings per share (“EPS”) is based on the weighted-average number of the Company’s shares outstanding for the applicable period. The calculation of diluted earnings per share reflects the effect of all dilutive potential shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive. The Company uses the treasury stock method to calculate the effect of outstanding share-based compensation awards.
Note 2: New Accounting Standards
Adopted Accounting Standard Updates (“ASU”)
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for a limited time to ease the potential burden of accounting for reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates. The guidance is effective beginning on March 12, 2020 through December 31, 2022. The Company has not utilized any of the optional expedients or exceptions available under this ASU. The Company will continue to assess whether this ASU is applicable throughout the effective period.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and amending and clarifying existing guidance. The guidance is effective for public companies beginning with the first quarter of 2021. Early adoption is permitted. The Company adopted this guidance on January 1, 2021. The adoption did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which explicitly clarifies which contracts, hedging relationships, and other transactions are within the scope of the optional expedients and exceptions allowed under Topic 848. The Company has not utilized any of the optional expedients or exceptions available under Topic 848. The Company will continue to assess whether this ASU is applicable through December 31, 2022, in conjunction with our assessment of ASU 2020-4.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amendments in this update are effective for fiscal years beginning after December 15, 2022 for public companies. Early adoption is permitted. The adoption is not expected to have a material impact on our consolidated financial statements.
Note 3: Discontinued Operations
Discontinued operations comprise 2 formerly-owned businesses, Specialty Vehicle Technologies (“SVT” or “Club Car”) and High Pressure Solutions (“HPS”). The results of operations, financial positions and cash flows of these businesses are reported as discontinued operations for all periods presented in these consolidated financial statements.
Specialty Vehicle Technologies
On April 9, 2021, the Company entered into an agreement to sell Club Car to private equity firm Platinum Equity Advisors, LLC (“Platinum Equity”) for $1.68 billion in cash. The sale was substantially completed on June 1, 2021.
SVT is presented as a discontinued operation and its net assets are classified as held for sale for all periods presented.
The Company recognized a pre-tax gain on sale of $298.3 million for the year ended December 31, 2021.
High Pressure Solutions
On February 14, 2021, the Company entered into an agreement to sell its majority interest in High Pressure Solutions to private equity firm American Industrial Partners. In exchange for its majority interest of 55%, the Company received net cash proceeds of $278.3 million and retained a 45% common equity interest in the newly-formed entity comprising the HPS business. The Company expects to maintain this minority investment indefinitely and is unable to estimate when this interest may be disposed. This sale was substantially completed on April 1, 2021.
HPS is presented as a discontinued operation and its net assets are classified as held for sale for all periods presented.
The Company recognized a pre-tax loss on sale of $207.7 million for the year ended December 31, 2021.
Financial information of discontinued operations
The results of operations of SVT and HPS are presented as discontinued operations for the years ended December 31, 2021, 2020 and 2019 as summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Specialty Vehicle Technologies | | High Pressure Solutions | | Total |
| |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Revenues | $ | 430.9 | | | $ | 741.4 | | | $ | — | | | $ | 71.9 | | | $ | 195.6 | | | $ | 434.4 | | | $ | 502.8 | | | $ | 937.0 | | | $ | 434.4 | |
| Cost of sales | 321.3 | | | 564.6 | | | — | | | 60.2 | | | 163.9 | | | 301.0 | | | 381.5 | | | 728.5 | | | 301.0 | |
| Gross Profit | 109.6 | | | 176.8 | | | — | | | 11.7 | | | 31.7 | | | 133.4 | | | 121.3 | | | 208.5 | | | 133.4 | |
| Selling and administrative expenses | 35.7 | | | 63.0 | | | — | | | 5.3 | | | 42.5 | | | 26.8 | | | 41.0 | | | 105.5 | | | 26.8 | |
| Amortization of intangible assets | 10.4 | | | 37.1 | | | — | | | 2.4 | | | 23.6 | | | 19.0 | | | 12.8 | | | 60.7 | | | 19.0 | |
| Loss (gain) on sale | (298.3) | | | — | | | — | | | 207.7 | | | — | | | — | | | (90.6) | | | — | | | — | |
| Other operating expense, net | 18.1 | | | 1.7 | | | — | | | 19.0 | | | 14.5 | | | 6.4 | | | 37.1 | | | 16.2 | | | 6.4 | |
| Operating Income (Loss) | 343.7 | | | 75.0 | | | — | | | (222.7) | | | (48.9) | | | 81.2 | | | 121.0 | | | 26.1 | | | 81.2 | |
| Interest expense | — | | | — | | | — | | | — | | | — | | | 0.5 | | | — | | | — | | | 0.5 | |
| | | | | | | | | | | | | | | | | |
| Other expense, net | — | | | — | | | — | | | — | | | 0.1 | | | — | | | — | | | 0.1 | | | — | |
| Income (Loss) from Discontinued Operations Before Income Taxes | 343.7 | | | 75.0 | | | — | | | (222.7) | | | (49.0) | | | 80.7 | | | 121.0 | | | 26.0 | | | 80.7 | |
| Provision (benefit) for income taxes | 87.1 | | | 12.9 | | | — | | | (7.7) | | | (11.3) | | | 18.9 | | | 79.4 | | | 1.6 | | | 18.9 | |
| Income (Loss) from Discontinued Operations, Net of Tax | $ | 256.6 | | | $ | 62.1 | | | $ | — | | | $ | (215.0) | | | $ | (37.7) | | | $ | 61.8 | | | $ | 41.6 | | | $ | 24.4 | | | $ | 61.8 | |
The carrying value of major classes of assets and liabilities related to SVT and HPS that were included in discontinued operations at December 31, 2021 and December 31, 2020 are shown in the table below. Long-term assets and liabilities as of December 31, 2021 have been reclassified as current in the Consolidated Balance Sheets.
| | | | | | | | | | | |
| December 31, 2021(1) | | December 31, 2020(2) |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 6.2 | | | $ | — | |
| Accounts receivable, net | 2.5 | | | 104.8 | |
| Inventories | 5.6 | | | 226.9 | |
| Other current assets | 0.1 | | | 5.7 | |
| Total current assets | 14.4 | | | 337.4 | |
| Property, plant and equipment, net | 1.2 | | | 188.3 | |
| Goodwill | — | | | 721.0 | |
| Other intangible assets, net | — | | | 935.4 | |
| Deferred tax assets | — | | | 0.5 | |
| Other assets | — | | | 17.6 | |
| Total non-current assets | 1.2 | | | 1,862.8 | |
| | | |
| | | |
| Total assets | $ | 15.6 | | | $ | 2,200.2 | |
| | | |
| Liabilities | | | |
| Current liabilities: | | | |
| | | |
| Accounts payable | $ | 2.2 | | | $ | 134.7 | |
| Accrued liabilities | 14.9 | | | 78.2 | |
| Total current liabilities | 17.1 | | | 212.9 | |
| | | |
| Pensions and other postretirement benefits | — | | | 2.5 | |
| Deferred income taxes | — | | | 173.3 | |
| Other liabilities | — | | | 17.0 | |
| Total non-current liabilities | — | | | 192.8 | |
| Total liabilities | $ | 17.1 | | | $ | 405.7 | |
(1)Relates to certain non-U.S. subsidiaries for which legal ownership of assets has not yet transferred.
(2)Total assets and total liabilities related to SVT were $1,512.7 million and $354.1 million, respectively, at December 31, 2020.
The significant non-cash operating items and capital expenditures reflected in cash flows of discontinued operations for the years ended December 31, 2021, 2020 and 2019 include the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Specialty Vehicle Technologies | | High Pressure Solutions | | Total |
| |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Loss (gain) on sale | $ | (298.3) | | | $ | — | | | $ | — | | | $ | 207.7 | | | $ | — | | | $ | — | | | $ | (90.6) | | | $ | — | | | $ | — | |
| Depreciation and amortization | 14.8 | | | 51.5 | | | — | | | 4.0 | | | 36.9 | | | 31.6 | | | 18.8 | | | 88.4 | | | 31.6 | |
| Stock-based compensation expense | 8.2 | | | 3.0 | | | — | | | 2.7 | | | 0.8 | | | 0.5 | | | 10.9 | | | 3.8 | | | 0.5 | |
| Capital expenditures | 1.6 | | | 3.1 | | | — | | | 0.3 | | | 3.6 | | | 5.3 | | | 1.9 | | | 6.7 | | | 5.3 | |
Note 4: Business Combinations
2021 Acquisitions
The Company acquired multiple businesses during the year ended December 31, 2021. Pro forma information has not been provided as the acquisitions did not have a material impact on the Company’s Consolidated Statements of Operations individually or in the aggregate. The revenues and operating income of each of the acquisitions below are included in the Company’s consolidated financial statements from the acquisition date.
On January 31, 2021, the Company acquired the Vacuum and Blower Systems division of Tuthill Corporation for cash consideration of $184.0 million. The business operates under the tradenames M-D Pneumatics and Kinney Vacuum Pumps and is a leader in the design and manufacture of positive displacement blowers, mechanical vacuum pumps, vacuum boosters and engineered blower and vacuum systems. The acquisition is intended to expand the product portfolio of the Industrial Technologies and Services segment with complementary technologies and applications. The goodwill arising from the acquisition is attributable to the expected cost synergies, anticipated growth of new and existing customers, and the assembled workforce. The goodwill resulting from this acquisition is expected to be deductible for tax purposes.
On July 30, 2021, the Company acquired Maximus Solutions for cash consideration of $111.0 million, net of cash acquired. The business is a provider of digital controls and Industrial Internet of Things (IIoT) production management systems for the agritech software and controls market. The acquisition is intended to expand product and service offerings of the Precision and Science Technologies segment into attractive end markets and contribute to growth in digital and connected solutions. The goodwill arising from the acquisition is attributable to synergies expected from building on Maximus’s expertise in digital controls and IIoT systems and from anticipated growth from existing and new customers. None of this goodwill is expected to be deductible for tax purposes.
On August 31, 2021, the Company acquired Seepex GmbH (“Seepex”) for cash consideration of $482.1 million, net of cash acquired. Seepex is a global leader in progressive cavity pump solutions. The acquisition expands the product portfolio of the Precision and Science Technologies segment with offerings that primarily serve the water, wastewater, food and beverage, and chemical end markets. The goodwill arising from the acquisition is attributable to the expected cost synergies, anticipated growth of new and existing customers, and the assembled workforce. None of this goodwill is expected to be deductible for tax purposes.
On October 29, 2021, the Company acquired Air Dimensions Inc. for cash consideration of $70.6 million. The business designs, manufactures and sells vacuum diaphragm pumps primarily for environmental applications. The acquisition is intended to expand the product portfolio of the Precision and Science Technologies segment and further penetrate end markets such as emission monitoring, biogas, utility and chemical processing. The goodwill arising from the acquisition is attributable to growth expected from product and channel synergies and to the assembled workforce. The goodwill resulting from this acquisition is expected to be deductible for tax purposes.
On December 1, 2021, the Company acquired the assets of Tuthill Corporation’s Pump Group for cash consideration of $85.5 million. The business is a market leader in gear and piston pump solutions. The acquisition is intended to complement existing brands and technologies in the Precision and Science Technologies segment and further penetrate high growth end markets, including life and sciences, food and beverage, medical and water and wastewater treatment. The goodwill arising from the acquisition is attributable to revenue growth and cost savings opportunities and to the assembled workforce. The majority of the goodwill resulting from this acquisition is expected to be deductible for tax purposes.
Other acquisitions completed during the year ended December 31, 2021 include multiple sales and service businesses and a manufacturer of air purity analysis equipment in the Industrial Technologies and Services segment and a pump technology business in the Precision and Science Technologies segment. The aggregate consideration for these acquisitions was $44.6 million.
The following table summarizes the allocation of consideration to the fair values of identifiable assets acquired and liabilities assumed at the acquisition date. The initial accounting for these acquisitions is substantially complete. Any further adjustments during the measurement period are not expected to be material.
| | | | | | | | | | | | | | | | | | | | | | | |
| Seepex | | M-D Pneumatics and Kinney Vacuum Pumps | | Maximus Solutions | | All Others |
| Accounts receivable | $ | 24.9 | | | $ | 4.8 | | | $ | 4.3 | | | 9.3 | |
| Inventories | 40.5 | | | 3.8 | | | 2.9 | | | 10.5 | |
| Other current assets | 1.9 | | | 0.2 | | | 0.2 | | | 0.6 | |
| Property, plant and equipment | 40.7 | | | 16.2 | | | 2.1 | | | 15.2 | |
| Goodwill | 245.3 | | | 80.0 | | | 75.7 | | | 78.3 | |
| Intangible assets | 243.6 | | | 82.5 | | | 39.5 | | | 95.9 | |
| Other noncurrent assets | 1.1 | | | — | | | — | | | — | |
| Total current liabilities | (34.4) | | | (3.5) | | | (2.4) | | | (4.0) | |
| Deferred tax liabilities | (75.4) | | | — | | | (11.3) | | | (4.1) | |
| Other noncurrent liabilities | (6.1) | | | — | | | — | | | (1.0) | |
| Total consideration | $ | 482.1 | | | $ | 184.0 | | | $ | 111.0 | | | 200.7 | |
Acquisition Revenues and Operating Income
The revenue and operating income (loss) included in the financial statements for these acquisitions subsequent to their acquisition date was $145.9 million and $(4.5) million, respectively, for the year ended December 31, 2021.
Ingersoll Rand Industrial Acquisition
On February 29, 2020, Ingersoll Rand (formerly Gardner Denver Holdings, Inc.) completed the acquisition of and merger with Ingersoll Rand Industrial in exchange for non-cash consideration comprising the following:
| | | | | | | | | | | |
| Fair value of Ingersoll Rand common stock issued for Ingersoll Rand Industrial outstanding common stock | | | | | $ | 6,919.5 | |
| Fair value attributable to pre-merger service for replacement equity awards | | | | | 8.6 | |
| Fair value attributable to pre-merger service for deferred compensation plan | | | | | 8.9 | |
| Total purchase consideration | | | | | $ | 6,937.0 | |
Ingersoll Rand Industrial was separated from Ingersoll Rand plc (subsequently renamed Trane Technologies Plc) through a distribution to shareholders of Trane Technologies and subsequently merged with Gardner Denver Holdings, Inc. This transaction was accounted for as a business combination. The Company incurred acquisition costs of $87.3 million, including $42.3 million and $45.0 million in the years ended December 31, 2020 and 2019, respectively. These costs are presented within “Other operating expenses, net” in the Consolidated Statements of Operations.
The assets and liabilities of Ingersoll Rand Industrial were measured at their fair values as of the date of the merger. The determination of fair values required the Company to make estimates about expected future cash flows, discount rates, royalty rates and other subjective assumptions and future events that are highly uncertain. These measurements were finalized within one year of the closing date of the transaction.
The following table summarizes the allocation of consideration to the fair values of assets acquired and liabilities assumed of Ingersoll Rand Industrial as of February 29, 2020. These amounts include assets and liabilities of the Specialty Vehicle Technologies segment, which was divested during the year ended December 31, 2021 and is reported as a discontinued operation. Refer to Note 2 for further information on the sale of SVT.
| | | | | | | | | | | |
| | | | | Fair value |
| Cash | | | | | $ | 38.8 | |
| Accounts receivable | | | | | 585.8 | |
| Inventories | | | | | 625.4 | |
| Other current assets | | | | | 87.2 | |
| Property, plant and equipment | | | | | 516.5 | |
| Goodwill | | | | | 4,899.2 | |
| Other intangible assets | | | | | 3,766.6 | |
| Other noncurrent assets | | | | | 270.9 | |
| Total current liabilities, including current maturities of long-term debt of $19.0 million | | | | | (753.0) | |
| Deferred tax liability | | | | | (842.4) | |
| Long-term debt, net of debt issuance costs and an original issue discount | | | | | (1,851.7) | |
| Other noncurrent liabilities | | | | | (333.0) | |
| Noncontrolling interest | | | | | (73.3) | |
| Total consideration | | | | | $ | 6,937.0 | |
Summary of significant fair value methods
The methods used to determine the fair value of significant identifiable assets and liabilities included in the allocation of purchase price are discussed below.
Inventories
Acquired inventory comprised finished goods, work in process and raw materials. The fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value.
Property, Plant and Equipment
The fair value of property, plant and equipment was primarily calculated using replacement costs adjusted for the age and condition of the asset, with the exception of real property which was calculated using the market approach, and is summarized below.
| | | | | |
| Land and buildings | $ | 215.1 | |
| |
| Machinery and equipment | 256.9 | |
| Office furniture and equipment | 13.4 | |
| Other | 1.0 | |
| Construction in progress | 30.1 | |
| Total property, plant and equipment | $ | 516.5 | |
Identifiable Intangible Assets
The fair value and weighted average useful life of the Ingersoll Rand Industrial identifiable intangible assets are as follows.
| | | | | | | | | | | |
| Fair Value | | Weighted Average Useful Life (Years) |
Tradenames(1) | $ | 1,312.0 | | | Indefinite |
Developed technology(2) | 236.0 | | | 7 |
Customer relationships(3) | 2,101.0 | | | 13 |
Backlog(4) | 81.2 | | | <1 |
| Internal-use software and other | 36.4 | | | 2 |
| Total identifiable intangible assets | $ | 3,766.6 | | | |
(1)The fair value of tradenames were determined using a relief from royalty methodology, which estimates the cost savings generated by a company related to the ownership of an asset for which it would otherwise have had to pay royalties or license fees on revenues earned through the use of the asset. Tradenames are expected to have an indefinite useful life.
(2)The fair values of developed technology were determined using a relief from royalty methodology, with similar methodology and assumptions as described in the tradename description above. The economic useful lives were determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.
(3)The fair values of customer relationships were determined using the Multi-Period Excess Earning Method, which involves isolating the net earnings attributable to the asset being measured based on present value of the incremental after-tax cash flows attributable solely to the intangible asset over its remaining useful life. The economic useful lives were determined based on historical customer attrition rates.
(4)The fair values of acquired backlog were determined using the Multi-Period Excess Earning Method. The economic useful lives were based on the time to fulfill the outstanding order backlog obligation.
Leases, including lease liabilities and right-of-use assets
Lease liabilities, included in “Accrued liabilities” and “Other non-current liabilities” in the Consolidated Balance Sheets, at the acquisition date, were measured at the present value of the future minimum lease payments over the remaining lease term and the incremental borrowing rate of Ingersoll Rand as if the acquired leases were new leases as of the acquisition date.
Pension and Other Postretirement Liabilities
Ingersoll Rand recognized a pretax net liability representing the net funded status of Ingersoll Rand Industrial’s defined-benefit pension and other postretirement benefit (“OPEB”) plans.
Long-Term Debt
The fair value for long term debt was determined based on the total indebtedness less debt issuance costs as the debt consummated at the time of closing of the acquisition.
Deferred Income Tax Assets and Liabilities
The acquisition was structured as a merger and therefore, the Company generally assumed the historical tax basis of assets and liabilities. The deferred income tax assets and liabilities include the expected future federal, state and foreign tax consequences associated with temporary differences between the fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of the acquisition in the jurisdictions in which legal title of the underlying asset or liability resides.
Noncontrolling Interests
Ingersoll Rand Industrial had a controlling interest of approximately 74% in Ingersoll-Rand India Limited as of the acquisition date. The remaining shares were owned by unaffiliated shareholders and traded on India stock exchanges, representing a noncontrolling interest. The fair value of this noncontrolling interest was based on market quote of shares as the date of acquisition.
Other Assets Acquired and Liabilities Assumed (excluding Goodwill)
The Company utilized the carrying values, net of allowances, to value accounts receivable and accounts payable as well as other current assets and liabilities as it was determined that carrying values represented the fair value of those items at the acquisition date.
Goodwill
The excess of the consideration for the acquisition over the fair value of net assets acquired was recorded as goodwill. The goodwill is attributable to expected synergies and expanded market opportunities from combining the Company’s operations with those of Ingersoll Rand Industrial. The goodwill created in the acquisition is not expected to be deductible for tax purposes. See Note 9 “Goodwill and Other Intangible Assets” for the allocation of goodwill among the Company’s segments.
Results of Ingersoll Rand Industrial subsequent to the acquisition
The operating results of Ingersoll Rand Industrial have been included in the Company’s consolidated financial statements from the date of acquisition through December 31, 2020. The Company’s consolidated statements of operations for the year ended December 31, 2020 included revenues of $2,930.3 million and net loss of $10.8 million, which includes the effects of purchase accounting adjustments, primarily the amortization of intangible assets and the impacts on operating expenses of fair value adjustments to acquired inventory and property, plant and equipment.
