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 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”).
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, and are reported in accumulated other comprehensive 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, 2023 and 2022, cash of $1.2 million and $1.3 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 and performance share units with internal performance metrics (i.e. EPS) are valued at the share price on the date of grant. The grant date fair value of performance share units with external performance metrics (i.e. TSR) is determined using a Monte Carlo simulation pricing model.
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, 2023 and 2022 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 tax liabilities 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 (“Tax 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). The Company recorded a tax expense of $7.2 million in 2023 for the GILTI provisions of the Tax Act.
Research and Development
For the years ended December 31, 2023, 2022 and 2021, the Company spent $108 million, $91 million, and $74 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, (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 (3) 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, 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. For derivative instruments designated as net investment in a foreign operation, gains or losses are reported as currency translation adjustments. 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.
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. 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.
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.
Note 2: New Accounting Standards
Recently Adopted Accounting Standard Updates (“ASU”)
In October 2021, the Financial Accounting Standards Board (the “FASB”) issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amendments in this update were effective for fiscal years beginning after December 15, 2022 for public companies. The Company adopted this guidance on January 1, 2023 and applies the guidance prospectively to business combinations completed after this date. The adoption did not have a material impact on our condensed consolidated financial statements.
In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this update are effective for fiscal years beginning after December 15, 2022, except for the amendment on roll forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company adopted this guidance on January 1, 2023. The adoption did not have a material impact on our consolidated financial statements.
The Company has agreements with financial institutions to facilitate a supply chain finance program (the “SCF Program”). Under the SCF Program, qualifying suppliers may elect to sell their receivables from the Company to the financial institution. Participating suppliers negotiate arrangements for sale of their receivables directly with the financial institution, and the terms of the Company’s payment obligations are not impacted by a supplier’s participation in the SCF Program. Once a qualifying supplier elects to participate in the SCF Program and reaches an agreement with the financial institution, the supplier elects which individual Company invoices they sell to the financial institution. However, all of the Company’s payments to participating suppliers are paid to the financial institution on the invoice due date, regardless of whether the individual invoice is sold by the supplier to the financial institution. The Company has not pledged any assets as security or provided other forms
of guarantees. All outstanding amounts related to suppliers participating in the SCF Program are recorded within “Accounts payable” in our Condensed Consolidated Balance Sheets, and the associated payments are included in “Net cash provided by operating activities from continuing operations” within our Condensed Consolidated Statements of Cash Flows. Included in “Accounts payable” in the Condensed Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 were $24.3 million and $9.7 million of outstanding payment obligations, respectively, that were sold to the financial institution by participating suppliers.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segments expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in this update should be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The adoption will modify our disclosures but is not expected to have a material effect on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual statements that have not yet been issued or made available for issuance. The amendments in this update should be applied on a prospective basis. Retrospective application is permitted. The adoption will modify our disclosures but is not expected to have a material effect on our consolidated financial statements.
Note 3: Discontinued Operations
Discontinued operations consist of two 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 and concluded in the third quarter of 2022.
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.
Financial information of discontinued operations
The results of operations of SVT and HPS are presented as discontinued operations for the years ended December 31, 2022 and 2021 as summarized below:
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| | | Specialty Vehicle Technologies | | | | High Pressure Solutions | | | | Total |
| | | |
| | | 2022 | | 2021 | | | | 2022 | | 2021 | | | | 2022 | | 2021 |
| Revenues | | | $ | 6.6 | | | $ | 430.9 | | | | | $ | — | | | $ | 71.9 | | | | | $ | 6.6 | | | $ | 502.8 | |
| Cost of sales | | | 6.5 | | | 321.3 | | | | | — | | | 60.2 | | | | | 6.5 | | | 381.5 | |
| Gross Profit | | | 0.1 | | | 109.6 | | | | | — | | | 11.7 | | | | | 0.1 | | | 121.3 | |
| Selling and administrative expenses | | | 0.1 | | | 35.7 | | | | | — | | | 5.3 | | | | | 0.1 | | | 41.0 | |
| Amortization of intangible assets | | | — | | | 10.4 | | | | | — | | | 2.4 | | | | | — | | | 12.8 | |
| Loss (gain) on sale | | | (2.8) | | | (298.3) | | | | | — | | | 207.7 | | | | | (2.8) | | | (90.6) | |
| Other operating expense, net | | | 0.7 | | | 18.1 | | | | | 1.6 | | | 19.0 | | | | | 2.3 | | | 37.1 | |
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| | | | | | | | | | | | | | | | | |
| Income (Loss) from Discontinued Operations Before Income Taxes | | | 2.1 | | | 343.7 | | | | | (1.6) | | | (222.7) | | | | | 0.5 | | | 121.0 | |
| Benefit for income taxes | | | (13.2) | | | 87.1 | | | | | (1.5) | | | (7.7) | | | | | (14.7) | | | 79.4 | |
| Income (Loss) from Discontinued Operations, Net of Tax | | | $ | 15.3 | | | $ | 256.6 | | | | | $ | (0.1) | | | $ | (215.0) | | | | | $ | 15.2 | | | $ | 41.6 | |
The significant non-cash operating items and capital expenditures reflected in cash flows of discontinued operations for the years ended December 31, 2022 and 2021 include the following:
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| | | Specialty Vehicle Technologies | | | | High Pressure Solutions | | | | Total |
| | | |
| | | 2022 | | 2021 | | | | 2022 | | 2021 | | | | 2022 | | 2021 |
| Loss (gain) on sale | | | $ | (2.8) | | | $ | (298.3) | | | | | $ | — | | | $ | 207.7 | | | | | $ | (2.8) | | | $ | (90.6) | |
| Depreciation and amortization | | | — | | | 14.8 | | | | | — | | | 4.0 | | | | | — | | | 18.8 | |
| Stock-based compensation expense | | | — | | | 8.2 | | | | | — | | | 2.7 | | | | | — | | | 10.9 | |
| Capital expenditures | | | — | | | 1.6 | | | | | — | | | 0.3 | | | | | — | | | 1.9 | |
Note 4: Acquisitions
2023 Acquisitions
On January 3, 2023, the Company completed the acquisition of SPX FLOW’s Air Treatment business (“Air Treatment”) for cash consideration of $519.0 million. The business is a manufacturer of desiccant and refrigerated dryers, filtration systems and purifiers for dehydration in compressed air. The acquisition is intended to expand the Company’s offerings of compressor system components through globally recognized brands. The Air Treatment business has been reported within the Industrial Technologies and Services segment. The goodwill arising from the acquisition is attributable to revenue and cost synergies, anticipated growth of new and existing customers, and the assembled workforce. Substantially all of this goodwill is not expected to be deductible for tax purposes.
On February 1, 2023, the Company acquired Paragon Tank Truck Equipment (“Paragon”), a provider of solutions used for loading and unloading dry bulk and liquid tanks on and off of trucks, for cash consideration of $42.2 million. Paragon has been reported within the Industrial Technologies and Services segment.
On April 1, 2023, the Company acquired EcoPlant Technological Innovation Ltd. (“EcoPlant”), for initial cash consideration of $29.5 million and contingent consideration of up to $17.0 million. EcoPlant is a provider of a software-as-a-service platform that dynamically controls compressed air systems to optimize performance and resource consumption. EcoPlant has been reported within the Industrial Technologies and Services segment.
On August 18, 2023, the Company completed the acquisition of Howden Roots LLC (“Roots”), for cash consideration of $292.5 million. Roots is a leading manufacturer of engineered rotary and centrifugal blowers with an iconic brand developed over more than 160 years. The acquisition is intended to expand the Company’s blower product portfolio and benefit from Roots’ robust technical capabilities and exposure to growing sustainability-related applications. Roots has been reported within the Industrial Technologies and Services segment. The goodwill arising from the acquisition is attributable to revenue and cost
synergies, anticipated growth of new and existing customers, and the assembled workforce. This goodwill is expected to be deductible for tax purposes.
The Company acquired 10 additional businesses in 2023 for aggregate consideration of $83.3 million. These primarily consist of manufacturers and distributors of existing and adjacent offerings in the Industrial Technologies and Services segment.
Of the goodwill recognized on our 2023 acquisitions, $159.9 million is expected to be deductible for tax purposes.
The following table summarizes the allocation of consideration for all businesses acquired in 2023 to the fair values of identifiable assets acquired and liabilities assumed at the acquisition dates. Initial accounting for Air Treatment is complete. Initial accounting for all other acquisitions completed in 2023, including Roots, is substantially complete and any further measurement period adjustments are not expected to be material.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Air Treatment | | Roots | | All Others | | Total |
| Accounts receivable | | $ | 26.1 | | | $ | 14.5 | | | $ | 11.8 | | | $ | 52.4 | |
| Inventories | | 43.9 | | | 34.2 | | | 21.1 | | | 99.2 | |
| Other current assets | | 2.1 | | | 2.9 | | | 6.2 | | | 11.2 | |
| Property, plant and equipment | | 18.4 | | | 42.1 | | | 5.0 | | | 65.5 | |
| Goodwill | | 279.9 | | | 106.6 | | | 125.0 | | | 511.5 | |
| Other intangible assets | | 238.6 | | | 116.9 | | | 25.4 | | | 380.9 | |
| Other noncurrent assets | | 7.6 | | | 4.5 | | | 0.4 | | | 12.5 | |
| Total current liabilities | | (35.9) | | | (27.1) | | | (19.1) | | | (82.1) | |
| Deferred tax liabilities | | (54.8) | | | — | | | (3.7) | | | (58.5) | |
| Other noncurrent liabilities | | (6.9) | | | (2.1) | | | (4.3) | | | (13.3) | |
| Total consideration | | $ | 519.0 | | | $ | 292.5 | | | $ | 167.8 | | | $ | 979.3 | |
Acquisition Revenues and Operating Income
The revenues and operating income included in the consolidated financial statements for these acquisitions subsequent to their acquisition date were $293.7 million and $16.1 million, respectively, for the year ended December 31, 2023.
2022 Acquisitions
On February 1, 2022, the Company acquired Houdstermaatschappij Jorc B.V. (“Jorc”), a manufacturer of condensate management products, for aggregate cash consideration of $30.2 million. Jorc has been reported in the Industrial Technologies and Services segment from the date of acquisition.
On September 1, 2022, the Company acquired Westwood Technical Limited (“Westwood Technical”), a control and instrumentation specialist based in the United Kingdom with unique Industrial Internet of Things (IIoT) capabilities, for aggregate cash consideration of $8.1 million and contingent consideration of up to $9.3 million. Westwood Technical has been reported in the Precision and Science Technologies segment from the date of acquisition.
On September 1, 2022, the Company acquired Holtec Gas Systems LLC (“Holtec”), a nitrogen generator manufacturer, for cash consideration of $13.0 million. Holtec has been reported in the Industrial Technologies and Services segment from the date of acquisition.
On September 1, 2022, the Company acquired Hydro Prokav Pumps (India) Private Limited (“Hydro Prokav”) for cash consideration of $14.0 million. Hydro Prokav has been reported in the Precision and Science Technologies segment from the date of acquisition.
On October 1, 2022, the Company acquired Dosatron International L.L.C (“Dosatron International”), a technology solutions provider of water powered dosing pumps and systems, for cash consideration of $89.5 million and contingent consideration of up to $14.7 million. Dosatron International has been reported in the Precision and Science Technologies segment from the date of acquisition.
