QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to___________
Commission File Number: 001-38095
____________________________
Ingersoll Rand Inc.
(Exact Name of Registrant as Specified in Its Charter)
____________________________
Delaware
46-2393770
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
800-A Beaty Street
Davidson, North Carolina28036
(Address of Principal Executive Offices) (Zip Code)
(704) 655-4000
(Registrant’s Telephone Number, Including Area Code)
____________________________
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 Par Value per share
IR
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth Company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
The registrant had outstanding 407,584,625 shares of Common Stock, par value $0.01 per share, as of October 29, 2021.
In addition to historical information, this Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements. Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov, and also include the following:
•The anticipated benefits of our acquisition of the Ingersoll Rand Industrial business may not be realized fully or at all, may take longer to realize than expected and the integration process will be complex, costly and time-consuming, which could adversely affect our business, financial results and financial condition.
•The COVID-19 pandemic has adversely affected our business and results of operations, and could have a material and adverse effect on our business, results of operations and financial condition in the future.
•We have exposure to the risks associated with instability in the global economy and financial markets, which may negatively impact our revenues, liquidity, suppliers and customers.
•More than half of our sales and operations are in non-U.S. jurisdictions and we are subject to the economic, political, regulatory and other risks of international operations.
•Shareholder and customer emphasis on environmental, social, and governance responsibility may impose additional costs on us or expose us to new risks.
•Our results of operations are subject to exchange rate and other currency risks. A significant movement in exchange rates could adversely impact our results of operations and cash flows.
•We face competition in the markets we serve, which could materially and adversely affect our operating results.
•Large or rapid increases in the cost of raw materials and component parts, substantial decreases in their availability or our dependence on particular suppliers of raw materials and component parts could materially and adversely affect our operating results.
•Our operating results could be adversely affected by a loss or reduction of business with key customers or consolidation or the vertical integration of our customer base.
•Credit and counterparty risks could harm our business.
•Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.
•Dispositions create certain risks and may affect our operating results.
•Income generated by one of our equity method investments depends on the level of activity in the energy industry, which is significantly affected by volatile oil and gas prices.
•The loss of, or disruption in, our distribution network could have a negative impact on our abilities to ship products, meet customer demand and otherwise operate our business.
•Our ongoing and expected restructuring plans and other cost savings initiatives may not be as effective as we anticipate, and we may fail to realize the cost savings and increased efficiencies that we expect to result from these actions. Our operating results could be negatively affected by our inability to effectively implement such restructuring plans and other cost savings initiatives.
•Our success depends on our executive management and other key personnel and our ability to attract and retain top talent throughout the Company.
•If we are unable to develop new products and technologies, our competitive position may be impaired, which could materially and adversely affect our sales and market share.
•Cost overruns, delays, penalties or liquidated damages could negatively impact our results, particularly with respect to fixed-price contracts for custom engineered products.
•The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results of operations, financial condition or strategic objectives.
•Changes in tax or other laws, regulations, or adverse determinations by taxing or other governmental authorities could increase our effective tax rate and cash taxes paid or otherwise affect our financial condition or operating results.
•A significant portion of our assets consists of goodwill and other intangible assets, the value of which may be reduced if we determine that those assets are impaired.
•Our business could suffer if we experience employee work stoppages, union and work council campaigns or other labor difficulties.
•We are a defendant in certain asbestos and silica-related personal injury lawsuits, which could adversely affect our financial condition.
•A natural disaster, catastrophe, pandemic or other event could adversely affect our operations.
•Information systems failure may disrupt our business and result in financial loss and liability to our customers.
•The nature of our products creates the possibility of significant product liability and warranty claims, which could harm our business.
•Environmental compliance costs and liabilities could adversely affect our financial condition.
•Third parties may infringe upon our intellectual property or may claim we have infringed their intellectual property, and we may expend significant resources enforcing or defending our rights or suffer competitive injury.
•We face risks associated with our pension and other postretirement benefit obligations.
•Our substantial indebtedness could have important adverse consequences and adversely affect our financial condition.
•We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
•Despite our level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt, including off-balance sheet financing, contractual obligations and general and commercial liabilities. This could further exacerbate the risks to our financial condition described above.
•The terms of the credit agreement governing the Senior Secured Credit Facilities may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
•Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
•When we utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable rate indebtedness, we will be exposed to risks related to counterparty credit worthiness or non-performance of these instruments.
•If the financial institutions that are part of the syndicate of our Revolving Credit Facility fail to extend credit under our facility or reduce the borrowing base under our Revolving Credit Facility, our liquidity and results of operations may be adversely affected.
•The Company may face risk associated with the discontinuation of and transition from currently used financial reference rates.
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.
All references to “we,” “us,” “our,” the “Company” or “Ingersoll Rand” in this Quarterly Report on Form 10-Q mean Ingersoll Rand Inc. and its subsidiaries, unless the context otherwise requires.
We use our website www.irco.com as a channel of distribution of Company information. Financial and other important information regarding us is routinely accessible through and posted on our website. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Ingersoll Rand Inc. when you enroll your email address by visiting the “Email Alerts” section of our website at investors.irco.com. The contents of our website are not, however, a part of this Quarterly Report on Form 10-Q.
Accounts receivable, net of allowance for credit losses of $49.9 and $50.9, respectively
927.0
861.8
Inventories
863.6
716.7
Other current assets
179.3
195.3
Assets of discontinued operations - current
28.0
337.4
Total current assets
4,030.9
3,862.1
Property, plant and equipment, net of accumulated depreciation of $343.1 and $291.1, respectively
619.2
609.0
Goodwill
6,100.6
5,582.6
Other intangible assets, net
3,695.8
3,797.2
Deferred tax assets
21.3
15.6
Other assets
455.0
329.3
Assets of discontinued operations - long-term
—
1,862.8
Total assets
$
14,922.8
$
16,058.6
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt
$
40.1
$
40.4
Accounts payable
632.9
536.4
Accrued liabilities
932.4
708.9
Liabilities of discontinued operations - current
27.2
212.9
Total current liabilities
1,632.6
1,498.6
Long-term debt, less current maturities
3,422.2
3,859.1
Pensions and other postretirement benefits
248.0
272.5
Deferred income taxes
596.0
702.4
Other liabilities
301.2
343.7
Liabilities of discontinued operations - long-term
—
192.8
Total liabilities
$
6,200.0
$
6,869.1
Commitments and contingencies (Note 16)
—
—
Stockholders’ equity
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 423,549,003 and 420,123,978 shares issued as of September 30, 2021 and December 31, 2020, respectively
4.2
4.2
Capital in excess of par value
9,386.5
9,310.3
Retained earnings (accumulated deficit)
93.8
(175.7)
Accumulated other comprehensive income (loss)
(81.3)
14.2
Treasury stock at cost; 16,028,078 and 1,496,169 shares as of September 30, 2021 and December 31, 2020, respectively
(749.6)
(33.3)
Total Ingersoll Rand Inc. stockholders’ equity
$
8,653.6
$
9,119.7
Noncontrolling interests
69.2
69.8
Total stockholders’ equity
$
8,722.8
$
9,189.5
Total liabilities and stockholders’ equity
$
14,922.8
$
16,058.6
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; in millions, except share and per share amounts)
Note 1. Basis of Presentation and Recent Accounting Pronouncements
Basis of Presentation
Ingersoll Rand Inc. is a diversified, global manufacturer of highly engineered, application-critical flow control products and provider of related aftermarket parts and services. The accompanying condensed consolidated financial statements include the accounts of Ingersoll Rand Inc. and its majority-owned subsidiaries (collectively referred to herein as “Ingersoll Rand” or the “Company”).
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting, the instructions for Form 10-Q and Article 10 of the U.S. Securities and Exchange Commission (“SEC”) Regulation S-X. In the Company’s opinion, the condensed consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”). We have reclassified certain prior year amounts, including the results of discontinued operations, to conform to the current year presentation. Unless otherwise indicated, amounts provided in these Notes pertain to continuing operations. See Note 2 “Discontinued Operations” for information on discontinued operations.
The results of operations for the interim period ended September 30, 2021 are not necessarily indicative of future results. The ongoing novel Coronavirus (“COVID-19”) pandemic is a continuously evolving situation around the globe that has negatively impacted and could continue to negatively impact the global economy. The Company’s operating results will be subject to fluctuations based on general economic conditions, and the extent to which COVID-19 may ultimately impact its business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate extent of the spread of the disease and the duration of the outbreak and business closures or business disruptions for the Company, suppliers and customers.
Recently Adopted Accounting Standard Updates (“ASU”)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which added an impairment model that is based on expected losses rather than incurred losses and is called the Current Expected Credit Losses (“CECL”) model. This impairment model is applicable to loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables as well as any other financial asset with the contractual right to receive cash. Under the new model, an allowance equal to the estimate of lifetime expected credit losses is recognized which will result in more timely loss recognition. The guidance is intended to reduce complexity by decreasing the number of credit impairment models. The Company adopted this guidance on January 1, 2020, using a modified retrospective transition method. The Company recorded a cumulative-effect adjustment on the adoption date increasing “Accumulated deficit” in the Condensed Consolidated Balance Sheets by $1.0 million and decreasing “Accounts receivable, net of allowance for credit losses” in the Condensed Consolidated Balance Sheets by $1.0 million.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and amending and clarifying existing guidance. The Company adopted this guidance on January 1, 2021. The adoption did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for a limited time to ease the potential burden of accounting for reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates. The guidance is effective beginning on March 12, 2020 through December 31, 2022. The Company has not utilized any of the optional expedients or exceptions available under this ASU. The Company will continue to assess whether this ASU is applicable throughout the effective period.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which explicitly clarifies which contracts, hedging relationships, and other transactions are within the scope of the optional expedients and exceptions allowed under Topic 848. The Company has not utilized any of the optional expedients or exceptions available under Topic 848. The Company will continue to assess whether this ASU is applicable throughout the effective period, in conjunction with our assessment of ASU 2020-4.
Note 2. Discontinued Operations
Discontinued operations comprise 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 condensed 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. The transfer of legal ownership of one non-U.S. subsidiary has not yet been completed due to local regulatory and administrative requirements. This transfer is expected to be completed in the fourth quarter of 2021.
SVT has been presented as a discontinued operation and its net assets are classified as held for sale and comparable prior periods are recast to reflect this change.
The Company recognized a pre-tax gain on sale of $252.8 million during the nine month period ended September 30, 2021. The sale proceeds and the related gain on sale are subject to further adjustment upon the finalization customary post-closing steps of the transaction. These steps are expected to be completed by the end of 2021.
High Pressure Solutions
On February 14, 2021, the Company entered into an agreement to sell its majority interest in High Pressure Solutions to private equity firm American Industrial Partners. In exchange for its majority interest of 55%, the Company received net cash proceeds of $278.3 million and retains a 45% common equity interest in the newly-formed entity comprising the HPS business. The Company expects to maintain its minority investment in HPS indefinitely and is unable to estimate when this interest may be disposed. This sale was substantially completed on April 1, 2021. The transfer of legal ownership of one non-U.S. subsidiary has not yet been completed due to local regulatory and administrative requirements. This transfer is expected to be completed in the fourth quarter of 2021.
HPS has been presented as a discontinued operation and its net assets are classified as held for sale and comparable prior periods are recast to reflect this change.
The Company recognized a pre-tax loss on sale of $211.7 million during the nine month period ended September 30, 2021. The sale proceeds and the related loss on sale are subject to further adjustment upon the finalization customary post-closing steps of the transaction. These steps are expected to be completed by the end of 2021.
The carrying amount of major classes of assets and liabilities classified that were included in discontinued operations at September 30, 2021 and December 31, 2020 related to SVT and HPS are shown in the table below. Long-term assets and liabilities as of September 30, 2021 have been reclassified as current in the Condensed Consolidated Balance Sheet.
September 30, 2021 (1)
December 31, 2020 (2)
Assets
Current assets:
Cash and cash equivalents
$
2.3
$
—
Accounts receivable, net
4.4
104.8
Inventories
19.5
226.9
Other current assets
—
5.7
Total current assets
26.2
337.4
Property, plant and equipment, net
1.3
188.3
Goodwill
0.5
721.0
Other intangible assets, net
—
935.4
Deferred tax assets
—
0.5
Other assets
—
17.6
Total non-current assets
1.8
1,862.8
Total assets
$
28.0
$
2,200.2
Liabilities
Current liabilities:
Accounts payable
$
26.5
$
134.7
Accrued liabilities
0.7
78.2
Total current liabilities
27.2
212.9
Pensions and other postretirement benefits
—
2.5
Deferred income taxes
—
173.3
Other liabilities
—
17.0
Total non-current liabilities
—
192.8
Total liabilities
$
27.2
$
405.7
(1)Primarily relates to non-U.S. subsidiaries for which legal ownership is expected to transfer in the fourth quarter of 2021.
(2)Total assets and total liabilities related to SVT were $1,512.7 million and $354.1 million, respectively, at December 31, 2020.
The significant non-cash operating items and capital expenditures reflected in cash flows of discontinued operations for the nine months periods ended September 30, 2021 and 2020 include the following:
Specialty Vehicle Technologies
High Pressure Solutions
Total
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
2021
2020
Loss (gain) on sale
$
(252.8)
$
—
$
211.7
$
—
$
(41.1)
$
—
Depreciation and amortization
14.8
36.2
4.0
27.3
18.8
63.5
Stock-based compensation expense
8.2
1.1
2.7
0.6
10.9
1.7
Capital expenditures
1.6
1.8
0.3
2.6
1.9
4.4
Note 3. Business Combinations
Acquisitions in 2021
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 results of this business are reported within the Industrial Technologies and Services segment from the date of acquisition. The goodwill recognized is attributable to the expected cost synergies, anticipated growth of new and existing customers, and the assembled workforce. The goodwill resulting from this acquisition is expected to be deductible for tax purposes.
On July 30, 2021, the Company acquired Maximus Solutions for cash consideration of $110.5 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 results of this business are reported within the Precision and Science Technologies segment from the date of acquisition. Due to the timing of the acquisition, the allocation of purchase price is preliminary and will be refined as additional information becomes available. The preliminary goodwill recognized is attributable to synergies expected from combining Maximus’s significant expertise in digital controls and IIoT systems with other brands and channels in the Precision and Science Technologies segment and from anticipated growth from existing and new customers. None of the goodwill resulting from this acquisition is expected to be deductible for tax purposes.
On August 31, 2021, the Company acquired Seepex GmbH (“Seepex”) for cash consideration of $481.5 million, net of cash acquired. The business is a global leader in progressive cavity pump solutions. The results of this business are reported within the Precision and Science Technologies segment from the date of acquisition. The recognition and measurement of assets acquired and liabilities assumed is not complete due to the timing of the acquisition relative to the end of the reporting period. The Company expects to recognize intangible assets for tradenames, developed technology, customer relationships and backlog in the fourth quarter of 2021. The cumulative effect of recognizing amortization expense when these assets are recognized is not expected to be significant to the condensed consolidated financial statements. The preliminary goodwill recognized is attributable to the expected cost synergies, anticipated growth of new and existing customers, and the assembled workforce. None of the goodwill resulting from this acquisition is expected to be deductible for tax purposes.
