ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with our audited consolidated financial statements and related notes to our consolidated financial statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth under the “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Form 10-K.
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Executive Overview
Our Company
Ingersoll Rand is a global market leader with a broad range of innovative and mission-critical air, fluid, clean energy and medical technologies, providing services and solutions to increase industrial productivity and efficiency. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, when combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under a collection of premier, market-leading brands, including Ingersoll Rand, Gardner Denver, Nash, CompAir, Thomas, Milton Roy, Seepex, Elmo Rietschle, ARO, Robuschi, ILC Dover, Emco Wheaton and Runtech Systems, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service.
These attributes, along with over 165 years of engineering heritage, generate strong brand loyalty for our products and foster long-standing customer relationships, which we believe have resulted in leading market positions within each of our operating segments. We have sales in all major geographic markets and our diverse customer base utilizes our products across a wide array of end-markets that have favorable near- and long-term growth prospects, including industrial manufacturing, clean energy, transportation, medical and laboratory sciences, food and beverage packaging and chemical processing.
Our products and services are critical to the processes and systems in which they are utilized, which are often complex and function in harsh conditions where the cost of failure or downtime is high. However, our products and services typically represent only a small portion of the costs of the overall systems or functions that they support. As a result, our customers place a high value on our application expertise, product reliability and the responsiveness of our service. To support our customers and market presence, we maintain significant global scale with over 60 key manufacturing facilities, and over 50 complementary service and repair centers across six continents and over 21,000 employees worldwide as of December 31, 2025.
The process-critical nature of our product applications, coupled with the standard wear and tear replacement cycles associated with the usage of our products, generates opportunities to support customers with our broad portfolio of aftermarket parts, consumables and services. Customers place a high value on minimizing any time their operations are offline. As a result, the availability of replacement parts, consumables and our repair and support services are key components of our value proposition. Our large installed base of products provides a recurring revenue stream through our aftermarket parts, consumables and services offerings. As a result, our aftermarket revenue is significant, representing 36.5% of total Company revenue in 2025.
Components of Our Revenue and Expenses
Revenues
We generate revenue from sales of original equipment and associated aftermarket parts, consumables and services. We sell our products and deliver services both directly to end-users and through independent distribution channels, depending on the product line and geography. Revenue derived from short duration contracts is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or as services are performed. Certain contracts involve significant design engineering unique to customer specifications, and depending upon the contractual terms, revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer.
Expenses
Cost of Sales
Cost of sales includes the costs we incur, including purchased materials, labor and overhead related to manufactured products and aftermarket parts sold during a period. Depreciation related to manufacturing equipment and facilities is included in cost of sales. Purchased materials represent the majority of costs of sales, with steel, aluminum, copper and partially finished castings representing our most significant material inputs. Stock-based compensation expense for employees associated with the manufacture of products or delivery of services to customers is included in cost of sales. We have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations.
Cost of sales for services includes the direct costs we incur, including direct labor, parts and other overhead costs including depreciation of equipment and facilities, to deliver repair, maintenance and other field services to our customers.
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Selling and Administrative Expenses
Selling and administrative expenses consist of (i) salaries and other employee-related expenses for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; (ii) facility operating expenses for selling and administrative activities, including office rent, maintenance, depreciation and insurance; (iii) marketing and direct costs of selling products and services to customers including internal and external sales commissions; (iv) research and development expenditures; (v) professional and consultant fees; (vi) employee related stock-based compensation for our selling and administrative functions and (vii) other miscellaneous expenses. Certain corporate expenses, including those related to our shared service centers in the United States and Europe, that directly benefit our businesses are allocated to our business segments. Certain corporate administrative expenses, including corporate executive compensation, treasury, certain information technology, internal audit and tax compliance, are not allocated to the business segments.
Amortization of Intangible Assets
Amortization of intangible assets includes the periodic amortization of intangible assets, including customer relationships, tradenames, developed technology, backlog and internal-use software.
Other Operating Expense, Net
Other operating expense, net includes foreign currency transaction gains and losses, net, restructuring charges, acquisition and other transaction related expenses and non-cash charges, losses and gains on asset disposals and other miscellaneous operating expenses.