Unaudited pro forma information
The following unaudited pro forma financial information is provided for information purposes only and presents the results of operations of the Company as if the Ingersoll Rand Industrial acquisition was completed on January 1, 2019. The pro forma results do not necessarily represent the revenue or results of operations would have been realized had the acquisition been completed on January 1, 2019. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved.
| | | | | | | | | | | |
| 2020 | | 2019 |
| Revenues | $ | 5,398.0 | | | $ | 6,146.5 | |
| Net Income (Loss) | 164.8 | | | 101.1 | |
The unaudited pro forma information includes adjustments for the purchase price allocation (including, but not limited to, amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to stock-based compensation expense, fair value adjustments to acquired inventories, the purchase accounting effect on deferred revenue, interest expense and amortization of debt issuance costs, transaction costs and related tax impacts) and the alignment of accounting policies.
The table below reflects the impact of material and nonrecurring adjustments to the unaudited pro forma results for the years ended December 31, 2020 and 2019 that are directly attributable to the acquisition.
| | | | | | | | | | | |
| 2020 | | 2019 |
| Increase (decrease) to revenue as a result of deferred revenue fair value adjustment, net of tax | $ | 13.8 | | | $ | (13.8) | |
| Increase (decrease) to expense as a result of inventory fair value adjustment, net of tax | (89.6) | | | 89.6 | |
| Increase (decrease) to expense as a result of transaction costs, net of tax | (34.8) | | | 34.8 | |
Settlement of post-acquisition contingencies
The Company and Trane Technologies concluded several post-closing steps of the Ingersoll Rand Industrial transaction in the second quarter of 2021. These steps included determining the final measurements of transferred working capital, indebtedness and retirement plan funding. Upon finalizing these measurements, Trane Technologies agreed to make a net payment of $49.5 million to Ingersoll Rand. This payment was received in the third quarter of 2021 and is reflected within changes in “Other assets and liabilities, net” on the Consolidated Statement of Cash Flows. The Company realized a gain of $30.1 million in the second quarter of 2021 to adjust its receivables for these items. This gain is reported within “Other income, net” on the Consolidated Statement of Operations.
Other 2020 Acquisitions
On September 1, 2020, the Company acquired Albin Pump SAS, a manufacturer of electric peristaltic pumps for cash consideration, net of cash acquired, of $15.5 million and deferred consideration of $0.9 million. The results of this business are reported within the Precision and Science Technologies segment from the date of acquisition.
Also during the year ended December 31, 2020, the Company acquired 2 sales and service businesses, 1 in the United States and 1 in Europe, in the Industrial Technologies and Services segment, for cash consideration of $15.0 million and deferred consideration of $5.1 million.
Acquisition Revenues and Operating Income
The revenues included in the financial statements for these acquisitions subsequent to their acquisition date was $23.5 million and $8.9 million, respectively, for the years ended December 31, 2021 and 2020. The operating income included in the financial statements for these acquisitions subsequent to their acquisition date was $2.1 million and $0.9 million, respectively, for the years ended December 31, 2021, and 2020.
Note 5: Restructuring
Restructuring Program 2020 to 2022
Subsequent to the acquisition of Ingersoll Rand Industrial, the Company announced a restructuring program (“2020 Plan”) to create efficiencies and synergies, reduce the number of facilities and optimize operating margin within the merged Company. Through December 31, 2021, we recognized expense related to the 2020 Plan of $96.4 million, comprising $78.7 million, $6.9 million and $10.8 million for Industrial Technologies and Services, Precision and Science Technologies and Corporate, respectively. The Company expects total expense for workforce restructuring, facility consolidation and other exit and disposal activities under the 2020 Plan to be approximately $100 million to $115 million.
For the years ended December 31, 2021 and 2020, “Restructuring charges, net” were recognized within “Other operating expense, net” in the Consolidated Statements of Operations and consisted of the following.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Industrial Technologies and Services | $ | 8.4 | | | $ | 70.3 | |
| Precision and Science Technologies | — | | | 6.9 | |
| | | |
| | | |
| Corporate | 5.0 | | | 5.8 | |
| Restructuring charges, net | $ | 13.4 | | | $ | 83.0 | |
The following table summarizes the activity associated with the Company’s restructuring programs (included in “Accrued liabilities” in the Consolidated Balance Sheets) for the years ended December 31, 2021 and 2020, respectively.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Balance at beginning of the period | $ | 17.5 | | | $ | 4.8 | |
| Charged to expense - termination benefits | 9.6 | | | 73.5 | |
Charged to expense - other(1) | 2.7 | | | 3.3 | |
| Acquired restructuring | — | | | 5.1 | |
| Payments | (15.9) | | | (70.1) | |
| Foreign currency translation and other | (1.6) | | | 0.9 | |
| Balance at end of the period | $ | 12.3 | | | $ | 17.5 | |
(1)Excludes $1.1 million and $6.2 million of non-cash charges that impacted restructuring expense but not the restructuring liabilities during the years ended December 31, 2021 and 2020, respectively.
Restructuring Program 2018 to 2019
In the third quarter of 2018, the Company announced a restructuring program that primarily involved workforce reductions and facility consolidation. This restructuring program was completed as of December 31, 2020.
Note 6: Allowance for Credit Losses
The allowance for credit losses for the years ended December 31, 2021, 2020 and 2019 consisted of the following.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Balance at beginning of the period | $ | 50.9 | | | $ | 16.6 | | | $ | 16.0 | |
| Acquisition - Ingersoll Rand Industrial | — | | | 25.1 | | | — | |
Provision (benefit) charged to expense(1) | (4.3) | | | 10.3 | | | 2.4 | |
| Write-offs, net of recoveries | (3.8) | | | (3.5) | | | (1.6) | |
| Foreign currency translation and other | (0.5) | | | 2.4 | | | (0.2) | |
| Balance at end of the period | $ | 42.3 | | | $ | 50.9 | | | $ | 16.6 | |
(1)In the fourth quarter of 2021, the Company adjusted its allowance for credit losses in certain major portions of the business due to improved collection experience and reduction of past due receivables. The impact of these updates was a $6.6 million reduction in the allowance, with a corresponding benefit within “Selling and administrative expenses.”
Note 7: Inventories
Inventories as of December 31, 2021 and 2020 consisted of the following.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Raw materials, including parts and subassemblies | $ | 506.6 | | | $ | 451.0 | |
| Work-in-process | 88.6 | | | 62.2 | |
| Finished goods | 283.4 | | | 194.7 | |
| 878.6 | | | 707.9 | |
| LIFO excess (reserve) | (24.4) | | | 8.8 | |
| Inventories | $ | 854.2 | | | $ | 716.7 | |
At December 31, 2021 and 2020, approximately 41% and 39%, respectively, of total inventory is accounted for on a last-in, first-out (“LIFO”) basis.
In the year ended December 31, 2020, the Company recorded non-cash adjustments of $35.6 million to reduce the carrying value of inventories acquired in the merger with Ingersoll Rand Industrial accounted for under the LIFO method, all of which was recognized in Cost of sales in the three month period ended June 30, 2020.
Note 8: Property, Plant and Equipment
Property, plant and equipment, net as of December 31, 2021 and 2020 consisted of the following.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Land and land improvements | $ | 60.1 | | | $ | 54.3 | |
| Buildings | 300.3 | | | 278.3 | |
| Machinery and equipment | 548.1 | | | 485.0 | |
| Office furniture and equipment | 58.3 | | | 53.4 | |
| Construction in progress | 39.5 | | | 29.1 | |
| 1,006.3 | | | 900.1 | |
| Accumulated depreciation | (357.7) | | | (291.1) | |
| Property, plant and equipment, net | $ | 648.6 | | | $ | 609.0 | |
Note 9: Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amount of goodwill attributable to each reportable segment for the years ended December 31, 2021 and 2020 are as follows.
| | | | | | | | | | | | | | | | | | | | | |
| Industrial Technologies and Services | | Precision and Science Technologies | | | | | | Total |
| Balance as of December 31, 2019 | $ | 865.4 | | | $ | 227.5 | | | | | | | $ | 1,092.9 | |
| Acquisitions | 3,213.5 | | | 1,165.5 | | | | | | | 4,379.0 | |
Foreign currency translation and other(1) | 72.3 | | | 38.4 | | | | | | | 110.7 | |
| Balance as of December 31, 2020 | 4,151.2 | | | 1,431.4 | | | | | | | 5,582.6 | |
| Acquisitions | 87.9 | | | 391.4 | | | | | | | 479.3 | |
Foreign currency translation and other(1) | (61.8) | | | (18.5) | | | | | | | (80.3) | |
| Balance as of December 31, 2021 | $ | 4,177.3 | | | $ | 1,804.3 | | | | | | | $ | 5,981.6 | |
(1)Includes measurement period adjustments.
The Company acquired multiple businesses during the year ended December 31, 2021. The excess of the purchase price over the estimated fair values of intangible assets, identifiable assets and assumed liabilities was recorded as goodwill. The allocation of the purchase price was preliminary for certain of these acquisitions and is subject to refinement based on final fair values of the identified assets acquired and liabilities assumed. The goodwill attributable to these businesses is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 Acquisitions | | Industrial Technologies and Services | | Precision and Science Technologies | | | | | | Total |
| Seepex | | $ | — | | | $ | 245.3 | | | | | | | $ | 245.3 | |
| M-D Pneumatics and Kinney Vacuum Pumps | | 80.0 | | | — | | | | | | | 80.0 | |
| Maximus Solutions | | — | | | 75.7 | | | | | | | 75.7 | |
| Other acquisitions | | 7.9 | | | 70.4 | | | | | | | 78.3 | |
| | $ | 87.9 | | | $ | 391.4 | | | | | | | $ | 479.3 | |
The Company acquired several businesses during the year ended December 31, 2020. The excess of the purchase price over the estimated fair values of intangible assets, identifiable assets and assumed liabilities was recorded as goodwill. The allocation of the purchase price was preliminary for certain of these acquisitions and is subject to refinement based on final fair values of the identified assets acquired and liabilities assumed. The goodwill attributable to these businesses is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Acquisitions | | | | Industrial Technologies and Services | | Precision and Science Technologies | | | | | | Total |
| Ingersoll Rand Industrial | | | | $ | 3,198.0 | | | $ | 1,162.3 | | | | | | | $ | 4,360.3 | |
| Albin Pump SAS | | | | — | | | 3.2 | | | | | | | 3.2 | |
| Other acquisitions | | | | 15.5 | | | — | | | | | | | 15.5 | |
| | | | $ | 3,213.5 | | | $ | 1,165.5 | | | | | | | $ | 4,379.0 | |
As of December 31, 2021 and 2020, goodwill included a total of $220.6 million of accumulated impairment losses within the Industrial Technologies and Services segment related to impairments recognized in and prior to 2015.
Goodwill Impairment Tests
Consistent with our accounting policy in Note 1, we performed our annual goodwill impairment testing as of the first day of our fiscal fourth quarters of 2021, 2020 and 2019. For the years ended December 31, 2021, 2020 and 2019, each reporting unit’s fair value was in excess of its net carrying value, and therefore, no goodwill impairment was recorded.
Other Intangible Assets
Other intangible assets as of December 31, 2021 and 2020 consisted of the following.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Amortized intangible assets: | | | | | | | | | | | |
| Customer lists and relationships | $ | 3,055.0 | | | $ | (1,048.3) | | | $ | 2,006.7 | | | $ | 2,835.0 | | | $ | (841.3) | | | $ | 1,993.7 | |
| Technology | 356.4 | | | (77.8) | | | 278.6 | | | 279.9 | | | (38.1) | | | 241.8 | |
| Tradenames | 47.8 | | | (19.0) | | | 28.8 | | | 41.8 | | | (15.6) | | | 26.2 | |
| Backlog | 8.1 | | | (5.1) | | | 3.0 | | | — | | | — | | | — | |
| Other | 107.1 | | | (76.9) | | | 30.2 | | | 102.8 | | | (58.6) | | | 44.2 | |
| Unamortized intangible assets: | | | | | | | | | | | |
| Tradenames | 1,565.4 | | | — | | | 1,565.4 | | | 1,491.3 | | | — | | | 1,491.3 | |
| Total other intangible assets | $ | 5,139.8 | | | $ | (1,227.1) | | | $ | 3,912.7 | | | $ | 4,750.8 | | | $ | (953.6) | | | $ | 3,797.2 | |
Amortization of intangible assets was $332.9 million, $335.1 million and $105.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Amortization of intangible assets is anticipated to be approximately $300 million in each of 2022, 2023 and 2024, $200 million in 2025 and $160 million in 2026 based upon currency exchange rates as of December 31, 2021.
Other Intangible Asset Impairment Tests
The Company recognized an impairment in the third quarter of 2020 of $19.9 million to reduce the carrying value of 2 tradenames in the Industrial Technologies and Services segment.
Consistent with our accounting policy in Note 1, we performed our annual intangible asset impairment testing as of the first day of our fiscal fourth quarters of 2021, 2020 and 2019. For the years ended December 31, 2021, 2020 and 2019, other than as discussed above, each tradename’s fair value was in excess of its net carrying value, and therefore, no impairment was recorded.
Note 10: Accrued Liabilities
Accrued liabilities as of December 31, 2021 and 2020 consisted of the following:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Salaries, wages, and related fringe benefits | $ | 232.1 | | | $ | 197.0 | |
| Contract liabilities | 242.1 | | | 164.6 | |
| Product warranty | 42.5 | | | 41.1 | |
| Operating lease liabilities | 34.9 | | | 47.1 | |
| Restructuring | 12.3 | | | 17.5 | |
| Taxes | 41.6 | | | 116.1 | |
| | | |
| Other | 135.8 | | | 125.5 | |
| Total accrued liabilities | $ | 741.3 | | | $ | 708.9 | |
A reconciliation of the changes in the accrued product warranty liability for the years ended December 31, 2021 and 2020 is as follows.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Balance at the beginning of period | $ | 41.1 | | | $ | 19.1 | |
| Product warranty accruals | 16.1 | | | 17.2 | |
| Acquired warranty | 2.1 | | | 19.8 | |
| Settlements | (15.7) | | | (16.7) | |
| Foreign currency translation and other | (1.1) | | | 1.7 | |
| Balance at the end of period | $ | 42.5 | | | $ | 41.1 | |
Note 11: Debt
Debt as of December 31, 2021 and 2020 consisted of the following.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Short-term borrowings | $ | — | | | $ | — | |
| Long-term debt | | | |
| | | |
| | | |
| | | |
| | | |
Dollar Term Loan B, due 2027(1) | $ | 1,865.0 | | | $ | 1,883.7 | |
Dollar Term Loan, due 2027(2) | 910.5 | | | 919.6 | |
Euro Term Loan, due 2027(3) | 670.7 | | | 728.0 | |
Dollar Term Loan Series A, due 2027(4) | — | | | 392.4 | |
| Finance leases and other long-term debt | 23.9 | | | 17.2 | |
| Unamortized debt issuance costs | (29.5) | | | (41.4) | |
| Total long-term debt, net, including current maturities | 3,440.6 | | | 3,899.5 | |
| Current maturities of long-term debt | 38.8 | | | 40.4 | |
| Total long-term debt, net | $ | 3,401.8 | | | $ | 3,859.1 | |
(1)As of December 31, 2021, this amount is presented net of unamortized discounts of $1.7 million. As of December 31, 2021, the applicable interest rate was 1.84% and the weighted-average rate was 1.86% for the year ended December 31, 2021.
(2)As of December 31, 2021, this amount is presented net of unamortized discounts of $0.9 million. As of December 31, 2021, the applicable interest rate was 1.84% and the weighted-average rate was 1.86% for the year ended December 31, 2021.
(3)As of December 31, 2021, this amount is presented net of unamortized discounts of $0.6 million. As of December 31, 2021, the applicable interest rate was 2.00% and the weighted-average rate was 2.00% for the year ended December 31, 2021.
(4)The weighted-average rate was 2.86% for the year ended December 31, 2021.
Senior Secured Credit Facilities
The Company entered into a senior secured credit agreement with UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (the “Senior Secured Credit Facilities”) on July 30, 2013.
The Senior Secured Credit Facilities entered into on July 30, 2013 provided senior secured financing in the equivalent of approximately $2,825.0 million, consisting of: (i) a senior secured term loan facility denominated in U.S. Dollars (the “Original Dollar Term Loan Facility”) in an aggregate principal amount of $1,900.0 million; (ii) a senior secured term loan facility denominated in Euros (the “Original Euro Term Loan Facility”) in an aggregate principal amount of €400.0 million; and (iii) a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of $400.0 million available to be drawn in U.S. dollars (“USD”), Euros (“EUR”), Great British Pounds (“GBP”) and other reasonably acceptable foreign currencies, subject to certain sublimits for the foreign currencies. The Revolving Credit Facility included borrowing capacity available for letters of credit up to $200.0 million and for borrowings on same-day notice, referred to as swingline loans.
The borrower of the Dollar Term Loan Facility and the Euro Term Loan Facility is Gardner Denver, Inc. Prior to the Company entering into Amendment No. 1, GD German Holdings II GmbH became an additional borrower and successor in interest to Gardner Denver Holdings GmbH & Co. KG. GD German Holdings II GmbH, GD First (UK) Limited and Gardner Denver, Inc. were the listed borrowers under the Revolving Credit Facility.
The Company entered into Amendment No. 1 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as administrative agent, and the lenders and other parties thereto on March 4, 2016 (“Amendment No.1”), Amendment No. 2 on August 17, 2017 (“Amendment No.2”) and Amendment No. 3 on December 13, 2018 (“Amendment No.3”).
Amendment No. 1 reduced the aggregate principal borrowing capacity of the Revolving Credit Facility by $40.0 million to $360.0 million, extended the term of the Revolving Credit Facility to April 30, 2020 with respect to consenting lenders and provided for customary bail-in provisions to address certain European regulatory requirements. On July 30, 2018, the Revolving Credit Facility principal borrowing capacity decreased to $269.9 million resulting from the maturity of the tranches of the Revolving Credit Facility which were owned by lenders that elected not to modify the original Revolving Credit Facility maturity date. Amendment No. 1 reduced the minimum aggregate principal amount for extension amendments to the facilities from $50.0 million to $35.0 million.
Amendment No. 2 refinanced the Original Dollar Term Loan Facility with a replacement $1,285.5 million senior secured U.S. dollar term loan facility (the “New Dollar Term Loan Facility”) and the Original Euro Term Loan Facility with a replacement €615.0 million senior secured euro term loan facility (the “New Euro Term Loan Facility”). Further the maturity for both term loan facilities was extended to July 30, 2024 and LIBOR Floor was reduced from 1.0% to 0.0%.
Amendment No. 3 amended the definition of “Change of Control” to (i) remove the requirement that certain specified equity holders maintain a minimum ownership level of the outstanding voting stock of the Company, (ii) increase the threshold at which the acquisition of ownership by a person, entity or group of other equity holders constitutes a “Change of Control” from 35% of the outstanding voting stock of the Company to 50% of the outstanding voting stock of the Company and (iii) make certain other corresponding technical changes and updates.
The Company entered into Amendment No. 4 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as Resigning Agent and Citibank, N.A. as Successor Agent on June 28, 2019 (“Amendment No. 4”). Amendment No. 4 (i) refinanced the existing senior secured revolving credit facility with a replacement $450.0 million senior secured revolving credit facility (the “New Revolving Credit Facility”); (ii) extended the maturity of the revolving credit facility to June 28, 2024, (iii) terminated the revolving credit facility commitments of certain lenders under the existing senior secured revolving credit facility under the Senior Secured Credit Facilities, (iv) provided for up to $200.0 million of the New Revolving Credit Facility to be available for the purpose of issuing letters of credit; (v) provided for the replacement of GD First (UK) Limited by Gardner Denver Holdings, Ltd. as the UK Borrower under the Senior Secured Credit Facilities; (vi) transferred the Administrative Agent, Collateral Agent and Swingline Lender roles under the Senior Secured Credit Facilities to Citibank, N.A; and (vii) made certain other corresponding technical changes and updates. At the consummation of the merger between Gardner Denver Holdings, Inc., and Ingersoll-Rand plc, Amendment No. 4 increased the aggregate amount of the New Revolving Credit Facility to $1,000.0 million and increased the capacity under the New Revolving Credit Facility to issue letters of credit to $400.0 million. As a result of Amendment No. 4, the Company wrote off $0.2 million of debt issuance costs to the “Loss on extinguishment of debt” in the Consolidated Statements of Operations for the year ended December 31, 2019.
