UNITED STATES
FORM 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
to_________to
Gardner Denver Holdings, Inc. Securities Registered Pursuant to Section 12(b) of the Act: ☐ ☐ ☐ ☐ 19, 2020. PART I manufacturing facilities, more than 30 complementary service and repair centers across six continents and approximately 2019. 2019. Our positive displacement pumps are fit-for-purpose to meet the demands and challenges of modern unconventional drilling and hydraulic fracturing activity, particularly in the major basins and shale plays in the North American land market. Our positive displacement pump offering includes mission-critical oil and gas drilling pumps, frac pumps and well servicing pumps, in addition to sales of associated consumables used in the operation of our pumps and aftermarket parts, consumables and services. The products we sell into upstream energy applications are highly aftermarket-intensive, and so we support these products in the field with one of the industry’s most comprehensive service networks, which encompasses locations across all major basins and shale plays in the North American land market. This service network is critical to serving our customers and, by supporting them in the field, to generating demand for new original equipment sales and aftermarket parts, consumables, service and repair sales which in aggregate are often multiples of the cost of the original equipment. We focus on five basic types of air compression technologies: rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Rotary screw compressors are a newer technology than reciprocating compressors and exhibit better suitability for continuous processes due to a more compact size, less maintenance and better noise profile. We believe our reciprocating piston compressors provide one of the broadest ranges of pressures in the market and are supported by increasing demand across wide-ranging attractive end-markets. Scroll compressors are most commonly seen where less oil-free air is needed, and is most commonly used in medical and food applications where the need for pure, clean and precise air is of great importance. Rotary vane compressors feature high efficiency, compact compression technology and can be found throughout all sectors of industry, including automotive, food and beverage, energy and manufacturing with specialist solutions within transit, gas and snow making. Centrifugal compressors are most effective when in applications that demand larger quantities of oil-free air and are utilized across a wide range of industries. development of new petrochemical plants as well as activity levels therein, which drive demand for aftermarket parts and services on our market-leading installed base of equipment. Customers and Customer Service generally available from a number of suppliers. We have a limited number of long-term contracts with some suppliers of key components, but we believe that our sources of raw materials and components are reliable and adequate for our needs. We use single sources of supply for certain castings, motors and other select engineered components. A disruption in deliveries from a given supplier could therefore have an adverse effect on our ability to meet commitments to our customers. Nevertheless, we believe that we have appropriately balanced this risk against the cost of maintaining a greater number of suppliers. Moreover, we have sought, and will continue to seek, cost reductions in purchases of materials and supplies by consolidating purchases and pursuing alternate sources of supply. Generally, when worldwide demand or our customers’ expectations of future prices for these commodities are depressed, the demand for our products used in drilling and recovery applications is reduced. Other factors, including availability of quality drilling prospects, exploration success, relative production costs and political and regulatory environments are also expected to affect the demand for our products. Worldwide military, political and economic events have in the past contributed to oil and gas price volatility and are likely to do so in the future. A change in economic conditions also puts pressure on our receivables and collections. 2019. Moreover, some states and local governments have adopted, and other governmental entities are considering adopting, regulations that could impose more stringent requirements on hydraulic fracturing operations. For example, Texas, Colorado and North Dakota among others have adopted regulations that impose new or more stringent permitting, disclosure, disposal and well construction requirements on hydraulic fracturing operations. States could also elect to prohibit high volume hydraulic fracturing altogether, following the approach taken by the State of New York in 2015. Local land use restrictions, such as city ordinances, may restrict drilling in general and hydraulic fracturing in particular. Some state and federal regulatory agencies have also recently focused on a connection between the operation of injection wells used for oil and natural gas waste disposal and seismic activity. Similar concerns have been raised that hydraulic fracturing may also contribute to seismic activity. In March 2016, the United States Geological Survey identified six states with the most significant hazards from induced seismicity, including Oklahoma, Kansas, Texas, Colorado, New Mexico and Arkansas. In light of these concerns, some state regulatory agencies have modified their regulations or issued orders to address induced seismicity. For example, in December 2016, the Oklahoma Corporation Commission’s Oil and Gas Conservation Division (the “OCC Division”) and the Oklahoma Geologic Survey released well completion seismicity guidance, which requires operators to take certain prescriptive actions, including mitigation, following anomalous seismic activity within 1.25 miles of hydraulic fracturing operations. In February 2017, the OCC Division issued an order limiting future increases in the volume of oil and natural gas wastewater injected into the ground in an effort to reduce earthquakes in the state, and it announced further requirements (involving seismic monitoring) in February 2018. Ongoing lawsuits have also alleged that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. Increased regulation and attention given to induced seismicity could lead to greater opposition to, and litigation concerning, oil and natural gas activities utilizing hydraulic fracturing or injection wells for waste disposal. The adoption of more stringent regulations regarding hydraulic fracturing and the outcome of litigation over hydraulic fracturing could adversely affect some of our customers and their demand for our products, which could have a material adverse effect on our business, results of operations and financial condition. Our operating results could be adversely affected by a loss or reduction of business with key customers or consolidation or the vertical integration of our customer base. The loss of, or disruption in, our distribution network could have a negative impact on our abilities to ship products, meet customer demand and otherwise operate our business. If we are unable to develop new products and technologies, our competitive position may be impaired, which could materially and adversely affect our sales and market share. The inability to realize any anticipated tax benefits related to our operations and corporate structure could have a material adverse impact on our results of operations, financial condition and cash flows. Further, the specific future impacts of the Tax Act on holders of our common shares are uncertain and could in certain instances be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our common stock. Note 20 “Contingencies” to our audited consolidated financial statements included elsewhere in this Form 10-K. or any other disaster, accident, catastrophe or event, our operations could be significantly In addition, disruptions in our supply chain due to natural disasters, catastrophes, pandemic or other events could reduce our ability to produce products and satisfy customer demand. Similar interruptions could result from damage to production or other facilities that provide supplies or other raw materials to our plants. Interruptions to our operations and supply chain could also result from pandemic which could adversely impact our workforce or that of our suppliers, causing disruption to the manufacturing process or our supply chain, and last a week or months depending on the severity of the disruption. provisions, contractual restrictions and licensing arrangements to establish and protect our proprietary rights. Our nondisclosure agreements and confidentiality agreements may not effectively prevent disclosure of our proprietary information, technologies and processes, and may not provide an adequate remedy in the event of breach of such agreements or unauthorized disclosure of such information, and if a competitor lawfully obtains or independently develops our trade secrets, we would have no right to prevent such competitor from using such technology or information to compete with us, either of which could harm our competitive position. Our applications for patent and trademark protection may not be granted, or the claims or scope of such issued patents or registered trademarks may not be sufficiently broad to protect our products. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable or limited for some of our trademarks and patents in some foreign countries. We may be required to spend significant resources to monitor and police our intellectual property rights, and we cannot guarantee that such efforts will be successful in preventing infringement or misappropriation. If we fail to successfully enforce these intellectual property rights, our competitive position could suffer, which could harm our operating results. industries in which we compete; placing us at a disadvantage compared to other, less leveraged competitors; increasing our cost of borrowing; and hampering our ability to execute on our growth strategy. For a complete description of the Company’s credit facilities and definitions of capitalized terms used in this section, see Note 10 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K. cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our Senior Secured Credit Facilities would permit the lenders under our Revolving Credit Facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our Senior Secured Credit Facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or noteholders accelerate the repayment of our borrowings and/or interest, we and our subsidiaries may not have sufficient assets to repay that indebtedness. PART II Market Information Set forth below are the reconciliations of net income The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with “Item 6. Selected Financial Data” and our audited consolidated financial statements and related notes to our consolidated financial statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth under the “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Form 10-K. 2019. 2019. In the Energy segment, we design, manufacture, market and service 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. We serve customers in the upstream, midstream, and downstream oil and gas markets, and various other markets including petrochemical processing, power generation, transportation, and general industrial. We are one of the largest suppliers in these markets and have long-standing customer relationships. Our positive displacement pumps are used in the oilfield for drilling, hydraulic fracturing, completion and well servicing. Our liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, enhanced oil recovery, water extraction in mining and paper and chlorine compression in petrochemical operations. Our engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials. In customers in the mid- and downstream and petrochemical markets are higher sales value and often have longer lead times and involve more application specific engineering. Depending on the contractual terms, revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer. Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined to be probable. As a result, the timing of these contracts can result in significant variation in reported revenue from quarter to quarter. Our large installed base of products in our Energy segment drives demand for recurring aftermarket support services to customers, including replacement parts, consumables and repair and maintenance services. The mix of aftermarket to original equipment revenue within the Energy segment is impacted by trends in upstream energy activity in North America. Revenue for services is recognized when services are performed. In response to customer demand for faster access to aftermarket parts and repair services, we expanded our direct aftermarket service locations in our Energy segment, particularly in North American markets driven by upstream energy activity. Energy segment products and aftermarket parts, consumables and services are sold both directly to end customers and through independent distributors, depending on the product category and geography. trademarks, and internally developed software. Other Operating Expense, Net Variability within Upstream Energy Markets applications. In June 2017, within our Industrials segment, we acquired a leading North American manufacturer of gas compression equipment and solutions for vapor recovery, biogas and other process and industrial applications for approximately $20.4 million, net of cash acquired (inclusive of an indemnity holdback of $1.9 approximately $94.9 million. In May 2018, we acquired a leading manufacturer of plungers and other well service pump consumable products in our Energy segment for total consideration, net of cash acquired, of approximately $21.0 million (inclusive of cash payments of $18.8 million, a $2.0 million promissory note and a $0.2 million holdback). In November 2018, we acquired a leading manufacturer of rotary screws and piston compressors and associated aftermarket parts in our Industrials segment for total consideration, net of cash acquired, of $16.1 million (inclusive of cash payments of $14.8 million and a $1.3 million holdback). In December 2018, we acquired a leading manufacturer of specialty industrial pumps and associated aftermarket parts in our Industrials segment for total consideration of $58.5 million, net of cash acquired (inclusive of cash payments of $57.8 million 2017. expense. accounting for all of the enactment-date income tax effects of the Tax Act by increasing the total benefit taken in 2017 of $95.3 million to $96.5 million. Due to the Tax Act, the total U.S. deferred changed from a tax benefit of $89.6 million in 2017 to $74.5 million in 2018, with a 2018 measurement-period adjustment of $15.1 million and the ASC 740-30 (formerly APB 23) liability, related to the permanent reinvestment of earnings in foreign subsidiaries assertion, changed from a tax benefit of $69.0 million in 2017 to $72.5 million in 2018, with a 2018 measurement-period adjustment of $3.5 million. The provisional one-time transition tax of $63.3 million in 2017 decreased to $50.5 million in 2018, with a 2018 measurement-period adjustment of $12.8 million. The total $1.2 million benefit environment. In the fourth quarter of EBITDA using corresponding prior period exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a Constant Currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP. improved pricing. consultant fees. 2018 and 2019. $3.5 million. and the compensation. taxes. of $10.7 million. expense. We evaluate the performance of our segments based on Segment Revenues and Segment Adjusted EBITDA. Segment Adjusted EBITDA is indicative of operational performance and ongoing profitability. Our management closely monitors Segment Adjusted EBITDA to evaluate past performance and identify actions required to improve profitability. 2018 2018 2018. $2.7 million. A substantial portion of our liquidity needs arise from debt service requirements, and from the ongoing cost of operations, working capital and capital expenditures. 10-K for further details. Working Capital cash disbursements. 2018. $0.5 million of debt issuance cost payments, partially offset by proceeds from stock option exercises of $42.7 million associated with approved stock-based compensation plans. Free cash flow 2018. Our non-U.S. pension plans are funded in accordance with local laws and income tax regulations. We expect to contribute a total of approximately application of the market multiples method entails the development of book value multiples based on the market value of the guideline companies. The multiples are developed by first calculating the market value of equity of the guideline companies and then adjusting these multiples for cash and debt to arrive at a BEV multiple. Identifying appropriate guideline companies and computing appropriate market multiples is subjective. We considered various public companies that had reasonably similar qualitative factors as our reporting units while also considering quantitative factors such as revenue growth, profitability and total assets. 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”). We determined that we will follow the period cost method (option 1 above) going forward. The tax provision for the both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure is provided. Foreign Currency Risk The accompanying notes are an integral part of these consolidated financial statements. (Dollars in millions) 2019. December 31, 2017 Goodwill and Indefinite-Lived Intangible Assets Warranty Reserves 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. hedge, the gain or loss on the derivative and the offsetting loss or gain on the hedged asset, liability, or firm commitment are recognized in earnings. For derivative instruments designated as a cash flow hedge or an eligible net investment in a foreign operation, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified to earnings in the same period that the hedged transaction affects earnings. The ineffective portion of the gain or loss is immediately recognized in earnings. Gains or losses on derivative instruments recognized in earnings are reported in the same line item as the associated hedged transaction in the Consolidated Statements of Operations. 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. 842) classified as operating leases under current GAAP. The amendments also adoption date decreasing “Accumulated deficit” in the Consolidated Balance Sheets by $8.2 million and increasing “Accumulated other comprehensive loss” in the Consolidated Balance Sheets by $8.2 million. statements. provided as the acquisitions did not have a material impact on the Company’s Consolidated Statements of Operations individually or in the aggregate. Inc. Acquisition of DV Systems, Inc. former shareholders. Included in the cash consideration was a holdback of $0.5 million that was paid in the third quarter of 2017. Restructuring Program 2018 to 2019 Additionally, $ over the estimated fair values of intangible assets, identifiable assets and assumed liabilities was recorded as goodwill. 2019. 0.50% and (3) LIBOR for an interest period of one month, adjusted for statutory reserve requirements, plus 1.00%, in each case, plus an applicable margin. The applicable margin for (i) the Dollar Term Loan Facility is 2.75% for LIBOR loans and 1.75% for Base Rate loans, (ii) the Revolving Credit Facility is In March 2019, the Company used excess cash to repay $25.0 million of principal on outstanding borrowings under the Dollar Term Loan Facility. the Increased Availability Condition and the default. 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. 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. 