On November 1, 2022, the Company acquired Pedro Gil Construcciones Mecanicas, S.L. (“Pedro Gil”), a manufacturer of positive displacement blowers, pumps and vacuum systems in the Spanish market, for aggregate cash consideration of $18.4 million. Pedro Gil has been reported in the Industrial Technologies and Services segment from the date of acquisition.
On December 1, 2022, the Company acquired Everest Blowers Private Limited and Everest Blower Systems Private Limited (collectively, “Everest Group”), the Indian market leader for customized blower and vacuum pump solutions, for $75.3 million aggregate cash consideration and estimated contingent consideration of $12.1 million. Everest Group has been reported in the Industrial Technologies and Services segment from the date of acquisition.
Other acquisitions completed during the year ended December 31, 2022 include multiple sales and service businesses and a manufacturer in the Industrial Technologies and Services segment. The aggregate consideration for these acquisitions was $19.9 million.
The following table summarizes the allocation of consideration for all businesses acquired in 2022 to the fair values of identifiable assets acquired and liabilities assumed at the acquisition dates. Initial accounting for all 2022 acquisitions is complete.
| | | | | | | | | | | | | | | | | |
| Dosatron International | | All others | | Total Consideration |
| Accounts receivable | $ | 1.8 | | | $ | 16.2 | | | $ | 18.0 | |
| Inventories | 6.2 | | | 20.4 | | | 26.6 | |
| Other current assets | 0.1 | | | 1.3 | | | 1.4 | |
| Property, plant and equipment | 0.3 | | | 8.9 | | | 9.2 | |
| Goodwill | 57.4 | | | 151.9 | | | 209.3 | |
| Other intangible assets | 41.9 | | | 43.0 | | | 84.9 | |
| Other noncurrent assets | 13.8 | | | 0.9 | | | 14.7 | |
| Total current liabilities | (3.5) | | | (30.7) | | | (34.2) | |
| Deferred tax liabilities | (13.8) | | | (9.7) | | | (23.5) | |
| Other noncurrent liabilities | — | | | (1.9) | | | (1.9) | |
| Total consideration | $ | 104.2 | | | $ | 200.3 | | | $ | 304.5 | |
Acquisition Revenues and Operating Income
The revenues included in the consolidated financial statements for these acquisitions subsequent to their acquisition date were $124.4 million and $38.4 million, respectively, for the years ended December 31, 2023 and 2022. The operating income included in the consolidated financial statements for these acquisitions subsequent to their acquisition date was $19.5 million and $3.4 million, respectively, for the years ended December 31, 2023 and 2022.
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 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 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 deductible for tax purposes.
On October 29, 2021, the Company acquired Air Dimensions Inc. for cash consideration of $70.8 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 deductible for tax purposes.
On December 1, 2021, the Company acquired the assets of Tuthill Corporation’s Pump Group for cash consideration of $84.8 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 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Seepex | | M-D Pneumatics and Kinney Vacuum Pumps | | Maximus Solutions | | All Others | | Total Consideration |
| Accounts receivable | $ | 24.9 | | | $ | 4.8 | | | $ | 4.3 | | | $ | 9.4 | | | $ | 43.4 | |
| Inventories | 42.4 | | | 3.8 | | | 2.9 | | | 10.1 | | | 59.2 | |
| Other current assets | 1.9 | | | 0.2 | | | 0.2 | | | 0.3 | | | 2.6 | |
| Property, plant and equipment | 40.6 | | | 16.2 | | | 2.1 | | | 15.0 | | | 73.9 | |
| Goodwill | 249.0 | | | 81.5 | | | 75.9 | | | 79.6 | | | 486.0 | |
| Other intangible assets | 239.2 | | | 82.5 | | | 39.5 | | | 95.9 | | | 457.1 | |
| Other noncurrent assets | 1.4 | | | — | | | — | | | — | | | 1.4 | |
| Total current liabilities | (35.1) | | | (3.5) | | | (2.4) | | | (4.1) | | | (45.1) | |
| Deferred tax liabilities | (75.6) | | | — | | | (11.3) | | | (4.2) | | | (91.1) | |
| Other noncurrent liabilities | (6.6) | | | (1.5) | | | (0.2) | | | (1.8) | | | (10.1) | |
| Total consideration | $ | 482.1 | | | $ | 184.0 | | | $ | 111.0 | | | $ | 200.2 | | | $ | 977.3 | |
Acquisition Revenues and Operating Income
The revenues included in the consolidated financial statements for these acquisitions subsequent to their acquisition date were $369.5 million, $356.1 million and $145.9 million, respectively, for the years ended December 31, 2023, 2022 and 2021. The operating income (loss) included in the consolidated financial statements for these acquisitions subsequent to their acquisition date was $45.9 million, $31.8 million and $(4.5) million, respectively, for the years ended December 31, 2023, 2022 and 2021.
Note 5: Restructuring
2023 Actions
The Company continues to undertake restructuring actions to optimize our cost structure. Charges incurred from actions taken in 2023 include workforce restructuring, facility consolidation and other exit and disposal costs. For the year ended December 31, 2023, we recognized expense of $10.8 million within Industrial Technologies and Services, $4.3 million within Precision and Science Technologies, and $0.4 million in Corporate related to the 2023 actions.
Prior Year Actions
Subsequent to the acquisition of and merger with the Industrial business of Ingersoll-Rand plc (“Ingersoll Rand Industrial”) in 2020 (the “Merger”), 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, 2023, we have recognized cumulative expense related to the 2020 Plan of $130.1 million, comprising $103.1 million, $15.4 million and $11.6 million for Industrial Technologies and Services, Precision and Science Technologies and Corporate, respectively. The Company does not expect remaining expense under the 2020 Plan to be material.
For the years ended December 31, 2023, 2022 and 2021, “Restructuring charges, net” were recognized within “Other operating expense, net” in the Consolidated Statements of Operations and consisted of the following.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Industrial Technologies and Services | $ | 15.1 | | | $ | 20.1 | | | $ | 8.4 | |
| Precision and Science Technologies | 4.1 | | | 8.7 | | | — | |
| | | | | |
| | | | | |
| Corporate | 0.7 | | | 0.5 | | | 5.0 | |
| Restructuring charges, net | $ | 19.9 | | | $ | 29.3 | | | $ | 13.4 | |
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, 2023 and 2022.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Balance at beginning of period | $ | 14.9 | | | $ | 12.3 | |
| Charged to expense - termination benefits | 13.0 | | | 16.9 | |
Charged to expense - other(1) | 4.2 | | | 6.4 | |
| | | |
| Payments | (17.1) | | | (20.6) | |
| Foreign currency translation and other | 0.5 | | | (0.1) | |
| Balance at end of period | $ | 15.5 | | | $ | 14.9 | |
(1)Excludes $2.7 million and $6.0 million of non-cash charges that impacted restructuring expense but not the restructuring liabilities during the years ended December 31, 2023 and 2022, respectively.
Note 6: Allowance for Credit Losses
The following table summarized the activity associated with allowance for credit losses for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Balance at beginning of period | $ | 47.2 | | | $ | 42.3 | | | $ | 50.9 | |
| | | | | |
Provision (benefit) charged to expense(1) | 9.4 | | | 10.1 | | | (4.3) | |
| Write-offs, net of recoveries | (3.3) | | | (3.2) | | | (3.8) | |
| Foreign currency translation and other | 0.5 | | | (2.0) | | | (0.5) | |
| Balance at end of period | $ | 53.8 | | | $ | 47.2 | | | $ | 42.3 | |
(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, 2023 and 2022 consisted of the following.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Raw materials, including parts and subassemblies | $ | 590.7 | | | $ | 625.0 | |
| Work-in-process | 145.1 | | | 122.2 | |
| Finished goods | 337.8 | | | 338.7 | |
| 1,073.6 | | | 1,085.9 | |
| LIFO reserve | (72.5) | | | (60.5) | |
| Inventories | $ | 1,001.1 | | | $ | 1,025.4 | |
At December 31, 2023 and 2022, 37% and 42%, respectively, of total inventory is accounted for on a last-in, first-out (“LIFO”) basis.
Note 8: Property, Plant and Equipment
Property, plant and equipment, net as of December 31, 2023 and 2022 consisted of the following.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Land and land improvements | $ | 67.7 | | | $ | 64.6 | |
| Buildings | 337.1 | | | 298.2 | |
| Machinery and equipment | 655.8 | | | 556.6 | |
| Office furniture and equipment | 71.0 | | | 63.1 | |
| Construction in progress | 80.6 | | | 59.3 | |
| 1,212.2 | | | 1,041.8 | |
| Accumulated depreciation | (500.8) | | | (417.4) | |
| Property, plant and equipment, net | $ | 711.4 | | | $ | 624.4 | |
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, 2023 and 2022 are as follows.
| | | | | | | | | | | | | | | | | | | | | |
| Industrial Technologies and Services | | Precision and Science Technologies | | | | | | Total |
Balance as of December 31, 2021 | $ | 4,177.3 | | | $ | 1,804.3 | | | | | | | $ | 5,981.6 | |
| Acquisitions | 121.5 | | | 86.4 | | | | | | | 207.9 | |
Foreign currency translation and other(1) | (76.3) | | | (49.0) | | | | | | | (125.3) | |
Balance as of December 31, 2022 | 4,222.5 | | | 1,841.7 | | | | | | | 6,064.2 | |
| Acquisitions | 509.1 | | | 2.4 | | | | | | | 511.5 | |
Foreign currency translation and other(1) | 21.9 | | | 12.1 | | | | | | | 34.0 | |
Balance as of December 31, 2023 | $ | 4,753.5 | | | $ | 1,856.2 | | | | | | | $ | 6,609.7 | |
(1)Includes measurement period adjustments.