On February 28, 2020, the Company entered into Amendment No. 5 to the Credit Agreement (“Amendment No. 5”). Amendment No. 5 refinanced the existing New Dollar Term Loan Facility and New Euro Term Loan Facility. The proceeds from the replacement $927.6 million Dollar Term Loan (“Dollar Term Loan”) and replacement €601.2 million Euro Term Loan (“Euro Term Loan”) were used to refinance the outstanding New Dollar Term Loan Facility and New Euro Term Loan Facility. The proceeds from the Dollar Term Loan and the Euro Term Loan were reduced by an original issue discount of $1.2 million and €0.8 million, respectively. The Euro Term Loan and Dollar Term Loan will mature on February 28, 2027. The refinancing of the New Dollar Term Loan and the New Euro Term Loan resulted in the write off of unamortized debt issuance costs of $2.0 million which was presented within “Loss on extinguishment of debt” in the Consolidated Statements of Operations.
At the time of the acquisition of Ingersoll Rand Industrial, the Credit Agreement was amended to include an additional $1,900.0 million senior secured term loan (“Dollar Term Loan B”) by and among Ingersoll-Rand Services Company, as the borrower, the lenders party thereto and Citi, as the administrative agent. Further, Ingersoll-Rand Services Company, the borrower with respect to the Dollar Term Loan B, was designated as an additional borrower under the Credit Agreement. The Dollar Term Loan B and the Dollar Term Loan and the Euro Term Loan have guarantees from the same credit parties and are secured by the same collateral. The Dollar Term Loan B will mature on February 28, 2027. The proceeds from the $1,900.0 million Dollar Term Loan B were reduced by a $2.4 million original issue discount.
On February 29, 2020, the aggregate amount of the Revolving Credit Facility increased to $1,000.0 million and the capacity under the Revolving Credit Facility to issue letters of credit increased to $400.0 million.
On June 29, 2020, the Company entered into Amendment No. 6 to the Credit Agreement (“Amendment No. 6”). Amendment No. 6 (i) provided for $400.0 million of incremental term loans (“Dollar Term Loan Series A”), reduced by an original issue discount of $6.0 million, and (ii) established an increase of $100.0 million to the Revolving Credit Facility, bringing the total sum of the Revolving Credit Facility to $1,100.0 million. The proceeds were expected to be used for general business purposes, including providing incremental liquidity in the event of a prolonged adverse impact of the COVID-19 pandemic. On September 30, 2021, the Company elected to prepay the Dollar Term Loan Series A outstanding principal balance of
$396.0 million using cash on hand. The prepayment resulted in the write-off of unamortized debt issuance costs and unamortized issuance discount of $9.0 million which was recognized in “Loss on extinguishment of debt” in the Consolidated Statements of Operations.
On December 28, 2021, Gardner Denver, Inc. entered into Amendment No. 7 to the Credit Agreement (“Amendment No. 7”). Amendment No. 7 was entered into pursuant to the terms of the Senior Secured Credit Facilities to provide for (i) the change of the underlying rate for borrowings denominated in GBP from a LIBOR-based rate to a SONIA-based rate (Sterling Overnight Index Average), subject to certain adjustments and terms specified in Amendment No. 7, (ii) the change of the underlying rate for borrowings denominated in EUR from a LIBOR-based rate to a EURIBOR-based rate, subject to certain adjustments and terms specified in Amendment No. 7, and (iii) certain other updates and corresponding changes regarding successor interest rates to LIBOR.
The Senior Secured Credit Facilities provide that the Company will have the right at any time to request incremental term loans and/or revolving commitments in an aggregate principal amount of up to (i) the greater of (a) $1,600 million and (b) 100% of Consolidated EBITDA (as defined in the Senior Secured Credit Facilities) for the most recently ended four consecutive fiscal quarter period plus (ii) voluntary prepayments and voluntary commitment reductions of the Senior Secured Credit Facilities and certain other permitted indebtedness prior to the date of any such incurrence plus (iii) an additional amount equal to (a) in the case of incremental loans and/or commitments that are secured on an equal priority basis with the Senior Secured Credit Facilities, an amount such that after giving effect to the incurrence of such additional amount, the Company does not exceed a Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) of 4.50 to 1.00 or the Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio immediately prior to any such incurrence and all transactions consummated in connection therewith or (b) in the case of incremental loans and/or commitments that are secured on a junior priority basis to the Senior Secured Credit Facilities, an amount such that after giving effect to the incurrence of such additional amount, the Company does not exceed a Consolidated Total Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) of 5.00 to 1.00 or the Consolidated Total Debt to Consolidated EBITDA Ratio immediately prior to any such incurrence and all transactions consummated in connection therewith. The lenders under the Senior Secured Credit Facilities are not under any obligation to provide any such incremental commitments or loans, and any such addition of, or increase in commitments or loans, will be subject to certain customary conditions.
As of December 31, 2021, the aggregate amount of commitments under the Revolving Credit Facility was $1,100.0 million and the capacity under the Revolving Credit Facility to issue letters of credit was $400.0 million. As of December 31, 2021, the Company had no outstanding borrowings, $6.6 million of outstanding letters of credit under the New Revolving Credit Facility and unused availability of $1,093.4 million.
Interest Rate and Fees
Borrowings under the Dollar Term Loan, Dollar Term Loan B, and Revolving Credit Facility (other than Revolving Credit Facility borrowings in GBP or EUR) bear interest at a rate equal to, at the Company’s option, either (a) the greater of LIBOR for the relevant interest period or 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin or (b) a base rate (the “Base Rate”) equal to the highest of (1) the rate of interest publicly announced by the administrative agent as its prime rate in effect at its principal office, (2) the federal funds effective rate plus 0.50%, (3) LIBOR for an interest period of one month, adjusted for statutory reserve requirements, plus 1.00% and (4) 1.00%, in each case, plus an applicable margin. Borrowings under the Euro Term Loan and Revolving Credit Facility borrowings in EUR (if any) bear interest at a rate equal to the greater of EURIBOR for the relevant interest period, or 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin. Borrowings under the Revolving Credit Facility in GBP (if any) bear interest at a rate equal to the greater of (a) daily simple SONIA plus an applicable spread adjustment or (b) 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin. The applicable margin for (i) the Dollar Term Loan is 1.75% for LIBOR loans and 0.75% for base rate loans, (ii) the Dollar Term Loan B is 1.75% for LIBOR loans and 0.75% for base rate loans, (iii) the Euro Term Loan is 2.00%, (iv) the Revolving Credit Facility is 2.00% for LIBOR loans, EURIBOR loans and SONIA loans and 1.00% for Base Rate loans.
In addition to interest payments on outstanding principal under the Senior Secured Credit Facilities, the Company is required to pay a commitment fee of 0.375% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The commitment fee reduces to 0.25% or 0.125% upon the achievement of a Level I or Level II status, respectively. Level I status means that the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) is less than or equal to 1.75 to 1.00. Level II status means that the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 1.50 to 1.00. The Company must also pay customary letter of credit fees.
Prepayments
The Senior Secured Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with (i) 50% of annual excess cash flow (as defined in the Senior Credit Facilities) commencing with the fiscal year ending December 31, 2021 (which percentage will be reduced to 25% if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.25 to 1.00 but greater than 2.00 to 1.00, and which prepayment will not be required if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.00 to 1.00), (ii) 100% of the net cash proceeds of non-ordinary asset sales or other dispositions of property, subject to reinvestment rights (which percentage will be reduced to 50% if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.25 to 1.00 but greater than 2.00 to 1.00 and which prepayment will not be required if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.00 to 1.00), and (iii) 100% of the net cash proceeds of any incurrence of debt, other than proceeds from debt permitted under the Credit Agreement.
The mandatory prepayments will be applied to the scheduled installments of principal of the term loans in direct order of maturity.
The Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, subject to certain customary conditions, including reimbursements of the lenders’ redeployment costs actually incurred in the case of a prepayment of certain borrowings other than on the last day of the relevant interest period, provided that (i) any voluntary prepayment of the Dollar Term Loan, the Dollar Term Loan B or the Euro Term Loan prior to August 28, 2020, in connection with a repricing transaction would have been subject to a prepayment premium of 1.00% of the principal amount so prepaid and (ii) any voluntary prepayment of Dollar Term Loan Series A prior to December 29, 2020, in connection with a repricing transaction would have been subject to a prepayment premium of 1.00% of the principal amount so prepaid.
Amortization and Final Maturity
The Dollar Term Loan, Dollar Term Loan B and Euro Term Loan amortize in equal to quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount of such term loan, with the balances payable on February 28, 2027.
Guarantee and Security
All obligations of the borrowers under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company and all of its material, wholly-owned U.S. restricted subsidiaries, with customary exceptions including where providing such guarantees are not permitted by law, regulation or contract or would result in adverse tax consequences.
All obligations of the borrowers under the Senior Secured Credit Facilities, and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by substantially all of the assets of the borrowers and each guarantor, including but not limited to: (i) a perfected pledge of the capital stock issued by the borrowers and each subsidiary guarantor and (ii) perfected security interests in substantially all other tangible and intangible assets of the borrowers and the guarantors (subject to certain exceptions and exclusions). The obligations of the non-U.S. borrowers are secured by certain assets in jurisdictions outside of the United States.
Certain Covenants and Events of Default
The Senior Secured Credit Facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to: incur additional indebtedness and guarantee indebtedness; create or incur liens; engage in mergers or consolidations; sell, transfer or otherwise dispose of assets; create limitations on subsidiary distributions; pay dividends and distributions or repurchase its own capital stock; and make investments, loans or advances, prepayments of junior financings, or other restricted payments.
The Revolving Credit Facility requires that, if the sum of the aggregate principle amount of all borrowings under the Revolving Credit Facility and non-cash collateralized letters of credit outstanding under the Revolving Credit Facility (less the amount of letters of credit outstanding as of June 28, 2019) exceeds 40% of the commitments under the Revolving Credit Facility, the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio shall not exceed 6.25 to 1.00 as of the last day of the fiscal quarter.
The Senior Secured Credit Facilities also contain certain customary affirmative covenants and events of default.
Total Debt Maturities
Total debt maturities for the five years subsequent to December 31, 2021 and thereafter are approximately $38.8 million, $37.8 million, $37.3 million, $37.1 million, $37.2 million and $3,285.1 million, respectively.
Note 12: Benefit Plans
Pension and Postretirement Benefit Plans
The Company sponsors a number of pension and postretirement plans worldwide. Pension plan benefits are provided to employees under defined benefit pay-related and service-related plans, which are non-contributory in nature. The Company’s funding policy for the U.S. defined benefit pension plans is to contribute at least the minimum required contribution required by Employee Retirement Income Security Act (“ERISA”), as amended by the Pension Protection Act of 2016 (as amended by MAP-21, HAFTA, and BBA 15). The Company intends to make contributions, as necessary, to prevent benefit restrictions in the plans. The Company’s annual contributions to the non-U.S. pension plans are consistent with the requirements of applicable local laws.
The Company also provides postretirement healthcare and life insurance benefits in the United States and South Africa to a limited group of current and retired employees. All of the Company’s postretirement benefit plans are unfunded.
The following table provides a reconciliation of the changes in the benefit obligations and in the fair value of the plan assets for the periods described below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postretirement Benefits |
| U.S. Plans | | Non-U.S. Plans | |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Reconciliation of Benefit Obligations: | | | | | | | | | | | |
| Beginning balance | $ | 484.3 | | | $ | 59.8 | | | $ | 445.7 | | | $ | 346.5 | | | $ | 31.3 | | | $ | 3.4 | |
| Service cost | 5.3 | | | 5.8 | | | 4.3 | | | 3.8 | | | — | | | — | |
| Interest cost | 10.8 | | | 9.5 | | | 4.6 | | | 6.1 | | | 0.6 | | | 0.5 | |
| Plan amendments | — | | | — | | | — | | | — | | | 1.8 | | | (1.6) | |
Actuarial losses (gains) (1) | (20.0) | | | 18.1 | | | (30.0) | | | 24.4 | | | (1.6) | | | 2.0 | |
| Benefit payments | (25.7) | | | (29.0) | | | (13.7) | | | (12.8) | | | (3.3) | | | (2.7) | |
| Acquisitions | — | | | 421.0 | | | — | | | 56.7 | | | — | | | 29.3 | |
| | | | | | | | | | | |
| Plan settlements | (12.9) | | | (0.9) | | | — | | | — | | | — | | | 0.3 | |
| Effect of foreign currency exchange rate changes | — | | | — | | | (14.7) | | | 21.0 | | | (0.1) | | | 0.1 | |
| Benefit obligations ending balance | $ | 441.8 | | | $ | 484.3 | | | $ | 396.2 | | | $ | 445.7 | | | $ | 28.7 | | | $ | 31.3 | |
| Reconciliation of Fair Value of Plan Assets: | | | | | | | | | | | |
| Beginning balance | $ | 395.0 | | | $ | 61.1 | | | $ | 284.8 | | | $ | 249.1 | | | | | |
| Actual return on plan assets | 4.8 | | | 36.5 | | | 25.4 | | | 19.0 | | | | | |
| Employer contributions | 11.5 | | | 0.1 | | | 7.6 | | | 7.6 | | | | | |
| Acquisitions | 12.0 | | | 327.2 | | | — | | | 12.0 | | | | | |
| | | | | | | | | | | |
| Plan settlements | (12.9) | | | (0.9) | | | — | | | — | | | | | |
| Benefit payments | (25.7) | | | (29.0) | | | (13.7) | | | (12.8) | | | | | |
| Effect of foreign currency exchange rate changes | — | | | — | | | (6.4) | | | 9.9 | | | | | |
| Fair value of plan assets ending balance | $ | 384.7 | | | $ | 395.0 | | | $ | 297.7 | | | $ | 284.8 | | | | | |
| | | | | | | | | | | |
| Funded Status as of Period End | $ | (57.1) | | | $ | (89.3) | | | $ | (98.5) | | | $ | (160.9) | | | $ | (28.7) | | | $ | (31.3) | |
(1)Actuarial losses (gains) primarily resulted from changes in discount rates.
Amounts recognized as a component of accumulated other comprehensive income (loss) as of December 31, 2021 and 2020 that have not been recognized as a component of net periodic benefit cost are presented in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postretirement Benefits |
| U.S. Plans | | Non-U.S. Plans | |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Net actuarial losses (gains) | $ | (12.7) | | | $ | (0.8) | | | $ | 26.0 | | | $ | 75.7 | | | $ | 0.5 | | | $ | 2.4 | |
| Prior service cost | — | | | — | | | 3.1 | | | 3.2 | | | 0.2 | | | (1.6) | |
| Amounts included in accumulated other comprehensive income (loss) | $ | (12.7) | | | $ | (0.8) | | | $ | 29.1 | | | $ | 78.9 | | | $ | 0.7 | | | $ | 0.8 | |
Pension and other postretirement benefit liabilities and assets are included in the following captions in the Consolidated Balance Sheets as of December 31, 2021 and 2020.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Other assets | $ | 10.4 | | | $ | 2.3 | |
| Accrued liabilities | (10.9) | | | (17.9) | |
| Pension and other postretirement benefits | (183.8) | | | (265.9) | |
The following table provides information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Plans | | Non-U.S. Pension Plans |
| 2021 | | 2020 | | 2021 | | 2020 |
| Projected benefit obligations | $ | 385.0 | | | $ | 425.2 | | | $ | 154.7 | | | $ | 441.4 | |
| Accumulated benefit obligation | 382.8 | | | 415.9 | | | 126.4 | | | 406.3 | |
| Fair value of plan assets | 326.7 | | | 331.0 | | | 26.9 | | | 260.5 | |
The accumulated benefit obligation for all U.S. defined benefit pension plans was $439.6 million and $478.0 million as of December 31, 2021 and 2020, respectively. The accumulated benefit obligation for all non-U.S. defined benefit pension plans was $386.4 million and $426.7 million as of December 31, 2021 and 2020, respectively.
The following tables provide the components of net periodic benefit cost (income) and other amounts recognized in other comprehensive income (loss), before income tax effects, for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| U.S. Pension Plans |
| 2021 | | 2020 | | 2019 |
| Net Periodic Benefit Cost (Income): | | | | | |
| Service cost | $ | 5.3 | | | $ | 5.8 | | | $ | — | |
| Interest cost | 10.8 | | | 9.5 | | | 2.2 | |
| Expected return on plan assets | (12.2) | | | (12.0) | | | (2.2) | |
| | | | | |
| Amortization of net actuarial loss | — | | | — | | | 0.1 | |
| Net periodic benefit cost | 3.9 | | | 3.3 | | | 0.1 | |
| Gain due to settlement | (0.6) | | | — | | | — | |
| Total net periodic benefit cost recognized | $ | 3.3 | | | $ | 3.3 | | | $ | 0.1 | |
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | | | | |
| Net actuarial gain | $ | (12.5) | | | $ | (6.4) | | | $ | (0.9) | |
| Amortization of net actuarial gain (loss) | 0.6 | | | — | | | (0.1) | |
| | | | | |
| | | | | |
| | | | | |
| Total recognized in other comprehensive income (loss) | $ | (11.9) | | | $ | (6.4) | | | $ | (1.0) | |
| Total recognized in net periodic benefit (income) cost and other comprehensive income (loss) | $ | (8.6) | | | $ | (3.1) | | | $ | (0.9) | |
| | | | | | | | | | | | | | | | | |
| Non-U.S. Pension Plans |
| 2021 | | 2020 | | 2019 |
| Net Periodic Benefit Cost (Income): | | | | | |
| Service cost | $ | 4.3 | | | $ | 3.8 | | | $ | 1.5 | |
| Interest cost | 4.6 | | | 6.1 | | | 7.7 | |
| Expected return on plan assets | (12.2) | | | (11.0) | | | (10.3) | |
| Amortization of prior-service cost | 0.2 | | | 0.1 | | | 0.1 | |
| Amortization of net actuarial loss | 4.9 | | | 2.9 | | | 2.0 | |
| | | | | |
| | | | | |
| Total net periodic benefit cost recognized | $ | 1.8 | | | $ | 1.9 | | | $ | 1.0 | |
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | | | | |
| Net actuarial loss (gain) | $ | (43.3) | | | $ | 16.3 | | | $ | 10.9 | |
| Amortization of net actuarial loss | (4.9) | | | (2.9) | | | (2.0) | |
| | | | | |
| Amortization of prior service cost | (0.2) | | | (0.1) | | | (0.1) | |
| Effect of foreign currency exchange rate changes | (1.4) | | | 4.2 | | | 1.1 | |
| Total recognized in other comprehensive income (loss) | $ | (49.8) | | | $ | 17.5 | | | $ | 9.9 | |
| Total recognized in net periodic benefit cost (income) and other comprehensive income (loss) | $ | (48.0) | | | $ | 19.4 | | | $ | 10.9 | |
| | | | | | | | | | | | | | | | | |
| Other Postretirement Benefits |
| 2021 | | 2020 | | 2019 |
| Net Periodic Benefit Cost: | | | | | |
| | | | | |
| Interest cost | $ | 0.6 | | | $ | 0.5 | | | $ | 0.1 | |
| | | | | |
| Amortization of prior-service cost | 0.1 | | | — | | | — | |
| Amortization of net actuarial loss | 0.1 | | | — | | | — | |
| Net periodic benefit cost | 0.8 | | | 0.5 | | | 0.1 | |
| Loss due to curtailments or settlements | — | | | 0.3 | | | — | |
| Total net periodic benefit cost recognized | $ | 0.8 | | | $ | 0.8 | | | $ | 0.1 | |
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | | | | |
| Net actuarial loss (gain) | $ | (1.6) | | | $ | 2.0 | | | $ | 0.4 | |
| Amortization of net actuarial loss | (0.1) | | | — | | | — | |
| Prior service cost | 1.9 | | | (1.6) | | | — | |
| Amortization of prior service cost | (0.1) | | | — | | | — | |
| Effect of foreign currency exchange rate changes | — | | | — | | | — | |
| Total recognized in other comprehensive income (loss) | $ | 0.1 | | | $ | 0.4 | | | $ | 0.4 | |
| Total recognized in net periodic benefit cost and other comprehensive income (loss) | $ | 0.9 | | | $ | 1.2 | | | $ | 0.5 | |
The discount rate selected to measure the present value of the Company’s benefit obligations was derived by examining the rates of high-quality, fixed income securities whose cash flows or duration match the timing and amount of expected benefit payments under a plan. The Company selects the expected long-term rate of return on plan assets in consultation with the plans’ actuaries. This rate is intended to reflect the expected average rate of earnings on the funds invested or to be invested to provide plan benefits and the Company’s most recent plan assets target allocations. In estimating the expected long-term rate of return on plan assets, appropriate consideration is given to historical performance of the major asset classes held or anticipated to be held by the plans and to current forecasts of future rates of return for those asset classes. Because assets are held in qualified trusts, expected returns are not adjusted for taxes.