Provision (Benefit) for Income Taxes
The provision or benefit for income taxes includes U.S. federal, state and local income taxes and all non-U.S. income taxes. We are subject to income tax in 49 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 our Industrial Technologies and Services segment, overall economic growth and industrial production, as well as secular trends, impact demand for our products. In certain businesses of 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, 54% for the year ended December 31, 2025, 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
Certain factors affecting the comparability of our current and historical results of operations are summarized below.
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Acquisitions
Part of our strategy for growth is to acquire complementary businesses that provide access to new technologies or geographies or expand our offerings. While acquisitions, as discussed further in Note 3, are not individually significant or significant in the aggregate, they may be relevant when comparing our results from period to period.
See Note 3 “Acquisitions” to our audited consolidated financial statements included elsewhere in this Form 10-K for further discussion of these acquisitions.
How We Assess the Performance of Our Business
We manage operations through the two business segments described above. In addition to our consolidated GAAP financial measures, we review various non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income and Free Cash Flow.
We believe Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions.
We use Free Cash Flow to review the liquidity of our operations. We measure Free Cash Flow as cash flows from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities.
Management and our board of directors regularly use these measures as tools in evaluating our operating and financial performance and in establishing discretionary annual compensation. Such measures are provided in addition to, and should not be considered to be a substitute for, or superior to, the comparable measures under GAAP. In addition, we believe that Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are frequently used by investors and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity.
Adjusted EBITDA, Adjusted Net Income and Free Cash Flow should not be considered as alternatives to net income (loss) or any other performance measure derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA, Adjusted Net Income and Free Cash Flow have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.
Included in our discussion of our consolidated and segment results below are changes in revenues and Adjusted EBITDA on a Constant Currency basis. Constant Currency information compares results between periods as if exchange rates had remained constant period over period. We define Constant Currency revenues and Adjusted EBITDA as total revenues and Adjusted EBITDA excluding the impact of foreign exchange rate movements and use it to determine the Constant Currency revenue and Adjusted EBITDA growth on a year-over-year basis. Constant Currency revenues and Adjusted EBITDA are calculated by translating current period revenues and Adjusted EBITDA using corresponding prior period exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a Constant Currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.
For further information regarding these measures, see “Non-GAAP Financial Measures” below.
Results of Operations
Consolidated results should be read in conjunction with segment results and the Segment Information notes to our audited consolidated financial statements included elsewhere in this Form 10-K, which provide more detailed discussions concerning certain components of our consolidated statements of operations. All intercompany accounts and transactions have been eliminated within the consolidated results.
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This section discusses our results of operations for the year ended December 31, 2025 as compared to the year ended December 31, 2024. For a discussion and analysis of the year ended December 31, 2024, compared to the same in 2023, please refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 19, 2025.
Consolidated Results of Operations for the Years Ended December 31, 2025 and 2024
Year Ended December 31,
(In millions, except percentages)
Consolidated Statements of Operations
Revenues
Cost of sales
Gross Profit
Selling and administrative expenses
Amortization of intangible assets
Impairment of goodwill
Impairment of other intangible assets
Other operating expense, net
Operating Income
Interest expense
Loss on extinguishment of debt
Other income, net
Income Before Income Taxes
Provision for income taxes
Loss on equity method investments
Net Income
Less: Net income attributable to noncontrolling interests
Net Income Attributable to Ingersoll Rand Inc.
Percentage of Revenues
Gross Profit
Selling and administrative expenses
Operating Income
Net Income
Adjusted EBITDA (1)
Other Financial Data
Adjusted EBITDA (1)
Adjusted net income (1)
Cash flows - operating activities
Cash flows - investing activities
Cash flows - financing activities
Free cash flow (1)
(1) See “Non-GAAP Financial Measures” below for a reconciliation to the most directly comparable GAAP measure.
Revenues
Revenues for 2025 were $7,650.9 million, an increase of $415.9 million, or 5.7%, compared to $7,235.0 million in 2024. The increase in revenues was primarily due to acquisitions of $419.9 million and the favorable impact of foreign currencies of $92.0 million, partially offset by lower organic revenues of $96.0 million. The percentage of consolidated revenues derived from aftermarket parts and services was 36.5% in 2025 compared to 36.4% in 2024.
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Gross Profit
Gross profit in 2025 was $3,336.3 million, an increase of $166.3 million, or 5.2%, compared to $3,170.0 million in 2024, and as a percentage of revenues was 43.6% in 2025 and 43.8% in 2024. The increase in gross profit is primarily due to acquisitions discussed above. The decrease in gross profit as a percentage of revenues is primarily due to unfavorable cost leverage on lower organic volumes and tariff related pricing targeted to offset tariff cost increases one for one.