Also in the nine months ended September 30, 2021, the Company acquired several sales and service businesses in the Industrial Technologies and Services segment and a pump technology business and sales and service business in the Precision and Science Technologies segment. The aggregate consideration for these acquisitions was $33.3 million.
The following table summarizes the preliminary 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
Accounts receivable
$
24.9
$
4.8
$
4.3
2.9
Inventories
28.2
3.8
3.0
3.1
Other current assets
2.0
0.2
0.2
0.1
Property, plant and equipment
24.7
16.2
2.1
2.5
Goodwill
441.1
80.0
64.1
3.5
Other intangible assets
0.3
82.5
39.3
29.9
Other assets
0.5
—
—
—
Total current liabilities
(33.4)
(3.5)
(2.3)
(2.0)
Total noncurrent liabilities
(6.8)
—
(0.2)
(6.7)
Total consideration
$
481.5
$
184.0
$
110.5
33.3
The revenue and operating income included in the condensed consolidated financial statements for these acquisitions subsequent to their date of acquisition is $69.5 million and $8.3 million, respectively. The operating income of these acquired businesses include the effects of acquisition-related accounting adjustments such as amortization of intangible assets and fair value adjustments to acquired inventory.
On February 29, 2020, Ingersoll Rand (formerly Gardner Denver Holdings, Inc.) completed the acquisition of and merger with Ingersoll Rand Industrial in exchange for shares of the Company's common stock with a fair value of $6,937.0 million.
Fair value of Ingersoll Rand common stock issued for Ingersoll Rand Industrial outstanding common stock
$
6,919.5
Fair value attributable to pre-merger service for replacement equity awards
8.6
Fair value attributable to pre-merger service for deferred compensation plan
8.9
Total purchase consideration
$
6,937.0
Ingersoll Rand Industrial was separated from Ingersoll Rand plc (subsequently renamed Trane Technologies Plc) through a distribution to shareholders of Trane Technologies and subsequently merged with Gardner Denver Holdings, Inc. This transaction was accounted for as a business combination. The assets and liabilities of Ingersoll Rand Industrial were measured at their fair values as of the date of the merger. The determination of fair values required the Company to make estimates about expected future cash flows, discount rates, royalty rates and other subjective assumptions and future events that are highly uncertain. These measurements were finalized within one year of the closing date of the transaction.
The following table summarizes the allocation of consideration to the fair values of assets acquired and liabilities assumed of Ingersoll Rand Industrial as of February 29, 2020. Included in these amounts are assets and liabilities of SVT, which has been reported as a discontinued operation in these condensed consolidated financial statements. Refer to Note 2 for further information on the sale of SVT.
Fair value
Cash
$
38.8
Accounts receivable
585.8
Inventories
625.4
Other current assets
87.2
Property, plant and equipment
516.5
Goodwill
4,899.2
Other intangible assets
3,766.6
Other noncurrent assets
270.9
Total current liabilities, including current maturities of long-term debt of $19.0 million
(753.0)
Deferred tax liability
(842.4)
Long-term debt, net of debt issuance costs and an original issue discount
(1,851.7)
Other noncurrent liabilities
(333.0)
Noncontrolling interest
(73.3)
Total consideration
$
6,937.0
The Company incurred $87.3 million of acquisition-related costs, including $42.3 million during the three-month period ended March 31, 2020. The remainder was incurred in 2019. These costs are presented within “Other operating expenses, net” in the Condensed Consolidated Statements of Operations. For additional information, see Note 2 “Business Combinations” of the 2020 Form 10-K.
Results of Ingersoll Rand Industrial Subsequent to the Acquisition
The operating results of Ingersoll Rand Industrial have been included in the Company’s condensed consolidated financial statements since the date of acquisition. The results of Ingersoll Rand Industrial in the year of acquisition are shown below. These amounts include the effects of purchase accounting adjustments, primarily the amortization of intangible assets and the impacts on operating expenses of fair value adjustments to acquired inventory and property, plant and equipment. The amounts below exclude the operating results of SVT, which has been reported as a discontinued operation as a result of the transaction discussed
For the Three Month Period Ended September 30, 2020
For the Nine Month Period Ended September 30, 2020
Revenues
$
662.7
$
1,478.4
Income (Loss) from Continuing Operations Before Income Taxes
25.9
(98.9)
Unaudited Pro Forma Information
The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Ingersoll Rand Industrial as if the acquisition had been completed on January 1, 2019. The pro forma results have been prepared for comparative purposes only and do not necessarily represent what the revenue or results of operations would have been had the acquisition been completed on January 1, 2019. In addition, these results are not intended to be a projection of future operating results and do not reflect synergies that might be achieved. These amounts include revenue and net income attributable to SVT that are reported within Income (loss) from discontinued operations, net of tax on the Condensed Consolidated Statement of Operations.
For the Three Month Period Ended September 30, 2020
For the Nine Month Period Ended September 30, 2020
Revenues
$
1,340.8
$
3,882.1
Net Income (Loss)
60.7
67.5
The unaudited pro forma information includes adjustments for the preliminary purchase price allocation (including, but not limited to, amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to stock-based compensation expense, fair value adjustments to acquired inventories, the purchase accounting effect on deferred revenue, interest expense and amortization of debt issuance costs, transaction costs and related tax impacts) and the alignment of accounting policies.
The table below reflects the impact of material and nonrecurring adjustments to the unaudited pro forma results for the three and nine month periods ended September 30, 2020 that are directly attributable to the acquisition.
For the Three Month Period Ended September 30, 2020
For the Nine Month Period Ended September 30, 2020
Increase to revenue as a result of deferred revenue fair value adjustment, net of tax
$
4.4
$
9.9
Decrease to expense as a result of inventory fair value adjustment, net of tax
—
(89.6)
Decrease to expense as a result of transaction costs, net of tax
—
(38.1)
Settlement of post-acquisition contingencies
The Company and Trane Technologies concluded several post-closing steps of the Ingersoll Rand Industrial transaction in the second quarter of 2021. These steps included determining the final measurements of transferred working capital, indebtedness and retirement plan funding. Upon finalizing these measurements, Trane Technologies agreed to make a net payment of $49.5 million to Ingersoll Rand. This payment was received in the third quarter of 2021 and has been reflected within changes in “Other assets and liabilities, net” on the Condensed Consolidated Statement of Cash Flows. The Company realized a gain of $30.1 million in the second quarter of 2021 to adjust its receivables for these items. This gain is reported within “Other income, net” on the Condensed Consolidated Statement of Operations.
Other Acquisitions in 2020
On September 1, 2020, the Company acquired a manufacturer of electric peristaltic pumps for cash consideration, net of cash acquired, of $15.5 million and deferred consideration of $0.9 million. The results of this business are reported within the Precision and Science Technologies segment from the date of acquisition.
Also in the third quarter of 2020, within the Industrial Technologies and Services segment, the Company acquired two sales and service businesses for cash consideration of $15.0 million and deferred consideration of $5.1 million.
The revenue and operating income for the nine months ended September 30, 2020 included in the financial statements for these acquisitions subsequent to their date of acquisition is $5.3 million and $2.0 million, respectively.
Note 4. Restructuring
Restructuring Program 2020 to 2022
Subsequent to the acquisition of Ingersoll Rand Industrial, the Company announced a restructuring program (“2020 Plan”) to create efficiencies and synergies, reduce the number of facilities and optimize operating margin within the merged Company. The Company expects to incur total expenses of approximately $350.0 million related to workforce reductions, lease termination costs, other facility rationalization costs and other business related transformation costs from 2020 until 2022. The Company continues to evaluate operating efficiencies and anticipates incurring additional costs in the coming years in connection with these activities, but is unable to estimate those amounts at this time as such plans are not yet finalized.
For the three and nine month periods ended September 30, 2021, “Restructuring charges, net” were recognized within “Other operating expense, net” in the Condensed Consolidated Statement of Operations and consisted of the following.
For the Three Months Ended
For the Nine Months Ended
September 30, 2021
Industrial Technologies and Services
$
1.0
$
5.2
Precision and Science Technologies
—
0.1
Corporate
0.1
5.0
Restructuring charges, net
$
1.1
$
10.3
Through September 30, 2021, we recognized expense related to the 2020 Plan of $75.5 million, $7.0 million and $11.0 million for Industrial Technologies and Services, Precision and Science Technologies and Corporate, respectively.
The following table summarizes the activity associated with the Company’s restructuring programs for the three and nine month periods ended September 30, 2021.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Balance at beginning of period
$
14.7
$
29.0
$
17.5
$
4.8
Charged to expense - termination benefits
0.2
5.4
8.8
70.3
Charged to expense - other (1)
0.9
(1.6)
1.5
0.9
Payments
(3.0)
(12.3)
(14.8)
(53.6)
Currency translation adjustment and other
(0.2)
2.2
(0.4)
0.3
Balance at end of period
$
12.6
$
22.7
$
12.6
$
22.7
(1) Excludes $6.2 million of non-cash charges that impacted restructuring expense but not the restructuring liabilities during the nine month period ended September 30, 2020.
Note 5. Inventories
Inventories as of September 30, 2021 and December 31, 2020 consisted of the following.
The changes in the carrying amount of goodwill attributable to each reportable segment for the nine month period ended September 30, 2021 is presented in the table below.
Industrial Technologies and Services
Precision and Science Technologies
Total
Balance as of December 31, 2020
$
4,151.2
$
1,431.4
$
5,582.6
Acquisitions
76.6
505.2
581.8
Foreign currency translation
(40.6)
(23.2)
(63.8)
Balance as of September 30, 2021
$
4,187.2
$
1,913.4
$
6,100.6
As of both September 30, 2021 and December 31, 2020, goodwill included accumulated impairment losses of $220.6 million within the Industrial Technologies and Services segment.
Other Intangible Assets, Net
Other intangible assets as of September 30, 2021 and December 31, 2020 consisted of the following.
September 30, 2021
December 31, 2020
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Amortized intangible assets
Customer lists and relationships
$
2,871.8
$
(981.7)
$
1,890.1
$
2,835.0
$
(841.3)
$
1,993.7
Technology
322.6
(75.7)
246.9
279.9
(38.1)
241.8
Tradenames
41.0
(19.6)
21.4
41.8
(15.6)
26.2
Other
106.1
(76.0)
30.1
102.8
(58.6)
44.2
Unamortized intangible assets
Tradenames
1,507.3
—
1,507.3
1,491.3
—
1,491.3
Total other intangible assets
$
4,848.8
$
(1,153.0)
$
3,695.8
$
4,750.8
$
(953.6)
$
3,797.2
Intangible Asset Impairment Considerations
As of September 30, 2021, there were no indications that the carrying value of goodwill and other intangible assets may not be recoverable.
During the third quarter of 2020, the Company recognized an impairment of $19.9 million to reduce the carrying value of two tradenames in the Industrial Technologies and Services segment.
Accrued liabilities as of September 30, 2021 and December 31, 2020 consisted of the following.
September 30, 2021
December 31, 2020
Salaries, wages and related fringe benefits
$
240.8
$
197.0
Contract liabilities
216.3
164.6
Product warranty
44.5
41.1
Operating lease liabilities
36.7
47.1
Restructuring
12.6
17.5
Taxes
234.7
116.1
Other
146.8
125.5
Total accrued liabilities
$
932.4
$
708.9
A reconciliation of the changes in the accrued product warranty liability for the three and nine month periods ended September 30, 2021 and 2020 are as follows.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Balance at beginning of period
$
42.0
$
38.7
$
41.1
$
19.1
Product warranty accruals
4.3
5.4
14.1
13.0
Acquired warranty
1.9
—
2.0
19.8
Settlements
(3.2)
(4.8)
(12.1)
(12.7)
Charged to other accounts(1)
(0.5)
0.5
(0.6)
0.6
Balance at end of period
$
44.5
$
39.8
$
44.5
$
39.8
(1)Primarily consists of the effects of foreign currency translation adjustments
The following table summarizes the components of net periodic benefit cost for the Company’s defined benefit pension plans and other postretirement benefit plans recognized for the three and nine month periods ended September 30, 2021 and 2020.
Pension Benefits
Other Postretirement Benefits
U.S. Plans
Non-U.S. Plans
For the Three Month Period Ended September 30,
2021
2020
2021
2020
2021
2020
Service cost
$
1.6
$
1.8
$
1.1
$
1.2
$
—
$
—
Interest cost
2.7
2.8
1.2
1.6
0.1
0.2
Expected return on plan assets
(3.0)
(4.0)
(3.1)
(2.8)
—
—
Recognition of:
Unrecognized prior service cost
—
—
—
—
(0.1)
—
Unrecognized net actuarial loss
—
—
1.2
0.8
0.1
—
Gain on settlement
(0.8)
—
—
—
—
—
$
0.5
$
0.6
$
0.4
$
0.8
$
0.1
$
0.2
Pension Benefits
Other Postretirement Benefits
U.S. Plans
Non-U.S. Plans
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
2021
2020
Service cost
$
5.0
$
4.1
$
3.3
$
3.1
$
—
$
—
Interest cost
8.2
6.8
3.5
4.6
0.4
0.5
Expected return on plan assets
(9.2)
(9.5)
(9.2)
(8.2)
—
—
Recognition of:
Unrecognized prior service cost
—
—
0.1
0.1
(0.3)
—
Unrecognized net actuarial loss
—
—
3.7
2.2
0.1
—
Gain on settlement
(0.8)
—
—
—
—
—
$
3.2
$
1.4
$
1.4
$
1.8
$
0.2
$
0.5
The components of net periodic benefit cost other than the service cost component are included in “Other income, net” in the Condensed Consolidated Statements of Operations.
22
Note 9. Debt
Debt as of September 30, 2021 and December 31, 2020 is summarized as follows.
September 30, 2021
December 31, 2020
Short-term borrowings
$
—
$
—
Long-term debt:
Revolving credit facility, due 2025
$
—
$
—
Dollar Term Loan B, due 2027(1)
1,869.7
1,883.7
Dollar Term Loan, due 2027(2)
912.8
919.6
Euro Term Loan, due 2027(3)
685.1
728.0
Dollar Term Loan Series A, due 2027(4)
—
392.4
Finance leases and other long-term debt
26.0
17.2
Unamortized debt issuance costs
(31.3)
(41.4)
Total long-term debt, net, including current maturities
3,462.3
3,899.5
Current maturities of long-term debt
40.1
40.4
Total long-term debt, net
$
3,422.2
$
3,859.1
(1)As of September 30, 2021, this amount is presented net of unamortized discounts of $1.8 million. As of September 30, 2021, the applicable interest rate was approximately 1.83% and the weighted-average interest rate was 1.86% for the nine month period ended September 30, 2021.
(2)As of September 30, 2021, this amount is presented net of unamortized discounts of $0.9 million. As of September 30, 2021, the applicable interest rate was approximately 1.83% and the weighted average interest rate was 1.86% for the nine month period ended September 30, 2021.
(3)As of September 30, 2021, this amount is presented net of unamortized discounts of $0.6 million. As of September 30, 2021, the applicable interest rate was 2.00% and the weighted average interest rate was 2.00% for the nine month period ended September 30, 2021.
(4)The weighted average interest rate was 2.86% for the nine month period ended September 30, 2021.