The following actuarial assumptions were used to determine net periodic benefit cost (income) and benefit obligations for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Plans | | Non-U.S. Pension Plans |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Weighted-average actuarial assumptions used to determine net periodic benefit cost (income): | | | | | | | | | | | |
| Discount rate | 2.4 | % | | 2.7 | % | | 4.0 | % | | 1.1 | % | | 1.6 | % | | 2.6 | % |
| Expected long-term rate of return on plan assets | 3.2 | % | | 2.6 | % | | 4.0 | % | | 4.3 | % | | 4.4 | % | | 4.9 | % |
| Rate of compensation increases | 3.0 | % | | 4.0 | % | | NA | | 3.1 | % | | 2.7 | % | | 2.8 | % |
| Weighted-average actuarial assumptions used to determine benefit obligations: | | | | | | | | | | | |
| Discount rate | 2.7 | % | | 2.4 | % | | 3.0 | % | | 1.6 | % | | 1.1 | % | | 1.7 | % |
| Rate of compensation increases | 3.0 | % | | 3.0 | % | | NA | | 4.3 | % | | 3.1 | % | | 2.7 | % |
The following actuarial assumptions were used to determine other postretirement benefit plans costs and obligations for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| Other Postretirement Benefits |
| 2021 | | 2020 | | 2019 |
| Discount rate used to determine net periodic benefit cost (income) | 1.8% - 2.4% | | 2.3% - 3.0% | | 4.7 | % |
| Discount rate used to determine benefit obligations | 2.4% - 3.0% | | 1.9% - 2.3% | | 3.8 | % |
| Weighted-average actuarial assumptions used to determine other postretirement benefit plans costs and obligations: | | | | | |
| Healthcare cost trend rate assumed for next year | 6.8 | % | | 6.3 | % | | 7.1 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.5 | % | | 4.7 | % | | 7.1 | % |
| Year that the date reaches the ultimate trend rate | 2034 | | 2029 | | 2021 |
The following table reflects the estimated benefit payments for the next five years and for the years 2027 through 2031. The estimated benefit payments for the non-U.S. pension plans were calculated using foreign exchange rates as of December 31, 2021.
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postretirement Benefits |
| U.S. Plans | | Non-U.S. Plans | |
| 2022 | $ | 38.1 | | | $ | 13.7 | | | $ | 3.3 | |
| 2023 | 31.0 | | | 13.5 | | | 3.1 | |
| 2024 | 28.6 | | | 14.3 | | | 2.8 | |
| 2025 | 28.5 | | | 16.2 | | | 2.6 | |
| 2026 | 26.8 | | | 16.4 | | | 2.3 | |
| Aggregate 2027-2031 | 127.0 | | | 85.8 | | | 8.8 | |
In 2022, the Company expects to contribute approximately $4.2 million to the U.S. pension plans, approximately $6.8 million to the non-U.S. pension plans, and approximately $3.3 million to the other postretirement benefit plans.
Plan Asset Investment Strategy
The Company’s overall investment strategy and objectives for its pension plan assets is to (i) meet current and future benefit payment needs through diversification across asset classes, investing strategies and investment managers to achieve an optimal balance between risk and return and between income and growth of assets through capital appreciation, (ii) secure participant retirement benefits, (iii) minimize reliance on contributions as a source of benefit security, and (iv) maintain sufficient liquidity to pay benefit obligations and proper expenses. The composition of the actual investments in various securities changes over time based on short and long-term investment opportunities. None of the plan assets of Ingersoll Rand’s defined benefit plans are invested in the Company’s common stock. The Company uses both active and passive investment strategies.
Plan Asset Risk Management
The target financial objectives for the pension plans are established in conjunction with periodic comprehensive reviews of each plan’s liability structure. The Company’s asset allocation policy is based on detailed asset and liability model (“ALM”) analyses. A formal ALM study of each major plan is undertaken every 2-5 years or whenever there has been a material change in plan demographics, benefit structure, or funded status. In order to determine the recommended asset allocation, the advisors model varying return and risk levels for different theoretical portfolios, using a relative measure of excess return over treasury bills, divided by the standard deviation of the return (the “Sharpe Ratio”). The Sharpe Ratio for different portfolio options was used to compare each portfolio’s potential return, on a risk-adjusted basis. The Company selected a recommended portfolio that achieved the targeted composite return with the least amount of risk.
The Company’s primary pension plans are in the U.S. and UK which together comprise approximately 81% of the total benefit obligations and 93% of total plan assets as of December 31, 2021. The following table presents the long-term target allocations for these plans as of December 31, 2021.
| | | | | | | | | | | |
| U.S. Plans | | UK Plan |
| Asset category: | | | |
| | | |
| Equity | 13 | % | | 32 | % |
| Fixed income | 84 | % | | 30 | % |
| Real estate and other | 3 | % | | 38 | % |
| Total | 100 | % | | 100 | % |
Fair Value Measurements
The following tables present the fair values of the Company’s pension plan assets as of December 31, 2021 and 2020 by asset category within the ASC 820 hierarchy (as defined in Note 20 “Fair Value Measurements”).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Quoted Prices in Active Markets for Identical Assets
(Level 1) | | Significant Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) | | Investments Measured at NAV (5) | | Total |
| Asset Category | | | | | | | | | |
Cash and cash equivalents(1) | $ | 12.7 | | | $ | — | | | $ | — | | | $ | — | | | $ | 12.7 | |
| Equity funds: | | | | | | | | | |
| U.S. small-cap | — | | | — | | | — | | | 6.3 | | | 6.3 | |
| U.S. large-cap | — | | | 8.0 | | | — | | | 29.0 | | | 37.0 | |
International equity(2) | 24.3 | | | 45.9 | | | — | | | 68.3 | | | 138.5 | |
| Total equity funds | 24.3 | | | 53.9 | | | — | | | 103.6 | | | 181.8 | |
| Fixed income funds: | | | | | | | | | |
| Corporate bonds - international | — | | | 25.3 | | | — | | | 9.6 | | | 34.9 | |
| UK index-linked gilts | — | | | 35.9 | | | — | | | — | | | 35.9 | |
| U.S. fixed income - government securities | — | | | — | | | — | | | 38.0 | | | 38.0 | |
| U.S. fixed income - short duration | — | | | — | | | — | | | 5.2 | | | 5.2 | |
| U.S. fixed income - intermediate duration | — | | | — | | | — | | | 41.1 | | | 41.1 | |
| U.S. fixed income - long corporate | — | | | — | | | — | | | 234.8 | | | 234.8 | |
| Global fixed income | — | | | — | | | — | | | 13.5 | | | 13.5 | |
| | | | | | | | | |
| Total fixed income funds | — | | | 61.2 | | | — | | | 342.2 | | | 403.4 | |
| Other types of investments: | | | | | | | | | |
International real estate(3) | — | | | 49.5 | | | — | | | — | | | 49.5 | |
Other(4) | 0 | | — | | | 34.0 | | | 1.0 | | | 35.0 | |
| Total | $ | 37.0 | | | $ | 164.6 | | | $ | 34.0 | | | $ | 446.8 | | | $ | 682.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Quoted Prices in Active Markets for Identical Assets
(Level 1) | | Significant Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) | | Investments Measured at NAV (5) | | Total |
| Asset Category | | | | | | | | | |
Cash and cash equivalents(1) | $ | 8.5 | | | $ | — | | | $ | — | | | $ | — | | | $ | 8.5 | |
| Equity funds: | | | | | | | | | |
| U.S. large-cap | — | | | 6.4 | | | — | | | 49.0 | | | 55.4 | |
International equity(2) | 24.2 | | | 39.8 | | | — | | | 81.7 | | | 145.7 | |
| Total equity funds | 24.2 | | | 46.2 | | | — | | | 130.7 | | | 201.1 | |
| Fixed income funds: | | | | | | | | | |
| Corporate bonds - international | — | | | 25.2 | | | — | | | — | | | 25.2 | |
| UK index-linked gilts | — | | | 41.5 | | | — | | | — | | | 41.5 | |
| U.S. fixed income - government securities | — | | | 98.9 | | | — | | | 4.7 | | | 103.6 | |
| U.S. fixed income - short duration | — | | | 15.2 | | | — | | | 4.5 | | | 19.7 | |
| U.S. fixed income - intermediate duration | — | | | 26.3 | | | — | | | 45.2 | | | 71.5 | |
| U.S. fixed income - long corporate | — | | | 120.6 | | | — | | | 9.6 | | | 130.2 | |
| Total fixed income funds | — | | | 327.7 | | | — | | | 64.0 | | | 391.7 | |
| Other types of investments: | | | | | | | | | |
International real estate(3) | — | | | 42.3 | | | — | | | — | | | 42.3 | |
Other(4) | — | | | — | | | 36.2 | | | — | | | 36.2 | |
| Total | $ | 32.7 | | | $ | 416.2 | | | $ | 36.2 | | | $ | 194.7 | | | $ | 679.8 | |
(1)Cash and cash equivalents consist of traditional domestic and foreign highly liquid short-term securities with the goal of providing liquidity and preservation of capital while maximizing return on assets.
(2)The International category consists of investment funds focused on companies operating in developed and emerging markets outside of the U.S. These investments target broad diversification across large and mid/small-cap companies and economic sectors.
(3)International real estate consists primarily of equity and debt investments made, directly or indirectly, in various interests in unimproved and improved real properties.
(4)Other investments consist of insurance and reinsurance contracts securing the retirement benefits. The fair value of these contracts was calculated at the discount value of premiums paid by the Company, less expenses charged by the insurance providers. The insurance providers with which the Company has placed these contracts are well-known financial institutions with an established history of providing insurance services.
(5)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.
Defined Contribution Plans
The Company also sponsors defined contribution plans at various locations throughout the world. Benefits are determined and funded regularly based on terms of the plans or as stipulated in a collective bargaining agreement. The Company’s full-time salaried and hourly employees in the U.S. are eligible to participate in Company-sponsored defined contribution savings plans, which are qualified plans under the requirements of Section 401(k) of the Internal Revenue Code. The Company’s contributions to the savings plans are in the form of cash. The Company’s total contributions to all worldwide defined contribution plans for the years ended December 31, 2021, 2020, and 2019 were $40.6 million, $35.9 million and $19.5 million, respectively.
Other Benefit Plans
The Company offers a long-term service award program for qualified employees at certain of its non-U.S. locations. Under this program, qualified employees receive a service gratuity (“Jubilee”) payment once they have achieved a certain number of years of service. The Company’s actuarially calculated obligation equaled $4.9 million and $4.4 million as of December 31, 2021 and 2020, respectively.
There are various other employment contracts, deferred compensation arrangements, covenants not to compete, and change in control agreements with certain employees and former employees. The liabilities associated with such arrangements are not material to the Company’s consolidated financial statements.
Note 13: Stockholders’ Equity and Noncontrolling Interests
Stockholders’ Equity
As of December 31, 2021 and 2020, 1,000,000,000 shares of voting common stock were authorized. Shares of common stock outstanding were 407,785,207 and 418,627,809 as of December 31, 2021 and 2020, respectively. The Company is governed by the General Corporation Law of the State of Delaware. All authorized shares of voting common stock have a par value of $0.01. Shares of common stock reacquired are considered issued and reported as Treasury shares.
Noncontrolling Interests
The Company has a controlling interest of approximately 75% of the common shares of Ingersoll-Rand India Limited (“IR India Limited”). The remaining shares are owned by unaffiliated shareholders and traded on India stock exchanges regulated by Securities and Exchange Board of India (“SEBI”).
The Company’s acquisition of Ingersoll Rand Industrial in 2020 resulted in an indirect change in control of IR India Limited as defined by SEBI Substantial Acquisition of Shares and Takeovers (“SAST”) regulations. As a result, the Company was required to pursue either a tender offer for a certain number of noncontrolling shares or a voluntary delisting of the entity from India stock exchanges.
In June 2020, the Company initiated a tender offer to purchase up to 26% of outstanding shares of Ingersoll-Rand India Limited from eligible noncontrolling shareholders. The offer price was determined in accordance with SEBI (SAST) regulations as the average market price of shares of IR India Limited on India stock exchanges for a period of sixty days preceding the announcement of the Ingersoll Rand Industrial merger transaction, adjusted for imputed interest for the period of time between announcement of the merger and announcement of the tender offer.
The Company determined this offer was a freestanding financial instrument and not a contractual redemption right embedded in the related equity securities. The noncontrolling interest remained classified and measured in accordance with ASC 810 Consolidation with the carrying value presented in permanent equity.
The tender offer concluded and was settled in July 2020. Approximately 6% of outstanding shares were tendered for an aggregate purchase price of $14.9 million. As a result, the Company’s ownership interest in IR India Limited increased from approximately 74% as of June 30, 2020 to approximately 80%. The Company was required by SEBI regulations to take necessary steps to decrease the non-public shareholding of IR India Limited to at or below 75% within twelve months of the date the non-public shareholding exceeded 75%.
In November 2020, the Company initiated an offer to sell up to 5% of the total shares of IR India Limited on India stock exchanges. The offer for sale concluded and was settled in November 2020. Approximately 5% of outstanding shares were sold for an aggregate purchase price of $11.9 million. As a result, the Company’s ownership interest in IR India Limited decreased from approximately 80% as of September 30, 2020 to approximately 75% after the sale.
Share Repurchase Programs
On August 1, 2018, the Board of Directors of Ingersoll Rand authorized a share repurchase program pursuant to which the Company may repurchase up to $250.0 million of its common stock effective through July 31, 2020, the date on which the repurchase program expired. Under the repurchase program, Ingersoll Rand was authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with all applicable securities laws and regulations, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities Act of 1934.
There were no shares repurchased under the August 1, 2018 program for the year ended December 31, 2020.
On August 24, 2021, the Board of Directors of Ingersoll Rand authorized a share repurchase program pursuant to which the Company may repurchase up to $750.0 million of its common stock (the “2021 Repurchase Program”). Under the repurchase program, Ingersoll Rand is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with all applicable securities laws and regulations, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities Act of 1934.
There were no shares repurchased under the 2021 Repurchase Program for the year ended December 31, 2021.
Other Share Repurchases
On August 6, 2021, KKR completed a secondary offering to sell its remaining 29,788,635 shares of common stock, of which Ingersoll Rand purchased 14,894,317 shares for $49.05 per share.
Note 14: Accumulated Other Comprehensive Income (Loss)
The Company’s other comprehensive income (loss) consists of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations; (ii) realized and unrealized foreign currency gains and losses on intercompany notes of a long-term nature and certain hedges of net investments in foreign operations, net of income taxes; (iii) unrealized gains and losses on cash flow hedges (consisting of interest rate swaps), net of income taxes; and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes. See Note 12 “Benefit Plans” and Note 19 “Hedging Activities, Derivative Instruments and Credit Risk.”
On January 1, 2019, the Company adopted ASU 2018-02 which reclassified stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive income (loss) to retained earnings (accumulated deficit). The Company recorded a cumulative-effect adjustment which increased “Accumulated other comprehensive loss” in the Consolidated Balance Sheet by $8.2 million.
The before tax income (loss) and related income tax effect are as follows.
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments, Net | | Unrealized Gains (Losses) on Cash Flow Hedges | | Pension and Postretirement Benefit Plans | | Total |
| Balance as of December 31, 2018 | $ | (190.6) | | | $ | (11.4) | | | $ | (45.0) | | | $ | (247.0) | |
| Before tax income (loss) | 4.1 | | | 8.2 | | | (9.3) | | | 3.0 | |
| Income tax effect | (5.6) | | | (1.0) | | | 2.8 | | | (3.8) | |
| Other comprehensive income (loss) | (1.5) | | | 7.2 | | | (6.5) | | | (0.8) | |
| Cumulative effect adjustment upon adoption of new accounting standard (ASU 2018-02) | (1.5) | | | (6.7) | | | — | | | (8.2) | |
| Balance as of December 31, 2019 | $ | (193.6) | | | $ | (10.9) | | | $ | (51.5) | | | $ | (256.0) | |
| Before tax income (loss) | 253.1 | | | 14.2 | | | (11.5) | | | 255.8 | |
| Income tax effect | 15.1 | | | (3.3) | | | 2.6 | | | 14.4 | |
| Other comprehensive income (loss) | 268.2 | | | 10.9 | | | (8.9) | | | 270.2 | |
| | | | | | | |
| Balance as of December 31, 2020 | $ | 74.6 | | | $ | — | | | $ | (60.4) | | | $ | 14.2 | |
| Before tax income (loss) | (119.9) | | | — | | | 61.6 | | | (58.3) | |
| Income tax effect | 16.9 | | | — | | | (12.9) | | | 4.0 | |
| Other comprehensive income (loss) | (103.0) | | | — | | | 48.7 | | | (54.3) | |
| Divestiture of foreign subsidiaries | (1.5) | | | — | | | — | | | (1.5) | |
| Balance as of December 31, 2021 | $ | (29.9) | | | $ | — | | | $ | (11.7) | | | $ | (41.6) | |
The tables above include only the other comprehensive income (loss), net of tax, attributable to Ingersoll Rand Inc. Other comprehensive loss, net, attributable to noncontrolling interest holders was $2.3 million and $1.4 million for the years ended December 31, 2021 and 2020, respectively, and related entirely to foreign currency translation adjustments.
Changes in accumulated other comprehensive income (loss) by component for the periods described below are presented in the following table(1).
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments, Net | | Unrealized Gains (Losses) on Cash Flow Hedges | | Pension and Postretirement Benefit Plans | | Total |
| Balance as of December 31, 2018 | $ | (190.6) | | | $ | (11.4) | | | $ | (45.0) | | | $ | (247.0) | |
| Other comprehensive loss before reclassifications | (1.5) | | | (4.7) | | | (8.2) | | | (14.4) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 11.9 | | | 1.7 | | | 13.6 | |
| Other comprehensive income (loss) | (1.5) | | | 7.2 | | | (6.5) | | | (0.8) | |
| Cumulative effect adjustment upon adoption of new accounting standard (ASU 2018-02) | (1.5) | | | (6.7) | | | — | | | (8.2) | |
| Balance as of December 31, 2019 | $ | (193.6) | | | $ | (10.9) | | | $ | (51.5) | | | $ | (256.0) | |
| Other comprehensive income (loss) before reclassifications | 268.2 | | | (3.0) | | | (11.2) | | | 254.0 | |
| Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 13.9 | | | 2.3 | | | 16.2 | |
| Other comprehensive income (loss) | 268.2 | | | 10.9 | | | (8.9) | | | 270.2 | |
| | | | | | | |
| Balance as of December 31, 2020 | $ | 74.6 | | | $ | — | | | $ | (60.4) | | | $ | 14.2 | |
| Other comprehensive income (loss) before reclassifications | (103.0) | | | — | | | 45.2 | | | (57.8) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | — | | | — | | | 3.5 | | | 3.5 | |
| Other comprehensive income (loss) | (103.0) | | | — | | | 48.7 | | | (54.3) | |
| Divestiture of foreign subsidiaries | (1.5) | | | — | | | — | | | (1.5) | |
| Balance as of December 31, 2021 | $ | (29.9) | | | $ | — | | | $ | (11.7) | | | $ | (41.6) | |
(1)All amounts are net of tax. Amounts in parentheses indicate debits.
Reclassifications out of accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019 are presented in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount Reclassified from Accumulated Other Comprehensive Income (Loss) |
| Details about Accumulated Other Comprehensive Income (Loss) Components | | 2021 | | 2020 | | 2019 | | Affected Line(s) in the Statement Where Net Income is Presented |
| Loss on cash flow hedges (interest rate swaps) | | $ | — | | | $ | 18.5 | | | $ | 15.6 | | | Interest expense |
| Benefit for income taxes | | — | | | (4.6) | | | (3.7) | | | Benefit for income taxes |
| Loss on cash flow hedges (interest rate swaps), net of tax | | $ | — | | | $ | 13.9 | | | $ | 11.9 | | | |
| | | | | | | | |
Amortization of defined benefit pension and other postretirement benefit items(1) | | $ | 4.7 | | | $ | 3.0 | | | $ | 2.2 | | | Cost of sales and Selling and administrative expenses |
| Benefit for income taxes | | (1.2) | | | (0.7) | | | (0.5) | | | Benefit for income taxes |
| Amortization of defined benefit pension and other postretirement benefit items, net of tax | | $ | 3.5 | | | $ | 2.3 | | | $ | 1.7 | | | |
| | | | | | | | |
| Total reclassifications for the period | | $ | 3.5 | | | $ | 16.2 | | | $ | 13.6 | | | |
(1)These components are included in the computation of net periodic benefit cost. See Note 12 “Benefit Plans” for additional details.
Note 15: Revenue from Contracts with Customers
Overview
The Company recognizes revenue when it has satisfied its obligation and control is transferred to the customer. The amount of revenue recognized includes adjustments for any variable consideration, such as rebates, sales discounts and liquidated damages, which are included in the transaction price, and allocated to each performance obligation. The variable consideration is estimated throughout the course of the contract using the Company’s best estimates. Judgements impacting variable
consideration related to material rebate and sales discount programs, and significant contracts containing liquidated damage clauses are governed by management review processes.