Selling and Administrative Expenses
Selling and administrative expenses were $1,439.3 million in 2025, an increase of $94.9 million, or 7.1%, compared to $1,344.4 million in 2024. The increase in selling and administrative expenses was mainly from businesses acquired throughout 2024 and in 2025, partially offset by lower incentive compensation expense. Selling and administrative expenses as a percentage of revenues was 18.8% in 2025 and 18.6% in 2024.
Amortization of Intangible Assets
Amortization of intangible assets was $387.5 million in 2025, an increase of $14.5 million compared to $373.0 million in 2024. The increase was primarily attributable to amortization of intangible assets recognized for acquisitions completed throughout 2024 and 2025 and amortization related to certain tradenames that were determined to no longer have indefinite lives during the period, partially offset by certain intangible assets becoming fully amortized during the period. See Note 8 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
Impairment of Goodwill
In the second quarter of 2025, the Company recognized non-cash impairments of goodwill of $229.7 million related to the Company’s Biopharma and Aerospace & Defense reporting units within the Precision and Science Technologies segment. See Note 8 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
Impairment of Other Intangible Assets
Impairment of other intangible assets was $43.7 million in 2025. In the second quarter of 2025, $36.1 million was recorded to impair a recently acquired indefinite lived tradename within the Precision and Science Technologies segment. In the fourth quarter of 2025, $7.6 million was recorded to impair a tradename that was rationalized and rebranded within the Industrial Technologies and Services segment. See Note 8 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
Impairment of other intangible assets was $13.9 million in 2024 due to the Company’s decision to rationalize a business within the Precision and Science Technologies segment. See Note 8 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
Other Operating Expense, Net
Other operating expense, net was $91.5 million in 2025, a decrease of $47.1 million compared to $138.6 million in 2024. The decrease was primarily due to the loss on asbestos sale of $58.8 million in the 2024 period and lower acquisition and other transaction related expenses of $25.1 million, partially offset by higher restructuring charges of $20.2 million and higher foreign currency transaction losses, net of $15.4 million.
Interest Expense
Interest expense was $253.9 million in 2025, an increase of $40.7 million, compared to $213.2 million in 2024. The increase was primarily due to an increase in long term debt, partially offset by the interest rate derivative contracts discussed in Note 19 “Hedging Activities, Derivative Instruments and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K. The weighted average interest rate, including the impact of the interest rate derivative contracts, was approximately 5.0% in 2025 and 5.3% in 2024.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $3.0 million in 2024, which was related to the payoff of the Dollar Term Loan B and Dollar Term Loan. See Note 11 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
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Other Income, Net
Other income, net, was $44.6 million in 2025, a decrease of $4.3 million compared to $48.9 million in 2024. The decrease was primarily due to a decrease in interest income from holdings of cash and cash equivalents.
Provision (Benefit) for Income Taxes
The provision for income taxes was $219.4 million resulting in a 23.5% effective tax rate in 2025 compared to a provision for income taxes of $262.5 million resulting in a 23.2% effective tax provision rate in 2024. The decrease in the provision for income taxes and increase in the effective income tax provision rate in 2025 when compared to 2024 is primarily due to nondeductible impairment of goodwill, tradenames, and equity investment and a lower benefit from a windfall tax deduction in the 2025 period compared to the 2024 period.
Net Income
Net income was $588.8 million in 2025, a decrease of $257.5 million compared to $846.3 million in 2024, primarily due to impairments of goodwill and other intangible assets and the impairment of an equity method investment in the second quarter of 2025. See Note 8 “Goodwill and Other Intangible Assets” and Note 25 “Equity Method Investment” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
Adjusted EBITDA
Adjusted EBITDA increased $75.7 million to $2,093.8 million in 2025 compared to $2,018.1 million in 2024. Adjusted EBITDA as a percentage of revenues decreased 50 basis points to 27.4% in 2025 from 27.9% in 2024. The increase in Adjusted EBITDA was primarily due to acquisitions of $92.5 million and the favorable impact of foreign currencies of $25.6 million, partially offset by lower organic gross profit of $35.1 million and higher selling and administrative costs of $3.6 million. The decrease in Adjusted EBITDA as a percentage of revenues is primarily attributable to input cost inflation and product mix.