Senior Secured Credit Facilities
The Senior Secured Credit Facilities provided senior secured financing consisting of (i) a senior secured term loan facility denominated in U.S. dollars (as refinanced and otherwise modified from time to time prior to February 28, 2020, the “Original Dollar Term Loan”), (ii) a senior secured term loan facility denominated in Euros (as refinanced and otherwise modified from time to time prior to February 28, 2020, the “Original Euro Term Loan”) and (iii) a senior secured revolving credit facility (as refinanced and otherwise modified from time to time the “Revolving Credit Facility”). The Revolving Credit Facility is available to be drawn in U.S. dollars (“USD”), Euros (“EUR”), Great British Pounds (“GBP”) and other reasonably accepted foreign currencies, subject to certain sublimits for the foreign currencies.
See Note 10 “Debt” to the consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2020 for further information on the Senior Secured Credit Facilities.
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 Condensed Consolidated Statements of Operations.
As of September 30, 2021, the aggregate amount of commitments under the Revolving Credit Facility was $1,100.0 million and the capacity under the Revolving Credit Facility to issue letters of credit was $400.0 million. As of September 30, 2021, the Company had no outstanding borrowings under the Revolving Credit Facility, outstanding letters of credit under the Revolving Credit Facility of $50.8 million and unused availability under the Revolving Credit Facility of $1,049.2 million.
As of September 30, 2021, we were in compliance with all covenants of our Senior Secured Credit Facilities.
The Company has outstanding stock-based compensation awards granted under the 2013 Stock Incentive Plan (“2013 Plan”) and the 2017 Omnibus Incentive Plan (“2017 Plan”) as described in Note 17, “Stock-Based Compensation Plans” to the consolidated financial statements in its 2020 Form 10-K.
The Company’s stock-based compensation awards are typically granted in the first quarter of the year and primarily consist of stock options, restricted stock units and performance share units. Eligible employees were also granted restricted stock units, during the three months ended September 30, 2020, that vest ratably over two years, subject to the passage of time and the employee's continued employment during such period. In some instances, such as death, awards may vest concurrently with or following an employee's termination.
Stock-Based Compensation
Stock-based compensation expense for the nine month periods ended September 30, 2021 and 2020 are included in “Cost of sales” and “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations and are as follows.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Stock-based compensation expense - continuing and discontinued operations
$
21.9
$
12.8
$
75.9
$
29.0
Stock-based compensation expense recognized in discontinued operations
—
0.9
10.9
1.7
Stock-based compensation expense recognized in continuing operations
$
21.9
$
11.9
$
65.0
$
27.3
Stock-Based Compensation - Continuing Operations
In the nine month period ended September 30, 2021, the $65.0 million of stock-based compensation expense included expense for equity awards granted under the 2013 and 2017 Plan of $64.5 million and an increase in the liability for stock appreciation rights (“SAR”) of $0.5 million. Of the $64.5 million of expense for equity awards granted under the 2013 Plan and 2017 Plan, $43.1 million related to the $150 million equity grant to nearly 16,000 employees worldwide made in the third quarter of 2020 (“All-Employee Equity Grant”).
As of September 30, 2021, there was $109.1 million of total unrecognized compensation expense related to outstanding stock options, restricted stock unit awards and performance stock unit awards.
In the nine month period ended September 30, 2021, the $10.9 million of stock-based compensation expense included expense for modifications of equity awards of $3.8 million and expense for equity awards granted under the 2013 and 2017 Plan of $7.1 million. The modifications allowed for the vesting of the first tranche of the All-Employee Equity Grant awarded to HPS and SVT employees despite their termination due to the divestitures. Of the $7.1 million of expense for equity awards granted under the 2013 Plan and 2017 Plan, $5.4 million related to the All-Employee Equity Grant.
Stock Option Awards
Stock options are granted to employees with an exercise price equal to the fair value of the Company’s per share common stock on the date of grant. Stock option awards typically vest over four or five years and expire ten years from the date of grant.
A summary of the Company’s stock option (including SARs) activity for the nine month period ended September 30, 2021 is presented in the following table (underlying shares in thousands).
Shares
Weighted-Average Exercise Price (per share)
Stock options outstanding as of December 31, 2020
7,742
$
18.47
Granted
793
45.75
Exercised or settled
(1,305)
15.97
Forfeited
(231)
30.57
Expired
(6)
13.01
Stock options outstanding as of September 30, 2021
6,993
21.64
Vested as of September 30, 2021
4,551
15.85
The following assumptions were used to estimate the fair value of options granted during the nine month periods ended September 30, 2021 and 2020 using the Black-Scholes option-pricing model.
For the Nine Month Period Ended September 30,
Assumptions
2021
2020
Expected life of options (in years)
6.3
6.3
Risk-free interest rate
0.9% - 1.1%
0.4% - 1.5%
Assumed volatility
38.9% - 39.4%
24.6% - 41.1%
Expected dividend rate
0.0
%
0.0
%
Restricted Stock Unit Awards
Restricted stock units are granted 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. A summary of the Company’s restricted stock unit activity for the nine month period ended September 30, 2021 is presented in the following table (underlying shares in thousands).
Shares
Weighted-Average Grant-Date Fair Value
Non-vested as of December 31, 2020
5,546
$
33.09
Granted
340
45.74
Vested
(2,497)
33.38
Forfeited
(616)
34.21
Non-vested as of September 30, 2021
2,773
34.13
Performance Share Unit Awards
Performance share units are granted to employees and are subject to a three year performance period. The number of shares issued at the end of the performance period is determined by the Company’s total shareholder return percentile rank versus the S&P 500 index for the three year performance period. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a three year period.
A summary of the Company’s performance stock unit activity for the nine month period ended September 30, 2021 is presented in the following table (underlying shares in thousands).
Shares
Weighted-Average Grant-Date Fair Value
Non-vested as of December 31, 2020
255
$
29.72
Granted
158
55.84
Forfeited
(20)
36.36
Non-vested as of September 30, 2021
393
39.89
The following assumptions were used to estimate the fair value of performance share units granted during the nine month periods ended September 30, 2021 and 2020 using the Monte Carlo simulation pricing model.
For the Nine Month Period Ended September 30,
Assumptions
2021
2020
Expected term (in years)
2.9
2.8
Risk-free interest rate
0.2
%
0.5
%
Assumed volatility
36.9
%
35.2
%
Expected dividend rate
—
%
—
%
Note 11. 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 certain hedges of net investments in foreign operations, net of income taxes; (iii) unrealized gains and losses on cash flow hedges (consisting of interest rate swaps), net of income taxes; and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes. See Note 8 “Benefit Plans” and Note 12 “Hedging Activities, Derivative Instruments and Fair Value Measurements.”
The before tax income (loss) and related income tax effect are as follows.
For the Three Month Period Ended September 30, 2021
For the Three Month Period Ended September 30, 2020
Before-Tax Amount
Tax Benefit or (Expense)
Net of Tax Amount
Before-Tax Amount
Tax Benefit or (Expense)
Net of Tax Amount
Foreign currency translation adjustments, net
$
(52.1)
$
4.5
$
(47.6)
$
135.3
$
7.3
$
142.6
Unrecognized gains on cash flow hedges, net
—
—
—
5.5
(1.3)
4.2
Pension and other postretirement benefit prior service cost and gain or loss, net
2.4
(0.6)
1.8
(1.6)
0.6
(1.0)
Other comprehensive income
$
(49.7)
$
3.9
$
(45.8)
$
139.2
$
6.6
$
145.8
For the Nine Month Period Ended September 30, 2021
For the Nine Month Period Ended September 30, 2020
Before-Tax Amount
Tax Benefit or (Expense)
Net of Tax Amount
Before-Tax Amount
Tax Benefit or (Expense)
Net of Tax Amount
Foreign currency translation adjustments, net
$
(108.3)
$
10.0
$
(98.3)
$
87.6
$
7.7
$
95.3
Unrecognized gains on cash flow hedges, net
—
—
—
14.3
(3.4)
10.9
Pension and other postretirement benefit prior service cost and gain or loss, net
5.4
(1.1)
4.3
2.3
0.1
2.4
Other comprehensive income
$
(102.9)
$
8.9
$
(94.0)
$
104.2
$
4.4
$
108.6
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 $0.2 million and $3.8 million for the three month periods ended September 30, 2021 and 2020, respectively, and $(2.1) million and $(1.6) million for the nine month periods ended September 30, 2021 and 2020, respectively, and related entirely to foreign currency translation adjustments.
Changes in accumulated other comprehensive income (loss) by component for the nine month periods ended September 30, 2021 and 2020 are presented in the following table(1).
Foreign Currency Translation Adjustments, Net
Unrecognized Gains (Losses) on 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
(98.3)
—
2.2
(96.1)
Amounts reclassified from accumulated other comprehensive income (loss)
Other comprehensive income (loss) before reclassifications
95.3
(3.0)
0.7
93.0
Amounts reclassified from accumulated other comprehensive income (loss)
—
13.9
1.7
15.6
Other comprehensive income
95.3
10.9
2.4
108.6
Balance as of September 30, 2020
$
(98.3)
$
—
$
(49.1)
$
(147.4)
(1)All amounts are net of tax. Amounts in parentheses indicate debits.
Reclassifications out of accumulated other comprehensive income (loss) for the nine month periods ended September 30, 2021 and 2020 are presented in the following table.
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
Details about Accumulated Other Comprehensive Income (Loss) Components
For the Nine Month Period Ended September 30,
Affected Line(s) in the Statement Where Net Income is Presented
2021
2020
Loss on cash flow hedges (interest rate swaps)
$
—
$
18.5
Interest expense
Benefit for income taxes
—
(4.6)
Benefit for income taxes
Loss on cash flow hedges (interest rate swaps), net of tax
$
—
$
13.9
Amortization of defined benefit pension and other postretirement benefit items(1)
$
2.8
$
2.3
Cost of sales and Selling and administrative expenses
Benefit for income taxes
(0.7)
(0.6)
Benefit for income taxes
Amortization of defined benefit pension and other postretirement benefit items, net of tax
$
2.1
$
1.7
Total reclassifications for the period, net of tax
$
2.1
$
15.6
(1)These components are included in the computation of net periodic benefit cost. See Note 8 “Benefit Plans” for additional details.
Note 12. Hedging Activities, Derivative Instruments and Fair Value Measurements
Hedging Activities
The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in interest rates and foreign currency exchange rates. The Company selectively uses derivative financial instruments (“derivatives”), including foreign currency forward contracts and interest rate swaps, to manage the risks from fluctuations in foreign currency exchange rates and interest rates, respectively. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in interest rates and foreign currency exchange rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.
The Company’s exposure to interest rate risk results primarily from its variable-rate borrowings. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by using pay-fixed interest rate swaps, from time to time, as cash flow hedges of variable rate debt in order to adjust the relative fixed and variable proportions.
A substantial portion of the Company’s operations is conducted by its subsidiaries outside of the United States in currencies other than the USD. Almost all of the Company’s non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. 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 has certain U.S. subsidiaries borrow in currencies other than the USD.
The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency. To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances at least quarterly. The Company also selectively uses forward currency contracts to manage this risk. These contracts for the sale or purchase of 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 Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020.
September 30, 2021
Derivative Classification
Notional Amount(1)
Fair Value(1) Other Current Assets
Fair Value(1) Other Assets
Fair Value(1) Accrued Liabilities
Fair Value(1) Other Liabilities
Derivatives Not Designated as Hedging Instruments
Foreign currency forwards
Fair Value
$
18.9
$
0.1
$
—
$
—
$
—
Foreign currency forwards
Fair Value
21.6
—
0.1
—
December 31, 2020
Derivative Classification
Notional Amount(1)
Fair Value(1) Other Current Assets
Fair Value(1) Other Assets
Fair Value(1) Accrued Liabilities
Fair Value(1) Other Liabilities
Derivatives Not Designated as Hedging Instruments
Foreign currency forwards
Fair Value
$
230.5
$
2.9
$
—
$
—
$
—
Foreign currency forwards
Fair Value
51.2
—
—
0.7
—
(1)Notional amounts represent the gross contract amounts of the outstanding derivatives excluding the total notional amount of positions that have been effectively closed through offsetting positions. The net gains and net losses associated with positions that have been effectively closed through offsetting positions but not yet settled are included in the asset and liability derivatives fair value columns, respectively.
Losses on derivatives designated as cash flow hedges included in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine month periods ended September 30, 2021 and 2020 are as presented in the table below.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Interest rate swap contracts
Loss recognized in AOCI on derivatives
$
—
$
(0.1)
$
—
$
(4.4)
Loss reclassified from AOCI into income (effective portion)(1)
—
(5.3)
—
(18.5)
(1)Losses on derivatives reclassified from accumulated other comprehensive income (“AOCI”) into income were included within “Interest expense” in the Condensed Consolidated Statements of Operations.
As of September 30, 2021, the Company has no interest rate swap contracts. Our previous interest rate swap contracts expired during the third quarter of 2020 and the remaining amounts in AOCI were reclassified to Interest expense during the same period. The Company’s LIBOR-based variable rate borrowings outstanding as of September 30, 2021 were $2,785.2 million and €592.1 million.
The Company had fourforeign currency forward contracts outstanding as of September 30, 2021 with notional amounts ranging from $7.2 million to $14.4 million. These contracts are used to hedge the change in fair value of recognized foreign currency denominated assets or liabilities caused by changes in currency exchange rates. The changes in the fair value of these contracts generally offset the changes in the fair value of a corresponding amount of the hedged items, both of which are included within “Other operating expense, net” in the Condensed 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 Condensed Consolidated Balance Sheets. The amount available to be netted is not material.
The Company’s gains (losses) on derivative instruments not designated as accounting hedges and total net foreign currency losses for the three and nine month periods ended September 30, 2021 and 2020 were as follows.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Foreign currency forward contracts gains (losses)
$
(2.4)
$
9.1
$
(2.5)
$
7.0
Total foreign currency transaction gains (losses), net
(1.1)
(5.8)
13.6
(12.7)
The Company has a significant investment in consolidated subsidiaries with functional currencies other than the USD, particularly the EUR. On August 17, 2017, the Company designated its €615.0 million Original Euro Term Loan as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies until it was extinguished and replaced on February 28, 2020 by a €601.2 million Euro Term Loan, further described in Note 9 “Debt”. As of September 30, 2021, the Euro Term Loan of €592.1 million remained designated.
The Company’s gains (losses), net of income tax, associated with changes in the value of debt for the three and nine month periods ended September 30, 2021 and 2020 were as follows.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Gain, net of income tax, recorded through other comprehensive income
$
12.2
$
21.9
$
25.4
$
22.8
The net balance of such gains (losses) included in accumulated other comprehensive income (loss) as of September 30, 2021 and 2020 was $56.2 million and $53.0 million, respectively.
For the periods presented, all cash flows associated with derivatives are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows.
Fair Value Measurements
A financial instrument is defined as cash or cash equivalents, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. The Company’s financial instruments consist primarily of cash and cash equivalents, trade accounts receivables, trade accounts payables, deferred compensation assets and obligations, derivatives and debt instruments. The carrying values of cash and cash equivalents, trade accounts receivables, trade accounts payables, and variable rate debt instruments are a reasonable estimate of their respective fair values.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or more advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows.
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date.
Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.