The majority of the Company’s revenues are derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or services have been rendered.
The Company has certain long duration engineered to order (“ETO”) contracts that require highly-engineered solutions designed to customer specific applications. For contracts where the contractual deliverables have no alternative use and the contract termination clauses provide for the recovery of cost plus a reasonable margin, revenue is recognized over time based on the Company’s progress in satisfying the contractual performance obligations, generally measured as the ratio of actual costs incurred to date to the estimated total costs to complete the contract. For contracts with termination provisions that do not provide for recovery of cost and a reasonable margin, revenue is recognized at a point in time, generally at shipment or delivery to the customer. Identification of performance obligations, determination of alternative use, assessment of contractual language regarding termination provisions, and estimation of total project costs are all significant judgments required in the application of ASC 606.
Contractual specifications and requirements may be modified. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. In the event a contract modification is for goods or services that are not distinct in the contract, and therefore, form part of a single performance obligation that is partially satisfied as of the modification date, the effect of the contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognized on a cumulative catch-up basis.
Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Sales commissions are due at either collection of payment from customers or recognition of revenue. Applying the practical expedient from ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in “Selling and administrative expenses” in the Consolidated Statements of Operations.
Disaggregation of Revenue
The following table provides disaggregated revenue by reportable segment for the years ended December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Industrial Technologies and Services | | Precision and Science Technologies | | Total |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Primary Geographic Markets | | | | | | | | | | | |
| United States | $ | 1,554.6 | | | $ | 1,142.8 | | | $ | 432.2 | | | $ | 297.1 | | | $ | 1,986.8 | | | $ | 1,439.9 | |
| Other Americas | 264.9 | | | 280.7 | | | 20.5 | | | 38.7 | | | 285.4 | | | 319.4 | |
| Total Americas | 1,819.5 | | | 1,423.5 | | | 452.7 | | | 335.8 | | | 2,272.2 | | | 1,759.3 | |
| EMEIA | 1,363.4 | | | 1,054.4 | | | 368.1 | | | 256.5 | | | 1,731.5 | | | 1,310.9 | |
| Asia Pacific | 978.1 | | | 770.3 | | | 170.6 | | | 132.7 | | | 1,148.7 | | | 903.0 | |
| Total | $ | 4,161.0 | | | $ | 3,248.2 | | | $ | 991.4 | | | $ | 725.0 | | | $ | 5,152.4 | | | $ | 3,973.2 | |
| | | | | | | | | | | |
| Product Categories | | | | | | | | | | | |
Original equipment(1) | $ | 2,467.1 | | | $ | 1,942.8 | | | $ | 822.3 | | | $ | 618.8 | | | $ | 3,289.4 | | | $ | 2,561.6 | |
Aftermarket(2) | 1,693.9 | | | 1,305.4 | | | 169.1 | | | 106.2 | | | 1,863.0 | | | 1,411.6 | |
| Total | $ | 4,161.0 | | | $ | 3,248.2 | | | $ | 991.4 | | | $ | 725.0 | | | $ | 5,152.4 | | | $ | 3,973.2 | |
| | | | | | | | | | | |
| Pattern of Revenue Recognition | | | | | | | | | | | |
Revenue recognized at point in time(3) | $ | 3,811.3 | | | $ | 2,937.1 | | | $ | 988.3 | | | $ | 725.0 | | | $ | 4,799.6 | | | $ | 3,662.1 | |
Revenue recognized over time(4) | 349.7 | | | 311.1 | | | 3.1 | | | — | | | 352.8 | | | 311.1 | |
| Total | $ | 4,161.0 | | | $ | 3,248.2 | | | $ | 991.4 | | | $ | 725.0 | | | $ | 5,152.4 | | | $ | 3,973.2 | |
(1)Revenues from sales of capital equipment within the Industrial Technologies and Services segment and sales of components to original equipment manufacturers in the Precision and Science Technologies segment.
(2)Revenues from sales of spare parts, accessories, other components and services in support of maintaining customer owned, installed base of the Company’s original equipment. Service revenue represents less than 10% of consolidated revenue.
(3)Revenues from short and long duration product and service contracts recognized at a point in time when control is transferred to the customer generally when product delivery has occurred and services have been rendered.
(4)Revenues primarily from long duration ETO product contracts, certain multi-year service contracts, and certain contracts for the delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed.
Performance Obligations
The majority of the Company’s contracts have a single performance obligation as the promise to transfer goods and/or services. For contracts with multiple performance obligations, the Company utilizes observable prices to determine standalone selling price or cost plus margin if a standalone price is not available. The Company has elected to account for shipping and handling activities as fulfillment costs and not a separate performance obligation. If control transfers and related revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued.
The Company’s primary performance obligations include delivering standard or configured to order (“CTO”) goods to customers, designing and manufacturing a broad range of equipment customized to a customer’s specifications in ETO arrangements, rendering of services (maintenance and repair contracts), and certain extended or service type warranties. For incidental items that are immaterial in the context of the contract, costs are expensed as incurred or accrued at delivery.
As of December 31, 2021, for contracts with an original duration greater than one year, the Company expects to recognize revenue in the future related to unsatisfied (or partially satisfied) performance obligations of $472.3 million in the next twelve months and $396.7 million in periods thereafter. The performance obligations that are unsatisfied (or partially satisfied) are primarily related to orders for goods or services that were placed prior to the end of the reporting period and have not been delivered to the customer, on-going work on ETO contracts where revenue is recognized over time and service contracts with an original duration greater than one year.
Contract Balances
The following table provides the contract balances as of December 31, 2021 and December 31, 2020 presented in the Consolidated Balance Sheets.
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Accounts receivable, net | $ | 948.6 | | | $ | 861.8 | |
| Contract assets | 60.8 | | | 60.4 | |
| Contract liabilities | 243.5 | | | 166.2 | |
Accounts receivable, net – Amounts due where the Company’s right to receive cash is unconditional. Customer receivables are recorded at face amount less an allowance for credit losses. The Company maintains an allowance for credit losses as a result of customers’ inability to make required payments. Management evaluates the aging of customer receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of customer receivables that may not be collected in the future and records the appropriate provision.
Contract assets – The Company’s rights to consideration for the satisfaction of performance obligations subject to constraints apart from timing. Contract assets are transferred to receivables when the right to collect consideration becomes unconditional. Contract assets are presented net of progress billings and related advances from customers.
Contract liabilities – Advance payments received from customers for contracts for which revenue is not yet recognized. Contract liability balances are generally recognized in revenue within twelve months. Of the $166.2 million in contract liabilities as of December 31, 2020, we recognized substantially all as revenue in the year ended December 31, 2021.
Contract assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Contract assets and liabilities are presented net on a contract level, where required.
Payments from customers are generally due 30 to 60 days after invoicing. Invoicing for sales of standard products generally coincides with shipment or delivery of goods. Invoicing for CTO and ETO contracts typically follows a schedule for billing at contractual milestones. Payment milestones normally include down payments upon the contract signing, completion of product design, completion of customer’s preliminary inspection, shipment or delivery, completion of installation, and customer’s on-site inspection. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets.
The Company has elected the practical expedient from ASC 606-10-32-18 and does not adjust the transaction price for the effects of a financing component if, at contract inception, the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Note 16: Income Taxes
Income (loss) before income taxes for the years ended December 31, 2021, 2020 and 2019 consisted of the following.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| U.S. | $ | 121.3 | | | $ | (158.4) | | | $ | (100.5) | |
| Non-U.S. | 391.7 | | | 113.0 | | | 210.7 | |
| Income (loss) before income taxes | $ | 513.0 | | | $ | (45.4) | | | $ | 110.2 | |
The following table details the components of the Provision (benefit) for income taxes for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Current: | | | | | |
| U.S. federal | $ | (33.1) | | | $ | 6.6 | | | $ | (14.6) | |
| U.S. state and local | 5.8 | | | 6.7 | | | 2.9 | |
| Non-U.S. | 109.1 | | | 79.6 | | | 45.2 | |
| Deferred: | | | | | |
| U.S. federal | (19.5) | | | (33.4) | | | (13.2) | |
| U.S. state and local | (0.9) | | | (2.9) | | | 0.5 | |
| Non-U.S. | (83.2) | | | (45.2) | | | (7.9) | |
| Provision (benefit) for income taxes | $ | (21.8) | | | $ | 11.4 | | | $ | 12.9 | |
Certain prior period amounts within this Note have been reclassified to conform to the current period presentation.
The U.S. federal corporate statutory rate is reconciled to the Company’s effective income tax rate for the years ended December 31, 2021, 2020 and 2019 as follows.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| U.S. federal corporate statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State and local taxes, less federal tax benefit | 1.1 | | | (8.0) | | | 4.1 | |
| | | | | |
| Net effects of foreign tax rate differential | 1.0 | | | (14.6) | | | 2.3 | |
| Withholding tax | 3.0 | | | (12.9) | | | — | |
| Repatriation cost | 1.4 | | | 17.7 | | | — | |
| | | | | |
| Global Intangible Low-Tax Income (“GILTI”) | 2.3 | | | (11.7) | | | (4.3) | |
| ASC 740-30 (formerly APB 23) | 2.9 | | | (18.6) | | | 2.0 | |
| Valuation allowance changes | (5.4) | | | 4.8 | | | (4.3) | |
| Uncertain tax positions | (1.3) | | | (4.7) | | | 0.7 | |
| Equity compensation | (2.5) | | | 6.1 | | | (13.9) | |
| | | | | |
| Capital gain | — | | | — | | | 5.1 | |
| Nondeductible acquisition costs | 0.4 | | | (7.7) | | | 6.1 | |
| Foreign Derived Intangible Income (“FDII”) deduction | (3.2) | | | 10.1 | | | — | |
| Tax credits | (0.8) | | | 4.7 | | | — | |
| Income not subject to tax | (3.3) | | | — | | | — | |
| Utilization of capital loss | (9.1) | | | — | | | — | |
| Non-U.S. deferred change related to asset sales | (8.0) | | | — | | | — | |
| Return to provision adjustment | (1.3) | | | 0.5 | | | — | |
| Other, net | (2.4) | | | (11.8) | | | (7.1) | |
| Effective income tax rate | (4.2) | % | | (25.1) | % | | 11.7 | % |
The principal items that gave rise to deferred income tax assets and liabilities as of December 31, 2021 and 2020 are as follows.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Deferred Tax Assets: | | | |
| Reserves and accruals | $ | 69.3 | | | $ | 72.9 | |
| Allowance for credit losses | 10.0 | | | 11.0 | |
| Inventory reserve | 12.0 | | | 10.4 | |
| Pension and postretirement benefit plans | 41.7 | | | 62.6 | |
| Tax loss carryforwards | 95.9 | | | 101.7 | |
| Deferred taxes recorded in other comprehensive income | 10.2 | | | 18.0 | |
| Foreign tax credit carryforwards | 43.8 | | | 74.6 | |
| Other | 30.9 | | | 10.7 | |
| Total deferred tax assets | 313.8 | | | 361.9 | |
| Valuation allowance | (106.4) | | | (140.6) | |
| Deferred Tax Liabilities: | | | |
| LIFO inventory | (16.2) | | | (16.2) | |
| Investment in partnership | (37.4) | | | — | |
| Property, plant and equipment | (40.9) | | | (49.4) | |
| Intangible assets | (742.1) | | | (809.9) | |
| Unremitted foreign earnings | (49.6) | | | (32.5) | |
| Deferred taxes recorded in other comprehensive income | — | | | — | |
| Other | (1.6) | | | — | |
| Total deferred tax liabilities | (887.8) | | | (908.0) | |
| Net deferred income tax liability | $ | (680.4) | | | $ | (686.7) | |
The Company believes that it is more likely than not that it will realize its deferred tax assets through the reduction of future taxable income, other than for the deferred tax assets reflected below. Tax attributes and related valuation allowances as of December 31, 2021 were as follows.
| | | | | | | | | | | | | | | | | |
| Tax Benefit | | Valuation Allowance | | Carryforward Period Ends |
| Tax Attributes to be Carried Forward | | | | | |
| U.S. federal net operating loss | $ | 0.3 | | | $ | (0.3) | | | Unlimited |
| U.S. federal net operating loss | 6.3 | | | (0.1) | | | 2031-2040 |
| U.S. federal capital loss | — | | | — | | | 2022 |
| U.S. federal capital loss | — | | | — | | | 2031-2040 |
| U.S. federal tax credit | 43.8 | | | (43.8) | | | 2022-2031 |
| Alternative minimum tax credit | 0.8 | | | (0.1) | | | Unlimited |
| U.S. state and local net operating losses | 6.5 | | | (3.1) | | | 2022-2041 |
| U.S. state and local tax credit | 0.2 | | | — | | | 2022-2040 |
| Non U.S. net operating losses | 70.7 | | | (49.7) | | | Unlimited |
| Non U.S. capital losses | 0.8 | | | (0.7) | | | Unlimited |
| Excess interest | 11.3 | | | (3.7) | | | Unlimited |
| Other deferred tax assets | 3.7 | | | (4.9) | | | Unlimited |
| Total tax carryforwards | $ | 144.4 | | | $ | (106.4) | | | |
A reconciliation of the changes in the valuation allowance for deferred tax assets for the years ended December 31, 2021, 2020 and 2019 are as follows.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Beginning balance | $ | 140.6 | | | $ | 67.9 | | | $ | 72.5 | |
Revaluation or additions due to acquisitions or mergers(1) | — | | | 63.3 | | | — | |
| | | | | |
| Charged to tax expense | (27.6) | | | 8.3 | | | (5.4) | |
| Charged to other accounts | (6.6) | | | 1.1 | | | 0.1 | |
Deductions(2) | — | | | — | | | 0.7 | |
| Ending balance | $ | 106.4 | | | $ | 140.6 | | | $ | 67.9 | |
(1)Revaluation for the tax year ended December 31, 2020 relates to the inclusion of Ingersoll Rand’s opening balance sheet (“OBS”) beginning valuation allowance.
(2)Deductions relate to the realization of net operating losses or the removal of deferred tax assets.
Total unrecognized tax benefits were $21.1 million, $27.8 million and $12.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. The net decrease in this balance primarily relates to the lapse in statute of limitations of $(11.8) million. Included in total unrecognized benefits at December 31, 2021 is $21.1 million of unrecognized tax benefits that would affect the Company’s effective tax rate if recognized, of which $0.1 million would be offset by a reduction of a corresponding deferred tax asset. The balance of total unrecognized tax benefits is not expected to significantly increase or decrease within the next twelve months. Below is a tabular reconciliation of the changes in total unrecognized tax benefits during the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Beginning balance | $ | 27.8 | | | $ | 12.5 | | | $ | 11.5 | |
| Gross increases for tax positions of prior years | 0.8 | | | — | | | 0.6 | |
| | | | | |
| Gross increases for tax positions of current year | 5.3 | | | 16.8 | | | — | |
| | | | | |
| Lapse of statute of limitations | (11.8) | | | (3.5) | | | — | |
| Changes due to currency fluctuations | (1.0) | | | 2.0 | | | 0.4 | |
| Ending balance | $ | 21.1 | | | $ | 27.8 | | | $ | 12.5 | |
The Company includes interest expense and penalties related to unrecognized tax benefits as part of the provision for income taxes. The Company’s income tax liabilities at December 31, 2021 and 2020 include accrued interest and penalties of $1.2 million and $2.3 million, respectively.
The statutes of limitations for U.S. Federal tax returns are open beginning with the 2018 tax year, and state returns are open beginning with the 2016 tax year.
The Company is subject to income tax in approximately 47 jurisdictions outside the U.S. The statute of limitations varies by jurisdiction with 2016 being the oldest year still open. The Company’s significant operations outside the U.S. are located in the United Kingdom, Germany, China, Ireland, Hong Kong, and Singapore. In Germany, a tax audit covering tax years 2015-2019 was still open. The Company is under audit in Italy for tax years 2016 – 2018. However, as this audit covers pre-merger tax years for legacy Ingersoll Rand Industrial entities, the Company has been indemnified by Trane Technologies for any future liability arising from the audit. Note that any other liabilities arising from pre-merger tax years for legacy Ingersoll Rand Industrial entities would be similarly indemnified.
The Company does not assert the ASC 740-30 (formerly APB 23) indefinite reinvestment of the Company’s historical non-U.S. earnings or future non-U.S. earnings. This assertion has not changed following the merger. The Company records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the United States. The Company’s deferred income tax liability as of December 31, 2021 was $49.6 million which is a significant increase over prior year due mainly to increased foreign operations as a result of the Ingersoll Rand Industrial acquisition.
Note 17: Leases
The Company has operating and financing leases for real estate, vehicles, IT equipment, office equipment and production equipment. The Company determines if an arrangement is a lease and identifies the classification of the lease as a financing lease or an operating lease at inception. Operating leases are recorded as operating lease right-of-use assets (“ROU assets”) in “Other assets” and operating lease liabilities in “Accrued liabilities” and “Other liabilities” in the Consolidated Balance Sheets. Financing leases are recorded as financing ROUs in “Property, plant and equipment” and lease liabilities in “Short-term
borrowings and current maturities of long-term debt” and “Long-term debt, less current maturities” in the Consolidated Balance Sheets.
At the date of commencement, lease liabilities are recorded at the present value of the future minimum lease payments over the lease term. The lease term is equal to the initial term at commencement plus any renewal or extension options that the Company is reasonably certain will be exercised. ROU assets at the date of commencement are equal to the amount of the initial lease liability, the initial direct costs incurred by the Company and any prepaid lease payments less any incentives received.
Subsequent to the commencement date, operating lease liabilities are recorded at the present value of unpaid lease payments discounted at a discount rate established at the commencement date. Due to the absence of an implicit rate in the Company’s lease contracts, an incremental borrowing rate is used in the determination of the present value of future lease payments. Incremental borrowing rates for a lease are based on the lease term, lease currency and the Company’s credit spread. Operating ROU assets are recorded as the beginning balance less accumulated amortization with accumulated amortization equaling the straight-lined lease expense less the periodic accretion of the lease liability using the effective interest rate method.
Subsequent to the commencement date, financing lease liabilities are increased to reflect interest on the lease liability and decreased for principal lease payments made. The financing ROU asset is measured at cost less amortization expense and any accumulated impairment loss. Amortization expense is calculated on a straight-line basis over the lease term or remaining useful life.
The Company’s lease terms allow for the extension or termination of its leases and accounts for the extension and termination when it is reasonably certain that the Company will exercise the option or terminate the lease. Reassessment of the lease term occurs when there is a significant event or a significant change in circumstances that is within the control of the Company that directly affects whether the Company is reasonably certain to exercise or not to exercise an option to extend or terminate the lease or to purchase the underlying asset.
Contractual specifications and requirements may be modified. The Company considers contract modifications to exist when the modification includes a change to the contractual terms, scope of the lease or the consideration given. In the event that the right to use an additional asset is granted and the lease payments associated with the additional asset are commensurate with the ROU asset’s standalone price, the modification is accounted for as a separate contract and the original contract remains unchanged. In the event that a single lease is modified, the Company reassessed the classification of the modified lease as of the effective date of the modification based on the modified terms and accounts for initial direct costs, lease incentives and any other payments made to or by the Company in connection with the modification in the same manner that items would be accounted for in connection with a new lease. If there is an additional ROU asset included, the lease term is extended or reduced, or the consideration is the only change in the contract, the Company reallocates the remaining consideration in the contract and remeasures the lease liability using a discount rate determined at the effective date of the modification. The remeasured lease liability for the modified lease is an adjustment to the corresponding ROU asset and does not impact the Consolidated Statements of Operations. In the event of a full or partial termination, the carrying value of the ROU asset decreases on a basis proportionate to the full or partial termination and any difference between the reduction in the lease liability and the proportionate reduction of the ROU asset is recognized as a gain or loss at the effective date of the modification.
The Company does not recognize leases with an original term of less than 12 months on its balance sheet and continues to expense such leases. The Company also elected the practical expedient allowing the Company to account for each separate lease component of a contract and its associated non-lease component as a single lease component. This practical expedient was applied to all underlying asset classes. Variable lease expense was not material.