Adjusted Net Income
Adjusted Net Income decreased $1.2 million to $1,348.1 million in 2025 compared to $1,349.3 million in 2024. The decrease was primarily due to increased Adjusted EBITDA, partially offset by higher interest expense, lower interest income on cash and cash equivalents, and higher income tax provision, as adjusted.
Segment Results
We report our business into two segments: Industrial Technologies and Services and Precision and Science Technologies. Our Corporate operations (as described below) are not discussed separately as any results that had a significant impact on operating results are included in the consolidated results discussion above.
We evaluate the performance of our segments based on Segment Revenues and Segment Adjusted EBITDA. Segment Adjusted EBITDA is indicative of operational performance and ongoing profitability. Our management closely monitors Segment Adjusted EBITDA to evaluate past performance and identify actions required to improve profitability.
The segment measurements provided to, and evaluated by, the Chief Operating Decision Maker (“CODM”) are described in Note 23 “Segment Reporting” to our audited consolidated financial statements included elsewhere in this Form 10-K.
Included in our discussion of our segment results below are changes in Segment Revenues and Segment Adjusted EBITDA on a Constant Currency basis. Constant Currency information compares results between periods as if exchange rates had remained constant period over period. We define Constant Currency as changes in Segment Revenues and Segment Adjusted EBITDA excluding the impact of foreign exchange rate movements. We use these measures to determine the Constant Currency Segment Revenues and Segment Adjusted EBITDA growth on a year-on-year basis. Constant Currency Segment Revenues and Segment Adjusted EBITDA are calculated by translating current period Segment Revenues and Segment Adjusted EBITDA using prior period exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.
Segment Results for Years Ended December 31, 2025 and 2024
The following tables display Segment Orders, Segment Revenues, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin (Segment Adjusted EBITDA as a percentage of Segment Revenues) for each of our Segments.
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Industrial Technologies and Services Segment Results
Years Ended December 31,
Percent Change
(In millions, except percentages)
Segment Orders
Segment Revenues
Segment Adjusted EBITDA
Segment Adjusted EBITDA Margin
(130) bps
Segment Orders for 2025 were $6,119.6 million, an increase of $413.0 million, or 7.2%, compared to $5,706.6 million in 2024. The increase in Segment Orders was primarily due to acquisitions of $275.5 million or 4.8%, higher organic orders of $79.9 million or 1.4% and the favorable impact of foreign currencies of $57.6 million or 1.0%.
Segment Revenues for 2025 were $6,056.4 million, an increase of $238.3 million, or 4.1%, compared to $5,818.1 million in 2024. The increase in Segment Revenues was primarily due to acquisitions of $272.9 million or 4.7% and the favorable impact of foreign currencies of $68.8 million or 1.2%, partially offset by lower organic revenues of $103.4 million or 1.8%. The percentage of Segment Revenues derived from aftermarket parts and service was 40.6% in 2025 compared to 39.9% in 2024.
Segment Adjusted EBITDA in 2025 was $1,747.9 million, a decrease of $6.9 million, or 0.4%, from $1,754.8 million in 2024. Segment Adjusted EBITDA Margin decreased 130 bps to 28.9% from 30.2% in 2024. The decrease in Segment Adjusted EBITDA was primarily due to lower organic gross profit of $49.7 million or 2.8% and higher selling and administrative expenses of $31.1 million or 1.8%, partially offset by acquisitions of $54.6 million or 3.1%, and the favorable impact of foreign currencies of $20.3 million or 1.2%.
Precision and Science Technologies Segment Results
Years Ended December 31,
Percent Change
(In millions, except percentages)
Segment Orders
Segment Revenues
Segment Adjusted EBITDA
Segment Adjusted EBITDA Margin
40 bps
Segment Orders for 2025 were $1,596.3 million, an increase of $197.4 million, or 14.1%, compared to $1,398.9 million in 2024. The increase in Segment Orders was primarily due to acquisitions of $148.7 million or 10.6%, higher organic orders of $25.7 million or 1.8%, and the favorable impact of foreign currencies of $23.0 million or 1.6%.