2020. The following table provides information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31, The discount rate selected to measure the present value of the Company’s benefit obligations was derived by examining the rates of high-quality, fixed income securities whose cash flows or duration match the timing and amount of expected benefit payments under a plan. The Company selects the expected long-term rate of return on plan assets in consultation with the plans’ actuaries. This rate is intended to reflect the expected average rate of earnings on the funds invested or to be invested to provide plan benefits and the Company’s most recent plan assets target allocations. 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 (income) for the years ended December 31, 2019, 2018 The following table reflects the estimated benefit payments for the next five years and for the years Fair Value Measurements Reclassifications out of accumulated other comprehensive (loss) income for the years ended December 31, 2019, 2018 and 2017 are presented in the following table. due at 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. Contract Balances 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, The statutes of limitations for U.S. Federal tax returns are open Stock-Based Compensation Expense Restricted Stock Unit Awards Derivative Instruments The Company had 2018. 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, 2019. value for the 2019 and 2018 annual goodwill impairment tests. 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. 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 its secondary offering by certain selling stockholders in May 2018, and (iii) a provider of services for the fiscal 2017. 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. 26, 2020 2019. 2019. PART III. 2019. PART IV 2017. 2018.46-2393770
Incorporation or Organization)(I.R.S. Employer
Identification No.)Name of Each Exchange on Which Registered New York Stock Exchange oo☐ No ☒o(§(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes . Yes ☒ No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒"emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.☒Accelerated filer oNon-accelerated filer o☐ (Do not check if a smaller reporting company)Smaller reporting company oEmerging growth company o☐ oo☐ No ☒registrant’s Common Stockvoting and non-voting common equity held by non-affiliates of the registrant on June 29, 201828, 2019 was approximately $3,155.6$4,560.2 million based on the closing price of such Common Stockcommon equity on the New York Stock Exchange on such date. 198,884,808 205,211,761shares of Common Stock, par value $0.01 per share, as of February 20, 2019.20192020 Annual Meeting of Stockholders are incorporated by reference in Part III of this report.3 11 21 22 22 23 27 45 47 47 48 49 50 51 52 101 101 102 102 102 102 103 103 103 107 iITEM 1.BUSINESS4138 key16,7006,600 employees worldwide as of December 31, 2018.39%38% of total Company revenue and approximately 43%42% of our combined Industrials and Energy segments’ revenue in 2018.23UpstreamPositive displacement pumps in the upstream energy end-market primarily move fluid to assist in drilling, hydraulic fracturing and well servicing applications. The majority of positive displacement pumps we sell are frac pumps, which experience significant service intensity during use in the field and, as such, typically have useful life spans of approximately four to six years before needing to be replaced. During that useful life, such pumps will need to receive intermittent repairs as well as major overhauls. In addition, we also sell positive displacement pumps that are used in drilling and well servicing applications.Fluid ends are a key component of positive displacement pumps that generate the pumping action, along with other parts, such as plungers, and consumables, such as valves, seats and packing, which pressurizes the fluid, in the case of drilling or well servicing applications, or fluid and proppant mixture, in the case of hydraulic fracturing, and propels such fluid or mixture out of the pump and into a series of flow lines that distribute the fluid or mixture into the well. Fluid ends are incorporated in original equipment pumps, and due to the highly corrosive nature of the fluids and the abrasive nature of the proppants used in hydraulic fracturing operations, need to be frequently replaced.● Positive displacement pumps in the upstream energy end-market primarily move fluid to assist in drilling, hydraulic fracturing and well servicing applications. The majority of positive displacement pumps we sell are frac pumps, which experience significant service intensity during use in the field and, as such, typically have useful life spans of approximately four to six years before needing to be replaced. During that useful life, such pumps will need to receive intermittent repairs as well as major overhauls. In addition, we also sell positive displacement pumps that are used in drilling and well servicing applications. ● Fluid ends are a key component of positive displacement pumps that generate the pumping action, along with other parts, such as plungers, and consumables, such as valves, seats and packing, which pressurizes the fluid, in the case of drilling or well servicing applications, or fluid and proppant mixture, in the case of hydraulic fracturing, and propels such fluid or mixture out of the pump and into a series of flow lines that distribute the fluid or mixture into the well. Fluid ends are incorporated in original equipment pumps, and due to the highly corrosive nature of the fluids and the abrasive nature of the proppants used in hydraulic fracturing operations, need to be frequently replaced. Fluid transfer equipment, including fluid loading systems, tank truck and fleet fueling products and couplers: Fluid loading systems are used in the transfer and loading of hydrocarbons and certain other liquid commodity products in marine and land applications. Tank truck and fleet fueling products allow for safe transfer of liquid products without spillage or contamination while safeguarding the operator and the environment. Operators use Dry-Break® technology couplers and adapters to provide a secure connection for the transfer of liquid products without spillage or contamination while safeguarding the operator and the environment.Liquid ring vacuum pumps and compressors: Liquid ring vacuum pumps and compressors are designed for continuous duty in harsh environments, including vapor and flare gas recovery equipment (which recovers and compresses certain polluting gases to transmit them for further processing), primarily in downstream applications. The liquid ring technology utilizes a service liquid, typically water, oil or fuel, to evacuate or compress gas by forming a rotating ring of liquid that follows the contour of the body of the pump or compressor and acts like a piston to deliver an uninterrupted flow of gas without pulsation.● Fluid transfer equipment, including fluid loading systems, tank truck and fleet fueling products and couplers: Fluid loading systems are used in the transfer and loading of hydrocarbons and certain other liquid commodity products in marine and land applications. Tank truck and fleet fueling products allow for safe transfer of liquid products without spillage or contamination while safeguarding the operator and the environment. Operators use Dry-Break® technology couplers and adapters to provide a secure connection for the transfer of liquid products without spillage or contamination while safeguarding the operator and the environment. ● Liquid ring vacuum pumps and compressors: Liquid ring vacuum pumps and compressors are designed for continuous duty in harsh environments, including vapor and flare gas recovery equipment (which recovers and compresses certain polluting gases to transmit them for further processing), primarily in downstream applications. The liquid ring technology utilizes a service liquid, typically water, oil or fuel, to evacuate or compress gas by forming a rotating ring of liquid that follows the contour of the body of the pump or compressor and acts like a piston to deliver an uninterrupted flow of gas without pulsation. 5PLC,plc, Colfax Corp., Flowserve Corporation, IDEX Corporation and Kaeser Compressors, Inc.620182019 were fulfilled through independent distributors and sales representatives.4%3% of 20182019 consolidated revenues.610600 patents and our trademarks are of considerable importance to the manufacture and marketing of many of our products, we believe that the success of our business depends more on the technical competence, creativity and marketing abilities of our employees than on any individual patent or trademark, and therefore we do not consider any single patent or trademark, group of patents or trademarks, copyright or trade secret to be material to our business as a whole, except for the Gardner Denver trademark. We have registered our trademarks in the countries we deem necessary or in our best interest. We also rely upon trade secret protection for our confidential and proprietary information and techniques, and we routinely enter into confidentiality agreements with our employees as well as our suppliers and other third parties receiving such information.72018,2019, we had approximately 6,7006,600 employees of which approximately 2,1001,900 are located in the United States. Of those employees located outside of the United States, a significant portion are represented by works councils and labor unions, and of those employees located in the United States, approximately 200 are represented by labor unions. We believe that our current relations with employees are satisfactory.ITEM 1A.RISK FACTORS2018,2019, approximately 56%59% of our revenues were from customers in countries outside of the United States. We have manufacturing facilities in Germany, the United