The components of lease expense for the years ended December 31, 2021 and 2020 are as follows.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Operating lease cost | $ | 50.6 | | | $ | 46.1 | |
| | | |
| Finance lease cost | | | |
| Amortization of right-of-use assets | $ | 1.5 | | | $ | 1.2 | |
| Interest on lease liabilities | 1.1 | | | 1.1 | |
| Total finance lease cost | $ | 2.6 | | | $ | 2.3 | |
| | | |
| Short-term lease cost | $ | 2.0 | | | $ | 2.0 | |
Supplemental cash flow information related to leases for the years ended December 31, 2021 and 2020 is as follows.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Supplemental Cash Flows Information | | | |
| Cash Paid for Amounts Included in the Measurement of Lease Liabilities | | | |
| Operating cash flows from operating leases | $ | 52.0 | | | $ | 56.6 | |
| Operating cash flows from finance leases | 1.1 | | | 1.1 | |
| Financing cash flows from finance leases | 1.1 | | | 0.7 | |
Leased Assets Obtained in Exchange for New Operating Lease Liabilities(1) | 15.8 | | | 161.3 | |
(1)For the year ended December 31, 2020, this included leases related to the acquisition of Ingersoll Rand Industrial.
Supplemental balance sheet information related to leases is as follows.
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Operating leases | | | |
| Other assets | $ | 101.8 | | | $ | 142.9 | |
| | | |
| Accrued liabilities | 34.9 | | | 47.1 | |
| Other liabilities | 61.0 | | | 90.5 | |
| Total operating lease liabilities | $ | 95.9 | | | $ | 137.6 | |
| | | |
| Finance Leases | | | |
| Property, plant and equipment | $ | 15.1 | | | $ | 15.7 | |
| | | |
| Short-term borrowings and current maturities of long-term debt | 1.1 | | | 0.7 | |
| Long-term debt, less current maturities | 16.0 | | | 16.5 | |
| Total finance lease liabilities | $ | 17.1 | | | $ | 17.2 | |
| | | |
| Weighted Average Remaining Lease Term (in years) | | | |
| Operating leases | 4.0 | | 3.5 |
| Finance leases | 11.9 | | 13.2 |
| | | |
| Weighted Average Discount Rate | | | |
| Operating leases | 1.8 | % | | 1.8 | % |
| Finance leases | 6.3 | % | | 6.4 | % |
Maturities of lease liabilities as of December 31, 2021 are as follows.
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| 2022 | $ | 36.1 | | | $ | 2.2 | |
| 2023 | 26.9 | | | 2.2 | |
| 2024 | 14.5 | | | 2.2 | |
| 2025 | 7.6 | | | 2.0 | |
| 2026 | 5.1 | | | 2.0 | |
| Thereafter | 9.2 | | | 14.6 | |
| Total lease payments | $ | 99.4 | | | $ | 25.2 | |
| Less imputed interest | (3.5) | | | (8.1) | |
| Total | $ | 95.9 | | | $ | 17.1 | |
Note 18: Stock-Based Compensation Plans
The Company has outstanding stock-based compensation awards granted under the 2013 Stock Incentive Plan (“2013 Plan”) and the 2017 Omnibus Incentive Plan, as amended (“2017 Plan”). Following the Company’s initial public offering, the
Company grants stock-based compensation awards pursuant to the 2017 Plan and ceased granting new awards pursuant to the 2013 Plan.
2017 Omnibus Incentive Plan
In May 2017, the Company’s Board approved the 2017 Plan. Additionally, in February 2020, the Company’s stockholders approved the amendment and restatement of the 2017 Plan. Under the terms of the Plan, the Company’s Board may grant up to 19.6 million stock based and other incentive awards. Any shares of common stock subject to outstanding awards granted under the Company’s 2013 plan that, after the effective date of the 2017 Plan, expire or are otherwise forfeited or terminated in accordance with their terms are also available for grant under the 2017 Plan. All stock options were granted to employees, directors and advisors with an exercise price equal to the fair value of the Company’s per share common stock at the date of grant. Stock option awards typically vest over four or five years and expire ten years from the date of grant.
2013 Stock Incentive Plan
The Company adopted the 2013 Plan on October 14, 2013 as amended on April 27, 2015 under which the Company had the ability to grant stock-based compensation awards to employees, directors and advisors. The total number of shares available for grant under the 2013 Plan and reserved for issuance was 20.9 million shares. All stock options were granted to employees, directors and advisors with an exercise price equal to the fair value of the Company’s per share common stock at the date of grant. Stock option awards vested over either five, four, or three years with 50% of each award vesting based on time and 50% of each award vesting based on the achievement of certain financial targets.
Acquisition of Ingersoll Rand Industrial
As of the acquisition date of February 29, 2020, Ingersoll Rand Industrial employees’ unvested equity awards and a limited number of vested awards were converted into equity awards denominated in shares of the Company’s common stock based on a defined exchange ratio. Ingersoll Rand Industrial employees’ equity awards were converted into Ingersoll Rand stock options and restricted stock units.
For converted restricted stock units, the fair value of the equity award is based on the market price of the common stock on the grant date. The replacement restricted stock units will generally be governed by the same terms and conditions as those applicable prior to the acquisition. The portion of fair value of the replacement awards related to services provided prior to the acquisition was accounted for as consideration transferred. The remaining portion of the fair value is associated with future service and is recognized as compensation expense over the vesting period.
For converted stock options, the exercise price per share of the converted award was equal to the exercise price per share of the stock option award immediately prior to the completion of the acquisition divided by the exchange ratio. The replacement options will generally be governed by the same terms and conditions as those applicable prior to the acquisition. The portion of fair value of the replacement awards related to services provided prior to the acquisition was accounted for as consideration transferred. The remaining portion of fair value is associated with future service and is recognized as compensation expense over the vesting period. The fair value of stock options that the Company assumed in connection with the acquisition of Ingersoll Rand Industrial was estimated using the Black-Scholes model with the following assumptions.
| | | | | |
| Converted Stock Option Awards Assumptions: | |
| Expected life of options (in years) | 2.0 - 3.6 |
| Risk-free interest rate | 0.9 | % |
| Assumed volatility | 34.2 | % |
| Expected dividend rate | 0.0 | % |
Stock-Based Compensation Expense
Stock-based compensation expense for the years ended December 31, 2021, 2020 and 2019 are included in “Cost of sales” and “Selling and administrative expenses” in the Consolidated Statements of Operations and are as follows.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Stock-based compensation expense recognized in: | | | | | |
| Continuing operations | $ | 87.2 | | | $ | 47.5 | | | $ | 18.7 | |
| Discontinued operations | 10.9 | | | 3.8 | | | 0.5 | |
| Total stock-based compensation expense | $ | 98.1 | | | $ | 51.3 | | | $ | 19.2 | |
Stock-Based Compensation Expense - Continuing Operations
For the year ended December 31, 2021, the $87.2 million of stock-based compensation expense included expense for equity awards granted under the 2013 Plan and 2017 Plan of $85.8 million and an increase in the liability for stock appreciation rights (“SAR”) of $1.4 million. Of the $85.8 million of expense for equity awards granted under the 2013 Plan and 2017 Plan, $57.4 million related to the $150 million equity grant to nearly 16,000 employees worldwide announced in the third quarter of 2020.
For the year ended December 31, 2020, the $47.5 million of stock-based compensation expense included expense for modifications of equity awards for certain former employees of $2.9 million, expense for equity awards granted under the 2013 Plan and 2017 Plan of $43.3 million and an increase in the liability for SARs of $1.3 million. The $2.9 million of stock-based compensation expense for modifications provided continued vesting through scheduled vesting dates of certain equity awards for certain former employees. These costs are included in “Selling and administrative expenses” in the Consolidated Statements of Operations. Of the $43.3 million of expense for equity awards granted under the 2013 Plan and 2017 Plan, $23.4 million related to the $150 million equity grant to nearly 16,000 employees worldwide announced in the third quarter of 2020.
For the year ended December 31, 2019, the $18.7 million of stock-based compensation expense included expense for modifications of equity awards for certain former employees of $1.0 million, expense for equity awards granted under the 2013 Plan and 2017 Plan of $9.7 million and an increase in the liability for SARs of $8.0 million. The $1.0 million of stock-based compensation expense for modifications provided continued vesting through scheduled vesting dates and extended expiration dates for certain former employees. These costs are included in “Cost of sales” and “Selling and administrative expenses” in the Consolidated Statement of Operations.
As of December 31, 2021, there was $85.5 million of total unrecognized compensation expense related to outstanding stock option, restricted stock unit and performance share unit awards.
SARs, granted under the 2013 Plan, are expected to be settled in cash and are accounted for as liability awards. As of December 31, 2021 and 2020 a liability of approximately $4.5 million and $3.5 million, respectively, for SARs was included in “Accrued liabilities” in the Consolidated Balance Sheets.
Stock-Based Compensation Expense - Discontinued Operations
For the year ended December 31, 2021, the $10.9 million of stock-based compensation expense included expense for modifications of equity awards of $3.8 million and expense for equity awards granted under the 2013 and 2017 Plan of $7.1 million. The modifications allowed for the vesting of the first tranche of the All-Employee Equity Grant awarded to HPS and SVT employees despite their termination due to the divestitures. Of the $7.1 million of expense for equity awards granted under the 2013 Plan and 2017 Plan, $5.4 million related to the All-Employee Equity Grant.
Stock Option Awards
A summary of the Company’s stock option (including SARs) activity for the year ended December 31, 2021 is presented in the following table (underlying shares in thousands).
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| Shares | | Weighted-Average Exercise Price
(per share) | | Wtd. Avg. Remaining Contractual Term (years) | | Aggregate Intrinsic Value of In-The-Money Options
(in millions) |
| Outstanding at December 31, 2020 | 7,742 | | | $ | 18.47 | | | | | |
| | | | | | | |
| Granted | 795 | | | 45.78 | | | | | |
| Exercised or Settled | (1,530) | | | 16.11 | | | | | |
| Forfeited | (255) | | | 30.77 | | | | | |
| Expired | (6) | | | 13.01 | | | | | |
| Outstanding at December 31, 2021 | 6,746 | | | 21.76 | | | 5.7 | | $ | 268.7 | |
| | | | | | | |
| Vested at December 31, 2021 | 4,351 | | | 15.89 | | | 4.4 | | $ | 198.2 | |
The per-share weighted average grant date fair value of stock options granted during the years ended December 31, 2021, 2020 and 2019 was $18.06, $9.29 and $10.16, respectively.
The intrinsic value of stock options exercised was $53.5 million, $66.0 million and $109.8 million during the years ended December 31, 2021, 2020 and 2019, respectively.
The following assumptions were used to estimate the fair value of options granted during the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| | | | | |
| Expected life of options (in years) | 6.3 | | 6.3 | | 6.3 |
| Risk-free interest rate | 0.9% - 1.3% | | 0.4% - 1.5% | | 1.7% - 2.6% |
| Assumed volatility | 38.6% - 39.4% | | 24.6% - 41.1% | | 24.8% - 31.8% |
| Expected dividend rate | 0.0% - 0.1% | | 0.0 | % | | 0.0 | % |
Restricted Stock Unit Awards
Restricted stock units are typically granted in the first quarter of the year to employees and non-employee directors based on the market price of the Company’s common stock on the grant date and recognized in compensation expense over the vesting period. Eligible employees were also granted restricted stock units, during the third quarter of 2020, that vest ratably over two years, subject to the passage of time and the employee’s continued employment during such period. In some instances, such as death, awards may vest concurrently with or following an employee’s termination.
A summary of the Company’s restricted stock unit activity for the year ended December 31, 2021 is presented in the following table (underlying shares in thousands).
| | | | | | | | | | | |
| Shares | | Weighted-Average Grant-Date Fair Value |
| Non-vested as of December 31, 2020 | 5,546 | | | $ | 33.09 | |
| | | |
| Granted | 340 | | | 45.76 | |
| Vested | (2,542) | | | 33.44 | |
| Forfeited | (667) | | | 34.27 | |
| Non-vested as of December 31, 2021 | 2,677 | | | 34.08 | |
Performance Share Unit Awards
Performance share units are granted to certain key employees and are subject to a three year performance period. The number of shares issued at the end of the performance period is determined by the Company’s total shareholder return percentile rank versus the S&P 500 index for the three year performance period. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a three year period.
A summary of the Company’s performance stock unit activity for the year ended December 31, 2021 is presented in the following table (underlying shares in thousands).
| | | | | | | | | | | |
| Shares | | Weighted-Average Grant-Date Fair Value |
| Non-vested as of December 31, 2020 | 255 | | | $ | 29.72 | |
| Granted | 158 | | | 55.84 | |
| Vested | — | | | — | |
| Forfeited | (20) | | | 36.36 | |
| Non-vested as of December 31, 2021 | 393 | | | 39.89 | |
The following assumptions were used to estimate the fair value of performance share units granted during the year ended December 31, 2021 and 2020 using the Monte Carlo simulation pricing model.
| | | | | | | | | | | |
| 2021 | | 2020 |
| | | |
| Expected term (in years) | 2.9 | | 2.8 |
| Risk-free interest rate | 0.2 | % | | 0.5 | % |
| Assumed volatility | 36.9 | % | | 35.2 | % |
| Expected dividend rate | 0.0 | % | | 0.0 | % |
Note 19: Hedging Activities, Derivative Instruments and Credit Risk
Hedging Activities
The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in interest rates and foreign currency exchange rates. The Company selectively uses derivative financial instruments (“derivatives”), including foreign currency forward contracts and interest rate swaps, to manage the risks from fluctuations in foreign currency exchange rates and interest rates, respectively. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in interest rates and foreign currency exchange rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.
The Company’s exposure to interest rate risk results primarily from its variable-rate borrowings. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by using pay-fixed interest rate swaps from time to time as cash flow hedges of variable rate debt in order to adjust the relative fixed and variable proportions.
A substantial portion of the Company’s operations is conducted by its subsidiaries outside of the United States in currencies other than the USD. Almost all of the Company’s non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. Other than the USD, the EUR, GBP, and Chinese Renminbi are the principal currencies in which the Company and its subsidiaries enter into transactions. The Company is exposed to the impacts of changes in foreign currency exchange rates on the translation of its non-U.S. subsidiaries’ assets, liabilities and earnings into USD. The Company has certain U.S. subsidiaries borrow in currencies other than the USD.
The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency. To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances at least quarterly. The Company also selectively uses forward currency contracts to manage this risk. These contracts for the sale or purchase of non-functional currencies generally mature within one year.
Derivative Instruments
The following table summarizes the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Derivative Classification | | Notional Amount(1) | | Fair Value(1) Other Current Assets | | Fair Value(1) Other Assets | | Fair Value(1) Accrued Liabilities | | Fair Value(1) Other Liabilities |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | |
| Foreign currency forwards | Fair Value | | $ | 22.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Foreign currency forwards | Fair Value | | $ | 19.3 | | | $ | — | | | $ | — | | | $ | 0.2 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Derivative Classification | | Notional Amount(1) | | Fair Value(1) Other Current Assets | | Fair Value(1) Other Assets | | Fair Value(1) Accrued Liabilities | | Fair Value(1) Other Liabilities |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | |
| Foreign currency forwards | Fair Value | | $ | 230.5 | | | $ | 2.9 | | | $ | — | | | $ | — | | | $ | — | |
| Foreign currency forwards | Fair Value | | $ | 51.2 | | | $ | — | | | $ | — | | | $ | 0.7 | | | $ | — | |
(1)Notional amounts represent the gross contract amounts of the outstanding derivatives excluding the total notional amount of positions that have been effectively closed through offsetting positions. The net gains and net losses associated with positions that have been effectively closed through offsetting positions but not yet settled are included in the asset and liability derivatives fair value columns, respectively.
Gains and losses on derivatives designated as cash flow hedges included in the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Interest Rate Swap Contracts | | | | | |
| Gain (loss) recognized in AOCI on derivatives | $ | — | | | $ | (4.4) | | | $ | (7.4) | |
Loss reclassified from AOCI into income (effective portion)(1) | — | | | (18.5) | | | (15.6) | |
| | | | | |
(1)Losses on derivatives reclassified from accumulated other comprehensive income (“AOCI”) into income were included in “Interest expense” in the Consolidated Statements of Operations.
As of December 31, 2021, the Company has no interest rate swap contracts. Our previous interest rate swap contracts expired during the third quarter of 2020 and the remaining amounts in AOCI were reclassified to Interest Expense during the same period. The Company’s variable rate borrowings outstanding as of December 31, 2021 were $2,778.1 million and €590.6 million.
The Company had 5 foreign currency forward contracts outstanding as of December 31, 2021 with notional amounts ranging from $2.3 million to $14.9 million. These contracts are used to hedge the change in fair value of recognized foreign currency denominated assets or liabilities caused by changes in currency exchange rates. The changes in the fair value of these contracts generally offset the changes in the fair value of a corresponding amount of the hedged items, both of which are included within “Other operating expense, net” in the Consolidated Statements of Operations. The Company’s foreign currency forward contracts are subject to master netting arrangements or agreements between the Company and each counterparty for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract with that certain counterparty. It is the Company’s practice to recognize the gross amounts in the Consolidated Balance Sheets. The amount available to be netted is not material.
The Company’s gains (losses) on derivative instruments not designated as accounting hedges and total net foreign currency transaction gains (losses) for the years ended December 31, 2021, 2020 and 2019 were as follows.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Foreign currency forward contracts gains (losses) | (3.2) | | | 15.0 | | | (4.9) | |
| Total foreign currency transaction gains (losses), net | 12.0 | | | (18.6) | | | (7.3) | |
The Company has a significant investment in consolidated subsidiaries with functional currencies other than the USD, particularly the EUR. On August 17, 2017, the Company designated the €615.0 million Euro Term Loan as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies. As of December 31, 2021, the Euro Term Loan of €590.6 million remained designated.
The Company’s gains, net of income tax, associated with changes in the value of debt for the years ended December 31, 2021 and 2020, and the net balance of such gains included in accumulated other comprehensive income (loss) as of December 31, 2021 and 2020 were as follows.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Gain (loss), net of income tax, recorded through other comprehensive income | $ | 35.0 | | | $ | (45.1) | |
| Balance included in accumulated other comprehensive income (loss) as of December 31, 2021 and 2020, respectively | 65.7 | | | 30.7 | |
All cash flows associated with derivatives are classified as operating cash flows in the Consolidated Statements of Cash Flows.
There were no off-balance sheet derivative instruments as of December 31, 2021 or 2020.
Credit Risk
Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable. Because the notional amount of the derivative instruments only serves as a basis for calculating amounts receivable or payable, the risk of loss with any counterparty is limited to a fraction of the notional amount. The Company minimizes the credit risk related to derivatives by transacting only with multiple, high-quality counterparties that are major financial institutions with investment-grade credit ratings. The Company has not experienced any financial loss as a result of counterparty nonperformance in the past. The majority of the derivative contracts to which the Company is a party, settle monthly or quarterly, or mature within one year. Because of these factors, the Company believes it has minimal credit risk related to derivative contracts as of December 31, 2021.
Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and industries to which the Company’s products and services are sold, as well as their dispersion across many different geographic areas. As a result, the Company does not believe it has any significant concentrations of credit risk as of December 31, 2021 or 2020.
Note 20: Fair Value Measurements
A financial instrument is defined as cash or cash equivalents, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. The Company’s financial instruments consist primarily of cash and cash equivalents, trade accounts receivables, trade accounts payables, deferred compensation assets and obligations, derivatives and debt instruments. The carrying values of cash and cash equivalents, trade accounts receivables, trade accounts payables, and variable rate debt instruments are a reasonable estimate of their respective fair values.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or more advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows.
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date.
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company assessed indefinite-lived intangible assets, tradenames, in conjunction with the 2021 and 2020 annual goodwill impairment tests. The valuation of tradenames was based upon current sales projections and the relief from royalty method was applied. No impairment charges were recorded as a result of the 2021 analysis. As a result of the 2020 analysis, 2 trademarks were determined to have a carrying amount above their estimated fair value. These represented Level 3 assets measured on a nonrecurring basis subsequent to their original recognition. This resulted in a total non-cash impairment charge of $19.9 million. The fair value was determined using the relief from royalty method.
Refer to Note 1 “Summary of Significant Accounting Policies” for a discussion of the valuation assumptions utilized in the valuation of goodwill and indefinite-lived intangible assets.
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Financial Assets | | | | | | | |
Foreign currency forwards(1) | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Trading securities held in deferred compensation plan(2) | 12.0 | | | — | | | — | | | 12.0 | |
| Total | $ | 12.0 | | | $ | — | | | $ | — | | | $ | 12.0 | |
| Financial Liabilities | | | | | | | |
Foreign currency forwards(1) | $ | — | | | $ | 0.2 | | | $ | — | | | $ | 0.2 | |
| | | | | | | |
Deferred compensation plan(2) | 22.4 | | | — | | | — | | | 22.4 | |
| Total | $ | 22.4 | | | $ | 0.2 | | | $ | — | | | $ | 22.6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Financial Assets | | | | | | | |
Foreign currency forwards(1) | $ | — | | | $ | 2.9 | | | $ | — | | | $ | 2.9 | |
Trading securities held in deferred compensation plan(2) | 9.1 | | | — | | | — | | | 9.1 | |
| Total | $ | 9.1 | | | $ | 2.9 | | | $ | — | | | $ | 12.0 | |
| Financial Liabilities | | | | | | | |
Foreign currency forwards(1) | $ | — | | | $ | 0.7 | | | $ | — | | | $ | 0.7 | |
| | | | | | | |
Deferred compensation plan(2) | 25.7 | | | — | | | — | | | 25.7 | |
| Total | $ | 25.7 | | | $ | 0.7 | | | $ | — | | | $ | 26.4 | |
(1)Based on calculations that use readily observable market parameters as their basis, such as spot and forward rates.