September 30, 2021
Level 1
Level 2
Level 3
Total
Financial Assets
Foreign currency forwards(1)
$
—
$
0.1
$
—
$
0.1
Trading securities held in deferred compensation plan(2)
11.4
—
—
11.4
Total
$
11.4
$
0.1
$
—
$
11.5
Financial Liabilities
Foreign currency forwards(1)
$
—
$
0.1
$
—
$
0.1
Deferred compensation plans(2)
24.8
—
—
24.8
Total
$
24.8
$
0.1
$
—
$
24.9
December 31, 2020
Level 1
Level 2
Level 3
Total
Financial Assets
Foreign currency forwards(1)
$
—
$
2.9
$
—
$
2.9
Trading securities held in deferred compensation plan(2)
9.1
—
—
9.1
Total
$
9.1
$
2.9
$
—
$
12.0
Financial Liabilities
Foreign currency forwards(1)
$
—
$
0.7
$
—
$
0.7
Deferred compensation plan(2)
25.7
—
—
25.7
Total
$
25.7
$
0.7
$
—
$
26.4
(1)Based on calculations that use readily observable market parameters at their basis, such as spot and forward rates.
(2)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.
Goodwill and Other Intangible Assets
Certain of our non-financial assets are subject to impairment analysis, including indefinite-lived intangible assets and goodwill. We review the carrying amounts of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable or at least annually. Any resulting impairment would require that the asset be recorded at its fair value. At December 31, 2020, we did not have any significant non-financial assets or liabilities that were required to be measured at fair value on a recurring or non-recurring basis. Refer to Note 6 “Goodwill and Other Intangible Assets” for further discussion pertaining to our annual and interim evaluation of goodwill and other intangible assets for impairment.
Note 13. Revenue from Contracts with Customers
Overview
The Company recognizes revenue when the Company 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, liquidated damages, etc., 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.
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 generally 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 Condensed Consolidated Statements of Operations.
Disaggregation of Revenue
The following tables provide disaggregated revenue by reportable segment for the three month periods ended September 30, 2021 and 2020.
For the Three Month Period Ended September 30, 2021
For the Three Month Period Ended September 30, 2020
Industrial Technologies and Services
Precision and Science Technologies
Total
Primary Geographic Markets
United States
$
323.0
$
82.2
$
405.2
Other Americas
80.1
12.5
92.6
Total Americas
403.1
94.7
497.8
EMEIA
277.7
76.7
354.4
Asia Pacific
221.8
38.5
260.3
Total
$
902.6
$
209.9
$
1,112.5
Product Categories
Original equipment
$
528.3
$
179.4
$
707.7
Aftermarket
374.3
30.5
404.8
Total
$
902.6
$
209.9
$
1,112.5
Pattern of Revenue Recognition
Revenue recognized at point in time(1)
$
816.7
$
209.9
$
1,026.6
Revenue recognized over time(2)
85.9
—
85.9
Total
$
902.6
$
209.9
$
1,112.5
(1)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.
(2)Revenues primarily from long duration ETO product contracts and certain contracts for delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed.
The following tables provide disaggregated revenue by reportable segment for the nine month periods ended September 30, 2021 and 2020.
For the Nine Month Period Ended September 30, 2021
For the Nine Month Period Ended September 30, 2020
Industrial Technologies and Services
Precision and Science Technologies
Total
Primary Geographic Markets
United States
$
789.9
$
215.2
$
1,005.1
Other Americas
195.9
27.3
223.2
Total Americas
985.8
242.5
1,228.3
EMEIA
725.4
181.3
906.7
Asia Pacific
525.0
94.7
619.7
Total
$
2,236.2
$
518.5
$
2,754.7
Product Categories
Original equipment
$
1,333.5
$
447.5
$
1,781.0
Aftermarket
902.7
71.0
973.7
Total
$
2,236.2
$
518.5
$
2,754.7
Pattern of Revenue Recognition
Revenue recognized at point in time(1)
$
2,026.3
$
518.5
$
2,544.8
Revenue recognized over time(2)
209.9
—
209.9
Total
$
2,236.2
$
518.5
$
2,754.7
(1)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.
(2)Revenues primarily from long duration ETO product contracts and certain contracts for 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 September 30, 2021, for contracts with an original duration greater than one year, the Company expects to recognize revenue in the future related to unsatisfied (or partially satisfied) performance obligations of $447.3 million in the next twelve months and $422.7 million in periods thereafter. The performance obligations that are unsatisfied (or partially satisfied) are primarily related to orders for goods or services that were placed prior to the end of the reporting period and have not been delivered to the customer, on-going work on ETO contracts where revenue is recognized over time and service contracts with an original duration greater than one year.
Contract Balances
The following table provides the contract balances as of September 30, 2021 and December 31, 2020 presented in the Condensed Consolidated Balance Sheets.
September 30, 2021
December 31, 2020
Accounts receivable, net
$
927.0
$
861.8
Contract assets
59.1
60.4
Contract liabilities
217.5
166.2
Accounts receivable, net – Amounts due where the Company’s right to receive cash is unconditional. Customer receivables are recorded at face amount less an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for
expected 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.
The allowance for credit losses for the three and nine month periods ended September 30, 2021 consisted of the following.
For the Three Month Period Ended September 30, 2021
For the Nine Month Period Ended September 30, 2021
Balance at beginning of the period
$
49.3
$
50.9
Provision charged to expense
0.6
2.2
Write-offs, net of recoveries
(0.3)
(3.0)
Foreign currency translation and other
0.3
(0.2)
Balance at end of the period
$
49.9
$
49.9
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.
Contract assets and liabilities are reported in the Condensed 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 30-60 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 Condensed 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 14. Income Taxes
The following table summarizes the Company’s provision for income taxes and effective income tax provision rate for the three and nine month periods ended September 30, 2021 and 2020.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Income (loss) before income taxes
$
135.9
$
42.8
$
388.1
$
(138.9)
Provision for income taxes
$
2.7
$
12.8
$
25.8
$
24.3
Effective income tax provision rate
2.0
%
29.9
%
6.6
%
(17.5
%)
The decrease in the provision for income taxes and decrease in the effective income tax provision rate for the three month period ended September 30, 2021 when compared to the same three month period of 2020 is primarily due to the benefits associated with the windfall tax deduction and foreign tax credits recognized during the third quarter of 2021.
The increase in the provision for income taxes and increase in the effective income tax provision rate for the nine month period ended September 30, 2021 when compared to the same nine month period of 2020 is primarily due to an increase in the pretax book income in jurisdictions with higher effective tax rates combined with decreased earnings in jurisdictions with lower tax rates. This rate increase was mitigated by the windfall tax deduction and foreign tax credits recognized during the third quarter of 2021.
(2)Represents costs associated with successful and/or abandoned acquisitions and divestitures, including third-party expenses and post-closure integration costs (including certain incentive and non-incentive cash compensation costs).
Note 16. 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. For further description of the Company’s contingencies, reference is made to Note 20, “Contingencies” in the notes to consolidated financial statements in the Company’s 2020 Form 10-K.
Asbestos and Silica Related Litigation
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. “Accrued liabilities” and “Other liabilities” of the Condensed Consolidated Balance Sheets include a total litigation reserve of $125.0 million and $131.4 million as of September 30, 2021 and December 31, 2020, respectively, with regards to potential liability arising from the Company’s asbestos-related litigation. Asbestos related defense costs are excluded from the asbestos claims 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/or reimbursement for the costs associated with the asbestos and silica-related lawsuits filed against the Company. The Company has an insurance recovery receivable for probable asbestos related recoveries of approximately $132.1 million as of both September 30, 2021 and December 31, 2020, which was included in “Other assets” in the Condensed Consolidated Balance Sheets. 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.
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. The Company has undiscounted accrued liabilities of $13.0 million and $13.7 million as of September 30, 2021 and December 31, 2020, respectively, on its Condensed Consolidated Balance Sheets to the extent costs are known or can be reasonably estimated for its remaining financial obligations in relation to environmental matters 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.
A description of the Company’s two reportable segments is presented below. During the first quarter of 2021, the Company agreed to sell a majority interest in the business comprising its High Pressure Solutions segment. This sale was substantially completed on April 1, 2021. During the second quarter of 2021, the Company agreed to sell the business comprising its Specialty Vehicle Technologies segment. This sale was substantially completed on June 1, 2021. The HPS and SVT businesses are presented as a discontinued operation in current and prior periods and has been excluded from the segment information below unless otherwise noted. Refer to Note 2 “Discontinued Operations” for further discussion of the sale of majority interest in the High Pressure Solutions business and of the Specialty Vehicle Technologies business.
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, loading systems, power tools and lifting equipment. The Company’s compression and vacuum products are used worldwide in industrial manufacturing, transportation, chemical processing, food and beverage production, energy, environmental and other applications. In addition to equipment sales, the Company offers a broad portfolio of service options tailored to customer needs and complete range of aftermarket parts, air treatment equipment, controls and other accessories. The Company’s engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials. The Company’s power tools and lifting equipment are used by customers in industrial manufacturing, vehicle maintenance, energy and other markets for precision fastening, bolt removal, grinding, sanding, drilling, demolition and the safe and efficient lifting, positioning and movement of loads. The Company sells its products primarily through independent distributors worldwide and also sells directly to the customer.
In the Precision and Science Technologies segment, the Company designs, manufactures and markets a broad range of specialized positive displacement pumps, fluid management equipment and aftermarket parts for medical, laboratory, industrial manufacturing, water and wastewater, chemical processing, energy, food and beverage, agriculture and other markets. The Company’s products are used for a diverse set of applications including precision dosing of chemicals and supplements, blood dialysis, oxygen therapy, food processing, fluid transfer and dispensing, spray finishing and coating, mixing, high-pressure air and gas management and others. The Company sells primarily through a broad global network of specialized and national distributors and original equipment manufacturers (“OEM”) 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 North America and Europe, which includes transaction processing, accounting and other business support functions, are allocated to the business segments. Certain administrative expenses, including senior management compensation, treasury, internal audit, tax compliance, certain information technology, and other corporate functions, are not allocated to the business segments.
The following table provides summarized information about the Company’s operations by reportable segment and reconciles Segment Adjusted EBITDA to Income (Loss) from Continuing Operations Before Income Taxes for the three and nine month periods ended September 30, 2021 and 2020.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Revenue
Industrial Technologies and Services
$
1,070.7
$
902.6
$
3,032.0
$
2,236.2
Precision and Science Technologies
254.3
209.9
701.6
518.5
Total Revenue
$
1,325.0
$
1,112.5
$
3,733.6
$
2,754.7
Segment Adjusted EBITDA
Industrial Technologies and Services
$
272.9
$
216.8
$
743.0
$
495.4
Precision and Science Technologies
75.5
64.5
213.8
156.7
Total Segment Adjusted EBITDA
$
348.4
$
281.3
$
956.8
$
652.1
Less items to reconcile Segment Adjusted EBITDA to Income (Loss) Before Income Taxes:
Corporate expenses not allocated to segments
$
34.7
$
29.6
$
107.0
$
70.7
Interest expense
22.5
28.8
68.3
86.7
Depreciation and amortization expense (a)
101.5
116.8
307.3
294.7
Impairment of intangible assets
—
19.9
—
19.9
Restructuring and related business transformation costs (b)
3.1
10.0
12.5
79.6
Acquisition and other transaction related expenses and non-cash charges (c)
14.4
14.7
39.2
194.5
Stock-based compensation (d)
29.8
11.9
72.9
26.8
Foreign currency transaction losses (gains), net
1.1
5.8
(13.6)
12.7
Loss on extinguishment of debt (e)
9.0
—
9.0
2.0
Gain on settlement of post-acquisition contingencies (f)
—
—
(30.1)
—
Other adjustments (g)
(3.6)
1.0
(3.8)
3.4
Income (Loss) from Continuing Operations Before Income Taxes
135.9
42.8
388.1
(138.9)
Provision for income taxes
2.7
12.8
25.8
24.3
Loss on equity method investments
(2.2)
—
(2.9)
—
Income (Loss) from Continuing Operations
131.0
30.0
359.4
(163.2)
Loss from discontinued operations, net of tax
(4.2)
(0.1)
(88.1)
(20.3)
Net Income (Loss)
$
126.8
$
29.9
$
271.3
$
(183.5)
a)Depreciation and amortization expense excludes $1.0 million and $0.5 million of depreciation of rental equipment for the three month periods ended September 30, 2021 and 2020, respectively, and excludes $3.0 million and $1.4 million for the nine month periods ended September 30, 2021 and 2020, respectively.
b)Restructuring and related business transformation costs consist of the following.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Restructuring charges
$
1.1
$
10.0
$
10.3
$
77.4
Facility reorganization, relocation and other costs
2.0
—
2.0
0.5
Other, net
—
—
0.2
1.7
Total restructuring and related business transformation costs
c)Represents costs associated with successful and/or abandoned acquisitions and divestitures, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs) and non-cash charges and credits arising from fair value purchase accounting adjustments.
d)Represents stock-based compensation expense recognized for the three and nine month periods ended September 30, 2021 of $21.9 million and $65.0 million, respectively, and increased by $7.9 million for the three and nine month periods ended September 30, 2021, due to costs associated with employer taxes related to the All-Employee Equity Grant.
Represents stock-based compensation expense recognized for the three and nine month periods ended September 30, 2020 of $11.9 million and $27.3 million, respectively, and decreased by $0.5 million for the nine month period ended September 30, 2020, due to costs associated with employer taxes.
e)Represents a loss on extinguishment of a portion of the U.S. term loan and the amendment of the revolving credit facility.
f)Represents a gain on settlement of post-acquisition contingencies outside of the measurement period related to adjustments to the transaction price for retirement plan funding and net working capital.
g)Includes (i) effects of amortization of prior service costs and amortization of losses in pension and other postemployment (“OPEB”) expense, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.
Note 18. Related Party Transactions
Affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) serve on the Company's board of directors and KKR maintained an equity interest in the Company until August 6, 2021. On August 6, 2021, KKR completed a secondary offering to sell its remaining 29,788,635 shares of common stock, of which Ingersoll Rand purchased 14,894,317 shares. KKR did not own any shares of common stock as of September 30, 2021.
Affiliates of KKR participated as a lender in the Company’s Senior Secured Credit Facilities. As of September 30, 2021, KKR held a position in the Euro Term Loan of €38.1 million and a position in the Dollar Term Loan B of $39.4 million.
The Company incurred and paid underwriting fees of $7.5 million in the nine month period ended September 30, 2020 to KKR Capital Markets LLC, an affiliate of KKR, for services rendered in connection with the term loan transactions.
Note 19. Earnings (Loss) Per Share
The number of weighted-average shares outstanding used in the computations of basic and diluted earnings (loss) per share are as follows.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Average shares outstanding
Basic
412.3
417.6
417.1
370.8
Diluted
418.5
422.0
423.7
370.8
For the three month periods ended September 30, 2021 and 2020, 0.7 million and 5.6 million, respectively, of anti-dilutive shares were not included in the computation of diluted earnings per share. For the nine month period ended September 30, 2021, 0.7 million of anti-dilutive shares were not included in the computation of diluted earnings per share. For the nine month period ended September 30, 2020, 7.8 million of potentially dilutive stock-based awards were not included in the computation of diluted loss per share as we incurred a net loss during the period.