Segment Revenues for 2025 were $1,594.5 million, an increase of $177.6 million, or 12.5%, compared to $1,416.9 million in 2024. The increase in Segment Revenues was primarily due to acquisitions of $147.0 million or 10.4%, the favorable impact of foreign currencies of $23.2 million or 1.6%, and higher organic revenues of $7.4 million or 0.5%. The percentage of Segment Revenues derived from aftermarket parts and service was 20.6% in 2025 compared to 21.6% in 2024.
Segment Adjusted EBITDA in 2025 was $478.0 million, an increase of $59.2 million, or 14.1%, from $418.8 million in 2024. Segment Adjusted EBITDA Margin increased 40 bps to 30.0% from 29.6% in 2024. The increase in Segment Adjusted EBITDA was due primarily to acquisitions of $37.9 million or 9.0%, higher organic gross profit of $11.1 million or 2.7%, the favorable impact of foreign currencies of $7.4 million or 1.8%, and lower selling and administrative expenses of $4.9 million or 1.2%.
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Non-GAAP Financial Measures
Set forth below are reconciliations of Net Income to Adjusted EBITDA and Adjusted Net Income and Cash flows from operating activities to Free Cash Flow. For additional information regarding Adjusted EBITDA and Adjusted Net Income, see “How We Assess the Performance of Our Business” above.
Year Ended December 31,
(In millions)
Net Income
Plus:
Interest expense
Provision for income taxes
Depreciation expense (a)
Amortization expense (b)
Impairment of goodwill and other intangible assets
Restructuring and related business transformation costs (c)
Acquisition and other transaction related expenses and non-cash charges (d)
Stock-based compensation
Foreign currency transaction losses, net
Loss on equity method investments
Loss on extinguishment of debt
Adjustments to LIFO inventories
Cybersecurity incident costs (e)
Loss on asbestos sale
Interest income on cash and cash equivalents
Other adjustments (f)
Adjusted EBITDA
Minus:
Interest expense
Income tax provision, as adjusted (g)
Depreciation expense
Amortization of non-acquisition related intangible assets
Interest income on cash and cash equivalents
Adjusted Net Income
Free Cash Flow from:
Cash flows from operating activities
Minus:
Capital expenditures
Free Cash Flow
(a) Depreciation expense excludes $4.5 million and $4.0 million of depreciation of rental equipment for the years ended December 31, 2025 and 2024, respectively.
(b) Represents $377.4 million and $364.3 million of amortization of intangible assets arising from acquisitions (customer relationships, technology, tradenames and backlog) and $10.1 million and $8.7 million of amortization of non-acquisition related intangible assets, in each case for the years ended December 31, 2025 and 2024, respectively.
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(c) Restructuring and related business transformation costs consisted of the following.
Year Ended December 31,
(In millions)
Restructuring charges
Facility reorganization, relocation and other costs
Total restructuring and related business transformation costs
(d) Represents costs associated with successful and abandoned acquisitions, including third-party expenses, post-closure integration costs and non-cash charges and credits arising from fair value purchase accounting adjustments.
(e) Represents expected non-recoverable costs associated with a cybersecurity event, net of insurance recoveries.
(f) Includes (i) effects of the amortization of prior service costs and amortization of losses in pension and other postemployment (“OPEB”) expense and (ii) other miscellaneous adjustments.
(g) Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of applicable discrete tax items. The tax effect of pre-tax items excluded from Adjusted Net Income is computed using the statutory tax rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances. Discrete tax items include changes in tax laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances.
The income tax provision, as adjusted for each of the periods presented below consists of the following.
Year Ended December 31,
(In millions)
Provision for income taxes
Tax impact of pre-tax income adjustments
Discrete tax items
Income tax provision, as adjusted
Liquidity and Capital Resources
Our investment resources include cash on hand, cash generated from operations and borrowings under our Revolving Credit Facility and Commercial Paper Program. We also have the ability to seek additional borrowings, subject to credit agreement restrictions.
For a description of our material indebtedness, see Note 11 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K.
As of December 31, 2025, we had $2,600.0 million of unused availability under both the Revolving Credit Facility and Commercial Paper Program.
As of December 31, 2025, we were in compliance with all of our debt covenants and no event of default had occurred or was ongoing.
Liquidity
Our liquidity needs primarily arise from working capital needs for normal operating costs, servicing debt, funding acquisitions and capital expenditures.