(2)Based on the quoted price of publicly traded mutual funds which are classified as trading securities and accounted for using the mark-to-market method.
Note 21: Contingencies
The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of its size and sector. The Company believes that such proceedings, lawsuits and administrative actions will not materially adversely affect its operations, financial condition, liquidity or competitive position. A more detailed discussion of certain of these proceedings, lawsuits and administrative actions is set forth below.
Asbestos and Silica Related Litigation
The Company has been named as a defendant in a number of asbestos-related and silica-related personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources and typically the Company is one of approximately 25 or more named defendants.
Predecessors to the Company sometimes manufactured, distributed and sold products allegedly at issue in the pending asbestos and silica-related lawsuits (the “Products”). However, neither the Company nor its predecessors ever mined, manufactured, mixed, produced or distributed asbestos fiber or silica sand, the materials that allegedly caused the injury underlying the lawsuits. Moreover, the asbestos-containing components of the Products, if any, were enclosed within the subject Products.
Although the Company has never mined, manufactured, mixed, produced or distributed asbestos fiber or silica sand nor sold products that could result in a direct asbestos or silica exposure, many of the companies that did engage in such activities or produced such products are no longer in operation. This has led to law firms seeking potential alternative companies to name in lawsuits where there has been an asbestos or silica related injury.
The Company believes that the pending and future asbestos and silica-related lawsuits are not likely to, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Company’s anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the Products described above; the Company’s experience that the vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products or for which the Company otherwise bears responsibility; various potential defenses available to the Company with respect to such matters; and the Company’s prior disposition of comparable matters. However, inherent uncertainties of litigation and future developments, including, without limitation, potential insolvencies of insurance companies or other defendants, an adverse determination in the Adams County Case (discussed below), or other inability to collect from the Company’s historical insurers or indemnitors, could cause a different outcome. While the outcome of legal proceedings is inherently uncertain, based on presently known facts, experience, and circumstances, the Company believes that the amounts accrued on its balance sheet are adequate and that the liabilities arising from the asbestos and silica-related personal injury lawsuits will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. “Accrued liabilities” and “Other liabilities” in the Consolidated Balance Sheets include a reserve of $136.9 million and $131.4 million as of December 31, 2021 and 2020, respectively, for asbestos-related indemnification. Asbestos-related defense costs are excluded from this liability and are recorded separately as services are incurred. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters may be material to the Company’s consolidated financial position, results of operation or liquidity.
The Company has entered into a series of agreements with certain of its or its predecessors’ legacy insurers and certain potential indemnitors to secure insurance coverage and reimbursement for the costs associated with the asbestos and silica-related lawsuits filed against the Company. The Company has also pursued litigation against certain insurers or indemnitors, where
necessary. The Company has an insurance recovery receivable for probable asbestos related recoveries of approximately $145.1 million and $132.1 million as of December 31, 2021 and 2020, respectively, which was included in “Other assets” in the Consolidated Balance Sheets. There were no material recoveries received in the years ended December 31, 2021, 2020 and 2019.
The most recent significant action brought by the Company against an insurer, Gardner Denver, Inc. v. Certain Underwriters at Lloyd’s, London, et al., was filed on July 9, 2010, in the Eighth Judicial Circuit, Adams County, Illinois, as case number 10-L-48 (the “Adams County Case”). In the lawsuit, the Company seeks, among other things, to require certain excess insurer defendants to honor their insurance policy obligations to the Company, including payment in whole or in part of the costs associated with the asbestos-related lawsuits filed against the Company. In October 2011, the Company reached a settlement with one of the insurer defendants, which had issued both primary and excess policies, for approximately the amount of such defendant’s policies that were subject to the lawsuit. Since then, the case has been proceeding through the discovery and motions process with the remaining insurer defendants. On January 29, 2016, the Company prevailed on the first phase of that discovery and motions process (“Phase I”). Specifically, the Court in the Adams County Case ruled that the Company has rights under all of the policies in the case, subject to their terms and conditions, even though the policies were sold to the Company’s former owners rather than to the Company itself. On June 9, 2016, the Court denied a motion by several of the insurers who sought permission to appeal the Phase I ruling immediately rather than waiting until the end of the whole case as is normally required. The case is now proceeding through the discovery process regarding the remaining issues in dispute (“Phase II”).
A majority of the Company’s expected future recoveries of the costs associated with the asbestos-related lawsuits are the subject of the Adams County Case.
The amounts recorded by the Company for asbestos-related liabilities and insurance recoveries are based on currently available information and assumptions that the Company believes are reasonable based on an evaluation of relevant factors. The actual liabilities or insurance recoveries could be higher or lower than those recorded if actual results vary significantly from the assumptions. There are a number of key variables and assumptions including the number and type of new claims to be filed each year, the resolution or outcome of these claims, the average cost of resolution of each new claim, the amount of insurance available, allocation methodologies, the contractual terms with each insurer with whom the Company has reached settlements, the resolution of coverage issues with other excess insurance carriers with whom the Company has not yet achieved settlements, and the solvency risk with respect to the Company’s insurance carriers. Other factors that may affect the future liability include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, legal rulings that may be made by state and federal courts, and the passage of state or federal legislation. The Company makes the necessary adjustments for the asbestos liability and corresponding insurance recoveries on an annual basis unless facts or circumstances warrant assessment as of an interim date.
Environmental Matters
The Company has been identified as a potentially responsible party (“PRP”) with respect to several sites designated for cleanup under U.S. federal “Superfund” or similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. Persons potentially liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although these laws impose joint and several liability on PRPs, in application the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Based on currently available information, the Company was only a small contributor to these waste sites, and the Company has, or is attempting to negotiate, de minimis settlements for their cleanup. The cleanup of the remaining sites is substantially complete and the Company’s future obligations entail a share of the sites’ ongoing operating and maintenance expense. The Company is also addressing several on-site cleanups for which it is the primary responsible party.
The Company has undiscounted liabilities of $12.9 million and $13.7 million as of December 31, 2021 and 2020, respectively, on its Consolidated Balance Sheets to the extent costs are known or can be reasonably estimated for its remaining financial obligations for the environmental matters discussed above and does not anticipate that any of these matters will result in material additional costs beyond amounts accrued. Based upon consideration of currently available information, the Company does not anticipate any material adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations, or cleanup costs relating to these matters.
Note 22: Other Operating Expense, Net
The components of “Other operating expense, net” for the years ended December 31, 2021, 2020 and 2019 were as follows.
| | | | | | | | | | | | | | | | | |
| |
| 2021 | | 2020 | | 2019 |
| Other Operating Expense, Net | | | | | |
| Foreign currency transaction losses (gains), net | $ | (12.0) | | | $ | 18.6 | | | $ | 7.3 | |
Restructuring charges(1) | 13.4 | | | 83.0 | | | 11.1 | |
| | | | | |
Shareholder litigation settlement recoveries(2) | — | | | — | | | (6.0) | |
Acquisition related expenses(3) | 55.3 | | | 93.3 | | | 53.8 | |
| | | | | |
| Other, net | 5.2 | | | 6.1 | | | 3.1 | |
| Total other operating expense, net | $ | 61.9 | | | $ | 201.0 | | | $ | 69.3 | |
(1)See Note 5 “Restructuring.”
(2)Represents insurance recoveries of the Company’s shareholder litigation settlement in 2014.
(3)Represents costs associated with successful and abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs).
Note 23: Segment Reporting
A description of the Company’s 2 reportable segments, including the specific products manufactured and sold follows below.
In the Industrial Technologies and Services segment, the Company designs, manufactures, markets and services a broad range of compression and vacuum equipment as well as fluid transfer equipment and loading systems. The Company’s compression and vacuum products are used worldwide in industrial manufacturing, transportation, chemical processing, food and beverage production, energy, environmental and other applications. In addition to equipment sales, the Company offers a broad portfolio of service options tailored to customer needs and complete range of aftermarket parts, air treatment equipment, controls and other accessories. The Company’s engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials.
In the Precision and Science Technologies segment, the Company designs, manufactures and markets a broad range of specialized positive displacement pumps, fluid management equipment and aftermarket parts for medical, laboratory, industrial manufacturing, water and wastewater, chemical processing, energy, food and beverage, agriculture and other markets. The Company’s products are used for a diverse set of applications including precision dosing of chemicals and supplements, blood dialysis, oxygen therapy, food processing, fluid transfer and dispensing, spray finishing and coating, mixing, high-pressure air and gas management and others. The Company sells primarily through a broad global network of specialized and national distributors and original equipment manufacturers who integrate the Company’s products into their devices and systems.
The Chief Operating Decision Maker (“CODM”) evaluates the performance of the Company’s reportable segments based on, among other measures, Segment Adjusted EBITDA. Management closely monitors the Segment Adjusted EBITDA of each reportable segment to evaluate past performance and actions required to improve profitability. Inter-segment sales and transfers are not significant. Administrative expenses related to the Company’s corporate offices and shared service centers in the United States and Europe, which includes transaction processing, accounting and other business support functions, are allocated to the business segments. Certain administrative expenses, including senior management compensation, treasury, internal audit, tax compliance, certain information technology, and other corporate functions, are not allocated to the business segments.
The following table provides summarized information about the Company’s operations by reportable segment and reconciles Segment Adjusted EBITDA to Income (Loss) Before Income Taxes for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Revenue | | | | | |
| Industrial Technologies and Services | $ | 4,161.0 | | | $ | 3,248.2 | | | $ | 1,700.9 | |
| Precision and Science Technologies | 991.4 | | | 725.0 | | | 316.6 | |
| | | | | |
| | | | | |
| Total Revenue | $ | 5,152.4 | | | $ | 3,973.2 | | | $ | 2,017.5 | |
| Segment Adjusted EBITDA | | | | | |
| Industrial Technologies and Services | $ | 1,033.7 | | | $ | 759.8 | | | $ | 391.4 | |
| Precision and Science Technologies | 291.4 | | | 220.2 | | | 95.8 | |
| | | | | |
| | | | | |
| Total Segment Adjusted EBITDA | 1,325.1 | | | 980.0 | | | 487.2 | |
| Less items to reconcile Segment Adjusted EBITDA to Income (Loss) Before Income Taxes: | | | | | |
| Corporate expenses not allocated to segments | 133.2 | | | 101.9 | | | 45.6 | |
| Interest expense | 87.7 | | | 111.1 | | | 88.4 | |
Depreciation and amortization expense(1) | 418.0 | | | 410.4 | | | 146.5 | |
| Impairment of other intangible assets | — | | | 19.9 | | | — | |
Restructuring and related business transformation costs(2) | 18.8 | | | 88.0 | | | 19.6 | |
Acquisition related expenses and non-cash charges(3) | 65.2 | | | 181.5 | | | 54.6 | |
| Gain on settlement of post-acquisition contingencies | (30.1) | | | — | | | — | |
Stock-based compensation(4) | 95.9 | | | 47.0 | | | 20.2 | |
| Loss on extinguishment of debt | 9.0 | | | 2.0 | | | 0.2 | |
| Foreign currency transaction losses (gains), net | (12.0) | | | 18.6 | | | 7.3 | |
Adjustments to LIFO inventories(5) | 33.2 | | | 39.8 | | | 0.2 | |
Shareholder litigation settlement recoveries(6) | — | | | — | | | (6.0) | |
Other adjustments(7) | (6.8) | | | 5.2 | | | 0.4 | |
| Income (Loss) Before Income Taxes | $ | 513.0 | | | $ | (45.4) | | | $ | 110.2 | |
(1)Depreciation and amortization expense excludes $4.1 million and $2.1 million of depreciation of rental equipment for the years ended December 31, 2021 and 2020, respectively.
(2)Restructuring and related business transformation costs consist of the following.
| | | | | | | | | | | | | | | | | |
| |
| 2021 | | 2020 | | 2019 |
| Restructuring charges | $ | 13.4 | | | $ | 83.0 | | | $ | 11.1 | |
| | | | | |
| Facility reorganization, relocation and other costs | 3.1 | | | 2.1 | | | 2.4 | |
| | | | | |
| | | | | |
| | | | | |
| Other, net | 2.3 | | | 2.9 | | | 6.1 | |
| Total restructuring and related business transformation costs | $ | 18.8 | | | $ | 88.0 | | | $ | 19.6 | |
(3)Represents costs associated with successful and abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs) and non-cash charges and credits arising from fair value purchase accounting adjustments.
(4)Represents stock-based compensation expense recognized for the year ended December 31, 2021 of $87.2 million and associated employer taxes of $8.7 million. Represents stock-based compensation expense recognized for the year ended December 31, 2020 of $47.5 million decreased by $0.5 million due to costs associated with employer taxes. Represents stock-based compensation expense recognized for the year ended December 31, 2019 of $18.7 million and associated employer taxes of $1.5 million.
(5)For the year ended December 31, 2021, represents $33.2 million of LIFO reserve changes. For the year ended December 31, 2020, includes $4.2 million of LIFO reserve changes and $35.6 million to reduce the carrying value of inventories acquired in the merger with Ingersoll Rand Industrial accounted for under the LIFO method. We have reclassified the amounts in 2020 from “Other adjustments” and “Acquisition related expenses and non-cash charges,” respectively, to conform to the current year presentation.
(6)Represents insurance recoveries in 2019 of the Company’s shareholder litigation settlement in 2014.
(7)Includes (i) effects of amortization of prior service costs and amortization of losses in pension and other postretirement benefits (“OPEB”) expense, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.
The following tables provide summarized information about the Company’s reportable segments.
Depreciation and Amortization Expense
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Industrial Technologies and Services | $ | 296.6 | | | $ | 306.0 | | | $ | 120.0 | |
| Precision and Science Technologies | 108.3 | | | 102.4 | | | 23.6 | |
| | | | | |
| | | | | |
| Corporate and other | 17.2 | | | 4.1 | | | 2.9 | |
| Total depreciation and amortization expense | $ | 422.1 | | | $ | 412.5 | | | $ | 146.5 | |
Capital Expenditures
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Industrial Technologies and Services | $ | 53.1 | | | $ | 32.2 | | | $ | 31.5 | |
| Precision and Science Technologies | 10.7 | | | 9.8 | | | 5.5 | |
| | | | | |
| | | | | |
| Corporate and other | 0.3 | | | — | | | 0.9 | |
| Total capital expenditures | $ | 64.1 | | | $ | 42.0 | | | $ | 37.9 | |
Identifiable Assets
| | | | | | | | | | | | | |
| 2021 | | 2020 | | |
| Industrial Technologies and Services | $ | 9,101.7 | | | $ | 9,113.4 | | | |
| Precision and Science Technologies | 3,572.2 | | | 2,852.8 | | | |
| | | | | |
| | | | | |
| | | | | |
| Corporate and other | 2,465.0 | | | 1,892.2 | | | |
| Assets of discontinued operations | 15.6 | | | 2,200.2 | | | |
| Total identifiable assets | $ | 15,154.5 | | | $ | 16,058.6 | | | |
The following table presents property, plant and equipment, net by geographic region for the years ended December 31, 2021, and 2020.
| | | | | | | | | | | | | |
| |
| 2021 | | 2020 | | |
| United States | $ | 225.8 | | | $ | 203.7 | | | |
| Other Americas | 16.5 | | | 14.6 | | | |
| Total Americas | 242.3 | | | 218.3 | | | |
EMEA(1) | 221.3 | | | 216.0 | | | |
| Asia Pacific | 185.0 | | | 174.7 | | | |
| Total | $ | 648.6 | | | $ | 609.0 | | | |
(1)Europe, Middle East and Africa (“EMEA”)
Note 24: Former Related Party
Affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) served on the Company’s board of directors until November 9, 2021 and KKR maintained an equity interest in the Company until August 6, 2021. On August 6, 2021, KKR completed a secondary offering to sell its remaining 29,788,635 shares of common stock, of which Ingersoll Rand purchased 14,894,317 shares. KKR did not own any shares of common stock as of December 31, 2021.
Affiliates of KKR participated as a provider of services for the fiscal years 2020 and 2019 debt refinancing transactions. In June 2019, KKR Capital Markets LLC was the joint lead arranger and bookrunner of Amendment No. 4 to the Credit Agreement and earned $0.4 million in structuring fees for their involvement in the Amendment. During 2020, KKR Capital Markets LLC earned $7.5 million in underwriting fees for their involvement in Amendment No. 5 and Amendment No. 6 to the Credit Agreement.
Note 25: Earnings Per Share
The number of weighted-average shares outstanding used in the computations of basic and diluted earnings (loss) per share are as follows.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| Average shares outstanding: | | | | | |
| Basic | 414.8 | | | 382.8 | | | 203.5 | |
| Diluted | 421.2 | | | 382.8 | | | 208.9 | |
| | | | | |
| | | | | |
| | | | | |
For the years ended December 31, 2021 and 2019, there were 0.7 million and 1.8 million anti-dilutive shares that were not included in the computation of diluted earnings per share. For the year ended December 31, 2020, there were 4.4 million potentially dilutive stock-based awards that were not included in the computation of diluted loss per share as we incurred a net loss during the period.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Ingersoll Rand Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Ingersoll Rand Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded an assessment of the effectiveness of the Company’s internal control over financial reporting related to several businesses acquired during the year ended December 31, 2021 disclosed in Note 4 to the financial statements. Those businesses represented 1% of the Company’s consolidated total assets (excluding goodwill and intangibles which were included in management’s assessment of internal control over financial reporting as of December 31, 2021) and 3% of the consolidated total revenues as of and for the year ended December 31, 2021. Accordingly, our audit did not include the internal control over financial reporting related to those acquisitions.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Asbestos-Related and Silica-Related Litigation – Liability and Insurance Recovery Receivable – Refer to Note 21 to the Financial Statements
Critical Audit Matter Description
The Company has been named as a defendant in a number of asbestos-related and silica-related personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources and typically the Company is one of approximately 25 or more named defendants. At December 31, 2021, the Company has recorded an estimated liability of $136.9 million with respect to the Company’s asbestos-related and silica- related litigation. The Company uses a third-party actuary to assist in determining certain assumptions and in calculating the estimated liability. The estimated liability is based on currently available information and assumptions, including the estimated future number and type of new claims to be filed each year, the estimated future resolution or outcome of new and pending claims, and the estimated average cost of resolution of each new and pending claim.
The Company has entered into a series of agreements with certain of its or its predecessors’ legacy insurers and certain potential indemnitors to secure insurance coverage and reimbursement for the costs associated with the asbestos- and silica-related lawsuits filed against the Company. The Company has also pursued litigation against certain insurers or indemnitors, where necessary. The Company has an insurance recovery receivable for probable asbestos and silica-related recoveries of $145.1 million. The estimated asset is based on key variables and assumptions used to determine the recorded amounts, including the amount of insurance available, allocation methodologies, the resolution of coverage issues with other excess coverage carriers with whom the Company has not yet achieved settlements, and the solvency risk with respect to the Company’s insurance carriers.
We identified the liability for asbestos and silica litigation and the related insurance recovery receivable as a critical audit matter because of the significant judgments made by management to estimate the liability and related recoverability of insurance proceeds. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial and insurance recovery specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to estimated future claims development, the estimated resolution or outcome of these claims, the estimated average cost of resolution of each claim and, separately, the expected recoverability of claims through insurance.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the estimated liability for asbestos-related and silica-related litigation included the following, among others:
•We tested the effectiveness of internal controls related to the estimated liability for asbestos-related and silica-related litigation, including those over the estimated future claims development, the estimated resolution or outcome of these claims, and the estimated average cost of resolution of each claim.
•We evaluated the methods and assumptions used by the Company to determine the estimated liability by:
◦Testing the underlying claim and settlement cost data that served as inputs for the actuarial analysis, including testing historical and pending claims by comparing key attributes to accounting records and legal documents to assess the accuracy and completeness of the data.
◦With the assistance of our actuarial specialists, we evaluated whether the estimates of future claim numbers and types, number of claims expected to be dismissed or sustained and the estimated average cost of resolution used in the Company’s calculations were reasonable in relation to historical claim trends at the Company.