Kingdom, China, Finland, Italy, India and other countries. We intend to continue to expand our international operations to the extent that suitable opportunities become available. Non-U.S. operations and United States export sales could be adversely affected as a result of: political or economic instability in certain countries; differences in foreign laws, including increased difficulties in protecting intellectual property and uncertainty in enforcement of contract rights; credit risks; currency fluctuations, in particular, changes in currency exchange rates between the U.S. dollar, Euro, British Pound and the Chinese Renminbi; exchange controls; changes in and uncertainties with respect to tariffs and;and import/export trade restrictions (including changes in United States trade policy toward other countries, such as the imposition of tariffs and the resulting consequences), as well as other changes in political policy in the United States, China, the U.K. and certain European countries (including the impacts of the U.K.’s national referendum resulting in an election to withdrawthe U.K.’s withdrawal from the European Union); royalty and tax increases; nationalization of private enterprises; civil unrest and protests, strikes, acts of terrorism, war or other armed conflict; shipping products during times of crisis or war; and other factors inherent in foreign operations. For example, weakness in upstream energy activity in North America significantly impacted our business in 2015 and 2016.942%35% of our consolidated revenues for the year ended December 31, 2018.52%56% for the year ended December 31, 2018,2019, is denominated in currencies other than the U.S. dollar. Accordingly, currency exchange rates, and in particular unfavorable movement in the exchange rates between U.S. dollars and Euros, British Pounds and Chinese Renminbi, affect our operating results. The effects of exchange rate fluctuations on our future operating results are unpredictable because of the number of currencies in which we do business and the potential volatility of exchange rates. We are also subject to the risks of currency controls and devaluations. Although historically not significant, if currency controls were enacted in countries where the Company generates significant cash balances, these controls may limit our ability to convert currencies into U.S. dollars or other currencies, as needed, or to pay dividends or make other payments from funds held by subsidiaries in the countries imposing such controls, which could adversely affect our liquidity. Currency devaluations could also negatively affect our operating margins and cash flows.1011managing geographically separated organizations, systems and facilities;integrating personnel with diverse business backgrounds and organizational cultures;● managing geographically separated organizations, systems and facilities; complying with non-U.S. regulatory requirements;● integrating personnel with diverse business backgrounds and organizational cultures; fluctuations in currency exchange rates;● complying with non-U.S. regulatory requirements; enforcement of intellectual property rights in some non-U.S. countries;● fluctuations in currency exchange rates; difficulty entering new non-U.S. markets due to, among other things, consumer acceptance and business knowledge of these new markets; and● enforcement of intellectual property rights in some non-U.S. countries; general economic and political conditions.● difficulty entering new non-U.S. markets due to, among other things, consumer acceptance and business knowledge of these new markets; and ● general economic and political conditions. 122017,2018, we incurred restructuring charges of approximately $48.0$60.7 million across our segments. In 2018,2019, we incurred restructuring charges of $12.7$17.1 million. Costs of future initiatives may be material and the savings associated with them are subject to a variety of risks, including our inability to effectively eliminate duplicative back office overhead and overlapping sales personnel, rationalize manufacturing capacity, synchronize information technology systems, consolidate warehousing and distribution facilities and shift production to more economical facilities. As a result, the contemplated costs to effect these initiatives may materially exceed estimates. The initiatives we are contemplating may require consultation with various employees, labor representatives or regulators, and such consultations may influence the timing, costs and extent of expected savings and may result in the loss of skilled employees in connection with the initiatives.operated,operate, and the competition for talent is robust. A failure to attract, retain and develop new qualified personnel throughout the organization could have an adverse effect on our operations and implementation of our strategic plan.1314In 2016, we recorded an impairment charge related to other intangible assets of $25.3 million primarily within the Industrials segment. As of December 31, 2018,2019, the net carrying value of goodwill and other intangible assets, net represented $2,657.9$2,542.7 million, or 59%55%, of our total assets. A future impairment, if any, could have a material adverse effect to our consolidated financial position or results of operations. See Note 8 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to impairment testing for goodwill and other intangible assets and the associated charges taken.2018,2019, we had approximately 6,7006,600 employees of which approximately 2,1001,900 were located in the United States. Of those employees located outside of the United States, a significant portion are represented by works councils and labor unions, and of those employees located in the United States, approximately 200 are represented by labor unions. Although we believe that our relations with employees are satisfactory and have not experienced any material work stoppages, work stoppages have occurred, and may in the future occur, and we may not be successful in negotiating new collective bargaining agreements. In addition, negotiations with our union employees may (1) result in significant increases in our cost of labor, (2) divert management’s attention away from operating our business or (3) break down and result in the disruption of our operations. The occurrence of any of the preceding conditions could impair our ability to manufacture our products and result in increased costs and/or decreased operating results.“Business—Legal Proceedings—Asbestos and Silica-Related Litigation.”result in severe property damage, which could adversely affect our operations.disruptions in operationsif one or damage to a manufacturing plant could reduce our ability to produce products and satisfy customer demand. If one of more of our manufacturing facilities are damaged by severe weather15interrupted. Similar interruptions could result from damageinterrupted impacting our ability to production or other facilities that provide supplies or other raw materialsproduce products and sell products to our plants or other stoppages arising from factors beyond our control.customers. These interruptions might involve significant damage to, among other things, property, and repairs might take from a week or less for a minor incident to many months for a major interruption.162018,2019, our projected benefit obligations under our pension and other postretirement benefit plans exceeded the fair value of plan assets by an aggregate of approximately $96.9$101.9 million (“unfunded status”), compared to $97.2$96.9 million as of December 31, 2017.2018. Estimates for the amount and timing of the future funding obligations of these benefit plans are based on various assumptions. These assumptions include discount rates, rates of compensation increases, expected long-term rates of return on plan assets and expected healthcare cost trend rates. If our assumptions prove incorrect, our funding obligations may increase, which may have a material adverse effect on our financial results.2018,2019, we had total indebtedness of $1,672.1$1,611.4 million, and we had availability under the Revolving Credit Facility and the Receivables Financing Agreement of $263.4$445.6 million and $83.3$62.4 million, respectively. Our high level of debt could have important consequences, including: making it more difficult for us to satisfy our obligations with respect to our debt; limiting our ability to obtain additional financing to fund future working capital, capital expenditures, investments or acquisitions, or other general corporate requirements; requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions and other general corporate purposes; increasing our vulnerability to adverse changes in general economic, industry and competitive conditions; exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the Senior Secured Credit Facilities, are at variable rates of interest; limiting our flexibility in planning for and reacting to changes in the17$250.0$450.0 million in the form of additional commitments under the Revolving Credit Facility and/or incremental term loans plus an additional amount so long as we do not exceed a specified senior secured leverage ratio. We also can incur additional secured indebtedness under the Term Loan Facilities if certain specified conditions are met under the credit agreement governing the Term Loan Facilities. If new debt is added to our current debt levels, the related risks that we now face could intensify. For a complete description of the Company’s credit facilities and definitions of capitalized terms used in this section, see Note 10 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K.18swapsswap instruments to limit our exposure to changes in variable interest rates. Such instruments will result in economic losses should interest rates not rise above the pay-fixed interest rate in the derivative contracts. We will be exposed to credit-related