Year Ended December 31,
(In millions)
Cash and cash equivalents
Short-term borrowings and current maturities of long-term debt
Long-term debt
Total debt
We can increase the borrowing availability under the Revolving Credit Facility by up to $1,000.0 million in the form of additional commitments on the terms set forth in the Revolving Credit Facility. Our liquidity requirements are significant primarily due to debt service requirements. See Note 11 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.
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Our principal sources of liquidity have been existing cash and cash equivalents, cash generated from operations and borrowings under the Senior Notes and former Senior Secured Credit Facilities. Our principal uses of cash will be to provide working capital; finance strategic plans, including possible acquisitions; meet debt service requirements; fund capital expenditures; and return capital to shareholders, through share repurchases and dividend payments. 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 Notes. 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 and Commercial Paper Program, 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 or Commercial Paper Program 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 Notes, on commercially reasonable terms or at all. Any future acquisitions, joint ventures, or other similar transactions may require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms or at all.
We may from time to time repurchase shares of our common stock in the open market at prevailing market prices (including through Rule 10b5-1 plans), in privately negotiated transactions, a combination thereof or through other transactions. The actual timing, number, manner and value of any shares repurchased will depend on several factors, including the market price of our stock, general market and economic conditions, our liquidity requirements, applicable legal requirements and other business considerations.
A substantial portion of our cash is in jurisdictions outside the United States. We do not assert ASC 740-30 (formerly APB 23) indefinite reinvestment of our historical non-U.S. earnings or future non-U.S. earnings. The Company records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the United States. Our deferred income tax liability as of December 31, 2025 is $50.4 million which consists mainly of withholding taxes.
Working Capital
(In millions)
Net Working Capital
Current assets
Less: Current liabilities
Net working capital
Operating Working Capital
Accounts receivable
Plus: Inventories (excluding LIFO)
Plus: Contract assets
Less: Accounts payable
Less: Contract liabilities
Operating working capital
Net working capital decreased $162.9 million to $2,181.7 million as of December 31, 2025 from $2,344.6 million as of December 31, 2024. Operating working capital increased $189.9 million to $1,608.5 million as of December 31, 2025 from $1,418.6 million as of December 31, 2024. Operating working capital as of December 31, 2025 was 21.0% of 2025 revenues as compared to 19.6% as of December 31, 2024 as a percentage of 2024 revenues. The increase in operating working capital was primarily due to higher accounts receivable, higher inventories, and higher contract assets, partially offset by higher accounts payable and higher contract liabilities. The increase in accounts receivable was primarily due to the timing of revenues in the quarter and seasonal changes in collection timing. The increase 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 support channel
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access, foreign currency translation, and acquisitions. 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 years ended December 31, 2025 and 2024, respectively.
(In millions)
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows provided by (used in) financing activities
Free cash flow (1)
(1) See “Non-GAAP Financial Measures” for a reconciliation to the most directly comparable GAAP measure.
Operating activities
Cash provided by operating activities decreased $41.0 million to $1,355.7 million in 2025 from $1,396.7 million in 2024. This decrease is primarily attributable to an increase in cash used in operating working capital in 2025, compared to 2024, an increase in interest payments for our Senior Notes in 2025 and an increase in pension contributions in 2025, partially offset by an increase in net income excluding non-cash adjustments and lower incentive compensation.
Operating working capital used cash of $73.4 million in 2025 compared to using cash of $23.5 million in 2024. Changes in account receivables used cash of $59.1 million in 2025 compared to using cash of $45.1 million in 2024. Changes in contract assets used cash of $43.7 million in 2025 compared to using cash of $4.8 million in 2024. Changes in inventory used cash of $26.1 million in 2025 compared to generating cash of $39.8 million in 2024. Changes in accounts payable generated cash of $78.7 million in 2025 compared to generating cash of $13.3 million in 2024. Changes in contract liabilities used cash of $23.2 million in 2025 compared to using cash of $26.7 million in 2024.
Investing activities
Cash flows used in investing activities included capital expenditures of $135.6 million (1.8% of consolidated revenues) and $149.1 million (2.1% of consolidated revenues) in 2025 and 2024, respectively. We expect capital expenditures will be approximately 2% of consolidated revenues in 2026. Net cash paid in acquisitions was $525.0 million and $2,958.7 million in 2025 and 2024, respectively. Net proceeds from the disposal of property, plant and equipment were $6.1 million in 2024.