The Company acquired multiple businesses during the year ended December 31, 2023. 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.
| | | | | | | | | | | | | | | | | | | | | | | | |
2023 Acquisitions | | Industrial Technologies and Services | | Precision and Science Technologies | | | | | | Total |
| Air Treatment | | $ | 279.9 | | | $ | — | | | | | | | $ | 279.9 | |
| Roots | | 106.6 | | | — | | | | | | | 106.6 | |
| | | | | | | | | | |
| Other acquisitions | | 122.6 | | | 2.4 | | | | | | | 125.0 | |
| | $ | 509.1 | | | $ | 2.4 | | | | | | | $ | 511.5 | |
The Company acquired several businesses during the year ended December 31, 2022. The excess of the purchase price over the estimated fair values of intangible assets, identifiable assets and assumed liabilities was recorded as goodwill. The goodwill attributable to these businesses is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | |
2022 Acquisitions | | Industrial Technologies and Services | | Precision and Science Technologies | | | | | | Total |
| Dosatron International | | $ | — | | | $ | 57.4 | | | | | | | $ | 57.4 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Other acquisitions | | 121.5 | | | 29.0 | | | | | | | 150.5 | |
| | $ | 121.5 | | | $ | 86.4 | | | | | | | $ | 207.9 | |
As of December 31, 2023 and 2022, 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 described in Note 1, we performed our annual goodwill impairment testing as of the first day of our fiscal fourth quarters of 2023, 2022 and 2021. For the years ended December 31, 2023, 2022 and 2021, 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, 2023 and 2022 consisted of the following.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Amortized intangible assets: | | | | | | | | | | | |
| Customer lists and relationships | $ | 3,279.3 | | | $ | (1,585.4) | | | $ | 1,693.9 | | | $ | 3,029.0 | | | $ | (1,286.1) | | | $ | 1,742.9 | |
| Technology | 413.8 | | | (178.9) | | | 234.9 | | | 360.0 | | | (124.5) | | | 235.5 | |
| Tradenames | 52.2 | | | (27.9) | | | 24.3 | | | 46.2 | | | (22.7) | | | 23.5 | |
| Backlog | 3.0 | | | (1.3) | | | 1.7 | | | 1.0 | | | (0.3) | | | 0.7 | |
| Other | 117.1 | | | (104.1) | | | 13.0 | | | 113.7 | | | (93.2) | | | 20.5 | |
| Unamortized intangible assets: | | | | | | | | | | | |
| Tradenames | 1,643.3 | | | — | | | 1,643.3 | | | 1,555.5 | | | — | | | 1,555.5 | |
| Total other intangible assets | $ | 5,508.7 | | | $ | (1,897.6) | | | $ | 3,611.1 | | | $ | 5,105.4 | | | $ | (1,526.8) | | | $ | 3,578.6 | |
Amortization of intangible assets was $367.5 million, $347.6 million and $332.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. Amortization of intangible assets is anticipated to be approximately $370 million in 2024, $290 million in 2025, $230 million in each of 2026 and 2027 and $200 million in 2028 based upon currency exchange rates as of December 31, 2023.
Other Intangible Asset Impairment Tests
Consistent with our accounting policy described in Note 1, we performed our annual intangible asset impairment testing as of the first day of our fiscal fourth quarters of 2023, 2022 and 2021. For the years ended December 31, 2023, 2022 and 2021, 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, 2023 and 2022 consisted of the following:
| | | | | | | | | | | |
| 2023 | | 2022 |
| Salaries, wages and related fringe benefits | $ | 262.4 | | | $ | 223.3 | |
| Contract liabilities | 331.2 | | | 305.6 | |
| Product warranty | 61.9 | | | 46.2 | |
| Operating lease liabilities | 41.6 | | | 39.6 | |
| Restructuring | 15.5 | | | 14.9 | |
| Taxes | 78.4 | | | 63.3 | |
| Accrued interest | 33.1 | | | 1.2 | |
| Other | 171.4 | | | 164.7 | |
| Total accrued liabilities | $ | 995.5 | | | $ | 858.8 | |
A reconciliation of the changes in the accrued product warranty liability for the years ended December 31, 2023 and 2022 is as follows.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Balance at beginning of period | $ | 46.2 | | | $ | 42.5 | |
| Product warranty accruals | 44.4 | | | 20.4 | |
| Acquired warranty | 2.2 | | | — | |
| Settlements | (31.2) | | | (14.8) | |
| Foreign currency translation and other | 0.3 | | | (1.9) | |
| Balance at end of period | $ | 61.9 | | | $ | 46.2 | |
Note 11: Debt
Debt as of December 31, 2023 and 2022 consisted of the following.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Short-term borrowings | $ | 1.0 | | | $ | 4.5 | |
| Long-term debt | | | |
| | | |
| | | |
Dollar Term Loan B, due 2027(1)(2) | $ | 347.7 | | | $ | 1,846.3 | |
Dollar Term Loan, due 2027(1)(2) | 892.3 | | | 901.4 | |
| | | |
5.400% Senior Notes due 2028(1) | 498.2 | | | — | |
5.700% Senior Notes due 2033(1) | 992.6 | | | — | |
| Finance leases and other long-term debt | 15.2 | | | 22.2 | |
| Unamortized debt issuance costs | (23.4) | | | (21.8) | |
| Total long-term debt, net, including current maturities | 2,722.6 | | | 2,748.1 | |
| Current maturities of long-term debt | 29.6 | | | 32.0 | |
| Total long-term debt, net | $ | 2,693.0 | | | $ | 2,716.1 | |
(1)This amount is net of unamortized discounts. Total unamortized discounts were $9.9 million and $2.1 million as of December 31, 2023 and 2022, respectively.
(2)As of December 31, 2023, the applicable interest rate was 7.21% and the weighted-average rate was 6.87% for the year ended December 31, 2023.
Senior Notes
On August 14, 2023, the Company completed its issuance of $1,500.0 million in aggregate principal amount of senior unsecured notes comprised of $500.0 million aggregate principal amount of 5.400% Senior Notes due August 2028 (the “2028 Senior Notes”) and $1,000.0 million aggregate principal amount of 5.700% Senior Notes due August 2033 (the “2033 Senior Notes” and, together with the 2028 Senior Notes, the “Senior Notes”). The Company used the proceeds of the offering of the Senior Notes to repay a portion of the amounts outstanding under its Senior Secured Credit Facilities. The Senior Notes were issued pursuant to a base indenture, each dated as of August 14, 2023, between the Company and Deutsche Bank Trust Company Americas, as trustee (the “Trustee”), as supplemented by a 2028 Supplemental Indenture No. 1 with respect to the 2028 Senior Notes and a 2033 Senior Notes Supplemental Indenture No. 1 with respect to the 2033 Senior Notes, each dated as of August 14, 2023, between the Company and the Trustee (collectively, the “Indenture”). The interest payment dates for the Senior Notes are February 14 and August 14 of each year, with interest payable in arrears.
The Senior Notes are senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other senior unsecured indebtedness, senior in right of payment to all of the Company’s subordinated indebtedness, and effectively junior to all of the indebtedness and other liabilities of the Company’s subsidiaries (including the obligations of the Company’s subsidiaries under the Senior Secured Credit Facilities and to all of the Company’s secured indebtedness (including the Company’s obligations under the Senior Secured Credit Facilities) to the extent of the value of the assets securing such secured indebtedness.
Prior to (i) July 14, 2028, in the case of the 2028 Senior Notes, and (ii) May 14, 2033, in the case of the 2033 Senior Notes, the Company may redeem the Senior Notes of a series at its option, in whole or in part, at any time from time to time, at a “make-whole” premium, plus accrued and unpaid interest thereon to, but not including, the redemption date. On or after (i) July 14, 2028, in the case of the 2028 Senior Notes, and (ii) May 14, 2033, in the case of the 2033 Senior Notes, the Company may redeem the Senior Notes of a series at its option, in whole or in part, at any time from time to time, at a price equal to 100% of the principal amount of the Senior Notes of such series to be redeemed, plus accrued and unpaid interest thereon to, but not including, the redemption date. If the Company experiences certain types of change of control transactions, the Company must offer to repurchase the Senior Notes at 101% of the aggregate principal amount of the Senior Notes repurchased (or such higher amount as the Company may determine) plus accrued and unpaid interest thereon to, but not including, the date of repurchase.
The Indenture contains covenants that limit the Company’s (and its subsidiaries’) ability to, among other things: (i) create liens on certain assets; (ii) consolidate, merge, sell or otherwise dispose of all or substantially all of its consolidated assets; and (iii) enter into sale and leaseback transactions with respect to certain assets. The Indenture also contains customary events of default and covenants for an issuer of investment grade debt securities.
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.
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.
In April 2022, the Company and its lenders executed Amendment No. 8 to the Credit Agreement, the primary purpose of which was to change the reference rate for existing and new borrowings under the Credit Agreement by replacing LIBOR with the Secured Overnight Financing Rate.
On April 21 2023, the Company entered into Amendment No. 9 to the Credit Agreement, which (a) extended the maturity date for the revolving credit commitments from June 28, 2024 to April 21, 2028, (b) increased the aggregate revolving credit commitments from $1,100.0 million to $2,000.0 million, and (c) made certain other corresponding changes and updates. The amendment resulted in the write-off of unamortized debt issuance costs of $0.9 million which was recognized in “Loss on extinguishment of debt” in the Condensed Consolidated Statements of Operations.
In August 2023, the Company repaid a portion of the Dollar Term Loan B which resulted in the write-off of unamortized discounts and debt issuance costs of $12.6 million, which was recognized in “Loss on extinguishment of debt” in the Consolidated Statements of Operations.
As of December 31, 2023, the aggregate amount of commitments under the Revolving Credit Facility was $2,000.0 million and the capacity under the Revolving Credit Facility to issue letters of credit was $400.0 million. As of December 31, 2023, the Company had no outstanding borrowings, no outstanding letters of credit under the New Revolving Credit Facility and unused availability of $2,000.0 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 SOFR 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) SOFR 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 SOFR loans and 0.75% for base rate loans, (ii) the Dollar Term Loan B is 1.75% for SOFR
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 SOFR 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.
Fair Value of Debt
The fair value of the Company's debt instruments at December 31, 2023 was $2.8 billion. The Company measures the fair value of its debt instruments for disclosure purposes based upon observable market prices quoted on public exchanges for similar assets. These fair value inputs are considered Level 2 within the fair value hierarchy. See Note 20, "Fair Value Measurements" for information on the fair value hierarchy.
