ITEM 8. | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GARDNER DENVER HOLDINGS,
INGERSOLL RAND INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars (in millions, except per share amounts)
| | For the Years Ended December 31, | | | | | | | | | | | | | | | | | | | 2017 | | | 2016 | | | 2015 | | | For the Years Ended December 31, | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Revenues | | $ | 2,375.4 | | | $ | 1,939.4 | | | $ | 2,126.9 | | Revenues | $ | 5,916.3 | | | $ | 5,152.4 | | | $ | 3,973.2 | | Cost of sales | | | 1,477.5 | | | | 1,222.7 | | | | 1,347.8 | | Cost of sales | 3,590.7 | | | 3,163.9 | | | 2,568.3 | | Gross Profit | | | 897.9 | | | | 716.7 | | | | 779.1 | | Gross Profit | 2,325.6 | | | 1,988.5 | | | 1,404.9 | | Selling and administrative expenses | | | 446.6 | | | | 414.3 | | | | 427.0 | | Selling and administrative expenses | 1,095.8 | | | 1,028.0 | | | 789.3 | | Amortization of intangible assets | | | 118.9 | | | | 124.2 | | | | 115.4 | | Amortization of intangible assets | 347.6 | | | 332.9 | | | 335.1 | | Impairment of goodwill | | | - | | | | - | | | | 343.3 | | | Impairment of other intangible assets | | | 1.6 | | | | 25.3 | | | | 78.1 | | Impairment of other intangible assets | — | | | — | | | 19.9 | | Other operating expense, net | | | 222.1 | | | | 48.6 | | | | 20.7 | | Other operating expense, net | 64.9 | | | 61.9 | | | 201.0 | | Operating Income (Loss) | | | 108.7 | | | | 104.3 | | | | (205.4 | ) | | Operating Income | | Operating Income | 817.3 | | | 565.7 | | | 59.6 | | Interest expense | | | 140.7 | | | | 170.3 | | | | 162.9 | | Interest expense | 103.2 | | | 87.7 | | | 111.1 | | Loss on extinguishment of debt | | | 84.5 | | | | - | | | | - | | Loss on extinguishment of debt | 1.1 | | | 9.0 | | | 2.0 | | Other income, net | | | (3.8 | ) | | | (2.8 | ) | | | (1.6 | ) | Other income, net | (29.2) | | | (44.0) | | | (8.1) | | Loss Before Income Taxes | | | (112.7 | ) | | | (63.2 | ) | | | (366.7 | ) | | Benefit for income taxes | | | (131.2 | ) | | | (31.9 | ) | | | (14.7 | ) | | Income (Loss) Before Income Taxes | | Income (Loss) Before Income Taxes | 742.2 | | | 513.0 | | | (45.4) | | Provision (benefit) for income taxes | | Provision (benefit) for income taxes | 149.6 | | | (21.8) | | | 11.4 | | Income (loss) on equity method investments | | Income (loss) on equity method investments | 0.7 | | | (11.4) | | | — | | Income (Loss) from Continuing Operations | | Income (Loss) from Continuing Operations | 593.3 | | | 523.4 | | | (56.8) | | Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | 15.2 | | | 41.6 | | | 24.4 | | Net Income (Loss) | | | 18.5 | | | | (31.3 | ) | | | (352.0 | ) | Net Income (Loss) | 608.5 | | | 565.0 | | | (32.4) | | Less: Net income (loss) attributable to noncontrolling interests | | | 0.1 | | | | 5.3 | | | | (0.8 | ) | | Net Income (Loss) Attributable to Gardner Denver Holdings, Inc. | | $ | 18.4 | | | $ | (36.6 | ) | | $ | (351.2 | ) | | Basic earnings (loss) per share | | $ | 0.10 | | | $ | (0.25 | ) | | $ | (2.35 | ) | | Diluted earnings (loss) per share | | $ | 0.10 | | | $ | (0.25 | ) | | $ | (2.35 | ) | | Less: Net income attributable to noncontrolling interests | | Less: Net income attributable to noncontrolling interests | 3.8 | | | 2.5 | | | 0.9 | | Net Income (Loss) Attributable to Ingersoll Rand Inc. | | Net Income (Loss) Attributable to Ingersoll Rand Inc. | $ | 604.7 | | | $ | 562.5 | | | $ | (33.3) | | | Amounts attributable to Ingersoll Rand Inc. common stockholders: | | Amounts attributable to Ingersoll Rand Inc. common stockholders: | | Income (loss) from continuing operations, net of tax | | Income (loss) from continuing operations, net of tax | $ | 589.5 | | | $ | 520.9 | | | $ | (57.7) | | Income from discontinued operations, net of tax | | Income from discontinued operations, net of tax | 15.2 | | | 41.6 | | | 24.4 | | Net income (loss) attributable to Ingersoll Rand Inc. | | Net income (loss) attributable to Ingersoll Rand Inc. | $ | 604.7 | | | $ | 562.5 | | | $ | (33.3) | | | Basic earnings (loss) per share of common stock: | | Basic earnings (loss) per share of common stock: | | Earnings (loss) from continuing operations | | Earnings (loss) from continuing operations | $ | 1.45 | | | $ | 1.26 | | | $ | (0.15) | | Earnings from discontinued operations | | Earnings from discontinued operations | 0.04 | | | 0.10 | | | 0.06 | | Net earnings (loss) | | Net earnings (loss) | 1.49 | | | 1.36 | | | (0.09) | | | Diluted earnings (loss) per share of common stock: | | Diluted earnings (loss) per share of common stock: | | Earnings (loss) from continuing operations | | Earnings (loss) from continuing operations | $ | 1.44 | | | $ | 1.24 | | | $ | (0.15) | | Earnings from discontinued operations | | Earnings from discontinued operations | 0.04 | | | 0.10 | | | 0.06 | | Net earnings (loss) | | Net earnings (loss) | 1.47 | | | 1.34 | | | (0.09) | |
The accompanying notes are an integral part of these consolidated financial statements. GARDNER DENVER HOLDINGS,INGERSOLL RAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(Dollars in millions)
| | For the Years Ended December 31, | | | | | | | | | | | | | | | | | | | 2017 | | | 2016 | | | 2015 | | | For the Years Ended December 31, | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Comprehensive Income (Loss) Attributable to Gardner Denver Holdings, Inc. | | | | | | | | | | | Net income (loss) attributable to Gardner Denver Holdings, Inc. | | $ | 18.4 | | | $ | (36.6 | ) | | $ | (351.2 | ) | | Comprehensive Income Attributable to Ingersoll Rand Inc. | | Comprehensive Income Attributable to Ingersoll Rand Inc. | | | | | | Net income (loss) attributable to Ingersoll Rand Inc. | | Net income (loss) attributable to Ingersoll Rand Inc. | $ | 604.7 | | | $ | 562.5 | | | $ | (33.3) | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | Other comprehensive income (loss), net of tax: | | Foreign currency translation adjustments, net | | | 157.6 | | | | (76.2 | ) | | | (136.3 | ) | Foreign currency translation adjustments, net | (252.9) | | | (103.0) | | | 268.2 | | Foreign currency (losses) gains, net | | | (51.6 | ) | | | 13.6 | | | | 32.6 | | | Unrecognized gains (losses) on cash flow hedges, net | | | 12.4 | | | | (0.9 | ) | | | (15.9 | ) | | Pension and other postretirement prior service cost and gain or loss, net | | | 24.2 | | | | (13.3 | ) | | | (10.7 | ) | | Unrecognized gain on cash flow hedges | | Unrecognized gain on cash flow hedges | 16.0 | | | — | | | 10.9 | | Pension and other postretirement prior service cost and gain (loss), net | | Pension and other postretirement prior service cost and gain (loss), net | 26.8 | | | 48.7 | | | (8.9) | | Other comprehensive income (loss), net of tax | | | 142.6 | | | | (76.8 | ) | | | (130.3 | ) | Other comprehensive income (loss), net of tax | (210.1) | | | (54.3) | | | 270.2 | | Comprehensive income (loss) attributable to Gardner Denver Holdings, Inc. | | $ | 161.0 | | | $ | (113.4 | ) | | $ | (481.5 | ) | | Comprehensive income attributable to Ingersoll Rand Inc. | | Comprehensive income attributable to Ingersoll Rand Inc. | $ | 394.6 | | | $ | 508.2 | | | $ | 236.9 | | Comprehensive Income (Loss) Attributable to Noncontrolling Interests | | | | | | | | | | | | | Comprehensive Income (Loss) Attributable to Noncontrolling Interests | | | | | | Net income (loss) attributable to noncontrolling interests | | $ | 0.1 | | | $ | 5.3 | | | $ | (0.8 | ) | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | Net income attributable to noncontrolling interests | | Net income attributable to noncontrolling interests | $ | 3.8 | | | $ | 2.5 | | | $ | 0.9 | | Other comprehensive loss, net of tax: | | Other comprehensive loss, net of tax: | | Foreign currency translation adjustments, net | | | - | | | | 1.4 | | | | (2.0 | ) | Foreign currency translation adjustments, net | (7.2) | | | (2.3) | | | (1.4) | | Other comprehensive income (loss), net of tax | | | - | | | | 1.4 | | | | (2.0 | ) | | Total other comprehensive loss, net of tax | | Total other comprehensive loss, net of tax | (7.2) | | | (2.3) | | | (1.4) | | Comprehensive income (loss) attributable to noncontrolling interests | | $ | 0.1 | | | $ | 6.7 | | | $ | (2.8 | ) | Comprehensive income (loss) attributable to noncontrolling interests | $ | (3.4) | | | $ | 0.2 | | | $ | (0.5) | | Total Comprehensive Income (Loss) | | $ | 161.1 | | | $ | (106.7 | ) | | $ | (484.3 | ) | | Total Comprehensive Income | | Total Comprehensive Income | $ | 391.2 | | | $ | 508.4 | | | $ | 236.4 | |
The accompanying notes are an integral part of these consolidated financial statements. GARDNER DENVER HOLDINGS,INGERSOLL RAND INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Dollars in millions, except share and per share amounts)
| | | December 31, 2017 | | | December 31, 2016 | | | December 31, 2022 | | December 31, 2021 | Assets | | | | | | | Assets | | | | Current assets: | | | | | | | | Current assets | | Current assets | | Cash and cash equivalents | | $ | 393.3 | | | $ | 255.8 | | Cash and cash equivalents | $ | 1,613.0 | | | $ | 2,109.6 | | Accounts receivable, net of allowance for doubtful accounts of $18.7 and $18.7, respectively | | | 536.3 | | | | 441.6 | | | Accounts receivable, net of allowance for credit losses of $47.2 and $42.3, respectively | | Accounts receivable, net of allowance for credit losses of $47.2 and $42.3, respectively | 1,122.0 | | | 948.6 | | Inventories | | | 494.5 | | | | 443.9 | | Inventories | 1,025.4 | | | 854.2 | | Other current assets | | | 39.5 | | | | 47.2 | | Other current assets | 206.9 | | | 186.9 | | Assets of discontinued operations - current | | Assets of discontinued operations - current | — | | | 15.6 | | Total current assets | | | 1,463.6 | | | | 1,188.5 | | Total current assets | 3,967.3 | | | 4,114.9 | | Property, plant and equipment, net of accumulated depreciation of $203.8 and $146.1, respectively | | | 363.2 | | | | 358.4 | | | Property, plant and equipment, net of accumulated depreciation of $417.4 and $357.7, respectively | | Property, plant and equipment, net of accumulated depreciation of $417.4 and $357.7, respectively | 624.4 | | | 648.6 | | Goodwill | | | 1,227.6 | | | | 1,154.7 | | Goodwill | 6,064.2 | | | 5,981.6 | | Other intangible assets, net | | | 1,431.2 | | | | 1,469.9 | | Other intangible assets, net | 3,578.6 | | | 3,912.7 | | Deferred tax assets | | | 1.0 | | | | 1.4 | | Deferred tax assets | 22.3 | | | 28.0 | | Other assets | | | 134.6 | | | | 143.1 | | Other assets | 509.1 | | | 468.7 | | | Total assets | | $ | 4,621.2 | | | $ | 4,316.0 | | Total assets | $ | 14,765.9 | | | $ | 15,154.5 | | Liabilities and Stockholders' Equity | | | | | | | | | | Current liabilities: | | | | | | | | | | Liabilities and Equity | | Liabilities and Equity | | | | Current liabilities | | Current liabilities | | Short-term borrowings and current maturities of long-term debt | | $ | 20.9 | | | $ | 24.5 | | Short-term borrowings and current maturities of long-term debt | $ | 36.5 | | | $ | 38.8 | | Accounts payable | | | 269.7 | | | | 214.9 | | Accounts payable | 778.7 | | | 670.5 | | Accrued liabilities | | | 271.2 | | | | 258.5 | | Accrued liabilities | 858.8 | | | 741.3 | | Liabilities of discontinued operations - current | | Liabilities of discontinued operations - current | — | | | 17.1 | | Total current liabilities | | | 561.8 | | | | 497.9 | | Total current liabilities | 1,674.0 | | | 1,467.7 | | Long-term debt, less current maturities | | | 2,019.3 | | | | 2,753.8 | | Long-term debt, less current maturities | 2,716.1 | | | 3,401.8 | | Pensions and other postretirement benefits | | | 99.8 | | | | 122.7 | | Pensions and other postretirement benefits | 147.2 | | | 195.1 | | Deferred income taxes | | | 237.5 | | | | 487.6 | | Deferred income taxes | 610.6 | | | 708.6 | | Other liabilities | | | 226.0 | | | | 182.2 | | Other liabilities | 360.8 | | | 310.1 | | | Total liabilities | | | 3,144.4 | | | | 4,044.2 | | Total liabilities | 5,508.7 | | | 6,083.3 | | Commitments and contingencies (Note 18) | | | | | | | | | | Stockholders' equity: | | | | | | | | | | Common stock, $0.01 par value; 1,000,000,000 shares authorized; 198,377,237 and 150,552,360 shares issued at December 31, 2017 and December 31, 2016, respectively | | | 2.0 | | | | 1.5 | | | Commitments and contingencies (Note 21) | | Commitments and contingencies (Note 21) | | Stockholders’ equity | | Stockholders’ equity | | Common stock, $0.01 par value; 1,000,000,000 shares authorized; 426,327,805 and 423,785,571 shares issued as of December 31, 2022 and 2021, respectively | | Common stock, $0.01 par value; 1,000,000,000 shares authorized; 426,327,805 and 423,785,571 shares issued as of December 31, 2022 and 2021, respectively | 4.3 | | | 4.3 | | Capital in excess of par value | | | 2,275.4 | | | | 1,222.4 | | Capital in excess of par value | 9,476.8 | | | 9,408.6 | | Accumulated deficit | | | (577.8 | ) | | | (596.2 | ) | | Retained earnings | | Retained earnings | 950.9 | | | 378.6 | | Accumulated other comprehensive loss | | | (199.8 | ) | | | (342.4 | ) | Accumulated other comprehensive loss | (251.7) | | | (41.6) | | Treasury stock at cost; 2,159,266 and 1,897,454 shares at December 31, 2017 and 2016, respectively | | | (23.0 | ) | | | (19.4 | ) | | Total Gardner Denver Holdings, Inc. stockholders' equity | | | 1,476.8 | | | | 265.9 | | | Treasury stock at cost; 21,210,095 and 16,000,364 shares as of December 31, 2022 and 2021, respectively | | Treasury stock at cost; 21,210,095 and 16,000,364 shares as of December 31, 2022 and 2021, respectively | (984.5) | | | (748.4) | | Total Ingersoll Rand Inc. stockholders’ equity | | Total Ingersoll Rand Inc. stockholders’ equity | 9,195.8 | | | 9,001.5 | | Noncontrolling interests | | | - | | | | 5.9 | | Noncontrolling interests | 61.4 | | | 69.7 | | Total stockholders' equity | | | 1,476.8 | | | | 271.8 | | | Total liabilities and stockholders' equity | | $ | 4,621.2 | | | $ | 4,316.0 | | | Total equity | | Total equity | 9,257.2 | | | 9,071.2 | | Total liabilities and equity | | Total liabilities and equity | $ | 14,765.9 | | | $ | 15,154.5 | |
The accompanying notes are an integral part of these consolidated financial statements. GARDNER DENVER HOLDINGS,INGERSOLL RAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Dollars in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | | Capital in Excess of Par Value | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Ingersoll Rand Inc. Stockholders’ Equity | | Noncontrolling Interests | | Total Equity | | Shares Issued | | Par | | | | | | | | Balance at December 31, 2019 | 206.8 | | | $ | 2.1 | | | $ | 2,302.0 | | | $ | (141.4) | | | $ | (256.0) | | | $ | (36.8) | | | $ | 1,869.9 | | | $ | — | | | $ | 1,869.9 | | Net income (loss) | — | | | — | | | — | | | (33.3) | | | — | | | — | | | (33.3) | | | 0.9 | | | (32.4) | | Issuance of common stock for stock-based compensation plans | 2.3 | | | — | | | 20.1 | | | — | | | — | | | — | | | 20.1 | | | — | | | 20.1 | | Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | (2.1) | | | (2.1) | | | — | | | (2.1) | | Issuance of treasury stock for stock-based compensation plans | — | | | — | | | (3.2) | | | — | | | — | | | 5.6 | | | 2.4 | | | — | | | 2.4 | | Acquisition of Ingersoll Rand Industrial (Note 4) | 211.0 | | | 2.1 | | | 6,934.9 | | | — | | | — | | | — | | | 6,937.0 | | | 73.3 | | | 7,010.3 | | Costs of issuing equity securities (Note 4) | — | | | — | | | (1.0) | | | — | | | — | | | — | | | (1.0) | | | — | | | (1.0) | | Stock-based compensation | — | | | — | | | 57.5 | | | — | | | — | | | — | | | 57.5 | | | — | | | 57.5 | | Other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | 270.2 | | | — | | | 270.2 | | | (1.4) | | | 268.8 | | Adoption of new accounting standard (ASU 2016-13) | — | | | — | | | — | | | (1.0) | | | — | | | — | | | (1.0) | | | — | | | (1.0) | | Adjustments for shares tendered in open offer (Note 13) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (14.9) | | | (14.9) | | Adjustments for shares sold in offer for sale (Note 13) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 11.9 | | | 11.9 | | Balance at December 31, 2020 | 420.1 | | | $ | 4.2 | | | $ | 9,310.3 | | | $ | (175.7) | | | $ | 14.2 | | | $ | (33.3) | | | $ | 9,119.7 | | | $ | 69.8 | | | $ | 9,189.5 | | Net income | — | | | — | | | — | | | 562.5 | | | — | | | — | | | 562.5 | | | 2.5 | | | 565.0 | | Dividends declared | — | | | — | | | — | | | (8.2) | | | — | | | — | | | (8.2) | | | — | | | (8.2) | | Issuance of common stock for stock-based compensation plans | 3.7 | | | 0.1 | | | 20.3 | | | — | | | — | | | — | | | 20.4 | | | — | | | 20.4 | | Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | (736.8) | | | (736.8) | | | — | | | (736.8) | | Issuance of treasury stock for stock-based compensation plans | — | | | — | | | (19.9) | | | — | | | — | | | 21.7 | | | 1.8 | | | — | | | 1.8 | | Stock-based compensation | — | | | — | | | 97.9 | | | — | | | — | | | — | | | 97.9 | | | — | | | 97.9 | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (54.3) | | | — | | | (54.3) | | | (2.3) | | | (56.6) | | Divestiture of foreign subsidiaries | — | | | — | | | — | | | — | | | (1.5) | | | — | | | (1.5) | | | — | | | (1.5) | | Dividends attributable to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (0.3) | | | (0.3) | | Balance at December 31, 2021 | 423.8 | | | $ | 4.3 | | | $ | 9,408.6 | | | $ | 378.6 | | | $ | (41.6) | | | $ | (748.4) | | | $ | 9,001.5 | | | $ | 69.7 | | | $ | 9,071.2 | | Net income | — | | | — | | | — | | | 604.7 | | | — | | | — | | | 604.7 | | | 3.8 | | | 608.5 | | Dividends declared | — | | | — | | | — | | | (32.4) | | | — | | | — | | | (32.4) | | | — | | | (32.4) | | Issuance of common stock for stock-based compensation plans | 2.5 | | | — | | | 17.3 | | | — | | | — | | | — | | | 17.3 | | | — | | | 17.3 | | Purchases of treasury stock | — | | | — | | | — | | | — | | | — | | | (261.1) | | | (261.1) | | | — | | | (261.1) | | Issuance of treasury stock for stock-based compensation plans | — | | | — | | | (22.8) | | | — | | | — | | | 25.0 | | | 2.2 | | | — | | | 2.2 | | Stock-based compensation | — | | | — | | | 73.7 | | | — | | | — | | | — | | | 73.7 | | | — | | | 73.7 | | Other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | (210.1) | | | — | | | (210.1) | | | (7.2) | | | (217.3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends attributable to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4.9) | | | (4.9) | | Balance at December 31, 2022 | 426.3 | | | $ | 4.3 | | | $ | 9,476.8 | | | $ | 950.9 | | | $ | (251.7) | | | $ | (984.5) | | | $ | 9,195.8 | | | $ | 61.4 | | | $ | 9,257.2 | |
| | December 31, 2017 | | | December 31, 2016 | | | December 31, 2015 | | | | | | | | | | | | Number of Common Shares Issued (in millions) | | | | | | | | | | Balance at beginning of period | | | 150.6 | | | | 150.3 | | | | 149.9 | | Common stock issued for initial public offering | | | 47.5 | | | | - | | | | - | | Common stock issued to employees for deferred stock units | | | 0.2 | | | | - | | | | - | | Exercise of stock options | | | 0.1 | | | | - | | | | - | | Common stock issued for management | | | - | | | | 0.3 | | | | 0.4 | | Balance at end of period | | | 198.4 | | | | 150.6 | | | | 150.3 | | Common Stock | | | | | | | | | | | | | Balance at beginning of period | | $ | 1.5 | | | $ | 1.5 | | | $ | 1.5 | | Exercise of stock options | | | - | | | | - | | | | - | | Common stock issued for initial public offering | | | 0.5 | | | | - | | | | - | | Balance at end of period | | $ | 2.0 | | | $ | 1.5 | | | $ | 1.5 | | Capital in Excess of Par Value | | | | | | | | | | | | | Balance at beginning of period | | $ | 1,222.4 | | | $ | 1,219.2 | | | $ | 1,215.0 | | Common stock issued for initial public offering, net of underwritting discounts and commissions | | | 897.2 | | | | - | | | | - | | Costs related to initial public offering | | | (4.6 | ) | | | - | | | | - | | Stock-based compensation | | | 157.3 | | | | - | | | | - | | Exercise of stock options | | | 0.7 | | | | - | | | | - | | Purchase of noncontrolling interest | | | 2.4 | | | | - | | | | - | | Common stock issued for management | | | - | | | | 3.2 | | | | 4.2 | | Balance at end of period | | $ | 2,275.4 | | | $ | 1,222.4 | | | $ | 1,219.2 | | Accumulated Deficit | | | | | | | | | | | | | Balance at beginning of period | | $ | (596.2 | ) | | $ | (559.6 | ) | | $ | (208.4 | ) | Net income (loss) attributable to Gardner Denver Holdings, Inc. | | | 18.4 | | | | (36.6 | ) | | | (351.2 | ) | Balance at end of period | | $ | (577.8 | ) | | $ | (596.2 | ) | | $ | (559.6 | ) | Accumulated Other Comprehensive Loss | | | | | | | | | | | | | Balance at beginning of period | | $ | (342.4 | ) | | $ | (265.6 | ) | | $ | (135.3 | ) | Foreign currency translation adjustments, net | | | 157.6 | | | | (76.2 | ) | | | (136.3 | ) | Foreign currency (losses) gains, net | | | (51.6 | ) | | | 13.6 | | | | 32.6 | | Unrecognized gains (losses) on cash flow hedges, net | | | 12.4 | | | | (0.9 | ) | | | (15.9 | ) | Pension and other postretirement prior service cost and gain or loss, net | | | 24.2 | | | | (13.3 | ) | | | (10.7 | ) | Balance at end of period | | $ | (199.8 | ) | | $ | (342.4 | ) | | $ | (265.6 | ) | Treasury Stock | | | | | | | | | | | | | Balance at beginning of period | | $ | (19.4 | ) | | $ | (5.3 | ) | | $ | (3.2 | ) | Purchases of treasury stock | | | (3.6 | ) | | | (14.1 | ) | | | (2.1 | ) | Balance at end of period | | $ | (23.0 | ) | | $ | (19.4 | ) | | $ | (5.3 | ) | Total Gardner Denver Holdings, Inc. Stockholders' Equity | | $ | 1,476.8 | | | $ | 265.9 | | | $ | 390.2 | | Noncontrolling Interests | | | | | | | | | | | | | Balance at beginning of period | | $ | 5.9 | | | $ | 15.3 | | | $ | 19.0 | | Net income (loss) attributable to noncontrolling interests | | | 0.1 | | | | 5.3 | | | | (0.8 | ) | Dividends to minority stockholders | | | - | | | | (0.9 | ) | | | (0.9 | ) | Purchase of noncontrolling interest | | | (7.6 | ) | | | - | | | | - | | Transfer of noncontrolling interest AOCI to consolidated AOCI | | | 1.6 | | | | 1.4 | | | | (2.0 | ) | Correction of purchase accounting allocation | | | - | | | | (15.2 | ) | | | - | | Balance at end of period | | $ | - | | | $ | 5.9 | | | $ | 15.3 | | Total Stockholders' Equity | | $ | 1,476.8 | | | $ | 271.8 | | | $ | 405.5 | |
INGERSOLL RAND INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) | | | | | | | | | | | | | | | | | | | For the Years Ended December 31, | | 2022 | | 2021 | | 2020 | Cash Flows From Operating Activities | | | | | | Net income (loss) | $ | 608.5 | | | $ | 565.0 | | | $ | (32.4) | | Income from discontinued operations, net of tax | 15.2 | | | 41.6 | | | 24.4 | | Income (loss) from continuing operations | 593.3 | | | 523.4 | | | (56.8) | | Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities from continuing operations: | | | | | | Amortization of intangible assets | 347.6 | | | 332.9 | | | 335.1 | | Depreciation | 85.2 | | | 89.2 | | | 77.4 | | Impairment of other intangible assets | — | | | — | | | 19.9 | | Non-cash restructuring charges | 6.0 | | | 1.1 | | | 6.2 | | Stock-based compensation expense | 78.9 | | | 87.2 | | | 47.5 | | Loss (income) on equity method investments | (0.7) | | | 11.4 | | | — | | Foreign currency transaction losses (gains), net | (5.9) | | | (12.0) | | | 18.6 | | Loss on extinguishment of debt | 1.1 | | | 9.0 | | | 2.0 | | Non-cash adjustments to carrying value of LIFO inventories | 36.1 | | | 33.2 | | | 39.8 | | Deferred income taxes | (85.8) | | | (103.6) | | | (83.1) | | Other non-cash adjustments | 7.0 | | | (0.2) | | | — | | Changes in assets and liabilities | | | | | | Receivables | (195.2) | | | (62.5) | | | 52.4 | | Inventories | (225.6) | | | (134.4) | | | 159.0 | | Accounts payable | 120.4 | | | 118.2 | | | (43.4) | | Accrued liabilities | 101.2 | | | (220.0) | | | 115.7 | | Other assets and liabilities, net | 1.8 | | | (45.1) | | | (36.8) | | Net cash provided by operating activities from continuing operations | 865.4 | | | 627.8 | | | 653.5 | | Cash Flows From Investing Activities | | | | | | Capital expenditures | (94.6) | | | (64.1) | | | (42.0) | | Net cash (paid) acquired in acquisitions | (246.8) | | | (974.8) | | | 9.0 | | Disposals of property, plant and equipment | — | | | 9.5 | | | 1.7 | | Other investing | 4.1 | | | — | | | — | | Net cash used in investing activities from continuing operations | (337.3) | | | (1,029.4) | | | (31.3) | | Cash Flows From Financing Activities | | | | | | Principal payments on long-term debt | (655.6) | | | (435.7) | | | (1,619.1) | | Proceeds from long-term debt | — | | | — | | | 1,980.1 | | Purchases of treasury stock | (261.1) | | | (736.8) | | | (2.1) | | Cash dividends on common stock | (32.4) | | | (8.2) | | | — | | Proceeds from stock option exercises | 19.3 | | | 23.7 | | | 22.7 | | Payments of interest rate cap premiums | (13.4) | | | — | | | — | | Payments of deferred and contingent acquisition consideration | (4.6) | | | — | | | — | | Payments of debt issuance costs | — | | | — | | | (47.8) | | Purchase of shares from noncontrolling interests | — | | | — | | | (14.9) | | Proceeds from sale of noncontrolling interests | — | | | — | | | 11.9 | | Other financing | (6.2) | | | — | | | (2.1) | | Net cash (used in) provided by financing activities from continuing operations | (954.0) | | | (1,157.0) | | | 328.7 | | Cash Flows From (Used In) Discontinued Operations: | | | | | | Net cash provided by (used in) operating activities | (5.1) | | | (12.3) | | | 260.8 | | Net cash provided by (used in) investing activities | 4.4 | | | 1,943.7 | | | (6.6) | | | | | | | | Net cash provided by (used in) discontinued operations | (0.7) | | | 1,931.4 | | | 254.2 | | Effect of exchange rate changes on cash and cash equivalents | (70.0) | | | (14.1) | | | 40.3 | | Net increase (decrease) in cash and cash equivalents | (496.6) | | | 358.7 | | | 1,245.4 | | Cash and cash equivalents, beginning of year | 2,109.6 | | | 1,750.9 | | | 505.5 | | Cash and cash equivalents, end of year | $ | 1,613.0 | | | $ | 2,109.6 | | | $ | 1,750.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Years Ended December 31, | | 2022 | | 2021 | | 2020 | Supplemental Cash Flow Information | | | | | | Cash paid for income taxes | $ | 181.5 | | | $ | 427.9 | | | $ | 106.3 | | Cash paid for interest | 95.2 | | | 79.8 | | | 98.7 | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements. GARDNER DENVER HOLDINGS,INGERSOLL RAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in millions)
| | For the Years Ended December 31, | | | | 2017 | | | 2016 | | | 2015 | | | | | | | | | | | | Cash Flows From Operating Activities: | | | | | | | | | | Net income (loss) | | $ | 18.5 | | | $ | (31.3 | ) | | $ | (352.0 | ) | | | | | | | | | | | | | | Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | | Amortization of intangible assets | | | 118.9 | | | | 124.2 | | | | 115.4 | | Depreciation in cost of sales | | | 46.6 | | | | 41.1 | | | | 39.6 | | Depreciation in selling and administrative expenses | | | 8.3 | | | | 7.4 | | | | 8.0 | | Impairment of goodwill and other intangible assets | | | 1.6 | | | | 25.3 | | | | 421.4 | | Stock-based compensation expense | | | 175.0 | | | | - | | | | - | | Foreign currency transaction losses (gains), net | | | 9.3 | | | | (5.9 | ) | | | 1.1 | | Net loss (gain) on asset dispositions | | | 0.8 | | | | 0.1 | | | | (4.5 | ) | Loss on extinguishment of debt | | | 84.5 | | | | - | | | | - | | Non-cash change in LIFO reserve | | | 2.6 | | | | (2.2 | ) | | | (2.0 | ) | Deferred income taxes | | | (249.0 | ) | | | (84.4 | ) | | | (63.5 | ) | Changes in assets and liabilities: | | | | | | | | | | | | | Receivables | | | (65.7 | ) | | | (48.8 | ) | | | 83.9 | | Inventories | | | (22.7 | ) | | | 23.5 | | | | (27.8 | ) | Accounts payable | | | 39.9 | | | | 58.1 | | | | (46.8 | ) | Accrued liabilities | | | (24.8 | ) | | | 21.2 | | | | 30.7 | | Other assets and liabilities, net | | | 56.7 | | | | 37.3 | | | | (31.4 | ) | Net cash provided by operating activities | | | 200.5 | | | | 165.6 | | | | 172.1 | | Cash Flows From Investing Activities: | | | | | | | | | | | | | Capital expenditures | | | (56.8 | ) | | | (74.4 | ) | | | (71.0 | ) | Net cash paid in business combinations | | | (18.8 | ) | | | (18.8 | ) | | | (26.2 | ) | Net cash received in business divestitures | | | - | | | | 4.9 | | | | - | | Proceeds from the termination of derivatives | | | 6.2 | | | | - | | | | - | | Disposals of property, plant and equipment | | | 8.6 | | | | 6.2 | | | | 13.2 | | Net cash used in investing activities | | | (60.8 | ) | | | (82.1 | ) | | | (84.0 | ) | Cash Flows From Financing Activities: | | | | | | | | | | | | | Principal payments on short-term borrowings | | | - | | | | - | | | | (7.2 | ) | Proceeds from short-term borrowings | | | - | | | | - | | | | 0.5 | | Principal payments on long-term debt | | | (2,879.3 | ) | | | (26.5 | ) | | | (73.6 | ) | Premium paid on extinguishment of senior notes | | | (29.7 | ) | | | - | | | | - | | Proceeds from long-term debt | | | 2,010.7 | | | | 1.0 | | | | 47.1 | | Proceeds from the issuance of common stock, net of share issuance costs | | | 893.6 | | | | 3.3 | | | | 4.2 | | Purchases of treasury stock | | | (3.6 | ) | | | (14.1 | ) | | | (2.1 | ) | Payments of contingent consideration | | | - | | | | (4.7 | ) | | | (3.0 | ) | Payments of debt issuance costs | | | (4.1 | ) | | | (1.1 | ) | | | - | | Purchase of shares from noncontrolling interests | | | (5.2 | ) | | | - | | | | - | | Other | | | 0.2 | | | | (0.9 | ) | | | (0.9 | ) | Net cash used in financing activities | | | (17.4 | ) | | | (43.0 | ) | | | (35.0 | ) | Effect of exchange rate changes on cash and cash equivalents | | | 15.2 | | | | (13.0 | ) | | | (9.0 | ) | Increase in cash and cash equivalents | | | 137.5 | | | | 27.5 | | | | 44.1 | | Cash and cash equivalents, beginning of year | | | 255.8 | | | | 228.3 | | | | 184.2 | | Cash and cash equivalents, end of year | | $ | 393.3 | | | $ | 255.8 | | | $ | 228.3 | | | | | | | | | | | | | | | Supplemental Cash Flow Information | | | | | | | | | | | | | Cash paid for income taxes | | $ | 55.5 | | | $ | 35.5 | | | $ | 53.8 | | Cash paid for interest | | $ | 142.5 | | | $ | 153.9 | | | $ | 144.6 | | Capital expenditures in accounts payable | | $ | 6.5 | | | $ | 7.2 | | | $ | 2.1 | | Property and equipment acquired under capital leases | | $ | 7.8 | | | $ | 7.7 | | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements.
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in millions, except share and per share amounts)
Note 1: | Note 1: Summary of Significant Accounting Policies |
Overview and Basis of Presentation
Gardner Denver Holdings,Ingersoll Rand Inc. is a holding company whose operating subsidiaries are Gardner Denver, Inc. (“GDI”)global market leader with a broad range of innovative and certain of GDI’s subsidiaries. GDI is a diversified, global manufacturer of highly engineered, application-critical flow control productsmission-critical air, fluid, energy and provider of related aftermarket partsmedical technologies, providing services and services.solutions to increase industrial productivity and efficiency. The accompanying consolidated financial statements include the accounts of Gardner Denver Holdings,Ingersoll Rand Inc. and its majority-ownedconsolidated subsidiaries (collectively referred to herein as “Gardner Denver”“Ingersoll Rand” or the “Company”).
The Company’s initial public offering of shares of common stock wasOn February 29, 2020, Ingersoll Rand Inc. (formerly known as Gardner Denver Holdings, Inc.) completed in May 2017. In connection with the offering, the Company sold a total of 47,495,000 shares of common stock for cash consideration of $20.00 per share ($18.90 per share net of underwriting discounts) and received proceeds of $949.9 million. Expenses for underwriting discounts and commissions related to this offering totaled approximately $52.2 million, resulting in net proceeds of $897.7 million. Additional expenses directly related to the initial public offering of $4.6 million were incurred and recorded as a reduction to the “Capital in excess of par value” line in the Consolidated Balance Sheets.
On November 15, 2017, the Company completed a secondary offering for a total of 25,300,000 shares of common stock held by affiliates of Kohlberg Kravis Roberts & Co. L.P (collectively, the “Selling Stockholders”), including 3,300,000 shares sold pursuant to the over-allotment option granted to underwriters. The public offering price for this secondary offering was $27.25 per share, before deducting underwriting discounts and commissions. The 3,300,000 shares issued and sold by selling stockholders pursuant to the over-allotment option granted to the underwriters was exercised concurrently with the closingacquisition of the secondary offering.Ingersoll Rand Industrial business (“Ingersoll Rand Industrial”) by way of merger and changed its name from Gardner Denver Holdings, Inc. to Ingersoll Rand Inc. The Company did not sell any sharesconsolidated financial statements as of Common Stock inand for the public offering and did not receive any proceeds.
Afteryear ended December 31, 2020 include the completionfinancial results of Ingersoll Rand Industrial from the initial public offering and the secondary offering, affiliatesdate of Kohlberg Kravis Roberts & Co. L.P. continue to control a majority of the voting power of the Company’s common stock. As a result, the Company is considered a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange (“NYSE”).
acquisition.
Principles of Consolidation
The accompanying consolidated financial statements are presentedprepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its majority-owned subsidiaries.. All intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The Company regularly evaluates the estimates and assumptions related to the allowance for doubtful accounts,credit losses, inventory valuation, warranty reserves, fair value of stock-based awards, goodwill, intangible asset, and long-lived asset valuations, employee benefit plan liabilities, over time revenue recognition, income tax liabilities and deferred tax assets and related valuation allowances, uncertain tax positions, restructuring reserves, and litigation and other loss contingencies. Actual results could differ materially and adversely from those estimates and assumptions, and such results could affect the Company’s consolidated net income, financial position, or cash flows.
Foreign Currency Translation
Assets and liabilities of the Company’s foreign subsidiaries, where the functional currency is not the U.S. Dollar (“USD”), are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the year. Adjustments resulting from the translation of the assets and liabilities of foreign operations into USD are excluded from the determination of net income (loss), and are reported in accumulated other comprehensive income (loss) income,, a separate component of stockholders’ equity, and included as a component of other comprehensive income (loss) income.. Assets and liabilities of subsidiaries that are denominated in currencies other than the subsidiaries’ functional currency are remeasured into the functional currency using end of period exchange rates, or historical rates for certain balances, where applicable. Gains and losses related to these remeasurements are recorded within the Consolidated Statements of Operations as a component of “Other operating expense, net.” Revenue Recognition
The Company recognizes revenue when the Company has satisfied its obligation and control is transferred to the customer. The majority of the Company’s revenues are derived from the sale of productsshort duration contracts and services to end customers and distributors under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 605, Revenue Recognition. Accordingly, revenue is recognized onlyat a single point in time when persuasive evidence of an arrangement exists,control is transferred to the customer, generally at shipment or when delivery has occurred or services have been rendered, and collectability of the fixed or determinable sales price is reasonably assured. Provisions are made for estimated returns at time of sale for arrangements with distributors that include rights of return. In arrangements involving sales of products that include customer-specific acceptance criteria,rendered. The Company also has certain contracts in which revenue is recognized after formal customer acceptance occurs or at delivery ifover time based on the Company has reliably demonstrated that all specified customer acceptance criteria have been met. In arrangements where installation is required after delivery,Company’s progress in satisfying the contractual performance obligations. See Note 15 “Revenue from Contracts with Customers” for additional information regarding revenue is recognized for the product upon shipment when the installation obligation is not essential to the functionality of the delivered product, or upon installation if essential to the functionality of the product. Revenue from installation is recognized when the installation is completed. Certain sales of products involve inconsequential or perfunctory performance obligations after delivery, such as product documentation. When remaining undelivered performance obligations under an arrangement are inconsequential or perfunctory, revenue is recognized and a provision for the cost of unperformed obligations is recorded. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined to be probable.
Service revenue is recognized when services are performed and collection is reasonably assured. For maintenance and extended warranty arrangements with customers, revenue is recognized on a straight-line basis over the life of the contract, unless sufficient historical evidence indicates that the cost of providing these services is incurred on an other than straight-line basis. Service revenue represents less than 10% of consolidated revenue.
recognition.
Cost of Sales
Cost of sales includes the costs the Company incurs, including purchased materials, labor and overhead related to manufactured products and aftermarket parts sold during a period. Depreciation related to manufacturing equipment and facilities is included in cost of sales. Purchased materials representsrepresent the majority of costcosts of sales, with steel, aluminum, copper and partially finished
castings representing the most significant materials inputs.
Cost of sales for services includes the direct costs the Company incurs including direct labor, parts and other overhead costs including depreciation of equipment and facilities used to deliver repair, maintenance, and other field services activities to the Company’s customers.
Selling and Administrative Expenses
Selling and administrative expenses consist of (i) employee related salary, stock-based compensation expense, benefits and other expenses for selling, administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; (ii) the costs of marketing and direct costs of selling products and services to customers including internal and external sales commissions; (iii) facilities costs including office rent, maintenance, depreciation, and insurance for selling and administrative activities; (iv) research and development expenditures; (v) professional and consultant fees; and (vi) sponsor fees and expenses; (vii) expenses related to our public stock offerings and to establish public company reporting compliance; and (viii) other miscellaneous expenses.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid investments primarily consisting of demand deposits and have original maturities of three months or less. Accordingly, the carrying amount of such instruments is considered a reasonable estimate of fair value. As of December 31, 20172022 and 2016,2021, cash of $4.4$1.3 millionand $2.6$2.5 million, respectively, was pledged to financial institutions as collateral to support the issuance of standby letters of credit and similar instruments on behalf of the Company.
Accounts Receivable
Trade accounts receivable consist of amounts owed for products shipped to or services performed for customers. Reviews of customers’ creditworthiness are performed prior to order acceptance or order shipment.
Trade accounts receivable are recorded at net realizable value. This value includesof an appropriate allowance for doubtful accountsexpected credit losses. The allowance for estimatedcredit losses is based on the Company’s assessment of losses that maywill result from its customers’ inability or unwillingness to pay amounts owed to the Company’s inability to fully collect amounts due from its customers.Company. The allowance is determined based onusing a combination of factors, including historical credit loss experience and the length of time that the trade receivables are past due, history of write-offs, andsupplemented by the Company’s knowledge of circumstances relating to specific customers’ ability to meet their financial obligations. 59
future events and economic conditions.Inventories
Inventories, which consist primarily of raw materials and finished goods, are carried at the lower of cost or net realizable value. Fixed manufacturing overhead is allocated to the cost of inventory based on the normal capacity of production facilities. Unallocated overhead during periods of abnormally low production levels is recognized as cost of sales in the period in which it is incurred.
Property, Plant and Equipment
Property, plant and equipment includes the historical cost of land, buildings, equipment, and significant improvements to existing plant and equipment or in the case of acquisitions, a fair market value appraisal of such assets completed at the time of acquisition. Repair and maintenance costs that do not extend the useful life of an asset are recorded as an expense as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are generally as follows: buildings — 10 to 50 years;30 years, machinery and equipment — 7 to 15 years;10 years, and office furniture and equipment — 3 to 10 years; and tooling, dies, patterns, etc. — 3 to 7 years.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired, liabilities assumed, and non-controlling interests, if any. Intangible assets, including goodwill, are assigned to the Company’s reporting units based upon their fair value at the time of acquisition. Goodwill and indefinite-lived intangibles such as trademarkstradenames are not subject to amortization but are assessed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired or that there is a probable reduction in the fair value of a reporting unit below its aggregate carrying value.
The Company tests goodwill for impairment annually in the fourth quarter of each year using data as of October 1 of that year. Upon adoption of ASU 2017-04,year and whenever events or changes in circumstances indicate the carrying value may not be recoverable. The impairment test consists of comparing the fair value of the reporting unit to the carrying value of the reporting unit. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; provided, the loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit. If applicable, we considerthe Company considers income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment
loss. The Company determined fair values for each of the reporting units using a combination of the income and market multiple approaches which are weighted 75% and 25%, respectively.
Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company uses its internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on its most recent views of the long-term outlook for each reporting unit. Actual results may differ from those assumed in the Company’s forecasts. The Company derives its discount rates using a capital asset pricing model and analyzing published rates for industries relevant to its reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in its internally developed forecasts. Under the market approach, the Company applies performance multiples from comparable public companies, adjusted for relative risk, profitability, and growth considerations, to the reporting units to estimate fair value.
The Company tests intangible assets with indefinite lives annually for impairment using a relief from royalty discounted cash flow fair value model. The quantitative impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The relief from royalty method requires the Company to estimate forecasted revenues and determine appropriate discount rates, royalty rates, and terminal growth rates.
See Note 89 “Goodwill and Other Intangible Assets” for additional information related to impairment testing for goodwill and other intangible assets.
Long-Lived Assets Including Intangible Assets With Finite Useful Lives
Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives, which vary depending on the type of intangible assets. TheIn determining the estimated useful lives areof definite-lived intangibles, we consider the nature, competitive position, life cycle position and historical and expected future operating cash flows of each acquired assets, as follows: customer listswell as our commitment to support these assets through continued investment and relationships — 12-13 years, acquired technology — 12, 15, or 25 years, certain trademarks — 10 years, and other intangibles —predominately 5 years. legal infringement protection.
The Company reviews long-lived assets, including identified intangible assets with finite useful lives and subject to amortization for impairment, whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. Such events and circumstances include the occurrence of an adverse change in the market involving the business employing the related long-lived assets or a situation in which it is more likely than not that the Company will dispose of such assets. If the comparison indicates that there is impairment, the impairment loss to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying amount of the assets exceeds their fair value and the impaired assets are written down to their fair value or, if fair value is not readily determinable, to an estimated fair value based on discounted expected future cash flows. Assets to be disposed are reported at the lower of the carrying amount or fair value, less costs to dispose. Warranty Reserves
Most of the Company’s product sales are covered by warranty provisions that generally provide for the repair or replacement of qualifying defective items for a specified period after the time of sale, typically 12 months. The Company establishes reserves for estimated product warranty costs at the time revenue is recognized based upon historical warranty experience and additionally for any known product warranty issues. The Company’s warranty obligation has been and may in the future be affected by product failure rates, repair or field replacement costs, and additional development costs incurred in correcting any product failure.
Stock-Based Compensation
Stock-based compensation is measured for all stock-based equity awards made to employees and non-employee directors based on the estimated fair value as of the grant date. The determination of the fair values of stock-based awards at the grant date requires judgment, including estimating the expected term of the relevant stock-based payment awards and the expected volatility of the Company’s stock. The fair value of each stock option grant under the Stock-Based Compensation Planstock-based compensation plans is estimated on the date of grant or modification using the Black-Scholes-Merton option-pricing model. The expected stock volatility assumption was based on an average of the historical volatility of certain of our competitors’ stocks over the expected term of the stock options. Forfeitures of stock options are accounted for as they occur. The fair value of each deferredRestricted stock unit grant underunits and performance share units with internal performance metrics (i.e. EPS) are valued at the Stock-Based Compensation Plan is estimatedshare price on the date of grant. The grant or modificationdate fair value of performance share units with external performance metrics (i.e. TSR) is determined using the Finnerty discount for lack of marketabilitya Monte Carlo simulation pricing model. The discount for lack
See Note 1518 “Stock-Based Compensation Plans” for additional information regarding the Company’s equity compensation plans.
Pension and Other Postretirement Benefits
The Company sponsors a number of pension plans and other postretirement benefit plans worldwide. The calculation of the pension and other postretirement benefit obligations and net periodic benefit cost under these plans requires the use of actuarial valuation methods and assumptions. These assumptions include the discount rates used to value the projected benefit obligations, future rate of compensation increases, expected rates of return on plan assets and expected healthcare cost trend rates. The discount rates selected to measure the present value of the Company’s benefit obligations as of December 31, 20172022 and 20162021 were derived by examining the rates of high-quality, fixed income securities whose cash flows or duration match the timing and amount of expected benefit payments under the plans. In accordance with GAAP, actual results that differ from the Company’s assumptions are recorded in accumulated other comprehensive income (loss) and amortized through net periodic benefit cost over future periods. While management believes that the assumptions are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension and other postretirement benefit obligations and future net periodic benefit cost.
See Note 1112 “Benefit Plans” for disclosures related to Gardner Denver’sthe Company’s benefit plans, including quantitative disclosures reflecting the impact that changes in certain assumptions would have on service and interest costs and benefit obligations.
Income Taxes
The Company has determined income tax expense and other deferred income tax information based on the asset and liability method. Deferred income taxes are provided on temporary differences between assets and liabilities for financial and tax reporting purposes as measured by enacted tax rates expected to apply when temporary differences are settled or realized. A valuation allowance is established for the portion of deferred tax assets for which it is not more likely than not that a tax benefit will be realized.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company believes that its income tax liabilities, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in income tax expense and, therefore, could have a material impact on the Company’s tax provision, net income, and cash flows. The Company reviews its liabilities quarterly, and may adjust such liabilities due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning transfer prices, the resolution of audits, or the expiration of statutes of limitations. Adjustments are most likely to occur in the year during which major audits are closed. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as theThe Tax Cuts and Jobs Act (“Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected, enacted on December 22, 2017, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years, (2) bonus depreciation that will allow for full expensing of qualified property, and (3) a change in US deferred tax assets and liabilities relating to the US tax rate reduction from 35% to 21%.
The Tax Act also establishes new tax laws that will affect 2018, including, but not limited to, (1) reduction of the U.S. federal corporate tax rate; (2) elimination of the corporate alternative minimum tax (“AMT”); (3) the creation of the base erosion anti-abuse tax (“BEAT”), a new minimum tax; (4) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (5) a new provision designed to tax global intangible low-taxed income (“GILTI”), which allows for the possibility of using foreign tax credits (“FTC”) and a deduction of up to 50% to offset the income tax liability (subject to some limitations); (6) a new limitation on deductible interest expense; (7) the repeal of the domestic production activity deduction; (8) limitations on the deductibility of certain executive compensation; (9) limitations on the use of FTCs to reduce the U.S. income tax liability; and (10) limitations on net operating losses (“NOL”) generated after December 31, 2017, to 80% of taxable income.
The SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under FASB Accounting Standard Codification 740 (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
For various reasons we have not completed our accounting for the income tax effects of certain elements of the Tax Act. If we were able to make reasonable estimates of the effects of elements for which our analysis is not yet complete, we recorded provisional adjustments, as described above. If we were not yet able to make reasonable estimates of the impact of certain elements, we have not recorded any adjustments related to those elements and have continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act. As we complete our accounting of the income tax effects of the Tax Act, we anticipate that we may record additional charges or benefits at such time as prescribed by ASC 740 and SAB 118, and as further information becomes available regarding the Tax Act, we may make further adjustments to the provisions that have been recorded in our financial statements. We also continue to examine the impact this tax reform legislation may have on our business.
The Tax Act reduces the corporate tax rate to 21%, effective January 1, 2018. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.
The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, the amount of non-U.S. income taxes paid on such earnings, and the impact of the accumulated overall foreign source loss on our ability to utilize foreign tax credits. We are able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation. However, we are continuing to gather additional information to more precisely compute the amount of the Transition Tax.
Our accounting for the following elements of the Tax Act is incomplete, and we were not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments, other than the adjustment related to the effect of the transitional tax, were recorded related to ASC 740-30 (formerly Accounting Principles Board 23).
The Tax Act createscreated a new requirement that certain income (i.e., GILTI)Global intangible low taxed income (“GILTI”)) earned by controlled foreign corporations (“CFC”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.
Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, we arethe 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”). Because whether we expect to have future U.S. inclusionsThe Company has determined that it will follow the period cost method (option 1 above). The Company recorded a tax expense of $2.5 million in taxable income related to2022 for the GILTI depends on not only our current structure and estimated future results of global operations but also our intent and ability to modify our structure and/or our business, we are not yet able to reasonably estimate the effect of this provisionprovisions of the Tax Act.