losses which could impact the results of operations in the event of fluctuations in the fair value of the interest rate swaps due to a change in the credit worthiness or non-performance by the counterparties to the interest rate swaps. See Note 1718 “Hedging Activities, Derivative Instruments and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.ITEM 1B.UNRESOLVED STAFF COMMENTSNone Type of Significant Property Manufacturing Warehouse Total Industrials Americas 6 1 0 7 10 1 15 26 0 1 8 9 Industrials Total 16 3 23 42 Energy Americas 7 1 7 15 EMEA 5 0 1 6 APAC 2 0 1 3 Energy Total 14 1 9 24 Medical Americas 3 0 0 3 EMEA 4 0 1 5 APAC 1 0 0 1 Medical Total 8 0 1 9 Total (All Segments) Americas 16 2 7 25 EMEA 19 1 17 37 APAC 3 1 9 13 38 4 33 75 (1) Europe, Middle East and Africa (“EMEA”) (2) Asia Pacific (“APAC”) (3) Two facilities are shared between our segments and each is counted once, in the Industrials segment, to avoid double counting. (2)(4)Other facilities includes service centers and sales offices. in our sector. We believe that such proceedings, lawsuits and administrative actions will not materially adversely affect our operations, financial condition, liquidity or competitive position. A moreFor a detailed discussion of certain of these proceedings, lawsuits and administrative actions, is set forth below.Environmental MattersWe are subjectsee Note 20, “Contingencies” to numerous federal, state, local and foreign laws and regulations relating to the storage, handling, emission and disposal of materials and discharge of materials into the environment. We believe that our existing environmental control procedures are adequate and we have no current plans for substantial capital expenditures in this area. We have an environmental policy that confirms our commitment to a clean environment and compliance with environmental laws. We have an active environmental management program aimed at complying with existing environmental regulations and reducing the generation of pollutants in the manufacturing processes. We are also subject to laws concerning the cleanup of hazardous substances and wastes, such as the U.S. federal “Superfund” and similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. We have been identified as a potentially responsible party with respect to several sites designated for cleanup under the “Superfund” or similar state laws.20Asbestos and Silica-Related LitigationWe have been named as a defendant in many asbestos-related and silica-related personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources and typically we are one of approximately 25 or more named defendants. Our predecessors sometimes manufactured, distributed and/or sold products allegedly at issue in these pending asbestos and silica-related lawsuits (the “Products”). However, neither we nor our 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 we have never mined, manufactured, mixed, produced or distributed asbestos fiber or silica, 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. However, in our opinion, based on our experience to date, the substantial majority of the plaintiffs have not suffered an injury for which we bear responsibility.We believe that the pending and future asbestos and silica-related lawsuits are not likely to, in the aggregate, have a material adverse effect on ouraudited consolidated financial position, results of operations or liquidity, based on: our anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the Products described above; our opinion, based on our experience to date, 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 we otherwise bear responsibility; various potential defenses available to us with respect to such matters; and our 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 our 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, we believe that the amounts accrued on our Consolidated Balance Sheets are adequate and that the liabilities arising from the asbestos and silica-related personal injury lawsuits will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. We have accrued liabilities and other liabilities on our consolidated balance sheet to include a total litigation reserve of $105.8 million and $105.6 million as of December 31, 2018 and December 31, 2017 respectively, with respect to potential liability arising from our asbestos-related litigation. Asbestos-related defense costs are excluded from the asbestos claims liability and are recorded separately as an operating expense as services are incurred. We currently expect to continue to incur significant asbestos-related defense costs. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters may be material to the our consolidated financial position, results of operation or liquidity, and defense costs may be material. However, at this time, based on presently available information, we view this possibility as remote.We have entered into a series of agreements with certain of our or our predecessors’ legacy insurers and certain potential indemnitors to secure insurance coverage and/or reimbursement for the costs associated with the asbestos and silica-related lawsuits filed against us. We have also pursued litigation against certain insurers or indemnitors where necessary. We have an insurance recovery receivable for probable asbestos related recoveries of approximately $103.0 million and $100.4 million as of December 31, 2018 and December 31, 2017 which was included in “Other assets” on the Consolidated Balance Sheetsstatements included elsewhere in this Formform 10-K. During the year ended December 31, 2018, we received asbestos related insurance recoveries of $14.4 million, of which $6.2 million related to the recovery of indemnity payments, and was recorded as a reduction of the insurance recovery receivable in “Other assets” on the Consolidated Balance Sheets included elsewhere in this Form 10-K, and $8.2 million related to the reimbursement of previously expensed legal defense costs and was recorded as a reduction of “Selling and administrative expenses” in the Consolidated Statements of Operations included elsewhere in this Form 10-K.The largest such recent action, 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, we seek, among other things, to require certain excess insurer defendants to honor their insurance policy obligations to us, including payment in whole or in part of the costs associated with the asbestos-related lawsuits filed against us. In October 2011, we 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 which 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, we prevailed on the first phase of that21discovery and motions process (“Phase I”). Specifically, the Court in the Adams County Case ruled that we have rights under all of the policies in the case, subject to their terms and conditions, even though the policies were sold to our former owners rather than to us. On June 9, 2016, the Court denied a motion by several of the insurers who sought permission to appeal the Phase I ruling now 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”).A majority of our expected future recoveries of the costs associated with the asbestos-related lawsuits are the subject of the Adams County Case.The amounts we recorded for asbestos-related liabilities and insurance recoveries are based on currently available information and assumptions that we believe are reasonable based on our evaluation of relevant factors with input from a third party actuarial expert. Our 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 we have reached settlements, the resolution of coverage issues with other excess insurance carriers with whom we have not yet achieved settlements and the solvency risk with respect to our insurance carriers. Other factors that may affect our 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. We make the necessary adjustments for our asbestos liability and corresponding insurance recoveries on an annual basis unless facts or circumstances warrant assessment as of an interim date.Environmental LiabilitiesWe have 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, we are only a small contributor to these waste sites, and we have, or are attempting to negotiate, de minimis settlements for our cleanup. The cleanup of the remaining sites is substantially complete and our future obligations entail a share of the sites’ ongoing operating and maintenance expense. We are also addressing four on-site cleanups for which we are the primary responsible party. Three of these cleanup sites are in the operation and maintenance stage and one is in the implementation stage.We have an accrued liability on our consolidated balance sheet of $6.9 million and $7.5 million as of December 31, 2018 and December 31, 2017, respectively, to the extent costs are known or can be reasonably estimated for our remaining financial obligations for the environmental matters discussed above and which does not anticipate that any of these matters will result in material additional costs beyond amounts accrued. Based upon consideration of currently available information, we do not anticipate any material adverse effect on our 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.ApplicableApplicable.22TABLEITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF CONTENTSEQUITY SECURITIESPART IIITEM 5.MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES2019,2020, there were 196106 holders of record of our common stock. This stockholder figure does not include a substantially greater number of holders whose shares are held of record by banks, brokers, and other financial institutions.20182019 and 2017.2018. We do not intend to pay cash dividends on our common stock in the foreseeable future. We may, in the future, decide to pay dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions contained in current or future financing instruments and other factors that our board of directors deem relevant.2018.