Total Debt Maturities
Total debt maturities for the five years subsequent to December 31, 2023 and thereafter are $30.6 million, $30.0 million, $29.7 million, $1,157.3 million, $501.5 million and $1,007.8 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 to a limited group of current and retired employees, primarily in the United States. 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 | |
| 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Reconciliation of Benefit Obligations: | | | | | | | | | | | |
| Beginning balance | $ | 319.8 | | | $ | 441.8 | | | $ | 247.5 | | | $ | 396.2 | | | $ | 21.0 | | | $ | 28.7 | |
| Service cost | 0.1 | | | 4.4 | | | 2.6 | | | 3.3 | | | — | | | — | |
| Interest cost | 15.7 | | | 11.3 | | | 11.1 | | | 5.9 | | | 0.9 | | | 0.7 | |
| Plan amendments | — | | | — | | | 0.3 | | | — | | | — | | | — | |
Actuarial losses (gains)(1) | 6.0 | | | (105.0) | | | 3.3 | | | (112.0) | | | (1.0) | | | (5.0) | |
| Benefit payments | (16.1) | | | (26.5) | | | (13.6) | | | (11.2) | | | (2.7) | | | (3.3) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Plan settlements | (31.5) | | | (6.2) | | | — | | | — | | | — | | | — | |
| Effect of foreign currency exchange rate changes | — | | | — | | | 12.0 | | | (34.7) | | | 0.1 | | | (0.1) | |
| Benefit obligations ending balance | $ | 294.0 | | | $ | 319.8 | | | $ | 263.2 | | | $ | 247.5 | | | $ | 18.3 | | | $ | 21.0 | |
| Reconciliation of Fair Value of Plan Assets: | | | | | | | | | | | |
| Beginning balance | $ | 263.6 | | | $ | 384.7 | | | $ | 196.4 | | | $ | 297.7 | | | | | |
| Actual return on plan assets | 18.7 | | | (92.5) | | | 6.7 | | | (66.9) | | | | | |
| Employer contributions | 2.8 | | | 4.1 | | | 6.6 | | | 5.9 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Benefit payments | (16.1) | | | (26.5) | | | (13.6) | | | (11.2) | | | | | |
| Plan settlements | (31.5) | | | (6.2) | | | — | | | — | | | | | |
| Effect of foreign currency exchange rate changes | — | | | — | | | 9.9 | | | (29.1) | | | | | |
| Fair value of plan assets ending balance | $ | 237.5 | | | $ | 263.6 | | | $ | 206.0 | | | $ | 196.4 | | | | | |
| | | | | | | | | | | |
| Funded Status as of Period End | $ | (56.5) | | | $ | (56.2) | | | $ | (57.2) | | | $ | (51.1) | | | $ | (18.3) | | | $ | (21.0) | |
(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, 2023 and 2022 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 | |
| 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Net actuarial gains | $ | (11.0) | | | $ | (11.8) | | | $ | (1.1) | | | $ | (10.4) | | | $ | (4.3) | | | $ | (4.4) | |
| Prior service cost | — | | | — | | | 2.9 | | | 2.6 | | | 0.1 | | | 0.1 | |
| Amounts included in accumulated other comprehensive income (loss) | $ | (11.0) | | | $ | (11.8) | | | $ | 1.8 | | | $ | (7.8) | | | $ | (4.2) | | | $ | (4.3) | |
Pension and other postretirement benefit liabilities and assets are included in the following captions in the Consolidated Balance Sheets as of December 31, 2023 and 2022.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Other assets | $ | 18.8 | | | $ | 17.8 | |
| Accrued liabilities | (6.2) | | | (9.1) | |
| Pension and other postretirement benefits | (144.6) | | | (137.0) | |
The following table provides information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Plans | | Non-U.S. Pension Plans |
| 2023 | | 2022 | | 2023 | | 2022 |
| Projected benefit obligations | $ | 294.0 | | | $ | 319.8 | | | $ | 105.4 | | | $ | 96.2 | |
| Accumulated benefit obligation | 294.0 | | | 319.8 | | | 86.4 | | | 81.1 | |
| Fair value of plan assets | 237.5 | | | 263.6 | | | 17.0 | | | 17.3 | |
The accumulated benefit obligation for all U.S. defined benefit pension plans was $294.0 million and $319.8 million as of December 31, 2023 and 2022, respectively. The accumulated benefit obligation for all non-U.S. defined benefit pension plans was $254.8 million and $237.1 million as of December 31, 2023 and 2022, 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, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| U.S. Pension Plans |
| 2023 | | 2022 | | 2021 |
| Net Periodic Benefit Cost: | | | | | |
| Service cost | $ | 0.1 | | | $ | 4.4 | | | $ | 5.3 | |
| Interest cost | 15.7 | | | 11.3 | | | 10.8 | |
| Expected return on plan assets | (13.2) | | | (13.0) | | | (12.2) | |
| | | | | |
| Amortization of net actuarial loss | 0.1 | | | — | | | — | |
| Net periodic benefit cost | 2.7 | | | 2.7 | | | 3.9 | |
| Gain due to settlement | (0.4) | | | (0.5) | | | (0.6) | |
| Total net periodic benefit cost recognized | $ | 2.3 | | | $ | 2.2 | | | $ | 3.3 | |
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | | | | |
| Net actuarial loss (gain) | $ | 0.5 | | | $ | 0.4 | | | $ | (12.5) | |
| Amortization of net actuarial gain | 0.3 | | | 0.5 | | | 0.6 | |
| | | | | |
| | | | | |
| | | | | |
| Total recognized in other comprehensive income (loss) | $ | 0.8 | | | $ | 0.9 | | | $ | (11.9) | |
| Total recognized in net periodic benefit cost and other comprehensive income (loss) | $ | 3.1 | | | $ | 3.1 | | | $ | (8.6) | |
| | | | | | | | | | | | | | | | | |
| Non-U.S. Pension Plans |
| 2023 | | 2022 | | 2021 |
| Net Periodic Benefit Cost (Income): | | | | | |
| Service cost | $ | 2.6 | | | $ | 3.3 | | | $ | 4.3 | |
| Interest cost | 11.1 | | | 5.9 | | | 4.6 | |
| Expected return on plan assets | (11.0) | | | (11.8) | | | (12.2) | |
| Amortization of prior service cost | 0.1 | | | 0.1 | | | 0.2 | |
| Amortization of net actuarial loss | (1.7) | | | 0.3 | | | 4.9 | |
| | | | | |
| | | | | |
| Total net periodic benefit cost (income) recognized | $ | 1.1 | | | $ | (2.2) | | | $ | 1.8 | |
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | | | | |
| Net actuarial loss (gain) | $ | 7.5 | | | $ | (33.3) | | | $ | (43.3) | |
| Amortization of net actuarial gain (loss) | 1.7 | | | (0.3) | | | (4.9) | |
| Prior service cost | 0.3 | | | — | | | — | |
| Amortization of prior service cost | (0.1) | | | (0.1) | | | (0.2) | |
| Effect of foreign currency exchange rate changes | 0.3 | | | (3.2) | | | (1.4) | |
| Total recognized in other comprehensive income (loss) | $ | 9.7 | | | $ | (36.9) | | | $ | (49.8) | |
| Total recognized in net periodic benefit cost (income) and other comprehensive income (loss) | $ | 10.8 | | | $ | (39.1) | | | $ | (48.0) | |
| | | | | | | | | | | | | | | | | |
| Other Postretirement Benefits |
| 2023 | | 2022 | | 2021 |
| Net Periodic Benefit Cost (Income): | | | | | |
| | | | | |
| Interest cost | $ | 0.9 | | | $ | 0.7 | | | $ | 0.6 | |
| | | | | |
| Amortization of prior service cost | 0.1 | | | — | | | 0.1 | |
| Amortization of net actuarial loss | (1.1) | | | — | | | 0.1 | |
| | | | | |
| | | | | |
| Total net periodic benefit cost (income) recognized | $ | (0.1) | | | $ | 0.7 | | | $ | 0.8 | |
| Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | | | | |
| Net actuarial gain | $ | (1.0) | | | $ | (5.0) | | | $ | (1.6) | |
| Amortization of net actuarial loss | 1.1 | | | — | | | (0.1) | |
| Prior service cost | — | | | — | | | 1.9 | |
| Amortization of prior service cost | (0.1) | | | — | | | (0.1) | |
| | | | | |
| Total recognized in other comprehensive income (loss) | $ | — | | | $ | (5.0) | | | $ | 0.1 | |
| Total recognized in net periodic benefit cost (income) and other comprehensive income (loss) | $ | (0.1) | | | $ | (4.3) | | | $ | 0.9 | |
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’ advisors. 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, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Plans | | Non-U.S. Pension Plans |
| 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
Weighted-average actuarial assumptions used to determine net periodic benefit cost: | | | | | | | | | | | |
| Discount rate | 5.2 | % | | 2.7 | % | | 2.4 | % | | 4.5 | % | | 1.6 | % | | 1.1 | % |
| Expected long-term rate of return on plan assets | 5.4 | % | | 3.5 | % | | 3.2 | % | | 5.5 | % | | 4.4 | % | | 4.3 | % |
| Rate of compensation increases | N/A | | 3.0 | % | | 3.0 | % | | 4.3 | % | | 4.3 | % | | 3.1 | % |
Weighted-average actuarial assumptions used to determine benefit obligations: | | | | | | | | | | | |
| Discount rate | 5.0 | % | | 5.2 | % | | 2.7 | % | | 4.2 | % | | 4.5 | % | | 1.6 | % |
| Rate of compensation increases | N/A | | N/A | | 3.0 | % | | 5.0 | % | | 4.3 | % | | 4.3 | % |
The following actuarial assumptions were used to determine other postretirement benefit plans costs and obligations for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| Other Postretirement Benefits |
| 2023 | | 2022 | | 2021 |
| Discount rate used to determine net periodic benefit cost | 4.9% - 5.2% | | 2.4% - 3.0% | | 1.8% - 2.4% |
Discount rate used to determine benefit obligations | 4.9% - 5.1% | | 4.9% - 5.2% | | 2.4% - 3.0% |
Weighted-average actuarial assumptions used to determine other postretirement benefit plans costs and obligations: | | | | | |
| Healthcare cost trend rate assumed for next year | 6.8 | % | | 6.8 | % | | 6.8 | % |
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.4 | % | | 4.5 | % | | 4.5 | % |
| Year that the date reaches the ultimate trend rate | 2035 | | 2034 | | 2034 |
The following table reflects the estimated benefit payments for the next five years and for the years 2029 through 2033. The estimated benefit payments for the non-U.S. pension plans were calculated using foreign exchange rates as of December 31, 2023.
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postretirement Benefits |
| U.S. Plans | | Non-U.S. Plans | |
| 2024 | $ | 26.2 | | | $ | 13.8 | | | $ | 2.5 | |
| 2025 | 23.9 | | | 14.8 | | | 2.3 | |
| 2026 | 23.3 | | | 15.0 | | | 2.1 | |
| 2027 | 22.6 | | | 14.7 | | | 2.0 | |
| 2028 | 22.4 | | | 15.4 | | | 1.8 | |
Aggregate 2029-2033 | 105.6 | | | 85.0 | | | 6.7 | |
In 2024, the Company expects to contribute $5.1 million to the U.S. pension plans, $6.7 million to the non-U.S. pension plans, and $2.5 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 79% of the total benefit obligations and 90% of total plan assets as of December 31, 2023. The following table presents the long-term target allocations for these plans as of December 31, 2023.