Due to these complexities, we have not been able to determine if our company policy concerning permanent reinvestment will change as a result of the new Tax Act. No additional adjustments relating to ASC 740-30 have been recorded in accordance with SAB 118 as we are not currently able to reasonably estimate the impact as of the filing of the December 31, 2017 financial statements. See Note 14 “Income Taxes” for additional information regarding the Company’s income taxes.
Research and Development
For the years ended December 31, 2017, 2016,2022, 2021 and 2015,2020, the Company spent approximately $26approximately $91 million $22, $74 million, and $26$58 million, respectively, on research activities relating to the development of new products and new product applications. All such expenditures were funded by the Company, and were expensed as incurred.incurred and recorded to “Selling and administrative expenses” in the Consolidated Statements of Operations.
Derivative Financial Instruments
All derivative financial instruments are reported on the balance sheet at fair value. For derivative instruments that are not designated as hedges, any gain or loss on the derivatives is recognized in earnings in the current period. A derivative instrument may be designated as a hedge of the exposure to: (1) changes in the fair value of an asset, liability, or firm commitment, or (2) variability in expected future cash flows, if the hedging relationship is expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk during the period of designation or (3) as a hedge of a net investment in a foreign operation. If a derivative is designated as a fair value hedge, the gain or loss on the derivative and the offsetting loss or gain on the hedged asset, liability, or firm commitment are recognized in earnings. For derivative instruments designated as a cash flow hedge, or an eligible net investment in a foreign operation, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified to earnings in the same period that the hedged transaction affects earnings. For derivative instruments designated as net investment in a foreign operation, gains or losses are reported as currency translation adjustments. The ineffective portion of the gain or loss is immediately recognized in earnings. Gains or losses on derivative instruments recognized in earnings are reported in the same line item as the associated hedged transaction in the Consolidated Statements of Operations.
Hedge accounting is discontinued prospectively when (1) it is determined that a derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative is sold, terminated, or exercised; (3) the hedged item no longer meets the definition of a firm commitment; or (4) it is unlikely that a forecasted transaction will occur within two months of the originally specified time period.
When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative continues to be carried on the balance sheet at its fair value, and the changes in the fair value of the hedged asset or liability is recorded to the statementConsolidated Statements of operations.Operations. When cash flow hedge accounting is discontinued because the derivative is sold, terminated, or exercised, the net gain or loss remains in accumulated other comprehensive income and is reclassified into earnings in the same period that the hedged transaction affects earnings or until it becomes unlikely that a hedged forecasted transaction will occur within two months of the originally scheduled time period. When hedge accounting is discontinued because a hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the balance sheetConsolidated Balance Sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the balance sheet and recognized as a gain or loss currently in earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur within two months of the originally specified time period, the derivative continues to be carried on the balance sheet at its fair value, and gains and losses reported in accumulated other comprehensive income are recognized immediately in the statementConsolidated Statements of operations. Operations.
Comprehensive Income (Loss)
The Company’s comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), consisting of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations; (ii) realized and unrealized foreign currency gains and losses on intercompany notes of a long-term nature and hedges of net investments in foreign operations, net of income taxes; (iii) unrealized gains and losses on cash flow hedges, (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 1314 “Accumulated Other Comprehensive Income (Loss) Income..”
Restructuring Charges
The Company incurs costs in connection with the closure and consolidation of facilitiesworkforce reductions, facility consolidations and other actions. Such costs include employee termination benefits (one-time arrangements and benefits attributable to prior service), termination of contractual obligations, non-cash asset charges and other direct incremental costs. A liability is established through a charge to operations for (i) one-time employee termination benefits when management commits to a plan of termination; (ii) employee termination benefits that accumulate or vest based on prior service when it becomes probable that such termination benefits will be paid and the amount of the payment can be reasonably estimated; and (iii) contract termination costs when the contract is terminated or the Company becomes contractually obligated to make such payment. If an operating lease is not terminated, a liability is established when the Company completely ceases use of the leased property. Other direct incremental costs are charged to operations as incurred.
Charges recorded in connection with restructuring plans are included in “Other operating expense, net” in the Consolidated Statements of Operations.
Business Combinations
The Company accounts for business combinations by applying the acquisition method. The Company’s consolidated financial statements include the operating results of acquired entities from the respective dates of acquisition. The Company recognizes and measures the identifiable assets acquired, liabilities assumed, and any non-controlling interest as of the acquisition date at fair value. The excess, if any, of total consideration transferred in a business combination over the fair value of identifiable assets acquired, liabilities assumed, and any non-controlling interest is recognized as goodwill in the Consolidated Balance Sheets. Costs incurred by the Company to effect a business combination other than costs related to the issuance of debt or equity securities are included in the Consolidated Statements of Operations in the period the costs are incurred.
Earnings (Loss) per Share
The calculation of earnings (loss) per share (“EPS”) is based on the weighted-average number of the Company’s shares outstanding for the applicable period. The calculation of diluted earnings (loss) per share reflects the effect of all dilutive potential shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive. The Company uses the treasury stock method to calculate the effect of outstanding share-based compensation awards.
Note 2: | Note 2: New Accounting Standards |
Recently Adopted Accounting Standard Updates (“ASU”)
In March 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provided 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 was effective beginning on March 12, 2020 through December 31, 2022. 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. In April 2022, the Company and its lenders executed Amendment No. 8 to the Credit Agreement, the primary purpose of which was to change the reference rate for existing and new borrowings under the Credit Agreement by replacing LIBOR with the Secured Overnight Financing Rate (“SOFR”). We applied practical expedients provided in Topic 848 allowing for the changes in contractual terms to be accounted for prospectively. These modifications had no significant impact on our consolidated financial statements. Refer to Note 11 “Debt” for further information regarding the terms of the Credit Agreement. Recently Issued Accounting Pronouncements
In May 2014,October 2021, the FinancialFASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenuefor Contract Assets and Contract Liabilities from Contracts with Customers, (Topic 606).which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The amendments in this update will replace most of the existing GAAP revenue recognition guidance.are effective for fiscal years beginning after December 15, 2022 for public companies. The core principle of this ASUadoption is that an entity should recognize revenue for the transfer of goods or services equalnot expected to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and changes in judgments. The Company will adopt the ASU on January 1, 2018 using the modified retrospective approach and with the cumulative effect of initially applying the update recognized as an adjustment to the opening balance of “Accumulated deficit” on the Consolidated Balance Sheets.
The Company has completed an evaluation of its revenue activities against the requirements of the ASU. During the evaluation, the Company identified certain contractual arrangements involving customer specific application engineering primarily in the Energy segment that will, in certain circumstances, meet the criteria for revenue recognition over time under the new standard. The contracts meeting this criteria are those with no alternative use and terms and conditions which specify the recovery of cost plus a reasonable margin for work performed to-date in the event of cancellation for convenience. Currently, revenue on these arrangements is recognized when each performance obligation is complete or substantially complete, provided all other revenue recognition criteria have been met.
The Company has completed the process of updating its information systems to comply with the requirements of the ASU. Based upon our assessment of contracts in process as of December 31, 2017, the Company does not anticipate a material cumulative adjustment to opening “Accumulated deficit”impact on the Consolidated Balance Sheets as a result of adoption.
Historically, a significant portion of the Energy segment project revenue has been recognized when projects ultimately ship in the Company’s fourth quarter. An effect of the adoption of the ASU will be to accelerate a portion of this revenue to earlier quarters for those contracts qualifying for revenue recognition over time. The magnitude of the effect in a given quarter will be dependent upon the number and magnitude of active highly engineered project contracts with terms and conditions which require revenue recognition over time.
our consolidated financial statements.
In February 2016,September 2022, the FASB issued ASU 2016-02, Leases (Topic 842).2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. The amendments in this update will replace most ofare effective for fiscal years beginning after December 15, 2022, except for the existing GAAP lease accounting guidance in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilitiesamendment on the balance sheet and disclosing keyroll forward information, about leasing arrangements. The ASUwhich is effective for public companiesfiscal years beginning after December 15, 2023. Early adoption is permitted. The adoption is not expected to have a material impact on our consolidated financial statements. Note 3: Discontinued Operations Discontinued operations comprise two formerly-owned businesses, Specialty Vehicle Technologies (“SVT” or “Club Car”) and High Pressure Solutions (“HPS”). The results of operations, financial positions and cash flows of these businesses are reported as discontinued operations for all periods presented in these consolidated financial statements.
Specialty Vehicle Technologies On April 9, 2021, the Company entered into an agreement to sell Club Car to private equity firm Platinum Equity Advisors, LLC (“Platinum Equity”) for $1.68 billion in cash. The sale was substantially completed on June 1, 2021 and concluded in the firstthird quarter of 2019.2022. High Pressure Solutions On February 14, 2021, the Company entered into an agreement to sell its majority interest in High Pressure Solutions to private equity firm American Industrial Partners. In exchange for its majority interest of 55%, the Company received net cash proceeds of $278.3 million and retained a 45% common equity interest in the newly-formed entity comprising the HPS business. The ASU requires lesseesCompany expects to maintain this minority investment indefinitely and lessorsis unable to recognizeestimate when this interest may be disposed. This sale was substantially completed on April 1, 2021. Financial information of discontinued operations The results of operations of SVT and measure leasesHPS are presented as discontinued operations for the years ended December 31, 2022, 2021 and 2020 as summarized below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Specialty Vehicle Technologies | | High Pressure Solutions | | Total | | | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | Revenues | $ | 6.6 | | | $ | 430.9 | | | $ | 741.4 | | | $ | — | | | $ | 71.9 | | | $ | 195.6 | | | $ | 6.6 | | | $ | 502.8 | | | $ | 937.0 | | Cost of sales | 6.5 | | | 321.3 | | | 564.6 | | | — | | | 60.2 | | | 163.9 | | | 6.5 | | | 381.5 | | | 728.5 | | Gross Profit | 0.1 | | | 109.6 | | | 176.8 | | | — | | | 11.7 | | | 31.7 | | | 0.1 | | | 121.3 | | | 208.5 | | Selling and administrative expenses | 0.1 | | | 35.7 | | | 63.0 | | | — | | | 5.3 | | | 42.5 | | | 0.1 | | | 41.0 | | | 105.5 | | Amortization of intangible assets | — | | | 10.4 | | | 37.1 | | | — | | | 2.4 | | | 23.6 | | | — | | | 12.8 | | | 60.7 | | Loss (gain) on sale | (2.8) | | | (298.3) | | | — | | | — | | | 207.7 | | | — | | | (2.8) | | | (90.6) | | | — | | Other operating expense, net | 0.7 | | | 18.1 | | | 1.7 | | | 1.6 | | | 19.0 | | | 14.5 | | | 2.3 | | | 37.1 | | | 16.2 | | Operating Income (Loss) | 2.1 | | | 343.7 | | | 75.0 | | | (1.6) | | | (222.7) | | | (48.9) | | | 0.5 | | | 121.0 | | | 26.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other expense, net | — | | | — | | | — | | | — | | | — | | | 0.1 | | | — | | | — | | | 0.1 | | Income (Loss) from Discontinued Operations Before Income Taxes | 2.1 | | | 343.7 | | | 75.0 | | | (1.6) | | | (222.7) | | | (49.0) | | | 0.5 | | | 121.0 | | | 26.0 | | Provision (benefit) for income taxes | (13.2) | | | 87.1 | | | 12.9 | | | (1.5) | | | (7.7) | | | (11.3) | | | (14.7) | | | 79.4 | | | 1.6 | | Income (Loss) from Discontinued Operations, Net of Tax | $ | 15.3 | | | $ | 256.6 | | | $ | 62.1 | | | $ | (0.1) | | | $ | (215.0) | | | $ | (37.7) | | | $ | 15.2 | | | $ | 41.6 | | | $ | 24.4 | |
As of December 31, 2021, total assets of discontinued operations comprised cash and cash equivalents of $6.2 million, inventories of $5.6 million, accounts receivable, net of $2.5 million, and plant, property and equipment, net of $1.2 million and total liabilities of discontinued operations comprised accrued liabilities of $14.9 million and accounts payable of $2.2 million. These assets and liabilities related to certain non-U.S. subsidiaries for which legal transfer of ownership did not occur until 2022. The significant non-cash operating items and capital expenditures reflected in cash flows of discontinued operations for the years ended December 31, 2022, 2021 and 2020 include the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Specialty Vehicle Technologies | | High Pressure Solutions | | Total | | | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | Loss (gain) on sale | $ | (2.8) | | | $ | (298.3) | | | $ | — | | | $ | — | | | $ | 207.7 | | | $ | — | | | $ | (2.8) | | | $ | (90.6) | | | $ | — | | Depreciation and amortization | — | | | 14.8 | | | 51.5 | | | — | | | 4.0 | | | 36.9 | | | — | | | 18.8 | | | 88.4 | | Stock-based compensation expense | — | | | 8.2 | | | 3.0 | | | — | | | 2.7 | | | 0.8 | | | — | | | 10.9 | | | 3.8 | | Capital expenditures | — | | | 1.6 | | | 3.1 | | | — | | | 0.3 | | | 3.6 | | | — | | | 1.9 | | | 6.7 | |
Note 4: Acquisitions 2022 Acquisitions On February 1, 2022, the Company acquired Houdstermaatschappij Jorc B.V. (“Jorc”), a manufacturer of condensate management products, for aggregate cash consideration of $30.2 million. Jorc has been reported in the Industrial Technologies and Services segment from the date of acquisition. On September 1, 2022, the Company acquired Westwood Technical Limited (“Westwood Technical”), a control and instrumentation specialist based in the United Kingdom with unique Industrial Internet of Things (IIoT) capabilities, for aggregate cash consideration of $8.1 million and contingent consideration of up to $9.3 million. Westwood Technical has been reported in the Precision and Science Technologies segment from the date of acquisition. On September 1, 2022, the Company acquired Holtec Gas Systems LLC (“Holtec”), a nitrogen generator manufacturer, for cash consideration of $12.6 million. Holtec has been reported in the Industrial Technologies and Services segment from the date of acquisition. On September 1, 2022, the Company acquired Hydro Prokav Pumps (India) Private Limited (“Hydro Prokav”) for cash consideration of $14.0 million. Hydro Prokav has been reported in the Precision and Science Technologies segment from the date of acquisition. On October 1, 2022, the Company acquired Dosatron International L.L.C (“Dosatron International”), a technology solutions provider of water powered dosing pumps and systems, for cash consideration of $89.5 million and contingent consideration of up to $14.7 million. Dosatron International has been reported in the Precision and Science Technologies segment from the date of acquisition. On November 1, 2022, the Company acquired Pedro Gil Construcciones Mecanicas, S.L. (“Pedro Gil”), a manufacturer of positive displacement blowers, pumps and vacuum systems in the Spanish market, for aggregate cash consideration of $17.9 million. Pedro Gil has been reported in the Industrial Technologies and Services segment from the date of acquisition. On December 1, 2022, the Company acquired Everest Blowers Private Limited and Everest Blower Systems Private Limited (collectively, “Everest Group”), the Indian market leader for customized blower and vacuum pump solutions, for $75.3 million aggregate cash consideration and estimated contingent consideration of $12.1 million. Everest Group has been reported in the Industrial Technologies and Services segment from the date of acquisition. Other acquisitions completed during the year ended December 31, 2022 include multiple sales and service businesses and a manufacturer in the Industrial Technologies and Services segment. The aggregate consideration for these acquisitions was $19.9 million. Of the goodwill recognized on our 2022 acquisitions, $10.2 million is expected to be deductible for tax purposes. The following table summarizes the allocation of consideration for all businesses acquired in 2022 to the fair values of identifiable assets acquired and liabilities assumed at the beginningacquisition dates. Initial accounting for all 2022 acquisitions is substantially complete. Any further adjustments during the measurement period are not expected to be material. | | | | | | | | | | | | | | | | | | | Dosatron International | | All others | | Total Consideration | Accounts receivable | $ | 1.8 | | | $ | 16.3 | | | $ | 18.1 | | Inventories | 6.2 | | | 20.7 | | | 26.9 | | Other current assets | 0.1 | | | 1.3 | | | 1.4 | | Property, plant and equipment | 0.3 | | | 8.9 | | | 9.2 | | Goodwill | 57.4 | | | 150.5 | | | 207.9 | | Intangible assets | 41.9 | | | 43.0 | | | 84.9 | | Other noncurrent assets | 13.8 | | | 0.9 | | | 14.7 | | Total current liabilities | (3.5) | | | (30.6) | | | (34.1) | | Deferred tax liabilities | (13.8) | | | (9.7) | | | (23.5) | | Other noncurrent liabilities | — | | | (1.9) | | | (1.9) | | Total consideration | $ | 104.2 | | | $ | 199.4 | | | $ | 303.6 | |
Acquisition Revenues and Operating Income The Company is currently assessingrevenues and operating income included in the impact of this ASU on its consolidated financial statements for these acquisitions subsequent to their acquisition date were $38.4 million and evaluating$3.4 million, respectively, for the method of adoption.year ended December 31, 2022. 2021 Acquisitions
In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This update was intended to improve the presentation of net periodic pension costs and net periodic postretirement benefit costs in the financial statements. The amendments in this ASU requires the Company to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employeesacquired multiple businesses during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of operating income. If a separate line item or items areyear ended December 31, 2021. Pro forma information has not used to present the other components of net benefit cost, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendment allows only the service cost component of net benefit cost to be eligible for capitalization. The ASU is effective for public companies for the annual and interim reporting periods of 2018. Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption. The amendments in this ASU are to be applied retrospectively for presentation in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. A practical expedient allows the Company to use the amount disclosed in its pension and other postretirement benefit plan note for the prior comparative periodsbeen provided as the estimation basis for applying the retrospective presentation requirements. Disclosure must be made if the practical expedient was used. The Company doesacquisitions did not expect this ASU to have a material impact on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This update was intended to improve the financial reportingConsolidated Statements of hedging relationships to better portray the economic results of the Company’s risk management activities in its financial statements through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in this ASU require the Company to present the earnings effect of the hedging instrumentOperations individually or in the same income statement line item in which the earnings effect of the hedged item is reported. This allows users of the financial statements to better understand the results and costs of the Company’s hedging program. The Company is required to apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements must be applied prospectively. The effective date for adoption is for annual and interim periods beginning after December 15, 2018. This will require adoption in the first quarter of fiscal year 2019. The Company is currently assessing the impact of this ASU on its consolidated financial statements and evaluating the timing of adoption.
Note 3: | Business Combinations |
The Company acquired four businesses during the three years ended December 31, 2017. Proforma information regarding these acquisitions is not considered significant and has not been disclosed.
Acquisition of LeROI Compressors
On June 5, 2017, the Company acquired 100% of the stock of LeROI Compressors (“LeROI”), a leading North American manufacturer of gas compression equipment and solutions for vapor recovery, biogas and other process and industrial applications. The Company acquired all of the assets and assumed certain liabilities of LeROI for total cash consideration of $20.4 million, net of cash acquired. Included in the cash consideration is an indemnity holdback of $1.9 million recorded in “Accrued liabilities” and expected to be paid by the end of 2021.aggregate. The revenues and operating income of LeROIeach of the acquisitions below are included in the Company’s consolidated financial statements from the acquisition datedate.
On January 31, 2021, the Company acquired the Vacuum and are includedBlower 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 Industrials segment.design and manufacture of positive displacement blowers, mechanical vacuum pumps, vacuum boosters and engineered blower and vacuum systems. The acquisition is intended to expand the product portfolio of the Industrial Technologies and Services segment with complementary technologies and applications. The goodwill arising from the acquisition is attributable to the expected cost synergies, anticipated growth of new and existing customers, and the assembled workforce. The goodwill resulting from this acquisition is deductible for tax purposes. On July 30, 2021, the Company acquired Maximus Solutions for cash consideration of $111.0 million, net of cash acquired. The business is a provider of digital controls and Industrial Internet of Things (IIoT) production management systems for the agritech software and controls market. The acquisition is intended to expand product and service offerings of the Precision and Science Technologies segment into attractive end markets and contribute to growth in digital and connected solutions. The goodwill arising from the acquisition is attributable to synergies expected from building on Maximus’s expertise in digital controls and IIoT systems and from anticipated growth from existing and new customers. None of this goodwill is deductible for tax purposes. On August 31, 2021, the Company acquired Seepex GmbH (“Seepex”) for cash consideration of $482.1 million, net of cash acquired. Seepex is a global leader in progressive cavity pump solutions. The acquisition expands the product portfolio of the Precision and Science Technologies segment with offerings that primarily serve the water, wastewater, food and beverage, and chemical end markets. The goodwill arising from the acquisition is attributable to the expected cost synergies, anticipated growth of new and existing customers, and the assembled workforce. None of this goodwill is deductible for tax purposes. On October 29, 2021, the Company acquired Air Dimensions Inc. for cash consideration of $70.8 million. The business designs, manufactures and sells vacuum diaphragm pumps primarily for environmental applications. The acquisition is intended to expand the product portfolio of the Precision and Science Technologies segment and further penetrate end markets such as emission monitoring, biogas, utility and chemical processing. The goodwill arising from the acquisition is attributable to growth expected from product and channel synergies and to the assembled workforce. The goodwill resulting from this acquisition is deductible for tax purposes. On December 1, 2021, the Company acquired the assets of Tuthill Corporation’s Pump Group for cash consideration of $84.8 million. The business is a market leader in gear and piston pump solutions. The acquisition is intended to complement existing brands and technologies in the Precision and Science Technologies segment and further penetrate high growth end markets, including life and sciences, food and beverage, medical and water and wastewater treatment. The goodwill arising from the acquisition is attributable to revenue growth and cost savings opportunities and to the assembled workforce. The majority of the goodwill resulting from this acquisition is deductible for tax purposes. Other acquisitions completed during the year ended December 31, 2021 include multiple sales and service businesses and a manufacturer of air purity analysis equipment in the Industrial Technologies and Services segment and a pump technology business in the Precision and Science Technologies segment. The aggregate consideration for these acquisitions was $44.6 million.
The following table summarizes the allocation of consideration to the fair values of identifiable assets acquired and liabilities assumed at the acquisition date. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Seepex | | M-D Pneumatics and Kinney Vacuum Pumps | | Maximus Solutions | | All Others | | Total Consideration | Accounts receivable | $ | 24.9 | | | $ | 4.8 | | | $ | 4.3 | | | $ | 9.4 | | | $ | 43.4 | | Inventories | 42.4 | | | 3.8 | | | 2.9 | | | 10.1 | | | 59.2 | | Other current assets | 1.9 | | | 0.2 | | | 0.2 | | | 0.3 | | | 2.6 | | Property, plant and equipment | 40.6 | | | 16.2 | | | 2.1 | | | 15.0 | | | 73.9 | | Goodwill | 249.0 | | | 81.5 | | | 75.9 | | | 79.6 | | | 486.0 | | Intangible assets | 239.2 | | | 82.5 | | | 39.5 | | | 95.9 | | | 457.1 | | Other noncurrent assets | 1.4 | | | — | | | — | | | — | | | 1.4 | | Total current liabilities | (35.1) | | | (3.5) | | | (2.4) | | | (4.1) | | | (45.1) | | Deferred tax liabilities | (75.6) | | | — | | | (11.3) | | | (4.2) | | | (91.1) | | Other noncurrent liabilities | (6.6) | | | (1.5) | | | (0.2) | | | (1.8) | | | (10.1) | | Total consideration | $ | 482.1 | | | $ | 184.0 | | | $ | 111.0 | | | $ | 200.2 | | | $ | 977.3 | |
Acquisition ofRevenues and Operating Income The revenues included in the Non-Controlling Interestconsolidated financial statements for these acquisitions subsequent to their acquisition date were $356.1 million and $145.9 million, respectively, for the years ended December 31, 2022 and 2021. The operating income (loss) included in Tamrotor Kompressorit Oythe consolidated financial statements for these acquisitions subsequent to their acquisition date was $31.8 million and $(4.5) million, respectively, for the years ended December 31, 2022 and 2021. Ingersoll Rand Industrial Acquisition
On March 3, 2017,February 29, 2020, Ingersoll Rand (formerly Gardner Denver Holdings, Inc.) completed the Company acquiredacquisition of and merger with Ingersoll Rand Industrial in exchange for non-cash consideration comprising the remaining 49% non-controlling interest of Tamrotor Kompressorit Oy (“Tamrotor”), a distributor of the Company’s Industrials segment air compression products. following: | | | | | | Fair value of Ingersoll Rand common stock issued for Ingersoll Rand Industrial outstanding common stock | $ | 6,919.5 | | Fair value attributable to pre-merger service for replacement equity awards | 8.6 | | Fair value attributable to pre-merger service for deferred compensation plan | 8.9 | | Total purchase consideration | $ | 6,937.0 | |
The Company acquired the remaining interest in Tamrotor for total cash considerationincurred acquisition costs of $5.2$87.3 million, consisting entirely of payments to the former shareholders. Included in the cash consideration was a holdback of $0.5 million that was paid in the third quarter of 2017. This transaction resulted in an increase to “Capital in excess of par value” of $2.3including $42.3 million and an increase to “Accumulated other comprehensive loss” of $1.5$45.0 million in the years ended December 31, 2020 and 2019, respectively. These costs are presented within “Other operating expenses, net” in the Consolidated Balance Sheets.Statements of Operations.
The assets and liabilities of Ingersoll Rand Industrial were measured at their fair values as of the date of the merger. The determination of fair values required the Company to make estimates about expected future cash flows, discount rates, royalty rates and other subjective assumptions and future events that are highly uncertain. These measurements were finalized within one year of the closing date of the transaction.
AcquisitionThe following table summarizes the allocation of ILS Innovative Laborsysteme GmbHconsideration to the fair values of assets acquired and Zinsser Analytic GmbH
On August 31, 2016, the Company acquired 100%liabilities assumed of Ingersoll Rand Industrial as of February 29, 2020. These amounts include assets and liabilities of the stock of ILS Innovative Laborsysteme GmbH (“ILS”) and Zinsser Analytic GmbH (“Zinsser Analytic”). ILS is a leading manufacturer of highly specialized micro-syringes and valves that are used in liquid handling instrumentsSpecialty Vehicle Technologies segment, which was divested during the year ended December 31, 2021 and is reported as a global supplierdiscontinued operation. Refer to Note 3 for further information on the sale of SVT.
| | | | | | | | | | | | | | | Fair value | Cash | | | | | $ | 38.8 | | Accounts receivable | | | | | 585.8 | | Inventories | | | | | 625.4 | | Other current assets | | | | | 87.2 | | Property, plant and equipment | | | | | 516.5 | | Goodwill | | | | | 4,899.2 | | Other intangible assets | | | | | 3,766.6 | | Other noncurrent assets | | | | | 270.9 | | Total current liabilities, including current maturities of long-term debt of $19.0 million | | | | | (753.0) | | Deferred tax liability | | | | | (842.4) | | Long-term debt, net of debt issuance costs and an original issue discount | | | | | (1,851.7) | | Other noncurrent liabilities | | | | | (333.0) | | Noncontrolling interest | | | | | (73.3) | | Total consideration | | | | | $ | 6,937.0 | |
Summary of significant fair value methods The methods used to determine the fair value of certain significant identifiable assets and liabilities included in the allocation of purchase price are discussed below. Property, Plant and Equipment The fair value of property, plant and equipment was primarily calculated using replacement costs adjusted for the age and condition of the asset, with the exception of real property which was calculated using the market approach, and is summarized below. | | | | | | Land and buildings | $ | 215.1 | | | | Machinery and equipment | 256.9 | | Office furniture and equipment | 13.4 | | Other | 1.0 | | Construction in progress | 30.1 | | Total property, plant and equipment | $ | 516.5 | |
Identifiable Intangible Assets The fair value and weighted average useful life of the Ingersoll Rand Industrial identifiable intangible assets are as follows. | | | | | | | | | | | | | Fair Value | | Weighted Average Useful Life (Years) | Tradenames | $ | 1,312.0 | | | Indefinite | Developed technology | 236.0 | | | 7 | Customer relationships | 2,101.0 | | | 13 | Backlog | 81.2 | | | <1 | Internal-use software and other | 36.4 | | | 2 | Total identifiable intangible assets | $ | 3,766.6 | | | |
Results of Ingersoll Rand Industrial subsequent to the world’s leading laboratory equipment manufacturers, laboratories and laboratory consumables distributors. Zinsser Analytic is an established provideracquisition The operating results of customized automated liquid handling systems, and also offers consumables products including polyethylene that are used in diagnostic or clinical labs. The Company acquired all of the assets and assumed certain liabilities of ILS and Zinsser Analytic for approximately $18.8 million, net of cash acquired. The revenues and operating income of ILS and Zinsser Analytic areIngersoll Rand Industrial have been included in the Company’s consolidated financial statements from the date of acquisition datethrough December 31, 2020. The Company’s consolidated statements of operations for the year ended December 31, 2020 included revenues of $2,930.3 million and net loss of $10.8 million, which includes the effects of purchase accounting adjustments, primarily the amortization of intangible assets and the impacts on operating expenses of fair value adjustments to acquired inventory and property, plant and equipment. Unaudited pro forma information The following unaudited pro forma financial information is provided for information purposes only and presents the results of operations of the Company as if the Ingersoll Rand Industrial acquisition was completed on January 1, 2019. The pro forma results do not necessarily represent the revenue or results of operations would have been realized had the acquisition been completed on January 1, 2019. In addition, these results are includednot intended to be a projection of future operating results and do not reflect synergies that might be achieved. | | | | | | | | | 2020 | | | Revenues | $ | 5,398.0 | | | | Net Income | 164.8 | | | |
The unaudited pro forma information includes adjustments for the purchase price allocation (including, but not limited to, amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to stock-based compensation expense, fair value adjustments to acquired inventories, the purchase accounting effect on deferred revenue, interest expense and amortization of debt issuance costs, transaction costs and related tax impacts) and the alignment of accounting policies. The table below reflects the impact of material and nonrecurring adjustments to the unaudited pro forma results for the year ended December 31, 2020 that are directly attributable to the acquisition. | | | | | | | | | 2020 | | | Increase to revenue as a result of deferred revenue fair value adjustment, net of tax | $ | 13.8 | | | | 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 | (34.8) | | | |
Settlement of post-acquisition contingencies In 2021, the Company and Trane Technologies concluded several post-closing steps of the Ingersoll Rand Industrial transaction, finalizing measurements of transferred working capital, indebtedness and retirement plan funding. As a result, Trane Technologies made a payment of $49.5 million to Ingersoll Rand. The Company realized a gain of $30.1 million in 2021, which is reported within “Other income, net” on the Consolidated Statement of Operations. This payment was received in the Medical segment. None of the goodwill resulting from this acquisition is deductible for tax purposes. During the firstthird quarter of 2017, an incremental working capital true-up payment was made for approximately $0.3 million. This amount2021 and is presentedreflected within “Net cash paidchanges in business combinations” in“Other assets and liabilities, net” on the Consolidated StatementsStatement of Cash Flows.
Acquisition of TriContinent Scientific, Inc.
Other 2020 Acquisitions
On April 30, 2015,September 1, 2020, the Company acquired 100% of the stock of TriContinent Scientific, Inc (“TriContinent”),Albin Pump SAS, a manufacturer of OEM precision syringeelectric peristaltic pumps for cash consideration, net of cash acquired, of $15.5 million and related technologies. This acquisition extendeddeferred consideration of $0.9 million. The results of this business are reported within the customer offeringsPrecision and Science Technologies segment from the date of Medical to include liquid handling systems foracquisition. Also during the medical diagnostics and biotechnology diagnostic and analytics industries. Theyear ended December 31, 2020, the Company acquired all oftwo sales and service businesses, one in the assetsUnited States and assumed certain liabilities of TriContinentone in Europe, in the Industrial Technologies and Services segment, for totalcash consideration of $30.8 million. Total consideration is comprised of cash of $28.8$15.0 million and equitydeferred consideration of $2.0$5.1 million. Included in the cash consideration was an indemnity holdback of $4.7 million that was paid in the fourth quarter of 2016. The operating results of TriContinent are included in the Company’s consolidated financial statements from the acquisition date and are included in the Medical segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.
Acquisition Revenues and Operating Income
The revenuerevenues included in the consolidated financial statements for these acquisitions subsequent to their acquisition date of acquisition was $40.1were $26.3 million, $19.4$23.5 million and $13.4$8.9 million, respectively, for the years ended December 31, 2017, 20162022, 2021 and 2015,2020. The operating income included in the consolidated financial statements for these acquisitions subsequent to their acquisition date was $4.4 million, $2.1 million and $0.9 million, respectively, for the years ended December 31, 2022, 2021 and 2020.
Note 5: Restructuring Subsequent to the acquisition of and merger with Ingersoll Rand Industrial, the Company announced a restructuring program (“2020 Plan”) to create efficiencies and synergies, reduce the number of facilities and optimize operating margin within the merged Company. Through December 31, 2022, we recognized expense related to the 2020 Plan of $125.7 million, comprising $98.8 million, $15.6 million and $11.3 million for Industrial Technologies and Services, Precision and Science Technologies and Corporate, respectively. The Company expects total expense for workforce restructuring, facility consolidation and other exit and disposal activities under the 2020 Plan to be approximately $127 million to $138 million. For the years ended December 31, 2017, 20162022, 2021 and 2015, operating income included in the financial statements for the acquisitions described above, subsequent to their date of acquisition was $5.2 million, $2.8 million, and $2.4 million, respectively.
Industrials Restructuring Program
During the second quarter of 2016, the Company revised and expanded the restructuring program in the Industrials segment (“Industrials restructuring program”) announced in the third quarter of 2014. The revised program maintains the focus on rationalizing the European manufacturing footprint of the Industrials segment, including the consolidation of manufacturing and distribution operations in Europe and the relocation of certain production to China. The revised program also included employee and other actions designed to reduce selling, administrative, and other expenses. The Company expects to generate significant cost savings from these efforts.
The Industrials restructuring program has been substantially completed and through December 31, 2017, $38.5 million has been charged to expense through2020, “Restructuring charges, net” were recognized within “Other operating expense, net” in the Consolidated Statements of Operations. The Company does not anticipate any material future expense related toOperations and consisted of the Industrials restructuring program, any remaining liabilities will be paid as contractually obligated. In the second quarter of 2016, a $1.5 million charge was made for the impairment of a trademark that was discontinued and was included in “Impairment of other intangible assets” in the Consolidated Statements of Operations.following.
Energy Restructuring Program
In the fourth quarter of 2016, the Company committed to a restructuring program in the Energy segment (“Energy restructuring program”) to rationalize manufacturing facilities and to otherwise reduce operating costs. Actions included employee reductions primarily in North America, Europe and China and the closure of a production facility in North America. The Company expects to generate significant cost savings from these actions.
The Energy restructuring program has been substantially completed and through December 31, 2017, $6.3 million has been charged to expense through “Other operating expense, net” in the Consolidated Statements of Operations. The Company does not anticipate any material future expense related to the Energy restructuring program, any remaining liabilities will be paid as contractually obligated.
Medical Restructuring Program
In the fourth quarter of 2016, the Company committed to a restructuring program in the Medical segment (“Medical restructuring program”) to rationalize manufacturing facilities and to otherwise reduce operating costs. Actions included employee reductions primarily in North America, Europe, and China and the closure of a production facility in North America. The Company expects to generate significant cost savings from these actions.
The Medical restructuring program has been substantially completed and through December 31, 2017, $3.2 million has been charged to expense through “Other operating expense, net” in the Consolidated Statements of Operations. The Company does not anticipate any material future expense related to the Medical restructuring program, any remaining liabilities will be paid as contractually obligated.
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Industrial Technologies and Services | $ | 20.1 | | | $ | 8.4 | | | $ | 70.3 | | Precision and Science Technologies | 8.7 | | | — | | | 6.9 | | | | | | | | | | | | | | Corporate | 0.5 | | | 5.0 | | | 5.8 | | Restructuring charges, net | $ | 29.3 | | | $ | 13.4 | | | $ | 83.0 | |
The following table summarizes the activity associated with the Company’s restructuring programs by segment(included in “Accrued liabilities” in the Consolidated Balance Sheets) for the years ended December 31, 2017, 20162022 and 2015, respectively. 2021.
| | Industrials Program | | | Energy Program | | | Medical Program | | | Total | | Balance at December 31, 2014 | | $ | 2.5 | | | $ | - | | | $ | - | | | $ | 2.5 | | Charged to expense - termination benefits | | | 3.8 | | | | - | | | | - | | | | 3.8 | | Charged to expense - other | | | 0.9 | | | | - | | | | - | | | | 0.9 | | Payments | | | (5.1 | ) | | | - | | | | - | | | | (5.1 | ) | Other, net | | | (0.1 | ) | | | - | | | | - | | | | (0.1 | ) | Balance at December 31, 2015 | | $ | 2.0 | | | $ | - | | | $ | - | | | $ | 2.0 | | Charged to expense - termination benefits | | | 21.0 | | | | 4.9 | | | | 4.2 | | | | 30.1 | | Charged to expense - other | | | 2.0 | | | | 0.8 | | | | - | | | | 2.8 | | Payments | | | (13.3 | ) | | | (0.3 | ) | | | - | | | | (13.6 | ) | Other, net | | | (0.6 | ) | | | 0.2 | | | | - | | | | (0.4 | ) | Balance at December 31, 2016 | | $ | 11.1 | | | $ | 5.6 | | | $ | 4.2 | | | $ | 20.9 | | Charged to expense - termination benefits | | | 3.6 | | | | (0.1 | ) | | | (1.1 | ) | | | 2.4 | | Charged to expense - other | | | 2.1 | | | | 0.7 | | | | 0.1 | | | | 2.9 | | Payments | | | (13.2 | ) | | | (4.9 | ) | | | (2.5 | ) | | | (20.6 | ) | Other, net | | | 0.7 | | | | - | | | | 0.4 | | | | 1.1 | | Balance at December 31, 2017 | | $ | 4.3 | | | $ | 1.3 | | | $ | 1.1 | | | $ | 6.7 | |
| | | | | | | | | | | | | 2022 | | 2021 | Balance at beginning of the period | $ | 12.3 | | | $ | 17.5 | | Charged to expense - termination benefits | 16.9 | | | 9.6 | | Charged to expense - other(1) | 6.4 | | | 2.7 | | | | | | Payments | (20.6) | | | (15.9) | | Foreign currency translation and other | (0.1) | | | (1.6) | | Balance at end of the period | $ | 14.9 | | | $ | 12.3 | |
As(1)Excludes $6.0 million and $1.1 million of non-cash charges that impacted restructuring expense but not the restructuring liabilities during the years ended December 31, 2017, restructuring reserves of $6.5 million were included in “Accrued liabilities”2022 and restructuring reserves of $0.2 million were included in “Other liabilities” in the Consolidated Balance Sheets. As of December 31, 2016, restructuring reserves of $20.2 million were included in “Accrued liabilities” and restructuring reserves of $0.7 million were included in “Other liabilities” in the Consolidated Balance Sheets.2021, respectively.
Note 5: | Allowance for Doubtful Accounts |
Note 6: Allowance for Credit Losses
The following table summarized the activity associated with allowance for doubtful trade accounts receivablecredit losses for the years ended December 31, 2017, 20162022, 2021 and 2015 consisted2020. | | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Balance at beginning of the period | $ | 42.3 | | | $ | 50.9 | | | $ | 16.6 | | Acquisition of Ingersoll Rand Industrial | — | | | — | | | 25.1 | | Provision (benefit) charged to expense(1) | 10.1 | | | (4.3) | | | 10.3 | | Write-offs, net of recoveries | (3.2) | | | (3.8) | | | (3.5) | | Foreign currency translation and other | (2.0) | | | (0.5) | | | 2.4 | | Balance at end of the period | $ | 47.2 | | | $ | 42.3 | | | $ | 50.9 | |
(1)In the fourth quarter of 2021, the Company adjusted its allowance for credit losses in certain major portions of the following.
| | 2017 | | | 2016 | | | 2015 | | | | | | | | | | | | Balance at beginning of the period | | $ | 18.7 | | | $ | 19.3 | | | $ | 16.8 | | Provision charged to expense | | | 3.5 | | | | 2.7 | | | | 5.7 | | Write-offs, net of recoveries | | | (4.8 | ) | | | (2.4 | ) | | | (2.0 | ) | Charged to other accounts(1) | | | 1.3 | | | | (0.9 | ) | | | (1.2 | ) | Balance at end of the period | | $ | 18.7 | | | $ | 18.7 | | | $ | 19.3 | |
| (1) | Primarily includes the effect of foreign currency translation adjustments for the Company's subsidiaries with functional currencies other than the USD. |
business due to improved collection experience and reduction of past due receivables. The impact of these updates was a $6.6 million reduction in the allowance, with a corresponding benefit within “Selling and administrative expenses.”
Note 6: | Note 7: Inventories |
Inventories as of December 31, 20172022 and 20162021 consisted of the following:following.
| | | 2017 | | | 2016 | | | 2022 | | 2021 | Raw materials, including parts and subassemblies | | $ | 362.6 | | | $ | 312.9 | | Raw materials, including parts and subassemblies | $ | 625.0 | | | $ | 506.6 | | Work-in-process | | | 57.9 | | | | 45.3 | | Work-in-process | 122.2 | | | 88.6 | | Finished goods | | | 60.6 | | | | 69.8 | | Finished goods | 338.7 | | | 283.4 | | | | | 481.1 | | | | 428.0 | | | 1,085.9 | | | 878.6 | | Excess of LIFO costs over FIFO costs | | | 13.4 | | | | 15.9 | | | LIFO reserve | | LIFO reserve | (60.5) | | | (24.4) | | Inventories | | $ | 494.5 | | | $ | 443.9 | | Inventories | $ | 1,025.4 | | | $ | 854.2 | |
As ofAt December 31, 2017, $366.9 million (74%)2022 and 2021, approximately 42% and 41%, respectively, of the Company’stotal inventory is accounted for on a first-in, first-out (“FIFO”) basis and the remaining $127.6 million (26%) is accounted for on a last-in, first-out (“LIFO”) basis. As of December 31, 2016, $322.9 million (73%) of the Company’s inventory is accounted for on a FIFO basis and the remaining $121.0 million (27%) is accounted for on a LIFO basis.
Note 7: | Note 8: Property, Plant and Equipment |
Property, plant and equipment, net as of December 31, 20172022 and 20162021 consisted of the following.
| | | 2017 | | | 2016 | | | 2022 | | 2021 | Land and land improvements | | $ | 34.7 | | | $ | 34.4 | | Land and land improvements | $ | 64.6 | | | $ | 60.1 | | Buildings | | | 137.4 | | | | 122.7 | | Buildings | 298.2 | | | 300.3 | | Machinery and equipment | | | 261.8 | | | | 217.3 | | Machinery and equipment | 556.6 | | | 548.1 | | Tooling, dies, patterns, etc. | | | 55.9 | | | | 42.9 | | | Office furniture and equipment | | | 37.3 | | | | 26.6 | | Office furniture and equipment | 63.1 | | | 58.3 | | Other | | | 16.9 | | | | 9.8 | | | Construction in progress | | | 23.0 | | | | 50.8 | | Construction in progress | 59.3 | | | 39.5 | | | | | 567.0 | | | | 504.5 | | | 1,041.8 | | | 1,006.3 | | Accumulated depreciation | | | (203.8 | ) | | | (146.1 | ) | Accumulated depreciation | (417.4) | | | (357.7) | | Property, plant and equipment, net | | $ | 363.2 | | | $ | 358.4 | | Property, plant and equipment, net | $ | 624.4 | | | $ | 648.6 | |
Note 8: | Note 9: Goodwill and Other Intangible Assets |
Goodwill
The changes in the carrying amount of goodwill attributable to each reportable segment for the years ended December 31, 20172022 and 20162021 are as follows.
| | Industrials | | | Energy | | | Medical | | | Total | | Balance as of December 31, 2015 | | $ | 550.9 | | | $ | 441.4 | | | $ | 198.7 | | | $ | 1,191.0 | | Acquisitions | | | - | | | | - | | | | 4.1 | | | | 4.1 | | Correction of purchase accounting allocation | | | (15.3 | ) | | | - | | | | - | | | | (15.3 | ) | Foreign currency translation | | | (19.8 | ) | | | (1.5 | ) | | | (3.8 | ) | | | (25.1 | ) | Balance as of December 31, 2016 | | | 515.8 | | | | 439.9 | | | | 199.0 | | | | 1,154.7 | | Acquisitions | | | 7.9 | | | | - | | | | - | | | | 7.9 | | Foreign currency translation and other(1) | | | 37.9 | | | | 20.3 | | | | 6.8 | | | | 65.0 | | Balance as of December 31, 2017 | | $ | 561.6 | | | $ | 460.2 | | | $ | 205.8 | | | $ | 1,227.6 | |
| | | | | | | | | | | | | | | | | | | | | | | 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 | 87.9 | | | 391.4 | | | | | | | 479.3 | | Foreign currency translation and other(1) | (61.8) | | | (18.5) | | | | | | | (80.3) | | Balance as of December 31, 2021 | 4,177.3 | | | 1,804.3 | | | | | | | 5,981.6 | | Acquisitions | 121.5 | | | 86.4 | | | | | | | 207.9 | | Foreign currency translation and other(1) | (76.3) | | | (49.0) | | | | | | | (125.3) | | Balance as of December 31, 2022 | $ | 4,222.5 | | | $ | 1,841.7 | | | | | | | $ | 6,064.2 | |
| (1) | During the fiscal year ended December 31, 2017, the Company recorded an increase in goodwill of $0.4 million as a result of measurement period adjustments in the Medical segment. | (1)Includes measurement period adjustments.
On June 5, 2017, theThe Company acquired LeROI Compressors which is included inmultiple businesses during the Industrials segment.year ended December 31, 2022. The excess of the purchase price over the estimated fair values of tangibleintangible assets, identifiable assets and assumed liabilities was recorded as goodwill. AsThe allocation
of the purchase price iswas preliminary for certain of these acquisitions and is subject to adjustmentrefinement based on final fair values of the identified assets acquired and liabilities assumed. The goodwill attributable to these businesses is as follows. | | | | | | | | | | | | | | | | | | | | | | | | | 2022 Acquisitions | | Industrial Technologies and Services | | Precision and Science Technologies | | | | | | Total | Dosatron International | | $ | — | | | $ | 57.4 | | | | | | | $ | 57.4 | | | | | | | | | | | | | | | | | | | | | | | | Other acquisitions | | 121.5 | | | 29.0 | | | | | | | 150.5 | | | | $ | 121.5 | | | $ | 86.4 | | | | | | | $ | 207.9 | |
In 2016, theThe Company acquired two entitiesseveral businesses during the year ended December 31, 2021. The excess of the purchase price over the estimated fair values of intangible assets, identifiable assets and assumed liabilities was recorded as goodwill. The goodwill attributable to these businesses is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | 2021 Acquisitions | | Industrial Technologies and Services | | Precision and Science Technologies | | | | | | Total | Seepex | | $ | — | | | $ | 245.3 | | | | | | | $ | 245.3 | | M-D Pneumatics and Kinney Vacuum Pumps | | 80.0 | | | — | | | | | | | 80.0 | | Maximus Solutions | | — | | | 75.7 | | | | | | | 75.7 | | Other acquisitions | | 7.9 | | | 70.4 | | | | | | | 78.3 | | | | $ | 87.9 | | | $ | 391.4 | | | | | | | $ | 479.3 | |
As of December 31, 2022 and 2021, goodwill included a total of $220.6 million of accumulated impairment losses within the Industrial Technologies and Services segment related to impairments recognized in the Medical Segment asand prior to 2015. Goodwill Impairment Tests Consistent with our accounting policy described in Note 3, “Business Combinations.” This acquisition resulted in $4.1 million1, we performed our annual goodwill impairment testing as of goodwill based on the preliminary purchase price allocation.
In 2017first day of our fiscal fourth quarters of 2022, 2021 and 2016,2020. For the years ended December 31, 2022, 2021 and 2020, each reporting unit’s fair value was in excess of its net carrying value, and therefore, no goodwill impairment was recorded.
In 2015, step one determined that the carrying value of the Petroleum and Industrial Pumps (“P&IP”) reporting unit of the Energy segment exceeded its fair value indicating a potential impairment of goodwill. The decline in the fair value resulted from the adverse impact of declining oil prices on the Company’s customer base and the corresponding demand for the Company’s products. A step two measurement was performed and the fair value of this reporting unit was allocated to its assets and liabilities as if it was acquired in a business combination at October 1, 2015. The excess fair value of the reporting unit over the fair value of its identifiable assets and liabilities represents the implied fair value of goodwill. In the fourth quarter of 2015, the Company recorded an impairment charge of $343.3 million for the amount that the carrying value exceeded the implied fair value of the P&IP reporting unit’s goodwill.
As of December 31, 2017 and 2016, goodwill included a total of $563.9 million of accumulated impairment losses within the Energy segment since the date of the KKR Transaction.
Other Intangible Assets
Other intangible assets as of December 31, 20172022 and 20162021 consisted of the following:following.
| | | 2017 | | | 2016 | | | December 31, 2022 | | December 31, 2021 | | | Gross Carrying Amount | | | Accumulated Amortization | | | Gross Carrying Amount | | | Accumulated Amortization | | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | Amortized intangible assets: | | | | | | | | | | | | | Amortized intangible assets: | | | | | | | | | | | | Customer lists and relationships | | $ | 1,226.8 | | | $ | (473.0 | ) | | $ | 1,160.5 | | | $ | (345.5 | ) | Customer lists and relationships | $ | 3,029.0 | | | $ | (1,286.1) | | | $ | 1,742.9 | | | $ | 3,055.0 | | | $ | (1,048.3) | | | $ | 2,006.7 | | Acquired technology | | | 8.1 | | | | (4.0 | ) | | | 7.1 | | | | (2.2 | ) | | Trademarks | | | 30.3 | | | | (10.6 | ) | | | 27.4 | | | | (6.9 | ) | | Technology | | Technology | 360.0 | | | (124.5) | | | 235.5 | | | 356.4 | | | (77.8) | | | 278.6 | | Tradenames | | Tradenames | 46.2 | | | (22.7) | | | 23.5 | | | 47.8 | | | (19.0) | | | 28.8 | | Backlog | | | 65.5 | | | | (65.5 | ) | | | 60.3 | | | | (60.3 | ) | Backlog | 1.0 | | | (0.3) | | | 0.7 | | | 8.1 | | | (5.1) | | | 3.0 | | Other | | | 53.6 | | | | (23.5 | ) | | | 36.4 | | | | (16.4 | ) | Other | 113.7 | | | (93.2) | | | 20.5 | | | 107.1 | | | (76.9) | | | 30.2 | | Unamortized intangible assets: | | | | | | | | | | | | | | | | | Unamortized intangible assets: | | Trademarks | | | 623.5 | | | | - | | | | 609.5 | | | | - | | | Tradenames | | Tradenames | 1,555.5 | | | — | | | 1,555.5 | | | 1,565.4 | | | — | | | 1,565.4 | | Total other intangible assets | | $ | 2,007.8 | | | $ | (576.6 | ) | | $ | 1,901.2 | | | $ | (431.3 | ) | Total other intangible assets | $ | 5,105.4 | | | $ | (1,526.8) | | | $ | 3,578.6 | | | $ | 5,139.8 | | | $ | (1,227.1) | | | $ | 3,912.7 | |
Amortization of intangible assets was $118.9$347.6 million, $124.2$332.9 million and $115.4$335.1 million for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. Amortization of intangible assets is anticipated to be approximately $118.1$340 million annually in 2018 through 2022each of 2023 and 2024, $260 million in 2025 and $200 million in each of 2026 and 2027 based upon currency exchange rates as of December 31, 2017.
The Company tests indefinite-lived intangible assets for impairment annually in the fourth quarter of each year using data as of October 1 of that year. The Company determines fair values for each of the indefinite-lived intangible assets using a relief from royalty methodology.
In the fourth quarter of 2017, as a result of the annual impairment test of indefinite-lived intangible assets, the Company recorded an impairment charge of $1.5 million related to indefinite-lived trademarks, including $1.2 million related to two trademarks in the Industrials segment and $0.3 million related to an indefinite-lived trademark in the Energy segment.
In the fourth quarter of 2016, as a result of the annual impairment test of indefinite-lived intangible assets, the Company recorded an impairment charge of $24.4 million related to indefinite-lived trademarks, including $23.2 million related to three trademarks in the Industrials segment and $1.2 million related to an indefinite-lived trademark in the Energy segment.