Note 20. Subsequent Event
On October 26, 2021, our Board of Directors declared a quarterly dividend on our common stock of $0.02 per share, to be paid on December 17, 2021 to stockholders of record as of the close of business on November 10, 2021. The Company estimates that the aggregate dividend payment will be approximately $8 million.
On October 29, 2021, the Company acquired Air Dimensions Inc. for a base purchase price of $70.5 million. The business is a manufacturer of vacuum diaphragm (positive displacement) pumps for environmental applications. Air Dimensions Inc. will be reported within the Precision and Science Technologies segment.
On November 2, 2021, the Company entered into an agreement to acquire Tuthill Pumps, a division of Tuthill Corporation, for $84.6 million. The business is a manufacturer of gear and piston (positive displacement) pumps that primarily serve the chemical, food and beverage, and wastewater markets. This transaction is expected to close in the fourth quarter of 2021, subject to regulatory approvals and customary closing conditions. Upon closing, Tuthill Pumps will be reported within the Precision and Science Technologies segment.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.
Overview
Our Company
We are a leading global provider of mission-critical flow creation technologies and associated aftermarket parts, consumables and services, which we sell across multiple attractive end-markets. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, when combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under a collection of premier, market-leading brands, including Ingersoll Rand, Gardner Denver, CompAir, Nash, Elmo Rietschle, Robuschi, Thomas, Milton Roy, ARO, Emco Wheaton and Runtech Systems, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service.
Recent Developments
Recent and Pending Acquisitions
On July 30, 2021, the Company acquired Maximus Solutions for cash consideration of $110.5 million. The business is a provider of digital controls and Industrial Internet of Things (IIoT) production management systems for the agritech software and controls market.
On August 31, 2021, the Company acquired Seepex GmbH (“Seepex”) for cash consideration of $481.5 million, net of cash acquired. The business is a global leader in progressive cavity pump solutions.
On October 29, 2021, the Company acquired Air Dimensions Inc. for a base purchase price of $70.5 million. The business is a manufacturer of vacuum diaphragm (positive displacement) pumps for environmental applications. Air Dimensions Inc. will be reported within the Precision and Science Technologies segment.
On November 2, 2021, the Company entered into an agreement to acquire Tuthill Pumps, a division of Tuthill Corporation, for $84.6 million. The business is a manufacturer of gear and piston (positive displacement) pumps that primarily serve the chemical, food and beverage, and wastewater markets. This transaction is expected to close in the fourth quarter of 2021, subject to regulatory approvals and customary closing conditions. Upon closing, Tuthill Pumps will be reported within the Precision and Science Technologies segment.
Our Segments
As a result of the HPS and SVT transactions described in Note 2 “Discontinued Operations” to our unaudited condensed consolidated financial statements, the Company now operates with two reportable segments: Industrial Technologies and Services and Precision and Science Technologies. See Note 17 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for a description of the remaining reportable segments.
Industrial Technologies and Services
We design, manufacture, market and service a broad range of air and gas compression, vacuum and blower products, fluid transfer equipment, loading systems, power tools and lifting equipment, including associated aftermarket parts, consumables and services. We primarily sell under the Ingersoll Rand, Gardner Denver, CompAir, Elmo Rietschle, Robuschi, Nash, Emco Wheaton and Runtech Systems brands. Our customers deploy our products across a wide array of technologies and applications for use in diverse end-markets. Compressors are used to increase the pressure of air or gas, vacuum products are used to remove air or gas in order to reduce the pressure below atmospheric levels, and blower products are used to produce a high volume of air or gas at low pressure. Almost every manufacturing and industrial facility, and many service and process industry applications, use air compression, vacuum and blower products in a variety of process-critical applications such as the operation of pneumatic tools,
pumps and motion control components, air and gas separation, vacuum packaging of food products and aeration of waste water, among others. Our liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, water extraction in mining and paper and chlorine compression in petrochemical operations. Our engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials. Our power tools and lifting equipment portfolio includes electric and cordless fastening systems, pneumatic bolting tools, drilling and material removal tools, hoists, winches and ergonomic handling devices. Typical applications for these products include the precision fastening of bolted joints in the production, assembly and servicing of industrial machinery, on-highway and off-highway vehicles, aircraft, electronics and other equipment.
Our compression products cover the full range of technologies, including rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Our vacuum products and blowers also cover the full technology spectrum; vacuum technologies include side channel, liquid ring, claw vacuum, screw, turbo and rotary vane vacuum pumps among others, while blower technologies include rotary lobe blowers, screw, claw and vane, side channel and radial blowers. Our liquid ring vacuum pumps and compressors are highly engineered products specifically designed for continuous duty in harsh environments to serve a wide range of applications, including oil and gas refining and processing, mining, chemical processing and industrial applications. In addition to our vacuum and blower technology, our engineered fluid loading and transfer equipment and systems ensure the safe and efficient transportation and transfer of petroleum products as well as certain other liquid commodity products in a wide range of industries.
We complement these products with a broad portfolio of service options tailored to customer needs and a complete range of aftermarket parts, air treatment equipment, controls and other accessories delivered through our global network of manufacturing and service locations and distributor partners. The breadth and depth of our product offering creates incremental business opportunities by allowing us to cross-sell our full product portfolio and uniquely address customers’ needs in one complete solution.
We sell our products through an integrated network of direct sales representatives and independent distributors, which is strategically tailored to meet the dynamics of each target geography or end-market. Our large installed base also provides for a significant stream of recurring aftermarket revenue. For example, the useful life of a compressor is, on average, between 10 and 12 years. However, a customer typically services the compressor at regular intervals, starting within the first two years of purchase and continuing throughout the life of the product. The cumulative aftermarket revenue generated by a compressor over the product’s life cycle will typically exceed its original sale price.
Precision and Science Technologies
We design, manufacture and market a broad range of highly-specialized positive displacement pumps, fluid management systems and aftermarket parts that provide liquid and gas dosing, transfer, dispensing, compression, sampling, pressure management and flow control in specialized or critical applications. Our product offering covers a range of pump and flow control technologies, including mechanically- and hydraulically-actuated diaphragm pumps, air-operated diaphragm and piston pumps, water-powered pumps, peristaltic pumps, gear pumps, flexible impeller pumps, self-priming centrifugal pumps, syringe pumps, motion control components, filtration/regulation/lubrication components, gas boosters, high pressure valves, hydrogen compression systems, liquid and gas sampling systems, odorant injection systems and more. These offerings are sold under brands that are highly recognized in their end markets including ARO, Dosatron, Haskel, Milton Roy, Oberdorfer, Seepex, Thomas, Welch and YZ. Our customer base is composed of a wide range of end users in markets including medical, laboratory, industrial manufacturing, water and waste water, chemical processing, energy, food and beverage, agriculture and others. Our sales are realized primarily through a combination of independent specialty and national distributors and relationships directly with original equipment manufacturers (“OEM”).
Components of Our Revenue and Expenses
Revenues
We generate revenue from sales of original equipment and associated aftermarket parts, consumables and services. We sell our products and deliver services both directly to end-users and through independent distribution channels, depending on the product line and geography. Revenue derived from short duration contracts is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or as services are performed. Certain contracts involve significant design engineering to customer specifications, and depending upon the contractual terms, revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer.
Cost of sales includes the costs we incur, including purchased materials, labor and overhead related to manufactured products and aftermarket parts sold during a period. Depreciation related to manufacturing equipment and facilities is included in cost of sales. Purchased materials represent the majority of costs of sales, with steel, aluminum, copper and partially finished castings representing our most significant material inputs. Stock-based compensation expense for employees associated with the manufacture of products or delivery of services to customers is included in cost of sales. We have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations.
Cost of sales for services includes the direct costs we incur, including direct labor, parts and other overhead costs including depreciation of equipment and facilities, to deliver repair, maintenance and other field services to our customers.
Selling and Administrative Expenses
Selling and administrative expenses consist of (i) salaries and other employee-related expenses for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; (ii) facility operating expenses for selling and administrative activities, including office rent, maintenance, depreciation and insurance; (iii) marketing and direct costs of selling products and services to customers including internal and external sales commissions; (iv) research and development expenditures; (v) professional and consultant fees; (vi) expenses related to our public stock offerings and to establish public company reporting compliance; (vii) employee related stock-based compensation for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; and (viii) other miscellaneous expenses. Certain corporate expenses, including those related to our shared service centers in North America and Europe, that directly benefit our businesses are allocated to our business segments. Certain corporate administrative expenses, including corporate executive compensation, treasury, certain information technology, internal audit and tax compliance, are not allocated to the business segments.
Amortization of Intangible Assets
Amortization of intangible assets includes the periodic amortization of intangible assets including customer relationships, tradenames, developed technology, backlog and internally developed software.
Other Operating Expense, Net
Other operating expense, net includes foreign currency transaction gains and losses, net, restructuring charges, certain shareholder litigation settlement recoveries, acquisition and other transaction related expenses and non-cash charges, losses and gains on asset disposals and other miscellaneous operating expenses.
Provision for Income Taxes
The provision for income taxes includes U.S. federal, state and local income taxes and all non-U.S. income taxes. We are subject to income tax in approximately 47 jurisdictions outside of the United States. Because we conduct operations on a global basis, our effective tax rate depends, and will continue to depend, on the geographic distribution of our pre-tax earnings among several different taxing jurisdictions. Our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions, the availability of tax credits and non-deductible items.
Items Affecting our Reported Results
General Economic Conditions and Capital Spending in the Industries We Serve
Our financial results closely follow changes in the industries and end-markets we serve. Demand for most of our products depends on the level of new capital investment and planned and unplanned maintenance expenditures by our customers. The level of capital expenditures depends, in turn, on the general economic conditions as well as access to capital at reasonable cost. In particular, demand for our Industrial Technologies and Services products generally correlates with the rate of total industrial capacity utilization and the rate of change of industrial production. Capacity utilization rates above 80% have historically indicated a strong demand environment for industrial equipment. In the midstream and downstream portions of our Industrial Technologies and Services segment, overall economic growth and industrial production, as well as secular trends, impact demand for our products. In our Precision and Science Technologies segment we expect demand for our products to be driven by favorable trends, including the growth in healthcare spend and expansion of healthcare systems due to an aging population requiring medical care and increased investment in health solutions and safety infrastructures in emerging economies. Over longer
time periods, we believe that demand for all of our products also tends to follow economic growth patterns indicated by the rates of change in the GDP around the world, as augmented by secular trends in each segment. Our ability to grow and our financial performance will also be affected by our ability to address a variety of challenges and opportunities that are a consequence of our global operations, including efficiently utilizing our global sales, manufacturing and distribution capabilities and engineering innovative new product applications for end-users in a variety of geographic markets.
Foreign Currency Fluctuations
A significant portion of our revenues, approximately 59% for the nine month period ended September 30, 2021, was denominated in currencies other than the U.S. dollar. Because much of our manufacturing facilities and labor force costs are outside of the United States, a significant portion of our costs are also denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates can therefore impact our results of operations and are quantified when significant to our discussion.
Factors Affecting the Comparability of our Results of Operations
As a result of a number of factors, our historical results of operations are not comparable from period to period and may not be comparable to our financial results of operations in future periods. Key factors affecting the comparability of our results of operations are summarized below.
Acquisition of Ingersoll Rand Industrial
On February 29, 2020, we completed the acquisition of Ingersoll Rand Industrial. Ingersoll Rand Industrial is included in our results of operations beginning on the acquisition date (close of business February 29, 2020). Comparability between the nine month periods ended September 30, 2021 and 2020 will be affected by two months of activity from Ingersoll Rand Industrial.
See Note 3 “Business Combinations” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further discussion of the acquisition of Ingersoll Rand Industrial.
Impact of Coronavirus (COVID-19)
We continue to monitor the spread of COVID-19 and its variants and manage the impacts of the pandemic on our global business and our stakeholders. Demand for our products was negatively impacted throughout the majority of 2020 as a result of the pandemic. Demand began to improve in the fourth quarter of 2020 and accelerated in the first half of 2021. Order rates remained strong during the third quarter of 2021.
Market conditions related to the pandemic and the subsequent economic improvements have contributed to challenges in our global supply chain. Inflationary conditions have negatively impacted the costs we pay for raw materials, labor and logistics. We have also experienced a higher-than-normal rate of delays and shortages in a wide variety of commodities and components we purchase from suppliers. We continue to mitigate these supply chain pressures through various means, including by implementing price increases for our products and services and through increased coordination with suppliers to ensure availability of raw materials. However, we expect these supply chain conditions to continue in the near term.
We are adhering to all state and country mandates and guidelines wherever we operate. All of our major manufacturing locations are currently operational. The degree to which the pandemic and the related market conditions will continue to impact our business is uncertain. See “The COVID-19 pandemic has adversely affected our business and results of operations, and could have a material and adverse effect on our business, results of operations and financial condition in the future” in Part I Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Restructuring and Other Business Transformation Initiatives
Subsequent to the acquisition of Ingersoll Rand Industrial, we announced a restructuring program (“2020 Plan”) to drive efficiencies and synergies, reduce the number of facilities and optimize operating margins within our merged Company. We expect total expenses of approximately $350.0 million related to workforce reductions, lease termination costs, other facility rationalization costs and other business related transformation costs from 2020 until 2022. We expect to realize approximately $300.0 million in annualized cost synergies by the end of 2022. We continue to evaluate operating efficiencies and anticipate incurring additional costs in the coming years in connection with these activities, but we are unable to estimate those amounts at this time as such plans are not yet finalized.
For the three month period ended September 30, 2021, expense of $1.1 million was recognized within “Other operating expense, net” in the Condensed Consolidated Statements of Operations ($1.0 million for Industrial Technologies and Services and $0.1 million for Corporate). For the nine month period ended September 30, 2021, expense of $10.3 million was recognized within
“Other operating expense, net” in the Condensed Consolidated Statements of Operations ($5.2 million for Industrial Technologies and Services, $0.1 million for Precision and Science Technologies and $5.0 million for Corporate). Through September 30, 2021, we recognized expense related to the 2020 Plan of $75.5 million, $7.0 million, and $11.0 million for Industrial Technologies and Services, Precision and Science Technologies, and Corporate, respectively.
Outlook
Industrial Technologies and Services Segment
The mission-critical nature of our products across manufacturing processes drives a demand environment and outlook that are correlated with global and regional industrial production, capacity utilization and long-term GDP growth. Economic conditions remain uncertain with regard to COVID-19, and its impact on end markets, however, recent order rates have improved as markets strengthened and gained greater visibility to vaccine roll-out strategies in various regions. In the third quarter of 2021, we had $1,231.3 million of orders in our Industrial Technologies and Services segment, an increase of 36.5% over the third quarter of 2020.
Precision and Science Technologies Segment
During the COVID-19 pandemic, the Precision and Science Technologies segment has seen increased demand for our vacuum pump and compressor solutions used in respirator and ventilator applications. Demand of other products and services which had been negatively impacted in 2020 have begun to recover in 2021 as markets strengthened and gained greater visibility to vaccine roll-out strategies in various regions. In the third quarter of 2021, we had $266.3 million of orders in our Precision and Science Technologies segment, an increase of 37.0% over the third quarter of 2020.
How We Assess the Performance of Our Business
We manage operations through the two business segments described above. In addition to our consolidated GAAP financial measures, we review various non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income and Free Cash Flow.