| | | | | | | | | | | |
| U.S. Plans | | UK Plan |
| Asset category: | | | |
| | | |
| Equity | 13 | % | | 18 | % |
| Fixed income | 84 | % | | 72 | % |
| Real estate and other | 3 | % | | 10 | % |
| Total | 100 | % | | 100 | % |
Fair Value Measurements
The following tables present the fair values of the Company’s pension plan assets as of December 31, 2023 and 2022 by asset category within the ASC 820 hierarchy (as defined in Note 20 “Fair Value Measurements”).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| 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) | $ | 7.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | 7.1 | |
| Equity funds: | | | | | | | | | |
| U.S. small-cap | — | | | — | | | — | | | 3.7 | | | 3.7 | |
| U.S. large-cap | — | | | 2.0 | | | — | | | 17.5 | | | 19.5 | |
International equity(2) | 14.2 | | | 10.5 | | | — | | | 17.2 | | | 41.9 | |
| Total equity funds | 14.2 | | | 12.5 | | | — | | | 38.4 | | | 65.1 | |
| Fixed income funds: | | | | | | | | | |
| Corporate bonds - international | — | | | 26.9 | | | — | | | 15.8 | | | 42.7 | |
| UK index-linked gilts | — | | | 78.7 | | | — | | | — | | | 78.7 | |
| U.S. fixed income - government securities | — | | | — | | | — | | | 43.2 | | | 43.2 | |
| U.S. fixed income - short duration | — | | | — | | | — | | | 1.3 | | | 1.3 | |
| U.S. fixed income - intermediate duration | — | | | — | | | — | | | 30.9 | | | 30.9 | |
| U.S. fixed income - long corporate | — | | | — | | | — | | | 122.3 | | | 122.3 | |
| Global fixed income | — | | | — | | | — | | | 7.2 | | | 7.2 | |
| Total fixed income funds | — | | | 105.6 | | | — | | | 220.7 | | | 326.3 | |
| Other types of investments: | | | | | | | | | |
International real estate(3) | — | | | 15.4 | | | — | | | — | | | 15.4 | |
Other(4) | | | — | | | 29.6 | | | — | | | 29.6 | |
| Total | $ | 21.3 | | | $ | 133.5 | | | $ | 29.6 | | | $ | 259.1 | | | $ | 443.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| 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) | $ | 3.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 3.2 | |
| Equity funds: | | | | | | | | | |
| U.S. small-cap | — | | | — | | | — | | | 3.8 | | | 3.8 | |
| U.S. large-cap | — | | | 3.9 | | | — | | | 18.5 | | | 22.4 | |
International equity(2) | 20.1 | | | 16.9 | | | — | | | 27.5 | | | 64.5 | |
| Total equity funds | 20.1 | | | 20.8 | | | — | | | 49.8 | | | 90.7 | |
| Fixed income funds: | | | | | | | | | |
| Corporate bonds - international | — | | | 44.6 | | | — | | | 7.6 | | | 52.2 | |
| UK index-linked gilts | — | | | 41.6 | | | — | | | — | | | 41.6 | |
| U.S. fixed income - government securities | — | | | — | | | — | | | 33.1 | | | 33.1 | |
| U.S. fixed income - short duration | — | | | — | | | — | | | 1.8 | | | 1.8 | |
| U.S. fixed income - intermediate duration | — | | | — | | | — | | | 50.3 | | | 50.3 | |
| U.S. fixed income - long corporate | — | | | — | | | — | | | 135.7 | | | 135.7 | |
| Global fixed income | — | | | — | | | — | | | 8.0 | | | 8.0 | |
| Total fixed income funds | — | | | 86.2 | | | — | | | 236.5 | | | 322.7 | |
| Other types of investments: | | | | | | | | | |
International real estate(3) | — | | | 16.6 | | | — | | | — | | | 16.6 | |
Other(4) | | | — | | | 26.8 | | | — | | | 26.8 | |
| Total | $ | 23.3 | | | $ | 123.6 | | | $ | 26.8 | | | $ | 286.3 | | | $ | 460.0 | |
(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, 2023, 2022, and 2021 were $47.0 million, $46.6 million and $40.6 million, respectively.
Other Benefit Plans
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 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 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, 2023 and 2022, 1,000,000,000 shares of voting common stock were authorized. Shares of common stock outstanding were 403,347,394 and 405,117,710 as of December 31, 2023 and 2022, 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. The remaining shares are owned by unaffiliated shareholders and traded on India stock exchanges regulated by Securities and Exchange Board of India.
Share Repurchase Program
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 Exchange Act of 1934, as amended.
For the year ended December 31, 2023, the Company repurchased 3,963,243 shares under the 2021 Repurchase Program at a weighted average price of $62.98 per share for an aggregate value of $249.6 million.
For the year ended December 31, 2022, the Company repurchased 5,673,937 shares under the 2021 Repurchase Program at a weighted average price of $45.36 per share for an aggregate value of $257.3 million.
There were no shares repurchased under the 2021 Repurchase Program for the year ended December 31, 2021.
Other Share Repurchases
On August 6, 2021, affiliates of Kohlberg Kravis Roberts & Co. L.P. (“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, 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.”
The before tax income (loss) and related income tax effect are as follows.
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments, Net | | Cash Flow Hedges | | Pension and Other Postretirement Benefit Plans | | Total |
| 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) | |
| Before tax income (loss) | (237.1) | | | 21.3 | | | 41.0 | | | (174.8) | |
| Income tax effect | (15.8) | | | (5.3) | | | (14.2) | | | (35.3) | |
| Other comprehensive income (loss) | (252.9) | | | 16.0 | | | 26.8 | | | (210.1) | |
| | | | | | | |
| Balance as of December 31, 2022 | $ | (282.8) | | | $ | 16.0 | | | $ | 15.1 | | | $ | (251.7) | |
| Before tax income (loss) | 23.0 | | | (5.1) | | | (10.5) | | | 7.4 | |
| Income tax effect | 11.8 | | | 1.3 | | | 3.6 | | | 16.7 | |
| Other comprehensive income (loss) | 34.8 | | | (3.8) | | | (6.9) | | | 24.1 | |
| | | | | | | |
| Balance as of December 31, 2023 | $ | (248.0) | | | $ | 12.2 | | | $ | 8.2 | | | $ | (227.6) | |
The tables above include only the other comprehensive income (loss), net of tax, attributable to Ingersoll Rand Inc. Other comprehensive income (loss), net, attributable to noncontrolling interest holders was $1.7 million, $(7.2) million and $(2.3) million for the years ended December 31, 2023, 2022 and 2021, 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 | | Cash Flow Hedges | | Pension and Other Postretirement Benefit Plans | | Total |
| 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) | |
| Other comprehensive income (loss) before reclassifications | (244.3) | | | 13.9 | | | 26.9 | | | (203.5) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | (8.6) | | | 2.1 | | | (0.1) | | | (6.6) | |
| Other comprehensive income (loss) | (252.9) | | | 16.0 | | | 26.8 | | | (210.1) | |
| | | | | | | |
| Balance as of December 31, 2022 | $ | (282.8) | | | $ | 16.0 | | | $ | 15.1 | | | $ | (251.7) | |
| Other comprehensive income (loss) before reclassifications | 49.0 | | | 7.9 | | | (4.7) | | | 52.2 | |
| Amounts reclassified from accumulated other comprehensive income (loss) | (14.2) | | | (11.7) | | | (2.2) | | | (28.1) | |
| Other comprehensive income (loss) | 34.8 | | | (3.8) | | | (6.9) | | | 24.1 | |
| | | | | | | |
| Balance as of December 31, 2023 | $ | (248.0) | | | $ | 12.2 | | | $ | 8.2 | | | $ | (227.6) | |
(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, 2023, 2022 and 2021 are presented in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount Reclassified from Accumulated Other Comprehensive Income (Loss) |
| Details about Accumulated Other Comprehensive Income (Loss) Components | | 2023 | | 2022 | | 2021 | | Affected Line(s) in the Statement Where Net Income is Presented |
| Cash flow hedges | | $ | (15.6) | | | $ | 2.8 | | | $ | — | | | Interest expense |
| Benefit for income taxes | | 3.9 | | | (0.7) | | | — | | | Benefit for income taxes |
| Cash flow hedges, net of tax | | $ | (11.7) | | | $ | 2.1 | | | $ | — | | | |
| | | | | | | | |
| Net investment hedges | | $ | (19.0) | | | $ | (11.5) | | | $ | — | | | Interest expense |
| Provision for income taxes | | 4.8 | | | 2.9 | | | — | | | Benefit for income taxes |
| Net investment hedges, net of tax | | $ | (14.2) | | | $ | (8.6) | | | $ | — | | | |
| | | | | | | | |
Amortization of defined benefit pension and other postretirement benefit items(1) | | $ | (2.9) | | | $ | (0.1) | | | $ | 4.7 | | | Cost of sales and Selling and administrative expenses |
| Benefit for income taxes | | 0.7 | | | — | | | (1.2) | | | Benefit for income taxes |
| Amortization of defined benefit pension and other postretirement benefit items, net of tax | | $ | (2.2) | | | $ | (0.1) | | | $ | 3.5 | | | |
| | | | | | | | |
| Total reclassifications for the period | | $ | (28.1) | | | $ | (6.6) | | | $ | 3.5 | | | |
(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, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Industrial Technologies and Services | | Precision and Science Technologies | | Total |
| 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
| Primary Geographic Markets | | | | | | | | | | | |
| United States | $ | 2,328.0 | | | $ | 1,900.3 | | | $ | 567.2 | | | $ | 550.1 | | | $ | 2,895.2 | | | $ | 2,450.4 | |
| Other Americas | 373.1 | | | 320.5 | | | 29.0 | | | 29.7 | | | 402.1 | | | 350.2 | |
| Total Americas | 2,701.1 | | | 2,220.8 | | | 596.2 | | | 579.8 | | | 3,297.3 | | | 2,800.6 | |
| EMEIA | 1,800.8 | | | 1,442.8 | | | 466.7 | | | 434.5 | | | 2,267.5 | | | 1,877.3 | |
| Asia Pacific | 1,130.9 | | | 1,041.5 | | | 180.4 | | | 196.9 | | | 1,311.3 | | | 1,238.4 | |
| Total | $ | 5,632.8 | | | $ | 4,705.1 | | | $ | 1,243.3 | | | $ | 1,211.2 | | | $ | 6,876.1 | | | $ | 5,916.3 | |
| | | | | | | | | | | |
| Product Categories | | | | | | | | | | | |
Original equipment(1) | $ | 3,425.9 | | | $ | 2,852.5 | | | $ | 990.9 | | | $ | 980.3 | | | $ | 4,416.8 | | | $ | 3,832.8 | |
Aftermarket(2) | 2,206.9 | | | 1,852.6 | | | 252.4 | | | 230.9 | | | 2,459.3 | | | 2,083.5 | |
| Total | $ | 5,632.8 | | | $ | 4,705.1 | | | $ | 1,243.3 | | | $ | 1,211.2 | | | $ | 6,876.1 | | | $ | 5,916.3 | |
| | | | | | | | | | | |
| Pattern of Revenue Recognition | | | | | | | | | | | |
Revenue recognized at point in time(3) | $ | 5,147.2 | | | $ | 4,314.3 | | | $ | 1,236.2 | | | $ | 1,204.1 | | | $ | 6,383.4 | | | $ | 5,518.4 | |
Revenue recognized over time(4) | 485.6 | | | 390.8 | | | 7.1 | | | 7.1 | | | 492.7 | | | 397.9 | |
| Total | $ | 5,632.8 | | | $ | 4,705.1 | | | $ | 1,243.3 | | | $ | 1,211.2 | | | $ | 6,876.1 | | | $ | 5,916.3 | |
(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.
(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, 2023, 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 $683.5 million in the next twelve months and $596.4 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, 2023 and 2022 presented in the Consolidated Balance Sheets.
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Accounts receivable, net | $ | 1,234.2 | | | $ | 1,122.0 | |
| Contract assets | 85.6 | | | 70.6 | |
| Contract liabilities - current | 331.2 | | | 305.6 | |
| Contract liabilities - noncurrent | 1.0 | | | 1.1 | |
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 $306.7 million in contract liabilities as of December 31, 2022, we recognized substantially all as revenue in the year ended December 31, 2023.