of Shares
Purchased(1)
Paid
Per Share(2)
of Shares
Purchased
as Part of
Publicly
Announced
Plans or Programs(3)
Approximate
Dollar Value
of Shares
that May Yet
Be Purchased
Under the
Plans or Programs(3)2019 Fourth Quarter Months October 1, 2019 - October 31, 2019 - $ - - 220,756,556 November 1, 2019 - November 30, 2019 38,285 $ 33.71 - 220,756,556 December 1, 2019 - December 31, 2019 1,571 $ 35.02 - 220,756,556 (1) All of the shares purchased during the quarter ended December 31, 20182019 were acquired pursuant to the repurchase program described in (3) below, except for 11,653 shares that were repurchased during the period from October 1, 2018 through October 31, 2018 in connection with net exercises of stock options.(2) The average price paid per share includes brokerage commissions. (3) On August 1, 2018, the Companywe announced that our Board of Directors had approved a share repurchase program which authorized the repurchase of up to $250.0 million of the Company’sour outstanding common stock over the next two years, effective August 1, 2018 until and including July 31, 2020. For a further description of the share repurchase program, see Note 2425 “Share Repurchase Program” to our audited consolidated financial statements included elsewhere in this Form 10-K.23ITEM 6.SELECTED FINANCIAL DATA20182019 and 20172018 and for the fiscal years ended December 31, 2019, 2018 2017 and 20162017 have been derived from our audited consolidated financial statements and related notes to our audited consolidated financial statements included elsewhere in this Form 10-K. The selected consolidated financial data as of December 31, 2017, 2016 and 2015, and 2014for the fiscal years ended December 31, 2016 and 2015, have been derived from our audited consolidated financial statements and related notes to our audited consolidated financial statements not included in this Form 10-K.
December 31,
2018
December 31,
2017(1)
December 31,
2016(1)
December 31,
2015(1)
December 31,
2014(1) Consolidated Statements of Operations: Revenues $ 2,451.9 $ 2,689.8 $ 2,375.4 $ 1,939.4 $ 2,126.9 Cost of sales 1,540.2 1,677.3 1,477.5 1,222.7 1,347.8 Gross profit 911.7 1,012.5 897.9 716.7 779.1 Selling and administrative expenses 436.4 434.6 446.2 415.1 431.0 Amortization of intangible assets 124.3 125.8 118.9 124.2 115.4 Impairment of goodwill - - - - 343.3 Impairment of other intangible assets - - 1.6 25.3 78.1 Other operating expense, net 75.7 9.1 222.1 48.6 20.7 Operating income (loss) 275.3 443.0 109.1 103.5 (209.4 ) Interest expense 88.9 99.6 140.7 170.3 162.9 Loss on extinguishment of debt 0.2 1.1 84.5 - - Other income, net (4.7 ) (7.2 ) (3.4 ) (3.6 ) (5.6 ) Income (loss) before income taxes 190.9 349.5 (112.7 ) (63.2 ) (366.7 ) Provision (benefit) for income taxes 31.8 80.1 (131.2 ) (31.9 ) (14.7 ) Net income (loss) 159.1 269.4 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. $ 159.1 $ 269.4 $ 18.4 $ (36.6 ) $ (351.2 ) Earnings (loss) per share, basic $ 0.78 $ 1.34 $ 0.10 $ (0.25 ) $ (2.35 ) Earnings (loss) per share, diluted $ 0.76 $ 1.29 $ 0.10 $ (0.25 ) $ (2.35 ) Weighted average shares, basic 203.5 201.6 182.2 149.2 149.6 Weighted average shares, diluted 208.9 209.1 188.4 149.2 149.6 Statement of Cash Flow Data: Cash flows - operating activities $ 343.3 $ 444.5 $ 200.5 $ 165.6 $ 172.1 Cash flows - investing activities (54.3 ) (235.0 ) (60.8 ) (82.1 ) (84.0 ) Cash flows - financing activities (11.5 ) (373.0 ) (17.4 ) (43.0 ) (35.0 ) Balance Sheet Data (at period end): Cash and cash equivalents $ 505.5 $ 221.2 $ 393.3 $ 255.8 $ 228.3 Total assets 4,628.4 4,487.1 4,621.2 4,316.0 4,462.0 Total liabilities 2,758.5 2,811.1 3,144.4 4,044.2 4,056.5 Total stockholders’ equity 1,869.9 1,676.0 1,476.8 271.8 405.5 Other Financial Data (unaudited): $ 564.8 $ 681.8 $ 561.5 $ 400.7 $ 418.9 332.4 394.7 249.3 133.6 128.1 Capital expenditures 43.2 52.2 56.8 74.4 71.0 300.1 392.3 143.7 91.2 101.1 24
December 31,
2018
December 31,
2017(1)
December 31,
2016(1)
December 31,
2015(1)
December 31,
2014(1)(1) In the first quarter of fiscal year 2018, we adopted the provisions of ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). The reclassification of other components of net periodic benefit cost for the years ended December 31, 2017 and 2016 as a result of the adoption of ASU 2017-07 is detailed in Note 2 “New Accounting Standards” to our audited consolidated financial statements included elsewhere in this Form 10-K. For the years ended December 31, 2015 and 2014, we reclassified $4.0 million and $2.9 million of income, respectively, from “Selling and administrative expenses” to “Other income, net.”(2)We report our financial results in accordance with GAAP. To supplement this information, we also use the following measures in this Form 10-K: “Adjusted EBITDA,” “Adjusted Net Income” and “Free Cash Flow.” Management believes that Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation and amortization, as further adjusted to exclude certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions. We use Free Cash Flow to review the liquidity of our operations. We measure Free Cash Flow as cash flows from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities.25 (loss) to Adjusted EBITDA and Adjusted Net Income and cash flows from operating activities to Free Cash Flow. Year Ended December 31, 2019 2018 2017 Net Income $ 159.1 $ 269.4 $ 18.5 Plus: Interest expense 88.9 99.6 140.7 Provision (benefit) for income taxes 31.8 80.1 (131.2 ) Depreciation expense 53.8 54.6 54.9 124.3 125.8 118.9 - - 1.6 - - 17.3 25.6 38.8 24.7 54.6 16.7 4.1 0.1 - 0.9 - 2.9 4.1 0.6 4.3 8.1 23.1 (2.3 ) 194.2 0.2 1.1 84.5 Foreign currency transaction losses (gains), net 8.1 (1.9 ) 9.3 (6.0 ) (9.5 ) - 0.6 2.2 10.9 Adjusted EBITDA $ 564.8 $ 681.8 $ 561.5 Minus: Interest expense $ 88.9 $ 99.6 $ 140.7 77.9 119.0 105.4 Depreciation expense 53.8 54.6 54.9 Amortization of non-acquisition related intangible assets 11.8 13.9 11.2 Adjusted Net Income $ 332.4 $ 394.7 $ 249.3 Free Cash Flow Cash flows - operating activities $ 343.3 $ 444.5 $ 200.5 Minus: Capital expenditures 43.2 52.2 56.8 Free Cash Flow $ 300.1 $ 392.3 $ 143.7 (a) Represents $112.5 million, $111.9 million $107.7 million and $110.6$107.7 million of amortization of intangible assets arising from the KKR Transaction and other acquisitions (customer relationships and trademarks) and $11.8 million, $13.9 million $11.2 million and $13.6$11.2 million of amortization of non-acquisition related intangible assets, in each case for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively.(b) Represents non-cash charges for impairment of intangible assets other intangible assets.than goodwill.