We believe Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions.
We use Free Cash Flow to review the liquidity of our operations. We measure Free Cash Flow as cash flows from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities.
Management and our board of directors regularly use these measures as tools in evaluating our operating and financial performance and in establishing discretionary annual compensation. Such measures are provided in addition to, and should not be considered to be a substitute for, or superior to, the comparable measures under GAAP. In addition, we believe that Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are frequently used by investors and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity.
Adjusted EBITDA, Adjusted Net Income and Free Cash Flow should not be considered as alternatives to net income (loss) or any other performance measure derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA, Adjusted Net Income and Free Cash Flow have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.
See “Non-GAAP Financial Measures” below for reconciliation information.
Consolidated results should be read in conjunction with the segment results section herein and Note 17 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q, which provides more detailed discussions concerning certain components of our Condensed Consolidated Statements of Operations. All intercompany accounts and transactions have been eliminated within the consolidated results.
The following table presents selected Consolidated Results of Operations of our business for the three and nine month periods ended September 30, 2021 and 2020.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Condensed Consolidated Statement of Operations:
Revenues
$
1,325.0
$
1,112.5
$
3,733.6
$
2,754.7
Cost of sales
810.7
682.5
2,254.5
1,812.8
Gross profit
514.3
430.0
1,479.1
941.9
Selling and administrative expenses
252.6
218.6
772.1
567.1
Amortization of intangible assets
80.3
97.0
244.8
240.1
Impairment of intangible assets
—
19.9
—
19.9
Other operating expense, net
17.5
25.5
36.9
170.1
Operating income (loss)
163.9
69.0
425.3
(55.3)
Interest expense
22.5
28.8
68.3
86.7
Loss on extinguishment of debt
9.0
—
9.0
2.0
Other income, net
(3.5)
(2.6)
(40.1)
(5.1)
Income (loss) before income taxes
135.9
42.8
388.1
(138.9)
Provision for income taxes
2.7
12.8
25.8
24.3
Loss on equity method investments
(2.2)
—
(2.9)
—
Income (Loss) from Continuing Operations
131.0
30.0
359.4
(163.2)
Loss from discontinued operations, net of tax
(4.2)
(0.1)
(88.1)
(20.3)
Net income (loss)
126.8
29.9
271.3
(183.5)
Less: Net income attributable to noncontrolling interests
0.8
0.4
1.8
1.4
Net income (loss) attributable to Ingersoll Rand Inc.
$
126.0
$
29.5
$
269.5
$
(184.9)
Percentage of Revenues:
Gross profit
38.8
%
38.7
%
39.6
%
34.2
%
Selling and administrative expenses
19.1
%
19.6
%
20.7
%
20.6
%
Operating income (loss)
12.4
%
6.2
%
11.4
%
(2.0)
%
Income (loss) from continuing operations
9.9
%
2.7
%
9.6
%
(5.9)
%
Adjusted EBITDA
23.7
%
22.6
%
22.8
%
21.1
%
Other Financial Data:
Adjusted EBITDA (1)
$
313.7
$
251.7
$
849.8
581.4
Adjusted Net Income (1)
238.6
152.3
601.4
330.1
Cash flows - operating activities
146.1
193.9
380.9
390.2
Cash flows - investing activities
(608.8)
(38.2)
(841.0)
(18.2)
Cash flows - financing activities
(1,132.1)
(19.0)
(1,142.2)
317.9
Free Cash Flow (1)
130.8
187.5
339.7
361.1
(1)See the “Non-GAAP Financial Measures” section for a reconciliation to comparable GAAP measure.
Revenues for the three month period ended September 30, 2021 were $1,325.0 million, an increase of $212.5 million, or 19.1%, compared to $1,112.5 million for the same three month period in 2020. The increase in revenues was primarily due to higher organic volumes of $108.3 million, higher pricing of $40.8 million, acquisitions of $39.9 million and favorable impact of foreign currencies of $23.5 million. Organic volume growth included the adverse impact of COVID-19 in the three month period ended September 30, 2020. The percentage of consolidated revenues derived from aftermarket parts and services was 36.0% in the three month period ended September 30, 2021 compared to 36.4% in the same three month period in 2020.
Revenues for the nine month period ended September 30, 2021 were $3,733.6 million, an increase of $978.9 million, or 35.5%, compared to $2,754.7 million for the same nine month period in 2020. The increase in revenues was primarily due to acquisitions of $461.2 million, higher organic volumes of $314.9 million, favorable impact of foreign currencies of $115.9 million and higher pricing of $86.9 million. Organic volume growth included the adverse impact of COVID-19 in the nine month period ended September 30, 2020. The percentage of consolidated revenues derived from aftermarket parts and services was 36.3% in the nine month period ended September 30, 2021 compared to 35.3% in the same nine month period in 2020.
Gross Profit
Gross profit for the three month period ended September 30, 2021 was $514.3 million, an increase of $84.3 million, or 19.6%, compared to $430.0 million for the same three month period in 2020, and as a percentage of revenues was 38.8% for the three month period ended September 30, 2021 and 38.7% for the same three month period in 2020. The increase in gross profit is primarily due to higher organic volumes and higher pricing discussed above.
Gross profit for the nine month period ended September 30, 2021 was $1,479.1 million, an increase of $537.2 million, or 57.0%, compared to $941.9 million for the same nine month period in 2020, and as a percentage of revenues was 39.6% for the nine month period ended September 30, 2021 and 34.2% for the same nine month period in 2020. The increase in gross profit is primarily due to acquisitions, including Ingersoll Rand Industrial, and the runoff of the fair valuation adjustments related to purchase price allocation from inventory into cost of sales in the 2020 period that did not recur in the 2021 period. The increase in gross profit as a percentage of revenues is primarily due to the runoff of the fair valuation adjustments related to purchase price allocation from inventory into cost of sales in the 2020 period that did not recur in the 2021 period.
Selling and Administrative Expenses
Selling and administrative expenses were $252.6 million for the three month period ended September 30, 2021, an increase of $34.0 million, or 15.6%, compared to $218.6 million for the same three month period in 2020. Selling and administrative expenses as a percentage of revenues decreased to 19.1% for the three month period ended September 30, 2021 from 19.6% in the same three month period in 2020. The increase in selling and administrative expenses is primarily due to increased incentive compensation.
Selling and administrative expenses were $772.1 million for the nine month period ended September 30, 2021, an increase of $205.0 million, or 36.1%, compared to $567.1 million for the same nine month period in 2020. Selling and administrative expenses as a percentage of revenues increased to 20.7% for the nine month period ended September 30, 2021 from 20.6% in the same nine month period in 2020. The increase in selling and administrative expenses is primarily due to acquisitions, including Ingersoll Rand Industrial and increased incentive compensation.
Amortization of Intangible Assets
Amortization of intangible assets was $80.3 million for the three month period ended September 30, 2021, a decrease of $16.7 million, compared to $97.0 million in the same three month period in 2020. The decrease was primarily due to certain intangible assets, primarily backlog, related to the acquisition of Ingersoll Rand Industrial becoming fully amortized during the second quarter of 2021.
Amortization of intangible assets was $244.8 million for the nine month period ended September 30, 2021, an increase of $4.7 million, compared to $240.1 million in the same nine month period in 2020. The increase was primarily due to the amortization of intangible assets related to the acquisition of Ingersoll Rand Industrial, partially offset by certain intangible assets, primarily backlog, also related to the acquisition of Ingersoll Rand Industrial becoming fully amortized during the period.
Other Operating Expense, Net
Other operating expense, net was $17.5 million for the three month period ended September 30, 2021, a decrease of $8.0 million, compared to $25.5 million in the same three month period in 2020. The decrease was primarily due to lower restructuring charges
of $8.9 million and lower foreign currency transaction losses, net of $4.7 million, partially offset by higher acquisition and other transaction related expenses and non-cash charges of $5.0 million.
Other operating expense, net was $36.9 million for the nine month period ended September 30, 2021, a decrease of $133.2 million, compared to $170.1 million in the same nine month period in 2020. The decrease was primarily due to lower restructuring charges of $67.1 million, lower acquisition and other transaction related expenses and non-cash charges of $39.2 million, and higher foreign currency transaction gains, net of $26.3 million.
Interest Expense
Interest expense was $22.5 million for the three month period ended September 30, 2021, a decrease of $6.3 million, compared to $28.8 million in the same three month period in 2020. The decrease was primarily due to a decrease in the weighted-average interest rate. The weighted average interest rate was approximately 2.0% for the three month period ended September 30, 2021 and 2.8% in the same period in 2020.
Interest expense was $68.3 million for the nine month period ended September 30, 2021, a decrease of $18.4 million, compared to $86.7 million in the same nine month period in 2020. The decrease was primarily due to the weighted average interest rate decreasing to approximately 2.0% for the nine month period ended September 30, 2021 when compared to 3.8% in the same period in 2020.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $9.0 million for the three and nine month periods ended September 30, 2021, which was related to the payoff of the Dollar Term Loan Series A.
Loss on extinguishment of debt was $2.0 million for the nine month period ended September 30, 2020, which was related to the refinancing of the Original Dollar Term Loan and the Original Euro Term Loan.
Other Income, Net
Other income, net was $3.5 million and $2.6 million in the three month periods ended September 30, 2021 and 2020, respectively. The increase was primarily due to a gain on benefit plan settlement.
Other income, net was $40.1 million and $5.1 million in the nine month periods ended September 30, 2021 and 2020, respectively. The increase was primarily due to a gain on post close settlements.
Provision for Income Taxes
The provision for income taxes was $2.7 million resulting in a 2.0% effective income tax provision rate for the three month period ended September 30, 2021, compared to a provision for income taxes of $12.8 million resulting in a 29.9% effective income tax provision rate in the same three month period in 2020. The decrease in the tax provision for the three month period ended September 30, 2021 is primarily due to the benefits associated with the windfall tax deduction and foreign tax credits recognized during this quarter of 2021.
The provision for income taxes was $25.8 million resulting in a 6.6% effective income tax provision rate for the nine month period ended September 30, 2021, compared to a provision for income taxes of $24.3 million resulting in a (17.5)% effective income tax provision rate in the same nine month period in 2020. The increase in the tax provision for the nine month period ended September 30, 2021 is primarily due to an increase in the pretax book income in jurisdictions with higher effective tax rates combined with decreased earnings in jurisdictions with lower tax rates. This rate increase was mitigated by the windfall tax deduction and foreign tax credits recognized during this quarter of 2021.
Net Income (Loss)
Net income was $126.8 million for the three month period ended September 30, 2021 compared to net income of $29.9 million in the same three month period in 2020. The increase in net income was primarily due to higher gross profit on increased revenues, lower amortization of intangible assets, lower provision for income taxes, decreased other operating expenses, net and lower interest expense, partially offset by higher selling and administrative expenses and loss on extinguishment of debt.
Net income was $271.3 million for the nine month period ended September 30, 2021 compared to net loss of $183.5 million in the same nine month period in 2020. The change in net income (loss) was primarily due to higher gross profit on increased revenues, decreased other operating expenses, net, increased other income, net, and lower interest expense, partially offset by higher selling
and administrative expenses, lower income from discontinued operations (see “―Results of Discontinued Operations” below) and higher loss on extinguishment of debt.
Adjusted EBITDA
Adjusted EBITDA increased $62.0 million to $313.7 million for the three month period ended September 30, 2021 compared to $251.7 million in the same three month period in 2020. Adjusted EBITDA as a percentage of revenues increased 110 basis points to 23.7% for the three month period ended September 30, 2021 from 22.6% for the same three month period in 2020. The increase in Adjusted EBITDA was primarily due to higher organic sales volume of $42.5 million, higher pricing of $40.8 million and favorable impact of foreign currencies of $6.7 million, partially offset by higher selling and administrative expenses of $25.7 million. The increase in Adjusted EBITDA as a percentage of revenues is primarily attributable to higher pricing and productivity related actions implemented subsequent to the acquisition of Ingersoll Rand Industrial including procurement initiatives, Innovate 2 Value (“I2V”) initiatives and structural selling and administrative cost actions, partially offset by higher incentive compensation.
Adjusted EBITDA increased $268.4 million to $849.8 million for the nine month period ended September 30, 2021 compared to $581.4 million in the same nine month period in 2020. Adjusted EBITDA as a percentage of revenues increased 170 basis points to 22.8% for the nine month period ended September 30, 2021 from 21.1% for the same nine month period in 2020. The increase in Adjusted EBITDA was primarily due to acquisitions, including Ingersoll Rand Industrial, of $114.8 million, higher organic sales volume of $122.7 million, higher pricing of $86.9 million and favorable impact of foreign currencies of $30.7 million, partially offset by higher selling and administrative expenses of $77.6 million. The increase in Adjusted EBITDA as a percentage of revenues is primarily attributable to higher pricing, productivity related actions implemented subsequent to the acquisition of Ingersoll Rand Industrial including procurement initiatives, I2V initiatives and structural selling and administrative cost actions, partially offset by higher incentive compensation.
Adjusted Net Income
Adjusted Net Income increased $86.3 million to $238.6 million for the three month period ended September 30, 2021 compared to $152.3 million in the same three month period in 2020. The increase was primarily due to increased Adjusted EBITDA, a lower income tax provision, as adjusted and lower interest expense.
Adjusted Net Income increased $271.3 million to $601.4 million for the nine month period ended September 30, 2021 compared to $330.1 million in the same nine month period in 2020. The increase was primarily due to increased Adjusted EBITDA and lower interest expense, partially offset by higher depreciation expense and higher amortization of non-acquisition related intangible assets.
Set forth below are the reconciliations of Net Income (Loss) to Adjusted EBITDA and Adjusted Net Income and Cash Flows from Operating Activities to Free Cash Flow.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Net Income (Loss)
$
126.8
$
29.9
$
271.3
$
(183.5)
Less: Income (loss) from discontinued operations
(7.6)
5.3
73.1
10.6
Less: Income tax benefit (provision) from discontinued operations
3.4
(5.4)
(161.2)
(30.9)
Income (loss) from continuing operations, net of tax
131.0
30.0
359.4
(163.2)
Plus:
Interest expense
22.5
28.8
68.3
86.7
Provision for income taxes
2.7
12.8
25.8
24.3
Depreciation expense (a)
21.2
19.8
62.5
54.6
Amortization expense (b)
80.3
97.0
244.8
240.1
Impairment of intangible assets
—
19.9
—
19.9
Restructuring and related business transformation costs (c)
3.1
10.0
12.5
79.6
Acquisition related expenses and non-cash charges (d)
14.4
14.7
39.2
194.5
Stock-based compensation (e)
29.8
11.9
72.9
26.8
Foreign currency transaction losses (gains), net
1.1
5.8
(13.6)
12.7
Loss on equity method investments
2.2
—
2.9
—
Loss on extinguishment of debt (f)
9.0
—
9.0
2.0
Gain on settlement of post-acquisition contingencies (g)
—
—
(30.1)
—
Other adjustments (h)
(3.6)
1.0
(3.8)
3.4
Adjusted EBITDA
$
313.7
$
251.7
$
849.8
$
581.4
Minus:
Interest expense
$
22.5
$
28.8
$
68.3
$
86.7
Income tax provision, as adjusted (i)
27.2
48.8
104.8
104.9
Depreciation expense
21.2
19.8
62.5
54.6
Amortization of non-acquisition related intangible assets
4.2
2.0
12.8
5.1
Adjusted Income from Continuing Operations, Net of Tax
$
238.6
$
152.3
$
601.4
$
330.1
Free Cash Flow from Continuing Operations:
Cash flows - operating activities
$
146.1
$
193.9
$
380.9
$
390.2
Minus:
Capital expenditures
15.3
6.4
41.2
29.1
Free Cash Flow from Continuing Operations
$
130.8
$
187.5
$
339.7
$
361.1
(a)Depreciation expense excludes $1.0 million and $0.5 million of depreciation of rental equipment for the three month periods ended September 30, 2021 and 2020, respectively, and excludes $3.0 million and $1.4 million for the nine month periods ended September 30, 2021 and 2020.