◦With the assistance of our actuarial specialists, we independently recalculated the liability based on the Company’s estimates of future claim numbers and types and assumptions of estimated future resolution or outcome of the claims and estimated average cost of resolution of each claim.
◦With the assistance of our actuarial specialists, we developed independent estimates of the liability using available third-party estimates of future claim numbers and types that we determined were reputable and widely-accepted in the industry and compared our independent estimates to the Company’s recorded liability.
Our audit procedures related to the insurance recovery receivable for probable asbestos and silica-related recoveries included the following, among others:
•We tested the effectiveness of internal controls related to the insurance recovery receivable for probable asbestos and silica-related recoveries.
•With the assistance of our insurance recovery specialists, we evaluated the Company’s analysis of the solvency of insurance carriers with policies with the Company or its predecessors. With the assistance of these specialists, we read the Company’s analysis and supporting documentation of policy coverage by year as compared to estimated claims per year to assess the Company’s determination of coverage by claim year. With the assistance of these specialists, we obtained legal opinions regarding recoverability that the Company had obtained from external counsel and read associated legal proceedings to evaluate the Company’s assessment of the probability of recovery.
/s/ DELOITTE & TOUCHE LLP
Charlotte, NC
February 25, 2022
We have served as the Company’s auditor since 2013.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of December 31, 2021. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the effectiveness of the Company’s internal control over financial reporting related to several businesses acquired during the year ended December 31, 2021 as disclosed in Note 4 to the consolidated financial statements. These businesses represented 1% of the Company’s consolidated total assets (excluding goodwill and intangibles which were included in management’s assessment of internal control over financial reporting as of December 31, 2021) and 3% of the consolidated total revenues as of and for the year ended December 31, 2021. Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that:
•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and
•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent and detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our executive officer and our principal financial officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Consistent with guidance issued by the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the effectiveness of the Company’s internal control over financial reporting related to several businesses acquired during the year ended December 31, 2021 as disclosed in Note 4 to the consolidated financial statements. These businesses represented 1% of the Company’s consolidated total assets (excluding goodwill and intangibles which were included in management’s assessment of internal control over financial reporting as of December 31, 2021) and 3% of the consolidated total revenues as of and for the year ended December 31, 2021.
Based on that evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2021.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Form 10-K, and, as part of their audit, has issued its attestation report, included herein, on the effectiveness of
our internal control over financial reporting. See “Report of Independent Registered Public Accounting Firm” in Part II, Item 8. Financial Statements and Supplementary Data in this Form 10-K.
Changes in Internal Control Over Financial Reporting
Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. There have been no changes in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be included in our definitive proxy statement for the 2022 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2021.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in our definitive proxy statement for the 2022 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2021.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Except as set forth below, the information required by this Item will be included in our definitive proxy statement for the 2022 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2021.
Equity Compensation Plan Information
The following table provides information as of December 31, 2021 about our common stock that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or directors under all of the existing equity compensation plans including our 2013 Stock Incentive Plan and 2017 Omnibus Incentive Plan. All equity compensation plans are described more fully in Note 18 “Stock-Based Compensation Plans” to our audited consolidated financial statements included elsewhere in this Form 10-K.
| | | | | | | | | | | | | | | | | |
| Plan Category | Number of Securities to be issued upon Exercise of Outstanding Options, Warrants And Rights(1) | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding Securities reflected in the first column)(3) |
| Equity compensation plans approved by securityholders | 10,136,597 | | $ | 21.76 | | | 10,717,115 |
(1)Total includes 2,909,263 stock options under the Company’s 2013 Stock Incentive Plan and 3,764,964 stock options and 3,462,370 restricted stock units under the Company’s 2017 Omnibus Incentive Plan. The restricted stock units are based on the maximum number of shares issuable under restricted stock units that are subject to performance conditions.
(2)The weighted average exercise price relates only to stock options. The calculation of the weighted average exercise price does not include outstanding equity awards that are received or exercised for no consideration.
(3)These shares are available for grant as of December 31, 2021 under the Company’s 2017 Omnibus Incentive Plan. This includes 8,550,000 shares initially authorized for issuance under the Company’s 2017 Omnibus Incentive Plan and shares subject to awards
under the Company’s 2013 Stock Incentive Plan that expired or were otherwise forfeited or terminated in accordance with their terms without the delivery of shares of the Company’s common stock in settlement thereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item will be included in our definitive proxy statement for the 2022 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2021.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be included in our definitive proxy statement for the 2022 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2021.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
Financial Statements, Financial Statement Schedule and Exhibits
The consolidated financial statements listed in the accompanying index to consolidated financial statements are filed as part of this Annual Report on Form 10-K.
All financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto.
The exhibits listed in the accompanying exhibit index are filed as part of this Annual Report on Form 10-K.
Index to Consolidated Financial Statements
| | | | | | | | |
| Consolidated Statements of Operations - For the years ended December 31, 2021, 2020 and 2019 | |
| Consolidated Statements of Comprehensive Income - For the years ended December 31, 2021, 2020 and 2019 | |
| Consolidated Balance Sheets - As of December 31, 2021 and 2020 | |
| Consolidated Statements of Stockholders’ Equity - For the years ended December 31, 2021, 2020 and 2019 | |
| Consolidated Statements of Cash Flows - For the years ended December 31, 2021, 2020 and 2019 | |
| Notes to Consolidated Financial Statements | |
| Report of Independent Registered Public Accounting Firm | |
Schedule to Consolidated Financial Statements
| | | | | | | | |
| Schedule I - Condensed Financial Statements Ingersoll Rand Inc. (Parent Company Only) | |
Exhibits
| | | | | | | | |
| Exhibit Number | | Exhibit Description |
| | Agreement and Plan of Merger, dated as of April 30, 2019, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. Holdco, Inc., Gardner Denver Holdings, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019) |
| | Separation and Distribution Agreement, dated as of April 30, 2019, by and between Ingersoll-Rand plc and Ingersoll-Rand U.S. HoldCo, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019) |
| | Securities Purchase Agreement, dated as of April 9, 2021, by and among Ingersoll Rand Inc., Club Car, LLC and MajorDrive Holdings IV, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 12, 2021) |
| | Restated Certificate of Incorporation of Ingersoll Rand Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on June 21, 2021) |
| | Second Amended and Restated Bylaws of Ingersoll Rand Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on June 21, 2021) |
| | | | | | | | |
| | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 filed on May 3, 2017) |
| | Amended and Restated Registration Rights Agreement, dated as of May 17, 2017, by and among KKR Renaissance Aggregator L.P.; KKR Renaissance Aggregator GP LLC; Gardner Denver Holdings, Inc. and each of the other parties thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017) |
| | Description of Ingersoll Rand Inc.’s Securities |
| | 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Senior Secured Credit Agreement, dated as of July 30, 2013, among Renaissance Acquisition Corp., the foreign borrowers described therein, Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Amendment No. 1, dated as of March 4, 2016, to the Senior Secured Credit Agreement, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Gardner Denver, Inc., GD German Holdings II GmbH (as successor in interest to Gardner Denver Holdings GmbH & Co. KG), GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Amendment No. 2, dated as of August 17, 2017, to the Senior Secured Credit Agreement, among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and the other parties and lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2017) |
| | Amendment No. 3, dated as of December 13, 2018, to the Senior Secured Credit Agreement dated as of July 30, 2013, among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and the other parties and lenders part thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2018) |
| | Amendment No. 4 to the Credit Agreement, dated as of June 28, 2019, among Gardner Denver Holdings, Inc., GD German Holdings II GmbH, Gardner Denver Holdings Ltd., UBS AS, Stamford Branch as the Resigning Agent, Citibank, N.A. as the Successor Agent and the lenders and other entities party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 2, 2019) |
| | Amendment No. 5 to Credit Agreement and Joinder Agreement dated as of February 28, 2020, by and among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, Gardner Denver Holdings, Ltd., Citibank, N.A. as administrative agent, and the other parties and lenders party thereto (incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) |
| | Joinder Agreement and Amendment No. 6 to Credit Agreement, dated as of June 29, 2020, among Ingersoll Rand Inc., Gardner Denver, Inc., Ingersoll-Rand Services Company, GD German Holdings II GmbH, Gardner Denver Holdings Ltd., Citibank, N.A., and the lenders and other parties party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 1, 2020) |
| | Amendment No. 7 to Credit Agreement, dated as of December 28, 2021, by and among Gardner Denver, Inc., as
U.S. Borrower, and Citibank, N.A. as Administrative Agent and Collateral Agent |
| | Pledge Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Renaissance Acquisition Corp., the subsidiary pledgors identified therein and UBS AG, Stamford Branch, as collateral agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Security Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Renaissance Acquisition Corp., the subsidiary grantors identified therein and UBS AG, Stamford Branch, as collateral agent (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Guarantee Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), the subsidiary guarantors identified therein and UBS AG, Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Indemnification Agreement, dated as of July 30, 2013, by and among KKR Renaissance Aggregator L.P.; KKR Renaissance Aggregator GP LLC; Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.); Gardner Denver, Inc. and Kohlberg Kravis Roberts & Co. L.P. (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Stockholders Agreement, dated as of May 17, 2018, between Gardner Denver Holdings, Inc. and KKR Renaissance Aggregator L.P. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017) |
| | | | | | | | |
| | Form of Management Stockholder’s Agreement (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Director Stockholder’s Agreement (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Advisor Stockholder’s Agreement (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Director Stock Option Agreement under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Management Stock Option Agreement (December 2013) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Management Stock Option Agreement (May 2015) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Management Stock Option Agreement (May 2016, 3 year vesting) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Management Stock Option Agreement (May 2016, 5 year vesting) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Management Stock Option Agreement (December 2016) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Amendment to Stock Option Agreement or Stock Appreciation Right Agreement under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Stock Option Agreement, dated as of March 7, 2014, under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) between Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and Andrew Schiesl (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Form of Sale Participation Agreement (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Offer Letter, dated April 17, 2015, between Vicente Reynal and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Offer Letter, dated November 19, 2015, between Vicente Reynal and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Offer Letter, dated November 25, 2013, between Gardner Denver, Inc. and Andy Schiesl (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017) |
| | Employment Contract, dated September 11, 2018 between Gardner Denver Deutschland GmbH and Enrique Miñarro Viseras (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 29, 2018) |
| | Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8 filed on March 2, 2020) |
| | First Amendment to Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on April 30, 2021) |
| | Form of Restricted Stock Unit Grant Notice and Agreement (2018) under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on April 27, 2018) |
| | Form of Director Restricted Stock Unit Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on April 27, 2018) |
| | Form of Stock Option Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K filed on February 16, 2018) |
| | | | | | | | |
| | Gardner Denver, Inc. Supplemental Excess Defined Contribution Plan (January 1, 2019 Restatement) (incorporated by reference to Exhibit 10.36 to the Registrants Annual Report on Form 10-K filed on February 27, 2019) |
| | Amendment No. 1 to the Stockholders Agreement, dated as of April 30, 2019, between Gardner Denver Holdings, Inc. and KKR Renaissance Aggregator L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 6, 2019) |
| | Transition Agreement, dated June 12, 2020, between Ingersoll Rand Inc. and Emily Weaver (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2020) |
| | Form of Stock Option Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan |
| | Form of Restricted Stock Unit Grant Notice and Agreement (2019) under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan |
| | Transition Services Agreement, dated as of February 29, 2020, by and between Ingersoll-Rand plc and Ingersoll-Rand U.S. Holdco, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) |
| | Tax Matters Agreement, dated as of February 29, 2020, by and among Ingersoll-Rand plc, Ingersoll-Rand Lux International Holding Company S.A.R.L, Ingersoll-Rand Services Company, Ingersoll-Rand U.S. HoldCo, Inc. and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) |
| | Employee Matters Agreement, dated as of February 29, 2020, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. HoldCo, Inc. and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) |
| | Real Estate Matters Agreement, dated February 29, 2020, by and between Ingersoll-Rand plc, and Ingersoll-Rand U.S. HoldCo, Inc. and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) |
| | Intellectual Property Matters Agreement, dated as of February 29, 2020, by and between Ingersoll-Rand plc, Ingersoll-Rand U.S. HoldCo, Inc., and solely for the purposes of Section 5.06, Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) |
| | Trademark License Agreement, dated as of February 29, 2020, by and between Ingersoll-Rand U.S. HoldCo, Inc. and Ingersoll-Rand plc (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) |
| | Omnibus Transaction Side Letter, dated February 29, 2020, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. Holdco Inc., Gardner Denver Holdings, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) |
| | Side Letter to the Employee Matters Agreement, dated July 11, 2019, by and among Ingersoll-Rand plc and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) |
| | Side Letter to the Employee Matters Agreement, dated February 29, 2020, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. Holdco, Inc. and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) |
| | Form of Performance Stock Unit Grant Notice and Agreement under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) |
| | Form of Restricted Stock Unit Grant Notice and Agreement (2-yr vesting) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) |
| | Form of Restricted Stock Unit Grant Notice and Agreement (4-yr vesting) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.15 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) |
| | Form of Stock Option Grant Notice and Agreement under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) |
| | Form of Performance Stock Unit Grant Notice and Agreement under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on April 30, 2021) |
| | Form of Performance Stock Unit Grant Notice and Agreement (2022) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan |
| | Form of Restricted Stock Unit Grant Notice and Agreement (4-yr vesting) (2022) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan |
| | Form of Stock Option Grant Notice and Agreement (2022) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan |
| | | | | | | | |
| | Subsidiaries of Ingersoll Rand Inc. as of December 31, 2021 |
| | Consent of Independent Registered Public Accounting Firm |
| | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) |
| | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) |
| | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 |
| | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
| 101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) |
† Identifies exhibits that consists of a management contract or compensatory plan or arrangement.
* Certain portions of this exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information (i) is not material and (ii) is the type that the Registrant treats as private or confidential.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf on the 25th day of February 2022, by the undersigned, thereunto duly authorized.
| | | | | | | | |
| Ingersoll Rand Inc. |
| | |
| By: | /s/ Vicente Reynal |
| | Name: Vicente Reynal |
| | Title: Chairman of the Board and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 25th day of February 2022, by the following persons on behalf of the registrant and in the capacities indicated. | | | | | | | | |
| Signature | | Capacity |
| /s/ Vicente Reynal | | Chairman of the Board and Chief Executive Officer |
| Vicente Reynal | | (Principal Executive Officer), Director |
| | |
| /s/ Vikram U. Kini | | Vice President and Chief Financial Officer |
| Vikram U. Kini | | (Principal Financial Officer) |
| | |
| /s/ Michael J. Scheske | | Vice President and Corporate Controller |
| Michael J. Scheske | | (Principal Accounting Officer) |
| | |
| /s/ Kirk E. Arnold | | Director |
| Kirk E. Arnold | | |
| | |
| /s/ Elizabeth Centoni | | Director |
| Elizabeth Centoni | | |
| | |
| /s/ William P. Donnelly | | Director |
| William P. Donnelly | | |
| | |
| /s/ Gary D. Forsee | | Director |
| Gary D Forsee | | |
| | |
| /s/ John Humphrey | | Director |
| John Humphrey | | |
| | |
| /s/ Marc E. Jones | | Director |
| Marc E. Jones | | |
| | |
| /s/ Tony L. White | | Director |
| Tony L. White | | |
SCHEDULE 1 – INGERSOLL RAND INC.
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in millions)
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Revenues | $ | — | | | $ | — | | | $ | — | |
| Cost of sales | 1.0 | | | 14.6 | | | 0.6 | |
| Gross Profit | (1.0) | | | (14.6) | | | (0.6) | |
| Operating costs | 67.9 | | | 30.9 | | | 10.4 | |
| Other operating expense, net | (8.4) | | | (4.9) | | | (47.0) | |
| Operating Income (Loss) | (60.5) | | | (40.6) | | | 36.0 | |
| Interest income | (28.8) | | | 42.5 | | | 42.3 | |
| Income (Loss) Before Income Taxes | (89.3) | | | 1.9 | | | 78.3 | |
| Income tax provision (benefit) | (18.1) | | | (3.9) | | | (5.1) | |
| Income (Loss) of Parent Company | (71.2) | | | 5.8 | | | 83.4 | |
| Equity in undistributed income of subsidiaries | 592.1 | | | (63.5) | | | 13.9 | |
| Income (Loss) from Continuing Operations | 520.9 | | | (57.7) | | | 97.3 | |
| Income from discontinued operations, net of tax | 41.6 | | | 24.4 | | | 61.8 | |
| Net Income (Loss) | 562.5 | | | (33.3) | | | 159.1 | |
| Other comprehensive income (loss) | (54.3) | | | 270.2 | | | (0.8) | |
| Comprehensive Income | $ | 508.2 | | | $ | 236.9 | | | $ | 158.3 | |
SCHEDULE 1 – INGERSOLL RAND INC.
(PARENT COMPANY ONLY)
BALANCE SHEETS
(in millions)
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | — | | | $ | — | |
| Other current assets | — | | | 0.4 | |
| Total current assets | — | | | 0.4 | |
| Equity in net assets of subsidiaries | 8,513.3 | | | 8,006.0 | |
| Intercompany receivables | 484.1 | | | 1,107.3 | |
| Deferred tax assets | 10.8 | | | 10.9 | |
| Total assets | $ | 9,008.2 | | | $ | 9,124.6 | |
| | | |
| Liabilities and Equity | | | |
| Other liabilities | $ | 6.7 | | | $ | 4.9 | |
| Total liabilities | 6.7 | | | 4.9 | |
Stockholders’ equity: | | | |
| Common stock, $0.01 par value; 1,000,000,000 shares authorized; 423,785,571 and 420,123,978 shares issued as of December 31, 2021 and 2020, respectively | 4.3 | | | 4.2 | |
| Capital in excess of par value | 9,408.6 | | | 9,310.3 | |
| Accumulated deficit | 378.6 | | | (175.7) | |
| Accumulated other comprehensive loss | (41.6) | | | 14.2 | |
| Treasury stock at cost; 16,000,364 and 1,496,169 shares as of December 31, 2021 and 2020, respectively | (748.4) | | | (33.3) | |
Total Ingersoll Rand Inc. stockholders’ equity | 9,001.5 | | | 9,119.7 | |
| Total liabilities and equity | $ | 9,008.2 | | | $ | 9,124.6 | |
SCHEDULE 1 – INGERSOLL RAND INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cash Flows From Operating Activities: | | | | | |
| Net cash provided by (used in) operating activities | $ | (9.7) | | | $ | (15.1) | | | $ | (15.1) | |
| Cash Flows From Investing Activities: | | | | | |
| Advances to subsidiaries | 731.0 | | | (2.5) | | | (10.1) | |
| Net cash provided by (used in) investing activities | 731.0 | | | (2.5) | | | (10.1) | |
| Cash Flows From Financing Activities: | | | | | |
| Proceeds from stock option exercises | 23.7 | | | 22.7 | | | 42.8 | |
| Cash dividends on common stock | (8.2) | | | — | | | — | |
| Purchases of treasury stock | (736.8) | | | (2.1) | | | (18.6) | |
| Purchase of shares from noncontrolling interest | — | | | (14.9) | | | — | |
| Proceeds from sale of noncontrolling interest | — | | | 11.9 | | | — | |
| Net cash provided by (used in) financing activities | (721.3) | | | 17.6 | | | 24.2 | |
| Increase (decrease) in cash and cash equivalents | — | | | — | | | (1.0) | |
| Cash and cash equivalents, beginning of year | — | | | — | | | 1.0 | |
| Cash and cash equivalents, end of year | $ | — | | | $ | — | | | $ | — | |
SCHEDULE I - INGERSOLL RAND INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Overview and Basis of Presentation
On February 29, 2020, Ingersoll Rand Inc. (formerly known as Gardner Denver Holdings, Inc.) completed the acquisition of and merger with Ingersoll Rand Industrial (“Ingersoll Rand Industrial”) and changed its name from Gardner Denver Holdings, Inc. to Ingersoll Rand Inc.
Ingersoll Rand Inc. Parent Company Only financial information has been derived from its consolidated financial statements and should be read in conjunction with the consolidated financial statements included in this report. The accounting policies for the registrant are the same as those described in Note 1 “Summary of Significant Accounting Policies” to our audited consolidated financial statements included elsewhere in this Form 10-K.
2. Subsidiary Transactions
Investment in Subsidiaries
Ingersoll Rand Inc.’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries.
Dividends and Capital Distributions
There were no dividends received from subsidiaries during the years ended December 31, 2021, 2020 and 2019.
3. Debt
A discussion of long-term debt, including the five-year debt maturity schedule, can be found in Note 11 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K. Ingersoll Rand Inc. had no long-term debt obligations as of December 31, 2021 and 2020.
4. Contingencies
For a summary of contingencies, see Note 21 “Contingencies” to our audited consolidated financial statements included elsewhere in this Form 10-K.