(c) Represents management fees and expenses paid to Kohlberg, Kravis & Roberts & Co., L.P. (“KKR” or “Former Sponsor”). (d) Restructuring and related business transformation costs consistconsisted of the following. Year Ended December 31, 2019 2018 2017 $ 17.1 $ 12.7 $ 5.3 2.5 4.1 3.5 2.4 3.1 5.3 1.2 0.8 5.2 Losses (gains) on asset and business disposals 0.8 (1.1 ) 0.8 0.3 14.1 1.7 1.3 5.1 2.9 $ 25.6 $ 38.8 $ 24.7 26(e) Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs), and non-cash charges and credits arising from fair value purchase accounting adjustments. (f) Represents estimated environmental remediation costs and losses relating to a former production facility. (g) Represents certain expenses related to our initial public offering and subsequent secondary offerings.(h) in 2018 and the accelerated adoption of the new accounting standards (ASC 606 – Revenue from Contracts with Customersand ASC 842 – Leases) in the first quarter of 2018 and 2019, respectively, one year ahead of the required adoption dates for a private company.(i) Represents stock-based compensation expense recognized for stock options outstanding for the year ended December 31, 20182019 of $2.8$19.2 million, reducedincreased by $5.1$3.9 million primarily due to a decrease in the estimated accrual forcosts associated with employer taxes related to deferred stock units (“DSU”) as a result of a lower per share stock price.taxes.under the 2013 Stock Incentive Plan, and employer taxes related to DSUs granted to employees at the date of the initial public offering of $19.2 million.(j) Represents losses on the extinguishment of the Company’s senior notes, extinguishment of a portion of the U.S. Term Loan, refinancing of the Original Dollar Term Loan Facility and the Original Euro Term Loan Facility and losses reclassified from AOCI into income related to the amendment of the interest rate swaps in conjunction with the debt repayment. (k) Represents insurance recoveries of our shareholder litigation settlement in 2014. (l) Includes (i) the non-cash impact of net LIFO reserve adjustments,adjustment, (ii) effects of amortization of prior service costs and amortization of losses in pension and other postemploymentpostretirement benefits (“OPEB”) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments.(m) Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of applicable discrete tax items. The tax effect of pre-tax items excluded from Adjusted Net Income is computed using the statutory tax rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances. Discrete tax items include changes in tax laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances. All impacts relating to the Tax Cuts and Jobs Act of 2017 have been included as an adjustment on the ‘Tax law change” line of the table below. Year Ended December 31, 2019 2018 2017 Provision (benefit) for income taxes $ 31.8 $ 80.1 $ (131.2 ) Tax impact of pre-tax income adjustments 45.6 36.9 139.3 Tax law change - 1.2 95.3 Discrete tax items 0.5 0.8 2.0 Income tax provision, as adjusted $ 77.9 $ 119.0 $ 105.4 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS4138 key manufacturing facilities, more than 30 complementary service and repair centers across six continents and approximately 6,7006,600 employees worldwide as of December 31, 2018.39%38% of total Company revenue and approximately 43%42% of our combined Industrials and Energy segments’ revenue in 2018.2018,2019, the Industrials segment generated Segment Revenue of $1,303.3$1,301.3 million and Segment Adjusted EBITDA of $288.2$296.6 million, reflecting a Segment Adjusted EBITDA Margin of 22.1%22.8%.28Energy2018,2019, the Energy segment generated Segment Revenue of $1,121.1$870.2 million and Segment Adjusted EBITDA of $337.8$225.1 million, reflecting a Segment Adjusted EBITDA Margin of 30.1%25.9%.2018,2019, the Medical segment generated Segment Revenue of $265.4$280.4 million and Segment Adjusted EBITDA of $75.0$84.4 million, reflecting a Segment Adjusted EBITDA Margin of 28.3%30.1%.29(viii)administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; and (ix) other miscellaneous expenses. Certain corporate expenses, including those related to our shared service centers in the United States and Europe, that directly benefit our businesses are allocated to our business segments. Certain corporate administrative expenses, including corporate executive compensation, treasury, certain information technology, internal audit and tax compliance, are not allocated to the business segments.and intangible assets recognized in connection with businesses we acquired since July 30, 2013, including customer relationships and trademarks.intangible assets.than goodwill.30stock-based compensation expense and other miscellaneous operating expenses.On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017 and 2018, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years, (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%. See Note 15 “Income Taxes” to our audited consolidated financial statements included elsewhere in this Form 10-K.52%56% for the year ended December 31, 2018,2019, was denominated in currencies other than the U.S. dollar. Because much of our manufacturing facilities and labor force costs are outside of the United States, a significant portion of our costs are also denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates can therefore impact our results of operations and are quantified when significant to our discussion.31 provide services to customers in upstream energy markets, primarily in the United States. For the upstream energy end-market, in our Energy segment, we manufacture pumps and associated aftermarket products and services used in drilling, hydraulic fracturing and well service applications, while in our Industrials segment we sell dry bulk frac sand blowers, which are used in hydraulic fracturing operations. We refer to these products and services in the Energy and Industrial segments as “upstream energy.” Our Medical segment is not exposed to the upstream energy industry.2016, 20172018 and 20182019 Segment Revenue and Segment Adjusted EBITDA, in order to better understand other drivers of our performance during those periods, including operational improvements. For the Energy segment,segments, we assess the impact of our exposure to upstream energy as the portion of Energy Segment Adjusted EBITDA of the business unit serving the upstream energy market. For the Industrials segment, we assess the impact as the standard profit on the specific upstream energy market products.Since 2013, our top priority has been Under these restructuring programs, we incurred restructuring charges of $5.3 million and $32.9 million in 2017 and 2016, respectively. In addition, we incurred program related facility reorganization, relocation and other costs of $5.3 million and $8.7 million in 2017 and 2016, respectively. We also made capital expenditures related to these programs of approximately $3.1 million in 2017 and $16.2 million in 2016. The Industrials restructuring program included the closure of a business that had approximately $3.0 million in revenues in 2016. These restructuring programs were completed in 2017. We generally expect that the savings associated with these restructuring programs will recover the associated costs within two to three years of such costs being incurred.and fourth quartersquarter of 2018 that