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 before income taxes for the years ended December 31, 2023, 2022 and 2021 consisted of the following.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| U.S. | $ | 356.0 | | | $ | 267.5 | | | $ | 121.3 | |
| Non-U.S. | 675.1 | | | 474.7 | | | 391.7 | |
| Income before income taxes | $ | 1,031.1 | | | $ | 742.2 | | | $ | 513.0 | |
The following table details the components of the Provision (benefit) for income taxes for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Current: | | | | | |
| U.S. federal | $ | 111.5 | | | $ | 66.5 | | | $ | (33.1) | |
| U.S. state and local | 23.7 | | | 21.5 | | | 5.8 | |
| Non-U.S. | 181.7 | | | 147.4 | | | 109.1 | |
| Deferred: | | | | | |
| U.S. federal | (44.0) | | | (37.3) | | | (19.5) | |
| U.S. state and local | (6.9) | | | (5.5) | | | (0.9) | |
| Non-U.S. | (26.0) | | | (43.0) | | | (83.2) | |
| Provision (benefit) for income taxes | $ | 240.0 | | | $ | 149.6 | | | $ | (21.8) | |
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, 2023, 2022 and 2021 as follows.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| U.S. federal corporate statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State and local taxes, less federal tax benefit | 1.3 | | | 2.0 | | | 1.1 | |
| | | | | |
| Net effects of foreign tax rate differential | 1.8 | | | 1.5 | | | 1.0 | |
| Withholding tax | 1.5 | | | 2.1 | | | 3.0 | |
| Repatriation cost | (2.0) | | | (3.2) | | | 1.4 | |
| | | | | |
| Global Intangible Low-Tax Income (“GILTI”) | 0.7 | | | 0.3 | | | 2.3 | |
| ASC 740-30 (formerly APB 23) | 1.7 | | | 1.9 | | | 2.9 | |
| Valuation allowance changes | 1.7 | | | 0.5 | | | (5.4) | |
| Uncertain tax positions | 0.9 | | | 0.2 | | | (1.3) | |
| Equity compensation | (0.6) | | | (0.6) | | | (2.5) | |
| | | | | |
| | | | | |
| Nondeductible acquisition costs | 0.4 | | | 0.4 | | | 0.4 | |
| Foreign Derived Intangible Income (“FDII”) deduction | (1.4) | | | (1.6) | | | (3.2) | |
| Tax credits | (0.7) | | | (1.1) | | | (0.8) | |
| Income not subject to tax | (1.6) | | | (3.5) | | | (3.3) | |
| Utilization of capital loss | — | | | — | | | (9.1) | |
| Non-U.S. deferred change related to asset sales | — | | | — | | | (8.0) | |
| Return to provision adjustment | 0.1 | | | — | | | (1.3) | |
| Other, net | (1.5) | | | 0.3 | | | (2.4) | |
| Effective income tax rate | 23.3 | % | | 20.2 | % | | (4.2) | % |
The principal items that gave rise to deferred income tax assets and liabilities as of December 31, 2023 and 2022 are as follows.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Deferred Tax Assets: | | | |
| Reserves and accruals | $ | 80.1 | | | $ | 78.5 | |
| Allowance for credit losses | 7.8 | | | 7.4 | |
| Inventory reserve | 5.9 | | | 4.9 | |
Pension and postretirement benefit plans | 25.3 | | | 25.4 | |
| Tax loss carryforwards | 81.3 | | | 107.2 | |
| Deferred taxes recorded in other comprehensive income | 13.4 | | | 0.1 | |
| Foreign tax credit carryforwards | 57.9 | | | 53.8 | |
| Other | 32.2 | | | 31.8 | |
| Total deferred tax assets | 303.9 | | | 309.1 | |
| Valuation allowance | (115.7) | | | (107.3) | |
| Deferred Tax Liabilities: | | | |
| LIFO inventory | (20.2) | | | (21.8) | |
| Investment in partnership | (35.7) | | | (36.3) | |
| Property, plant and equipment | (42.5) | | | (36.0) | |
| Intangible assets | (635.4) | | | (663.6) | |
| Unremitted foreign earnings | (35.5) | | | (32.4) | |
| | | |
| | | |
| Total deferred tax liabilities | (769.3) | | | (790.1) | |
| Net deferred income tax liability | $ | (581.1) | | | $ | (588.3) | |
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, 2023 were as follows.
| | | | | | | | | | | | | | | | | |
| Tax Benefit | | Valuation Allowance | | Carryforward Period Ends |
| Tax Attributes to be Carried Forward | | | | | |
| | | | | |
| U.S. federal net operating loss | $ | 0.1 | | | $ | (0.1) | | | 2031- 2037 |
| U.S. federal capital loss | 0.6 | | | (0.6) | | | 2028 |
| | | | | |
| U.S. federal tax credit | 57.9 | | | (57.9) | | | 2024-2033 |
| Alternative minimum tax credit | 0.5 | | | (0.1) | | | Unlimited |
| U.S. state and local net operating losses | 2.7 | | | — | | | 2026-2041 |
| | | | | |
| U.S. state capital loss | 0.3 | | | (0.1) | | | 2028 |
| Non U.S. net operating losses | 62.8 | | | (38.5) | | | Unlimited |
| Non U.S. capital losses | 0.6 | | | (0.6) | | | Unlimited |
| Excess interest | 14.2 | | | (14.0) | | | Unlimited |
| Other deferred tax assets | 3.8 | | | (3.8) | | | Unlimited |
| Total tax carryforwards | $ | 143.5 | | | $ | (115.7) | | | |
A reconciliation of the changes in the valuation allowance for deferred tax assets for the years ended December 31, 2023, 2022 and 2021 are as follows.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Beginning balance | $ | 107.3 | | | $ | 106.4 | | | $ | 140.6 | |
| | | | | |
| | | | | |
| Charged to tax expense | 6.4 | | | 3.1 | | | (27.6) | |
| Charged to other accounts | 2.0 | | | (2.2) | | | (6.6) | |
| | | | | |
| Ending balance | $ | 115.7 | | | $ | 107.3 | | | $ | 106.4 | |
Total unrecognized tax benefits were $19.1 million, $10.8 million and $21.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. The net increase in this balance primarily relates to current year additions to previously established reserves. Included in total unrecognized benefits at December 31, 2023 is $19.1 million of unrecognized tax benefits
that would affect the Company’s effective tax rate if recognized. 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, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Beginning balance | $ | 10.8 | | | $ | 21.1 | | | $ | 27.8 | |
| Gross increases for tax positions of prior years | 0.4 | | | 0.4 | | | 0.8 | |
| Gross decreases for tax positions of prior years | — | | | (3.7) | | | — | |
| Gross increases for tax positions of current year | 7.9 | | | 4.1 | | | 5.3 | |
| Settlements | — | | | (9.9) | | | — | |
| Lapse of statute of limitations | (0.2) | | | (0.1) | | | (11.8) | |
| Changes due to currency fluctuations | 0.2 | | | (1.1) | | | (1.0) | |
| Ending balance | $ | 19.1 | | | $ | 10.8 | | | $ | 21.1 | |
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, 2023 and 2022 include accrued interest and penalties of $2.0 million and $1.1 million, respectively.
The statutes of limitations for U.S. Federal tax returns are open beginning with the 2020 tax year, and state returns are open beginning with the 2014 tax year. The Company was notified during 2023 of a U.S. Federal income tax audit for the tax year 2020.
The Company is subject to income tax in 49 jurisdictions outside the U.S. The statute of limitations varies by jurisdiction with 2013 being the oldest year still open. The Company’s significant operations outside the U.S. are located in the United Kingdom, Germany, China, Ireland, Switzerland, and Singapore. In Germany, a tax audit covering tax years 2015-2019 was closed in Q3 2023. 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. 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, 2023 was $35.5 million.
Note 17: Leases
The components of lease expense for the years ended December 31, 2023 and 2022 are as follows.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Operating lease cost | $ | 53.7 | | | $ | 45.8 | |
| | | |
| Finance lease cost | | | |
| Amortization of right-of-use assets | $ | 1.5 | | | $ | 1.5 | |
| Interest on lease liabilities | 0.9 | | | 1.0 | |
| Total finance lease cost | $ | 2.4 | | | $ | 2.5 | |
| | | |
| Short-term lease cost | $ | 1.9 | | | $ | 4.3 | |
Supplemental cash flow information related to leases for the years ended December 31, 2023 and 2022 is as follows.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Supplemental Cash Flows Information | | | |
| Cash Paid for Amounts Included in the Measurement of Lease Liabilities | | | |
| Operating cash flows from operating leases | $ | 53.7 | | | $ | 47.0 | |
| Operating cash flows from finance leases | 1.0 | | | 1.0 | |
| Financing cash flows from finance leases | 1.2 | | | 1.2 | |
| Leased Assets Obtained in Exchange for New Operating Lease Liabilities | 62.5 | | | 63.2 | |
Supplemental balance sheet information related to leases is as follows.
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Operating leases | | | |
| Other assets | $ | 164.4 | | | $ | 126.9 | |
| | | |
| Accrued liabilities | $ | 41.6 | | | $ | 39.6 | |
| Other liabilities | 116.9 | | | 80.4 | |
| Total operating lease liabilities | $ | 158.5 | | | $ | 120.0 | |
| | | |
| Finance Leases | | | |
| Property, plant and equipment | $ | 12.3 | | | $ | 13.7 | |
| | | |
| Short-term borrowings and current maturities of long-term debt | $ | 1.3 | | | $ | 1.2 | |
| Long-term debt, less current maturities | 13.6 | | | 14.9 | |
| Total finance lease liabilities | $ | 14.9 | | | $ | 16.1 | |
| | | |
| Weighted Average Remaining Lease Term (in years) | | | |
| Operating leases | 5.1 | | 4.5 |
| Finance leases | 10.3 | | 11.1 |
| | | |
| Weighted Average Discount Rate | | | |
| Operating leases | 3.6 | % | | 2.9 | % |
| Finance leases | 6.4 | % | | 6.4 | % |
Maturities of lease liabilities as of December 31, 2023 are as follows.
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| 2024 | $ | 47.2 | | | $ | 2.2 | |
| 2025 | 39.5 | | | 2.0 | |
| 2026 | 32.0 | | | 2.0 | |
| 2027 | 20.9 | | | 2.0 | |
| 2028 | 13.7 | | | 2.1 | |
| Thereafter | 28.4 | | | 10.6 | |
| Total lease payments | $ | 181.7 | | | $ | 20.9 | |
| Less imputed interest | (23.2) | | | (6.0) | |
| Total | $ | 158.5 | | | $ | 14.9 | |
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 by the First Amendment, dated April 27, 2021, “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, and 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 years 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 years, four years, 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.
Stock-Based Compensation Expense
Stock-based compensation expense for the years ended December 31, 2023, 2022 and 2021 are included in “Cost of sales” and “Selling and administrative expenses” in the Consolidated Statements of Operations and are as follows.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Stock-based compensation expense recognized in: | | | | | |
| Continuing operations | $ | 51.9 | | | $ | 78.9 | | | $ | 87.2 | |
| Discontinued operations | — | | | — | | | 10.9 | |
| Total stock-based compensation expense | $ | 51.9 | | | $ | 78.9 | | | $ | 98.1 | |
Stock-Based Compensation Expense - Continuing Operations
For the year ended December 31, 2023, the $51.9 million of stock-based compensation expense included expense for equity awards granted under the 2013 Plan and 2017 Plan of $51.1 million and an increase in the liability for stock appreciation rights (“SAR”) of $0.8 million.
For the year ended December 31, 2022, the $78.9 million of stock-based compensation expense included expense for equity awards granted under the 2013 Plan and 2017 Plan of $80.0 million and a decrease in the liability for SARs of $1.1 million. Of the $80.0 million of expense for equity awards granted under the 2013 Plan and 2017 Plan, $39.5 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, 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 SARs 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.