In the second quarter of 2016, as a result of the Industrials restructuring program, a $1.5 million charge was made for the impairment of a trademark that will be discontinued and is included in “Impairments of other intangible assets” in the Consolidated Statements of Operations. See Note 4 “Restructuring.”
2022. In the fourth quarter of 2015, as a result of the annual impairment test of indefinite-lived intangible assets, theOther Intangible Asset Impairment Tests
The Company recordedrecognized an impairment charge of $71.1 million related to indefinite-lived trademarks, including $13.5 million related to the Gardner Denver trademark in the Energy segment, $5.0 million related to the Gardner Denver trademark in the Industrials segment, $10.8 million related to the Nash trademark in the Energy segment, and $41.8 million related to six trademarks in the Industrials segment.
Furthermore, in the third quarter of 2015,2020 of $19.9 million to reduce the Company recorded an impairment chargecarrying value of $7.2 million including $3.5 million related to a customer relationshiptwo tradenames in the Industrial Technologies and Services segment.
Consistent with our accounting policy described in Note 1, we performed our annual intangible asset impairment testing as of the first day of our fiscal fourth quarters of 2022, 2021 and 2020. For the years ended December 31, 2022, 2021 and 2020, other than as discussed above, each tradename’s fair value was in the Energy segmentexcess of its net carrying value, and $3.7 million related to an indefinite-lived trademark in the Medical segment.therefore, no impairment was recorded.
Note 9: | Note 10: Accrued Liabilities |
Accrued liabilities as of December 31, 20172022 and 20162021 consisted of the following:
| | | 2017 | | | 2016 | | | 2022 | | 2021 | Salaries, wages, and related fringe benefits | | $ | 97.3 | | | $ | 56.5 | | Salaries, wages, and related fringe benefits | $ | 223.3 | | | $ | 232.1 | | Contract liabilities | | Contract liabilities | 305.6 | | | 242.1 | | Product warranty | | Product warranty | 46.2 | | | 42.5 | | Operating lease liabilities | | Operating lease liabilities | 39.6 | | | 34.9 | | Restructuring | | | 6.5 | | | | 20.2 | | Restructuring | 14.9 | | | 12.3 | | Taxes | | | 34.5 | | | | 37.1 | | Taxes | 63.3 | | | 41.6 | | Advance payments on sales contracts | | | 42.7 | | | | 43.0 | | | Product warranty | | | 22.3 | | | | 21.7 | | | Accrued interest | | | 0.8 | | | | 15.5 | | | | Other | | | 67.1 | | | | 64.5 | | Other | 165.9 | | | 135.8 | | Total accrued liabilities | | $ | 271.2 | | | $ | 258.5 | | Total accrued liabilities | $ | 858.8 | | | $ | 741.3 | |
A reconciliation of the changes in the accrued product warranty liability for the years ended December 31, 2017, 20162022 and 2015 are2021 is as follows:follows.
| | 2017 | | | 2016 | | | 2015 | | | | | | | | | | | | Beginning balance | | $ | 21.7 | | | $ | 27.6 | | | $ | 22.9 | | Product warranty accruals | | | 24.1 | | | | 18.2 | | | | 26.2 | | Settlements | | | (25.0 | ) | | | (22.7 | ) | | | (20.4 | ) | Charged to other accounts (1) | | | 1.5 | | | | (1.4 | ) | | | (1.1 | ) | Ending balance | | $ | 22.3 | | | $ | 21.7 | | | $ | 27.6 | |
| | | | | | | | | | | | | 2022 | | 2021 | Balance at the beginning of period | $ | 42.5 | | | $ | 41.1 | | Product warranty accruals | 20.4 | | | 16.1 | | Acquired warranty | — | | | 2.1 | | Settlements | (14.8) | | | (15.7) | | Foreign currency translation and other | (1.9) | | | (1.1) | | Balance at the end of period | $ | 46.2 | | | $ | 42.5 | |
| (1) | Includes primarily the effects of foreign currency translation adjustments for the Company’s subsidiaries with functional currencies other than the USD, and changes in the accrual related to acquisitions or divestitures of businesses. |
Debt as of December 31, 20172022 and 20162021 consisted of the following:following.
| | 2017 | | | 2016 | | | | | | | | | Short-term borrowings | | $ | - | | | $ | - | | Long-term debt: | | | | | | | | | Revolving credit facility, due 2020 | | $ | - | | | $ | - | | Receivables financing agreement, due 2020 | | | - | | | | - | | Term loan denominated in U.S. dollars, due 2020(1) (3) | | | - | | | | 1,833.2 | | Term loan denominated in Euros, due 2020(2) (4) | | | - | | | | 405.5 | | Term loan denominated in U.S. dollars, due 2024(5) | | | 1,282.3 | | | | - | | Term loan denomoinated in Euros, due 2024(6) | | | 735.9 | | | | - | | Senior notes, due 2021(7) | | | - | | | | 575.0 | | Second mortgages(8) | | | - | | | | 1.9 | | Capitalized leases and other long-term debt | | | 26.9 | | | | 21.6 | | Unamortized debt issuance costs | | | (4.9 | ) | | | (58.9 | ) | Total long-term debt, net, including current maturities | | | 2,040.2 | | | | 2,778.3 | | Current maturities of long-term debt | | | 20.9 | | | | 24.5 | | Total long-term debt, net | | $ | 2,019.3 | | | $ | 2,753.8 | |
| | | | | | | | | | | | | 2022 | | 2021 | Short-term borrowings | $ | 4.5 | | | $ | — | | Long-term debt | | | | | | | | | | | | | | | | | | | | Dollar Term Loan B, due 2027(1) | $ | 1,846.3 | | | $ | 1,865.0 | | Dollar Term Loan, due 2027(2) | 901.4 | | | 910.5 | | Euro Term Loan, due 2027(3) | — | | | 670.7 | | | | | | Finance leases and other long-term debt | 22.2 | | | 23.9 | | Unamortized debt issuance costs | (21.8) | | | (29.5) | | Total long-term debt, net, including current maturities | 2,748.1 | | | 3,440.6 | | Current maturities of long-term debt | 32.0 | | | 38.8 | | Total long-term debt, net | $ | 2,716.1 | | | $ | 3,401.8 | |
| (1) | This amount is shown net of unamortized discounts of $5.0 million as of December 31, 2016. | (1)As of December 31, 2022, this amount is presented net of unamortized discounts of $1.4 million. As of December 31, 2022, the applicable interest rate was 5.94% and the weighted-average rate was 3.46% for the year ended December 31, 2022. (2)As of December 31, 2022, this amount is presented net of unamortized discounts of $0.7 million. As of December 31, 2022, the applicable interest rate was 5.94% and the weighted-average rate was 3.46% for the year ended December 31, 2022.
| (2) | This amount is shown net of unamortized discounts of $1.4 million as of December 31, 2016. | (3)The weighted-average rate was 2.00% for the six month period prior to loan repayment on June 30, 2022.
| (3) | The weighted-average interest rate was 4.56% for the period from January 1, 2017 through August 17, 2017 and 4.25% for the year ended December 31, 2016. |
| (4) | The weighted-average interest rate was 4.75% for the period from January 1, 2017 through August 17, 2017 and 4.75% for the year ended December 31, 2016. |
| (5) | As of December 31, 2017, the applicable interest rate was 4.44% and the weighted-average rate was 4.07% for the period from August 17, 2017 through December 31, 2017. |
| (6) | As of December 31, 2017, the applicable interest rate was 3.00% and the weighted-average rate was 3.00% for the period from August 17, 2017 through December 31, 2017. |
| (7) | This amount consists of the $575.0 million aggregate principal 6.875% senior notes due 2021 that were entered into in connection with the KKR transaction on July 30, 2013. Interest on the Senior Notes is payable on February 15 and August 15 of each year. The senior notes were redeemed in May 2017. |
| (8) | This amount consists of a fixed-rate 4.80% commercial loan secured by the Company’s facility in Bad Neustadt, Germany. The mortgage was paid in December 2017. |
Senior Secured Credit Facilities
In connection with the transaction in which the Company was acquired by an affiliate of Kohlberg Kravis Roberts & Co. L.P. on July 30, 2013 (the “KKR transaction”), theThe Company entered into a senior secured credit agreement with UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (the “Senior Secured Credit Facilities”) on July 30, 2013.
The Senior Secured Credit Facilities entered into on July 30, 2013 provided senior secured financing in the equivalent of approximately $2,825.0 million, consisting of: (i) a senior secured term loan facility denominated in U.S. Dollars (the “Original Dollar Term Loan Facility”) in an aggregate principal amount of $1,900.0 million; (ii) a senior secured term loan facility denominated in Euros (the “Original Euro Term Loan Facility,” together with the Dollar Term Loan Facility, the “Term Loan Facilities”Facility”) in an aggregate principal amount of €400.0 million; and (iii) a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of $400.0 million available to be drawn in U.S. dollars (“USD”), Euros (“EUR”), Great British Pounds (“GBP”) and other reasonably acceptable foreign currencies, subject to certain sublimits for the foreign currencies. The Company entered into Amendment No. 1 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as administrative agent, and the lenders and other parties thereto on March 4, 2016 (“Amendment No.1”) and Amendment No. 2 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as administrative agent, and other agents, lenders and parties thereto on August 17, 2017 (“Amendment No. 2”).
Amendment No. 1 reduced the aggregate principal borrowing capacity of the Revolving Credit Facility by $40.0 millionincluded borrowing capacity available for letters of credit up to $360.0 million, extended the term of the Revolving Credit Facility to April 30, 2020 with respect to consenting lenders and provided for customary bail-in provisions to address certain European regulatory requirements.
Amendment No. 2 refinanced the Original Dollar Term Loan Facility with a replacement $1,285.5 million senior secured U.S. dollar term loan facility (the ‘‘Dollar Term Loan Facility’’) and the Original Euro Term Loan Facility with a replacement €615.0 million senior secured euro term loan facility (the ‘‘Euro Term Loan Facility’’). Further the maturity for both term loan facilities was extended to July 30, 2024 and LIBOR Floor was reduced from 1.0% to 0.0%. The refinancing of the Original Dollar Term Loan Facility and Euro Term Loan Facility resulted in the write-offs of unamortized debt issuance costs of $29.4$200.0 million and original issue discounts of $4.7 million which were recordedfor borrowings on same-day notice, referred to the “Loss on Debt Extinguishment” line of the Consolidated Statements of Operations.
On July 30, 2018, the Revolving Credit Facility principal amount will decrease to $269.9 million resulting from the maturity of the tranches of the Revolving Credit Facility which are owned by lenders which elected not to modify the original Revolving Credit Facility maturity date, and any amounts then outstanding in excess of $269.9 million will be required to be paid. Any principal amounts outstanding as of April 30, 2020 will be due at that time and required to be paid in full.
swingline loans.
The borrower of the Dollar Term Loan Facility and the Euro Term Loan Facility is Gardner Denver, Inc. Prior to the Company entering into Amendment No. 1, GD German Holdings II GmbH became an additional borrower and successor in interest to Gardner Denver Holdings GmbH & Co. KG. GD German Holdings II GmbH, GD First (UK) Limited and Gardner Denver, Inc. arewere the listed borrowers under the Revolving Credit Facility. The Company entered into Amendment No. 1 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as administrative agent, and the lenders and other parties thereto on March 4, 2016 (“Amendment No.1”), Amendment No. 2 on August 17, 2017 (“Amendment No.2”) and Amendment No. 3 on December 13, 2018 (“Amendment No.3”). Amendment No. 1 reduced the aggregate principal borrowing capacity of the Revolving Credit Facility includesby $40.0 million to $360.0 million, extended the term of the Revolving Credit Facility to April 30, 2020 with respect to consenting lenders and provided for customary bail-in provisions to address certain European regulatory requirements. On July 30, 2018, the Revolving Credit Facility principal borrowing capacity availabledecreased to $269.9 million resulting from the maturity of the tranches of the Revolving Credit Facility which were owned by lenders that elected not to modify the original Revolving Credit Facility maturity date. Amendment No. 1 reduced the minimum aggregate principal amount for lettersextension amendments to the facilities from $50.0 million to $35.0 million. Amendment No. 2 refinanced the Original Dollar Term Loan Facility with a replacement $1,285.5 million senior secured U.S. dollar term loan facility (the “New Dollar Term Loan Facility”) and the Original Euro Term Loan Facility with a replacement €615.0 million senior secured euro term loan facility (the “New Euro Term Loan Facility”). Further the maturity for both term loan facilities was extended to July 30, 2024 and LIBOR Floor was reduced from 1.0% to 0.0%. Amendment No. 3 amended the definition of “Change of Control” to (i) remove the requirement that certain specified equity holders maintain a minimum ownership level of the outstanding voting stock of the Company, (ii) increase the threshold at which the acquisition of ownership by a person, entity or group of other equity holders constitutes a “Change of Control” from 35% of the outstanding voting stock of the Company to 50% of the outstanding voting stock of the Company and (iii) make certain other corresponding technical changes and updates. The Company entered into Amendment No. 4 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as Resigning Agent and Citibank, N.A. as Successor Agent on June 28, 2019 (“Amendment No. 4”). Amendment No. 4 (i) refinanced the existing senior secured revolving credit facility with a replacement $450.0 million senior secured revolving credit facility (the “New Revolving Credit Facility”); (ii) extended the maturity of the revolving credit facility to June 28, 2024, (iii) terminated the revolving credit facility commitments of certain lenders under the existing senior secured revolving credit facility under the Senior Secured Credit Facilities, (iv) provided for up to $200.0 million of the New Revolving Credit Facility to be available for the purpose of issuing letters of credit; (v) provided for the replacement of GD First (UK) Limited by Gardner Denver Holdings, Ltd. as the UK Borrower under the Senior Secured Credit Facilities; (vi) transferred the Administrative Agent, Collateral Agent and for borrowings on same-day notice, referredSwingline Lender roles under the Senior Secured Credit Facilities to as swingline loans. AsCitibank, N.A; and (vii) made certain other corresponding technical changes and updates. At the consummation of December 31, 2017,the merger between Gardner Denver Holdings, Inc., and Ingersoll-Rand plc, Amendment No. 4 increased the aggregate amount of the New Revolving Credit Facility to $1,000.0 million and increased the capacity under the New Revolving Credit Facility to issue letters of credit to $400.0 million. On February 28, 2020, the Company had $7.4entered into Amendment No. 5 to the Credit Agreement (“Amendment No. 5”). Amendment No. 5 refinanced the existing New Dollar Term Loan Facility and New Euro Term Loan Facility. The proceeds from the replacement $927.6 million Dollar Term Loan (“Dollar Term Loan”) and replacement €601.2 million Euro Term Loan
(“Euro Term Loan”) were used to refinance the outstanding lettersNew Dollar Term Loan Facility and New Euro Term Loan Facility. The proceeds from the Dollar Term Loan and the Euro Term Loan were reduced by an original issue discount of $1.2 million and €0.8 million, respectively. The Euro Term Loan and Dollar Term Loan will mature on February 28, 2027. The refinancing of the New Dollar Term Loan and the New Euro Term Loan resulted in the write off of unamortized debt issuance costs of $2.0 million which was presented within “Loss on extinguishment of debt” in the Consolidated Statements of Operations. At the time of the acquisition of Ingersoll Rand Industrial, the Credit Agreement was amended to include an additional $1,900.0 million senior secured term loan (“Dollar Term Loan B”) by and among Ingersoll-Rand Services Company, as the borrower, the lenders party thereto and Citi, as the administrative agent. Further, Ingersoll-Rand Services Company, the borrower with respect to the Dollar Term Loan B, was designated as an additional borrower under the Credit Agreement. The Dollar Term Loan B and the Dollar Term Loan and the Euro Term Loan have guarantees from the same credit parties and are secured by the same collateral. The Dollar Term Loan B will mature on February 28, 2027. The proceeds from the $1,900.0 million Dollar Term Loan B were reduced by a $2.4 million original issue discount. On February 29, 2020, the aggregate amount of the Revolving Credit Facility increased to $1,000.0 million and the capacity under the Revolving Credit Facility and unused availabilityto issue letters of $352.6credit increased to $400.0 million. On June 29, 2020, the Company entered into Amendment No. 6 to the Credit Agreement (“Amendment No. 6”). Amendment No. 6 (i) provided for $400.0 million of incremental term loans (“Dollar Term Loan Series A”), reduced by an original issue discount of $6.0 million, and (ii) established an increase of $100.0 million to the Revolving Credit Facility, bringing the total sum of the Revolving Credit Facility to $1,100.0 million. The proceeds were expected to be used for general business purposes, including providing incremental liquidity in the event of a prolonged adverse impact of the COVID-19 pandemic. On September 30, 2021, the Company elected to prepay the Dollar Term Loan Series A outstanding principal balance of $396.0 million using cash on hand. The prepayment resulted in the write-off of unamortized debt issuance costs and unamortized issuance discount of $9.0 million which was recognized in “Loss on extinguishment of debt” in the Consolidated Statements of Operations.
On December 28, 2021, Gardner Denver, Inc. entered into Amendment No. 7 to the Credit Agreement (“Amendment No. 7”). Amendment No. 7 was entered into pursuant to the terms of the Senior Secured Credit Facilities to provide for (i) the change of the underlying rate for borrowings denominated in GBP from a LIBOR-based rate to a SONIA-based rate (Sterling Overnight Index Average), subject to certain adjustments and terms specified in Amendment No. 7, (ii) the change of the underlying rate for borrowings denominated in EUR from a LIBOR-based rate to a EURIBOR-based rate, subject to certain adjustments and terms specified in Amendment No. 7, and (iii) certain other updates and corresponding changes regarding successor interest rates to LIBOR. The Senior Secured Credit Facilities provide that the Company will have the right at any time to request incremental term loans and/or revolving commitments in an aggregate principal amount of up to (i) if asthe greater of the last day(a) $1,600 million and (b) 100% of the most recently ended test period the Consolidated Senior Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) is equal to or less than 5.50 to 1.00, $250.0 millionfor the most recently ended four consecutive fiscal quarter period plus (ii) voluntary prepayments and voluntary commitment reductions of the Senior Secured Credit Facilities and certain other permitted indebtedness prior to the date of any such incurrence plus (iii) an additional amount if,equal to (a) in the case of incremental loans and/or commitments that are secured on an equal priority basis with the Senior Secured Credit Facilities, an amount such that after giving effect to the incurrence of such additional amount, the Company does not exceed a Consolidated SeniorFirst Lien Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) of 4.50 to 1.00.1.00 or the Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio immediately prior to any such incurrence and all transactions consummated in connection therewith or (b) in the case of incremental loans and/or commitments that are secured on a junior priority basis to the Senior Secured Credit Facilities, an amount such that after giving effect to the incurrence of such additional amount, the Company does not exceed a Consolidated Total Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) of 5.00 to 1.00 or the Consolidated Total Debt to Consolidated EBITDA Ratio immediately prior to any such incurrence and all transactions consummated in connection therewith. The lenders under the Senior Secured Credit Facilities are not under any obligation to provide any such incremental commitments or loans, and any such addition of, or increase in commitments or loans, will be subject to certain customary conditions. On June 30, 2022, the Company repaid the Euro Term Loan outstanding principal balance of €589.1 million using cash on hand. The prepayment resulted in the write-off of unamortized debt issuance costs and unamortized issuance discount of $1.1 million which was recognized in “Loss on extinguishment of debt” in the Consolidated Statements of Operations.
ToAs of December 31, 2022, the extent that revolvingaggregate 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 loans and swingline loans plus non-cash collateralizedwas $400.0 million. As of December 31, 2022, the
Company had no outstanding borrowings, no outstanding letters of credit under the New Revolving Credit Facility are outstanding in an amount exceeding $300.0 million, compliance with a Consolidated Senior Secured Debt to Consolidated EBITDA Ratioand unused availability of 7.00 to 1.00 is required for borrowings under the Revolving Credit Facility.
$1,100.0 million.Interest Rate and Fees
Borrowings under the Dollar Term Loan, Facility, the EuroDollar Term Loan FacilityB, and the Revolving Credit Facility (other than Revolving Credit Facility borrowings in GBP or EUR) bear interest at a rate equal to, at the Company’s option, either (a) the greater of LIBORSOFR for the relevant interest period or 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin or (b) a base rate (the ‘‘Base Rate’’“Base Rate”) equal to the highest of (1) the rate of interest publicly announced by the administrative agent as its prime rate in effect at its principal office, in Stamford, Connecticut, (2) the federal funds effective rate plus 0.50% and, (3) LIBORSOFR for an interest period of one month, adjusted for statutory reserve requirements, plus 1.00% and (4) 1.00%, in each case, plus an applicable margin. Borrowings under the Euro Term Loan and Revolving Credit Facility borrowings in EUR (if any) bear interest at a rate equal to the greater of EURIBOR for the relevant interest period, or 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin. Borrowings under the Revolving Credit Facility in GBP (if any) bear interest at a rate equal to the greater of (a) daily simple SONIA plus an applicable spread adjustment or (b) 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin. The applicable margin for (i) the Dollar Term Loan Facility is 2.75%1.75% for LIBORSOFR loans and 1.75%0.75% for Base Ratebase rate loans, (ii) the Revolving Credit FacilityDollar Term Loan B is 3.25%1.75% for LIBORSOFR loans and 2.25%0.75% for Base Ratebase rate loans, and (iii) the Euro Term Loan is 3.00% for LIBOR loans.
The applicable margins under2.00%, (iv) the Revolving Credit Facility may decrease based upon our achievement of certain Consolidated Senior Secured Debt to Consolidated EBITDA Ratios. is 2.00% for SOFR loans, EURIBOR loans and SONIA loans and 1.00% for Base Rate loans.
In addition to paying interest payments on outstanding principal under the Senior Secured Credit Facilities, the Company is required to pay a commitment fee of 0.50%0.375% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The commitment fee rate will be reducedreduces to 0.375% if our0.25% or 0.125% upon the achievement of a Level I or Level II status, respectively. Level I status means that the Company’s Consolidated Senior Secured Debt to Consolidated EBITDA Ratio is less than or equal to 3.0 to 1.0. The Company must also pay customary letter of credit fees. Prepayments
The Senior Secured Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with: (i) 50% of annual excess cash flow (as defined in the Senior Secured Credit Facilities) commencing with the fiscal year ended December 31, 2014 (which percentage will be reduced to 25% if the Company’sFirst Lien Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) is less than or equal to 3.501.75 to 1.00 but greater than 3.00 to 1.00, and which prepayment will not be required if1.00. Level II status means that the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 3.001.50 to 1.00. The Company must also pay customary letter of credit fees.
Prepayments The Senior Secured Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with (i) 50% of annual excess cash flow (as defined in the Senior Credit Facilities) commencing with the fiscal year ending December 31, 2021 (which percentage will be reduced to 25% if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.25 to 1.00 but greater than 2.00 to 1.00, and which prepayment will not be required if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.00 to 1.00);, (ii) 100% of the net cash proceeds of non-ordinary course asset sales or other dispositions of property, subject to reinvestment rights;rights (which percentage will be reduced to 50% if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.25 to 1.00 but greater than 2.00 to 1.00 and which prepayment will not be required if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.00 to 1.00), and (iii) 100% of the net cash proceeds of any incurrence of debt, other than proceeds from debt permitted under the Senior Secured Credit Facilities. Agreement.
The foregoing mandatory prepayments will be applied to the scheduled installments of principal of the Term Loan Facilitiesterm loans in direct order of maturity.
Subject to the following sentence, theThe Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, subject to certain customary conditions, including reimbursements of the lenders’ redeployment costs actually incurred in the case of a prepayment of LIBORcertain borrowings other than on the last day of the relevant interest period. Voluntary prepaymentsperiod, provided that (i) any voluntary prepayment of the Dollar Term Loan, Facility and/the Dollar Term Loan B or the Euro Term Loan Facility prior to the date that is six months after the effective date of Amendment No. 2August 28, 2020, in connection with anya repricing transaction the primary purposewould have been subject to a prepayment premium of which is to decrease the effective yield1.00% of the principal amount so prepaid and (ii) any voluntary prepayment of Dollar Term Loan Facility orSeries A prior to December 29, 2020, in connection with a repricing transaction would have been subject to a prepayment premium of 1.00% of the Euro Term Loan Facility, as applicable, will require payment of a 1.00% prepayment premium.
principal amount so prepaid.
Amortization and Final Maturity
The Dollar Term Loan, Facility amortizesDollar Term Loan B and Euro Term Loan amortize in equal to quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount of the Dollar Term Loan Facility,such term loan, with the balance beingbalances payable on July 30, 2024. The Euro Term Loan Facility includes repayments in equal quarterly installments in aggregate annual amounts equal to 1.00%February 28, 2027.
Principal amounts outstanding under the Revolving Credit Facility are due and payable in full at maturity on July 30, 2018, in the case of portions held by non-consenting lenders, and April 30, 2020 with respect to all other borrowings thereunder.
Amendment No. 1 reduced the minimum aggregate principal amount for extension amendments to the facilities from $50.0 million to $35.0 million.
In May 2017, the Company used a portion of the proceeds from the initial public offering to repay $276.8 million principal amount of outstanding borrowings under the Original Dollar Term Loan Facility at par plus accrued and unpaid interest to the date of prepayment of $1.5 million. The prepayment resulted in the write-off of unamortized debt issuance costs of $4.3 million and unamortized discounts of $0.7 million included in the “Loss on Debt Extinguishment” line of the Consolidated Statements of Operations.
Guarantee and Security
All obligations of the borrowers under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company and all of its material, wholly-owned U.S. restricted subsidiaries, with customary exceptions including where providing such guarantees are not permitted by law, regulation or contract or would result in adverse tax consequences.
All obligations of the borrowers under the Senior Secured Credit Facilities, and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by substantially all of the assets of the borrowers and each guarantor, including but not limited to: (i) a perfected pledge of the capital stock issued by the borrowers and each subsidiary guarantor and (ii) perfected security interests in substantially all other tangible and intangible assets of the borrowers and the guarantors (subject to certain exceptions and exclusions). The obligations of the non-U.S. borrowers are secured by certain assets in jurisdictions outside of the United States.
Certain Covenants and Events of Default
The Senior Secured Credit Facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to: incur additional indebtedness and guarantee indebtedness; create or incur liens; engage in mergers or consolidations; sell, transfer or otherwise dispose of assets; create limitations on subsidiary distributions; pay dividends and distributions or repurchase its own capital stock; and make investments, loans or advances, prepayments of junior financings, or other restricted payments. In addition, certain restricted payments constituting dividends or distributions (subject to certain exceptions) are subject to compliance with a Consolidated Total Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) of 5.00 to 1.00. Investments in unrestricted subsidiaries are permitted up to an aggregate amount that does not exceed the greater of $100.0 million and 25% of Consolidated EBITDA. The Revolving Credit Facility also requires that, if the sum of the aggregate principle amount of all borrowings under the Revolving Credit Facility and non-cash collateralized letters of credit outstanding under the Revolving Credit Facility (less the amount of letters of credit outstanding as of June 28, 2019) exceeds 40% of the commitments under the Revolving Credit Facility, the Company’s Consolidated SeniorFirst Lien Secured Debt to Consolidated EBITDA Ratio to not exceed 7.50 to 1.00 for each fiscal quarter when outstanding revolving credit loans and swingline loans plus non-cash collateralized letters of credit under the Revolving Credit Facility (excluding (i) letters of credit in an aggregate amount not to exceed $80.0 million existing on the date of the closing of the Senior Secured Credit Facilities and any extensions thereof, replacement letters of credit or letters of credit issued in lieu thereof, in each case, to the extent the face amount of such letters of credit is not increased above the face amount of the letter of credit being extended, replaced or substituted and (ii) other non-cash collateralized letters of credit in an aggregate amount not to exceed $25.0 million, provided that the aggregate amount of non-cash collateralized letters of credit outstanding excluded pursuant to this provision shall not exceed $50.0 million) exceed $120.0 million. 6.25 to 1.00 as of the last day of the fiscal quarter.
The Senior Secured Credit Facilities also contain certain customary affirmative covenants and events of default, including a change of control.
Receivables Financing Agreement
In May 2016, the Company entered into the Receivables Financing Agreement, providing for aggregated borrowing of up to $75.0 million governed by a borrowing base. The Receivables Financing Agreement provides for a lower cost alternative in the issuance of letters of credit with the remaining unused capacity providing additional liquidity. On June 30, 2017, the Company signed the first amendment of the Receivables Financing Agreement which increased the aggregated borrowing capacity by $50.0 million to $125.0 million governed by a borrowing base and extended the term to June 30, 2020. The Receivables Financing Agreement terminates on June 30, 2020, unless terminated earlier pursuant to its terms. As of December 31, 2017, the Company had no outstanding borrowings under the Receivables Financing Agreement and $33.4 million of letters of credit outstanding. As of December 31, 2017 there was $66.8 million of capacity available under the Receivables Financing Agreement.
Borrowings under the Receivables Financing Agreement accrue interest at a reserve-adjusted LIBOR or a base rate, plus 1.6%. Letters of credit accrue interest at 1.6%. The Company may prepay borrowings or letters of credit or draw on the Receivables Financing Agreement upon one business day prior written notice and may terminate the Receivables Financing Agreement with 15 days’ prior written notice.
As part of the Receivables Financing Agreement, eligible accounts receivable of certain of our subsidiaries are sold to a wholly owned “bankruptcy remote” special purpose vehicle (“SPV”). The SPV pledges the receivables as security for loans and letters of credit. The SPV is included in our consolidated financial statements and therefore, the accounts receivable owned by it are included in our Consolidated Balance Sheets. However, the accounts receivable owned by the SPV are separate and distinct from our other assets and are not available to our other creditors should we become insolvent.
The Receivables Financing Agreement contains various customary representations and warranties and covenants, and default provisions which provide for the termination and acceleration of the commitments and loans under the agreement in circumstances including, but not limited to, failure to make payments when due, breach of representations, warranties or covenants, certain insolvency events or failure to maintain the security interest in the trade receivables, a change in control and defaults under other material indebtedness.
Senior Notes
In connection with the KKR transaction, on July 30, 2013, the Company’s direct subsidiary, GDI, issued a $575.0 million aggregate principal amount of Senior Notes, which mature on August 15, 2021 pursuant to an indenture, dated as of July 30, 2013, among Renaissance Acquisition Corp. (which merged into Gardner Denver, Inc. in connection with the KKR transaction), the guarantors party thereto and Wells Fargo Bank, National Association, as trustee.
In May 2017, the Company used a portion of the proceeds from the initial public offering to redeem all $575.0 million aggregate principal amount of the Senior Notes at a price of 105.156% of the principal amount redeemed, equal to $604.6 million, plus accrued and unpaid interest to the date of redemption of $10.2 million. The redemption of the Senior Notes resulted in the write-off of unamortized debt issuance costs of $15.8 million which was recorded to the “Loss on Debt Extinguishment” line of the Consolidated Statements of Operations. The premium paid on the Senior Notes, $29.7 million, is included in the “Loss on Debt Extinguishment” line of the Consolidated Statements of Operations.
Total Debt Maturities
Total debt maturities for the five years subsequent to December 31, 20172022 and thereafter are approximately $20.9$36.5 million, $21.1$32.0 million, $21.3$30.1 million, $21.3$30.0 million, $21.4$2,638.1 million and $1,939.1$9.8 million, respectively.
Operating Lease Commitments
The annual rental payments for operating leases were $30.8 million, $32.3 million, and $34.4 million in 2017, 2016 and 2015, respectively. Future minimum rental payments for operating leases for the five years subsequent to December 31, 2017 and thereafter are approximately $22.9 million, $18.6 million, $14.0 million, $8.8 million, $5.4 million and $12.3 million, respectively.
Note 11: | Note 12: Benefit Plans |
Pension and Postretirement Benefit Plans
The Company sponsors a number of pension and postretirement plans worldwide. Pension plan benefits are provided to employees under defined benefit pay-related and service-related plans, which are non-contributory in nature. The Company’s funding policy for the U.S. defined benefit pension plans is to contribute at least the minimum required contribution required by Employee Retirement Income Security Act (“ERISA”), as amended by the Pension Protection Act of 20062016 (as amended by MAP-21, HAFTA, and BBA 15). The Company intends to make additional contributions, as necessary, to prevent benefit restrictions in the plans. The Company’s annual contributions to the non-U.S. pension plans are consistent with the requirements of applicable local laws.
The Company also provides postretirement healthcare and life insurance benefits in the United States and South Africa to a limited group of current and retired employees.employees, primarily in the United States. All of the Company’s postretirement benefit plans are unfunded.
The following table provides a reconciliation of the changes in the benefit obligations (the projected benefit obligation in the case of the pension plans and the accumulated postretirement benefit obligation in the case of the other postretirement plans) and in the fair value of the plan assets for the periods described below. The Company uses a December 31 measurement date for its pension and other postretirement benefit plans. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Other Postretirement Benefits | | U.S. Plans | | Non-U.S. Plans | | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | Reconciliation of Benefit Obligations: | | | | | | | | | | | | Beginning balance | $ | 441.8 | | | $ | 484.3 | | | $ | 396.2 | | | $ | 445.7 | | | $ | 28.7 | | | $ | 31.3 | | Service cost | 4.4 | | | 5.3 | | | 3.3 | | | 4.3 | | | — | | | — | | Interest cost | 11.3 | | | 10.8 | | | 5.9 | | | 4.6 | | | 0.7 | | | 0.6 | | Plan amendments | — | | | — | | | — | | | — | | | — | | | 1.8 | | Actuarial gains(1) | (105.0) | | | (20.0) | | | (112.0) | | | (30.0) | | | (5.0) | | | (1.6) | | Benefit payments | (26.5) | | | (25.7) | | | (11.2) | | | (13.7) | | | (3.3) | | | (3.3) | | | | | | | | | | | | | | | | | | | | | | | | | | Plan settlements | (6.2) | | | (12.9) | | | — | | | — | | | — | | | — | | Effect of foreign currency exchange rate changes | — | | | — | | | (34.7) | | | (14.7) | | | (0.1) | | | (0.1) | | Benefit obligations ending balance | $ | 319.8 | | | $ | 441.8 | | | $ | 247.5 | | | $ | 396.2 | | | $ | 21.0 | | | $ | 28.7 | | Reconciliation of Fair Value of Plan Assets: | | | | | | | | | | | | Beginning balance | $ | 384.7 | | | $ | 395.0 | | | $ | 297.7 | | | $ | 284.8 | | | | | | Actual return on plan assets | (92.5) | | | 4.8 | | | (66.9) | | | 25.4 | | | | | | Employer contributions | 4.1 | | | 11.5 | | | 5.9 | | | 7.6 | | | | | | Acquisitions | — | | | 12.0 | | | — | | | — | | | | | | | | | | | | | | | | | | Plan settlements | (6.2) | | | (12.9) | | | — | | | — | | | | | | Benefit payments | (26.5) | | | (25.7) | | | (11.2) | | | (13.7) | | | | | | Effect of foreign currency exchange rate changes | — | | | — | | | (29.1) | | | (6.4) | | | | | | Fair value of plan assets ending balance | $ | 263.6 | | | $ | 384.7 | | | $ | 196.4 | | | $ | 297.7 | | | | | | | | | | | | | | | | | | Funded Status as of Period End | $ | (56.2) | | | $ | (57.1) | | | $ | (51.1) | | | $ | (98.5) | | | $ | (21.0) | | | $ | (28.7) | |
| | Pension Benefits | | | | | | | | | | U.S. Plans | | | Non-U.S. Plans | | | Other Postretirement Benefits | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | | | Reconciliation of Benefit Obligations: | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 59.7 | | | $ | 67.1 | | | $ | 323.7 | | | $ | 310.4 | | | $ | 3.2 | | | $ | 3.3 | | Service cost | | | - | | | | - | | | | 1.9 | | | | 1.6 | | | | - | | | | - | | Interest cost | | | 2.3 | | | | 2.5 | | | | 7.8 | | | | 8.8 | | | | 0.1 | | | | 0.2 | | Actuarial (gains) losses | | | 2.0 | | | | (4.1 | ) | | | (22.5 | ) | | | 51.5 | | | | 0.2 | | | | - | | Benefit payments | | | (2.8 | ) | | | (2.9 | ) | | | (9.1 | ) | | | (9.2 | ) | | | (0.2 | ) | | | (0.2 | ) | Plan curtailments | | | - | | | | - | | | | - | | | | (0.1 | ) | | | - | | | | - | | Plan settlements | | | (1.5 | ) | | | (2.9 | ) | | | - | | | | - | | | | - | | | | - | | Effect of foreign currency exchange rate changes | | | - | | | | - | | | | 34.1 | | | | (39.3 | ) | | | 0.1 | | | | (0.1 | ) | Benefit obligations ending balance | | $ | 59.7 | | | $ | 59.7 | | | $ | 335.9 | | | $ | 323.7 | | | $ | 3.4 | | | $ | 3.2 | | Reconciliation of Fair Value of Plan Assets: | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | $ | 59.3 | | | $ | 60.8 | | | $ | 202.9 | | | $ | 204.4 | | | | | | | | | | Actual return on plan assets | | | 8.0 | | | | 4.2 | | | | 17.9 | | | | 32.8 | | | | | | | | | | Employer contributions | | | 0.1 | | | | 0.1 | | | | 5.7 | | | | 5.2 | | | | | | | | | | Plan settlements | | | (1.5 | ) | | | (2.9 | ) | | | - | | | | - | | | | | | | | | | Benefit payments | | | (2.8 | ) | | | (2.9 | ) | | | (9.1 | ) | | | (9.2 | ) | | | | | | | | | Effect of foreign currency exchange rate changes | | | - | | | | - | | | | 21.3 | | | | (30.3 | ) | | | | | | | | | Fair value of plan assets ending balance | | $ | 63.1 | | | $ | 59.3 | | | $ | 238.7 | | | $ | 202.9 | | | | | | | | | | Funded Status as of Period End | | $ | 3.4 | | | $ | (0.4 | ) | | $ | (97.2 | ) | | $ | (120.8 | ) | | $ | (3.4 | ) | | $ | (3.2 | ) |
(1)Actuarial gains primarily resulted from changes in discount rates.
Amounts recognized as a component of accumulated other comprehensive income (loss) income as of December 31, 20172022 and 20162021 that have not been recognized as a component of net periodic benefit cost are presented in the following table:table.
| | U.S. Pension Plans | | | Non-U.S. Pension Plans | | | Other Postretirement Benefits | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | Net actuarial losses (gains) | | $ | 0.9 | | | $ | 2.4 | | | $ | 50.5 | | | $ | 78.9 | | | $ | (0.1 | ) | | $ | (0.3 | ) | Amounts included in accumulated other comprehensive (loss) income | | $ | 0.9 | | | $ | 2.4 | | | $ | 50.5 | | | $ | 78.9 | | | $ | (0.1 | ) | | $ | (0.3 | ) |
For defined benefit pension plans, the Company estimates that $1.9 million of net losses and $0.0 million of prior service costs will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost during the year ending December 31, 2018. For other postretirement benefit plans, the Company estimates no net losses and prior service costs will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost during the year ending December 31, 2018.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Pension Benefits | | Other Postretirement Benefits | | U.S. Plans | | Non-U.S. Plans | | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | Net actuarial losses (gains) | $ | (11.8) | | | $ | (12.7) | | | $ | (10.4) | | | $ | 26.0 | | | $ | (4.4) | | | $ | 0.5 | | Prior service cost | — | | | — | | | 2.6 | | | 3.1 | | | 0.1 | | | 0.2 | | Amounts included in accumulated other comprehensive income (loss) | $ | (11.8) | | | $ | (12.7) | | | $ | (7.8) | | | $ | 29.1 | | | $ | (4.3) | | | $ | 0.7 | |
Pension and other postretirement benefit liabilities and assets are included in the following captions in the Consolidated Balance Sheets as of December 31, 20172022 and 2016.2021. | | | | | | | | | | | | | 2022 | | 2021 | Other assets | $ | 17.8 | | | $ | 10.4 | | Accrued liabilities | (9.1) | | | (10.9) | | Pension and other postretirement benefits | (137.0) | | | (183.8) | |
| | 2017 | | | 2016 | | Other assets | | $ | 4.6 | | | $ | - | | Accrued liabilities | | | (2.0 | ) | | | (1.7 | ) | Pension and other postretirement benefits | | | (99.8 | ) | | | (122.7 | ) |
The following table provides information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31, 20172022 and 2016.2021.
| | | U.S. Pension Plans | | | Non-U.S. Pension Plans | | | U.S. Pension Plans | | Non-U.S. Pension Plans | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2022 | | 2021 | | 2022 | | 2021 | Projected benefit obligations | | $ | 0.1 | | | $ | 1.1 | | | $ | 323.0 | | | $ | 311.9 | | Projected benefit obligations | $ | 319.8 | | | $ | 385.0 | | | $ | 96.2 | | | $ | 154.7 | | Accumulated benefit obligation | | $ | 0.1 | | | $ | 1.1 | | | $ | 318.9 | | | $ | 307.2 | | Accumulated benefit obligation | 319.8 | | | 382.8 | | | 81.1 | | | 126.4 | | Fair value of plan assets | | $ | - | | | $ | - | | | $ | 228.2 | | | $ | 193.3 | | Fair value of plan assets | 263.6 | | | 326.7 | | | 17.3 | | | 26.9 | |
The accumulated benefit obligation for all U.S. defined benefit pension plans was $58.6$319.8 million and $59.7$439.6 million as of December 31, 20172022 and 2016,2021, respectively. The accumulated benefit obligation for all non-U.S. defined benefit pension plans was $329.4$237.1 million and $316.8$386.4 million as of December 31, 20172022 and 2016,2021, respectively.
The following tables provide the components of net periodic benefit cost (income) and other amounts recognized in other comprehensive income (loss) income,, before income tax effects, for the years ended December 31, 2017, 20162022, 2021 and 2015.2020. | | | | | | | | | | | | | | | | | | | U.S. Pension Plans | | 2022 | | 2021 | | 2020 | Net Periodic Benefit Cost: | | | | | | Service cost | $ | 4.4 | | | $ | 5.3 | | | $ | 5.8 | | Interest cost | 11.3 | | | 10.8 | | | 9.5 | | Expected return on plan assets | (13.0) | | | (12.2) | | | (12.0) | | | | | | | | | | | | | | Net periodic benefit cost | 2.7 | | | 3.9 | | | 3.3 | | Gain due to settlement | (0.5) | | | (0.6) | | | — | | Total net periodic benefit cost recognized | $ | 2.2 | | | $ | 3.3 | | | $ | 3.3 | | Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | | | | | Net actuarial loss (gain) | $ | 0.4 | | | $ | (12.5) | | | $ | (6.4) | | Amortization of net actuarial gain | 0.5 | | | 0.6 | | | — | | | | | | | | | | | | | | | | | | | | Total recognized in other comprehensive income (loss) | $ | 0.9 | | | $ | (11.9) | | | $ | (6.4) | | Total recognized in net periodic benefit cost and other comprehensive income (loss) | $ | 3.1 | | | $ | (8.6) | | | $ | (3.1) | |
| | U.S. Pension Plans | | | | 2017 | | | 2016 | | | 2015 | | Net Periodic Benefit Income: | | | | | | | | | | Service cost | | $ | - | | | $ | - | | | $ | - | | Interest cost | | | 2.3 | | | | 2.5 | | | | 2.6 | | Expected return on plan assets | | | (4.4 | ) | | | (4.4 | ) | | | (4.8 | ) | Amortization of prior-service cost | | | - | | | | - | | | | - | | Amortization of net actuarial loss | | | - | | | | - | | | | - | | Net periodic benefit income | | | (2.1 | ) | | | (1.9 | ) | | | (2.2 | ) | Loss due to settlement | | | - | | | | 0.1 | | | | - | | Total net periodic benefit income recognized | | $ | (2.1 | ) | | $ | (1.8 | ) | | $ | (2.2 | ) | Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income: | | | | | | | | | | | | | Net actuarial (gain) loss | | $ | (1.5 | ) | | $ | (3.9 | ) | | $ | 1.2 | | Amortization of net actuarial loss | | | - | | | | (0.1 | ) | | | - | | Prior service cost | | | - | | | | - | | | | - | | Amortization of prior service cost | | | - | | | | - | | | | - | | Effect of foreign currency exchange rate changes | | | - | | | | - | | | | - | | Total recognized in other comprehensive (loss) income | | $ | (1.5 | ) | | $ | (4.0 | ) | | $ | 1.2 | | Total recognized in net periodic benefit income and other comprehensive (loss) income | | $ | (3.6 | ) | | $ | (5.8 | ) | | $ | (1.0 | ) |
| | | | | | | | | | | | | | | | | | | Non-U.S. Pension Plans | | 2022 | | 2021 | | 2020 | Net Periodic Benefit Cost (Income): | | | | | | Service cost | $ | 3.3 | | | $ | 4.3 | | | $ | 3.8 | | Interest cost | 5.9 | | | 4.6 | | | 6.1 | | Expected return on plan assets | (11.8) | | | (12.2) | | | (11.0) | | Amortization of prior service cost | 0.1 | | | 0.2 | | | 0.1 | | Amortization of net actuarial loss | 0.3 | | | 4.9 | | | 2.9 | | | | | | | | | | | | | | Total net periodic benefit cost (income) recognized | $ | (2.2) | | | $ | 1.8 | | | $ | 1.9 | | Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | | | | | Net actuarial loss (gain) | $ | (33.3) | | | $ | (43.3) | | | $ | 16.3 | | Amortization of net actuarial loss | (0.3) | | | (4.9) | | | (2.9) | | | | | | | | Amortization of prior service cost | (0.1) | | | (0.2) | | | (0.1) | | Effect of foreign currency exchange rate changes | (3.2) | | | (1.4) | | | 4.2 | | Total recognized in other comprehensive income (loss) | $ | (36.9) | | | $ | (49.8) | | | $ | 17.5 | | Total recognized in net periodic benefit cost (income) and other comprehensive income (loss) | $ | (39.1) | | | $ | (48.0) | | | $ | 19.4 | |
| | Non-U.S. Pension Plans | | | | 2017 | | | 2016 | | | 2015 | | Net Periodic Benefit Cost (Income): | | | | | | | | | | Service cost | | $ | 1.9 | | | $ | 1.6 | | | $ | 1.8 | | Interest cost | | | 7.8 | | | | 8.8 | | | | 9.5 | | Expected return on plan assets | | | (10.4 | ) | | | (10.8 | ) | | | (13.0 | ) | Amortization of prior-service cost | | | - | | | | - | | | | - | | Amortization of net actuarial loss | | | 5.0 | | | | 2.8 | | | | 1.6 | | Net periodic benefit cost (income) | | $ | 4.3 | | | $ | 2.4 | | | $ | (0.1 | ) | Loss due to curtailments | | | - | | | | - | | | | - | | Total net periodic benefit cost (income) recognized | | $ | 4.3 | | | $ | 2.4 | | | $ | (0.1 | ) | Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income: | | | | | | | | | | | | | Net actuarial (gain) loss | | $ | (29.9 | ) | | $ | 29.5 | | | $ | 17.1 | | Amortization of net actuarial loss | | | (5.0 | ) | | | (2.8 | ) | | | (1.6 | ) | Prior service cost | | | - | | | | - | | | | 0.3 | | Amortization of prior service cost | | | - | | | | (0.1 | ) | | | - | | Effect of foreign currency exchange rate changes | | | 6.5 | | | | (8.3 | ) | | | (4.1 | ) | Total recognized in other comprehensive (loss) income | | $ | (28.4 | ) | | $ | 18.3 | | | $ | 11.7 | | Total recognized in net periodic benefit cost (income) and other comprehensive (loss) income | | $ | (24.1 | ) | | $ | 20.7 | | | $ | 11.6 | |
| | | Other Postretirement Benefits | | | Other Postretirement Benefits | | | 2017 | | | 2016 | | | 2015 | | | 2022 | | 2021 | | 2020 | Net Periodic Benefit Cost: | | | | | | | | | | Net Periodic Benefit Cost: | | Service cost | | $ | - | | | $ | - | | | $ | - | | | | Interest cost | | | 0.1 | | | | 0.2 | | | | 0.2 | | Interest cost | $ | 0.7 | | | $ | 0.6 | | | $ | 0.5 | | Expected return on plan assets | | | - | | | | - | | | | - | | | Amortization of prior-service cost | | | - | | | | - | | | | - | | | Amortization of net loss | | | - | | | | - | | | | - | | | | Amortization of prior service cost | | Amortization of prior service cost | — | | | 0.1 | | | — | | Amortization of net actuarial loss | | Amortization of net actuarial loss | — | | | 0.1 | | | — | | Net periodic benefit cost | | $ | 0.1 | | | $ | 0.2 | | | $ | 0.2 | | Net periodic benefit cost | 0.7 | | | 0.8 | | | 0.5 | | Loss due to curtailments or settlements | | | - | | | | - | | | | - | | Loss due to curtailments or settlements | — | | | — | | | 0.3 | | Total net periodic benefit cost recognized | | $ | 0.1 | | | $ | 0.2 | | | $ | 0.2 | | Total net periodic benefit cost recognized | $ | 0.7 | | | $ | 0.8 | | | $ | 0.8 | | | | | | | | | | | | | | | | Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income: | | | | | | | | | | | | | | Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss): | | | | | | Net actuarial loss (gain) | | $ | 0.2 | | | $ | - | | | $ | (0.2 | ) | Net actuarial loss (gain) | $ | (5.0) | | | $ | (1.6) | | | $ | 2.0 | | Amortization of net actuarial loss | | | - | | | | - | | | | - | | Amortization of net actuarial loss | — | | | (0.1) | | | — | | Prior service cost | | | - | | | | - | | | | - | | Prior service cost | — | | | 1.9 | | | (1.6) | | Amortization of prior service cost | | | - | | | | - | | | | - | | Amortization of prior service cost | — | | | (0.1) | | | — | | Effect of foreign currency exchange rate changes | | | - | | | | - | | | | - | | | Total recognized in other comprehensive (loss) income | | $ | 0.2 | | | $ | - | | | | (0.2 | ) | | Total recognized in net periodic benefit cost and other comprehensive (loss) income | | $ | 0.3 | | | $ | 0.2 | | | $ | - | | | | Total recognized in other comprehensive income (loss) | | Total recognized in other comprehensive income (loss) | $ | (5.0) | | | $ | 0.1 | | | $ | 0.4 | | Total recognized in net periodic benefit cost and other comprehensive income (loss) | | Total recognized in net periodic benefit cost and other comprehensive income (loss) | $ | (4.3) | | | $ | 0.9 | | | $ | 1.2 | |
The discount rate selected to measure the present value of the Company’s benefit obligations was derived by examining the rates of high-quality, fixed income securities whose cash flows or duration match the timing and amount of expected benefit payments under a plan. The Company selects the expected long-term rate of return on plan assets in consultation with the plans’ actuaries.advisors. This rate is intended to reflect the expected average rate of earnings on the funds invested or to be invested to provide plan benefits and the Company’s most recent plan assets target allocations. The plans are assumed to continue in force for as long as the assets are expected to be invested. In estimating the expected long-term rate of return on plan assets, appropriate consideration is given to historical performance of the major asset classes held or anticipated to be held by the plans and to current forecasts of future rates of return for those asset classes. Because assets are held in qualified trusts, expected returns are not adjusted for taxes. The following weighted-average actuarial assumptions were used to determine net periodic benefit cost for the years ended December 31, 2017, 2016(income) and 2015.
| | Pension Benefits - U.S. Plans | | | | 2017 | | | 2016 | | | 2015 | | Discount rate | | | 4.0 | % | | | 4.1 | % | | | 3.8 | % | Expected long-term rate of return on plan assets | | | 7.75 | % | | | 7.75 | % | | | 7.75 | % |
| | Pension Benefits - Non-U.S. Plans | | | | 2017 | | | 2016 | | | 2015 | | Discount rate | | | 2.3 | % | | | 3.3 | % | | | 3.1 | % | Expected long-term rate of return on plan assets | | | 5.0 | % | | | 6.2 | % | | | 6.2 | % | Rate of compensation increases | | | 2.8 | % | | | 2.9 | % | | | 3.0 | % |
| | Other Postretirement Benefits | | | | 2017 | | | 2016 | | | 2015 | | Discount rate | | | 4.7 | % | | | 4.7 | % | | | 4.5 | % |
The following weighted-average actuarial assumptions were used to determine benefit obligations for the years ended December 31, 207, 20162022, 2021 and 2015:2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Pension Plans | | Non-U.S. Pension Plans | | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | Weighted-average actuarial assumptions used to determine net periodic benefit cost: | | | | | | | | | | | | Discount rate | 2.7 | % | | 2.4 | % | | 2.7 | % | | 1.6 | % | | 1.1 | % | | 1.6 | % | Expected long-term rate of return on plan assets | 3.5 | % | | 3.2 | % | | 2.6 | % | | 4.4 | % | | 4.3 | % | | 4.4 | % | Rate of compensation increases | 3.0 | % | | 3.0 | % | | 4.0 | % | | 4.3 | % | | 3.1 | % | | 2.7 | % | Weighted-average actuarial assumptions used to determine benefit obligations: | | | | | | | | | | | | Discount rate | 5.2 | % | | 2.7 | % | | 2.4 | % | | 4.5 | % | | 1.6 | % | | 1.1 | % | Rate of compensation increases | N/A | | 3.0 | % | | 3.0 | % | | 4.3 | % | | 4.3 | % | | 3.1 | % |
| | Pension Benefits - U.S. Plans | | | | 2017 | | | 2016 | | | 2015 | | Discount rate | | | 3.6 | % | | | 4.0 | % | | | 4.1 | % |
72 | | Pension Benefits - Non-U.S. Plans | | | | 2017 | | | 2016 | | | 2015 | | Discount rate | | | 2.3 | % | | | 2.3 | % | | | 3.3 | % | Rate of compensation increases | | | 2.8 | % | | | 2.8 | % | | | 2.9 | % |
| | Other Postretirement Benefits | | | | 2017 | | | 2016 | | | 2015 | | Discount rate | | | 4.4 | % | | | 4.7 | % | | | 4.7 | % |
The following actuarial assumptions were used to determine other postretirement benefit plans costs and obligations for the years ended December 31, 2017, 20162022, 2021 and 2015.2020.
| | Other Postretirement Benefits | | | | 2017 | | | 2016 | | | 2015 | | Healthcare cost trend rate assumed for next year | | | 8.4 | % | | | 8.7 | % | | | 8.7 | % | Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | | | 8.4 | % | | | 8.7 | % | | | 8.7 | % | Year that the date reaches the ultimate trend rate | | | 2019 | | | | 2018 | | | | 2017 | |
A one-percentage-point increase or decrease in assumed healthcare cost trend rates as of December 31, 2017 would have less than a $0.1 million impact on total service and interest cost components of net periodic benefit costs and less than a $0.1 million impact on the postretirement benefit obligation.