Financing activities
Cash used in financing activities of $1,053.8 million in 2025 is primarily due to purchases of treasury stock of $1,018.0 million, cash dividends on common stock of $31.8 million, and payments of deferred and contingent acquisition consideration of $8.0 million, partially offset by proceeds from stock option exercises of $15.3 million.
Cash provided by financing activities of $1,707.5 million in 2024 is primarily due to net proceeds from long-term debt of $2,054.2 million and proceeds from stock option exercises of $32.2 million, partially offset by purchases of treasury stock of $260.7 million, cash dividends on common stock of $32.3 million, payments of debt issuance costs of $32.3 million, payments of deferred and contingent acquisition consideration of $23.4 million, and payments to settle cross-currency swaps of $19.9 million.
Free cash flow
Free cash flow decreased $27.5 million to $1,220.1 million in 2025 from $1,247.6 million in 2024 primarily due to the decrease in cash provided by operating activities of $41.0 million discussed above, partially offset by the decrease in capital expenditures of $13.5 million.
Purchase Obligations
Purchase obligations consist primarily of agreements to purchase inventory or services made in the normal course of business to meet operational requirements. As of December 31, 2025, the Company had purchase obligations of $830.9 million, with $756.4 million payable in the next 12 months. The purchase obligation amounts do not represent the entire anticipated purchases in the future, but represent only those items for which we are contractually obligated as of December 31, 2025. For this reason, these amounts will not provide a complete and reliable indicator of our expected future cash outflows.
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Contingencies
We are a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of our size and in our sector. We believe that such proceedings, lawsuits and administrative actions will not materially adversely affect our operations, financial condition, liquidity or competitive position. Liabilities on our consolidated balance sheet related to legal proceedings, lawsuits and administrative actions are not significant. A more detailed discussion of certain of these proceedings, lawsuits and administrative actions is set forth in “Item 3. Legal Proceedings.”
Critical Accounting Estimates
Accounting estimates discussed in this section are those that we consider to be the most critical to an understanding of our audited consolidated financial statements because they involve significant judgments and uncertainties. These estimates reflect our best judgment about current, and for some estimates, future economic and market conditions and their effect based on information available as of the date of these audited consolidated financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of goodwill, intangibles and long-lived assets, increases in reserves for contingencies, establishment of valuation allowances on deferred tax assets and increase in tax liabilities, among other effects. Also see Note 1 “Summary of Significant Accounting Policies” to our audited consolidated financial statements included elsewhere in this Form 10-K, which discusses the significant accounting policies that we have selected from acceptable alternatives.
Business Combinations
We apply the acquisition method of accounting with respect to the identifiable assets and liabilities of a business combination and record the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date. The excess of the cost of the acquired business and the fair value of the assets acquired and liabilities assumed is recognized as goodwill. Estimates of fair value represent management’s best estimate of assumptions and about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates, customer attrition rates and others. Inputs used are generally obtained from historical data supplemented by current and anticipated market conditions and growth rates.
Significant judgment is required in estimating the fair value of identifiable intangible assets and in assigning their respective useful lives. The fair value estimates are based on historical information and on future expectations and assumptions deemed reasonable by management, but which are inherently uncertain. See Note 3 “Acquisitions” to our audited consolidated financial statements included elsewhere in this Form 10-K for further information regarding the fair value determination of each of the classes of identifiable intangible assets. Determining the useful life of an intangible asset also requires judgment. Certain intangibles are expected to have indefinite lives while certain other identifiable intangible assets have determinable lives. The useful lives of identifiable intangibles with determinable useful lives are based on a variety of factors, including but not limited to, the competitive environment, product cycles, order life cycles, historical customer attrition rates, market share, operating plans and the macroeconomic environment. The costs of determinable-lived intangible assets are amortized to expense over the estimated useful life.
Impairment of Goodwill and Other Identified Intangible Assets
We test goodwill for impairment annually in the fourth quarter of each year using data as of October 1 of that year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The impairment test consists of comparing the fair value of the reporting unit to the carrying value of the reporting unit. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; provided, the loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit. If applicable, we consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. We determined fair values for all of the reporting units using a combination of the income and market multiples approaches which are weighted 75% and 25%, respectively.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our 2025 reporting unit valuations ranged from 8.0% to 10.0% and terminal growth rates ranged from 2.5% to 3.5%.