As of December 31, 2023, there was $104.8 million of total unrecognized compensation expense related to outstanding stock option, restricted stock unit and performance share unit awards granted to employees and non-employee directors, as well as 400,000 conditional stock options awarded during the third quarter of 2022 to our Chairman and CEO in which the service date precedes the grant date, and will be granted upon achievement of certain performance targets. These 400,000 stock options have not been included in the Stock Option Awards section below since the grant date has not occurred.
SARs, granted under the 2013 Plan, were settled in cash and were accounted for as liability awards. As of December 31, 2023, there were no SARs outstanding. As of December 31, 2022, a liability of $3.3 million 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.
Stock Option Awards
A summary of the Company’s stock option (including SARs) activity for the year ended December 31, 2023 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, 2022 | 6,383 | | | $ | 25.22 | | | | | |
| | | | | | | |
Granted | 763 | | | 58.11 | | | | | |
| Exercised or Settled | (1,662) | | | 18.61 | | | | | |
Forfeited | (199) | | | 50.31 | | | | | |
Expired | (3) | | | 41.52 | | | | | |
| Outstanding at December 31, 2023 | 5,282 | | | 31.09 | | | 5.3 | | $ | 244.3 | |
| | | | | | | |
| Vested at December 31, 2023 | 3,644 | | | 22.45 | | | 3.9 | | $ | 200.0 | |
The per-share weighted average grant date fair value of stock options granted during the years ended December 31, 2023, 2022 and 2021 was $25.28, $21.24 and $18.06, respectively.
The intrinsic value of stock options exercised was $75.0 million, $27.7 million and $53.5 million during the years ended December 31, 2023, 2022 and 2021, respectively.
The following assumptions were used to estimate the fair value of options granted during the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| | | | | |
| Expected life of options (in years) | 6.3 - 7.5 | | 6.3 | | 6.3 |
| Risk-free interest rate | 3.8% - 4.6% | | 1.9% - 3.9% | | 0.9% - 1.3% |
| Assumed volatility | 35.6% - 36.6% | | 37.1% - 38.3% | | 38.6% - 39.4% |
| Expected dividend rate | 0.1% | | 0.1% - 0.2% | | 0.0% - 0.1% |
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 vested 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, 2023 is presented in the following table (underlying shares in thousands).
| | | | | | | | | | | |
| Shares | | Weighted-Average Grant-Date Fair Value |
| Non-vested as of December 31, 2022 | 1,005 | | | $ | 43.50 | |
| | | |
| Granted | 451 | | | 59.22 | |
| Vested | (378) | | | 37.51 | |
| Forfeited | (121) | | | 52.03 | |
| Non-vested as of December 31, 2023 | 957 | | | 52.18 | |
Performance Share Unit Awards (“PSUs”)
Annually, during the first quarter, the Company grants TSR PSUs to certain officers in which 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.
During the third quarter of 2022, the Company granted Special TSR PSUs to its Chairman and CEO under which the market condition is achieved on the first date during the five year performance period on which the sum of (i) the 60-day volume-weighted average closing price of the Company’s common stock, plus (ii) the cumulative value of any dividends paid during the five year performance period equals or exceeds $81.85. Vesting of this award is conditional upon the service condition even if the market condition is achieved prior to the end of the 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 five year period. The Company also granted its Chairman and CEO Special EPS PSUs that are eligible to vest based on the level of compounded annual growth rate of the Company’s Adjusted EPS during the five year performance period. The grant date fair value of these awards is based on the market price of the Company’s common stock on the grant date and recognized as a compensation expense over a 4.3 year period.
A summary of the Company’s performance stock unit activity for the year ended December 31, 2023 is presented in the following table (underlying shares in thousands).
| | | | | | | | | | | |
| Shares | | Weighted-Average Grant-Date Fair Value |
| Non-vested as of December 31, 2022 | 1,539 | | | $ | 44.99 | |
| Granted | 149 | | | 75.52 | |
| Change in units based on performance | 222 | | | 29.72 | |
| Vested | (444) | | | 29.72 | |
| Forfeited | (86) | | | 64.42 | |
| Non-vested as of December 31, 2023 | 1,380 | | | 49.53 | |
The following assumptions were used to estimate the fair value of performance share units granted during the year ended December 31, 2023, 2022 and 2021 using the Monte Carlo simulation pricing model.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| | | | | |
| Expected term (in years) | 2.9 | | 2.9 - 5.0 | | 2.9 |
| Risk-free interest rate | 4.4% | | 1.7% - 3.4% | | 0.2 | % |
| Assumed volatility | 31.8% | | 35.0% - 36.4% | | 36.9 | % |
| Expected dividend rate | 0.1 | % | | 0.2 | % | | 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 cross-currency interest rate swap and foreign currency forward contracts, and interest rate swap and cap contracts, 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 interest rate derivatives as cash flow hedges of variable rate debt in order to adjust the relative fixed and variable proportion.
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. The USD, the EUR, GBP, Chinese Renminbi, and Indian rupee 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 manages this exposure by having certain U.S. subsidiaries borrow in currencies other than the USD or utilizing cross-currency interest rate swaps as net investment hedges.
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 European and other 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, 2023 and 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| 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 Designated as Hedging Instruments | | | | | | | | | | | |
| Interest rate swap contracts | Cash flow | | $ | 528.5 | | | $ | 8.2 | | | $ | 1.2 | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
| Cross-currency interest rate swap contracts | Net investment | | 1,054.2 | | | 15.7 | | | — | | | — | | | 63.1 | |
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| | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| 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 Designated as Hedging Instruments | | | | | | | | | | | |
| Interest rate swap contracts | Cash flow | | $ | 528.5 | | | $ | 8.8 | | | $ | 5.3 | | | $ | — | | | $ | — | |
| Interest rate cap contracts | Cash flow | | 1,000.0 | | | 8.3 | | | 9.8 | | | — | | | — | |
| Cross-currency interest rate swap contracts | Net investment | | 1,054.2 | | | 17.7 | | | — | | | — | | | 28.7 | |
| Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | |
| Foreign currency forwards | Fair value | | $ | 7.3 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Foreign currency forwards | Fair value | | 15.8 | | | — | | | — | | | — | | | — | |
(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.
Payments of interest rate cap premiums are classified as financing cash flows in the Condensed Consolidated Statements of Cash Flows. All other cash flows related to derivatives are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows.
There were no off-balance sheet derivative instruments as of December 31, 2023 or 2022.
Interest Rate Swap and Cap Contracts Designated as Cash Flow Hedges
As of December 31, 2023, the Company was the fixed rate payor on two interest rate swap contracts that effectively fix the SOFR-based index used to determine the interest rates charged on a total of $528.5 million of the Company’s SOFR-based variable rate borrowings. These contracts carry a fixed rate of 3.2% and expire in 2025. These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted SOFR-based interest payments. Based on SOFR-based swap yield curves as of December 31, 2023, the Company expects to reclassify gains of $8.2 million out of accumulated other comprehensive income (“AOCI”) into earnings during the next 12 months.
The Company was previously a party to interest rate cap contracts that effectively limited the SOFR-based interest rates charged on a portion of the Company’s variable rate borrowings to 4.0%. The Company and its counterparties terminated these contracts in August 2023. Prior to their termination, these cap contracts qualified as hedging instruments and were designated as
cash flow hedges of forecasted interest payments. These forecasted interest payments are still expected to occur as specified in the Company’s hedge designations; therefore, the unrecognized gain at the time of termination will be reclassified into earnings over the remaining period of original term of the contracts, ending in June 2025. The unrecognized gain remaining in AOCI as of December 31, 2023 was $6.6 million, of which $5.2 million is expected to be reclassified into earnings during the next 12 months.
Gains on derivatives designated as cash flow hedges included in the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Gain recognized in OCI on derivatives | $ | 10.5 | | | $ | 18.3 | | | $ | — | |
Gain (loss) reclassified from AOCI into income (effective portion)(1) | 15.6 | | | (2.8) | | | — | |
| | | | | |
(1)Gains (losses) on derivatives reclassified from AOCI into income were included in “Interest expense” in the Consolidated Statements of Operations.
Cross-Currency Interest Rate Swap Contracts Designated as Net Investment Hedges
As of December 31, 2023, the Company was the fixed rate payor on two cross-currency interest rate swap contracts that replace a fixed rate of 3.2% on a total of $528.5 million with a fixed rate of 1.6% on a total of €500.0 million. These contracts expire in 2025. These contracts have been designated as net investment hedges of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity.
As of December 31, 2023, the Company was party to three cross-currency interest rate swap contracts where we receive SOFR on a total of $525.7 million and pay EURIBOR on a total of €500.0 million. These contracts expire in 2025. These contracts have been designated as net investment hedges of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity.
Gains (losses) on derivatives designated as net investment hedges included in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021 are presented in the table below.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Gain (loss) recognized in OCI on derivatives | $ | (17.5) | | | $ | 0.6 | | | $ | — | |
Gain reclassified from AOCI into income (effective portion)(1) | 19.0 | | | 11.5 | | | — | |
(1)Gains (losses) on derivatives reclassified from AOCI into income were included in “Interest expense” in the Consolidated Statements of Operations.
Foreign Currency Forwards Not Designated as Hedging Instruments
The Company had no foreign currency forward contracts outstanding as of December 31, 2023. These contracts are sometimes 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 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, 2023, 2022 and 2021 were as follows.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Foreign currency forward contracts gains (losses) | 0.3 | | | 3.4 | | | (3.2) | |
| Total foreign currency transaction gains (losses), net | (5.1) | | | 5.9 | | | 12.0 | |
Foreign Currency Denominated Debt Designated as a Net Investment Hedge
In February 2020, the Company designated its Euro Term Loan, which had a principal balance at that time of €601.2 million, as a hedge of the Company's net investment in subsidiaries with a functional currency of euro. This loan was repaid in June 2022 and the hedge has been discontinued. The Company’s gains, net of income tax, associated with changes in the value of debt for the years ended December 31, 2022 and 2021 were $36.4 million and $35.0 million, respectively.
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, 2023.
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, 2023 or 2022.
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.
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, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Financial Assets | | | | | | | |
Trading securities held in deferred compensation plan(1) | $ | 16.8 | | | $ | — | | | $ | — | | | $ | 16.8 | |
Interest rate swaps(2) | — | | | 9.4 | | | — | | | 9.4 | |
| | | | | | | |
Cross-currency interest rate swaps(3) | — | | | 15.7 | | | — | | | 15.7 | |
| | | | | | | |
| Total | $ | 16.8 | | | $ | 25.1 | | | $ | — | | | $ | 41.9 | |
| Financial Liabilities | | | | | | | |
Deferred compensation plan(1) | $ | 24.7 | | | $ | — | | | $ | — | | | $ | 24.7 | |
| | | | | | | |
Cross-currency interest rate swaps(3) | — | | | 63.1 | | | — | | | 63.1 | |
Contingent consideration(5) | — | | | — | | | 42.2 | | | 42.2 | |
| | | | | | | |
| Total | $ | 24.7 | | | $ | 63.1 | | | $ | 42.2 | | | $ | 130.0 | |
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| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Financial Assets | | | | | | | |
Trading securities held in deferred compensation plan(1) | $ | 12.3 | | | $ | — | | | $ | — | | | $ | 12.3 | |
Interest rate swaps(5) | — | | | 14.1 | | | — | | | 14.1 | |
Interest rate caps(6) | — | | | 18.1 | | | — | | | 18.1 | |
Cross-currency interest rate swaps(3) | — | | | 17.7 | | | — | | | 17.7 | |
Foreign currency forwards(4) | — | | | — | | | — | | | — | |
| Total | $ | 12.3 | | | $ | 49.9 | | | $ | — | | | $ | 62.2 | |
| Financial Liabilities | | | | | | | |
Deferred compensation plan(1) | $ | 19.6 | | | $ | — | | | $ | — | | | $ | 19.6 | |
| | | | | | | |
Cross-currency interest rate swaps(3) | — | | | 28.7 | | | — | | | 28.7 | |
Contingent consideration(5) | — | | | — | | | 43.9 | | | 43.9 | |
Foreign currency forwards(4) | — | | | — | | | — | | | — | |
| Total | $ | 19.6 | | | $ | 28.7 | | | $ | 43.9 | | | $ | 92.2 | |
(1)Based on the quoted price of publicly traded mutual funds and other equity securities which are classified as trading securities and accounted for using the mark-to-market method.