(b)Represents $76.1 million and $95.0 million of amortization of intangible assets arising from the acquisition of Ingersoll Rand Industrial and other acquisitions (customer relationships, technology, tradenames and backlog) and $4.2 million and $2.0 million of amortization of non-acquisition related intangible assets, in each case for the three month periods ended September 30, 2021 and 2020, respectively.
Represents $232.0 million and $235.0 million of amortization of intangible assets arising from the acquisition of Ingersoll Rand Industrial and other acquisitions (customer relationships, technology, tradenames and backlog) and $12.8 million and $5.1 million of amortization of non-acquisition related intangible assets, in each case for the nine month periods ended September 30, 2021 and 2020, respectively.
(c)Restructuring and related business transformation costs consisted of the following.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Restructuring charges
$
1.1
$
10.0
$
10.3
$
77.4
Facility reorganization, relocation and other costs
2.0
—
2.0
0.5
Other, net
—
—
0.2
1.7
Total restructuring and related business transformation costs
$
3.1
$
10.0
$
12.5
$
79.6
(d)Represents costs associated with successful and/or abandoned acquisitions and divestitures, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs), and non-cash charges and credits arising from fair value purchase accounting adjustments.
(e)Represents stock-based compensation expense recognized for the three and nine month periods ended September 30, 2021 of $21.9 million and $65.0 million, respectively, and increased by $7.9 million for the three and nine month periods ended September 30, 2021, due to costs associated with employer taxes related to the All-Employee Equity Grant.
Represents stock-based compensation expense recognized for the three and nine month periods ended September 30, 2020 of $11.9 million and $27.3 million, decreased by $0.5 million for the nine month period ended September 30, 2020 due to costs associated with employer taxes.
(f)Represents losses on extinguishment of a portion of the U.S. term loan and the amendment of the revolving credit facility.
(g)Represents a gain on settlement of post-acquisition contingencies outside of the measurement period related to adjustments to the transaction price for retirement plan funding and net working capital.
(h)Includes (i) effects of the amortization of prior service costs and amortization of losses in pension and other postemployment (“OPEB”) expense, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.
(i)Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of the applicable discrete tax items. The tax effect of pre-tax items excluded from Adjusted Income is computed using the statutory tax rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances. Discrete tax items include changes in tax laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances. The adjusted amounts are then used to calculate an adjusted provision for the quarter.
The income tax provision, as adjusted for each of the periods presented below consisted of the following.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Provision for income taxes
$
2.7
$
12.8
$
25.8
$
24.3
Tax impact of pre-tax income adjustments
24.8
36.0
69.4
84.6
Discrete tax items
(0.3)
—
9.6
(4.0)
Income tax provision, as adjusted
$
27.2
$
48.8
$
104.8
$
104.9
Segment Results
We classify our business into two segments: Industrial Technologies and Services and Precision and Science Technologies. Our Corporate operations are not discussed separately as any results that had a significant impact on operating results are included in the “Results of Operations” discussion above. We recast certain prior period amounts to conform to the way we are internally managed and how we monitor segment performance during the current fiscal year.
We evaluate the performance of our segments based on Segment Revenues and Segment Adjusted EBITDA. Segment Adjusted EBITDA is indicative of operational performance and ongoing profitability. Our management closely monitors Segment Adjusted EBITDA to evaluate past performance and identify actions required to improve profitability.
The segment measurements provided to and evaluated by the chief operating decision maker are described in Note 17 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.
Segment Results for the Three and Nine Month Periods Ended September 30, 2021 and 2020
The following tables display Segment Revenues, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin (Segment Adjusted EBITDA as a percentage of Segment Revenues) for each of our Segments.
Industrial Technologies and Services Segment Results
For the Three Month Period Ended September 30,
Percent Change
2021
2020
2021 vs. 2020
Segment Revenues
$
1,070.7
$
902.6
18.6
%
Segment Adjusted EBITDA
$
272.9
$
216.8
25.9
%
Segment Margin
25.5
%
24.0
%
150
bps
Segment Revenues for the three month period ended September 30, 2021 were $1,070.7 million, an increase of $168.1 million, or 18.6%, compared to $902.6 million in the same three month period in 2020. The increase in Segment Revenues was due to higher organic volumes of $94.8 million or 10.5%, higher pricing of $33.7 million or 3.7%, favorable impact of foreign currencies of $20.3 million or 2.2%, and acquisitions of $19.3 million or 2.1%. Organic volume growth included the adverse impact of COVID-19 in the three month period ended September 30, 2020. The percentage of Segment Revenues derived from aftermarket parts and service was 40.4% in the three month period ended September 30, 2021 compared to 41.5% in the same three month period in 2020.
Segment Adjusted EBITDA for the three month period ended September 30, 2021 was $272.9 million, an increase of $56.1 million, or 25.9%, from $216.8 million in the same three month period in 2020. Segment Adjusted EBITDA Margin increased 150 basis points to 25.5% from 24.0% in 2020. The increase in Segment Adjusted EBITDA was primarily due to higher organic sales volume of $36.5 million or 16.8%, higher pricing of $33.7 million or 15.5%, favorable impact of foreign currencies of $5.8 million or 2.7%, and acquisitions of $6.1 million or 2.8%, partially offset by higher selling and administrative costs of $20.1 million or 9.3%.
For the Nine Month Period Ended September 30,
Percent Change
2021
2020
2021 vs. 2020
Segment Revenues
$
3,032.0
$
2,236.2
35.6
%
Segment Adjusted EBITDA
$
743.0
$
495.4
50.0
%
Segment Margin
24.5
%
22.2
%
230
bps
Segment Revenues for the nine month period ended September 30, 2021 were $3,032.0 million, an increase of $795.8 million, or 35.6%, compared to $2,236.2 in the same nine month period in 2020. The increase in Segment Revenues was primarily due to acquisitions, including of Ingersoll Rand Industrial, of $356.4 million or 15.9%, higher organic volume of $267.6 million or 12.0%, favorable impact of foreign currencies of $97.3 million or 4.4% and higher pricing of $74.5 million or 3.3%. Organic volume growth included the adverse impact of COVID-19 in the nine month period ended September 30, 2020. The percentage of Segment Revenues derived from aftermarket parts and service was 40.9% in the nine month period ended September 30, 2021 compared to 40.4% in the same nine month period in 2020.
Segment Adjusted EBITDA for the nine month period ended September 30, 2021 was $743.0 million, an increase of $247.6 million, or 50.0%, from $495.4 million in the same nine month period in 2020. Segment Adjusted EBITDA Margin increased 230 bps to 24.5% from 22.2% in 2020. The increase in Segment Adjusted EBITDA was primarily due to higher organic sales volumes of $101.3 million or 20.4%, acquisitions, including Ingersoll Rand Industrial, of $88.8 million or 17.9%, higher pricing of $74.5 million or 15.0%, favorable impact of foreign currencies of $25.8 million or 5.2%, and productivity related procurement and I2V initiatives of $5.6 million or 1.1%, partially offset by higher selling and administrative costs of $42.8 million or 8.6%.
Precision and Science Technologies Segment Results
Segment Revenues for the three month period ended September 30, 2021 were $254.3 million, an increase of $44.4 million, or 21.2%, compared to $209.9 million in the same three month period in 2020. The increase in Segment Revenues was primarily due to acquisitions of $20.6 million or 9.8%, higher organic volume of $13.5 million or 6.4%, higher pricing of $7.1 million or 3.4%, and favorable impact of foreign currencies of $3.2 million or 1.5%. Organic volume growth included the adverse impact of COVID-19 in the three month period ended September 30, 2020. The percentage of Segment Revenues derived from aftermarket parts and service was 17.3% in the three month period ended September 30, 2021 compared to 14.5% in the same three month period in 2020.
Segment Adjusted EBITDA for the three month period ended September 30, 2021 was $75.5 million, an increase of $11.0 million, or 17.1%, from $64.5 million in the same three month period in 2020. Segment Adjusted EBITDA Margin decreased 100 basis points to 29.7% from 30.7% in 2020. The increase in Segment Adjusted EBITDA was primarily due to higher pricing of $7.1 million or 11.0%, higher organic sales volume of $6.0 million or 9.3%, acquisitions of $3.0 million or 4.7%, and favorable impact of foreign currencies of $1.2 million or 1.9%, partially offset by higher selling and administrative costs of $4.3 million or 6.7%.
For the Nine Month Period Ended September 30,
Percent Change
2021
2020
2021 vs. 2020
Segment Revenues
$
701.6
$
518.5
35.3
%
Segment Adjusted EBITDA
$
213.8
$
156.7
36.4
%
Segment Margin
30.5
%
30.2
%
30
bps
Segment Revenues for the nine month period ended September 30, 2021 were $701.6 million, an increase of $183.1 million, or 35.3%, compared to $518.5 million in the same nine month period in 2020. The increase in Segment Revenues was primarily due to acquisitions, including Ingersoll Rand Industrial, of $104.8 million or 20.2%, higher organic volume of $47.3 million or 9.1%, favorable impact of foreign currencies of $18.6 million or 3.6% and higher pricing of $12.4 million or 2.4%. Organic volume growth included the adverse impact of COVID-19 in the nine month period ended September 30, 2020. The percentage of Segment Revenues derived from aftermarket parts and service was 16.3% in the nine month period ended September 30, 2021 compared to 13.7% in the same nine month period in 2020.
Segment Adjusted EBITDA for the nine month period ended September 30, 2021 was $213.8 million, an increase of $57.1 million, or 36.4%, from $156.7 million in the same nine month period in 2020. Segment Adjusted EBITDA Margin increased 30 bps to 30.5% from 30.2% in 2020. The increase in Segment Adjusted EBITDA was primarily due to acquisitions, including Ingersoll Rand Industrial, of $28.0 million or 17.9%, higher organic sales volume of $21.4 million or 13.7%, higher pricing of $12.4 million or 7.9%, and favorable impact of foreign currencies of $6.7 million or 4.3%, partially offset by higher selling and administrative costs of $6.4 million or 4.1%.
The following table presents selected Consolidated Results of Operations of our business for the three and nine month periods ended September 30, 2021 and 2020.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Revenues
$
4.4
$
191.1
$
428.7
$
495.3
Cost of sales
4.2
140.4
319.1
379.1
Gross profit
0.2
50.7
109.6
116.2
Selling and administrative expenses
0.3
18.8
35.6
44.8
Amortization of intangible assets
—
11.3
10.4
26.2
(Gain) loss on sale
3.9
—
(252.8)
—
Other operating expense, net
1.8
0.2
18.0
0.9
Income (loss) before income taxes
(5.8)
20.4
298.4
44.3
Provision (benefit) for income taxes
(1.5)
8.2
168.2
38.2
Income (Loss) from Discontinued Operations
$
(4.3)
$
12.2
$
130.2
$
6.1
Revenues
Revenues for the three month period ended September 30, 2021 were $4.4 million, a decrease of $186.7 million, or 97.7%, compared to $191.1 million in the same three month period in 2020. The decrease in revenues from discontinued operations was primarily due to the sale being substantially completed on June 1, 2021.
Revenues for the nine month period ended September 30, 2021 were $428.7 million, a decrease of $66.6 million, or 13.4%, compared to $495.3 million in the same nine month period in 2020. The decrease in revenues from discontinued operations was primarily due to five months of activity for the nine month period ended September 30, 2021 compared to seven months in the same nine month period in 2020.
Gross Profit
Gross profit for the three month period ended September 30, 2021 was $0.2 million, a decrease of $50.5 million, or 99.6%, compared to $50.7 million for the same three month period in 2020, and as a percentage of revenues was 4.5% for the three month period ended September 30, 2021 and 26.5% for the same three month period in 2020. The decrease in gross profit is primarily due to the sale being substantially completed on June 1, 2021 as described above.
Gross profit for the nine month period ended September 30, 2021 was $109.6 million, a decrease of $6.6 million, or 5.7%, compared to $116.2 million for the same nine month period in 2020, and as a percentage of revenues was 25.6% for the nine month period ended September 30, 2021 and 23.5% for the same nine month period in 2020. The decrease in gross profit is primarily due to five months of activity for the nine month period ended September 30, 2021 compared to seven months in the same nine month period in 2020 as described above.
Gain on Sale
Gain on sale for the nine month period ended September 30, 2021 of $252.8 million and was due to the purchase price exceeding the carrying value of the SVT business.
Other Operating Expense (Income), Net
Other operating expense (income), net was $1.8 million for the three month period ended September 30, 2021, an increase of $1.6 million, compared to $0.2 million in the same three month period in 2020. The increase was primarily due to higher separation related expenses and non-cash charges of $1.8 million.
Other operating expense, net was $18.0 million for the nine month period ended September 30, 2021, an increase of $17.1 million, compared to $0.9 million in the same nine month period in 2020. The increase was primarily due to higher separation related expenses and non-cash charges of $18.0 million, partially offset by lower restructuring charges of $0.9 million.
Provision (Benefit) for Income Taxes
The benefit for income taxes was $1.5 million resulting in a 25.9% effective income tax rate for the three month period ended September 30, 2021, compared to a provision for income taxes of $8.2 million resulting in a 40.2% effective income tax rate in the same three month period in 2020. The decrease in the tax provision for the three month period ended September 30, 2021 is primarily due to one-time discrete items associated with the sale of the SVT business.
The provision for income taxes was $168.2 million resulting in a 56.4% effective income tax rate for the nine month period ended September 30, 2021, compared to a provision for income taxes of $38.2 million resulting in a 86.2% effective income tax rate in the same nine month period in 2020. The increase in the tax provision for the nine month period ended September 30, 2021 is primarily due to one-time discrete items associated with the sale of the SVT business.
Results of Discontinued Operations - HPS
The following table presents selected Consolidated Results of Operations of our business for the three and nine month periods ended September 30, 2021 and 2020.
For the Three Month Period Ended September 30,
For the Nine Month Period Ended September 30,
2021
2020
2021
2020
Revenues
$
2.6
$
31.6
$
68.0
$
149.5
Cost of sales
2.4
30.3
56.8
121.1
Gross profit
0.2
1.3
11.2
28.4
Selling and administrative expenses
0.2
8.2
5.1
36.8
Amortization of intangible assets
—
5.9
2.4
17.7
Loss on sale
—
—
211.7
—
Other operating expense, net
1.8
2.3
17.3
7.6
Loss before income taxes
(1.8)
(15.1)
(225.3)
(33.7)
Benefit for income taxes
(1.9)
(2.8)
(7.0)
(7.3)
Income (Loss) from Discontinued Operations
$
0.1
$
(12.3)
$
(218.3)
$
(26.4)
Revenues
Revenues for the three month period ended September 30, 2021 were $2.6 million, a decrease of $29.0 million, or 91.8%, compared to $31.6 million in the same three month period in 2020. The decrease in revenues from discontinued operations was primarily due to the sale of substantially all of the HPS business on April 1, 2021.