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| | | | | | | | | | | | | | | | | | | Other Postretirement Benefits | | 2022 | | 2021 | | 2020 | Discount rate used to determine net periodic benefit cost | 2.4% - 3.0% | | 1.8% - 2.4% | | 2.3% - 3.0% | Discount rate used to determine benefit obligations | 4.9% - 5.2% | | 2.4% - 3.0% | | 1.9% - 2.3% | Weighted-average actuarial assumptions used to determine other postretirement benefit plans costs and obligations: | | | | | | Healthcare cost trend rate assumed for next year | 6.8 | % | | 6.8 | % | | 6.3 | % | Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.5 | % | | 4.5 | % | | 4.7 | % | Year that the date reaches the ultimate trend rate | 2034 | | 2034 | | 2029 |
The following table reflects the estimated benefit payments for the next five years and for the years 20232028 through 2027.2032. The estimated benefit payments for the non-U.S. pension plans were calculated using foreign exchange rates as of December 31, 2017.2022.
| | Pension Benefits | | | Other | | | | U.S. Plans | | | | | | | | 2018 | | $ | 4.8 | | | $ | 9.3 | | | $ | 0.3 | | 2019 | | $ | 4.9 | | | $ | 10.0 | | | $ | 0.3 | | 2020 | | $ | 4.5 | | | $ | 10.4 | | | $ | 0.3 | | 2021 | | $ | 4.8 | | | $ | 11.0 | | | $ | 0.3 | | 2022 | | $ | 4.4 | | | $ | 11.8 | | | $ | 0.2 | | Aggregate 2023-2027 | | $ | 19.6 | | | $ | 65.6 | | | $ | 1.1 | |
| | | | | | | | | | | | | | | | | | | Pension Benefits | | Other Postretirement Benefits | | U.S. Plans | | Non-U.S. Plans | | 2023 | $ | 31.2 | | | $ | 12.5 | | | $ | 3.0 | | 2024 | 27.5 | | | 13.0 | | | 2.7 | | 2025 | 27.2 | | | 14.9 | | | 2.5 | | 2026 | 26.0 | | | 15.0 | | | 2.3 | | 2027 | 25.4 | | | 14.3 | | | 2.0 | | Aggregate 2028-2032 | 115.4 | | | 79.8 | | | 7.6 | |
In 2018,2023, the Company expects to contribute approximately $0.1$2.8 million to the U.S. pension plans, approximately $6.6$6.1 million to the non-U.S. pension plans, and $0.3approximately $3.0 million to the other postretirement benefit plans.
Plan Asset Investment Strategy
The Company’s overall investment strategy and objectives for its pension plan assets is to (i) meet current and future benefit payment needs through diversification across asset classes, investing strategies and investment managers to achieve an optimal balance between risk and return and between income and growth of assets through capital appreciation, (ii) secure participant retirement benefits, (iii) minimize reliance on contributions as a source of benefit security, and (iv) maintain sufficient liquidity to pay benefit obligations and proper expenses. The composition of the actual investments in various securities changes over time based on short and long-term investment opportunities. None of the plan assets of Gardner Denver’sIngersoll Rand’s defined benefit plans are invested in the Company’s common stock. The Company uses both active and passive investment strategies.
Plan Asset Risk Management
The target financial objectives for the pension plans are established in conjunction with periodic comprehensive reviews of each plan’s liability structure. The Company’s asset allocation policy is based on detailed asset and liability model (“ALM”) analyses. A formal ALM study of each major plan is undertaken every 2-5 years or whenever there has been a material change in plan demographics, benefit structure, or funded status. In order to determine the recommended asset allocation, the advisors model varying return and risk levels for different theoretical portfolios, using a relative measure of excess return over treasury bills, divided by the standard deviation of the return (the “Sharpe Ratio”). The Sharpe Ratio for different portfolio options was used to compare each portfolio’s potential return, on a risk-adjusted basis. The Company selected a recommended portfolio that achieved the targeted composite return with the least amount of risk.
The Company’s primary pension plans are in the U.S. and UK which together comprise approximately 74%81% of the total benefit obligations and 90%92% of total plan assets as of December 31, 2017.2022. The following table presents the long-term target allocations for these two plans as of December 31, 2017.2022.
| | U.S. Plan | | | UK Plan | | Asset category: | | | | | | | Cash and cash equivalents | | | 1 | % | | | 4 | % | Equity | | | 52 | % | | | 50 | % | Fixed income | | | 37 | % | | | 26 | % | Real estate and other | | | 10 | % | | | 20 | % | Total | | | 100 | % | | | 100 | % |
80
| | | | | | | | | | | | | U.S. Plans | | UK Plan | Asset category: | | | | | | | | Equity | 12 | % | | 34 | % | Fixed income | 84 | % | | 55 | % | Real estate and other | 4 | % | | 11 | % | Total | 100 | % | | 100 | % |
Fair Value Measurements
The following tables present the fair values of the Company’s pension plan assets as of December 31, 20172022 and 20162021 by asset category within the ASC 820 hierarchy (as defined in Note 1720 “Fair Value Measurements”).
| | December 31, 2017 | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | | | | | | | | | | Total | | Asset Category | | | | | | | | | | | | | | | | Cash and cash equivalents(1) | | $ | 2.3 | | | $ | - | | | $ | - | | | $ | - | | | $ | 2.3 | | Equity funds: | | | | | | | | | | | | | | | | | | | | | U.S. large-cap | | | - | | | | 12.6 | | | | - | | | | 19.5 | | | | 32.1 | | U.S. mid-cap and small-cap | | | - | | | | - | | | | - | | | | 3.1 | | | | 3.1 | | International(2) | | | 19.3 | | | | 71.9 | | | | - | | | | 49.7 | | | | 140.9 | | Total equity funds | | | 19.3 | | | | 84.5 | | | | - | | | | 72.3 | | | | 176.1 | | Fixed income funds: | | | | | | | | | | | | | | | | | | | | | Corporate bonds - domestic | | | - | | | | - | | | | - | | | | 13.2 | | | | 13.2 | | Corporate bonds - international | | | - | | | | 20.9 | | | | - | | | | - | | | | 20.9 | | UK index-linked gilts | | | - | | | | 35.7 | | | | - | | | | - | | | | 35.7 | | Diversified domestic securities | | | - | | | | - | | | | - | | | | 10.1 | | | | 10.1 | | Total fixed income funds | | | - | | | | 56.6 | | | | - | | | | 23.3 | | | | 79.9 | | Other types of investments: | | | | | | | | | | | | | | | | | | | | | U.S. real estate(3) | | | - | | | | - | | | | - | | | | 6.4 | | | | 6.4 | | International real estate(3) | | | - | | | | 20.8 | | | | - | | | | - | | | | 20.8 | | Other(4) | | | - | | | | - | | | | 16.3 | | | | - | | | | 16.3 | | Total | | $ | 21.6 | | | $ | 161.9 | | | $ | 16.3 | | | $ | 102.0 | | | $ | 301.8 | |
| | December 31, 2016 | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | | | | | | | | | | Total | | Asset Category | | | | | | | | | | | | | | | | Cash and cash equivalents(1) | | $ | 1.9 | | | $ | - | | | $ | - | | | $ | - | | | $ | 1.9 | | Equity funds: | | | | | | | | | | | | | | | | | | | | | U.S. large-cap | | | - | | | | 9.6 | | | | - | | | | 18.2 | | | | 27.8 | | U.S. mid-cap and small-cap | | | - | | | | - | | | | - | | | | 2.9 | | | | 2.9 | | International(2) | | | 15.3 | | | | 63.6 | | | | - | | | | 41.5 | | | | 120.4 | | Total equity funds | | | 15.3 | | | | 73.2 | | | | - | | | | 62.6 | | | | 151.1 | | Fixed income funds: | | | | | | | | | | | | | | | | | | | | | Corporate bonds - domestic | | | - | | | | - | | | | - | | | | 12.1 | | | | 12.1 | | Corporate bonds - international | | | - | | | | 18.0 | | | | - | | | | - | | | | 18.0 | | UK index-linked gilts | | | - | | | | 30.5 | | | | - | | | | - | | | | 30.5 | | Diversified domestic securities | | | - | | | | - | | | | - | | | | 9.5 | | | | 9.5 | | Total fixed income funds | | | - | | | | 48.5 | | | | - | | | | 21.6 | | | | 70.1 | | Other types of investments: | | | | | | | | | | | | | | | | | | | | | U.S. real estate(3) | | | - | | | | - | | | | - | | | | 6.3 | | | | 6.3 | | International real estate(3) | | | - | | | | 18.6 | | | | - | | | | - | | | | 18.6 | | Other(4) | | | - | | | | - | | | | 14.2 | | | | - | | | | 14.2 | | Total | | $ | 17.2 | | | $ | 140.3 | | | $ | 14.2 | | | $ | 90.5 | | | $ | 262.2 | |
(1)
| Cash and cash equivalents consist of traditional domestic and foreign highly liquid short-term securities with the goal of providing liquidity and preservation of capital while maximizing return on assets. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Investments Measured at NAV (5) | | Total | Asset Category | | | | | | | | | | Cash and cash equivalents(1) | $ | 3.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 3.2 | | Equity funds: | | | | | | | | | | U.S. small-cap | — | | | — | | | — | | | 3.8 | | | 3.8 | | U.S. large-cap | — | | | 3.9 | | | — | | | 18.5 | | | 22.4 | | International equity(2) | 20.1 | | | 16.9 | | | — | | | 27.5 | | | 64.5 | | Total equity funds | 20.1 | | | 20.8 | | | — | | | 49.8 | | | 90.7 | | Fixed income funds: | | | | | | | | | | Corporate bonds - international | — | | | 44.6 | | | — | | | 7.6 | | | 52.2 | | UK index-linked gilts | — | | | 41.6 | | | — | | | — | | | 41.6 | | U.S. fixed income - government securities | — | | | — | | | — | | | 33.1 | | | 33.1 | | U.S. fixed income - short duration | — | | | — | | | — | | | 1.8 | | | 1.8 | | U.S. fixed income - intermediate duration | — | | | — | | | — | | | 50.3 | | | 50.3 | | U.S. fixed income - long corporate | — | | | — | | | — | | | 135.7 | | | 135.7 | | Global fixed income | — | | | — | | | — | | | 8.0 | | | 8.0 | | Total fixed income funds | — | | | 86.2 | | | — | | | 236.5 | | | 322.7 | | Other types of investments: | | | | | | | | | | International real estate(3) | — | | | 16.6 | | | — | | | — | | | 16.6 | | Other(4) | | | — | | | 26.8 | | | — | | | 26.8 | | Total | $ | 23.3 | | | $ | 123.6 | | | $ | 26.8 | | | $ | 286.3 | | | $ | 460.0 | |
(2)
| The International category consists of investment funds focused on companies operating in developed and emerging markets outside of the U.S. These investments target broad diversification across large and mid/small-cap companies and economic sectors. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2021 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Investments Measured at NAV (5) | | Total | Asset Category | | | | | | | | | | Cash and cash equivalents(1) | $ | 12.7 | | | $ | — | | | $ | — | | | $ | — | | | $ | 12.7 | | Equity funds: | | | | | | | | | | U.S. small-cap | — | | | — | | | — | | | 6.3 | | | 6.3 | | U.S. large-cap | — | | | 8.0 | | | — | | | 29.0 | | | 37.0 | | International equity(2) | 24.3 | | | 45.9 | | | — | | | 68.3 | | | 138.5 | | Total equity funds | 24.3 | | | 53.9 | | | — | | | 103.6 | | | 181.8 | | Fixed income funds: | | | | | | | | | | Corporate bonds - international | — | | | 25.3 | | | — | | | 9.6 | | | 34.9 | | UK index-linked gilts | — | | | 35.9 | | | — | | | — | | | 35.9 | | U.S. fixed income - government securities | — | | | — | | | — | | | 38.0 | | | 38.0 | | U.S. fixed income - short duration | — | | | — | | | — | | | 5.2 | | | 5.2 | | U.S. fixed income - intermediate duration | — | | | — | | | — | | | 41.1 | | | 41.1 | | U.S. fixed income - long corporate | — | | | — | | | — | | | 234.8 | | | 234.8 | | Global fixed income | — | | | — | | | — | | | 13.5 | | | 13.5 | | Total fixed income funds | — | | | 61.2 | | | — | | | 342.2 | | | 403.4 | | Other types of investments: | | | | | | | | | | International real estate(3) | — | | | 49.5 | | | — | | | — | | | 49.5 | | Other(4) | | | — | | | 34.0 | | | 1.0 | | | 35.0 | | Total | $ | 37.0 | | | $ | 164.6 | | | $ | 34.0 | | | $ | 446.8 | | | $ | 682.4 | |
(1)Cash and cash equivalents consist of traditional domestic and foreign highly liquid short-term securities with the goal of providing liquidity and preservation of capital while maximizing return on assets.
(3)
| U.S. and International real estate consists primarily of equity and debt investments made, directly or indirectly, in various interests in unimproved and improved real properties. | (2)The International category consists of investment funds focused on companies operating in developed and emerging markets outside of the U.S. These investments target broad diversification across large and mid/small-cap companies and economic sectors. (3)International real estate consists primarily of equity and debt investments made, directly or indirectly, in various interests in unimproved and improved real properties.
(4)
| Other investments consist of insurance and reinsurance contracts securing the retirement benefits. The fair value of these contracts was calculated at the discount value of premiums paid by the Company, less expenses charged by the insurance providers. The insurance providers with which the Company has placed these contracts are well-known financial institutions with an established history of providing insurance services. | (4)Other investments consist of insurance and reinsurance contracts securing the retirement benefits. The fair value of these contracts was calculated at the discount value of premiums paid by the Company, less expenses charged by the insurance providers. The insurance providers with which the Company has placed these contracts are well-known financial institutions with an established history of providing insurance services.
(5)
| Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. |
(5)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.
Defined Contribution Plans
The Company also sponsors defined contribution plans at various locations throughout the world. Benefits are determined and funded regularly based on terms of the plans or as stipulated in a collective bargaining agreement. The Company’s full-time salaried and hourly employees in the U.S. are eligible to participate in Company-sponsored defined contribution savings plans, which are qualified plans under the requirements of Section 401(k) of the Internal Revenue Code. The Company’s contributions to the savings plans are in the form of cash. The Company’s total contributions to all worldwide defined contribution plans for the years ended December 31, 2017, 2016,2022, 2021, and 20152020 were $13.7$46.6 million, $12.8$40.6 millionand $17.2 $35.9 million, respectively.
Other Benefit Plans
There are various other employment contracts, deferred compensation arrangements, covenants not to compete, and change in control agreements with certain employees and former employees. The Company offers a long-term service award program for qualified employees at certain of its non-U.S. locations. Under this program, qualified employees receive a service gratuity (“Jubilee”) payment once they have achieved a certain number of years of service. The Company’s actuarially calculated obligation equaled $3.9 million and $3.5 million as of December 31, 2017 and 2016, respectively.
There are various other employment contracts, deferred compensation arrangements, covenants not to compete, and change in control agreements with certain employees and former employees. The liabilities associated with such arrangements are not material to the Company’s consolidated financial statements.
Note 12: | Stockholders’ Equity |
Note 13: Stockholders’ Equity and Noncontrolling Interests
Stockholders’ Equity As of December 31, 20172022 and 2016,2021, 1,000,000,000 shares of voting common stock were authorized. Shares of common stock outstanding were 196,217,971were 405,117,710 and 148,654,906407,785,207 as of December 31, 20172022 and 2016,2021, respectively. The Company is governed by the General Corporation Law of the State of Delaware. All authorized shares of voting common stock have a par value of $0.01. Shares of common stock reacquired are considered authorizedissued and reported as Treasury shares. Noncontrolling Interests Note 13: | The Company has a controlling interest of approximately 75% of the common shares of Ingersoll-Rand India Limited (“IR India Limited”). The remaining shares are owned by unaffiliated shareholders and traded on India stock exchanges regulated by Securities and Exchange Board of India (“SEBI”). The Company’s acquisition of Ingersoll Rand Industrial in 2020 resulted in an indirect change in control of IR India Limited as defined by SEBI Substantial Acquisition of Shares and Takeovers (“SAST”) regulations. As a result, the Company was required to pursue either a tender offer for a certain number of noncontrolling shares or a voluntary delisting of the entity from India stock exchanges. In 2020, the Company initiated and completed a tender offer of approximately 6% of outstanding shares for an aggregate purchase price of $14.9 million. Later in 2020, approximately 5% of outstanding shares were subsequently sold for an aggregate purchase price of $11.9 million. As a result of these transactions, the Company’s ownership interest in IR India Limited increased from approximately 74% before the tender offer to approximately 75% after the sale. Share Repurchase Program On August 24, 2021, the Board of Directors of Ingersoll Rand authorized a share repurchase program pursuant to which the Company may repurchase up to $750.0 million of its common stock (the “2021 Repurchase Program”). Under the repurchase program, Ingersoll Rand is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with all applicable securities laws and regulations, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities Act of 1934. For the year ended December 31, 2022, the Company repurchased 5,673,937 shares under the 2021 Repurchase Program at a weighted average price of $45.36 per share for an aggregate value of $257.3 million. There were no shares repurchased under the 2021 Repurchase Program for the year ended December 31, 2021. Other Share Repurchases On August 6, 2021, affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) completed a secondary offering to sell its remaining 29,788,635 shares of common stock, of which Ingersoll Rand purchased 14,894,317 shares for $49.05 per share. Note 14: Accumulated Other Comprehensive Income (Loss) Income |
The Company’s other comprehensive income (loss) income consists of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations; (ii) realized and unrealized foreign currency gains and losses on intercompany notes of a long-term nature and certain hedges of net investments in foreign operations, net of income taxes; (iii) unrealized gains and losses on cash flow hedges (consisting of interest rate swaps)swap and cap contracts), net of income taxes; and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes. See Note 1112 “Benefit Plans” and Note 1619 “Hedging Activities, Derivative Instruments and Credit Risk.”
The before tax income (loss) income,and related income tax effect and accumulated balances are as follows:follows.
| | Cumulative Currency Translation Adjustment | | | Foreign Currency Gains and (Losses) | | | Unrealized (Losses) Gains on Cash Flow Hedges | | | Pension and Postretirement Benefit Plans | | | Accumulated Other Comprehensive Income | | Balance at December 31, 2014 | | $ | (111.7 | ) | | $ | 42.4 | | | $ | (25.4 | ) | | $ | (40.6 | ) | | $ | (135.3 | ) | Before tax (loss) income | | | (136.3 | ) | | | 56.8 | | | | (25.6 | ) | | | (13.3 | ) | | | (118.4 | ) | Income tax effect | | | - | | | | (24.2 | ) | | | 9.7 | | | | 2.6 | | | | (11.9 | ) | Other comprehensive (loss) income | | | (136.3 | ) | | | 32.6 | | | | (15.9 | ) | | | (10.7 | ) | | | (130.3 | ) | Balance at December 31, 2015 | | | (248.0 | ) | | | 75.0 | | | | (41.3 | ) | | | (51.3 | ) | | | (265.6 | ) | Before tax (loss) income | | | (76.2 | ) | | | 21.0 | | | | (1.5 | ) | | | (14.3 | ) | | | (71.0 | ) | Income tax effect | | | - | | | | (7.4 | ) | | | 0.6 | | | | 1.0 | | | | (5.8 | ) | Other comprehensive (loss) income | | | (76.2 | ) | | | 13.6 | | | | (0.9 | ) | | | (13.3 | ) | | | (76.8 | ) | Balance at December 31, 2016 | | | (324.2 | ) | | | 88.6 | | | | (42.2 | ) | | | (64.6 | ) | | | (342.4 | ) | Before tax income (loss) | | | 157.6 | | | | (82.8 | ) | | | 20.0 | | | | 29.8 | | | | 124.6 | | Income tax effect | | | - | | | | 31.2 | | | | (7.6 | ) | | | (5.6 | ) | | | 18.0 | | Other comprehensive income (loss) | | | 157.6 | | | | (51.6 | ) | | | 12.4 | | | | 24.2 | | | | 142.6 | | Balance at December 31, 2017 | | | (166.6 | ) | | | 37.0 | | | | (29.8 | ) | | | (40.4 | ) | | | (199.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | Foreign Currency Translation Adjustments, Net | | Cash Flow Hedges | | Pension and Other Postretirement Benefit Plans | | Total | Balance as of December 31, 2019 | $ | (193.6) | | | $ | (10.9) | | | $ | (51.5) | | | $ | (256.0) | | Before tax income (loss) | 253.1 | | | 14.2 | | | (11.5) | | | 255.8 | | Income tax effect | 15.1 | | | (3.3) | | | 2.6 | | | 14.4 | | Other comprehensive income (loss) | 268.2 | | | 10.9 | | | (8.9) | | | 270.2 | | | | | | | | | | Balance as of December 31, 2020 | $ | 74.6 | | | $ | — | | | $ | (60.4) | | | $ | 14.2 | | Before tax income (loss) | (119.9) | | | — | | | 61.6 | | | (58.3) | | Income tax effect | 16.9 | | | — | | | (12.9) | | | 4.0 | | Other comprehensive income (loss) | (103.0) | | | — | | | 48.7 | | | (54.3) | | Divestiture of foreign subsidiaries | (1.5) | | | — | | | — | | | (1.5) | | Balance as of December 31, 2021 | $ | (29.9) | | | $ | — | | | $ | (11.7) | | | $ | (41.6) | | Before tax income (loss) | (237.1) | | | 21.3 | | | 41.0 | | | (174.8) | | Income tax effect | (15.8) | | | (5.3) | | | (14.2) | | | (35.3) | | Other comprehensive income (loss) | (252.9) | | | 16.0 | | | 26.8 | | | (210.1) | | | | | | | | | | Balance as of December 31, 2022 | $ | (282.8) | | | $ | 16.0 | | | $ | 15.1 | | | $ | (251.7) | |
The tables above include only the other comprehensive income (loss), net of tax, attributable to Ingersoll Rand Inc. Other comprehensive loss, net, attributable to noncontrolling interest holders was 7.2 million, 2.3 million and $1.4 million for the years ended December 31, 2022, 2021 and 2020, respectively, and related entirely to foreign currency translation adjustments. Changes in accumulated other comprehensive income (loss) income by component for the periods described below are presented in the following table(1):. | | | | | | | | | | | Pension and Postretirement Benefit Plans | | | Total | | Balance as of December 31, 2015 | | $ | (248.0 | ) | | $ | 75.0 | | | $ | (41.3 | ) | | $ | (51.3 | ) | | $ | (265.6 | ) | Other comprehensive (loss) income before reclassifications | | | (76.2 | ) | | | 13.6 | | | | (8.1 | ) | | | (15.2 | ) | | | (85.9 | ) | Amounts reclassified from accumulated other comprehensive income | | | - | | | | - | | | | 7.2 | | | | 1.9 | | | | 9.1 | | Other comprehensive (loss) income | | | (76.2 | ) | | | 13.6 | | | | (0.9 | ) | | | (13.3 | ) | | | (76.8 | ) | Balance at December 31, 2016 | | $ | (324.2 | ) | | $ | 88.6 | | | $ | (42.2 | ) | | $ | (64.6 | ) | | $ | (342.4 | ) | Other comprehensive income (loss) before reclassifications | | | 157.6 | | | | (51.6 | ) | | | 0.9 | | | | 21.1 | | | | 128.0 | | Amounts reclassified from accumulated other comprehensive income | | | - | | | | - | | | | 11.5 | | | | 3.1 | | | | 14.6 | | Other comprehensive income (loss) | | | 157.6 | | | | (51.6 | ) | | | 12.4 | | | | 24.2 | | | | 142.6 | | Balance at December 31, 2017 | | $ | (166.6 | ) | | $ | 37.0 | | | $ | (29.8 | ) | | $ | (40.4 | ) | | $ | (199.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | Foreign Currency Translation Adjustments, Net | | Cash Flow Hedges | | Pension and Other Postretirement Benefit Plans | | Total | Balance as of December 31, 2019 | $ | (193.6) | | | $ | (10.9) | | | $ | (51.5) | | | $ | (256.0) | | Other comprehensive income (loss) before reclassifications | 268.2 | | | (3.0) | | | (11.2) | | | 254.0 | | Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 13.9 | | | 2.3 | | | 16.2 | | Other comprehensive income (loss) | 268.2 | | | 10.9 | | | (8.9) | | | 270.2 | | | | | | | | | | Balance as of December 31, 2020 | $ | 74.6 | | | $ | — | | | $ | (60.4) | | | $ | 14.2 | | Other comprehensive income (loss) before reclassifications | (103.0) | | | — | | | 45.2 | | | (57.8) | | Amounts reclassified from accumulated other comprehensive income (loss) | — | | | — | | | 3.5 | | | 3.5 | | Other comprehensive income (loss) | (103.0) | | | — | | | 48.7 | | | (54.3) | | Divestiture of foreign subsidiaries | (1.5) | | | — | | | — | | | (1.5) | | Balance as of December 31, 2021 | $ | (29.9) | | | $ | — | | | $ | (11.7) | | | $ | (41.6) | | Other comprehensive income (loss) before reclassifications | (244.3) | | | 13.9 | | | 26.9 | | | (203.5) | | Amounts reclassified from accumulated other comprehensive income (loss) | (8.6) | | | 2.1 | | | (0.1) | | | (6.6) | | Other comprehensive income (loss) | (252.9) | | | 16.0 | | | 26.8 | | | (210.1) | | | | | | | | | | Balance as of December 31, 2022 | $ | (282.8) | | | $ | 16.0 | | | $ | 15.1 | | | $ | (251.7) | |
| (1) | All amounts are net of tax. Amounts in parentheses indicate debits. |
(1)All amounts are net of tax. Amounts in parentheses indicate debits. Reclassifications out of accumulated other comprehensive income (loss) income for the years ended December 31, 20172022, 2021 and 20162020 are presented in the following table. Amount Reclassified from Accumulated Other Comprehensive (Loss) Income | | Details about Accumulated Other Comprehensive Income Components | | 2017 | | | 2016 | | | Affected Line in the Statement Where Net Income is Presented | | Loss on cash flow hedges Interest rate swaps | | $ | 18.5 | | | $ | 11.6 | | | Interest expense | | | | | 18.5 | | | | 11.6 | | | Total before tax | | | | | (7.0 | ) | | | (4.4 | ) | | Income tax benefit | | | | $ | 11.5 | | | $ | 7.2 | | | Net of tax | | | | | | | | | | | | | | Amortization of defined benefit pension and other postretirement benefit items | | $ | 5.0 | | | $ | 3.0 | | | (1) | | | | | 5.0 | | | | 3.0 | | | Total before tax | | | | | (1.9 | ) | | | (1.1 | ) | | Income tax benefit | | | | $ | 3.1 | | | $ | 1.9 | | | Net of tax | | Total reclassifications for the period | | $ | 14.6 | | | $ | 9.1 | | | Net of tax | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Amount Reclassified from Accumulated Other Comprehensive Income (Loss) | Details about Accumulated Other Comprehensive Income (Loss) Components | | 2022 | | 2021 | | 2020 | | Affected Line(s) in the Statement Where Net Income is Presented | Cash flow hedges (interest rate swaps and caps) | | $ | 2.8 | | | $ | — | | | $ | 18.5 | | | Interest expense | Benefit for income taxes | | (0.7) | | | — | | | (4.6) | | | Benefit for income taxes | Cash flow hedges (interest rate swaps and caps), net of tax | | $ | 2.1 | | | $ | — | | | $ | 13.9 | | | | | | | | | | | | | Net investment hedges | | $ | (11.5) | | | $ | — | | | $ | — | | | Interest expense | Provision for income taxes | | 2.9 | | | — | | | — | | | Benefit for income taxes | Net investment hedges, net of tax | | $ | (8.6) | | | $ | — | | | $ | — | | | | | | | | | | | | | Amortization of defined benefit pension and other postretirement benefit items(1) | | $ | (0.1) | | | $ | 4.7 | | | $ | 3.0 | | | Cost of sales and Selling and administrative expenses | Benefit for income taxes | | — | | | (1.2) | | | (0.7) | | | Benefit for income taxes | Amortization of defined benefit pension and other postretirement benefit items, net of tax | | $ | (0.1) | | | $ | 3.5 | | | $ | 2.3 | | | | | | | | | | | | | Total reclassifications for the period | | $ | (6.6) | | | $ | 3.5 | | | $ | 16.2 | | | |
| (1) | These components are included in the computation of net periodic benefit cost (see Note 11 “Benefit Plans” for additional details). | (1)These components are included in the computation of net periodic benefit cost. See Note 12 “Benefit Plans” for additional details.Note 15: Revenue from Contracts with Customers Overview
LossThe Company recognizes revenue when it has satisfied its obligation and control is transferred to the customer. The amount of revenue recognized includes adjustments for any variable consideration, such as rebates, sales discounts and liquidated damages, which are included in the transaction price, and allocated to each performance obligation. The variable consideration is estimated throughout the course of the contract using the Company’s best estimates. Judgements impacting variable consideration related to material rebate and sales discount programs, and significant contracts containing liquidated damage clauses are governed by management review processes.
The majority of the Company’s revenues are derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or services have been rendered. The Company has certain long duration engineered to order (“ETO”) contracts that require highly-engineered solutions designed to customer specific applications. For contracts where the contractual deliverables have no alternative use and the contract termination clauses provide for the recovery of cost plus a reasonable margin, revenue is recognized over time based on the Company’s progress in satisfying the contractual performance obligations, generally measured as the ratio of actual costs incurred to date to the estimated total costs to complete the contract. For contracts with termination provisions that do not provide for recovery of cost and a reasonable margin, revenue is recognized at a point in time, generally at shipment or delivery to the customer. Identification of performance obligations, determination of alternative use, assessment of contractual language regarding termination provisions, and estimation of total project costs are all significant judgments required in the application of ASC 606. Contractual specifications and requirements may be modified. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. In the event a contract modification is for goods or services that are not distinct in the contract, and therefore, form part of a single performance obligation that is partially satisfied as of the modification date, the effect of the contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognized on a cumulative catch-up basis. Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Sales commissions are due at either collection of payment from customers or recognition of revenue. Applying the practical expedient from ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the
assets that the Company otherwise would have recognized is one year or less. These costs are included in “Selling and administrative expenses” in the Consolidated Statements of Operations. Disaggregation of Revenue The following table provides disaggregated revenue by reportable segment for the years ended December 31, 2022 and 2021. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Industrial Technologies and Services | | Precision and Science Technologies | | Total | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | Primary Geographic Markets | | | | | | | | | | | | United States | $ | 1,900.3 | | | $ | 1,554.6 | | | $ | 550.1 | | | $ | 432.2 | | | $ | 2,450.4 | | | $ | 1,986.8 | | Other Americas | 320.5 | | | 264.9 | | | 29.7 | | | 20.5 | | | 350.2 | | | 285.4 | | Total Americas | 2,220.8 | | | 1,819.5 | | | 579.8 | | | 452.7 | | | 2,800.6 | | | 2,272.2 | | EMEIA | 1,442.8 | | | 1,363.4 | | | 434.5 | | | 368.1 | | | 1,877.3 | | | 1,731.5 | | Asia Pacific | 1,041.5 | | | 978.1 | | | 196.9 | | | 170.6 | | | 1,238.4 | | | 1,148.7 | | Total | $ | 4,705.1 | | | $ | 4,161.0 | | | $ | 1,211.2 | | | $ | 991.4 | | | $ | 5,916.3 | | | $ | 5,152.4 | | | | | | | | | | | | | | Product Categories | | | | | | | | | | | | Original equipment(1) | $ | 2,852.5 | | | $ | 2,467.1 | | | $ | 980.3 | | | $ | 822.3 | | | $ | 3,832.8 | | | $ | 3,289.4 | | Aftermarket(2) | 1,852.6 | | | 1,693.9 | | | 230.9 | | | 169.1 | | | 2,083.5 | | | 1,863.0 | | Total | $ | 4,705.1 | | | $ | 4,161.0 | | | $ | 1,211.2 | | | $ | 991.4 | | | $ | 5,916.3 | | | $ | 5,152.4 | | | | | | | | | | | | | | Pattern of Revenue Recognition | | | | | | | | | | | | Revenue recognized at point in time(3) | $ | 4,314.3 | | | $ | 3,811.3 | | | $ | 1,204.1 | | | $ | 988.3 | | | $ | 5,518.4 | | | $ | 4,799.6 | | Revenue recognized over time(4) | 390.8 | | | 349.7 | | | 7.1 | | | 3.1 | | | 397.9 | | | 352.8 | | Total | $ | 4,705.1 | | | $ | 4,161.0 | | | $ | 1,211.2 | | | $ | 991.4 | | | $ | 5,916.3 | | | $ | 5,152.4 | |
(1)Revenues from sales of capital equipment within the Industrial Technologies and Services segment and sales of components to original equipment manufacturers in the Precision and Science Technologies segment. (2)Revenues from sales of spare parts, accessories, other components and services in support of maintaining customer owned, installed base of the Company’s original equipment. Service revenue represents less than 10% of consolidated revenue. (3)Revenues from short and long duration product and service contracts recognized at a point in time when control is transferred to the customer generally when product delivery has occurred and services have been rendered. (4)Revenues primarily from long duration ETO product contracts, certain multi-year service contracts, and certain contracts for the delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed. Performance Obligations The majority of the Company’s contracts have a single performance obligation as the promise to transfer goods and/or services. For contracts with multiple performance obligations, the Company utilizes observable prices to determine standalone selling price or cost plus margin if a standalone price is not available. The Company has elected to account for shipping and handling activities as fulfillment costs and not a separate performance obligation. If control transfers and related revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued. The Company’s primary performance obligations include delivering standard or configured to order (“CTO”) goods to customers, designing and manufacturing a broad range of equipment customized to a customer’s specifications in ETO arrangements, rendering of services (maintenance and repair contracts), and certain extended or service type warranties. For incidental items that are immaterial in the context of the contract, costs are expensed as incurred or accrued at delivery. As of December 31, 2022, 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 $551.5 million in the next twelve months and $492.1 million in periods thereafter. The performance obligations that are unsatisfied (or partially satisfied) are primarily related to orders for goods or services that were placed prior to the end of the reporting period and have not been delivered to the customer, on-going work on ETO contracts where revenue is recognized over time and service contracts with an original duration greater than one year.
Contract Balances The following table provides the contract balances as of December 31, 2022 and 2021 presented in the Consolidated Balance Sheets. | | | | | | | | | | | | | December 31, 2022 | | December 31, 2021 | Accounts receivable, net | $ | 1,122.0 | | | $ | 948.6 | | Contract assets | 70.6 | | | 60.8 | | Contract liabilities - current | 305.6 | | | 242.1 | | Contract liabilities - noncurrent | 1.1 | | | 1.4 | |
Accounts receivable, net – Amounts due where the Company’s right to receive cash is unconditional. Customer receivables are recorded at face amount less an allowance for credit losses. The Company maintains an allowance for credit losses as a result of customers’ inability to make required payments. Management evaluates the aging of customer receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of customer receivables that may not be collected in the future and records the appropriate provision. Contract assets – The Company’s rights to consideration for the satisfaction of performance obligations subject to constraints apart from timing. Contract assets are transferred to receivables when the right to collect consideration becomes unconditional. Contract assets are presented net of progress billings and related advances from customers. Contract liabilities – Advance payments received from customers for contracts for which revenue is not yet recognized. Contract liability balances are generally recognized in revenue within twelve months. Of the $243.5 million in contract liabilities as of December 31, 2021, we recognized substantially all as revenue in the year ended December 31, 2022. Contract assets and liabilities are reported on the Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Contract assets and liabilities are presented net on a contract level, where required. Payments from customers are generally due 30 to 60 days after invoicing. Invoicing for sales of standard products generally coincides with shipment or delivery of goods. Invoicing for CTO and ETO contracts typically follows a schedule for billing at contractual milestones. Payment milestones normally include down payments upon the contract signing, completion of product design, completion of customer’s preliminary inspection, shipment or delivery, completion of installation, and customer’s on-site inspection. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets. The Company has elected the practical expedient from ASC 606-10-32-18 and does not adjust the transaction price for the effects of a financing component if, at contract inception, the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Note 16: Income Taxes Income (loss) before income taxes for the years ended December 31, 2017, 20162022, 2021 and 20152020 consisted of the following:following. | | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | U.S. | $ | 267.5 | | | $ | 121.3 | | | $ | (158.4) | | Non-U.S. | 474.7 | | | 391.7 | | | 113.0 | | Income (loss) before income taxes | $ | 742.2 | | | $ | 513.0 | | | $ | (45.4) | |
| | 2017 | | | 2016 | | | 2015 | | | | | | | | | | | | U.S. | | $ | (145.8 | ) | | $ | (149.4 | ) | | $ | (450.0 | ) | Non-U.S. | | | 33.1 | | | | 86.2 | | | | 83.3 | | Loss before income taxes | | $ | (112.7 | ) | | $ | (63.2 | ) | | $ | (366.7 | ) |
The following table details the components of the Provision (benefit) provision for income taxes for the years ended December 31, 2017, 20162022, 2021 and 2015.2020. | | | 2017 | | | 2016 | | | 2015 | | | 2022 | | 2021 | | 2020 | Current: | | | | | | | | | | Current: | | | | | | U.S. federal | | $ | 64.0 | | | $ | (6.6 | ) | | $ | - | | U.S. federal | $ | 66.5 | | | $ | (33.1) | | | $ | 6.6 | | U.S. state and local | | | 3.0 | | | | 1.3 | | | | 1.6 | | U.S. state and local | 21.5 | | | 5.8 | | | 6.7 | | Non-U.S. | | | 49.8 | | | | 57.8 | | | | 46.7 | | Non-U.S. | 147.4 | | | 109.1 | | | 79.6 | | Deferred: | | | | | | | | | | | | | Deferred: | | U.S. federal | | | (217.5 | ) | | | (61.4 | ) | | | (31.5 | ) | U.S. federal | (37.3) | | | (19.5) | | | (33.4) | | U.S. state and local | | | - | | | | (3.4 | ) | | | (9.3 | ) | U.S. state and local | (5.5) | | | (0.9) | | | (2.9) | | Non-U.S. | | | (30.5 | ) | | | (19.6 | ) | | | (22.2 | ) | Non-U.S. | (43.0) | | | (83.2) | | | (45.2) | | Benefit for income taxes | | $ | (131.2 | ) | | $ | (31.9 | ) | | $ | (14.7 | ) | | Provision (benefit) for income taxes | | Provision (benefit) for income taxes | $ | 149.6 | | | $ | (21.8) | | | $ | 11.4 | |
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Certain prior period amounts within this Note have been reclassified to conform to the current period presentation.The U.S. federal corporate statutory rate is reconciled to the Company’s effective income tax rate for the years ended December 31, 2017, 20162022, 2021 and 20152020 as follows. | | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | U.S. federal corporate statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % | State and local taxes, less federal tax benefit | 2.0 | | | 1.1 | | | (8.0) | | | | | | | | Net effects of foreign tax rate differential | 1.5 | | | 1.0 | | | (14.6) | | Withholding tax | 2.1 | | | 3.0 | | | (12.9) | | Repatriation cost | (3.2) | | | 1.4 | | | 17.7 | | | | | | | | Global Intangible Low-Tax Income (“GILTI”) | 0.3 | | | 2.3 | | | (11.7) | | ASC 740-30 (formerly APB 23) | 1.9 | | | 2.9 | | | (18.6) | | Valuation allowance changes | 0.5 | | | (5.4) | | | 4.8 | | Uncertain tax positions | 0.2 | | | (1.3) | | | (4.7) | | Equity compensation | (0.6) | | | (2.5) | | | 6.1 | | | | | | | | | | | | | | Nondeductible acquisition costs | 0.4 | | | 0.4 | | | (7.7) | | Foreign Derived Intangible Income (“FDII”) deduction | (1.6) | | | (3.2) | | | 10.1 | | Tax credits | (1.1) | | | (0.8) | | | 4.7 | | Income not subject to tax | (3.5) | | | (3.3) | | | — | | Utilization of capital loss | — | | | (9.1) | | | — | | Non-U.S. deferred change related to asset sales | — | | | (8.0) | | | — | | Return to provision adjustment | — | | | (1.3) | | | 0.5 | | Other, net | 0.3 | | | (2.4) | | | (11.8) | | Effective income tax rate | 20.2 | % | | (4.2) | % | | (25.1) | % |
| | 2017 | | | 2016 | | | 2015 | | U.S. federal corporate statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | State and local taxes, less federal tax benefit | | | 3.1 | | | | 4.0 | | | | 2.3 | | U.S. deferred tax rate change from 35% to 21% | | | 79.5 | | | | - | | | | - | | Net effects of foreign tax rate differential | | | 6.2 | | | | 19.9 | | | | 1.5 | | Sale of subsidiary | | | (4.6 | ) | | | (17.1 | ) | | | - | | Repatriation cost | | | 3.8 | | | | 4.4 | | | | (0.3 | ) | U.S. transition tax toll charge net of FTC | | | (56.2 | ) | | | - | | | | - | | ASC 740-30 | | | 61.2 | | | | 26.3 | | | | (2.0 | ) | Valuation allowance changes | | | (1.1 | ) | | | (15.9 | ) | | | (0.5 | ) | Impairment of goodwill and intangible assets | | | - | | | | (0.6 | ) | | | (31.7 | ) | Uncertain tax positions | | | 1.9 | | | | (7.0 | ) | | | (0.4 | ) | Nondeductible equity compensation | | | (9.2 | ) | | | - | | | | - | | Nondeductible foreign interest expense | | | (3.0 | ) | | | - | | | | - | | Other, net | | | (0.3 | ) | | | 1.5 | | | | 0.1 | | Effective income tax rate | | | 116.3 | % | | | 50.5 | % | | | 4.0 | % |
The principal items that gave rise to deferred income tax assets and liabilities as of December 31, 20172022 and 20162021 are as follows.
| | 2017 | | | 2016 | | Deferred Tax Assets: | | | | | | | Reserves and accruals | | $ | 62.4 | | | $ | 38.2 | | Postretirement benefits other than pensions | | | 0.7 | | | | 1.1 | | Postretirement benefits - pensions | | | 15.6 | | | | 20.9 | | Tax loss carryforwards | | | 41.8 | | | | 58.0 | | Foreign tax credit carryforwards | | | 29.8 | | | | 11.6 | | Other | | | 19.4 | | | | 33.1 | | Total deferred tax assets | | | 169.7 | | | | 162.9 | | Valuation allowance | | | (47.9 | ) | | | (33.6 | ) | Deferred Tax Liabilities: | | | | | | | | | LIFO inventory | | | (9.3 | ) | | | (17.0 | ) | Property, plant, and equipment | | | (21.0 | ) | | | (28.6 | ) | Intangibles | | | (322.2 | ) | | | (444.3 | ) | Unremitted foreign earnings | | | (9.3 | ) | | | (77.3 | ) | Other | | | 3.5 | | | | (48.3 | ) | Total deferred tax liabilities | | | (358.3 | ) | | | (615.5 | ) | Net deferred income tax liability | | $ | (236.5 | ) | | $ | (486.2 | ) |
The U.S. Tax Law change enacted in December 2017 impacted the comparison of the 2017 to the 2016 deferred tax changes by $158.6 million as a result of the U.S. tax rate reduction and the change in the ASC 740-30 deferred liability balance.
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| | | | | | | | | | | | | 2022 | | 2021 | Deferred Tax Assets: | | | | Reserves and accruals | $ | 78.5 | | | $ | 69.3 | | Allowance for credit losses | 7.4 | | | 10.0 | | Inventory reserve | 4.9 | | | 12.0 | | Pension and postretirement benefit plans | 25.4 | | | 41.7 | | Tax loss carryforwards | 107.2 | | | 95.9 | | Deferred taxes recorded in other comprehensive income | 0.1 | | | 10.2 | | Foreign tax credit carryforwards | 53.8 | | | 43.8 | | Other | 31.8 | | | 30.9 | | Total deferred tax assets | 309.1 | | | 313.8 | | Valuation allowance | (107.3) | | | (106.4) | | Deferred Tax Liabilities: | | | | LIFO inventory | (21.8) | | | (16.2) | | Investment in partnership | (36.3) | | | (37.4) | | Property, plant and equipment | (36.0) | | | (40.9) | | Intangible assets | (663.6) | | | (742.1) | | Unremitted foreign earnings | (32.4) | | | (49.6) | | | | | | Other | — | | | (1.6) | | Total deferred tax liabilities | (790.1) | | | (887.8) | | Net deferred income tax liability | $ | (588.3) | | | $ | (680.4) | |
The Company believes that it is more likely than not that it will realize its deferred tax assets through the reduction of future taxable income, other than for the deferred tax assets reflected below. Tax attributes and related valuation allowances as of December 31, 20172022 were as follows. | | | Tax Benefit | | | Valuation Allowance | | | Carryforward Period Ends | | | Tax Benefit | | Valuation Allowance | | Carryforward Period Ends | Tax Attributes to be Carried Forward | | | | | | | | | | Tax Attributes to be Carried Forward | | | | | | U.S. federal net operating loss | | $ | 15.1 | | | $ | (2.0 | ) | | | 2035-2037 | | U.S. federal net operating loss | $ | 0.2 | | | $ | (0.2) | | | Unlimited | U.S federal capital loss | | | 6.9 | | | | (6.9 | ) | | | 2021 | | | U.S. federal net operating loss | | U.S. federal net operating loss | 0.1 | | | (0.1) | | | 2031-2040 | U.S. federal capital loss | | U.S. federal capital loss | 24.8 | | | — | | | 2027 | U.S. federal capital loss | | U.S. federal capital loss | — | | | — | | | 2031-2040 | U.S. federal tax credit | | | 33.4 | | | | (29.9 | ) | | | 2023-2037 | | U.S. federal tax credit | 53.8 | | | (53.8) | | | 2023-2032 | Alternative minimum tax credit | | | 0.9 | | | | - | | | Unlimited | | Alternative minimum tax credit | 0.8 | | | (0.1) | | | Unlimited | U.S. state and local net operating losses | | | 5.4 | | | | - | | | | 2034-2037 | | U.S. state and local net operating losses | 2.8 | | | (0.4) | | | 2026-2041 | U.S. state and local tax credit | | | 0.5 | | | | - | | | | 2018-2034 | | U.S. state and local tax credit | 0.3 | | | — | | | 2040 | Non U.S. net operating losses | | | 2.7 | | | | (0.8 | ) | | | 2018-2037 | | | U.S. state capital loss | | U.S. state capital loss | 0.5 | | | — | | | 2027 | Non U.S. net operating losses | | | 8.1 | | | | (7.7 | ) | | Unlimited | | Non U.S. net operating losses | 67.0 | | | (46.1) | | | Unlimited | Non U.S. capital losses | | | 0.5 | | | | (0.5 | ) | | Unlimited | | Non U.S. capital losses | 0.6 | | | (0.6) | | | Unlimited | Excess interest | | Excess interest | 11.9 | | | (2.6) | | | Unlimited | Other deferred tax assets | | | 5.3 | | | | (0.1 | ) | | Unlimited | | Other deferred tax assets | 3.4 | | | (3.4) | | | Unlimited | Total tax carryforwards | | $ | 78.8 | | | $ | (47.9 | ) | | | | | Total tax carryforwards | $ | 166.2 | | | $ | (107.3) | | |
When comparing to prior year, the comparison is impacted by the US Tax Law change enacted December 22, 2017.
A reconciliation of the changes in the valuation allowance for deferred tax assets for the years ended December 31, 2017, 20162022, 2021 and 20152020 are as follows. | | 2017 | | | 2016 | | | 2015 | | Valuation allowance for deferred tax assets at beginning of the period | | $ | 33.6 | | | $ | 23.8 | | | $ | 27.5 | | Revaluation and change due to U.S. Tax Reform | | | 10.7 | | | | - | | | | - | | Charged to tax expense | | | 3.1 | | | | 12.5 | | | | 4.8 | | Charged to other accounts | | | 1.6 | | | | (0.1 | ) | | | - | | Deductions(1) | | | (1.1 | ) | | | (2.6 | ) | | | (8.5 | ) | Valuation allowance for deferred tax assets at end of the period | | $ | 47.9 | | | $ | 33.6 | | | $ | 23.8 | |
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Beginning balance | $ | 106.4 | | | $ | 140.6 | | | $ | 67.9 | | Revaluation or additions due to acquisitions or mergers(1) | — | | | — | | | 63.3 | | | | | | | | Charged to tax expense | 3.1 | | | (27.6) | | | 8.3 | | Charged to other accounts | (2.2) | | | (6.6) | | | 1.1 | | Deductions(2) | — | | | — | | | — | | Ending balance | $ | 107.3 | | | $ | 106.4 | | | $ | 140.6 | |
| (1) | Deductions relate to the realization of net operating losses or the removal of deferred tax assets. | (1)Revaluation for the tax year ended December 31, 2020 relates to the inclusion of Ingersoll Rand’s opening balance sheet (“OBS”) beginning valuation allowance. (2)Deductions relate to the realization of net operating losses or the removal of deferred tax assets.