(2)Measured as the present value of all expected future cash flows based on the SOFR-based swap yield curves. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.
(3)Measured as the present value of all expected future cash flows on each leg of the contracts. The model utilizes inputs of observable market data including interest yield curves and foreign currency exchange rates. The present value calculation uses cross-currency basis-adjusted discount factors that have been adjusted to reflect the credit quality of the Company and its counterparties.
(4)Based on calculations that use readily observable market parameters as their basis, such as spot and forward rates.
(5)Measured as the present value of expected consideration payable for completed acquisitions, generally derived using probability-weighted analysis of achieving projected revenue or EBITDA targets.
(6)Measured as the present value of all expected future cash flows that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market volatilities and interest rate curves.
Contingent Consideration
Certain of the Company's acquisitions may result in payments of consideration in future periods that are contingent upon the achievement of certain targets, generally measures of revenue and EBITDA. As part of the initial accounting for the acquisition, a liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is re-measured at each reporting period, and the change in fair value is recognized within “Other operating expense, net” in the Consolidated Statements of Operations. This fair value measurement of contingent consideration is categorized within Level 3 of the fair value hierarchy, as the measurement amount is based primarily on significant inputs that are not observable in the market.
The following table provides a reconciliation of the activity for contingent consideration for the years ended December 31, 2023 and 2022.
| | | | | | | | | | | |
| 2023 | | 2022 |
| Balance at beginning of period | $ | 43.9 | | | $ | 8.5 | |
| Acquisitions | 13.5 | | | 36.1 | |
| Changes in fair value | 7.3 | | | 0.8 | |
| Payments | (23.2) | | | (1.8) | |
| Foreign currency translation and other | 0.7 | | | 0.3 | |
| Balance at end of period | $ | 42.2 | | | $ | 43.9 | |
As of December 31, 2023, the contingent consideration included in “Accrued liabilities” and “Other liabilities” on the Consolidated Balance Sheets were $0.6 million and $41.6 million, respectively.
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 an undiscounted reserve of $126.9 million and $137.9 million as of December 31, 2023 and 2022, 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 $157.7 million and $154.2 million as of December 31, 2023 and 2022, respectively, which was included in “Other assets” in the Consolidated Balance Sheets. There were no material recoveries received in the years ended December 31, 2023, 2022 and 2021.
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 and motions process regarding the remaining issues in dispute
(“Phase II”). In that regard, the Company obtained some favorable rulings on various Phase II issues during 2021 and 2022; however, several disputes still remain and will need to be addressed as Phase II continues to progress.
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 $16.7 million and $13.5 million as of December 31, 2023 and 2022, 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, 2023, 2022 and 2021 were as follows.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Other Operating Expense, Net | | | | | |
| Foreign currency transaction losses (gains), net | $ | 5.1 | | | $ | (5.9) | | | $ | (12.0) | |
Restructuring charges, net(1) | 19.9 | | | 29.3 | | | 13.4 | |
| | | | | |
| | | | | |
Acquisition and other transaction related expenses(2) | 52.2 | | | 38.7 | | | 55.3 | |
| | | | | |
Other, net | 0.5 | | | 2.8 | | | 5.2 | |
| Total other operating expense, net | $ | 77.7 | | | $ | 64.9 | | | $ | 61.9 | |
(1)See Note 5 “Restructuring.”
(2)Represents costs associated with successful and abandoned acquisitions, including third-party expenses, post-closure integration costs and non-cash charges and credits arising from fair value purchase accounting adjustments.
Note 23: Segment Reporting
A description of the Company’s two 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, clean 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, clean 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 from Continuing Operations Before Income Taxes for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Revenue | | | | | |
| Industrial Technologies and Services | $ | 5,632.8 | | | $ | 4,705.1 | | | $ | 4,161.0 | |
| Precision and Science Technologies | 1,243.3 | | | 1,211.2 | | | 991.4 | |
| | | | | |
| | | | | |
| Total Revenue | $ | 6,876.1 | | | $ | 5,916.3 | | | $ | 5,152.4 | |
| Segment Adjusted EBITDA | | | | | |
| Industrial Technologies and Services | $ | 1,587.3 | | | $ | 1,214.0 | | | $ | 1,033.7 | |
| Precision and Science Technologies | 372.8 | | | 347.5 | | | 291.4 | |
| | | | | |
| | | | | |
| Total Segment Adjusted EBITDA | 1,960.1 | | | 1,561.5 | | | 1,325.1 | |
| Less items to reconcile Segment Adjusted EBITDA to Income from Continuing Operations Before Income Taxes: | | | | | |
Corporate expenses not allocated to segments | 173.3 | | | 126.7 | | | 133.2 | |
| Interest expense | 156.7 | | | 103.2 | | | 87.7 | |
Depreciation and amortization expense(1) | 455.4 | | | 429.4 | | | 418.0 | |
| | | | | |
Restructuring and related business transformation costs(2) | 22.9 | | | 32.3 | | | 18.8 | |
Acquisition related expenses and non-cash charges(3) | 63.9 | | | 40.7 | | | 65.2 | |
Stock-based compensation(4) | 51.9 | | | 85.6 | | | 95.9 | |
| Foreign currency transaction losses (gains), net | 5.1 | | | (5.9) | | | (12.0) | |
Loss on extinguishment of debt | 13.5 | | | 1.1 | | | 9.0 | |
| Adjustments to LIFO inventories | 12.0 | | | 36.1 | | | 33.2 | |
| Cybersecurity incident costs | 2.3 | | | — | | | — | |
Gain on settlement of post-acquisition contingencies(5) | — | | | (6.2) | | | (30.1) | |
Other adjustments(6) | (28.0) | | | (23.7) | | | (6.8) | |
| Income from Continuing Operations Before Income Taxes | $ | 1,031.1 | | | $ | 742.2 | | | $ | 513.0 | |
(1)Depreciation and amortization expense excludes $3.7 million, $3.4 million and $4.1 million of depreciation of rental equipment for the years ended December 31, 2023, 2022 and 2021, respectively.
(2)Restructuring and related business transformation costs consist of the following.
| | | | | | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | 2021 |
| Restructuring charges | $ | 19.9 | | | $ | 29.3 | | | $ | 13.4 | |
| | | | | |
| Facility reorganization, relocation and other costs | 3.0 | | | 3.0 | | | 3.1 | |
| | | | | |
| | | | | |
| | | | | |
| Other, net | — | | | — | | | 2.3 | |
| Total restructuring and related business transformation costs | $ | 22.9 | | | $ | 32.3 | | | $ | 18.8 | |
(3)Represents costs associated with successful and abandoned acquisitions, including third-party expenses, post-closure integration 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, 2022 of $78.9 million and associated employer taxes of $6.7 million. 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.
(5)Represents gains from settling post-acquisition contingencies related to the Merger outside of the measurement period.
(6)Includes (i) pension and other postretirement benefits (“OPEB”) plan costs other than service cost, (ii) interest income on cash and cash equivalents and (iii) other miscellaneous adjustments.
The following tables provide summarized information about the Company’s reportable segments.
Depreciation and Amortization Expense
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Industrial Technologies and Services | $ | 313.8 | | | $ | 294.7 | | | $ | 296.6 | |
| Precision and Science Technologies | 135.4 | | | 133.6 | | | 108.3 | |
| | | | | |
| | | | | |
| Corporate and other | 9.9 | | | 4.5 | | | 17.2 | |
| Total depreciation and amortization expense | $ | 459.1 | | | $ | 432.8 | | | $ | 422.1 | |
Capital Expenditures
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Industrial Technologies and Services | $ | 83.9 | | | $ | 66.3 | | | $ | 53.1 | |
| Precision and Science Technologies | 18.5 | | | 17.7 | | | 10.7 | |
| | | | | |
| | | | | |
| Corporate and other | 3.0 | | | 10.6 | | | 0.3 | |
| Total capital expenditures | $ | 105.4 | | | $ | 94.6 | | | $ | 64.1 | |
Identifiable Assets
| | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| Industrial Technologies and Services | $ | 10,138.8 | | | $ | 9,204.7 | | | |
| Precision and Science Technologies | 3,464.7 | | | 3,540.4 | | | |
| | | | | |
| | | | | |
| | | | | |
| Corporate and other | 1,960.0 | | | 2,020.8 | | | |
| | | | | |
| Total identifiable assets | $ | 15,563.5 | | | $ | 14,765.9 | | | |
The following table presents property, plant and equipment, net by geographic region for the years ended December 31, 2023, and 2022.
| | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | |
| United States | $ | 286.0 | | | $ | 225.7 | | | |
| Other Americas | 12.8 | | | 18.5 | | | |
| Total Americas | 298.8 | | | 244.2 | | | |
EMEIA(1) | 245.7 | | | 216.6 | | | |
| Asia Pacific | 166.9 | | | 163.6 | | | |
| Total | $ | 711.4 | | | $ | 624.4 | | | |
(1)Europe, Middle East, India and Africa (“EMEIA”)
Note 24: Earnings Per Share
The calculation of earnings per share 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 potentially dilutive 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 dilutive effect of outstanding share-based compensation awards. The number of weighted-average shares outstanding used in the computations of basic and diluted earnings per share for the years ended December 31, 2023, 2022 and 2021 were as follows.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| | | | | |
| | | | | |
| Weighted-average shares outstanding - Basic | 404.8 | | | 405.3 | | | 414.8 | |
| Dilutive effect of outstanding share-based compensation awards | 4.2 | | | 4.9 | | | 6.4 | |
| Weighted-average shares outstanding - Diluted | 409.0 | | | 410.2 | | | 421.2 | |
| | | | | |
| | | | | |
| | | | | |
For the years ended December 31, 2023, 2022 and 2021, there were 1.3 million, 1.8 million and 0.7 million anti-dilutive shares that were not included in the computation of diluted earnings per share, respectively.
Note 25: Subsequent Events
On February 1, 2024, the Company completed the acquisition of Friulair S.r.l. (“Friulair”) in an all-cash upfront purchase price of €135 million. The business is a manufacturer of dryers, filters, aftercoolers, and accessories for the treatment of compressed air. Friulair will be reported within the Industrial Technologies and Services segment. Management is in the process of preparing the preliminary fair values of the assets and liabilities acquired.