Revenues for the nine month period ended September 30, 2021 were $68.0 million, a decrease of $81.5 million, or 54.5%, compared to $149.5 million in the same nine month period in 2020. The decrease in revenues from discontinued operations was primarily due to three months of activity for the nine month period ended September 30, 2021 compared to nine months in the same nine month period in 2020.
Gross Profit
Gross profit for the three month period ended September 30, 2021 was $0.2 million, a decrease of $1.1 million, or 84.6%, compared to $1.3 million for the same three month period in 2020, and as a percentage of revenues was 7.7% for the three month period ended September 30, 2021 and 4.1% for the same three month period in 2020. The decrease in gross profit is primarily due to the revenue decline described above.
Gross profit for the nine month period ended September 30, 2021 was $11.2 million, a decrease of $17.2 million, or 60.6%, compared to $28.4 million for the same nine month period in 2020, and as a percentage of revenues was 16.5% for the nine month period ended September 30, 2021 and 19.0% for the same nine month period in 2020. The decrease in gross profit is primarily due to the revenue decline described above.
Loss on sale for the nine month period ended September 30, 2021 of $211.7 million was a charge taken to reduce the carrying value of the HPS business to the estimated fair value of the net proceeds and residual equity interest from the transaction.
Other Operating Expense, Net
Other operating expense, net was $1.8 million for the three month period ended September 30, 2021, a decrease of $0.5 million, compared to $2.3 million in the same three month period in 2020. The decrease was primarily due to lower restructuring charges of $2.0 million, partially offset by expenses incurred in connection with the separation of $1.8 million.
Other operating expense, net was $17.3 million for the nine month period ended September 30, 2021, an increase of $9.7 million, compared to $7.6 million in the same nine month period in 2020. The increase was primarily due to expenses incurred in connection with the separation of $15.6 million, partially offset by lower restructuring charges of $5.5 million.
Provision (Benefit) for Income Taxes
The benefit for income taxes was $1.9 million resulting in a 105.6% effective income tax rate for the three month period ended September 30, 2021, compared to a benefit for income taxes of $2.8 million resulting in a 18.5% effective income tax rate in the same three month period in 2020. The decrease in the tax benefit for the three month period ended September 30, 2021 is primarily due to one-time discrete items associated with the sale of the HPS business.
The benefit for income taxes was $7.0 million resulting in a 3.1% effective income tax rate for the nine month period ended September 30, 2021, compared to a benefit for income taxes of $7.3 million resulting in a 21.7% effective income tax rate in the same nine month period in 2020. The decrease in the tax benefit for the nine month period ended September 30, 2021 is primarily due to one-time discrete items associated with the sale of the HPS business.
Liquidity and Capital Resources
Our investment resources include cash on hand, cash generated from operations and borrowings under our Revolving Credit Facility. We also have the ability to seek additional secured and unsecured borrowings, subject to Credit Agreement restrictions.
On September 30, 2021, we elected to prepay the Dollar Term Loan Series A outstanding balance of $396.0 million using cash on hand. See the description of the debt prepayment made on September 30, 2021 in Note 9 “Debt” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further details.
As of September 30, 2021, we had $50.8 million of outstanding letters of credit written against the Revolving Credit Facility and $1,049.2 million of unused availability.
See the description of these line-of-credit resources in Note 10 “Debt” to the consolidated financial statements in our annual report on Form 10-K for the fiscal year ended December 31, 2020 and Note 9 “Debt” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.
As of September 30, 2021, we were in compliance with all of our debt covenants and no event of default had occurred or was ongoing.
Liquidity
A substantial portion of our liquidity needs arise from debt service requirements, and from the ongoing cost of operations, working capital and capital expenditures.
September 30, 2021
December 31, 2020
Cash and cash equivalents
$
2,033.0
$
1,750.9
Short-term borrowings and current maturities of long-term debt
$
40.1
$
40.4
Long-term debt
3,422.2
3,859.1
Total debt
$
3,462.3
$
3,899.5
We can increase the borrowing availability under the Senior Secured Credit Facilities by up to $1,600.0 million in the form of additional commitments under the Revolving Credit Facility and/or incremental term loans plus an additional amount so long as
we do not exceed a specified senior secured leverage ratio. We can incur additional secured indebtedness under the term loan facilities if certain specified conditions are met under the credit agreement governing the Senior Secured Credit Facilities. Our liquidity requirements are significant primarily due to debt service requirements. See Note 10 “Debt” to the consolidated financial statements in our annual report on Form 10-K for the fiscal year ended December 31, 2020 and Note 9 “Debt” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further details.
Our principal sources of liquidity have been existing cash and cash equivalents, cash generated from operations and borrowings under the Senior Secured Credit Facilities. Our principal uses of cash will be to provide working capital, meet debt service requirements, fund capital expenditures and finance strategic plans, including possible acquisitions. We may also seek to finance capital expenditures under capital leases or other debt arrangements that provide liquidity or favorable borrowing terms. We continue to consider acquisition opportunities, but the size and timing of any future acquisitions and the related potential capital requirements cannot be predicted. In the event that suitable businesses are available for acquisition upon acceptable terms, we may obtain all or a portion of the necessary financing through the incurrence of additional long-term borrowings. As market conditions warrant, we may from time to time, seek to repay loans that we have borrowed, including the borrowings under the Senior Secured Credit Facilities. Based on our current level of operations and available cash, we believe our cash flow from operations, together with availability under the Revolving Credit Facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, debt service requirements and capital spending requirements for the foreseeable future. Our business may not generate sufficient cash flows from operations or future borrowings may not be available to us under our Revolving Credit Facility in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Our ability to do so depends on, among other factors, prevailing economic conditions, many of which are beyond our control. In addition, upon the occurrence of certain events, such as a change in control, we could be required to repay or refinance our indebtedness. We may not be able to refinance any of our indebtedness, including the Senior Secured Credit Facilities, on commercially reasonable terms or at all. Any future acquisitions, joint ventures, or other similar transactions may require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms or at all.
A substantial portion of our cash is in jurisdictions outside the United States. We do not assert ASC 740-30 (formerly APB 23) indefinite reinvestment of our historical non-U.S. earnings or future non-U.S. earnings. The Company records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the United States. Our deferred income tax liability as of September 30, 2021 was $47.4 million which primarily consisted of withholding taxes.
Working Capital
September 30, 2021
December 31, 2020
Net Working Capital:
Current assets of continuing operations:
Current assets
$
4,030.9
$
3,862.1
Less: Assets of discontinued operations - current
28.0
337.4
Current assets of continuing operations
4,002.9
3,524.7
Current liabilities of continuing operations:
Current liabilities
1,632.6
1,498.6
Less: Liabilities of discontinued operations - current
27.2
212.9
Current liabilities of continuing operations
1,605.4
1,285.7
Net working capital of continuing operations
$
2,397.5
$
2,239.0
Operating Working Capital:
Accounts receivable and contract assets
$
986.1
$
922.2
Plus: Inventories (excluding LIFO)
854.8
707.9
Less: Accounts payable
632.9
536.4
Less: Contract liabilities (current)
216.3
164.6
Operating working capital
$
991.7
$
929.1
Net working capital of continuing operations increased $158.5 million to $2,397.5 million as of September 30, 2021 from $2,239.0 million as of December 31, 2020. Operating working capital increased $62.6 million to $991.7 million as of September 30, 2021 from $929.1 million as of December 31, 2020. The increase in operating working capital is primarily due to
higher inventories and higher accounts receivable, partially offset by higher accounts payable, higher contract liabilities and lower contract assets.
The increase in accounts receivable was primarily due to the increase in revenue in the third quarter of 2021 compared to the fourth quarter of 2020 and to acquisitions completed in 2021. The decrease in contract assets was primarily due to the timing of revenue recognition and billing on our overtime contracts. The increase in inventories was primarily due to additions to inventory in anticipation of increased demand for certain products and to acquisitions completed in 2021. The increase in accounts payable was primarily due to the timing of vendor cash disbursements. The increase in contract liabilities was primarily due to the timing of customer milestone payments for in-process engineered to order contracts.
Cash Flows
The following table reflects the major categories of cash flows for the nine month periods ended September 30, 2021 and 2020, respectively.
For the Nine Month Period Ended September 30,
2021
2020
Cash flows from (used in) continuing operations:
Cash flows from operating activities
$
380.9
$
390.2
Cash flows used in investing activities
(841.0)
(18.2)
Cash flows from (used in) financing activities
(1,142.2)
317.9
Cash flows from discontinued operations
1,901.9
108.0
Free cash flow(1)
339.7
361.1
(1)See the “Non-GAAP Financial Measures” section included in this Quarterly Report for a reconciliation to the nearest GAAP measure.
Operating Activities
Cash provided by operating activities decreased $9.3 million to $380.9 million for the nine month period ended September 30, 2021 from $390.2 million in the same nine month period in 2020. This decrease is attributable to an increase in cash paid for income taxes of $230.9 and cash paid for inventories, partially offset by an increase in income from continuing operations. The increase in cash paid for taxes is primarily due to a taxable gain realized on the sale of Club Car. Net cash provided by continuing operations also includes the receipt of a $49.5 million payment from Trane Technologies in the third quarter of 2021 upon finalizing post-closing steps of the Ingersoll Rand Industrial transaction.
Investing Activities
Cash used in investing activities included capital expenditures of $41.2 million and $29.1 million for the nine month periods ended September 30, 2021 and 2020, respectively. Net cash paid in a business combination was $809.3 million in the nine month period ended September 30, 2021 and cash acquired in business combinations for the nine month period ended September 30, 2020 was $9.4 million.
Financing Activities
Cash used in financing activities of $1,142.2 million for the nine month period ended September 30, 2021 primarily reflected purchases of treasury stock of $736.5 million and repayments of long term debt of $425.7 million, partially offset by proceeds from stock option exercises of $20.0 million.
Cash provided by financing activities of $317.9 million for the nine month period ended September 30, 2020 primarily reflected proceeds from long-term debt of $1,980.1 million offset by repayments of long-term debt of $1,609.2 million, payments of debt issuance costs of $47.4 million and payments to acquire noncontrolling interests of $14.9 million.
Discontinued Operations
Cash provided by discontinued operations increased $1,793.9 million to $1,901.9 million for the nine month period ended September 30, 2021 from $108.0 million in the same nine month period in 2020, primarily due to proceeds from sale of discontinued operations.
Free cash flow decreased $21.4 million to $339.7 million in the nine month period ended September 30, 2021 from $361.1 million in the same nine month period in 2020 due to decreased cash provided by operating activities and higher capital expenditures.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are materially likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Estimates
Management has evaluated the accounting estimates used in the preparation of the Company’s condensed consolidated financial statements and related notes and believe those estimates to be reasonable and appropriate. Certain of these accounting estimates require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the section “Critical Accounting Estimates” of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 1 “Summary of Significant Accounting Policies” of “Item 8. Financial Statements and Supplementary Data” included in our annual report on Form 10-K for the fiscal year ended December 31, 2020.
Environmental Matters
Information with respect to the effect of compliance with environmental protection requirements and resolution of environmental claims on us and our manufacturing operations is contained in Note 16 “Contingencies” to the condensed consolidated financial statements included elsewhere in this Form 10-Q. We believe that as of September 30, 2021, there have been no material changes to the environmental matters disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2020.
Recent Accounting Pronouncements
The information set forth in Note 1 “Basis of Presentation and Recent Accounting Pronouncements” to our condensed consolidated financial statements under Part 1 Item 1 “Financial Statements” under the heading “Recently Issued Accounting Pronouncements” is incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risk as a result of our variable-rate borrowings. We manage our exposure to interest rate risk by using pay-fixed interest rate swaps, from time to time, as cash flow hedges of our variable rate debt in order to adjust the relative fixed and variable portions.
In addition, we are exposed to foreign currency risks that arise from our global business operations. Changes in foreign currency exchange rates affect the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries and transactions denominated in currencies other than a subsidiary’s functional currency. While future changes in foreign currency exchange rates are difficult to predict, our revenues and earnings may be adversely affected if the U.S. dollar further strengthens.
We seek to minimize our exposure to foreign currency risks through a combination of normal operating activities, including by conducting our international business operations primarily in their functional currencies to match expenses with revenues and the use of foreign currency forward exchange contracts and debt denominated in currencies other than the U.S. dollar. In addition, to mitigate the risk arising from entering into transactions in currencies other than our functional currencies, we typically settle intercompany trading balances at least quarterly.
As of September 30, 2021, there have been no material changes to our market risk assessment previously disclosed in the annual report on Form 10-K for the fiscal year ended December 31, 2020.
The Company maintains a set of disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on their evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The information set forth in Note 16 “Contingencies” to our Condensed Consolidated Financial Statements under Part I Item 1 “Financial Statements,” is incorporated herein by reference.
ITEM 1A. RISK FACTORS
As of September 30, 2021, there have been no material changes to our risk factors included in our annual report on Form 10-K for the year ended December 31, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Company Purchases
The following table contains detail related to the repurchase of our common stock based on the date of trade during the three month period ended September 30, 2021.
2021 Third Quarter Months
Total Number of Shares Purchased(1)
Average Price Paid Per Share(2)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(3)
Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(3)
July 1, 2021 - July 31, 2021
55,588
$
48.61
—
$
—
August 1, 2021 - August 31, 2021
14,894,755
$
49.05
—
$
750,000,000
September 1, 2021 - September 30, 2021
516
$
53.61
—
$
750,000,000
(1)The Company repurchased 14,894,317 shares of common stock at $49.05 per share in connection with the underwritten offering completed on August 6, 2021. All other shares purchased during the three month period ended September 30, 2021 were in connection with net exercises of stock options or the surrender to us of shares of common stock to satisfy tax withholding obligations in connection with the vesting of certain restricted stock units.
(2)The average price paid per share includes brokerage commissions.
(3)On August 24, 2021, our Board of Directors approved a share repurchase program which authorized the repurchase of up to $750.0 million of the Company's outstanding common stock.
The following is a list of all exhibits filed or furnished as part of this report.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosures other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual statement of affairs as of the date they were made or at any other time.
Exhibit No.
Description
2.1
Agreement and Plan of Merger, dated as of April 30, 2019, by and among Ingersoll-Rand plc, Gardner Denver Holdings, Inc., Ingersoll-Rand U.S. HoldCo, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019).
2.2
Separation and Distribution Agreement, dated as of April 30, 2019, by and between Ingersoll-Rand plc and Ingersoll-Rand U.S. HoldCo, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019).
Securities Purchase Agreement, dated as of April 9, 2021, by and among Ingersoll Rand Inc., Club Car, LLC and MajorDrive Holdings IV, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on April 12, 2021).
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 5, 2021
INGERSOLL RAND INC.
By:
/s/ Michael J. Scheske
Name: Michael J. Scheske
Vice President and Corporate Controller (Principal Accounting Officer)