Total unrecognized tax benefits were $12.6$10.8 million, $6.8$21.1 million and $4.8$27.8 million for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively. The net increasedecrease in this balance primarily relates to recording $11.2 million for tax positions in prior years, which were partially offseta release of the Italian audit settlement indemnified by Trane Technologies. The post-merger portion of the benefits associated withreserve was adjusted to reflect the lapse of applicable statutes of limitations of $0.3 million and settlements of $6.2 million.settlement terms. Included in total unrecognized benefits as ofat December 31, 20172022 is $12.6$10.8 million of unrecognized tax benefits that would affect the Company'sCompany’s effective tax rate if recognized, of which $1.2 million would be offset by a reduction of a corresponding deferred tax asset.recognized. The balance of total unrecognized tax benefits is not expected to significantly increase or decrease within the next twelve months. Below is a tabular reconciliation of the changes in total unrecognized tax benefits during the years ended December 31, 2017, 20162022, 2021 and 2015.2020.
| | | 2017 | | | 2016 | | | 2015 | | | 2022 | | 2021 | | 2020 | Beginning balance | | $ | 6.8 | | | $ | 4.8 | | | $ | 4.0 | | Beginning balance | $ | 21.1 | | | $ | 27.8 | | | $ | 12.5 | | Gross increases for tax positions of prior years | | | 11.2 | | | | 3.1 | | | | - | | Gross increases for tax positions of prior years | 0.4 | | | 0.8 | | | — | | Gross decreases for tax positions of prior years | | | - | | | | - | | | | (0.4 | ) | Gross decreases for tax positions of prior years | (3.7) | | | — | | | — | | Gross increases for tax positions of current year | | | 0.6 | | | | - | | | | 1.8 | | Gross increases for tax positions of current year | 4.1 | | | 5.3 | | | 16.8 | | Settlements | | | (6.2 | ) | | | (0.4 | ) | | | - | | Settlements | (9.9) | | | — | | | — | | Lapse of statute of limitations | | | (0.3 | ) | | | (0.7 | ) | | | (0.6 | ) | Lapse of statute of limitations | (0.1) | | | (11.8) | | | (3.5) | | Changes due to currency fluctuations | | | 0.5 | | | | - | | | | - | | Changes due to currency fluctuations | (1.1) | | | (1.0) | | | 2.0 | | Ending balance | | $ | 12.6 | | | $ | 6.8 | | | $ | 4.8 | | Ending balance | $ | 10.8 | | | $ | 21.1 | | | $ | 27.8 | |
The Company includes interest expense and penalties related to unrecognized tax benefits as part of the provision for income taxes. The Company'sCompany’s income tax liabilities as ofat December 31, 20172022 and 20162021 include accrued interest and penalties of $0.8$1.1 million and $3.0$1.2 million, respectively. The statutes of limitations for U.S. Federal tax returns are open beginning with the 20142019 tax year, and state returns are open beginning with the 20132017 tax year. The Company closed the IRS audit of the short tax year ending December 31, 2013. On January 3, 2018 the Company received notification from the IRS stating that the Company is now under IRS audit for the tax years ending December 31, 2014, 2015 and 2016. The audit will begin in 2018.
The Company is subject to income tax in approximately 3347 jurisdictions outside the U.S. The statute of limitations varies by jurisdiction with 20052014 being the oldest year still open. The Company'sCompany’s significant operations outside the U.S. are located in the United Kingdom, Germany, China, Ireland, Hong Kong, and Germany.Singapore. In the United Kingdom,Germany, a tax audit covering tax years prior to 2012 are closed. However, the2015-2019 was still open. The Company is currently under audit in Italy for tax years 2014 – 2020. However, as this audit covers pre-merger tax years for legacy Ingersoll Rand Industrial entities, the United Kingdom, whichCompany has been expanded to include years 2012 to 2014. The audit has not been completed as ofindemnified by Trane Technologies for any future liability arising from the date of these financial statements. In Germany, generally, theaudit. Note that any other liabilities arising from pre-merger tax years 2010 and beyond remain open to examination. The general field tax audit of fiscal years 2008 to 2010 was settled during the tax year ended December 31, 2017. The Company also commenced a general tax audit for the tax years 2011 to 2014 for Germany during 2017. Additionally, in Italy, the withholding tax audit for the tax years 2012 to 2014 was settled during 2017. legacy Ingersoll Rand Industrial entities would be similarly indemnified.
The Company recordeddoes not assert the ASC 740-30 (formerly APB 23) indefinite reinvestment of the Company’s historical non-U.S. earnings or future non-U.S. earnings. This assertion has not changed following the merger. The Company records a deferred foreign tax liability of approximately $114.0 million as ofto cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the acquisition date by KKR for the anticipated repatriation of a limited amount of unremitted foreign earnings generated prior to date of acquisition, July 30, 2013. These accumulated earnings of non-U.S. subsidiaries amounting to approximately $287.0 million are expected to supplement theUnited States. The Company’s projected U.S. operating cash flow in meeting the Company’s debt service requirements along with other U.S. cash flow needs during the term of its credit agreement. This deferred income tax liability was adjusted to $94.1 million as of December 31, 2014, 94.62022 was $32.4 million as of December 31, 2015, $77.3 million as of December 31, 2016, and $9.3 million as of December 31, 2017 based upon the estimated need to repatriate accumulated earnings of approximately $200.0 million. As a result of the transition tax, the recorded deferred tax liability of $9.3 million as of December 31, 2017 relates to withholding tax.
Our accounting for the following elements of the Tax Act is incomplete, and we were not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments, other than the adjustment related to the effect of the transitional tax, were recorded related to ASC 740-30.
The Tax Act creates a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (“CFC”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respecta significant increase over prior year due mainly 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.
Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, we are 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”). Because whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on not only our current structure and estimated future results of globalincreased foreign operations but also our intent and ability to modify our structure and/or our business, we are not yet able to reasonably estimate the effect of this provision of the Tax Act.
Due to these complexities, we have not been able to determine if our company policy concerning permanent reinvestment will change as a result of the new Tax Act. WithIngersoll Rand Industrial acquisition.
Note 17: Leases The Company has operating and financing leases for real estate, vehicles, IT equipment, office equipment and production equipment. The Company determines if an arrangement is a lease and identifies the exceptionclassification of the $9.3 million withholding tax impactlease as a financing
lease or an operating lease at inception. Operating leases are recorded as operating lease right-of-use assets (“ROU assets”) in “Other assets” and operating lease liabilities in “Accrued liabilities” and “Other liabilities” in the Consolidated Balance Sheets. Financing leases are recorded as financing ROUs in “Property, plant and equipment” and lease liabilities in “Short-term borrowings and current maturities of long-term debt” and “Long-term debt, less current maturities” in the Consolidated Balance Sheets. At the date of commencement, lease liabilities are recorded at the present value of the future minimum lease payments over the lease term. The lease term is equal to the initial term at commencement plus any renewal or extension options that the Company is reasonably certain will be exercised. ROU assets at the date of commencement are equal to the amount of the initial lease liability, the initial direct costs incurred by the Company and any prepaid lease payments less any incentives received. Subsequent to the commencement date, operating lease liabilities are recorded at the present value of unpaid lease payments discounted at a discount rate established at the commencement date. Due to the absence of an implicit rate in the Company’s lease contracts, an incremental borrowing rate is used in the determination of the present value of future lease payments. Incremental borrowing rates for a lease are based on the $200 millionlease term, lease currency and the Company’s credit spread. Operating ROU assets are recorded as the beginning balance less accumulated amortization with accumulated amortization equaling the straight-lined lease expense less the periodic accretion of the lease liability using the effective interest rate method. Subsequent to the commencement date, financing lease liabilities are increased to reflect interest on the lease liability and decreased for principal lease payments made. The financing ROU asset is measured at cost less amortization expense and any accumulated earningsimpairment loss. Amortization expense is calculated on a straight-line basis over the lease term or remaining useful life. The Company’s lease terms allow for the extension or termination of its leases and accounts for the extension and termination when it is reasonably certain that the Company will exercise the option or terminate the lease. Reassessment of the lease term occurs when there is a significant event or a significant change in circumstances that is within the control of the Company that directly affects whether the Company is reasonably certain to exercise or not to exercise an option to extend or terminate the lease or to purchase the underlying asset. Contractual specifications and requirements may be repatriatedmodified. The Company considers contract modifications to exist when the modification includes a change to the contractual terms, scope of the lease or the consideration given. In the event that the right to use an additional asset is granted and the lease payments associated with the additional asset are commensurate with the ROU asset’s standalone price, the modification is accounted for as discussed previously, no additional adjustments relating to ASC 740-30 have been recorded in accordance with SAB 118 as we are not currently able to reasonably estimatea separate contract and the impactoriginal contract remains unchanged. In the event that a single lease is modified, the Company reassessed the classification of the modified lease as of the filingeffective date of the modification based on the modified terms and accounts for initial direct costs, lease incentives and any other payments made to or by the Company in connection with the modification in the same manner that items would be accounted for in connection with a new lease. If there is an additional ROU asset included, the lease term is extended or reduced, or the consideration is the only change in the contract, the Company reallocates the remaining consideration in the contract and remeasures the lease liability using a discount rate determined at the effective date of the modification. The remeasured lease liability for the modified lease is an adjustment to the corresponding ROU asset and does not impact the Consolidated Statements of Operations. In the event of a full or partial termination, the carrying value of the ROU asset decreases on a basis proportionate to the full or partial termination and any difference between the reduction in the lease liability and the proportionate reduction of the ROU asset is recognized as a gain or loss at the effective date of the modification. The Company does not recognize leases with an original term of less than 12 months on its balance sheet and continues to expense such leases. The Company also elected the practical expedient allowing the Company to account for each separate lease component of a contract and its associated non-lease component as a single lease component. This practical expedient was applied to all underlying asset classes. Variable lease expense was not material.
The components of lease expense for the years ended December 31, 2017 financial statements.2022 and 2021 are as follows. | | | | | | | | | | | | | 2022 | | 2021 | Operating lease cost | $ | 45.8 | | | $ | 50.6 | | | | | | Finance lease cost | | | | Amortization of right-of-use assets | $ | 1.5 | | | $ | 1.5 | | Interest on lease liabilities | 1.0 | | | 1.1 | | Total finance lease cost | $ | 2.5 | | | $ | 2.6 | | | | | | Short-term lease cost | $ | 4.3 | | | $ | 2.0 | |
ExceptSupplemental cash flow information related to leases for the years ended December 31, 2022 and 2021 is as noted above, we consider the excessfollows.
| | | | | | | | | | | | | 2022 | | 2021 | Supplemental Cash Flows Information | | | | Cash Paid for Amounts Included in the Measurement of Lease Liabilities | | | | Operating cash flows from operating leases | $ | 47.0 | | | $ | 52.0 | | Operating cash flows from finance leases | 1.0 | | | 1.1 | | Financing cash flows from finance leases | 1.2 | | | 1.1 | | Leased Assets Obtained in Exchange for New Operating Lease Liabilities | 63.2 | | | 15.8 | |
Supplemental balance sheet information related to leases is as follows. | | | | | | | | | | | | | December 31, 2022 | | December 31, 2021 | Operating leases | | | | Other assets | $ | 126.9 | | | $ | 101.8 | | | | | | Accrued liabilities | 39.6 | | | 34.9 | | Other liabilities | 80.4 | | | 61.0 | | Total operating lease liabilities | $ | 120.0 | | | $ | 95.9 | | | | | | Finance Leases | | | | Property, plant and equipment | $ | 13.7 | | | $ | 15.1 | | | | | | Short-term borrowings and current maturities of long-term debt | 1.2 | | | 1.1 | | Long-term debt, less current maturities | 14.9 | | | 16.0 | | Total finance lease liabilities | $ | 16.1 | | | $ | 17.1 | | | | | | Weighted Average Remaining Lease Term (in years) | | | | Operating leases | 4.5 | | 4.0 | Finance leases | 11.1 | | 11.9 | | | | | Weighted Average Discount Rate | | | | Operating leases | 2.9 | % | | 1.8 | % | Finance leases | 6.4 | % | | 6.3 | % |
Maturities of investments in our foreign subsidiarieslease liabilities as of December 31, 2017 to be indefinitely reinvested outside the United States on the basis of our plan for reinvestment and estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. Therefore, we have not provided for deferred taxes related to such and it is not practicable to determine this amount.2022 are as follows. | | | | | | | | | | | | | Operating Leases | | Finance Leases | 2023 | $ | 41.9 | | | $ | 2.2 | | 2024 | 28.0 | | | 2.1 | | 2025 | 19.9 | | | 2.0 | | 2026 | 15.0 | | | 2.0 | | 2027 | 8.3 | | | 2.1 | | Thereafter | 13.7 | | | 12.7 | | Total lease payments | $ | 126.8 | | | $ | 23.1 | | Less imputed interest | (6.8) | | | (7.0) | | Total | $ | 120.0 | | | $ | 16.1 | |
Note 15: | Note 18: Stock-Based Compensation Plans |
2013 Stock Incentive Plan
The Company adoptedhas outstanding stock-based compensation awards granted under the 2013 Stock Incentive Plan (“2013 Plan”) and the 2017 Omnibus Incentive Plan, as amended (amended by the First Amendment, dated April 27, 2021, “2017 Plan”). Following the Company’s initial public offering, the Company grants stock-based compensation awards pursuant to the 2017 Plan and ceased granting new awards pursuant to the 2013 Plan. 2017 Omnibus Incentive Plan In May 2017, the Company’s Board approved the 2017 Plan, and in February 2020, the Company’s stockholders approved the amendment and restatement of the 2017 Plan. Under the terms of the Plan, the Company’s Board may grant up to 19.6 million stock based and other incentive awards. Any shares of common stock subject to outstanding awards granted under the Company’s 2013 plan that, after the effective date of the 2017 Plan, expire or are otherwise forfeited or terminated in accordance with their terms are also available for grant under the 2017 Plan. All stock options were granted to employees, directors and advisors with an exercise price equal to the fair value of the Company’s per share common stock at the date of grant. Stock option awards typically vest over four or five years and expire ten years from the date of grant. 2013 Stock Incentive Plan The Company adopted the 2013 Plan on October 14, 2013 as amended on April 27, 2015 under which the Company mayhad the ability to grant stock-based compensation awards to employees, directors and advisors. The total number of shares available for grant under the 2013 Plan and reserved for issuance iswas 20.9 million shares. All stock options were granted to employees, directors and advisors with an exercise price equal to the fair value of the Company’s per share common stock at the date of grant. Following the Company’s initial public offering, the Company may grant stock-based compensationStock option awards pursuant to the 2017 Plan (defined below) and ceased granting new awards pursuant to the 2013 Plan.
Stock options awards vestvested over either five, four, or three years with 50% of each award vesting based on time and 50% of each award vesting based on the achievement of certain financial targets.
Stock-Based Compensation Expense Prior to the Company’s initial public offering in May 2017, the Company had certain repurchase rights on stock acquired through the exercise of a stock option that created an implicit service period and created a condition in which an optionee may not receive the economic benefits of the option until the repurchase rights are eliminated. The repurchase rights creating the implicit service period are eliminated at the earlier of an initial public offering or change of control event. Before the elimination of the repurchase rights, because an initial public offering or change of control were not probable of occurring, noStock-based compensation expense was recorded for equity awards.the years ended December 31, 2022, 2021 and 2020 are included in “Cost of sales” and “Selling and administrative expenses” in the Consolidated Statements of Operations and are as follows.
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Stock-based compensation expense recognized in: | | | | | | Continuing operations | $ | 78.9 | | | $ | 87.2 | | | $ | 47.5 | | Discontinued operations | — | | | 10.9 | | | 3.8 | | Total stock-based compensation expense | $ | 78.9 | | | $ | 98.1 | | | $ | 51.3 | |
The Company recognized a liability for compensation expense measured at intrinsic value when it was probable that an employee would receive benefits under the terms of the plan due to termination of employment.Stock-Based Compensation Expense - Continuing Operations
Under the terms of the 2013 Plan, concurrent with the initial public offering, the Company no longer retains repurchase rights on stock acquired through the exercise of a stock option and the implicit service period was eliminated on outstanding stock options. For the year ended December 31, 2017,2022, the Company recognized$78.9 million of stock-based compensation expense included expense for equity awards granted under the 2013 Plan and 2017 Plan of approximately $77.6$80.0 million and a decrease in the liability for stock appreciation rights (“SAR”) of $1.1 million. Of the $80.0 million of expense for equity awards granted under the 2013 Plan and 2017 Plan, $39.5 million related to time-basedthe $150 million equity grant to nearly 16,000 employees worldwide announced in the third quarter of 2020.
For the year ended December 31, 2021, the $87.2 million of stock-based compensation expense included expense for equity awards granted under the 2013 Plan and performance-based stock options2017 Plan of $85.8 million and an increase in the liability for SARs of $1.4 million. Of the $85.8 million of expense for equity awards granted under the 2013 Plan and 2017 Plan, $57.4 million related to the $150 million equity grant to nearly 16,000 employees worldwide announced in the third quarter of 2020. For the year ended December 31, 2020, the $47.5 million of stock-based compensation expense included expense for modifications of equity awards for certain former employees of $2.9 million, expense for equity awards granted under the 2013 Plan and 2017 Plan of $43.3 million and an increase in the liability for SARs of $1.3 million. The $2.9 million of stock-based compensation expense for modifications provided continued vesting through scheduled vesting dates of certain equity awards for certain former employees. These costs are included in “Other operating expense, net”“Selling and administrative expenses” in the Consolidated Statements of Operations. CertainOf the $43.3 million of expense for equity awards granted under the 2013 Plan and 2017 Plan, $23.4 million related to the $150 million equity grant to nearly 16,000 employees worldwide announced in the third quarter of 2020. As of December 31, 2022, there was $112.9 million of total unrecognized compensation expense related to outstanding stock option, restricted stock unit and performance share unit awards granted to employees and non-employee directors, as well as 500,000 conditional stock options awarded during the third quarter of 2022 to our Chairman and CEO in which the service date precedes the grant date, and will be granted upon achievement of certain performance targets. These 500,000 stock options have not been included in the Stock Option Awards section below since the grant date has not occurred. SARs, granted under the 2013 Plan, are expected to be settled in cash (stock appreciation rights “SAR”) and are accounted for as liability awards. As of December 31, 2017,2022 and 2021 a liability of approximately $16.8$3.3 millionand $4.5 million, respectively, for SARs iswas included in “Accrued liabilities” in the Consolidated Balance Sheets. Stock-Based Compensation Expense - Discontinued Operations
As ofFor the year ended December 31, 2017 and December 31, 2016 there was $9.12021, the $10.9 million of stock-based compensation expense included expense for modifications of equity awards of $3.8 million and $68.0expense 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 total unrecognized compensation expense for equity awards granted under the 2013 Plan and 2017 Plan, $5.4 million related to outstanding stock options.the All-Employee Equity Grant.
Stock Option Awards
A summary of the Company’s stock-based award planstock option (including SARs) activity including stock options and SARs, for the yearsyear ended December 31, 2017, 2016 and 20152022 is presented in the following table (underlying shares in thousands). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | Weighted-Average Exercise Price (per share) | | Wtd. Avg. Remaining Contractual Term (years) | | Aggregate Intrinsic Value of In-The-Money Options (in millions) | Outstanding at December 31, 2021 | 6,746 | | | $ | 21.76 | | | | | | | | | | | | | | Granted | 754 | | | 53.09 | | | | | | Exercised or Settled | (947) | | | 20.36 | | | | | | Forfeited | (162) | | | 38.51 | | | | | | Expired | (8) | | | 41.19 | | | | | | Outstanding at December 31, 2022 | 6,383 | | | 25.22 | | | 5.1 | | $ | 173.2 | | | | | | | | | | Vested at December 31, 2022 | 4,444 | | | 18.39 | | | 3.9 | | $ | 150.5 | |
The per-share weighted average grant date fair value of stock options granted during the years ended December 31, 2022, 2021 and 2020 was $21.24, $18.06 and $9.29, respectively.
Stock-Based Compensation Awards | | | | | | | Shares | | | Weighted-Average Exercise Price (per share) | | Wtd. Avg. Remaining Contractual Term (years) | | Aggregate Intrisic Value of In-The-Money Options (in millions) | Outstanding at December 31, 2014 | | | 18,214 | | | $ | 8.23 | | | | | Granted | | | 1,075 | | | $ | 10.61 | | | | | Settled | | | (304 | ) | | $ | 8.33 | | | | | Forfeited | | | (1,952 | ) | | $ | 8.43 | | | | | Outstanding at December 31, 2015 | | | 17,033 | | | $ | 8.36 | | | | | Granted | | | 2,427 | | | $ | 10.75 | | | | | Settled | | | (1,980 | ) | | $ | 8.18 | | | | | Forfeited | | | (2,931 | ) | | $ | 8.31 | | | | | Converted to liability | | | (1,264 | ) | | $ | 8.16 | | | | | Outstanding at December 31, 2016 | | | 13,285 | | | $ | 8.85 | | | | | Granted | | | 799 | | | $ | 20.00 | | | | | Settled | | | (193 | ) | | $ | 8.17 | | | | | Forfeited | | | (1,057 | ) | | $ | 8.34 | | | | | Outstanding at December 31, 2017 | | | 12,834 | | | $ | 9.54 | | 6.81 | | $ 313.1 | Vested at December 31, 2017 | | | 9,459 | | | $ | 9.05 | | 6.59 | | $ 235.4 |
The intrinsic value of stock options exercised was $27.7 million, $53.5 million and $66.0 million during the years ended December 31, 2022, 2021 and 2020, respectively.
The following assumptions were used to estimate the fair value of options and SARs granted during the fiscal years ended December 31, 2017, 20162022, 2021 and 2015.2020.
| | 2017 | | | 2016 | | | 2015 | | | | | | | | | | | | | | | | | Assumptions: | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | | Expected life of options (in years) | | | 5.00 - 6.25 | | | | 5.10 | | | | 4.80 | | Expected life of options (in years) | 6.3 | | 6.3 | | 6.3 | Risk-free interest rate | | | 1.9 - 2.1% | | | | 1.3% | | | | 1.6% | | Risk-free interest rate | 1.9% - 3.9% | | 0.9% - 1.3% | | 0.4% - 1.5% | Assumed volatility | | | 41.2 - 45.8% | | | | 49.5% | | | | 49.9% | | Assumed volatility | 37.1% - 38.3% | | 38.6% - 39.4% | | 24.6% - 41.1% | Expected dividend rate | | | 0.0% | | | | 0.0% | | | | 0.0% | | Expected dividend rate | 0.1% - 0.2% | | 0.0% - 0.1% | | 0.0 | % |
88Restricted Stock Unit Awards
Concurrent withthe year to employees and non-employee directors based on the market price of the Company’s initial public offeringcommon stock on the grant date and recognized in Maycompensation expense over the vesting period. Eligible employees were also granted restricted stock units, during the third quarter of 2017,2020, that vest ratably over two years, subject to the passage of time and the employee’s continued employment during such period. In some instances, such as death, awards may vest concurrently with or following an employee’s termination.
A summary of the Company’s Board authorized the grant of 5.5 million deferredrestricted stock units (“DSU”) to all permanent employees that had not previously received stock-based awards under the 2013 Plan. The DSUs vested immediately upon grant, however contain restrictions such that the employee may not sell or otherwise realize the economic benefits of the award until certain dates through April 2019. At the date of the grant, the fair value of a DSU was determined to be $17.20 assuming a share price at the pricing date of the initial public offering of $20.00 and a discountunit activity for lack of marketability commensurate with the period of the sale restrictions. At the date of the grant, certain DSU awards were expected to be settled in cash and had been carried at fair value on the balance sheet date. On November 20, 2017, the Company, having the intent and ability to register DSU awards in foreign jurisdictions, the Company remeasured the awards as of this date and then reclassified $6.0 million related to 0.2 million DSU awards from “Accrued liabilities” to “Capital in excess of par value”. In the year ended December 31, 2017,2022 is presented in the following table (underlying shares in thousands). | | | | | | | | | | | | | Shares | | Weighted-Average Grant-Date Fair Value | Non-vested as of December 31, 2021 | 2,677 | | | $ | 34.08 | | | | | | Granted | 556 | | | 52.36 | | Vested | (2,031) | | | 34.09 | | Forfeited | (197) | | | 37.65 | | Non-vested as of December 31, 2022 | 1,005 | | | 43.50 | |
Performance Share Unit Awards (“PSUs”) Annually, during the first quarter, the Company recognized expensegrants TSR PSUs to certain officers in which the number of shares issued at the end of the performance period is determined by the Company’s total shareholder return percentile rank versus the S&P 500 index for the DSUthree year performance period. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a three year period. During the third quarter of $97.4 million, included in “Other operating2022, the Company granted Special TSR PSUs to its Chairman and CEO under which the market condition is achieved on the first date during the five year performance period on which the sum of (i) the 60-day volume-weighted average closing price of the Company’s common stock, plus (ii) the cumulative value of any dividends paid during the five year performance period equals or exceeds $81.85. Vesting of this award is conditional upon the service condition even if the market condition is achieved prior to the end of the performance period. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a five year period. The Company also granted its Chairman and CEO Special EPS PSUs that are eligible to vest based on the level of compounded annual growth rate of the Company’s Adjusted EPS during the five year performance period. The grant date fair value of these awards is based on the market price of the Company’s common stock on the grant date and recognized as a compensation expense net”over a 4.3 year period.
A summary of the Company’s performance stock unit activity for the year ended December 31, 2022 is presented in the Consolidated Statements of Operations.following table (underlying shares in thousands). | | | | | | | | | | | | | Shares | | Weighted-Average Grant-Date Fair Value | Non-vested as of December 31, 2021 | 393 | | | $ | 39.89 | | Granted | 1,175 | | | 46.56 | | Vested | — | | | — | | Forfeited | (29) | | | 39.61 | | Non-vested as of December 31, 2022 | 1,539 | | | 44.99 | |
The following assumptions were used to estimate the fair value of DSUs atperformance share units granted during the time of grantyear ended December 31, 2022, 2021 and 2020 using the Finnerty discount for lack of marketabilityMonte Carlo simulation pricing model. | | 2017 | | Assumptions: | | | | Average length of holding period restrictions (years) | | | 1.42 | | Assumed volatility | | | 51.5 | % |
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | | | | | | | Expected term (in years) | 2.9 - 5.0 | | 2.9 | | 2.8 | Risk-free interest rate | 1.7% - 3.4% | | 0.2 | % | | 0.5 | % | Assumed volatility | 35.0% - 36.4% | | 36.9 | % | | 35.2 | % | Expected dividend rate | 0.2 | % | | 0.0 | % | | 0.0 | % |
2017 Omnibus Incentive Plan
In May 2017, the Company’s Board approved the 2017 Omnibus Incentive Plan (“2017 Plan”). Under the terms of the Plan, the Company’s Board may grant up to 8.6 million stock based and other incentive awards. Any shares of common stock subject to outstanding awards granted under our 2013 Stock Incentive Plan that, after the effective date of the 2017 Plan, expire or are otherwise forfeited or terminated in accordance with their terms are also available for grant under the 2017 Plan. As of December 31, 2017, no awards have been granted from the 2017 Plan.
Note 16: | Note 19: Hedging Activities, Derivative Instruments and Credit Risk |
Hedging Activities
The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in interest rates and foreign currency exchange rates. The Company selectively uses derivative financial instruments (“derivatives”), including cross-currency interest rate swap and foreign currency forward contracts, and interest rate swaps,swap and cap contracts, to manage the risks from fluctuations in foreign currency exchange rates and interest rates, respectively. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in interest rates and foreign currency exchange rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.
The Company’s exposure to interest rate risk results primarily from its variable-rate borrowings. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by maintaining a mixture of fixedusing interest rate caps and variablepay-fixed interest rate debt and,swaps from time to time using pay-fixed interest rate swaps as cash flow hedges of variable rate debt in order to adjust the relative fixed and variable proportions.
A substantial portion of the Company’s operations is conducted by its subsidiaries outside of the United States in currencies other than the USD. Almost all of the Company’s non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. Other than the USD, the EUR, GBP, and Chinese YuanRenminbi 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 hasmanages this exposure by having certain U.S. subsidiaries borrow in currencies other than the USD. USD or utilizing cross-currency interest rate swaps as net investment hedges.
The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency. To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances monthly.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 othernon-functional currencies generally mature within one year.
Derivative Instruments
The following table summarizes the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the Consolidated Balance Sheets as of December 31, 20172022 and December 31, 2016.2021.
| December 31, 2017 | | | Derivative Classification | | Notional Amount (1) | | | Fair Value (1) Other Current Assets | | | Fair Value (1) Other Assets | | | Fair Value (1) Accrued Liabilities | | | Fair Value (1) Other Liabilities | | Derivatives Designated as Hedging | | | | | | | | | | | | | | | | | Instruments | | | | | | | | | | | | | | | | | Interest rate swap contracts | Cash Flow | | $ | 1,125.0 | | | $ | - | | | $ | - | | | $ | 16.1 | | | $ | 30.6 | | Derivatives Not Designated as Hedging | | | | | | | | | | | | | | | | | | | | | | Instruments | | | | | | | | | | | | | | | | | | | | | | Foreign currency forwards | Fair Value | | $ | 94.4 | | | $ | - | | | $ | - | | | $ | 1.2 | | | $ | - | |
| December 31, 2016 | | | Derivative Classification | | Notional Amount (1) | | | Fair Value (1) Other Current Assets | | | Fair Value (1) Other Assets | | | Liabilities | | | Liabilities | | Derivatives Designated as Hedging | | | | | | | | | | | | | | | | | Instruments | | | | | | | | | | | | | | | | | Cross currency interest rate swap contracts | Net Investment | | $ | 200.0 | | | $ | - | | | $ | 26.8 | | | $ | - | | | $ | - | | Interest rate swap contracts | Cash Flow | | $ | 1,125.0 | | | $ | - | | | $ | - | | | $ | 16.3 | | | $ | 47.2 | | Derivatives Not Designated as Hedging | | | | | | | | | | | | | | | | | | | | | | Instruments | | | | | | | | | | | | | | | | | | | | | | Foreign currency forwards | Fair Value | | $ | 79.0 | | | $ | 0.9 | | | $ | - | | | $ | - | | | $ | - | | Foreign currency forwards | Fair Value | | $ | 42.8 | | | $ | - | | | $ | - | | | $ | 0.2 | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | Derivative Classification | | Notional Amount(1) | | Fair Value(1) Other Current Assets | | Fair Value(1) Other Assets | | Fair Value(1) Accrued Liabilities | | Fair Value(1) Other Liabilities | Derivatives Designated as Hedging Instruments | | | | | | | | | | | | Interest rate swap contracts | Cash flow | | $ | 528.5 | | | $ | 8.8 | | | $ | 5.3 | | | $ | — | | | $ | — | | Interest rate cap contracts | Cash flow | | 1,000.0 | | | 8.3 | | | 9.8 | | | — | | | — | | Cross-currency interest rate swap contracts | Net investment | | 1,054.2 | | | 17.7 | | | — | | | — | | | 28.7 | | Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | Foreign currency forwards | Fair value | | $ | 7.3 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Foreign currency forwards | Fair value | | 15.8 | | | — | | | — | | | — | | | — | |
| (1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2021 | | Derivative Classification | | Notional Amount(1) | | Fair Value(1) Other Current Assets | | Fair Value(1) Other Assets | | Fair Value(1) Accrued Liabilities | | Fair Value(1) Other Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives Not Designated as Hedging Instruments | | | | | | | | | | | | Foreign currency forwards | Fair value | | $ | 22.1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Foreign currency forwards | Fair value | | 19.3 | | | — | | | — | | | 0.2 | | | — | |
(1)Notional amounts represent the gross contract amounts of the outstanding derivatives excluding the total notional amount of positions that have been effectively closed through offsetting positions. The net gains and net losses associated with positions that have been effectively closed through offsetting positions but not yet settled are included in the asset and liability derivatives fair value columns, respectively. |
Gains and losses on derivatives designated as cash flow hedges included in the asset and liability derivatives fair value columns, respectively.
Payments of interest rate cap premiums are classified as financing cash flows in the Condensed Consolidated Statements of Comprehensive (Loss) Income forCash Flows. All other cash flows related to derivatives are classified as operating cash flows in the years endedCondensed Consolidated Statements of Cash Flows. There were no off-balance sheet derivative instruments as of December 31, 2017, 20162022 or 2021. Interest Rate Swap and 2015 areCap Contracts Designated as presented in the table below.
| | 2017 | | | 2016 | | | 2015 | | Interest Rate Swap Contracts(1) | | | | | | | | | | Gain (loss) recognized in AOCI on derivatives (effective portion) | | $ | 1.5 | | | $ | (13.2 | ) | | $ | (26.9 | ) | Loss reclassified from AOCI into income (effective portion) | | $ | (18.5 | ) | | $ | (11.6 | ) | | $ | (1.3 | ) | (Loss) gain recognized in income on derivatives (ineffective | | | | | | | | | | | | | portion and amount excluded from effectiveness testing) | | $ | (2.1 | ) | | $ | 0.2 | | | $ | 0.3 | |
| (1) | Losses on derivatives reclassified from accumulated other comprehensive income (“AOCI”) into income (effective portion) were included in “Interest expense” in the Consolidated Statements of Operations. Ineffective portions of changes in the fair value of cash flow hedges were recognized in earnings and included in “Interest expense” in the Consolidated Statements of Operations. |
Cash Flow Hedges
As of December 31, 2017,2022, the Company iswas the fixed rate payor on 12two interest rate swap contracts that effectively fix the LIBOR-basedSOFR-based index used to determine the interest rates charged on a total of $1,125.0$528.5 million of the Company’s LIBOR-basedSOFR-based variable rate borrowings. These contracts carry a fixed rates ranging from 2.9% to 4.4%rate of 3.2% and have expiration dates ranging from 2018 to 2020.expire in 2025. These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted LIBOR-basedSOFR-based interest payments. Based on LIBOR-basedSOFR-based swap yield curves as of December 31, 2017,2022, the Company expects to reclassify lossesgains of $17.8$8.9 million out of accumulated other comprehensive income (“AOCI”) into earnings during the next 12 months. As of December 31, 2022, the Company entered into three interest rate cap contracts that effectively limit the SOFR-based index used to determine the interest rates charged on a total of $1,000.0 million of the Company’s SOFR-based variable rate borrowings to 4.0% and expire in 2025. These swap agreements qualify as hedging instruments and have been designated as
cash flow hedges of forecasted SOFR-based interest payments. As of December 31, 2022, the Company expects to reclassify net gains of $3.3 million out of AOCI into earnings during the next 12 months. The Company’s LIBOR-based variable rate borrowings outstanding Gains (losses) on derivatives designated as cash flow hedges included in the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020 are presented in the table below. | | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Gain (loss) recognized in OCI on derivatives | $ | 18.3 | | | $ | — | | | $ | (4.4) | | Loss reclassified from AOCI into income (effective portion)(1) | (2.8) | | | — | | | (18.5) | | | | | | | |
(1)Losses on derivatives reclassified from AOCI into income were included in “Interest expense” in the Consolidated Statements of Operations. Cross-Currency Interest Rate Swap Contracts Designated as Net Investment Hedges As of December 31, 2017 were $1,282.32022, the Company was the fixed rate payor on two cross-currency interest rate swap contracts that replace a fixed rate of 3.2% on a total of $528.5 million with a fixed rate of 1.6% on a total of €500.0 million. These contracts expire in 2025. These contracts have been designated as net investment hedges of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity. As of December 31, 2022, the Company entered into three cross-currency interest rate swap contracts where we receive SOFR on a total of $525.7 million and €613.5pay EURIBOR on a total of €500.0 million. These contracts expire in 2025. These contracts have been designated as net investment hedges of our Euro denominated subsidiaries and require an exchange of the notional amounts at maturity. Gains on derivatives designated as net investment hedges included in the Condensed Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020 are presented in the table below.
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Gain recognized in OCI on derivatives | $ | 0.6 | | | $ | — | | | $ | — | | Gain reclassified from AOCI into income (effective portion)(1) | 11.5 | | | — | | | — | |
(1)Gains on derivatives reclassified from AOCI into income were included in “Interest expense” in the Consolidated Statements of Operations. Foreign Currency Forwards Not Designated as Hedging Instruments The Company had three foreign currency forward contracts outstanding as of December 31, 20172022 with notional amounts ranging from $19.4$5.4 million to $46.0$10.3 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 in thewithin “Other operating expense, net” line on the face ofin the Consolidated Statements of Operations. The Company’s foreign currency forward contracts are subject to master netting arrangements or agreements between the Company and each counterparty for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract with that certain counterparty. It is the Company’s practice to recognize the gross amounts in the Consolidated Balance Sheets. The amount available to be netted is not material. The Company’s gains (losses) gains on derivative instruments not designated as accounting hedges and total net foreign currency transaction gains (losses) gains for the years ended December 31, 2017, 20162022, 2021 and 20152020 were as follows. | | 2017 | | | 2016 | | | 2015 | | Gain on cross currency interest rate swaps not designated as hedges | | $ | - | | | $ | - | | | $ | 8.0 | | Foreign currency forward contracts (losses) gains | | $ | (7.0 | ) | | $ | 19.2 | | | $ | (0.5 | ) | Total foreign currency transaction (losses) gains, net | | $ | (9.3 | ) | | $ | 5.9 | | | $ | (1.1 | ) |
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Foreign currency forward contracts gains (losses) | 3.4 | | | (3.2) | | | 15.0 | | Total foreign currency transaction gains (losses), net | 5.9 | | | 12.0 | | | (18.6) | |
The Company hasForeign Currency Denominated Debt Designated as a significant investment in consolidated subsidiaries with functional currencies other thanNet Investment Hedge
In February 2020, the USD, particularly the EUR. The Company designated its Original Euro Term Loan, which had a principal balance at that time of approximately €387.0€601.2 million, as of December 31, 2016 as a hedge of the Company’sCompany's net investment in subsidiaries with EURa functional currencies. The Original Euro Term Loan remained designated as a net investmentcurrency of euro. This loan was repaid in June 2022 and the hedge during 2017 until it was extinguished and replaced on August 17, 2017 by the €615.0 million Euro Term Loan,has been discontinued. See Note 11 “Debt” for further described in Note 10 “Debt.” On August 17, 2017, the Company designated the €615.0 million Euro Term Loan as a hedgediscussion of the Company’s net investment in subsidiaries with EUR functional currencies. Asrepayment of December 31, 2017, the Euro Term LoanLoan.
In December 2014, the Company entered into two cross currency interest rate swaps each with a USD notional amount of $100 million to further hedge the risk of changes in the USD equivalent value of its net investment in EUR functional currency subsidiaries. At the beginning of fiscal year 2015, one of the $100 million cross currency interest rate swaps was considered an effective hedge while the other was not determined to be an effective hedge for accounting purposes. Throughout 2015, the Company assessed its Euro equity position on a quarterly basis and incrementally designated additional portions of the second $100 million cross currency swap as a hedge for accounting purposes. The change in the fair value of the ineffective portion of the hedge was included in foreign exchange (gains) losses, net in “Other operating expense, net” in the Consolidated Statements of Operations. By the end of December 31, 2015, both cross currency interest rate swaps were designated as effective hedges for accounting purposes.
The cross currency interest rate swaps were designated as hedges for the year ended December 31, 2016 and for the period from January 1, 2017 until August 16, 2017 when they were terminated for proceeds of $6.2 million. The proceeds from the termination of the cross currency interest rate swaps are included in the “Proceeds from the termination of derivatives” line in the Consolidated Statements of Cash Flows. The recorded Accumulated Other Comprehensive (Loss) Income at the termination of the cross currency interest rate swaps will remain in Accumulated Other Comprehensive (Loss) Income until there is a substantial liquidation of the Company’s net investment in subsidiaries with EUR functional currencies.
The losses and gains from the change in fair value related to the effective portions of the net investment hedges were recorded through other comprehensive income. The losses and gains from changes in fair value of the ineffective portion of the hedge for the years ended December 31, 2017, 2016 and 2015 were included in foreign currency exchange (gains) losses, net in “Other operating expense, net” in the Consolidated Statements of Operations.
The Company’s gains and (losses), net of income tax, associated with changes in the value of debt and designated cross currency interest rate swaps for the years ended December 31, 20172022 and 2016, and the net balance of such gains and (losses) included in accumulated other comprehensive income as of December 31, 2017 and 20162021 were as follows. | | 2017 | | | 2016 | | (Loss) gain, net of income tax, recorded through other comprehensive income | | $ | (50.2 | ) | | $ | 12.6 | | Balance included in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 respectively | | $ | 32.1 | | | $ | 82.3 | |
With the exception of the cash proceeds from the termination of the cross currency interest rate swap contracts described earlier, all cash flows associated with derivatives are classified as operating cash flows in the Consolidated Statements of Cash Flows.
There were no off-balance sheet derivative instruments as of December 31, 2017 or 2016.
91
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Gain (loss), net of income tax, recorded through other comprehensive income | $ | 36.4 | | | $ | 35.0 | | | $ | (45.1) | | | | | | | |
Credit Risk
Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable. Because the notional amount of the derivative instruments only serves as a basis for calculating amounts receivable or payable, the risk of loss with any counterparty is limited to a fraction of the notional amount. The Company minimizes the credit risk related to derivatives by transacting only with multiple, high-quality counterparties that are major financial institutions with investment-grade credit ratings. The Company has not experienced any financial loss as a result of counterparty nonperformance in the past. The majority of the derivative contracts to which the Company is a party, settle monthly or quarterly, or mature within one year. Because of these factors, the Company believes it has minimal credit risk related to derivative contracts as of December 31, 2017.2022.
Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and industries to which the Company’s products and services are sold, as well as their dispersion across many different geographic areas.areas. As a result, the Company does not believe it has any significant concentrations of credit risk as of December 31, 20172022 or 2016.2021. Note 17: | Note 20: Fair Value Measurements |
A financial instrument is defined as cash or cash equivalents, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. The Company’s financial instruments consist primarily of cash and cash equivalents, trade accounts receivables, trade accounts payables, deferred compensation assets and obligations, derivatives and debt instruments. The carrying values of cash and cash equivalents, trade accounts receivables, trade accounts payables, and variable rate debt instruments are a reasonable estimate of their respective fair values.The Company’s Senior Notes, valued utilizing Level 2 inputs, had a carrying value of $575.0 million and an estimated fair value of $573.6 million as of December 31, 2016. The Senior Notes were terminated in May of 2017.
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 1 | Quoted Prices (unadjusted) in active markets for identicalLevel 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 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 | 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. |
For the year ended December 31, 2015, goodwill with a carrying value of $529.3 million in the P&IP reporting unit was written down to its estimated implied fair value of $186.0 million, resulting in a non-cash impairment charge of $343.3 million. In order to arrive at the implied fair value of goodwill, the Company calculated the fair value of all of the assets and liabilities of the reporting unit as if it had been acquired in a business combination. After assigning fair value to the assets and liabilities of the reporting unit, the result was the implied fair value of goodwill of $186.0 million, which represented a Level 3 asset measured at fair value on a nonrecurring basis subsequent to its original recognition. The fair value was determined using a combination of discounted cash flows and a market multiple approach using comparable companies.
The Company assessed indefinite-lived intangible assets, trademarks,tradenames, in conjunction with the 20172022 and 2021 annual goodwill impairment test.tests. The valuation of trademarkstradenames was based upon current sales projections and the relief from royalty method was applied. AsNo impairment charges were recorded as a result of this analysis, trademarks with carrying amounts aggregating to $36.7 were written down to their estimated fair value of $35.2 million. These represented Level 3 assets measured on a nonrecurring basis subsequent to their original recognition. This resulted in a total non-cash impairment charge of $1.5 million. The fair value was determined using the relief from royalty method.
The Company assessed indefinite-lived intangible assets, trademarks, in conjunction with the 2016 annual goodwill impairment test. The valuation of trademarks was based upon current sales projections and the relief from royalty method was applied. As a result of this analysis, trademarks with carrying amounts aggregating to $179.3 million were written down to their estimated fair value of $154.9 million. These represented Level 3 assets measured on a nonrecurring basis subsequent to their original recognition. This resulted in a total non-cash impairment charge of $24.4 million. The fair value was determined using the relief from royalty method.
The Company assessed indefinite-lived intangible assets, trademarks, in conjunction with the 2015 annual goodwill impairment test. The valuation of trademarks was based upon current sales projections and the relief from royalty method was applied. As a result of this analysis, trademarks with carrying amounts aggregating to $560.1 million were written down to their estimated fair value of $489.0 million. These represented Level 3 assets measured on a nonrecurring basis subsequent to their original recognition. This resulted in a total non-cash impairment charge of $71.1 million. The fair value was determined using the relief from royalty method.
2022 or 2021 analyses.
Refer to Note 1 “Summary of Significant Accounting Policies” for a discussion of the valuation assumptions utilized in the valuation of goodwill and indefinite-lived intangible assets.
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis. | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2022 | | Level 1 | | Level 2 | | Level 3 | | Total | Financial Assets | | | | | | | | Trading securities held in deferred compensation plan(1) | $ | 12.3 | | | $ | — | | | $ | — | | | $ | 12.3 | | Interest rate swaps(2) | — | | | 14.1 | | | — | | | 14.1 | | Interest rate caps(3) | — | | | 18.1 | | | — | | | 18.1 | | Cross-currency interest rate swaps(4) | — | | | 17.7 | | | — | | | 17.7 | | Foreign currency forwards(5) | — | | | — | | | — | | | — | | Total | $ | 12.3 | | | $ | 49.9 | | | $ | — | | | $ | 62.2 | | Financial Liabilities | | | | | | | | Deferred compensation plan(1) | $ | 19.6 | | | $ | — | | | $ | — | | | $ | 19.6 | | | | | | | | | | Cross-currency interest rate swaps(4) | — | | | 28.7 | | | — | | | 28.7 | | Contingent consideration(6) | — | | | — | | | 43.9 | | | 43.9 | | Foreign currency forwards(5) | — | | | — | | | — | | | — | | Total | $ | 19.6 | | | $ | 28.7 | | | $ | 43.9 | | | $ | 92.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2021 | | Level 1 | | Level 2 | | Level 3 | | Total | Financial Assets | | | | | | | | Trading securities held in deferred compensation plan(1) | $ | 12.0 | | | $ | — | | | $ | — | | | $ | 12.0 | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency forwards(5) | — | | | — | | | — | | | — | | Total | $ | 12.0 | | | $ | — | | | $ | — | | | $ | 12.0 | | Financial Liabilities | | | | | | | | Deferred compensation plan(1) | $ | 22.4 | | | $ | — | | | $ | — | | | $ | 22.4 | | | | | | | | | | | | | | | | | | Foreign currency forwards(5) | — | | | 0.2 | | | — | | | 0.2 | | Total | $ | 22.4 | | | $ | 0.2 | | | $ | — | | | $ | 22.6 | |
(1)Based on the quoted price of publicly traded mutual funds which are classified as trading securities and accounted for using the mark-to-market method. (2)Measured as the present value of all expected future cash flows based on the SOFR-based swap yield curves. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties. (3)Measured as the present value of all expected future cash flows that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market volatilities and interest rate curves. (4)Measured as the present value of all expected future cash flows on each leg of the contracts. The model utilizes inputs of observable market data including interest yield curves and foreign currency exchange rates. The present value calculation uses cross-currency basis-adjusted discount factors that have been adjusted to reflect the credit quality of the Company and its counterparties. (5)Based on calculations that use readily observable market parameters as their basis, such as spot and forward rates. (6)Measured as the present value of expected consideration payable for completed acquisitions, derived using probability-weighted analysis of achieving projected revenue or EBITDA targets. Contingent Consideration Certain of the Company's acquisitions may result in payments of consideration in future periods that are contingent upon the achievement of certain targets, generally measures of revenue and EBITDA. As part of the initial accounting for the acquisition, a liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is re-measured at each reporting period, and the change in fair value is recognized within “Other operating expense, net” in the Consolidated Statements of Operations. This fair value measurement of contingent consideration is categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs that are not observable in the market.
The following table provides a reconciliation of the activity for contingent consideration for the year ended December 31, 2022. | | | | | | | | | | | | Balance at beginning of the period | $ | 8.5 | | | | Acquisitions | 36.1 | | | | Changes in fair value | 0.8 | | | | Payments | (1.8) | | | | Foreign currency translation and other | 0.3 | | | | Balance at end of the period | $ | 43.9 | | | |
As of December 31, 20172022, the contingent consideration included in “Accrued liabilities” and 2016.“Other liabilities” on the Consolidated Balance Sheets were $15.2 million and $28.7 million, respectively. | | December 31, 2017 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Financial Assets | | | | | | | | | | | | | Trading securities held in deferred compensation plan(1) | | $ | 5.8 | | | $ | - | | | $ | - | | | $ | 5.8 | | Total | | $ | 5.8 | | | $ | - | | | $ | - | | | $ | 5.8 | | Financial Liabilities | | | | | | | | | | | | | | | | | Foreign currency forwards(2) | | $ | - | | | $ | 1.2 | | | $ | - | | | $ | 1.2 | | Interest rate swaps(3) | | | - | | | | 46.7 | | | | - | | | | 46.7 | | Deferred compensation plan(1) | | | 5.8 | | | | - | | | | - | | | | 5.8 | | Total | | $ | 5.8 | | | $ | 47.9 | | | $ | - | | | $ | 53.7 | |
| | December 31, 2016 | | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | Financial Assets | | | | | | | | | | | | | Foreign currency forwards(2) | | $ | - | | | $ | 0.9 | | | $ | - | | | $ | 0.9 | | Cross currency interest rate swaps(4) | | | - | | | | 26.8 | | | | - | | | | 26.8 | | Trading securities held in deferred compensation plan(1) | | | 4.2 | | | | - | | | | - | | | | 4.2 | | Total | | $ | 4.2 | | | $ | 27.7 | | | $ | - | | | $ | 31.9 | | Financial Liabilities | | | | | | | | | | | | | | | | | Foreign currency forwards(2) | | $ | - | | | $ | 0.2 | | | $ | - | | | $ | 0.2 | | Interest rate swaps(3) | | | - | | | | 63.5 | | | | - | | | | 63.5 | | Deferred compensation plan(1) | | | 4.2 | | | | - | | | | - | | | | 4.2 | | Total | | $ | 4.2 | | | $ | 63.7 | | | $ | - | | | $ | 67.9 | |
(1) | Based on the quoted price of publicly traded mutual funds which are classified as trading securities and accounted for using the mark-to-market method. |
(2) | Based on calculations that use readily observable market parameters as their basis, such as spot and forward rates. |
(3) | Measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curves as of December 31, 2017. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties. |
(4) | Based on observable foreign exchange market pricing parameters such as spot and forward rates and the present value of all expected future cash flows. The present value calculation incorporates foreign exchange market pricing, discount rates, and credit quality adjustments of the Company and its counterparties. |
Note 18: | Note 21: Contingencies |
The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of its size and sector. The Company believes that such proceedings, lawsuits and administrative actions will not materially adversely affect its operations, financial condition, liquidity or competitive position. A more detailed discussion of certain of these proceedings, lawsuits and administrative actions is set forth below. Asbestos and Silica Related Litigation
The Company has also been named as a defendant in a number of asbestos-related and silica-related personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources and typically the Company is one of approximately 25 or more named defendants.
Predecessors to the Company sometimes manufactured, distributed and/orand sold products allegedly at issue in the pending asbestos and silica-related lawsuits (the “Products”). However, neither the Company nor its predecessors ever mined, manufactured, mixed, produced or distributed asbestos fiber or silica sand, the materials that allegedly caused the injury underlying the lawsuits. Moreover, the asbestos-containing components of the Products, if any, were enclosed within the subject Products.
Although the Company has never mined, manufactured, mixed, produced or distributed asbestos fiber or silica sand nor sold products that could result in a direct asbestos or silica exposure, many of the companies that did engage in such activities or produced such products are no longer in operation. This has led to law firms seeking potential alternative companies to name in lawsuits where there has been an asbestos or silica related injury.
The Company believes that the pending and future asbestos and silica-related lawsuits are not likely to, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Company’s anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the Products described above; the Company’s experience that the vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products or for which the Company otherwise bears responsibility; various potential defenses available to the Company with respect to such matters; and the Company’s prior disposition of comparable matters. However, inherent uncertainties of litigation and future developments, including, without limitation, potential insolvencies of insurance companies or other defendants, an adverse determination in the Adams County Case (discussed below), or other inability to collect from the Company’s historical insurers or indemnitors, could cause a different outcome. While the outcome of legal proceedings is inherently uncertain, based on presently known facts, experience, and circumstances, the Company believes that the amounts accrued on its balance sheet are adequate and that the liabilities arising from the asbestos and silica-related personal injury lawsuits will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. “Accrued liabilities” and “Other liabilities” onin the Consolidated Balance SheetSheets include a total litigation reserve of $105.6$137.9 million and $108.5$136.9 million as of December 31, 20172022 and December 31, 2016, with respect to potential liability arising from the Company’s2021, respectively, for asbestos-related litigation. Asbestos relatedindemnification. Asbestos-related defense costs are excluded from the asbestos claimsthis 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/orand reimbursement for the costs associated with the asbestos and silica-related lawsuits filed against the Company. The Company has also pursued litigation against certain insurers or indemnitors, where necessary. The Company has an insurance recovery receivable for probable asbestos related recoveries of approximately $100.4$154.2 million and $97.3$145.1 million as of December 31, 20172022 and December 31, 20162021, respectively, which was included in “Other assets” onin the
Consolidated Balance Sheets. There were no material recoveries received in the years ended December 31, 2022, 2021 and 2020.