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Under the market multiples approach, fair value is determined based on multiples derived from the stock prices of publicly traded guideline companies to develop a business enterprise value (“BEV”) for our reporting units. The application of the market multiples method entails the development of book value multiples based on the market value of the guideline companies. The multiples are developed by first calculating the market value of equity of the guideline companies and then adjusting these multiples for cash and debt to arrive at a BEV multiple. Identifying appropriate guideline companies and computing appropriate market multiples is subjective. We considered various public companies that had reasonably similar qualitative factors as our reporting units while also considering quantitative factors such as revenue growth, profitability and total assets.
During the second quarter of 2025, certain organizational changes occurred that impacted the composition of all reporting units within our Precision and Science Technologies segment. As a result of these changes, the Company performed an interim goodwill impairment test for all affected reporting units, utilizing a combination of an income and market approach weighted 75% and 25%, respectively, to determine the fair value. In the second quarter of 2025, the Company recognized non-cash impairments of $170.3 million and $59.4 million to reduce the carrying value of goodwill of our Biopharma and Aerospace & Defense reporting units, respectively. Both the Biopharma and Aerospace & Defense reporting units were comprised entirely of businesses acquired in the recent ILC Dover acquisition. After considering the effect of the impairments, the Biopharma and Aerospace & Defense reporting units had goodwill of $816.6 million and $15.9 million, respectively.
We performed our annual impairment test during the fourth quarter and no additional goodwill impairments were recorded. The Life Sciences reporting unit, which was created by the second quarter organizational changes discussed above and includes the historical Biopharma and Aerospace & Defense reporting units, had a cushion of 30%. The cushion of all other reporting units was at least 85%. Changes in forecast estimates or the application of alternative assumptions could produce significantly different results. The discount rates (8.0% to 10.0%), terminal growth rates (2.5% to 3.5%), and EBITDA multiples are the most sensitive assumptions. A material non-cash impairment of goodwill could result from a number of circumstances, including different assumptions used in determining the fair value of these reporting units or changes to customer spending priorities.
We test intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate that the carrying value may not be recoverable, utilizing a discounted cash flow valuation referred to as the relief from royalty method. We estimated forecasted revenues for a period of five years with discount rates ranging from 8.5% to 10.5%, terminal growth rates of 2.5% to 3.5%, and royalty rates ranging from 0.5% to 4.0%.
During the second quarter of 2025, due to the reduction in the forecast for Aerospace & Defense and the increase in discount rates, the Company quantitatively tested the relevant indefinite lived tradename for impairment which resulted in a non-cash charge of $36.1 million, within the Precision and Science Technologies segment.
During the fourth quarter of 2025, the Company retired a tradename and rebranded a business within the Industrial Technologies and Services segment. As a result, the Company recognized an impairment of $7.6 million to reduce the carrying value of the retired tradename.
We performed our annual impairment test during the fourth quarter and no additional impairments were recorded. Changes in forecasted revenues or any of the other assumptions mentioned above could result in a material non-cash impairment charge in a future period.
We review identified intangible assets with defined useful lives and subject to amortization for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset.
Also see Note 8 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K.
Income Taxes
Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available.
The Tax Cuts and Jobs Act (“Tax Act”), enacted on December 22, 2017, created a new requirement that certain income (i.e., Global intangible low taxed income (“GILTI”)) earned by controlled foreign corporations (“CFC”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net
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deemed tangible income return, which is currently defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.
Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company has determined that it will follow the period cost method (option 1 above). The Company recorded a tax expense of $13.0 million in 2025 for the GILTI provisions of the Tax Act.
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. Amounts recorded for deferred tax assets related to tax attribute carryforwards, net of valuation allowances, were $42.9 million and $43.0 million as of December 31, 2025 and 2024, respectively, with the decrease due to the utilization of attributes in the current year.
Loss Contingencies
Loss contingencies are uncertain and unresolved matters that arise in the ordinary course of business and result from events or actions by others that have the potential to result in a future loss. Such contingencies include, but are not limited to environmental obligations and losses resulting from other events and developments.
When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency. Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure is provided.
Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We regularly review all contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low.
Recent Accounting Pronouncements
See Note 2 “New Accounting Standards” to our audited consolidated financial statements included elsewhere in this Form 10-K for a discussion of recent accounting standards.