The largest suchmost recent significant action brought by the Company against an insurer, Gardner Denver, Inc. v. Certain Underwriters at Lloyd’s, London, et al., was filed on July 9, 2010, in the Eighth Judicial Circuit, Adams County, Illinois, as case number 10-L-48 (the “Adams County Case”). In the lawsuit, the Company seeks, among other things, to require certain excess insurer defendants to honor their insurance policy obligations to the Company, including payment in whole or in part of the costs associated with the asbestos-related lawsuits filed against the Company. In October 2011, the Company reached a settlement with one of the insurer defendants, which had issued both primary and excess policies, for approximately the amount of such defendant’s policies that were subject to the lawsuit. Since then, the case has been proceeding through the discovery and motions process with the remaining insurer defendants. On January 29, 2016, the Company prevailed on the first phase of that discovery and motions process (“Phase I”). Specifically, the Court in the Adams County Case ruled that the Company has rights under all of the policies in the case, subject to their terms and conditions, even though the policies were sold to the Company’s former owners rather than to the Company itself. On June 9, 2016, the Court denied a motion by several of the insurers who sought permission to appeal the Phase I ruling immediately rather than waiting until the end of the whole case as is normally required. The case is now proceeding through the discovery and motions process regarding the remaining issues in dispute (“Phase II”). In that regard, the Company obtained some favorable rulings on various Phase II issues during 2021 and 2022; however, several disputes still remain and will need to be addressed as Phase II continues to progress.
A majority of the Company’s expected future recoveries of the costs associated with the asbestos-related lawsuits are the subject of the Adams County Case. The amounts recorded by the Company for asbestos-related liabilities and insurance recoveries are based on currently available information and assumptions that the Company believes are reasonable based on an evaluation of relevant factors. The actual liabilities or insurance recoveries could be higher or lower than those recorded if actual results vary significantly from the assumptions. There are a number of key variables and assumptions including the number and type of new claims to be filed each year, the resolution or outcome of these claims, the average cost of resolution of each new claim, the amount of insurance available, allocation methodologies, the contractual terms with each insurer with whom the Company has reached settlements, the resolution of coverage issues with other excess insurance carriers with whom the Company has not yet achieved settlements, and the solvency risk with respect to the Company’s insurance carriers. Other factors that may affect the future liability include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, legal rulings that may be made by state and federal courts, and the passage of state or federal legislation. The Company makes the necessary adjustments for the asbestos liability and corresponding insurance recoveries on an annual basis unless facts or circumstances warrant assessment as of an interim date.
Environmental Matters
The Company has been identified as a potentially responsible party (“PRP”) with respect to several sites designated for cleanup under U.S. federal “Superfund” or similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. Persons potentially liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although these laws impose joint and several liability on PRPs, in application the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Based on currently available information, the Company was only a small contributor to these waste sites, and the Company has, or is attempting to negotiate, de minimis settlements for their cleanup. The cleanup of the remaining sites is substantially complete and the Company’s future obligations entail a share of the sites’ ongoing operating and maintenance expense. The Company is also addressing fourseveral on-site cleanups for which it is the primary responsible party. Three of these cleanup sites are in the operation and maintenance stage and one is in the implementation stage.
The Company has undiscounted accrued liabilities of $7.5$13.5 million and $7.6$12.9 million as of December 31, 20172022 and December 31, 2016,2021, respectively, on its Consolidated Balance SheetSheets to the extent costs are known or can be reasonably estimated for its remaining financial obligations for the environmental matters discussed above and does not anticipate that any of these matters will result in material additional costs beyond amounts accrued. Based upon consideration of currently available information, the Company does not anticipate any material adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations, or cleanup costs relating to these matters. Note 19: | Other Operating Expense |
Note 22: Other Operating Expense, Net
The components of “Other operating expense, net” for the years ended December 31, 2017, 20162022, 2021 and 2015 are2020 were as follows.
| | | For the Years Ended December 31, | | | For the Years Ended December 31, | | | 2017 | | | 2016 | | | 2015 | | | 2022 | | 2021 | | 2020 | Other Operating Expense, Net | | | | | | | | | | Other Operating Expense, Net | | | | | | Foreign currency transaction losses (gains), net | | $ | 9.3 | | | $ | (5.9 | ) | | $ | 1.1 | | Foreign currency transaction losses (gains), net | $ | (5.9) | | | $ | (12.0) | | | $ | 18.6 | | Restructuring charges (1) | | | 5.3 | | | | 32.9 | | | | 4.7 | | | Environmental remediation expenses (2) | | | 0.9 | | | | 5.6 | | | | - | | | Stock-based compensation(3) | | | 194.2 | | | | - | | | | - | | | Restructuring charges, net(1) | | Restructuring charges, net(1) | 29.3 | | | 13.4 | | | 83.0 | | | Acquisition and other transaction related expenses(2) | | Acquisition and other transaction related expenses(2) | 38.7 | | | 55.3 | | | 93.3 | | | Other, net | | | 12.4 | | | | 16.0 | | | | 14.9 | | Other, net | 2.8 | | | 5.2 | | | 6.1 | | Total other operating expense, net | | $ | 222.1 | | | $ | 48.6 | | | $ | 20.7 | | Total other operating expense, net | $ | 64.9 | | | $ | 61.9 | | | $ | 201.0 | |
| (1) | See Note 4 “Restructuring.” | (1)See Note 5 “Restructuring.” (2)Represents costs associated with successful and abandoned acquisitions, including third-party expenses and post-closure integration costs.
| (2) | Estimated environmental remediation costs recorded on an undiscounted basis for a former production facility. |
| (3) | Represents stock-based compensation expense recognized for stock options outstanding ($77.6 million) and DSUs granted to employees at the date of the initial public offering ($97.4 million) under the 2013 Stock Incentive Plan, and employer taxes related to DSUs granted to employees at the date of the initial public offering ($19.2 million). |
Note 20: | Segment Information |
Note 23: Segment Reporting
A description of the Company’s threetwo reportable segments, including the specific products manufactured and sold follows below.
In the IndustrialsIndustrial Technologies and Services segment, the Company designs, manufactures, markets and services a broad range of air compression and vacuum equipment as well as fluid transfer equipment and blower products across a wide array of technologies and applications. Almost every manufacturing and industrial facility, and many service and process industries, use airloading systems. The Company’s compression and vacuum products are used worldwide in a variety of applications such as operation of pneumatic air tools, vacuum packaging ofindustrial manufacturing, transportation, chemical processing, food products and aeration of waste water. The Company maintains a leading position in its marketsbeverage production, energy, environmental and serves customers globally. Theother applications. In addition to equipment sales, the Company offers comprehensivea broad portfolio of service options tailored to customer needs and complete range of aftermarket parts, air treatment equipment, controls and an experienced direct and distributor-based service network world-wide to complement all of its products. In the Energy segment, the Company designs, manufactures, markets and services a diverse range of positive displacement pumps, liquid ring vacuum pumps and compressors, and engineered loading systems and fluid transfer equipment, consumables, and associated aftermarket parts and services. It serves customers in the upstream, midstream, and downstream oil and gas markets, and various other markets including petrochemical processing, power generation, transportation, and general industrial.accessories. The Company is one of the largest suppliers in these markets and has long-standing customer relationships. Its positive displacement pumps are used in the oilfield for drilling, hydraulic fracturing, completion and well servicing. Its 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, enhanced oil recovery, water extraction in mining and paper and chlorine compression in petrochemical operations. ItsCompany’s engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials.
In the MedicalPrecision and Science Technologies segment, the Company designs, manufactures and markets a broad range of highly specialized gas, liquidpositive displacement pumps, fluid management equipment and precision syringe pumps and compressors primarilyaftermarket parts for use in the medical, laboratory, industrial manufacturing, water and biotechnology endwastewater, chemical processing, energy, food and beverage, agriculture and other markets. The Company’s customersproducts are mainly mediumused for a diverse set of applications including precision dosing of chemicals and large durable medicalsupplements, 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 suppliers thatmanufacturers who integrate the Company’s products into their final equipment for use in applications such as oxygen therapy, blood dialysis, patient monitoring, wound treatment,devices and others. Further, with the recent acquisitions, the Company has expanded into liquid handling components and systems used in biotechnology applications including clinical analysis instrumentation. The Company also has a broad range of end use deep vacuum products for laboratory science applications. systems.
The Chief Operating Decision Maker (“CODM”) evaluates the performance of itsthe Company’s reportable segments based on, among other measures, Segment Adjusted EBITDA. Management closely monitors the Segment Adjusted EBITDA of each reportable segment to evaluate past performance and actions required to improve profitability. Inter-segment sales and transfers are not significant. Administrative expenses related to the Company’s corporate offices and shared service centers in the United States and Europe, which includes transaction processing, accounting and other business support functions, are allocated to the business segments. Certain administrative expenses, including senior management compensation, treasury, internal audit, tax compliance, certain information technology, and other corporate functions, are not allocated to the business segments.
The following table provides summarized information about the Company’s operations by reportable segment and reconciles Segment Adjusted EBITDA to LossIncome (Loss) Before Income Taxes for the years ended December 31, 2017, 20162022, 2021 and 2015.2020.
| | 2017 | | | 2016 | | | 2015 | | Revenue | | | | | | | | | | Industrials | | $ | 1,130.7 | | | $ | 1,082.3 | | | $ | 1,149.7 | | Energy | | | 1,014.5 | | | | 628.4 | | | | 753.5 | | Medical | | | 230.2 | | | | 228.7 | | | | 223.7 | | Total Revenue | | $ | 2,375.4 | | | $ | 1,939.4 | | | $ | 2,126.9 | | Segment Adjusted EBITDA | | | | | | | | | | | | | Industrials | | $ | 242.7 | | | $ | 217.6 | | | $ | 197.6 | | Energy | | | 296.1 | | | | 143.8 | | | | 186.8 | | Medical | | | 62.4 | | | | 61.9 | | | | 59.5 | | Total Segment Adjusted EBITDA | | | 601.2 | | | | 423.3 | | | | 443.9 | | Less items to reconcile Segment Adjusted EBITDA to | | | | | | | | | | | | | Loss Before Income Taxes(1): | | | | | | | | | | | | | Corporate expenses not allocated to segments | | | 39.7 | | | | 22.6 | | | | 25.0 | | Interest expense | | | 140.7 | | | | 170.3 | | | | 162.9 | | Depreciation and amortization expense | | | 173.8 | | | | 172.7 | | | | 163.0 | | Impairment of goodwill and other intangible assets(a) | | | 1.6 | | | | 25.3 | | | | 421.4 | | Sponsor fees and expenses(b) | | | 17.3 | | | | 4.8 | | | | 4.6 | | Restructuring and related business transformation costs(c) | | | 24.7 | | | | 78.7 | | | | 31.4 | | Acquisition related expenses and non-cash charges(d) | | | 4.1 | | | | 4.3 | | | | 4.8 | | Environmental remediation loss reserve(e) | | | 0.9 | | | | 5.6 | | | | - | | Expenses related to public stock offerings(f) | | | 4.1 | | | | - | | | | - | | Establish public company financial reporting compliance(g) | | | 8.1 | | | | 0.2 | | | | - | | Stock-based compensation(h) | | | 194.2 | | | | - | | | | - | | Loss on extinguishment of debt(i) | | | 84.5 | | | | - | | | | - | | Foreign currency transaction losses (gains), net | | | 9.3 | | | | (5.9 | ) | | | 1.1 | | Other adjustments(j) | | | 10.9 | | | | 7.9 | | | | (3.6 | ) | Loss Before Income Taxes | | $ | (112.7 | ) | | $ | (63.2 | ) | | $ | (366.7 | ) |
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Revenue | | | | | | Industrial Technologies and Services | $ | 4,705.1 | | | $ | 4,161.0 | | | $ | 3,248.2 | | Precision and Science Technologies | 1,211.2 | | | 991.4 | | | 725.0 | | | | | | | | | | | | | | Total Revenue | $ | 5,916.3 | | | $ | 5,152.4 | | | $ | 3,973.2 | | Segment Adjusted EBITDA | | | | | | Industrial Technologies and Services | $ | 1,214.0 | | | $ | 1,033.7 | | | $ | 759.8 | | Precision and Science Technologies | 347.5 | | | 291.4 | | | 220.2 | | | | | | | | | | | | | | Total Segment Adjusted EBITDA | 1,561.5 | | | 1,325.1 | | | 980.0 | | Less items to reconcile Segment Adjusted EBITDA to Income (Loss) Before Income Taxes: | | | | | | Corporate expenses not allocated to segments | 126.7 | | | 133.2 | | | 101.9 | | Interest expense | 103.2 | | | 87.7 | | | 111.1 | | Depreciation and amortization expense(1) | 429.4 | | | 418.0 | | | 410.4 | | Impairment of other intangible assets | — | | | — | | | 19.9 | | Restructuring and related business transformation costs(2) | 32.3 | | | 18.8 | | | 88.0 | | Acquisition related expenses and non-cash charges(3) | 40.7 | | | 65.2 | | | 181.5 | | Stock-based compensation(4) | 85.6 | | | 95.9 | | | 47.0 | | Foreign currency transaction losses (gains), net | (5.9) | | | (12.0) | | | 18.6 | | Loss on extinguishment of debt | 1.1 | | | 9.0 | | | 2.0 | | Adjustments to LIFO inventories(5) | 36.1 | | | 33.2 | | | 39.8 | | Gain on settlement of post-acquisition contingencies(6) | (6.2) | | | (30.1) | | | — | | Other adjustments(7) | (23.7) | | | (6.8) | | | 5.2 | | Income (Loss) Before Income Taxes | $ | 742.2 | | | $ | 513.0 | | | $ | (45.4) | |
| (1) | In the fourth quarter of fiscal 2017, the Company provided greater detail in presenting reconciling items from Loss Before Income Taxes. The reconciling items for the years ended December 31, 2016 and 2015 have been restated to conform to the methodology used in the year ended December 31, 2017, and include the following. | (1)Depreciation and amortization expense excludes $3.4 million, $4.1 million and $2.1 million of depreciation of rental equipment for the years ended December 31, 2022, 2021 and 2020, respectively. (2)Restructuring and related business transformation costs consist of the following.
| (a) | Represents non-cash charges for impairment of goodwill and other intangible assets. |
| | | | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Restructuring charges | $ | 29.3 | | | $ | 13.4 | | | $ | 83.0 | | | | | | | | Facility reorganization, relocation and other costs | 3.0 | | | 3.1 | | | 2.1 | | | | | | | | | | | | | | | | | | | | Other, net | — | | | 2.3 | | | 2.9 | | Total restructuring and related business transformation costs | $ | 32.3 | | | $ | 18.8 | | | $ | 88.0 | |
(3)Represents costs associated with successful and abandoned acquisitions, including third-party expenses, post-closure integration costs and non-cash charges and credits arising from fair value purchase accounting adjustments.
| (b) | Represents management fees and expenses paid to our Sponsor, including a monitoring agreement termination fee of $16.2 million paid in 2017 concurrent with our initial public offering on May 12, 2017. | (4)Represents stock-based compensation expense recognized for the year ended December 31, 2022 of $78.9 million and associated employer taxes of $6.7 million. Represents stock-based compensation expense recognized for the year ended December 31, 2021 of $87.2 million and associated employer taxes of $8.7 million. Represents stock-based compensation expense recognized for the year ended December 31, 2020 of $47.5 million decreased by $0.5 million due to costs associated with employer taxes. (5)For the years ended December 31, 2022 and 2021, represents $36.1 million and $33.2 million of LIFO reserve changes, respectively. For the year ended December 31, 2020, includes $4.2 million of LIFO reserve changes and $35.6 million to reduce the carrying value of inventories acquired in the merger with Ingersoll Rand Industrial accounted for under the LIFO method.
| (c) | Restructuring and related business transformation costs consist of the following. | (6)Represents gains from settling post-acquisition contingencies related to the Merger outside of the measurement period.
| | Year Ended December 31, | | (in millions) | | 2017 | | | 2016 | | | 2015 | | Restructuring charges | | $ | 5.3 | | | $ | 32.9 | | | $ | 4.7 | | Severance, sign-on, relocation and executive search costs | | | 3.5 | | | | 22.4 | | | | 18.4 | | Facility reorganization, relocation and other costs | | | 5.3 | | | | 8.7 | | | | 1.6 | | Information technology infrastructure transformation | | | 5.2 | | | | 2.3 | | | | - | | Losses (gains) on asset and business disposals | | | 0.8 | | | | 0.1 | | | | (4.5 | ) | Consultant and other advisor fees | | | 1.7 | | | | 9.7 | | | | 10.1 | | Other, net | | | 2.9 | | | | 2.6 | | | | 1.1 | | Total restructuring and related business transformation costs | | $ | 24.7 | | | $ | 78.7 | | | $ | 31.4 | |
| (d) | Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs and non-cash charges and credits arising from fair value purchase accounting adjustments. |
(7)Includes (i) pension and other postretirement benefits (“OPEB”) plan costs other than service cost, (ii) interest income on cash and cash equivalents and (iii) other miscellaneous adjustments. | (e) | Represents estimated environmental remediation costs and losses relating to a former production facility. |
| (f) | Represents expenses related to the Company’s initial stock offering and subsequent secondary offerings. |
| (g) | Represents third party expenses to comply with the requirements of Sarbanes-Oxley in 2018 and the accelerated adoption of the new revenue recognition standard (ASC 606 – Revenue from Contracts with Customers) in the first quarter of 2018, one year ahead of the required adoption date for a private company. These expenses were previously included in ‘Expenses related to initial stock offering’ and prior periods have been restated to conform to the current period presentation. |
| (h) | Represents stock-based compensation expense recognized for stock options outstanding for the year ended December 31, 2017 of ($77.6 million) and DSUs granted to employees at the date of the initial public offering for the year ended December 31, 2017 of ($97.4 million) and employer taxes related to DSUs granted to employees at the date of the initial public offering ($19.2 million). See Note 15 “Stock-Based Compensation.” |
| (i) | Represents losses on extinguishment of debt recognized on the redemption of the senior notes and pay down of a portion of the Original Dollar Term Loan Facility and proceeds from the initial public offering in May 2017 ($50.4 million) and in connection with the refinancing of the Original Dollar Term Loan Facility and Euro Term Loan Facility in August 2017 ($34.1 million). |
| (j) | Includes (i) non-cash impact of net LIFO reserve adjustments, (ii) effects of amortization of prior service costs and amortization of gains in pension and other postretirement benefits (OPEB) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments. |
The following tables provide summarized information about the Company’s reportable segments.
Identifiable Assets
| | 2017 | | | 2016 | | | 2015 | | Industrials | | $ | 2,029.4 | | | $ | 1,943.6 | | | $ | 2,078.9 | | Energy | | | 1,681.5 | | | | 1,501.0 | | | | 1,572.8 | | Medical | | | 511.1 | | | | 486.3 | | | | 469.6 | | Total | | | 4,222.0 | | | | 3,930.9 | | | | 4,121.3 | | General corporate (unallocated) | | | 399.2 | | | | 385.1 | | | | 340.7 | | Total identifiable assets | | $ | 4,621.2 | | | $ | 4,316.0 | | | $ | 4,462.0 | |
Depreciation and Amortization Expense | | 2017 | | | 2016 | | | 2015 | | Industrials | | $ | 94.5 | | | $ | 96.0 | | | $ | 89.1 | | Energy | | | 56.7 | | | | 55.5 | | | | 53.8 | | Medical | | | 22.6 | | | | 21.2 | | | | 20.1 | | Total depreciation and amortization expense | | $ | 173.8 | | | $ | 172.7 | | | $ | 163.0 | |
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Industrial Technologies and Services | $ | 294.7 | | | $ | 296.6 | | | $ | 306.0 | | Precision and Science Technologies | 133.6 | | | 108.3 | | | 102.4 | | | | | | | | | | | | | | Corporate and other | 4.5 | | | 17.2 | | | 4.1 | | Total depreciation and amortization expense | $ | 432.8 | | | $ | 422.1 | | | $ | 412.5 | |
Capital Expenditures | | 2017 | | | 2016 | | | 2015 | | Industrials | | $ | 26.7 | | | $ | 44.7 | | | $ | 25.8 | | Energy | | | 21.1 | | | | 21.4 | | | | 38.6 | | Medical | | | 9.0 | | | | 8.3 | | | | 6.6 | | Total | | $ | 56.8 | | | $ | 74.4 | | | $ | 71.0 | |
| | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | Industrial Technologies and Services | $ | 66.3 | | | $ | 53.1 | | | $ | 32.2 | | Precision and Science Technologies | 17.7 | | | 10.7 | | | 9.8 | | | | | | | | | | | | | | Corporate and other | 10.6 | | | 0.3 | | | — | | Total capital expenditures | $ | 94.6 | | | $ | 64.1 | | | $ | 42.0 | |
98Identifiable Assets
| | | | | | | | | | | | | | | 2022 | | 2021 | | | Industrial Technologies and Services | $ | 9,204.7 | | | $ | 9,101.7 | | | | Precision and Science Technologies | 3,540.4 | | | 3,572.2 | | | | | | | | | | | | | | | | | | | | | | Corporate and other | 2,020.8 | | | 2,465.0 | | | | Assets of discontinued operations | — | | | 15.6 | | | | Total identifiable assets | $ | 14,765.9 | | | $ | 15,154.5 | | | |
The following table presents revenues and property, plant and equipment, net by geographic region. Revenues have been attributed based on the products’ shipping destination. No country other than the United States comprises greater than 10% of consolidated revenue. Aggregating global revenues by product is currently not practical.
| | Revenues | | | Property, Plant and Equipment, net | | | | 2017 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2015 | | United States | | $ | 1,048.5 | | | $ | 695.8 | | | $ | 865.7 | | | $ | 198.4 | | | $ | 197.9 | | | $ | 187.2 | | Other Americas | | | 161.5 | | | | 106.2 | | | | 140.2 | | | | 6.8 | | | | 7.2 | | | | 5.8 | | Total Americas | | | 1,210.0 | | | | 802.0 | | | | 1,005.9 | | | | 205.2 | | | | 205.1 | | | | 193.0 | | EMEA(1) | | | 861.1 | | | | 800.2 | | | | 751.3 | | | | 132.3 | | | | 125.3 | | | | 116.3 | | Asia Pacific | | | 304.3 | | | | 337.2 | | | | 369.7 | | | | 25.7 | | | | 28.0 | | | | 31.5 | | Total | | $ | 2,375.4 | | | $ | 1,939.4 | | | $ | 2,126.9 | | | $ | 363.2 | | | $ | 358.4 | | | $ | 340.8 | |
| (1) | Europe, Middle East and Africa (“EMEA”) |
Affiliates of KKR participated as (i) a lender in the Company’s Senior Secured Credit Facilities discussed in Note 10, “Debt,” (ii) an underwriter in the Company’s initial public offering, and (iii) a provider of services for the debt refinancing transaction. KKR exited its position in the Original Dollar Term Loan Facility during 2015 and did not hold a position in the Original Dollar Term Loan Facility or the Original Euro Term Loan Facility until their extinguishment on August 17, 2017. KKR held a position in the Euro Term Loan Facility of €49.9 million as of December 31, 2017. KKR Capital Markets LLC, an affiliate of our Sponsor, acted as an underwriter in connection with the initial public offering of the Company’s stock and received underwriter discounts and commissions of approximately $8.9 million. In August 2017, KKR Capital Markets LLC received $1.5 million for services rendered in connection with the debt refinancing transaction.
The Company entered into a monitoring agreement, dated July 30, 2013, with KKR pursuant to which KKR will provide management, consulting and financial advisory services to the Company and its divisions, subsidiaries, parent entities and controlled affiliates. Under the terms of the monitoring agreement the Company was, among other things, obligated to pay KKR (or such affiliate(s) as KKR designates) an aggregate annual management fee in the initial annual amount of $3.5 million, payable in arrears at the end of each fiscal quarter, plus upon request all reasonable out of pocket expenses ($0.0 million, $0.7 million, and $0.7 million of expenses were incurred in the fiscal years ended December 31, 2017, 2016 and 2015) incurred in connection with the provision of services under the agreement. The management fee increases at a rate of 5% per year effective on January 1, 2014. The Company incurred management fees to KKR of $17.3 million, $4.1 million, and $3.9 millionregion for the years ended December 31, 2017, 20162022, and 2015. In connection with the Company’s initial public offering, the monitoring agreement was terminated in accordance with its terms2021.
| | | | | | | | | | | | | | | | | 2022 | | 2021 | | | United States | $ | 225.7 | | | $ | 225.8 | | | | Other Americas | 18.5 | | | 16.5 | | | | Total Americas | 244.2 | | | 242.3 | | | | EMEIA(1) | 216.6 | | | 221.3 | | | | Asia Pacific | 163.6 | | | 185.0 | | | | Total | $ | 624.4 | | | $ | 648.6 | | | |
(1)Europe, Middle East, India and the Company paid a termination feeAfrica (“EMEIA”) Note 24: Earnings Per Share The number of $16.2 million during the year ended December 31, 2017 which is includedweighted-average shares outstanding used in the “Selling and administrative expenses” line of the Consolidated Statements of Operations. Note 22: | Earnings (Loss) Per Share |
The computations of basic and diluted income (loss) per share are as follows.
| | Years Ended December 31, | | | | 2017 | | | 2016 | | | 2015 | | Net income (loss) | | $ | 18.5 | | | $ | (31.3 | ) | | $ | (352.0 | ) | Less: Net income (loss) attributable to noncontrolling interest | | | 0.1 | | | | 5.3 | | | | (0.8 | ) | Net income (loss) attributable to Gardner Denver Holdings, Inc. | | $ | 18.4 | | | $ | (36.6 | ) | | $ | (351.2 | ) | Average shares outstanding: | | | | | | | | | | | | | Basic | | | 182.2 | | | | 149.2 | | | | 149.6 | | Diluted | | | 188.4 | | | | 149.2 | | | | 149.6 | | Earnings (loss) per share: | | | | | | | | | | | | | Basic | | $ | 0.10 | | | $ | (0.25 | ) | | $ | (2.35 | ) | Diluted | | $ | 0.10 | | | $ | (0.25 | ) | | $ | (2.35 | ) |
The DSUs described in Note 15 “Stock-Based Compensation” are considered outstanding shares for the purpose of computing basic earnings (loss) per share because they will become issued solely uponfor the passage of time.
For the yearyears ended December 31, 20172022, 2021 and 2020 were as follows.
| | | | | | | | | | | | | | | | | | | | | 2022 | | 2021 | | 2020 | | | | | | | Average shares outstanding: | | | | | | Basic | 405.3 | | | 414.8 | | | 382.8 | | Diluted | 410.2 | | | 421.2 | | | 382.8 | | | | | | | | | | | | | | | | | | | |
For the years ended December 31, 2022 and 2021, there were 1.8 million and 0.7 million anti-dilutive shares that were not included in the computation of diluted lossearnings per share. share, respectively. For the yearsyear ended December 31, 2016 and 20152020, there were 13.3 million and 17.04.4 million potentially dilutive stock-based awards that were not included in the computation of diluted loss per share because their inclusion would be anti-dilutive.as we incurred a net loss during the period.
Note 23: | Note 25: Subsequent Events |
Subsequent to December 31, 2017, on February 8, 2018,On January 3, 2023, the Company acquired 100%completed the acquisition of the stockSPX FLOW’s Air Treatment business in an all-cash transaction of Runtech Systems Oy (“Runtech”),approximately $525 million. The business is a leading global manufacturer of turbo vacuum technologydesiccant and refrigerated dryers, filtration systems and optimization solutionspurifiers for industrial applications. Runtechdehydration in compressed air. The Air Treatment business will be partreported within the Industrial Technologies and Services segment. Management is in the process of Gardner Denver’s Industrials Segment. The Company acquired allpreparing the preliminary fair values of the assets and assumed certain liabilities of Runtech for total cash consideration of approximately $93 million, net of cash acquired. The acquisition was funded by cash on hand.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Gardner Denver Holdings,Ingersoll Rand Inc. OpinionOpinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Gardner Denver Holdings,Ingersoll Rand Inc. and subsidiaries (the “Company”) as of December 31, 20172022 and 2016,2021, the related consolidated statements of operations, comprehensive income, shareholders'stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017,2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"“financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded an assessment of the effectiveness of the Company’s internal control over financial reporting related to several businesses acquired during the year ended December 31, 2022 disclosed in Note 4 to the financial statements. Those businesses represented less than 1% of the Company’s consolidated total assets (excluding goodwill and intangibles which were included in management’s assessment of internal control over financial reporting as of December 31, 2022) and less than 1% of the consolidated total revenues as of and for the year ended December 31, 2022. Accordingly, our audit did not include the internal control over financial reporting related to those acquisitions. Basis for OpinionOpinions TheseThe Company’s management is responsible for these financial statements, are the responsibilityfor maintaining effective internal control over financial reporting, and for its assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial statementsreporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding offraud, and whether effective internal control over financial reporting but not for the purpose of expressing an opinion on the effectivenesswas maintained in all material respects. Our audits of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our auditsstatements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures thatto respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Asbestos-Related and Silica-Related Litigation – Liability and Insurance Recovery Receivable – Refer to Note 21 to the Financial Statements Critical Audit Matter Description The Company has been named as a defendant in a number of asbestos-related and silica-related personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources and typically the Company is one of approximately 25 or more named defendants. At December 31, 2022, the Company has recorded an estimated liability of $137.9 million with respect to the Company’s asbestos-related and silica- related litigation. The Company uses a third-party actuary to assist in determining certain assumptions and in calculating the estimated liability. The estimated liability is based on currently available information and assumptions, including the estimated future number and type of new claims to be filed each year, the estimated future resolution or outcome of new and pending claims, and the estimated average cost of resolution of each new and pending claim. The Company has entered into a series of agreements with certain of its or its predecessors’ legacy insurers and certain potential indemnitors to secure insurance coverage and reimbursement for the costs associated with the asbestos- and silica-related lawsuits filed against the Company. The Company has also pursued litigation against certain insurers or indemnitors, where necessary. The Company has an insurance recovery receivable for probable asbestos and silica-related recoveries of $154.2 million. The estimated asset is based on key variables and assumptions used to determine the recorded amounts, including the amount of insurance available, allocation methodologies, the resolution of coverage issues with other excess coverage carriers with whom the Company has not yet achieved settlements, and the solvency risk with respect to the Company’s insurance carriers. We identified the liability for asbestos and silica litigation and the related insurance recovery receivable as a critical audit matter because of the significant judgments made by management to estimate the liability and related recoverability of insurance proceeds. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial and insurance recovery specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to estimated future claims development, the estimated resolution or outcome of these claims, the estimated average cost of resolution of each claim and, separately, the expected recoverability of claims through insurance. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the estimated liability for asbestos-related and silica-related litigation included the following, among others: •We tested the effectiveness of internal controls related to the estimated liability for asbestos-related and silica-related litigation, including those over the estimated future claims development, the estimated resolution or outcome of these claims, and the estimated average cost of resolution of each claim. •We evaluated the methods and assumptions used by the Company to determine the estimated liability by: ◦Testing the underlying claim and settlement cost data that served as inputs for the actuarial analysis, including testing historical and pending claims by comparing key attributes to accounting records and legal documents to assess the accuracy and completeness of the data.
◦With the assistance of our actuarial specialists, we evaluated whether the estimates of future claim numbers and types, number of claims expected to be dismissed or sustained and the estimated average cost of resolution used in the Company’s calculations were reasonable in relation to historical claim trends at the Company. ◦With the assistance of our actuarial specialists, we independently recalculated the liability based on the Company’s estimates of future claim numbers and types and assumptions of estimated future resolution or outcome of the claims and estimated average cost of resolution of each claim. ◦With the assistance of our actuarial specialists, we developed independent estimates of the liability using available third-party estimates of future claim numbers and types that we determined were reputable and widely-accepted in the industry and compared our independent estimates to the Company’s recorded liability. Our audit procedures related to the insurance recovery receivable for probable asbestos and silica-related recoveries included the following, among others: •We tested the effectiveness of internal controls related to the insurance recovery receivable for probable asbestos and silica-related recoveries. •With the assistance of our insurance recovery specialists, we evaluated the Company’s analysis of the solvency of insurance carriers with policies with the Company or its predecessors. With the assistance of these specialists, we read the Company’s analysis and supporting documentation of policy coverage by year as compared to estimated claims per year to assess the Company’s determination of coverage by claim year. With the assistance of these specialists, we obtained legal opinions regarding recoverability that the Company had obtained from external counsel and read associated legal proceedings to evaluate the Company’s assessment of the probability of recovery.
/s/ DELOITTE & TOUCHE LLP Milwaukee, WICharlotte, NC
February 16, 201821, 2023
We have served as the Company’sCompany’s auditor since 2013.
ITEM 9. | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
None
ITEM 9A. | ITEM 9A. CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require public companies, including us, to maintain “disclosure controls and procedures,” which are defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required or necessary disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. The design of any controls and procedures also is based on 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. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of December 31, 2022. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the enddesired control objectives. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the period covered by this report. Based upon that evaluation and subjecteffectiveness of the Company’s internal control over financial reporting related to several businesses acquired during the year ended December 31, 2022 as disclosed in Note 4 to the foregoing,consolidated financial statements. These businesses represented less than 1% of the Company’s consolidated total assets (excluding goodwill and intangibles which were included in management’s assessment of internal control over financial reporting as of December 31, 2022) and less than 1% of the consolidated total revenues as of and for the year ended December 31, 2022. Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this report, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at athe reasonable assurance level.
level as of December 31, 2022. Management’s Report on Internal Control Over Financial Reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regardingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, or an attestation reportas defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that: •Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; •Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and •Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent and detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our executive officer and our principal financial officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Consistent with guidance issued by the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the effectiveness of the Company’s internal control over financial reporting related to several businesses acquired during the year ended December 31, 2022 as disclosed in Note 4 to the consolidated financial statements. These businesses represented less than 1% of the Company’s consolidated total assets (excluding goodwill and intangibles which were included in management’s assessment of internal control over financial reporting as of December 31, 2022) and less than 1% of the consolidated total revenues as of and for the year ended December 31, 2022. Based on that evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2022.
Deloitte & Touche LLP, an independent registered public accounting firm, due to a transition period established by ruleshas audited the Consolidated Financial Statements included in this Form 10-K, and, as part of their audit, has issued its attestation report, included herein, on the SEC for newly public companies. effectiveness of our internal control over financial reporting. See “Report of Independent Registered Public Accounting Firm” in Part II, Item 8. Financial Statements and Supplementary Data in this Form 10-K. Changes in Internal Control Over Financial Reporting
Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. There have been no changes in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B. | ITEM 9B. OTHER INFORMATION |
None.
Special IPO Bonuses
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
On February 15, 2018, we determined to award each of Vicente Reynal, our Chief Executive Officer, Philip T. Herndon, our Vice President and Chief Financial Officer, Andrew Schiesl, our Vice President, General Counsel, Chief Compliance Officer and Secretary and Neil D. Snyder, our Vice President, Strategy, Business Development and Planning, a one-time discretionary IPO bonus for his extraordinary efforts in 2017 in connection with our initial public offering. The IPO bonuses were awarded in the following amounts: Mr. Reynal - $225,000; Mr. Herndon - $125,000; Mr. Schiesl - $100,000; and Mr. Snyder - $75,000.Not applicable.
Executive Severance Agreements
On February 15, 2018, in connection with our annual review of our executive compensation, we approved an increase to the benefits to which each of Neil D. Snyder, our Senior Vice President, Strategy, Business Development and Planning and Enrique Miñarro Viseras, our Vice President and General Manager, Industrials Group EMEA is entitled in the event of certain qualifying terminations to align them with the severance benefits to which our other senior executive officers are entitled.
Under the terms approved by the Compensation Committee of our Board of Directors on February 15, 2018, if the Company terminates Mr. Snyder’s employment without Cause (as that term is defined below under “Part III, Item 11, Executive Compensation―Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control―Severance Arrangements and Restrictive Covenants”) or if Mr. Snyder terminates his employment with us for Good Reason (as that term is defined below under “Part III, Item 11, Executive Compensation―Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control―Severance Arrangements and Restrictive Covenants”), subject to Mr. Snyder’s continued compliance with the restrictive covenants in his management equity agreements and his execution of a customary waiver and release agreement, he will be entitled to receive:
Continued payment over a 12-month period (the “Severance Period”) of his annual base salary earned in respect of our fiscal year preceding the fiscal year in which the termination date occurs, payable in substantially equal monthly installments over the Severance Period; and
Continued group health coverage (on the same basis as actively employed employees of the Company), subject to his electing to receive benefits under COBRA, for 12 months following the date his employment terminates (or, if earlier, through the date that he becomes employed by another employer and eligible for health insurance coverage at such employer).
The Compensation Committee of our Board of Directors also approved on February 15, 2018 a mutual twelve-month advance notice period for a termination of employment not for cause or without good reason, during which Mr. Miñarro Viseras may be released from his work duties but will still be entitled to remuneration.
PART III. ITEM 10. | ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Except as set forth below, theThe information required by this Item will be included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders and is incorporated herein by reference. Gardner Denver Holdings, Inc.We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2017.2022.
Code of Conduct
The Company has adopted a Code of Conduct that applies to all of the Company’s employees, including the Company’s Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Controller and other persons performing similar functions. The Code of Conduct sets forth our policies and expectations on a number of topics, including conflicts of interest, corporate opportunities, confidentiality, compliance with laws (including insider trading laws), use of our assets and business conduct and fair dealing. This Code of Conduct also satisfies the requirements for a code of ethics, as defined by Item 406 of Regulation S-K promulgated by the SEC. The Company has posted a copy of the Code of Conduct on its website at www.gardnerdenver.com under the Investors and then the Corporate Governance link. In the event that we amend or grant any waiver from a provision of the code of ethics that applies to the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or Controller and that requires disclosure under applicable SEC or NYSE rules, we intend to disclose such amendment or waiver and the reasons therefor on our Internet site.
ITEM 11. | ITEM 11. EXECUTIVE COMPENSATION |
Compensation Committee Report
The Compensation Committee has reviewed and discussed the following Compensation Discussion and Analysis with management. Based on its review and discussion with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysisinformation required by this Item will be included in thisour definitive proxy statement for the 2023 Annual Report on Form 10-K forMeeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2017 and in the Company’s proxy statement on Schedule 14A for the 2018 Annual Meeting of Stockholders.2022.
Submitted by the Compensation Committee of the Board of Directors:
| Peter Stavros, Chair | | Nickolas Vande Steeg | | Joshua Weisenbeck |
Compensation Discussion and Analysis
Introduction
This section describes our compensation philosophy and details the compensation programs that cover our named executive officers (“NEOs”).
Our NEOs for 2017 are:
Vicente Reynal, our Chief Executive Officer;
Philip T. Herndon, our Vice President and Chief Financial Officer; and
Our three other most highly compensated executive officers who served in such capacities as of December 31, 2017, namely:
Andrew Schiesl, our Vice President, General Counsel, Chief Compliance Officer and Secretary;
Neil D. Snyder, our Senior Vice President, Strategy, Business Development and Planning; and
Enrique Miñarro Viseras, Vice President and General Manager, Industrials Segment EMEA
Executive Compensation Objectives and Philosophy
Our executive compensation philosophy is designed to attract and retain individuals with the qualifications to meet the Company’s strategic objectives and create value for our shareholders. We believe that the best way to align our executives with our objectives and create shareholder value is to emphasize two key compensation principles: (1) significant equity participation and (2) pay-for-performance.
In February 2018, following an evaluation with the assistance of Pearl Meyer of equity-based incentives for our executive officers, the Compensation Committee adopted a new long-term equity incentive program (the “2018 LTI Program”). Under the 2018 LTI Program, our NEOs will receive annual equity awards, 50% of which will be in the form of time-vesting restricted stock and 50% of which will be in the form of time-vesting stock options. The following charts illustrate our focus on equity participation by showing that 72% of our CEO’s expected 2018 target base salary, annual incentive, and long-term equity incentive compensation mix and 49% of our other NEOs’ expected 2018 mix is based on long-term equity incentives.See “Compensation Actions Taken in 2018―Long-Term Incentive Compensation”.
Our commitment to aligning the interests of our executives to the interests of our shareholders through equity participation is further evidenced by the fact that in 2017 we adopted what we believe is a market-leading stock ownership and retention policy for our executives and non-employee directors that combines robust stock ownership requirements with retention requirements. See “Stock Ownership and Retention Policy” below. All of our NEOs maintain a significant equity stake in the Company and currently exceed their respective ownership requirements through ownership of vested and exercisable stock options and/or direct investments in our common stock.
In addition to equity participation, we strongly believe in a pay-for-performance culture. This is evidenced by the fact that our annual cash incentive program is 100% based on the financial performance of the Company and its business units and that it accounts for 50% of the expected total cash compensation of our CEO, and on average 41% for our other NEOs, in each case when paid out at target. When paid out at the maximum payout (capped at 200% of target), this percentage increases to 67% and 58%, respectively. Also, our executives receive no payout for below threshold performance and we believe that our threshold at 95% of target is more challenging than typical market practice. See “―Executive Compensation Program Elements―Cash Bonus Opportunities―Annual Cash Bonus Opportunity”. Even more importantly, when our short-term cash incentive is combined with our long term equity incentive, it results in 84% of our CEO’s and 70% of our NEOs’ compensation being variable performance compensation.
In addition to equity compensation and our annual cash incentive opportunity, we provide NEOs a combination of the following other compensation components:
Base salary - Fixed pay that is market competitive and sufficient to engage high caliber talent;
Broad-based employee benefits – Fixed pay intended to attract and retain employees while providing them with retirement and health and welfare security; and
Severance and other benefits payable upon certain terminations of employment or a change in control - Encourages the continued attention and dedication of our NEOs and provides reasonable individual security to enable our NEOs to focus on our best interests, particularly when considering strategic alternatives.
In 2017 we did not make any equity grants to our NEOs believing that the equity grants made in prior years were sufficiently retentive and fostered the necessary level of alignment with shareholder interests. See “―Executive Compensation Program Elements―Long-Term Equity Incentive Awards”.
Strong Compensation Governance Practices and Policies
Within the context of the compensation philosophy and the Company’s business objectives, the Compensation Committee engages in an ongoing review of the Company’s executive compensation programs. In connection with this review, the Compensation Committee has adopted the following practices and policies reflecting what it believes to be a best practices approach to executive compensation.
Compensation Determination Process and Compensation Consultant Independence
Prior to our initial public offering, our Compensation Committee historically made all executive compensation decisions, including determinations as to the compensation of our NEOs. From the date of our initial public offering, the Compensation Committee has been responsible for determining the compensation of our Chief Executive Officer (“CEO”) and other executive officers and approving or recommending such compensation to the board of directors. Because of his daily involvement with the executive team, our CEO makes recommendations to the Compensation Committee regarding compensation for the executive officers other than himself. No member of management participates in discussions with the Compensation Committee regarding his or her own compensation.
In connection with our initial public offering, we engaged Pearl Meyer & Partners, LLC (“Pearl Meyer”), a compensation consulting firm, to assist us in evaluating the elements and levels of our executive compensation, including base salaries, annual cash incentive awards and equity-based incentives for our executive officers. In February 2018, the Compensation Committee determined that Pearl Meyer is independent from management and that Pearl Meyer’s work has not raised any conflicts of interest.
The Compensation Committee did not benchmark 2017 compensation against a peer group. However, over the course of the second half of 2017 and early 2018, Pearl Meyer developed a compensation peer group, conducted a competitive market assessment and developed recommendations for the 2018 LTI Program. See “Compensation Actions Taken in 2018―Long-Term Incentive Compensation.”
Executive Compensation Program Elements
Base Salaries
Base salary is the only fixed component of the Company’s NEOs’ cash compensation. An NEO’s base salary is related to the individual’s level of responsibility and provides them with a level of cash income predictability and stability with respect to a portion of their total compensation. The Compensation Committee believes that base salaries for executives should reflect competitive levels of pay and factors unique to each executive such as experience and breadth of responsibilities, performance, individual skill set, time in the role and internal pay parity. Base salaries are reviewed annually or at other times when appropriate and may be increased from time to time pursuant to such review. In connection with our annual review, we determined to increase the base salaries of each of our NEOs by not more than 3% based on their performance in 2016, effective April 2017. Mr. Miñarro Viseras is based in Germany and compensated in Euros; accordingly, his salary increase was based on his salary in Euros. The following table reflects the base salaries of our NEOs as of December 31, 2017.
| | Base Salary as of December 31, 2016 | | | Base Salary as of December 31, 2017 | | Vicente Reynal, Chief Executive Officer | | $ | 750,000 | | | $ | 766,500 | | Philip T. Herndon, Vice President and Chief Financial Officer | | $ | 400,000 | | | $ | 409,000 | | Andrew Schiesl, Vice President, General Counsel, Chief Compliance Officer and Secretary | | $ | 450,000 | | | $ | 460,000 | | Neil D. Snyder, Senior Vice President, Strategy, Business Development and Planning | | $ | 345,000 | | | $ | 353,000 | | Enrique Miñarro Viseras, Vice President and General Manager, Industrials Segment EMEA(1) | | $ | 304,288 | | | $ | 337,814 | |
| (1) | Mr. Miñarro Viseras is based in Europe and is compensated in Euros. We converted his 2016 base salary (which was 275,000 Euros) to U.S. dollars at an exchange rate of 1.1065, which was the average monthly translation rate for 2016. We converted his 2017 base salary (which was 281,500 Euros) to U.S. dollars at an exchange rate of 1.20048, which was the end of month translation rate, December 2017. |
Cash Bonus Opportunities
Annual Cash Bonus Opportunity
In order to tie a portion of their cash compensation to actual performance, each NEO is eligible for an annual cash bonus award under our management incentive plan (“MIP”) based on the achievement of our financial goals for the Company and their respective business units.
A target annual bonus, expressed as a percentage of an NEO’s base salary in effect at year-end, is established within certain NEOs’ offer letters and employment agreements and may be adjusted from time to time by the Compensation Committee in connection with an NEO’s promotion or performance. The target annual bonus for 2017 for Messrs. Reynal and Herndon was 100% of their respective base salaries, for Mr. Schiesl was 75% of his base salary, for Mr. Snyder was 50% of his base salary and for Mr. Miñarro Viseras was 45% of his base salary.
We generally believe that tying our corporate level NEOs’ bonuses to company-wide performance goals encourages those NEOs to focus on company-wide priorities, and that tying the bonuses of our NEOs at the business segment and business unit level to business segment goals and business unit goals, respectively, rewards these NEOs for achievements with respect to their business segments and units. In 2017, the Compensation Committee decided to base MIP awards for Messrs. Reynal, Herndon and Snyder in part on the performance of our Industrials segment because each serves in roles at both the corporate level and the Industrials segment level and the Compensation Committee wanted them to continue to focus on the objectives of the Industrials segment since it typically accounts for a significant portion of our total revenue. A detailed description of the 2017 MIP metrics and the calculation of the actual amounts paid to each of our NEOs are provided below.
We chose to use Adjusted EBITDA, as that term is defined elsewhere in this Annual Report on Form 10-K because we believe that it provides a reliable indicator of our strategic growth and the strength of our overall financial results.
Actual amounts paid to Messrs. Reynal, Herndon and Snyder under the 2017 MIP were calculated by multiplying their target annual bonus for 2017 by the sum of (1) 75% multiplied by the weighted average of the payout percentages associated with our achievement against the Adjusted EBITDA targets for the MIP Business Units (as defined below) and (2) 25% multiplied by the payout percentage associated with our achievement against the Industrials Segment Adjusted EBITDA target. The “MIP Business Units” include Energy P&IP, Energy Nash/Garo, Energy Emco, Industrials Americas, Industrials EMEA, Industrials APAC, and Medical. The weighting for each MIP Business Unit is determined by dividing fiscal 2017 Adjusted EBITDA budget for each business unit by the sum of fiscal 2017 Adjusted EBITDA budgets for all the MIP Business Units. To calculate the composite payout percentage for all MIP Business Units, each MIP Business Unit’s corresponding weighting is multiplied by the payout percentage associated with actual 2017 Adjusted EBITDA achievement against that business unit’s respective Adjusted EBITDA budget and the resulting amounts are summed.
We believe Adjusted EBITDA targets set for the MIP Business Units in 2017 provided reasonably achievable, but challenging goals for our NEOs and the other MIP participants at the corporate level. In addition, we believe the Industrials Segment Adjusted EBITDA target set in 2017 provided reasonably achievable, but challenging goals for our NEOs and other MIP participants in the Industrials segment.
Actual amounts paid to Mr. Schiesl under the 2017 MIP were calculated by multiplying his target annual bonus for 2017 by the weighted average of the payout percentages associated with our achievement against the Adjusted EBITDA targets for the MIP Business Units.
For our NEO at the business unit level, Mr. Miñarro Viseras, the MIP award is tied to the financial results of his business segment and his business unit measured by Adjusted EBITDA. The actual amount paid to Mr. Miñarro Viseras under the 2017 MIP was calculated by multiplying his target annual bonus for 2017 by the sum of (1) 50% multiplied by the payout percentage associated with our achievement against the Industrials Segment Adjusted EBITDA target and (2) 50% multiplied by the payout percentage associated with our achievement against the Industrials EMEA Adjusted EBITDA target. We believe the Industrials EMEA Adjusted EBITDA target set in 2017 provided a reasonably achievable, but challenging goal for Mr. Miñarro Viseras and other MIP participants at our Industrials EMEA business unit.
The Adjusted EBITDA payout percentage for each of our segments and business units was determined by calculating actual achievement against the Adjusted EBITDA performance targets based on the pre-established scale set forth in the table below.
Achievement of Performance Target | | Payout Percentage | Less than 95% | | 0% | 95% | | 75% | 100% | | 100% | 110% | | 200% |
No cash incentive award would have been paid to our NEOs whose awards were based partially or entirely on the performance of our MIP Business Units unless actual performance for fiscal 2017 for at least one of the MIP Business Units was at or above 95% of the applicable Adjusted EBITDA target (or, in the case of Mr. Miñarro Viseras, if the performance of our Industrials segment for 2017 was at or above the Adjusted EBITDA target for our Industrials segment). Adjusted EBITDA results are adjusted to the extent that actual foreign exchange rates by country differ by more than 5% of budgeted foreign exchange rates. For performance percentages between the levels set forth above, the resulting payout percentage is adjusted on a linear basis. In addition to setting Adjusted EBITDA targets for our business units, we set an annual corporate expense budget each year and any difference between actual and budgeted corporate expense is allocated to the Adjusted EBITDA at our business units at the discretion of the Compensation Committee. While there are no individual goals for purposes of MIP award payments, the Compensation Committee, on the recommendation of Mr. Reynal, may adjust an incentive payment upward or downward for performance-related reasons. In addition, the Compensation Committee has discretion to adjust MIP award payments for unanticipated events. For 2017, the Compensation Committee did not make any discretionary adjustments to the calculated MIP award payments.
The following table sets forth our actual payout percentage achieved with respect to each performance metric applicable to our NEOs and illustrates the calculation of the annual cash incentive awards payable to our NEOs under the 2017 MIP in light of these performance results.
| | | | | | | | | | | Adjusted EBITDA Payout Percentage | | | | | | | | Name | | 2017 Base Salary | | | Target Bonus % | | | Target Bonus Amount | | | Industrials | | | Industrials EMEA | | | Weighted Average of Business Units (1) | | | Weighted Payout Percentage | | | Actual Bonus Paid | | Vicente Reynal (2) | | $ | 766,500 | | | | 100 | % | | $ | 766,500 | | | | 150 | % | | | N/A | | | | 142 | % | | | 144 | % | | $ | 1,103,760 | | Philip T. Herndon (2) | | $ | 409,000 | | | | 100 | % | | $ | 409,000 | | | | 150 | % | | | N/A | | | | 142 | % | | | 144 | % | | $ | 588,960 | | Andrew Schiesl | | $ | 460,000 | | | | 75 | % | | $ | 345,000 | | | | N/A | | | | N/A | | | | 142 | % | | | 142 | % | | $ | 489,900 | | Neil Snyder | | $ | 353,000 | | | | 50 | % | | $ | 176,500 | | | | 150 | % | | | | | | | 142 | % | | | 144 | % | | $ | 254,160 | | Enrique Miñarro Viseras (3) | | $ | 337,814 | | | | 45 | % | | $ | 152,016 | | | | 150 | % | | | 120 | % | | | N/A | | | | 135 | % | | $ | 205,222 | |
(1) Represents the weighted average of the payout percentages associated with our achievement against the Adjusted EBITDA targets for the MIP Business Units.
(2) Messrs. Reynal’s, Herndon’s and Snyder’s 2017 MIP opportunities were based 75% on the weighted average of the payout percentages associated with our achievement against the Adjusted EBITDA targets for the MIP Business Units and 25% on the payout percentage associated with our achievement against the Adjusted EBITDA target for the Industrials segment.
(3) Mr. Miñarro Viseras’s 2017 MIP opportunity was based 50% on the payout percentage associated with our achievement against the Adjusted EBITDA target for the Industrials segment and 50% on the payout percentage associated with our achievement against the Adjusted EBITDA target for the Industrials EMEA business unit.
IPO Bonuses
For their extraordinary efforts in 2017 in connection with our initial public offering, the Compensation Committee in February 2018 determined to award each of Messrs. Reynal, Herndon, Schiesl and Snyder a one-time discretionary IPO bonus. The IPO bonuses were awarded in the following amounts: Mr. Reynal - $225,000; Mr. Herndon - $125,000; Mr. Schiesl - $100,000; and Mr. Snyder - $75,000.
Sign-on Bonuses
From time to time, we may award sign-on bonuses in connection with the commencement of an NEO’s employment with us. Sign-on bonuses are used only when necessary to attract highly skilled officers to the Company. Generally, they are used to provide an incentive to candidates to leave their current employers or may be used to offset the loss of unvested compensation that they may forfeit as a result of leaving their current employers. Sign-on bonuses are typically subject to a clawback obligation if the officer voluntarily terminates his or her employment with us prior to the first anniversary of the employment commencement date. We did not award any sign-on bonuses to our NEOs in 2017.
Long-Term Equity Incentive Awards
Prior to our initial public offering, we granted long-term equity-based awards to our executives that were designed to align executives’ and shareholders’ interests, promote performance through a broad ownership mindset, incentivize our executives to remain in our service and align the interests of our executives with those of our ultimate equity holders. The awards we granted to our NEOs under our long-term incentive program (our “Long-Term Incentive Program”) were in the form of stock options, with 50% of each award vesting based on time-based vesting conditions (“Time Options”) and 50% of each award vesting based on performance-based vesting conditions (“Performance Options”). The stock options generally vest, if at all, ratably over a three- to five-year period, subject to continued employment through the applicable vesting date and, in the case of the Performance Options, achievement of the applicable performance criteria. See “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2017―Terms of Equity Awards―Long-Term Incentive Plan Grants.” The Compensation Committee determined that granting our NEOs stock options would meet our goals of fostering a culture of performance and commitment to our Company. Stock options serve as components of performance-based compensation because they only provide value to our NEOs if the value of our stock appreciates. All equity-based awards under our Long-Term Incentive Program were granted under the 2013 Stock Incentive Plan.
In addition to granting them long-term equity-based awards, we have given our executive officers the opportunity to, and in some cases, in connection with the commencement of their employment with us, have required them to, make meaningful investments in our common stock, subject to satisfaction of applicable securities law requirements. See “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2017―Summary of NEO Offer Letters and Employment Agreements.”
In connection with our initial public offering, we adopted a new incentive plan, the Gardner Denver Holdings, Inc. 2017 Stock Incentive Plan, pursuant to which we will grant our future long-term equity incentive awards. See “Compensation Actions Taken in 2018―Long-Term Incentive Compensation” below.
Benefits and Perquisites
While our compensation philosophy is to focus on performance-based forms of compensation while providing only minimal executive benefits and perquisites, we provide to all of our employees, including our NEOs, broad-based employee benefits that are intended to attract and retain employees while providing them with retirement and health and welfare security. These include:
medical, dental, vision, life and disability insurance coverage; and
dependent care and healthcare flexible spending accounts.
401(k) Plan
Our U.S. eligible employees, including our NEOs, participate in the Gardner Denver, Inc. Retirement Savings Plan (the “401(k) plan”), which is a tax-qualified retirement savings plan. For employees hired after January 1, 2014, enrollment in the 401(k) plan is automatic for employees who meet eligibility requirements unless they decline participation. Under the 401(k) plan, we match 100% of the first 6% of a participant’s salary contributions to the 401(k) plan. Participants are 100% vested in employee and matching contributions. The maximum contribution to the 401(k) plan is 100% of an employee's annual eligible compensation, subject to regulatory and plan limitations.
Supplemental Excess Defined Contribution Plan
In addition to the 401(k) plan, U.S. employees with a salary grade of 20 or higher (generally senior managers and above), including the NEOs other than Mr. Miñarro Viseras, are eligible to participate in the Gardner Denver, Inc. Supplemental Excess Defined Contribution Plan (the “Excess Contribution Plan”), which is funded through a Rabbi Trust. This plan provides participants with a similar level of benefits afforded to all other eligible employees who are not subject to the limitations imposed by the IRS on our tax-qualified 401(k) plan.
Eligible employees may contribute to the Excess Contribution Plan when they exceed the annual IRS pre-tax contribution limits and the annual catch-up contribution limit for participants age 50 or over. Under the Excess Contribution Plan, we match 100% of the first 6% of a participant’s salary contributions to the Excess Contribution Plan. Company matching contributions under the Excess Contribution Plan are contributed in the form of cash rather than our common stock. All employee and Company matching contributions are fully vested immediately.
Limited Perquisites
Executive perquisites are not part of our general compensation philosophy, however we provide limited perquisites and personal benefits that are not generally available to all employees when necessary to attract top talent. These are typically set forth in the offer letters or employment agreements we enter into with our executive officers. See “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2017―Summary of NEO Offer Letters and Employment Agreements.” For example, in 2017, per his employment agreement, Mr. Miñarro Viseras was entitled to international school assistance and use of a company car. Mr. Snyder was also provided with a housing allowance. In addition, from time to time, we provide tax gross-ups on perquisites we provide in order to allow our NEOs to enjoy the full benefit of the perquisite we are providing.
Severance and Change in Control Agreements
The Company believes that reasonable and appropriate severance and change in control benefits are necessary in order to be competitive in the Company’s executive attraction and retention efforts. As discussed above, the offer letters we enter into with our NEOs provide for certain payments, rights and benefits to the NEOs upon an involuntary termination of employment without Cause (as defined in “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control-Severance Arrangements and Restrictive Covenants” below) from the Company or a termination by the NEO for Good Reason (as defined in “Potential Payments to Named Executive Officers Upon Termination of Employment or Change in Control-Severance Arrangements and Restrictive Covenants” below). In addition, our equity award agreements provide for accelerated vesting upon a change in control in certain circumstances, as more fully described above under “―Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2017―Terms of Equity Awards.”
Employment Agreements
We do not typically enter into employment agreements with our NEOs; however, we entered into an employment agreement and offer letter with Mr. Miñarro Viseras and offer letters setting forth initial compensation and benefits, as well as severance terms, with each of our other NEOs. Full descriptions of the material terms of the employment agreement and offer letter we entered into with Mr. Miñarro Viseras and the offer letters we entered into with Messrs. Reynal, Herndon, Schiesl and Snyder are presented below in “―Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2017.”
Risk Management
The Compensation Committee conducts a thorough review of all incentive programs and confirms that our executives are not incented to focus on short-term stock performance or take excessive risk in managing the business. In particular, long-term incentive awards, as a significant portion of total direct compensation and robust stock holding requirements, are structured to align management with the long-term health of the business.
Stock Ownership and Retention Policy
To align the interests of our management and directors with those of our stockholders, the Board of Directors concluded that certain of our executive officers (the “Covered Executives”) and directors should have a significant financial stake in the Company’s stock. To further that goal, we implemented stock ownership guidelines in 2017 (the “Guidelines”). The Covered Executives will be required to hold a specific level of equity ownership as outlined below:
Executives: The Guidelines will apply to the Covered Executives in the following Tiers:
Tier One: | Chief Executive Officer | Tier Two: | Chief Financial Officer and General Counsel | Tier Three: | P&L and Corporate Leaders |
Covered Executives’ Stock Ownership Multiples: The stock ownership levels under the Guidelines, expressed as a multiple of the Covered Executive’s base annual salary rate as of January 1st of the year, are as follows:
Tier One: | 10 times base salary | Tier Two: | 5 times base salary | Tier Three: | 3 times base salary |
Retention Requirement: There is no required time period within which a Covered Executive must attain the applicable stock ownership level under the Guidelines. However, until the applicable ownership level is achieved, Covered Executives must retain 75% of net shares granted to them. Once the ownership guideline is met, Covered Executives must retain 30% of net shares granted to them; however, this requirement drops to 20% for a Covered Executive upon the earlier of a (1) such Covered Executive reaching the age of 55 and (2) such covered executive achieving 10 years of service with the Company and terminates upon the earlier of (1) such Covered Executive reaching the age of 60 and (2) such covered executive achieving 15 years of service with the Company.
The shares counted toward these ownership requirements includes shares owned outright and vested stock options. The retention requirement applies to all prior and future grants.
These ownership requirements are set at levels that the Company believes are robust given the Covered Executives’ respective salaries and responsibilities.
Directors: Our directors are required to hold 75% of net shares granted to them under our benefit plans until they own equity equal to five times their annual cash retainers. Once the ownership guideline is met, directors must retain 30% of the net shares granted to them under our benefit plans until their retirement.
As of January 1, 2018, all of our NEOs and then serving directors were in compliance with the applicable stock ownership levels under the Guidelines.
Hedging and Pledging Policies
The Company’s Securities Trading Policy requires executive officers and directors to consult the Company’s General Counsel prior to engaging in transactions involving the Company’s securities. The Company’s Securities Trading Policy prohibits directors and executive officers from hedging or monetization transactions including, but not limited to, through the use of financial instruments such as exchange funds, variable forward contracts, equity swaps, puts, calls, and other derivative instruments, or through the establishment of a short position in the Company’s securities. The Company’s Securities Trading Policy limits the pledging of Company securities to those situations approved by the Company’s General Counsel.
Section 162(m) of the Internal Revenue Code
We expect to be able to claim the benefit of a special exemption rule that applies to compensation paid (or compensation in respect of equity awards such as stock options granted) during a specified transition period following our initial public offering. This transition period was previously anticipated to potentially extend until our first annual stockholders meeting that occurs in 2021 pursuant to regulations under the Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). However, the recently enacted Tax Cut and Jobs Act amended Section 162(m) of the Code in several respects, including the elimination the “performance-based compensation” exception under Section 162(m) of the Code for tax years beginning after December 31, 2017. Pending further guidance under Section 162(m) of the Code, it is unclear whether the post-IPO transition period exception under Section 162(m) will continue to apply to us for compensation paid or awards granted in 2018 or beyond. Once applicable guidance is released, we expect the Compensation Committee to consider the implications of Section 162(m) and such guidance in its future compensation decisions.
Compensation Actions Taken in 2018
Long-Term Incentive Compensation
In February 2018, following an evaluation with the assistance of Pearl Meyer of the equity-based incentives for our executive officers, the Compensation Committee adopted the 2018 LTI Program. Under the 2018 LTI Program, our NEOs will receive annual equity awards, 50% of which will be in the form of time-vesting restricted stock and 50% of which will be in the form of time-vesting stock options. The time-vesting restricted stock awards and the time-vesting options awards under the 2018 LTI Program will vest in equal annual installments on each of the first four anniversaries of the grant date, except that the awards granted in 2018 will vest in equal annual installments on each of the second, third, fourth and fifth anniversaries of the grant date. The Compensation Committee determined that, in 2018, awards under the 2018 LTI Program will be made to our NEOs in the following amounts: Mr. Reynal ― $4,000,000; Mr. Herndon ― $1,000,000; Mr. Schiesl ― $675,000; Mr. Snyder ― $400,000; Mr. Miñarro Viseras ― $500,000. These grant amounts will be translated into a number of stock options and shares of restricted stock by taking such dollar amount and dividing it by the per share or per option “fair value” that will be used for reporting the compensation expense associated with the grant under applicable accounting guidance, which “fair value” will be based in part on the per share closing price of our common stock on the NYSE on the date of grant.
Executive Severance Benefits – Mr. Snyder and Mr. Miñarro Viseras
In February 2018, in connection with our annual review of our executive compensation, we approved an increase to the benefits to which Messrs. Snyder and Miñarro Viseras are entitled in the event of certain qualifying terminations to align them with the severance benefits to which our other senior executive officers are entitled.
Under the terms approved by the Compensation Committee in February 2018, if the Company terminates Mr. Snyder’s employment without Cause (as that term is defined below under “Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control―Severance Arrangements and Restrictive Covenants”) or if Mr. Snyder terminates his employment with us for Good Reason (as that term is defined below under “Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control―Severance Arrangements and Restrictive Covenants”), subject to Mr. Snyder’s continued compliance with the restrictive covenants in his management equity agreements and his execution of a customary waiver and release agreement, he will be entitled to receive:
Continued payment over a 12-month period (the “Severance Period”) of his annual base salary earned in respect of our fiscal year preceding the fiscal year in which the termination date occurs, payable in substantially equal monthly installments over the Severance Period; and
Continued group health coverage (on the same basis as actively employed employees of the Company), subject to his electing to receive benefits under COBRA, for 12 months following the date his employment terminates (or, if earlier, through the date that he becomes employed by another employer and eligible for health insurance coverage at such employer).
The Compensation Committee also approved in February 2018 a mutual twelve-month advance notice period for a termination of Mr. Miñarro Viseras's employment not for cause or without good reason, during which Mr. Miñarro Viseras may be released from his work duties but will still be entitled to remuneration.
Summary Compensation Table
The following table provides summary information concerning compensation of our NEOs for services rendered to us during the years indicated.
Name and Principal Position | | Year | | | | | | | | | | | Non-Equity Incentive Plan Compensation ($)(3) | | | All Other Compensation ($)(4) | | | | | Vicente Reynal, Chief Executive Officer | | 2017 | | | 765,754 | | | | 225,000 | | | | ― | | | | 1,103,760 | | | | 285,581 | | | | 2,380,095 | | | | 2016 | | | 750,000 | | | | ― | | | | 4,568,331 | | | | 877,500 | | | | 233,614 | | | | 6,429,445 | | Philip T. Herndon, Vice President and Chief Financial Officer | | 2017 | | | 406,750 | | | | 125,000 | | | | ― | | | | 588,960 | | | | 11,258 | | | | 1,131,968 | | | | 2016 | | | 347,917 | | | | ― | | | | 3,257,821 | | | | 446,262 | | | | 7,897 | | | | 4,059,972 | | Andrew Schiesl, Vice President, General Counsel, Chief Compliance Officer and Secretary | | 2017 | | | 457,500 | | | | 100,000 | | | | ― | | | | 489,900 | | | | 75,872 | | | | 1,123,272 | | | | 2016 | | | 450,000 | | | | ― | | | | 610,717 | | | | 367,875 | | | | 49,565 | | | | 1,478,082 | | Neil Snyder, Senior Vice President, Strategy, Business Development and Planning | | 2017 | | | 351,000 | | | | 75,000 | | | | ― | | | | 254,160 | | | | 123,941 | | | | 804,101 | | Enrique Miñarro Viseras, Vice President and General Manager, Industrials Segment EMEA(6) | | 2017 | | | 316,000 | | | | ― | | | | ― | | | | 205,222 | | | | 229,222 | | | | 750,444 | | | | 2016 | | | 195,943 | | | | 532,517 | | | | 691,114 | | | | 113,015 | | | | 155,548 | | | | 1,684,817 | |
(1) | Reflects the salary amounts earned by our NEOs in the years indicated. |
(2) | Reflects special, one-time IPO bonus amounts. |
(3) | Amounts shown reflect amounts earned under our 2017 MIP. |
(4) | Amounts reported under All Other Compensation reflect the following: |
| (a) | as to Mr. Reynal, reimbursement for tax preparation expenses, Company-paid life insurance premiums ($1,827), Company 401(k) match ($6,367) and Company Excess Contribution Plan match ($161,300). Mr. Reynal also received a tax equalization payment with respect to his cash compensation earned during his service in Europe in 2016 ($83,871). |
| (b) | as to Mr. Herndon, company-paid life insurance premiums ($792) and Company 401(k) match ($10,467). |
| (c) | as to Mr. Schiesl, company-paid life insurance premiums ($792), Company 401(k) match ($15,429, plus a contribution of $2,571 to a Roth IRA) and Company Excess Contribution Plan match ($57,081). |
| (d) | as to Mr. Snyder, company-paid life insurance premiums ($792), Company 401(k) match ($16,200), a housing allowance ($53,903) and a tax gross-up relating to his housing allowance ($53,047). |
| (e) | as to Mr. Miñarro Viseras, actual Company expenditures for use, including business use, of a Company car, including expenditures for the car lease and gas ($25,748), a housing allowance ($43,202), reimbursement of school fees for Mr. Miñarro Viseras’s children ($63,675), a tax gross-up relating to his housing allowance ($39,044) and a tax gross-up relating to our reimbursement of school fees ($57,553). |
(5) | Mr. Miñarro Viseras is based in Europe and compensated in Euros. We converted his 2017 cash compensation, his amounts earned under our 2017 MIP, and amounts shown in the “All Other Compensation” column for him to U.S. dollars at an exchange rate of 1.20048, which was the end of month translation rate, December 2017. |
Grants of Plan-Based Awards in 2017
| | Estimated Possible Payouts under Non-Equity Incentive Plan Awards (1) | | Name | | Threshold ($) | | | Target ($) | | | Maximum ($) | | Vicente Reynal | | | 8,083 | | | | 766,500 | | | | 1,533,000 | | Philip T. Herndon | | | 4,313 | | | | 409,000 | | | | 818,000 | | Andrew Schiesl | | | 10,914 | | | | 345,000 | | | | 690,000 | | Neil Snyder | | | 3,722 | | | | 176,500 | | | | 353,000 | | Enrique Miñarro Viseras | | | 57,006 | | | | 152,016 | | | | 304,032 | |
(1) Reflects the possible payouts of cash incentive compensation under the 2017 MIP. The actual amounts earned are described in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.” Mr. Miñarro Viseras is based in Europe and compensated in Euros. His Estimated Possible Non-Equity Incentive Plan Payout amounts were converted to U.S. dollars at an exchange rate of 1.20048, which was the end of month translation rate, December 2017.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2017
Summary of NEO Offer Letters and Employment Agreements
In general, the Company does not enter into employment agreements with employees, including our executive officers, however we do enter into offer letters with many of our executive officers. In addition, we did enter into an employment agreement with Mr. Miñarro Viseras as well as an offer letter. Descriptions of the offer letters we entered into with Messrs. Reynal, Herndon, Schiesl and Snyder and the employment agreement and offer letter we entered into with Mr. Miñarro Viseras are provided below. All current NEOs serve at the will of our board of directors.
Offer Letter with Mr. Reynal
The Company entered into an offer letter with Mr. Reynal, dated April 17, 2015, which was modified by a letter, dated November 19, 2015, we entered into with Mr. Reynal in connection with his promotion to Chief Executive Officer of the Company (the offer letter, dated April 17, 2015, as so modified, the “Reynal Offer Letter”). The Reynal Offer Letter provides that, as of January 1, 2016, Mr. Reynal is entitled to receive a base salary of $750,000, which base salary was increased to $766,500 in April, 2017, and that Mr. Reynal is entitled to participate in our annual MIP with a target award opportunity of 100% of his annual base salary. The Reynal Offer Letter further provides that, in 2016, Mr. Reynal’s MIP award would be based on the achievement of performance goals comparable to those that typically would be assigned to the Chief Executive Officer of the Industrials segment; however, following Mr. Reynal’s transition to devoting more of his business time and attention to the performance of duties as the Chief Executive Officer of the Company, his annual MIP award would transition to being based on the achievement of Company performance goals.
Mr. Reynal was eligible to receive two option grants under our Long-Term Incentive Program: one grant of 876,975 options upon commencement of his employment as the Chief Executive Officer of our Industrials segment, which he received in May 2015; and one grant of 585,403 options in connection with his promotion to Chief Executive Officer of the Company, which he received in May 2016. In addition, pursuant to the terms of the Reynal Offer Letter, Mr. Reynal was expected to invest a minimum of $2,000,000, and was given the opportunity to invest significantly more, into our common stock, subject to satisfaction of applicable securities law requirements.
During the time Mr. Reynal was based in Munich, Germany (the “Expat Period”), the Reynal Offer Letter provides that he was entitled to certain expatriate benefits, including an annual cost of living adjustment of $26,000, a monthly housing allowance of $5,533, payment or reimbursement of tuition to an international school for his dependent children, payment or reimbursement of school-sponsored transportation for his dependent children, reimbursement of expenses related to tax preparation performed by a tax preparation firm, use of a company car, reimbursement for expenses in connection with storage of household goods in the United States and reimbursement for business class travel to the United States or a comparable location for Mr. Reynal and his immediate family once per year. Mr. Reynal was also entitled to tax equalization on his cash compensation and expatriate benefits during the Expat Period; provided that the annual cost to the Company of such tax equalization shall not exceed $275,000.
Mr. Reynal is also eligible to participate in the Company’s 401(k), Excess Contribution, medical, dental, life insurance and disability plans, along with a comprehensive wellness program.
The Reynal Offer Letter also contains severance arrangements, which are discussed below under “Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control.”
Offer Letter with Mr. Herndon
The Company entered into an offer letter with Mr. Herndon, dated November 18, 2015, which was modified by an offer letter, dated September 2, 2016, we entered into with Mr. Herndon in connection with his promotion to Chief Financial Officer of the Company (the offer letter, dated November 18, 2015, as so modified, the “Herndon Offer Letter”). The Herndon Offer Letter provides that Mr. Herndon is entitled to receive a base salary of $400,000, which base salary was increased to $409,000 in April, 2017, and is eligible to participate in the annual MIP with a target award opportunity of 100% of his base salary.
Mr. Herndon was eligible to receive a grant of 468,323 options under our Long-Term Incentive Program, which he received in May 2016. In addition, pursuant to the terms of the Herndon Offer Letter, Mr. Herndon was expected to invest a minimum of $1,000,000, and was given the opportunity to invest significantly more, into our common stock, subject to satisfaction of applicable securities law requirements, no later than two months following the date his employment with us commenced.
Mr. Herndon is also eligible to participate in the Company’s 401(k), Excess Contribution, medical, dental, life insurance and disability plans, along with a comprehensive wellness program.
The Herndon Offer Letter also contains severance arrangements, which are discussed below under “Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control.”
Offer Letter with Mr. Schiesl
The Company entered into an offer letter with Mr. Schiesl, dated November 25, 2013 (the “Schiesl Offer Letter”). The Schiesl Offer Letter provides that Mr. Schiesl is entitled to receive a base salary of $450,000, which base salary was increased to $460,000 in April, 2017, and is eligible to participate in the annual MIP with a target award opportunity of 75% of his base salary.
Mr. Schiesl was eligible to receive (i) a grant of 394,474 options under our Long-Term Incentive Program, which he received in March 2014, and (ii) a grant of 36,739 options (the “Investment Options”) which he received in lieu of a sign-on bonus in March 2014 and which vested on June 16, 2014.
Mr. Schiesl is also eligible to participate in the Company’s 401(k), Excess Contribution, medical, dental, life insurance and disability plans, along with a comprehensive wellness program.
The Schiesl Offer Letter also contains severance arrangements, which are discussed below under “Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control.”
Offer Letter with Mr. Snyder
The Company entered into an offer letter with Mr. Snyder, dated December 18, 2015(the “Snyder Offer Letter”). The Snyder Offer Letter provides that Mr. Snyder is entitled to receive a base salary of $300,000, which base salary was increased to $353,000 in April, 2017, and is eligible to participate in the annual MIP with a target award opportunity of 45% of his base salary, which target award opportunity was increased to 50% in November 2016.
Mr. Snyder was eligible to receive a grant of 263,430 options under our Long-Term Incentive Program, which he received in December 2016. In addition, pursuant to the terms of the Snyder Offer Letter, Mr. Snyder was expected to invest a minimum of $90,000, and was given the opportunity to invest significantly more, into our common stock, subject to satisfaction of applicable securities law requirements, no later than two months following the date his employment with us commenced.
Under the Snyder Offer Letter, Mr. Snyder received a lump sum cash signing bonus of $300,000 in February 2016. Such bonus was subject to a repayment obligation upon certain terminations of Mr. Snyder’s employment.
Under the Snyder Offer Letter, Mr. Snyder is entitled to reimbursement for his reasonable commuting expenses (consistent with our travel policies) related to travel to and from his home, as well as a tax gross-up relating to such reimbursement.
Mr. Snyder is also eligible to participate in the Company’s 401(k), Excess Contribution, medical, dental, life insurance and disability plans, along with a comprehensive wellness program.
The Snyder Offer Letter also contains severance arrangements, which are discussed below under “Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control.”
Employment Agreement and Offer Letter with Mr. Miñarro Viseras
The Company entered into an employment agreement with Mr. Miñarro Viseras, dated April 29, 2016 and commencing on May 10, 2016 (the “Miñarro Viseras Employment Agreement”). The Miñarro Viseras Employment Agreement provides that Mr. Miñarro Viseras is entitled to receive a base salary of $330,013, which base salary was increased to $337,814 in April, 2017 (in each case, converted from Euros to U.S. dollars at an exchange rate of 1.20048, which was the end of monthy translation rate, December 2017), is eligible to participate in the annual MIP with an award opportunity of up to 45% of his base salary and is eligible to participate in our Management Equity Program.
Under the Miñarro Viseras Employment Agreement, Mr. Miñarro Viseras received a lump sum cash signing bonus of $470,263 (which amount was paid to Mr. Miñarro Viseras in Euros and has been converted to U.S. dollars at an exchange rate of 1.1065, which is the average monthly translation rate for 2016) in August 2016. Such bonus was subject to a repayment obligation upon certain terminations of Mr. Miñarro Viseras’s employment.
Under the Miñarro Viseras Employment Agreement, Mr. Miñarro Viseras is eligible for relocation benefits, use of a company car, and international school assistance for his children in the amount of $54,002 (converted from Euros to U.S. dollars at an exchange rate of 1.20048, which was the end of month translation rate, December 2017) for the first year of his employment and for $42,039 (converted from Euros to U.S. dollars at an exchange rate of 1.20048, which was the end of month translation rate, December 2017) for each year thereafter. Such relocation benefits are subject to a repayment obligation if Mr. Miñarro Viseras is terminated within 24 months by the Company for cause or by Mr. Miñarro Viseras without good reason.
Under the Miñarro Viseras Employment Agreement, Mr. Miñarro Viseras is also covered under the standard group accident insurance of the Company.
The Miñarro Viseras Employment Agreement provides for a mutual three-month advance notice period for a termination of employment not for cause or without good reason, during which Mr. Miñarro Viseras may be released from his work duties but will still be entitled to remuneration.
Under the terms of the Miñarro Viseras Employment Agreement, Mr. Miñarro Viseras is subject to certain restrictive covenants, including a perpetual confidentiality covenant, violation of which will constitute “cause” under such agreement, and a noncompetition covenant for the duration of the employment relationship. Mr. Miñarro Viseras may be required to pay certain contractual penalties for each breach of either restrictive covenant.
We also entered into an offer letter with Mr. Miñarro Viseras, dated March 16, 2016 (the “Miñarro Viseras Offer Letter”). The terms of the Miñarro Viseras Offer Letter are generally identical to those of the Miñarro Viseras Employment Agreement except that it does not contain any restrictive covenants, nor does it provide for a mutual three-month advance notice period for a termination of employment not for cause or without good reason. In addition, the Miñarro Viseras Offer Letter provided that Mr. Miñarro Viseras was eligible to receive a grant of 136,074 stock options under our Long-Term Incentive Plan, which he received in May 2016. The Miñarro Viseras Offer Letter also provided that Mr. Miñarro Viseras was expected to invest a minimum of $60,000, and he was given the opportunity to invest significantly more, into our common stock, subject to satisfaction of applicable securities law requirements.
Terms of Equity Awards
Long-Term Incentive Plan Grants
Time Option Vesting Schedule. We granted Time Options in May 2016 to Messrs. Reynal, Herndon, Snyder and Miñarro Viseras and in December 2016 to Messrs. Herndon and Snyder. The Time Options granted to Messrs. Reynal, Herndon and Snyder in May 2016 vest and become exercisable over time with respect to 33.3% of such Time Options on December 31st of each of 2016, 2017 and 2018, subject to continued employment through the applicable vesting date. The Time Options granted in May 2016 to Mr. Miñarro Viseras and December 2016 to Messrs. Herndon and Snyder vest and become exercisable over time with respect to 20% or such Time Options on December 31st of each of 2016, 2017, 2018, 2019 and 2020, subject to continued employment through the applicable vesting date.
In addition, we granted Time Options to Mr. Schiesl in 2014, and to Mr. Reynal in 2015. The Time Options granted to Mr. Schiesl in 2014 vest and become exercisable over time with respect to 20% of such Time Options on December 31st of each of 2014, 2015, 2016, 2017 and 2018, subject to continued employment through the applicable vesting date. The Time Options granted to Mr. Reynal in 2015 vest and become exercisable over time with respect to 33.3% of such Time Options on December 31st of each of 2016, 2017 and 2018, subject to continued employment through the applicable vesting date.
Performance Option Vesting Schedule. We granted Performance Options in May 2016 to Messrs. Reynal, Herndon, Snyder and Miñarro Viseras and in December 2016 to Messrs. Herndon and Snyder. The Performance Options granted in May 2016 to Messrs. Reynal, Herndon and Snyder are eligible to vest and become exercisable with respect to up to 33.3% of such Performance Options on December 31st of each of 2016, 2017 and 2018 and the Performance Options granted in May 2016 and December 2016 to Mr. Miñarro Viseras and Messrs. Herndon and Snyder, respectively, are eligible to vest and become exercisable with respect to up to 20% of such Performance Options on December 31st of each of 2016, 2017, 2018, 2019 and 2020, subject to continued employment through the applicable vesting date, if and only to the extent that the Company achieves the annual adjusted EBITDA performance targets set by the Compensation Committee, where “adjusted EBITDA” refers to earnings before interest, taxes, depreciation and amortization plus transaction, management and/or similar fees paid to KKR and/or its affiliates; provided that the Board may, following consultation with the CEO, adjust the calculation of adjusted EBITDA to reflect, to the extent not contemplated in the management plan, any extraordinary or one-time events, including, without limitation, acquisitions, divestitures, major capital investment programs, changes in accounting standards, stock expense related to the issuance of stock options, or other extraordinary or unusual events or occurrences, or any costs or expenses incurred during such period relating to environmental remediation, litigation or other disputes in respect of events and exposures that occurred prior to the end of the relevant fiscal year.
We also granted Performance Options to Mr. Schiesl in 2014, and to Mr. Reynal in 2015. The Performance Options granted to Mr. Schiesl in 2014 were eligible to vest and become exercisable with respect to up to 20% of such Performance Options on December 31st of each of 2014, 2015, 2016, 2017 and 2018, subject to continued employment through the applicable vesting date, if and only to the extent that the Company achieves the annual adjusted EBITDA performance targets set by the Compensation Committee. The Performance Options granted to Mr. Reynal in 2015 were eligible to vest and become exercisable with respect to up to 33.3% of such Performance Options on December 31st of each of 2016, 2017 and 2018, subject to continued employment through the applicable vesting date, if and only to the extent that the Company achieves the annual adjusted EBITDA performance targets set by the Compensation Committee.
The fiscal 2017 adjusted EBITDA performance target for purposes of determining vesting of Performance Options was $470 million and our actual adjusted EBITDA performance for fiscal 2017 was $561.5 million. Therefore, 33.3% of the Performance Options granted in May 2016 to Messrs. Reynal, Herndon and Snyder and to Mr. Reynal in 2015 and 20% of the Performance Options granted in May 2016 to Mr. Miñarro Viseras, in December 2016 to Messrs. Herndon and Snyder and to Mr. Schiesl in 2014 vested on December 31, 2017.
If the Company does not achieve the adjusted EBITDA performance target in 2018, but the Company’s adjusted EBITDA in respect of fiscal year 2018 equals or exceeds the adjusted EBITDA performance threshold set by the Compensation Committee for fiscal year 2018 then one-quarter (1/4) of the Performance Options granted in 2016 to our NEOs in other than Mr. Miñarro Viseras eligible to vest on December 31st of such year shall vest on December 31st of such year and with respect to the remaining three-quarters (3/4) of the Performance Options eligible to vest on December 31st of such year, one-half (1/2) of such Performance Options shall vest on December 31, 2019 if the Company’s adjusted EBITDA in respect of fiscal year 2019 equals or exceeds the adjusted EBITDA target set by the Compensation Committee for fiscal year 2019 and one-half (1/2) of such Performance Options shall vest on December 31, 2020 if the Company’s adjusted EBITDA in respect of fiscal year 2020 equals or exceeds the adjusted EBITDA target set by the Compensation Committee for fiscal year 2020.
At the end of the yearly measurement period with respect to any award of Performance Options, any then outstanding Performance Options that were not vested and exercisable in any previous year in accordance with their terms shall become vested and exercisable to the extent that the cumulative performance objectives have been satisfied in respect of the applicable performance period.
We believe that the adjusted EBITDA performance targets in all periods provide reasonably achievable, but challenging goals for our NEOs and other Long-Term Incentive Program participants and are intended to incentivize all participants to maximize their performance for the long-term benefit of our stockholders.
Effect of Change in Control on Vesting of Options. Notwithstanding the foregoing, immediately prior to any Change in Control (as defined below), any unvested portion of the Time Options shall vest and become immediately exercisable as to 100% of such Time Options. In addition, immediately prior to any Change in Control, the Performance Options shall vest and become immediately exercisable as to 100% of such Performance Options but only if, and to the extent that, as of such Change in Control, KKR achieves (x) a Sponsor IRR (as defined below) of 22.5% and (y) a Sponsor MOIC (as defined below) of 2.5x. No option will become exercisable as to any additional shares of the Company’s common stock following the termination of employment of an NEO for any reason and any option that is unexercisable as of the NEO’s termination of employment will immediately expire without payment.
“Sponsor IRR” means, as of a Change in Control, the cumulative internal rate of return of KKR, excluding any fees paid to KKR or expenses reimbursed to KKR from time to time (“Sponsor Fees”), on KKR’s aggregate investment in the Company determined on a fully diluted basis, assuming inclusion of all shares of the Company’s common stock underlying all then outstanding Time Options and Performance Options.
“Sponsor MOIC” means, as of a Change in Control, the result obtained by dividing (i) the cash consideration received by KKR (other than any Sponsor Fees) as of the Change in Control by (ii) the aggregate amount of cash invested in (and the initial gross asset value of any property (other than money) contributed to) the Company by KKR, directly or indirectly, from time to time in respect of such investment.
A “Change in Control” means, (i) in one or a series of related transactions, the sale of all or substantially all of the assets of the Company to any person (or group of persons acting in concert), other than to (x) KKR or one or more of its controlled affiliates or (y) any employee benefit plan (or trust forming a part thereof) maintained by the Company or its controlled affiliates; or (ii) a merger, recapitalization, or other sale by the Company, KKR, or any of their respective affiliates, to a person (or group of persons acting in concert) of the Company’s common stock that results in more than 50% of the common stock of the Company (or any resulting company after a merger) being held by a person (or group of persons acting in concert) that does not include (x) KKR or its affiliates or (y) an employee benefit plan (or trust forming a part thereof) maintained by the Company or its controlled affiliates; and in any event of clause (i) or (ii), which results in KKR and its controlled affiliates or such employee benefit plan ceasing to hold the ability to elect a majority of the members of the Company’s board of directors.
Expiration of Vested Options. Except as provided in the Management Stockholder’s Agreement described below under “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2017,” all vested options will expire upon the earliest to occur of the following events: (1) the tenth anniversary of the date such options were granted, so long as the NEO remains employed with the Company through such date; (2) the first anniversary of the termination of the NEO’s employment with the Company because of death or Disability (as defined in the option award agreement); (3) one hundred eighty (180) days after the termination of the NEO’s employment with the Company without Cause (as defined in the option award agreement) (except due to death or Disability) or the NEO’s resignation for Good Reason (as defined in the option award agreement); (4) the date the NEO’s employment is terminated by the Company for Cause; or (5) thirty (30) days after the NEO’s employment is terminated by the NEO without Good Reason. In addition, at the discretion of the Company, options may be cancelled at the effective date of a merger, consolidation, or other transaction or capital change of the Company, in accordance with the terms of the 2013 Stock Incentive Plan, in exchange for a payment (payable in cash or other consideration depending on the terms of the transaction) per share equal to the excess, if any, of (x) the per share consideration paid to stockholders of the Company in the transaction over (y) the exercise price of the option.
General Provisions for Options and Shares under the Management Stockholder’s Agreement
In connection with their initial equity awards, each of our NEOs became party to a Management Stockholder’s Agreement.
Under the Management Stockholder’s Agreement, shares of our common stock beneficially owned by our NEOs are generally nontransferable prior to the earlier of (i) a Change in Control or (ii) the fifth anniversary of the effective date of the applicable Management Stockholder’s Agreement.
Our NEOs have limited “piggyback” registration rights with respect to shares of our common stock, provided that in lieu of piggyback rights where such rights would otherwise be available, our board of directors, in its sole discretion, may elect to waive the transfer restrictions (other than any such restrictions contained in an underwriters’ lock-up or in connection with a public offering) on the number of shares of Common Stock that would have been subject to such piggyback rights
Pursuant to the terms of the Management Stockholder’s Agreement, the NEOs are subject to covenants not to (1) disclose confidential information, (2) solicit customers and certain employees, consultants and independent contractors of the Company, (3) compete with the Company and (4) disparage the Company.
Outstanding Equity Awards at 2017 Fiscal Year End
| | Option Awards | Name | | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable(1) | | | Number of Securities Underlying Unexercised Options (#) Unexercisable(2) | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)(3) | | | | | | Vicente Reynal | | 5/10/2015 | | | 438,487 | | | | 109,622 | | | | | | | 10.61 | | 5/10/2025 | | | 5/10/2015 | | | 219,244 | | | | | | | | 109,622 | | | | 10.61 | | 5/10/2025 | | | 5/10/2016 | | | 195,135 | | | | 97,568 | | | | | | | | 10.61 | | 5/10/2026 | | | 5/10/2016 | | | 195,134 | | | | | | | | 97,567 | | | | 10.61 | | 5/10/2026 | Philip T. Herndon | | 5/10/2016 | | | 156,108 | | | | 78,054 | | | | | | | | 10.61 | | 5/10/2026 | | | 5/10/2016 | | | 156,108 | | | | | | | | 78,054 | | | | 10.61 | | 5/10/2026 | | | 12/9/2016 | | | 28,261 | | | | 42,392 | | | | | | | | 11.43 | | 12/9/2026 | | | 12/9/2016 | | | 28,261 | | | | | | | | 42,392 | | | | 11.43 | | 12/9/2026 | Andrew Schiesl | | 3/7/2014 | | | 157,789 | | | | 39,447 | | | | | | | | 8.16 | | 3/7/2024 | | | 3/7/2014 | | | 157,789 | | | | | | | | 39,447 | | | | 8.16 | | 3/7/2024 | | | 3/7/2014 | | | 36,739 | | | | - | | | | | | | | 8.16 | | 3/7/2024 | Neil Snyder | | 5/10/2016 | | | 87,810 | | | | 43,905 | | | | | | | | 10.61 | | 5/10/2026 | | | 5/10/2016 | | | 87,810 | | | | | | | | 43,905 | | | | 10.61 | | 5/10/2026 | | | 12/1/2016 | | | 9,420 | | | | 14,131 | | | | | | | | 11.43 | | 12/1/2026 | | | 12/1/2016 | | | 9,421 | | | | | | | | 14,131 | | | | 11.43 | | 12/1/2026 | Enrique Miñarro Viseras | | 5/10/2016 | | | 27,215 | | | | 40,823 | | | | | | | | 10.61 | | 5/10/2026 | | | 5/10/2016 | | | 27,214 | | | | | | | | 40,822 | | | | 10.61 | | 5/10/2026 |
| (1) | Reflects vested and exercisable Time Options, Performance Options and, in the case of Mr. Schiesl, Investment Options. 25% of the Time Options granted on 12/18/2013 and 3/7/2014 shown in this column vested on each of December 31, 2014, 2015, 2016 and 2017. 33.3% of the Time Options granted on 5/10/2015 shown in this column vested on each of December 31, 2015, 2016 and 2017. 50% of the Time Options granted on 5/10/2016, 12/9/2016 and 12/1/2017 shown in this column vested on each of December 31, 2016 and 2017. 25% of the Performance Options granted on 12/18/2013 and 3/7/2014 shown in this column vested on each of December 31, 2014, 2015 and 2016. 50% of the Performance Options granted on 5/10/2016, 12/9/2016 and 12/1/2016 shown in this column vested on each of December 31, 2016 and 2017. |
| (2) | Reflects unvested Time Options. The unvested Time Options granted on each of December 18, 2013, March 7, 2014, May 10, 2015 and May 10, 2016 shown in this column (other than those granted to Mr. Miñarro Viseras on May 10, 2016) will vest and become exercisable on December 31, 2018, subject to the NEO’s continued employment through such date. The unvested Time Options granted to Mr. Herndon on December 9, 2016, to Mr. Snyder on December 1, 2016 and to Mr. Miñarro Viseras on May 10, 2016 shown in this column will vest and become exercisable with respect to 33.3% of such Time Options on December 31st of each of 2018, 2019 and 2020, subject to the NEO’s continued employment through such date. |
| (3) | Reflects unvested Performance Options. As described in further detail under “Compensation Discussion and Analysis-Executive Compensation Program Elements-Long-Term Equity Incentive Awards,” the unvested Performance Options shown in this column will vest and become exercisable with respect to such Performance Options granted to Messrs. Reynal, Herndon and Snyder on May 10, 2016, to Mr. Schiesl on March 7, 2014 and to Mr. Reynal on March 10, 2015 on December 31, 2018, and with respect to 33.3% of such Performance Options granted to Mr. Herndon on December 9, 2016, Mr. Snyder on December 1, 2016 and Mr. Miñarro Viseras on May 10, 2016 on December 31st of each of 2018, 2019 and 2020, subject to the NEO’s continued employment through such date and our achievement of the relevant adjusted EBITDA target, or in full upon a Change in Control if we have achieved the Sponsor IRR and Sponsor MOIC targets at such time. The Performance Options eligible to vest on December 31st of 2018 (other than those granted to Mr. Miñarro Viseras) will vest and become exercisable with respect to 1/4 of such Performance Options on such date, subject to the NEO’s continued employment through such dates and our achievement of the relevant threshold adjusted EBITDA performance, and with respect to 3/8 of such Performance options on each of December 31st 2019 and 2020, subject to the NEO’s continued employment through such dates and our achievement of the relevant threshold adjusted EBITDA targets. At the end of the yearly measurement period with respect to any award of Performance Options, any then outstanding Performance Options that were not vested and exercisable in any previous year in accordance with their terms shall become vested and exercisable to the extent that the cumulative performance objectives have been satisfied in respect of the applicable performance period. We achieved the fiscal 2017 adjusted EBITDA target; accordingly the amounts reflected in the table reflect target performance. |
Option Exercises and Stock Vested in 2017
During 2017, none of our NEOs exercised options or had any shares of stock or restricted stock or restricted stock units or similar instruments vest.
Pension Benefits - Fiscal 2017
During 2017, no NEOs participated in either a tax-qualified or non-qualified defined benefit plan sponsored by the Company.
Non-Qualified Deferred Compensation - Fiscal 2017
Name | | Executive Contributions in Last FY ($)(1) | | | Registrant Contributions in Last FY ($)(2) | | | Aggregate Earnings in Last FY ($)(3) | | | Aggregate Withdrawals/ Distributions ($) | | | Aggregate Balance at Last FYE ($)(4) | | Vicente Reynal | | | 888,016 | | | | 161,300 | | | | 140,712 | | | | ― | | | | 1,499,684 | | Philip T. Herndon | | | ― | | | | ― | | | | ― | | | | ― | | | | ― | | Andrew Schiesl | | | 57,081 | | | | 57,081 | | | | 37,994 | | | | ― | | | | 301,805 | | Neil Snyder | | | ― | | | | ― | | | | ― | | | | ― | | | | ― | | Enrique Miñarro Viseras | | | ― | | | | ― | | | | ― | | | | ― | | | | ― | |
| (1) | The amounts in this column are reported as compensation for fiscal 2017 in the “Base Salary” and “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table. |
| (2) | Represents the amount of the matching contribution made by us in accordance with our Excess Contribution Plan. Matching contributions are reported for the year in which the compensation against which the applicable deferral election is applied has been earned (regardless of whether such matching contribution is actually credited to the NEO’s non-qualified deferred compensation account in that year or the following year). The amounts in this column are reported as compensation for fiscal 2017 in the “All Other Compensation” column of the Summary Compensation Table. |
| (3) | Amounts in this column are not reported as compensation for fiscal 2017 in the Summary Compensation Table since they do not reflect above-market or preferential earnings. |
| (4) | Of the amounts reported in this column, $759,750 represents a portion of the compensation for 2016 reported in the “Base Salary” and “Non-Equity Incentive Plan Compensation” columns and $81,750 represents a portion of the compensation for 2016 reported in the “All Other Compensation” column of the Summary Compensation Table for Mr. Reynal and $32,768 represents a portion of the compensation for 2016 reported in the “Base Salary” and “Non-Equity Incentive Plan Compensation” columns and $32,768 represents a portion of the compensation for 2016 reported in the “All Other Compensation” column of the Summary Compensation Table for Mr. Schiesl. |
Non-qualified Deferred Compensation Plan
In addition to the 401(k) plan, U.S. employees with a salary grade of 20 or higher (generally senior managers and above) are eligible to participate in the Excess Contribution Plan. Once a participant in the Excess Contribution Plan reaches the IRS annual limits for the 401(k) plan, contributions will be made to the Excess Contribution Plan based on the deferral percentage under the 401(k) plan. Such deferral percentage is selected at the time of enrollment in the Excess Contribution Plan or once per year in December for the following year. A separate election to defer from the annual MIP awards is made in December for the MIP award earned the following year and payable in the year thereafter. The Company matches each participant’s contributions with Company matching contributions. The Company match consists of $1 for each $1 contributed by a participant, up to the first 6% of a participant’s annual compensation. The Company match is credited in the form of cash.
Historically, the NEOs were also credited with a nonelective Company contribution of 12% of recognized compensation in excess of the IRS annual limit. The Company nonelective contributions were also contributed in cash and became fully vested after three years of employment. We discontinued the nonelective Company contributions in 2014.
Mr. Schiesl is fully vested in the nonelective Company contribution portion of the Excess Contribution Plan, and Messrs. Reynal and Herndon joined the Company after the nonelective contribution had been discontinued.
Participants in the Excess Contribution Plan may elect to receive distributions in either (x) a lump sum to be paid on the March 1 of the calendar year following the year of separation from the Company or (y) in a lump sum to be paid within 90 days after separation from service, subject to the terms and conditions of the Excess Contribution Plan. Loans and in-service withdrawals are not permitted under the Excess Contribution Plan.
The investment options available to the named executive officers under the Excess Contribution Plan are virtually the same as those offered to all of the participants in the 401(k) plan. Because some investment options available under the 401(k) plan are not available for the nonqualified plan, the Company has made similar investment options available to the nonqualified plan participants. The table below shows the funds available under the Excess Contribution Plan and their annual rate of return for the calendar year ended December 31, 2017, as reported by the administrator of the 401(k) plan.
Name of Investment Fund | | | | | | JPMorgan SmartRetirement Income R5 | | JSIIX | | | 11.11 | % | JPMorgan SmartRetirement 2020 R5 | | JTTIX | | | 13.96 | % | JPMorgan SmartRetirement 2025 R5 | | JNSIX | | | 16.32 | % | JPMorgan SmartRetirement 2030 R5 | | JSMIX | | | 18.99 | % | JPMorgan SmartRetirement 2035 R5 | | SRJIX | | | 20.42 | % | JPMorgan SmartRetirement 2040 R5 | | SMTIX | | | 21.83 | % | JPMorgan SmartRetirement 2045 R5 | | JSAIX | | | 22.05 | % | JPMorgan SmartRetirement 2050 R5 | | JTSIX | | | 22.08 | % | JPMorgan SmartRetirement 2055 R5 | | JFFIX | | | 22.01 | % | American Funds EuroPacific Gr R6 | | RERGX | | | 31.17 | % | MFS International New Discovery R6 | | MIDLX | | | 32.16 | % | American Century Small Cap Value Inv | | ASVIX | | | 10.26 | % | Vanguard Small Cap Growth Index Instl | | VSGIX | | | 21.94 | % | Artisan Mid Cap Institutional | | APHMX | | | 20.75 | % | Dreyfus Mid Cap Index Fund | | PESPX | | | 15.68 | % | American Funds Growth Fund of Amer R6 | | RGAGX | | | 26.53 | % | Dodge & Cox Stock Fund | | DODGX | | | 18.33 | % | JPMorgan Equity Index I | | HLEIX | | | 21.61 | % | JPMorgan Core Bond R6 | | JCBUX | | | 3.87 | % | Vanguard Federal Money Market Inv | | VMFXX | | | 0.81 | % |
Potential Payments to Named Executive Officers upon Termination of Employment or Change in Control
The following table describes the potential payments and benefits that would have been payable to our NEOs under existing plans and arrangements assuming a qualifying termination if a termination or change in control occurred on December 29, 2017, the last business day of our 2017 fiscal year. A description of the provisions governing such payments under our agreements and any material conditions or obligations applicable to the receipt of payments is described below under “Severance Arrangements and Restrictive Covenants.”
The amounts shown in the table do not include payments and benefits to the extent they are provided generally to all salaried employees upon termination of employment and do not discriminate in scope, terms or operation in favor of the NEOs. These include accrued but unpaid salary and distributions of plan balances under our 401(k) savings plan.
Name | | Cash Severance Payment ($)(1) | | | Continuation of Group Health Coverage ($)(2) | | | Accrued but Unused Vacation ($)(3) | | | Value of Time Option and Performance Option Acceleration ($)(4) | | | | | Vicente Reynal | | | | | | | | | | | | | | | | Qualifying Termination | | | 1,644,000 | | | | 20,052 | | | | ― | | | | ― | | | | 1,664,052 | | Change in Control | | | ― | | | | ― | | | | ― | | | | 9,663,318 | | | | 9,663,318 | | Philip T. Herndon | | | | | | | | | | | | | | | | | | | | | Qualifying Termination | | | 409,000 | | | | 20,052 | | | | ― | | | | ― | | | | 429,052 | | Change in Control | | | ― | | | | ― | | | | ― | | | | 5,548,079 | | | | 5,548,079 | | Andrew Schiesl | | | | | | | | | | | | | | | | | | | | | Qualifying Termination | | | 827,875 | | | | 20,052 | | | | ― | | | | ― | | | | 847,927 | | Change in Control | | | ― | | | | ― | | | | | | | | 2,033,098 | | | | 2,033,098 | | Neil Snyder | | | | | | | | | | | | | | | | | | | | | Qualifying Termination | | | 172,500 | | | | 10,026 | | | | ― | | | | ― | | | | 186,526 | | Change in Control | | | ― | | | | ― | | | | | | | | 2,683,624 | | | | 2,683,624 | | Enrique Miñarro Viseras | | | | | | | | | | | | | | | | | | | | | Qualifying Termination | | | ― | | | | ― | | | | ― | | | | ― | | | | ― | | Change in Control | | | ― | | | | ― | | | | ― | | | | 1,903,961 | | | | 1,903,961 | |
(1) | Cash severance payment includes the following: |
Mr. Reynal - continued payment in substantially equal monthly installments over a 12-month period of the sum of (x) his annual base salary and (y) his annual incentive award under the MIP earned in fiscal 2016.
Mr. Herndon - continued payment in substantially equal monthly installments over a 12-month period of his annual base salary.
Mr. Schiesl - continued payment in substantially equal monthly installments over a 12-month period of the sum of (x) his annual base salary and (y) his annual incentive award under the MIP earned in fiscal 2016.
Mr. Snyder - continued payment in substantially equal monthly installments over a 6-month period of the sum of his annual base salary earned in fiscal 2016.
(2) | With respect to Messrs. Reynal, Herndon and Schiesl, reflects the cost of providing continued group health coverage (on the same basis as actively employed employees of the Company), subject to the executive’s electing to receive benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), for a period of 12 months, assuming 2017 rates. With respect to Mr. Snyder, reflects the cost of providing continued group health coverage (on the same basis as actively employed employees of the Company), subject to the executive’s electing to receive benefits under COBRA, for a period of 6 months, assuming 2017 rates. |
(3) | Amounts reported in this column reflect zero accrued but unused vacation days for each of our NEOs. |
(4) | Immediately prior to a Change in Control, all of our NEOs’ unvested Time Options would vest and become immediately exercisable. In addition, immediately prior to a Change in Control, all of our NEOs’ Performance Options would vest and become immediately exercisable but only if, and to the extent that, KKR achieves (x) a Sponsor IRR of 22.5% and (y) a Sponsor MOIC of 2.5. See “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards―Terms of Equity Awards.” The amount reported in the table assumes that our Sponsor achieves the required Sponsor IRR and Sponsor MOIC.
|
Severance Arrangements and Restrictive Covenants
We entered into offer letters with each of our NEOs, other than Mr. Miñarro Viseras, that contain severance terms. In 2017, Mr. Miñarro Viseras was not eligible for any severance pay and benefits not provided generally to all salaried employees upon termination of employment, however his employment agreement requires that we provide three months’ notice in the event of his termination, with the option to terminate him immediately with a lump sum payment of three months’ salary. As discussed above under “Compensation Discussion and Analysis―Compensation Actions Taken in 2018,” in February 2018, we approved an increase to Mr. Miñarro Viseras’s termination benefits.
Messrs. Reynal and Schiesl
Under the terms of their offer letters, if the Company terminates either of Messrs. Reynal’s or Schiesl’s employment without Cause (as defined below) or either of Messrs. Reynal or Schiesl terminates his employment with us for Good Reason (as defined below), subject in Mr. Reynal’s case to his continued compliance with the restrictive covenants in his management equity agreements, in Mr. Schiesl’s case to certain provisions in the Severance Plan, and in either case to the NEO’s execution of a customary waiver and release agreement, he will be entitled to receive:
Continued payment over a 12-month period (the “Severance Period”) of the sum of (x) his annual base salary and (y) the annual incentive award under the MIP, if any, earned in respect of our fiscal year preceding the fiscal year in which the termination date occurs, payable in substantially equal monthly installments over the Severance Period; and
Continued group health coverage (on the same basis as actively employed employees of the Company), subject to the NEO’s electing to receive benefits under COBRA, for 12 months following the date his employment terminates (or, if earlier, through the date the NEO becomes employed by another employer and eligible for health insurance coverage at such employer).
Mr. Herndon
Under the terms of Mr. Herndon’s offer letter, if the Company terminates Mr. Herndon’s employment without Cause or if Mr. Herndon terminates his employment with us for Good Reason, subject to Mr. Herndon’s continued compliance with the restrictive covenants in his management equity agreements and his execution of a customary waiver and release agreement, he will be entitled to receive:
Continued payment over a 12-month period (the “Severance Period”) of his annual base salary, payable in substantially equal monthly installments over the Severance Period; and
Continued group health coverage (on the same basis as actively employed employees of the Company), subject to his electing to receive benefits under COBRA, for 12 months following the date his employment terminates (or, if earlier, through the date that he becomes employed by another employer and eligible for health insurance coverage at such employer).
Mr. Snyder
Under the terms of Mr. Snyder’s offer letter, if the Company terminates Mr. Snyder’s employment without Cause or if Mr. Snyder terminates his employment with us for Good Reason, subject to Mr. Snyder’s continued compliance with the restrictive covenants in his management equity agreements and his execution of a customary waiver and release agreement, he will be entitled to receive:
Continued payment over a 6-month period (the “Severance Period”) of his annual base salary earned in respect of our fiscal year preceding the fiscal year in which the termination date occurs, payable in substantially equal monthly installments over the Severance Period; and
Continued group health coverage (on the same basis as actively employed employees of the Company), subject to his electing to receive benefits under COBRA, for 6 months following the date his employment terminates (or, if earlier, through the date that he becomes employed by another employer and eligible for health insurance coverage at such employer).
As described above under “Compensation Discussion and Analysis―Compensation Actions Taken in 2018,” in February 2018, we approved an increase to Mr. Snyder’s termination benefits.
In addition to the payments described above, each of our NEOs is entitled to receive a distribution of all vested amounts under our Excess Contribution Plan. See “―Non-Qualified Deferred Compensation ― Fiscal 2017.”
For purposes of each of the severance arrangements described above:
“Cause” means the occurrence of any of the following with respect to an NEO: (1) a material breach by the NEO of the terms of the Company’s policies, the terms of which have previously been provided to such NEO; (2) any act of theft, misappropriation, embezzlement, fraud or similar conduct by the NEO involving the Company or any of its affiliates; (3) the NEO’s failure to act in accordance with any specific lawful instructions given to the NEO by the board of directors (or any committee thereof) in connection with the performance of the NEO’s duties for the Company or any subsidiary of the Company, which continues beyond ten (10) business days after a written demand for substantial performance is delivered to the NEO by the Company (the “Cure Period”); (4) any damage of a material nature to the business or property of the Company or any affiliate caused by NEO’s willful or grossly negligent conduct which continues beyond the Cure Period (to the extent that, in the board of directors’ reasonable judgment, such breach can be cured); (5) any intentional misconduct by the NEO which is reasonably likely to be materially damaging to the Company without a reasonable good faith belief by the NEO that such conduct was in the best interests of the Company; (6) the conviction or the plea of nolo contendere or the equivalent in respect of any felony or a misdemeanor involving an act of dishonesty, moral turpitude, deceit, or fraud by the NEO; or (7) a knowing and material breach of any written agreement with the Company to which the NEO is a party, which continues beyond the Cure Period (to the extent that, in the board of directors’ reasonable judgment, such breach can be cured). A termination for Cause shall be effective when the Company has given the NEO written notice of its intention to terminate for Cause, describing those acts or omissions that are believed to constitute Cause, and has given the NEO the Cure Period within which to respond.
“Good Reason” means any of the following actions if taken without an NEO’s prior written consent (which will be deemed to have been given if the NEO does not provide written notification of an event described in clauses (1) and (2) within 90 days after the NEO knows or has reason to know of the occurrence of any such event): (1) a material adverse change in the NEO’s position causing it to be of materially less stature, responsibility, or authority or the assignment to the NEO of any material duties inconsistent with the customary duties of the NEO’s position, in each case without the NEO’s written consent (provided that if, after an initial public offering of equity securities of the Company, at a later date the Company or its successor entity ceases to be a publicly traded entity, such fact shall not constitute a change in the NEO’s existing position); (2) the relocation of the offices at which the NEO is principally employed to a location which is more than 50 miles from the offices at which the NEO is principally employed immediately prior to such relocation; or (3) a reduction, without the NEO’s written consent, in the NEO’s base salary or the target bonus amount the NEO is eligible to earn under the MIP; provided, however, that nothing herein shall be construed to guarantee the NEO’s MIP award payable for any fiscal year if the applicable performance targets are not met; and provided, further, that it shall not constitute Good Reason if the Company makes an appropriate pro rata adjustment to the applicable amount payable and targets under the MIP in the event of a change in the fiscal year.
Notwithstanding the foregoing, any event described in clauses (1) or (2) above must be an event that would result in a material negative change in the Executive’s employment relationship with the Company and thus effectively constitute an involuntary termination of employment for purposes of Section 409A of the Code.
Director Compensation in Fiscal 2017
Name | | Fees Earned or Paid In Cash ($) | | | | | | | | Brandon F. Brahm | | | ― | | | | ― | | | | ― | | William P. Donnelly(2) | | | 75,000 | | | | 400,000 | | | | 475,000 | | John Humphrey(3) | | | ― | | | | ― | | | | ― | | William E. Kassling | | | 75,000 | | | | | (2) | | | 75,000 | | Michael V. Marn | | | 75,000 | | | | | (2) | | | 75,000 | | Peter M. Stavros | | | ― | | | | ― | | | | ― | | Nickolas Vande Steeg | | | 75,000 | | | | | (2) | | | 75,000 | | Pastor Velasco(4) | | | 75,000 | | | | 422,519 | (2) | | | 497,519 | | Joshua T. Weisenbeck | | | ― | | | | ― | | | | ― | |
| (1) | Represents, as to Mr. Donnelly, the aggregate grant date fair value of option awards granted during 2017 computed in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 and, as to Mr. Velasco, the incremental fair value, computed as of the modification date, in connection with the modification of his outstanding option award. In May 2017, we granted 44,799 time-vesting options to Mr. Donnelly (the “Donnelly Time Options”). Of the Donnelly Time Options, 22,399 are fully vested and exercisable. The remaining 22,400 Donnelly Time Options will vest and become exercisable on December 31, 2018. In October 2017, in connection with his resignation from our board, Mr. Velasco and the Company agreed that Mr. Velasco’s options would remain outstanding and eligible to vest as if he had continued to provide services to the Company through each applicable vesting date. |
In December 2013, we granted 57,534 time-vesting options (the “Director Time Options”) to purchase shares of our common stock at an exercise price of $8.16 per share to each non-employee director who was not associated with our Sponsor: Messrs. Kassling, Marn, Vande Steeg and Velasco. Of the Director Time Options, 46,026 are fully vested and exercisable. The remaining 11,507 Director Time Options will vest and become exercisable on December 31, 2018.
| (2) | Mr. Donnelly joined our board of directors in May 2017. |
| (3) | Mr. Humphrey joined our board of directors in February 2018. |
| (4) | Mr. Velasco resigned from our board in October 2017. In connection with his resignation, Mr. Velasco and the Company agreed that Mr. Velasco’s options would remain outstanding and eligible to vest as if he had continued to provide services to the Company through each applicable vesting date. |
Description of Director Compensation
This section contains a description of the material terms of our compensation arrangements for our non-employee directors in 2017.
Sponsor Directors
Our non-employee directors associated with KKR, including Messrs. Brahm, Stavros and Weisenbeck, received no compensation for their service on our board of directors in 2017.
Messrs. Donnelley, Kassling, Marn, Vande Steeg and Velasco
Each of Messrs. Donnelly, Kassling, Marn, Vande Steeg and Velasco was entitled to receive an annual $75,000 cash retainer for his service on the board of directors in fiscal 2017, payable quarterly in arrears and pro-rated for any portion of a calendar quarter during which he commences or terminates service as a director, as well as reimbursement of his reasonable travel and related expenses associated with attendance at board or committee meetings. In addition, Mr. Donnelly was eligible to receive an annual $25,000 cash retainer for his service as chairperson of the Audit Committee, payable in quarterly installments in arrears and pro-rated for any portion of a calendar quarter during which he commences or terminates service as chairperson of the Audit Committee. The Board of Directors also approved in 2017 an annual $25,000 cash retainer for any non-employee director not associated with KKR who serves as chairperson of the Compensation Committee, payable in quarterly installments in arrears and pro-rated for any portion of a calendar quarter during which such director commences or terminates service as chairperson of the Compensation Committee; however, Mr. Stavros, the chairperson of our Compensation Committee was ineligible to receive compensation for his service.
In connection with his election to our board of directors, Mr. Donnelly received the Donnelly Time Options, a grant of options under the 2013 Stock Incentive Plan with a fair value of $400,000 and vesting and becoming exercisable in equal parts on December 31, 2017 and December 31, 2018.
In addition, in December 2013, we granted each of Messrs. Kassling, Marn, Vande Steeg and Velasco 57,534 Director Time Options pursuant to the 2013 Stock Incentive Plan. Prior to our initial public offering, we also gave our non-employee directors not associated with our sponsor the opportunity to make investments in our common stock, subject to satisfaction of applicable securities law requirements, and each of Messrs. Marn and Vande Steeg has done so.
The Director Time Options vested and became exercisable or will vest and become exercisable with respect to 20% of such Director Time Options on December 31st of each of 2014, 2015, 2016, 2017 and 2018, subject to the director’s continued service through such date.
Vested Director Time Options and Donnelly Time Options expire upon the earliest to occur of the following events: (1) the tenth anniversary of the date such options were granted; (2) the first anniversary of the cessation of the director’s service to the Company because of death or Disability (as defined in the option award agreement); (3) one hundred eighty (180) days after the cessation of the director’s service to the Company without Cause (as defined in the option award agreement) (except due to death or Disability); (4) the date the director’s service is terminated by the Company for Cause; or (5) pursuant to the repurchase rights in the Director Stockholder’s Agreement described below. In addition, at the discretion of the Company, options may be cancelled at the effective date of a merger, consolidation, or other transaction or capital change of the Company, in accordance with the terms of the 2013 Stock Incentive Plan, in exchange for a payment (payable in cash or other consideration depending on the terms of the transaction) per share equal to the excess of (x) the per share consideration paid to stockholders of the Company in the transaction over (y) the exercise price of the option.
Except as described below with respect to Mr. Velasco’s Director Time Options, the Director Time Options and the Donnelly Time Options will not become exercisable as to any additional shares following the cessation of director’s service to the Company for any reason except in connection with a Change in Control. Notwithstanding the foregoing, immediately prior to any Change in Control (as defined in “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards in 2017― Terms of Equity Awards”), any unvested portion of the Director Time Options and Donnelly Time Options shall vest and become immediately exercisable as to 100% of such Time Options.
On October 23, 2017, in connection with his resignation from our board of directors, we agreed to allow Mr. Velasco’s unvested Director Time Options to remain outstanding and eligible to vest following Mr. Velasco’s resignation as if Mr. Velasco had continued to provide services to the Company through each applicable vesting date. The incremental fair value in connection with such modification is reflected in the “Option Awards” column of the “Director Compensation in Fiscal 2017” table above.
In connection with their option awards, each of Messrs. Donnelly, Kassling, Marn, Vande Steeg and Velasco became party to a Director Stockholder’s Agreement.
Under the Director Stockholder’s Agreement, shares of our common stock beneficially owned by our directors are generally nontransferable prior to the earlier of (i) a Change in Control or (ii) the fifth anniversary of the effective date of the applicable Director Stockholder’s Agreement.
Our directors party to a Director Stockholder’s Agreement have limited “piggyback” registration rights with respect to shares of our common stock, provided that in lieu of piggyback rights where such rights would otherwise be available, our board of directors, in its sole discretion, may elect to waive the transfer restrictions (other than any such restrictions contained in an underwriters’ lock-up or in connection with a public offering) on the number of shares of Common Stock that would have been subject to such piggyback rights.
Pursuant to the terms of the Director Stockholder’s Agreement, the directors party to such agreement are subject to covenants not to (1) disclose confidential information, (2) solicit customers and certain employees, consultants and independent contractors of the Company, (3) compete with the Company and (4) disparage the Company.
Mr. Humphrey
Mr. Humphrey, who joined our Board on February 7, 2018, will be entitled to receive the compensation described below under “Director Compensation in 2018.” However, while our directors who served prior to 2018 will not receive their first annual equity grant until 2019, Mr. Humphrey will receive in 2018 an award of restricted stock having a fair market value of $125,000 which vests on the anniversary of the grant date.
Director Compensation in 2018
Following a competitive market assessment of non-employee director compensation conducted by Pearl Meyer, the Board adopted the following director compensation program for each of our non-employee directors not associated with KKR:
| · | Cash retainer of $75,000, payable quarterly in arrears; |
| · | Additional cash retainer of $25,000 payable quarterly in arrears for serving as the chairperson of our Audit Committee or $12,500 payable quarterly in arrears for serving as the chairperson of our Compensation Committee; and |
| · | An annual equity award having a fair market value of $125,000 payable in restricted stock which vests on the anniversary of the grant date. |
Our directors will not be paid any fees for attending meetings, however, our directors will be reimbursed for reasonable travel and related expenses associated with attendance at board or committee meetings. Because each of our non-employee directors not associated with KKR other than Mr. Humphrey was granted an equity award at or before our initial public offering, such directors will not receive their first equity awards under our newly-adopted director compensation program until 2019.
Compensation Committee Interlocks and Insider Participation
During 2017, none of the members of our Compensation Committee has at any time been one of our executive officers or employees. None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee. We are parties to certain transactions with KKR described below under “Item 13. Certain Relationships and Related Transactions, and Director Independence―Transactions with Related Persons”.
ITEM 12. | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Except as set forth below, the information required by this Item will be included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders and is incorporated herein by reference. Gardner Denver Holdings, Inc.We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2017. 2022. Equity Compensation Plan Information
The following table provides information as of December 31, 20172022 about our common stock that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or directors under all of ourthe existing equity compensation plans including our 2013 Stock Incentive Plan and 2017 Omnibus Incentive Plan. All equity compensation plans are described more fully in Note 1518 “Stock-Based Compensation Plans” to the Consolidated Financial Statementsour audited consolidated financial statements included elsewhere in Item 8 of this Annual Report on Form 10-K.
| Plan Category | Number of Securities to be issued upon Exercise of Outstanding Options, Warrants And Rights (1) | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding Securities reflected in the first column) (2) | Plan Category | Number of Securities to be issued upon Exercise of Outstanding Options, Warrants And Rights(1) | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) | | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding Securities reflected in the first column)(3) | Equity compensation plans approved by securityholders | 12,134,766 | | $9.58 | | 8,897,879 | Equity compensation plans approved by securityholders | 9,395,852 | | $ | 25.41 | | | 8,482,699 |
| (1)
| Total includes 11,986,363 stock options and 148,403 share-settled stock appreciation rights under the Company's 2013 Stock Incentive Plan.
| (1)Total includes 2,410,383 stock options under the Company’s 2013 Stock Incentive Plan and 3,902,961 stock options and 3,082,508 restricted stock units under the Company’s 2017 Omnibus Incentive Plan. The restricted stock units are based on the maximum number of shares issuable under restricted stock units that are subject to performance conditions. | (2)
| These shares are available for grant as of December 31, 2017 under the Company's 2017 Omnibus Incentive Plan. This includes 8,550,000 shares initially authorized for issuance under the Company's 2017 Omnibus Incentive Plan and shares subject to awards under the Company's 2013 Stock Incentive Plan that expired or were otherwise forfeited or terminated in accordance with their terms without the delivery of shares of the Company's common stock in settlement thereof.
| (2)The weighted average exercise price relates only to stock options. The calculation of the weighted average exercise price does not include outstanding equity awards that are received or exercised for no consideration. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | (3)These shares are available for grant as of December 31, 2022 under the Company’s 2017 Omnibus Incentive Plan. This includes 8,550,000 shares initially authorized for issuance under the Company’s 2017 Omnibus Incentive Plan, 11,000,000 shares authorized for issuance under the Company’s 2017 Omnibus Incentive Plan as part of the merger with Ingersoll Rand Industrial and shares subject to awards under the Company’s 2013 Stock Incentive Plan that expired or were otherwise forfeited or terminated in accordance with their terms without the delivery of shares of the Company’s common stock in settlement thereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Except as set forth below, theThe information required by this itemItem will be included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders and is incorporated herein by reference. Gardner Denver Holdings, Inc.We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2017.2022.
ArrangementsITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be included in our definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with Our Executive Officers, Directors and Advisors
We have entered into letter agreements with certain members of management, including each of our executive officers, and our directors and certain advisors,the SEC pursuant to which such individuals agreed to invest in our stock and/or through the purchase of our shares with cash. In addition, our Board of Directors granted options to purchase shares of our common stock to certain members of management and key employees, including to our executive officers. In connection with the grants of new options described above, the participating members of our management, including our executive officers, were required to enter into a Management Stockholder’s Agreement as well as a stock option agreement, as applicable.
Below is a brief summaryRegulation 14A within 120 days of the principal terms of the Management Stockholder’s Agreements, the Director Stockholder’s Agreements and the Advisor Stockholder’s Agreements, which are qualified in their entirety by reference to the agreements themselves, forms of which are filed as exhibits to this Annual Report on Form 10-K.
Management, Director and Advisor Stockholder’s Agreements
The Management Stockholder’s Agreements impose significant restrictions on transfers of shares of our common stock. Generally, shares held by our management are nontransferable by any means at any time prior to the earlier of (i) the occurrence of a Change in Control (as defined in the Management Stockholder’s Agreements) or (ii) the later to occur of (a) the fifth anniversary of the execution of the applicable Management Stockholder’s Agreement or (b) the consummation of an Initial Public Offering (as defined in the Management Stockholder’s Agreements). These transfer restrictions are subject to certain exceptions, including transfers approved by our Board of Directors; transfers upon the death or Disability (as defined in the Management Stockholder’s Agreements) of the holder; transfers to immediate family members or estate planning vehicles, provided such transferees become party to the applicable Management Stockholder’s Agreement; or repurchases of such shares by the Company.
Additionally, management stockholders have limited “piggyback” registration rights with respect to certain registered offerings conducted by the Company. The maximum number of shares of common stock which a management stockholder may register is generally proportionate with the percentage of common stock being sold by certain affiliates of KKR (relative to their holdings thereof). The Management Stockholder’s Agreements also contain certain lock-up provisions in the event that any shares are offered to the public pursuant to an effective registration statement under the Securities Act.
The Director Stockholder’s Agreements and Advisor Stockholder’s Agreements are substantially similar to the Management Stockholder’s Agreements. In addition to certain exceptions to transfer restrictions related to piggyback rights available to Management Stockholders, the Director and Advisor Stockholder’s Agreements further provide that in lieu of piggyback registration rights in connection with a public offering in which such piggyback rights would otherwise be available, the Board of Directors may waive transfer restrictions with respect to the number of shares that would have been subject to such piggyback rights.
Arrangements with KKR
Stockholders Agreement
In connection with our initial public offering, we entered into a stockholders agreement with certain affiliates of KKR. This agreement grants affiliates of KKR the right to nominate to our Board of Directors a number of designees equal to: (i) at least a majority of the total number of directors comprising our Board of Directors at such time as long as affiliates of KKR beneficially own at least 50% of the shares of our common stock entitled to vote generally in the election of our directors; (ii) at least 40% of the total number of directors comprising our Board of Directors at such time as long as affiliates of KKR beneficially own at least 40% but less than 50% of the shares of our common stock entitled to vote generally in the election of our directors; (iii) at least 30% of the total number of directors comprising our Board of Directors at such time as long as affiliates of KKR beneficially own at least 30% but less than 40% of the shares of our common stock entitled to vote generally in the election of our directors; (iv) at least 20% of the total number of directors comprising our Board of Directors at such time as long as affiliates of KKR beneficially own at least 20% but less 30% of the shares of our common stock entitled to vote generally in the election of our directors; and (v) at least 10% of the total number of directors comprising our Board of Directors at such time as long as affiliates of KKR beneficially own at least 5% but less than 20% of the shares of our common stock entitled to vote generally in the election of our directors. For purposes of calculating the number of directors that affiliates of KKR are entitled to nominate pursuant to the formula outlined above, any fractional amounts would be rounded up to the nearest whole number and the calculation would be made on a pro forma basis, taking into account any increase in the size of our Board of Directors (e.g., one and one quarter (11/4) directors shall equate to two directors). In addition, in the event a vacancy on the Board of Directors is created by the death, disability, retirement or resignation of a Sponsor director designee, affiliates of KKR shall, to the fullest extent permitted by law, have the right to have the vacancy filled by a new Sponsor director-designee. In addition, the stockholders agreement grants to KKR special governance rights, for as long as KKR maintains ownership of at least 30% of our outstanding common stock, including rights of approval over certain corporate and other transactions such as mergers or other transactions involving a change in control and certain rights regarding the appointment of our chief executive officer.
Registration Rights Agreement
In connection with the KKR Transaction, certain affiliates of KKR entered into a registration rights agreement with us. In connection with the completion of our initial public offering, we and KKR entered into an amended and restated registration rights agreement. The amended and restated registration rights agreement grants such affiliates of KKR the right to cause us to register shares of our common stock held by it under the Securities Act and, if requested, to use our reasonable best efforts (if we are not eligible to use an automatic shelf registration statement at the time of filing) to maintain a shelf registration statement effective with respect to such shares. Certain affiliates of KKR are also entitled to participate on a pro rata basis in any registration of our common stock under the Securities Act that we may undertake. The amended and restated registration rights agreement also provides that we will pay certain expenses relating to such registrations and indemnify certain affiliates of KKR and members of management participating in any offering against certain liabilities, which may arise under the Securities Act, the Exchange Act, any state securities law or any rule or regulation thereunder applicable to us.
Monitoring Agreement
In connection with the KKR Transaction, we entered into a monitoring agreement with KKR pursuant to which KKR provided various management and advisory services to us and our direct and indirect divisions, subsidiaries, parent entities and controlled affiliates and received fees and reimbursements of related out-of-pocket expenses. We paid management fees of $17.3 million to KKR for thefiscal year ended December 31, 2017. In May 2017, the monitoring agreement was terminated in accordance with its terms and we paid a termination fee of approximately $16.2 million.2022.
Indemnification Agreement
In connection with entering into the monitoring agreement, we also entered into a separate indemnification agreement with KKR and certain of its affiliates, which provides customary exculpation and indemnification provisions in favor of KKR and such affiliates in connection with the services provided to us under the monitoring, transaction fee and syndication fee agreements.
Relationship with KKR Capstone Americas LLC
We have utilized and may continue to utilize KKR Capstone Americas LLC and/or its affiliates (“KKR Capstone”), a consulting company that works exclusively with KKR’s portfolio companies, for consulting services, and have paid to KKR Capstone related fees and expenses. KKR Capstone is not a subsidiary or affiliate of KKR. KKR Capstone operates under several consulting agreements with KKR & Co. and uses the “KKR” name under license from KKR & Co.
Relationship with KKR Credit
Since 2014, investment funds or accounts managed or advised by the global credit business of KKR (“KKR Credit”) were participating lenders under our existing credit agreements and holders of notes issued by us, and as of December 31, 2017, had received in aggregate principal payments of approximately $0.5 million and interest payments of approximately $4.0 million. As of December 31, 2017, investment funds or accounts managed or advised by KKR Credit held a position in the debt of the Company.
Financing Arrangements with Related Parties
In May 2017, KKR Capital Markets LLC, an affiliate of KKR, acted as an underwriter in connection with the initial public offering of the Company’s stock and received underwriter discounts and commissions of approximately $8.9 million. In August 2017, KKR Capital Markets LLC received $1.5 million for services rendered in connection with a debt refinancing transaction. In November 2017, KKR Capital Markets LLC acted as an underwriter in connection with an offering of Company’s stock by certain selling shareholders, and earned underwriter discounts and commissions of approximately $3.5 million.
Policies and Procedures for Related Person Transactions
Our Board of Directors has adopted a written statement of policy regarding transactions with related persons, which we refer to as our “related person transaction policy.” Our related person transaction policy requires that (a) any “related person transaction” (defined as any transaction that is anticipated would be reportable by us under Item 404(a) of Regulation S-K in which we were or are to be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest) be approved or ratified by an approving body comprised of the disinterested members of our Board of Directors or any committee of the Board of Directors (provided that a majority of the members of the Board of Directors or such committee, respectively, are disinterested) and (b) any employment relationship or transaction involving an executive officer and any related compensation be approved by the Compensation Committee of the Board of Directors or recommended by the Compensation Committee to the Board of Directors for its approval. In connection with the review and approval or ratification of a related person transaction:
| · | management must disclose to the committee or disinterested directors, as applicable, the name of the related person and the basis on which the person is a related person, the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction; |
| · | management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction complies with the terms of our agreements governing our material outstanding indebtedness that limit or restrict our ability to enter into a related person transaction; |
| · | management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction will be required to be disclosed in our applicable filings under the Securities Act or the Exchange Act, and related rules, and, to the extent required to be disclosed, management must ensure that the related person transaction is disclosed in accordance with such Acts and related rules; and |
| · | management must advise the committee or disinterested directors, as applicable, as to whether the related person transaction constitutes a “personal loan” for purposes of Section 402 of the Sarbanes-Oxley Act of 2002. |
In addition, the related person transaction policy provides that the committee or disinterested directors, as applicable, in connection with any approval or ratification of a related person transaction involving a non-employee director or director nominee, should consider whether such transaction would compromise the director or director nominee’s status as an “independent,” “outside,” or “non-employee” director, as applicable, under the rules and regulations of the SEC, the NYSE and the Internal Revenue Code.
| PRINCIPAL ACCOUNTING FEES AND SERVICES |
Audit Fees
In connection with the audit of the 2017 financial statements, we entered into an agreement with Deloitte & Touche LLP which sets forth the terms by which Deloitte & Touche LLP would perform audit services for the Company.
The following tables sets forth the aggregate fees for professional services provided by Deloitte & Touche LLP for the audit of our financial statements for the fiscal years ended December 31, 2017 and 2016 and fees billed for other services rendered by Deloitte & Touche LLP for those periods, all of which were approved by the Audit Committee.
| | For the Years Ended December 31, (in thousands) | | | | 2017 | | | 2016 | | Fees: | | | | | | | Audit fees | | $ | 2,952 | | | $ | 3,019 | | Audit Related fees(1) | | | 773 | | | | 75 | | Tax fees(2) | | | 298 | | | | 344 | | All other fees(3) | | | 298 | | | | - | | Total | | $ | 4,321 | | | $ | 3,438 | |
| (1) | Audit related fees include fees related to the Company’s public offerings, Sarbanes-Oxley readiness and a license for an accounting research tool. |
| (2) | Tax fees include fees for income tax compliance and transfer pricing services. |
| (3) | All other fees include fees related to professional services rendered in connection with the Company’s issuance of deferred stock units during 2017. |
The Audit Committee of the Board considered whether providing the non-audit services included in this table was compatible with maintaining Deloitte & Touche LLP’s independence and concluded that it was.
Consistent with SEC policies regarding auditor independence and our Audit Committee’s charter, the Audit Committee has responsibility for engaging, setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee has established procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm and pre-approves all audit and permitted non-audit services provided by any independent registered public accounting firm prior to each engagement.
PART IV
ITEM 15. | ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE |
Financial Statements, Financial Statement Schedule and Exhibits
The consolidated financial statements listed in the accompanying index to consolidated financial statements are filed as part of this Annual Report on Form 10-K.
All financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto.
The exhibits listed in the accompanying exhibit index are filed as part of this Annual Report on Form 10-K. Index to Consolidated Financial Statements
| | | | | | | | | | Consolidated Statements of Operations –- For the years ended December 31, 2017, 20162022, 2021 and 20152020 | 53 | | Consolidated Statements of Comprehensive Income (Loss) –- For the years ended December 31, 2017, 20162022, 2021 and 20152020 | 54 | | Consolidated Balance Sheets –- As of December 31, 20172022 and 20162021 | 55 | | Consolidated Statements of Stockholders’ Equity –- For the years ended December 31, 2017, 20162022, 2021 and 20152020 | 56 | | Consolidated Statements of Cash Flows –- For the years ended December 31, 2017, 20162022, 2021 and 20152020 | 57 | | Notes to Consolidated Financial Statements | 58 | | Report of Independent Registered Public Accounting Firm | 101 |
Schedule to Consolidated Financial StatementsExhibits
Schedule I – Condensed Financial Statements | | | | | | | | | Exhibit Number | | Exhibit Description | | | Agreement and Plan of Merger, dated as of April 30, 2019, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. Holdco, Inc., Gardner Denver Holdings, Inc. (Parent Company Only) | 136 |
and Charm Merger Sub Inc. (incorporated by reference to Exhibit Number | | Exhibit Description2.1 of the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019) | | | Separation and Distribution Agreement, dated as of April 30, 2019, by and between Ingersoll-Rand plc and Ingersoll-Rand U.S. HoldCo, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019) | | | Securities Purchase Agreement, dated as of April 9, 2021, by and among Ingersoll Rand Inc., Club Car, LLC and MajorDrive Holdings IV, LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 12, 2021) | | | Second Amended and Restated Certificate of Incorporation of Gardner Denver Holdings,Ingersoll Rand Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095))
| | | June 21, 2021) | | | Second Amended and Restated Bylaws of Gardner Denver Holdings,Ingersoll Rand Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) June 21, 2021) |
| | | | | | | | | | | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 filed on May 3, 2017 (File no. 333-216320)) | | | 2017) | | | Amended and Restated Registration Rights Agreement, dated asDescription of May 17, 2017, by and among KKR Renaissance Aggregator L.P.; KKR Renaissance Aggregator GP LLC; Gardner Denver Holdings,Ingersoll Rand Inc. and each of the other parties thereto’s Securities (incorporated by reference to Exhibit 4.24.3 to the Registrant’s CurrentAnnual Report on Form 8-K10-K filed on May 17, 2017 (File no. 001-38095))
| | | February 25, 2022) | | | 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Senior Secured Credit Agreement, dated as of July 30, 2013, among Renaissance Acquisition Corp., the foreign borrowers described therein, Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Amendment No. 1, dated as of March 4, 2016, to the Senior Secured Credit Agreement, dated as of March 4, 2016, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Gardner Denver, Inc., GD German Holdings II GmbH (as successor in interest to Gardner Denver Holdings GmbH & Co. KG), GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Amendment No. 2, to the Credit Agreement, dated as of August 17, 2017, to the Senior Secured Credit Agreement, among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and the other parties and lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2017 (File no. 001-38095))2017) | | | Amendment No. 3, dated as of December 13, 2018, to the Senior Secured Credit Agreement dated as of July 30, 2013, among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and the other parties and lenders part thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2018) | | | Amendment No. 4 to the Credit Agreement, dated as of June 28, 2019, among Gardner Denver Holdings, Inc., GD German Holdings II GmbH, Gardner Denver Holdings Ltd., UBS AS, Stamford Branch as the Resigning Agent, Citibank, N.A. as the Successor Agent and the lenders and other entities party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 2, 2019) | | | Amendment No. 5 to Credit Agreement and Joinder Agreement dated as of February 28, 2020, by and among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, Gardner Denver Holdings, Ltd., Citibank, N.A. as administrative agent, and the other parties and lenders party thereto (incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) | | | Joinder Agreement and Amendment No. 6 to Credit Agreement, dated as of June 29, 2020, among Ingersoll Rand Inc., Gardner Denver, Inc., Ingersoll-Rand Services Company, GD German Holdings II GmbH, Gardner Denver Holdings Ltd., Citibank, N.A., and the lenders and other parties party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 1, 2020) | | | Amendment No. 7 to Credit Agreement, dated as of December 28, 2021, by and among Gardner Denver, Inc., as U.S. Borrower, and Citibank, N.A. as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K filed on February 25, 2022) | | | Amendment No. 8 to Credit Agreement, dated as of April 1, 2022, by and among Gardner Denver, Inc., as U.S. Borrower, and Citibank, N.A. as Administrative Agent and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 6, 2022) | | | Pledge Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Renaissance Acquisition Corp., the subsidiary pledgors identified therein and UBS AG, Stamford Branch, as collateral agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) |
Exhibit Number | | Exhibit Description2017) | | | Security Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Renaissance Acquisition Corp., the subsidiary grantors identified therein and UBS AG, Stamford Branch, as collateral agent (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Guarantee Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), the subsidiary guarantors identified therein and UBS AG, Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Receivables Financing Agreement, dated as of May 17, 2016, by and among Gardner Denver Finance II LLC, Gardner Denver, Inc., as initial servicer, the various lenders and LC participants from time to time party thereto, PNC Bank, National Association, as LC bank and administrative agent, and PNC Capital Markets LLC, as structuring agent. (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
| | | | | | Monitoring Agreement, dated as of July 30, 2013, by and between Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and Kohlberg Kravis Roberts & Co. L.P. (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on April 4, 2017 (File no. 333-216320))
| | | | | | First Amendment, dated as of June 9, 2014, to the Monitoring Agreement, dated as of July 30, 2013, by and between Garner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and Kohlberg Kravis Roberts & Co. L.P. (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on April 4, 2017 (File no. 333-216320))
| | | | | | Indemnification Agreement, dated as of July 30, 2013, by and among KKR Renaissance Aggregator L.P.; KKR Renaissance Aggregator GP LLC; Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.); Gardner Denver, Inc. and Kohlberg Kravis Roberts & Co. L.P. (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
| | | | | | Transaction Fee Letter, dated as of July 30, 2013, by and between Kohlberg Kravis Roberts & Co. L.P. and Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
| | | | | | Stockholders Agreement, dated as of May 17, 2017, between Gardner Denver Holdings, Inc. and KKR Renaissance Aggregator L.P. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095))
| | | | | | Form of Management Stockholder’s Agreement (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Form of Director Stockholder’s Agreement (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Form of Advisor Stockholder’s Agreement (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) 2017) |
| | | | | | | | | | | Form of Director Stock Option Agreement under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Form of Management Stock Option Agreement (December 2013) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) |
Exhibit Number | | Exhibit Description2017) | | | Form of Management Stock Option Agreement (May 2015) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Form of Management Stock Option Agreement (May 2016, 3 year vesting) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Form of Management Stock Option Agreement (May 2016, 5 year vesting) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1filed on February 28, 2017 (File no. 333-216320))2017) | | | | | | Form of Management Stock Option Agreement (December 2016) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Form of Amendment to Stock Option Agreement or Stock Appreciation Right Agreement under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Stock Option Agreement, dated as of March 7, 2014, between under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) between Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and Andrew Schiesl (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Form of Sale Participation Agreement (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Offer Letter, dated April 17, 2015, between Vicente Reynal and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Offer Letter, dated November 19, 2015, between Vicente Reynal and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Offer Letter, dated November 18, 2015, between Todd Herndon and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
| | | | | | Offer Letter, dated September 2, 2016, between Todd Herndon and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
| | | | | | Offer Letter, dated November 25, 2013, between Gardner Denver, Inc. and Andy Schiesl (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | | | 2017) | | | Employment Contract, dated April 29, 2016,September 11, 2018 between Gardner Denver Deutschland GmbH and Enrique MifiarroMiñarro Viseras (incorporated by reference to Exhibit 10.3210.1 to the Registrant’s Registration StatementQuarterly Report on Form S-110-Q filed on February 28, 2017 (File no. 333-216320)) |
Exhibit Number | | Exhibit DescriptionOctober 29, 2018) | | | Offer Letter,Employment Agreement, dated March 16, 2016,September 1, 2022, between Gardner Denver Deutschland GmbHIngersoll Rand Inc. and Enrique Mifiarro ViserasVicente Reynal (incorporated by reference to Exhibit 10.3310.1 to the Registrant’s Registration StatementQuarterly Report on Form S-110-Q filed on February 28, 2017 (File no. 333-216320))
| | | November 4, 2022) | | | Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.24.4 to the Registrant’s Current ReportRegistration Statement on Form 8-KS-8 filed on May 17, 2017 (File no. 001-38095)) | | | March 2, 2020) | | | Monitoring Fee Termination Agreement, dated as of May 17,First Amendment to Ingersoll Rand Inc. Amended and Restated 2017 between Gardner Denver Holdings, Inc. Kohlberg Kravis Roberts & Co. L.P.Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s CurrentQuarterly Report on Form 8-K10-Q filed on May 17, 2017 (File no. 001-38095)) April 30, 2021) | | | Form of Restricted Stock Unit Grant Notice and Agreement (2018) under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on April 27, 2018) | | | Offer letter dated December 18, 2015, between Gardner Denver, Inc. and Neil Snyder. | | | | 10.40† | | Gardner Denver, Inc. Supplemental Excess Defined Contribution Plan (December, 2017 Restatement) | | | | 10.41† | | Form of Director Restricted Stock Unit Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on April 27, 2018) | | | | 10.42† | | Form of Stock Option Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan | | | (incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K filed on February 16, 2018) | | | Gardner Denver, Inc. Supplemental Excess Defined Contribution Plan (January 1, 2019 Restatement) (incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K filed on February 27, 2019) |
| | | | | | | | | | | Amendment No. 1 to the Stockholders Agreement, dated as of April 30, 2019, between Gardner Denver Holdings, Inc. and KKR Renaissance Aggregator L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 6, 2019) | | | Transition Agreement, dated June 12, 2020, between Ingersoll Rand Inc. and Emily Weaver (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2020) | | | Form of Stock Option Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan | | | Form of Restricted Stock Unit Grant Notice and Agreement (2019) under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan | | | Transition Services Agreement, dated as of February 29, 2020, by and between Ingersoll-Rand plc and Ingersoll-Rand U.S. Holdco, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) | | | Tax Matters Agreement, dated as of February 29, 2020, by and among Ingersoll-Rand plc, Ingersoll-Rand Lux International Holding Company S.A.R.L, Ingersoll-Rand Services Company, Ingersoll-Rand U.S. HoldCo, Inc. and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) | | | Employee Matters Agreement, dated as of February 29, 2020, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. HoldCo, Inc. and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) | | | Real Estate Matters Agreement, dated February 29, 2020, by and between Ingersoll-Rand plc, and Ingersoll-Rand U.S. HoldCo, Inc. and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) | | | Intellectual Property Matters Agreement, dated as of February 29, 2020, by and between Ingersoll-Rand plc, Ingersoll-Rand U.S. HoldCo, Inc., and solely for the purposes of Section 5.06, Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) | | | Trademark License Agreement, dated as of February 29, 2020, by and between Ingersoll-Rand U.S. HoldCo, Inc. and Ingersoll-Rand plc (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on March 4, 2020) | | | Omnibus Transaction Side Letter, dated February 29, 2020, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. Holdco Inc., Gardner Denver Holdings, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) | | | Side Letter to the Employee Matters Agreement, dated July 11, 2019, by and among Ingersoll-Rand plc and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) | | | Side Letter to the Employee Matters Agreement, dated February 29, 2020, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. Holdco, Inc. and Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 10.9 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) | | | Form of Performance Stock Unit Grant Notice and Agreement under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) | | | Form of Restricted Stock Unit Grant Notice and Agreement (2-yr vesting) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.14 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) | | | Form of Restricted Stock Unit Grant Notice and Agreement (4-yr vesting) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.15 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) | | | Form of Stock Option Grant Notice and Agreement under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2020) | | | Form of Performance Stock Unit Grant Notice and Agreement under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on April 30, 2021) | | | Form of Performance Stock Unit Grant Notice and Agreement (2022) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.55 to the Registrant’s Annual Report on Form 10-K filed on February 25, 2022) | | | Form of Restricted Stock Unit Grant Notice and Agreement (4-yr vesting) (2022) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.56 to the Registrant’s Annual Report on Form 10-K filed on February 25, 2022) | | | Form of Stock Option Grant Notice and Agreement (2022) under the Ingersoll Rand Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.57 to the Registrant’s Annual Report on Form 10-K filed on February 25, 2022) |
| | | | | | | | | | | Performance Stock Unit Grant Notice and Agreement, dated September 1, 2022, between Ingersoll Rand Inc. and Vicente Reynal (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on November 4, 2022) | | | Subsidiaries of Gardner Denver Holdings,Ingersoll Rand Inc. as of December 31, 2017 | | | 2022 | | | Consent of Independent Registered Public Accounting Firm | | | | | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) | | | | | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) | | | | | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | | | | | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | 101.INS | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | 104 | | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) |
† Identifies exhibits that consistconsists of a management contract or compensatory plan or arrangement. * Certain portions of this exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information (i) is not material and (ii) is the type that the Registrant treats as private or confidential. The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
NoneITEM 16. FORM 10-K SUMMARY
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf on the 21st day of February 2023, by the undersigned, thereunto duly authorized.
| | Gardner Denver Holdings, Inc. | | | | | | | | | Ingersoll Rand Inc. | | By: | /s/ | | By: | /s/ Vicente Reynal | | | Name: Vicente Reynal | | | Title: Chairman of the Board and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 16th21st day of February 2018 2023, by the following persons on behalf of the registrant and in the capacities indicated.
Signature | | Capacity | | | | | | | Signature | | Capacity | /s/ Vicente Reynal | | Chairman of the Board and Chief Executive Officer and Director | Vicente Reynal | | (principal executive officer)Principal Executive Officer), Director | | | | /s/ Philip T. HerndonVikram U. Kini | | Senior Vice President and Chief Financial Officer | Philip T. HerndonVikram U. Kini | | (principal financial officer)Principal Financial Officer) | | | | /s/ Mark R. SweeneyMichael J. Scheske | | Vice President and Chief Accounting Officer and Corporate Controller | Mark R. SweeneyMichael J. Scheske | | (principal accounting officer)Principal Accounting Officer) | | | | /s/ Peter StavrosKirk E. Arnold | | Director | Peter StavrosKirk E. Arnold | | | | | | /s/ Brandon F. Brahm | | Director | Brandon F. Brahm | | | | | | /s/ William P. Donnelly | | Director | William P. Donnelly | | | | | | /s/ Gary D. Forsee | | Director | Gary D Forsee | | | | | | /s/ Jennifer Hartsock | | Director | Jennifer Hartsock | | | | | | /s/ John Humphrey | | Director | John Humphrey | | | | | | /s/ WilliamMarc E. KasslingJones | | Director | WilliamMarc E. KasslingJones | | | | | | /s/ Mark Stevenson | | Director | Mark Stevenson | | | | | | /s/ Michael V. MarnStubblefield | | Director | Michael V. MarnStubblefield | | | | | | /s/ Nickolas Vande SteegTony L. White | | Director | Nickolas Vande SteegTony L. White | | | | | | /s/ Joshua T. Weisenbeck | | Director | Joshua T. Weisenbeck | | |
SCHEDULE 1 – GARDNER DENVER HOLDINGS, INC(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
| | For the Years Ended December 31, | | | | 2017 | | | 2016 | | | 2015 | | | | | | | | | | | | Revenues | | $ | - | | | $ | - | | | $ | - | | Cost of sales | | | - | | | | - | | | | - | | Gross Profit | | | - | | | | - | | | | - | | Operating costs | | | 19.5 | | | | 12.9 | | | | 7.4 | | Other operating expense, net | | | 175.0 | | | | - | | | | - | | Operating Loss | | | (194.5 | ) | | | (12.9 | ) | | | (7.4 | ) | Interest income | | | 20.7 | | | | - | | | | - | | Other income, net | | | - | | | | - | | | | - | | Loss Before Income Taxes | | | (173.8 | ) | | | (12.9 | ) | | | (7.4 | ) | Income tax benefit | | | (16.1 | ) | | | (4.5 | ) | | | (2.5 | ) | Loss of Parent Company | | | (157.7 | ) | | | (8.4 | ) | | | (4.9 | ) | Equity in undistributed income (loss) of subsidiaries | | | 176.1 | | | | (28.2 | ) | | | (346.3 | ) | Net Income (Loss) | | | 18.4 | | | | (36.6 | ) | | | (351.2 | ) | Other comprehensive income (loss) | | | 142.6 | | | | (76.8 | ) | | | (130.3 | ) | Comprehensive Income (Loss) | | $ | 161.0 | | | $ | (113.4 | ) | | $ | (481.5 | ) |
SCHEDULE 1 – GARDNER DENVER HOLDINGS, INC
(PARENT COMPANY ONLY)
BALANCE SHEETS
(Dollars in millions)
| | As of December 31, | | | | 2017 | | | 2016 | | Assets | | | | | | | Current assets: | | | | | | | Cash and cash equivalents | | $ | 0.2 | | | $ | 0.3 | | Total current assets | | | 0.2 | | | | 0.3 | | Equity in net assets of subsidiaries | | | 605.9 | | | | 276.9 | | Intercompany receivables | | | 865.1 | | | | - | | Deferred tax assets | | | 22.2 | | | | 7.0 | | Total assets | | $ | 1,493.4 | | | $ | 284.2 | | | | | | | | | | | Liabilities and Stockholders' Equity | | | | | | | | | Intercompany payables | | $ | - | | | $ | 18.2 | | Other liabilities | | | 16.6 | | | | 0.1 | | Total liabilities | | | 16.6 | | | | 18.3 | | Stockholders' equity: | | | | | | | | | Common stock, $0.01 par value; 1,000,000,000 shares authorized;198,377,237 and 150,552,360 shares issued at December 31, 2017 | | | 2.0 | | | | 1.5 | | Capital in excess of par value | | | 2,275.4 | | | | 1,222.4 | | Accumulated deficit | | | (577.8 | ) | | | (596.2 | ) | Treasury stock at cost; 2,159,266 and 1,897,454 shares at | | | | | | | | | December 31, 2017 and 2016, respectively | | | (23.0 | ) | | | (19.4 | ) | Accumulated other comprehensive loss | | | (199.8 | ) | | | (342.4 | ) | Total Gardner Denver Holdings, Inc. stockholders' equity | | | 1,476.8 | | | | 265.9 | | Total liabilities and stockholders' equity | | $ | 1,493.4 | | | $ | 284.2 | |
SCHEDULE 1 – GARDNER DENVER HOLDINGS, INC
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in millions)
| | For the Years Ended December 31, | | | | 2017 | | | 2016 | | | 2015 | | | | | | | | | | | | Cash Flows From Operating Activities: | | | | | | | | | | Net cash provided by (used in) operating activities | | $ | 9.2 | | | $ | 11.1 | | | $ | (2.0 | ) | | | | | | | | | | | | | | Cash Flows From Investing Activities: | | | | | | | | | | | | | Advances to subsidiaries | | | (899.3) | | | | - | | | | - | | Net cash used in investing activities | | | (899.3) | | | | - | | | | - | | | | | | | | | | | | | | | Cash Flows From Financing Activities: | | | | | | | | | | | | | Purchases of treasury stock | | | (3.6 | ) | | | (14.1 | ) | | | (2.1 | ) | Proceeds from the issuance of common stock | | | 893.6 | | | | 3.3 | | | | 4.2 | | Net cash provided by (used in) financing activities | | | 890.0 | | | | (10.9 | ) | | | 2.1 | | (Decrease) increase in cash and cash equivalents | | | (0.1 | ) | | | 0.2 | | | | 0.0 | | Cash and cash equivalents, beginning of year | | | 0.3 | | | | 0.1 | | | | 0.0 | | Cash and cash equivalents, end of year | | $ | 0.2 | | | $ | 0.3 | | | $ | 0.1 | |
SCHEDULE I - GARDNER DENVER HOLDINGS, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Overview and Basis of Presentation
On July 30, 2013, Gardner Denver, Inc. was acquired by an affiliate of Kohlberg Kravis Roberts & Co. L.P. (“KKR”). The acquisition (also referred to as the “Merger”) was effected by the merger of Renaissance Acquisition Corp. with and into Gardner Denver, Inc., with Gardner Denver, Inc. being the surviving corporation. As a result of the Merger, Gardner Denver, Inc. became a wholly-owned subsidiary of Gardner Denver Holdings, Inc. (formerly Renaissance Parent Corp.)
Gardner Denver Holdings, Inc. Parent Company only financial information has been derived from its consolidated financial statements and should be read in conjunction with the consolidated financial statements included in this report. The accounting policies for the registrant are the same as those described in Note 1 in the section, “Notes to the Consolidated Financial Statements”.
2. Subsidiary Transactions
Investment in Subsidiaries
Gardner Denver Holdings, Inc.’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries.
Advances to Subsidiaries
On June 30, 2017, Gardner Denver Holdings Inc, entered into an $899.3 million promissory note receivable from Gardner Denver Inc. The promissory note bears an annual interest rate of 4.5677% and payments are due on last day of December, or the first regular business day immediately following such date, commencing on December 31, 2017. The principal balance may be increased in lieu of payment of interest with the mutual agreement of both the borrower and the lender. Principal shall become due and payable in full on demand.
Dividends and Capital Distributions
There were no dividends received from subsidiaries during the years ended December 31, 2017, 2016 and 2015.
3. Debt
A discussion of long-term debt, including the five-year debt maturity schedule, can be found in Note 10 in the section, “Notes to the Consolidated Financial Statements”. Gardner Denver Holdings, Inc. had no long-term debt obligations as of December 31, 2017 and 2016.
4. Contingencies
For a summary of contingencies, see Note 18 in the section, “Notes to the Consolidated Financial Statements”.
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