primarily involves workforce reductions and facility consolidations. InFor the yearyears ended December 31, 2019 and 2018, $17.1 million and $12.7 million, wasrespectively were charged to expense related to this restructuring program. We expect additional restructuring activity in the first half of 2019 focused on targeted workforce optimization within general and administrative back-office and manufacturing overhead as well as continued facility consolidation.Given our global reach, market leading position in our various product categories, strong channel access and aftermarket presence and operational excellence competency, our Company provides an attractive acquisition platform in the flow control and compression equipment sectors. In August 2016, we acquired a manufacturer of highly specialized consumable micro-syringes and valves that are used in liquid handling instruments in our Medical segment for approximately $18.8 million.million recorded in “Accrued liabilities”)million).32a payable for a $0.1 million purchase price adjustment and a $0.6$0.7 million holdback).$108.0$137.6 million $27.8$96.2 million and $4.9$13.9 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively. The operating income (loss) for these acquisitions subsequent to their respective dates of acquisition, including organic growth since acquisition, included in our financial results was $8.8$19.1 million, $3.7$8.3 million and ($0.3)$1.4 million for the years ended December 31, 2019, 2018 and 2017, and 2016, respectively.2017 and 2016.KKR Management Fees and ExpensesThrough the date of our initial public offering in 2017, KKR charged an annual management fee, as well as fees and expenses for services provided. These fees and charges were $1.1 million and $4.8 million for the years ended December 31, 2017 and 2016, respectively. In May 2017, the monitoring agreement was terminated in accordance with its terms and we paid an additional termination fee of approximately $16.2 million.DSUsdeferred stock units (“DSU”) as a result of a lower per share stock price.The $2.8 million of stock-based compensation expense included expense formodification of equity awards for certain former employees of $3.8 million and expense for equity awards granted under the 2013 Plan and the 2017 Plan of $7.2 million reduced by a benefit for a reduction in the liability for stock appreciation rights (“SAR”) of $8.2 million. As ofyear ended December 31, 2018, there was $20.3 million of unrecognized stock-based compensation expense related to outstanding stock options that will be recognized in future periods.Subsequent to the initial public offering in May 2017,2019, we recognizedincurred stock-based compensation expense of approximately $77.6$19.2 million relatedwhich was increased by $3.9 million due to time-based and performance-based stock options. As of December 31, 2017 there was $9.1 million of unrecognizedcosts associated with employer taxes. See Note 17 “Stock-Based Compensation” to our audited consolidated financial statements included elsewhere in this Form 10-K for further discussion around our stock-based compensation expense related to outstanding stock options that will be recognized in future periods. The Company also recognized $97.4 million of compensation expense related to a grant of 5.5 million DSUs to employees at the date of the initial public offering and employer taxes related to DSUs of $19.2 million. The Company expects to make stock-based awards to employees and recognize stock-based compensation expenses in future periods.33hashad a (0.3)% impact to the overall rate in 2018.20182019 reflects this decision. All of the additional calculations and rule changes found in the Tax Act have been considered in the tax provision for the three and twelve month periodsyear ended December 31, 2018.2019. The Company recorded a tax expense of $11.9$2.0 million in the period2019 for the GILTI provisions of the Tax Act that were effective for the first time during 2018.2018,2019, we had $322.5booked $307.6 million of orders in our Industrials segment, an increasea decrease of 1%4.6% over the fourth quarter of 2017,2018, or a 4% increase3.1% decrease on a constant currency basis. We believe that we are well positioned to continue to benefit from a slower but positive industrial production and global GDP outlook. Our fourth quarter of 2018 constant currency increase was on top of strong fourth quarter of 2017 growth of 25%basis.but expectdespite the current demand environment and economic factors growth will slow with some factors potentially declining.342018,2019, we had $269.5booked $171.8 million of orders in our Energy segment, a decrease of 4%36.3% over the fourth quarter of 2017,2018, or a 3%35.4% decrease on aan constant currency basis. This fourth quarter of 2018 constant currency decrease was off strong fourth quarter of 2017 growth of 62%.During 2018, we focused on the development and introduction of new products and applications to access the liquid pump market, leveraging our technology and expertise in gas pumps. Entering 2019,20182019 we had $65.8booked $63.7 million of orders in our Medical segment, a decrease of 1%3.2% over 2017,2018, or a 1% increase1.8% decrease on a constant currency basis. This fourth quarter increase on a constant currency basis was on top of strong fourth quarter of 2017 growth of 29%.352018, 20172019 and 2016 Year Ended December 31, 2019 2018 Consolidated Statements of Operations Revenues $ 2,451.9 $ 2,689.8 Cost of sales 1,540.2 1,677.3 Gross profit 911.7 1,012.5 Selling and administrative expenses 436.4 434.6 Amortization of intangible assets 124.3 125.8 Impairment of other intangible assets - - Other operating expense, net 75.7 9.1 Operating income 275.3 443.0 Interest expense 88.9 99.6 Loss on extinguishment of debt 0.2 1.1 Other income, net (4.7 ) (7.2 ) Income before income taxes 190.9 349.5 Provision for income taxes 31.8 80.1 Net income $ 159.1 $ 269.4 Percentage of Revenues Gross profit 37.2 % 37.6 % Selling and administrative expenses 17.8 % 16.2 % Operating income 11.2 % 16.5 % Net income 6.5 % 10.0 % 23.0 % 25.3 % Other Financial Data $ 564.8 $ 681.8 332.4 394.7 Cash flows - operating activities 343.3 444.5 Cash flows - investing activities (54.3 ) (235.0 ) Cash flows - financing activities (11.5 ) (373.0 ) 300.1 392.3 (1) See “Item 6. Selected Financial Data” for a reconciliation to the most directly comparable GAAP measure. 36Revenues20182019 were $2,689.8$2,451.9 million, an increasea decrease of $314.4$237.9 million, or 13.2%8.8%, compared to $2,375.4$2,689.8 million in 2017.2018. The increasedecrease in revenues was due primarily to higherlower revenues from upstream energy exposed markets (3.8%(8.8% or $90.2$235.6 million) and the unfavorable impact of foreign currencies (2.4% or $65.2 million), partially offset by improved pricing (1.4% or $36.8 million) and higher volume in other markets in our Energy Segment as well as in our Industrials and Medical Segmentssegments including from acquisitions (7.0%(1.1% or $167.1 million), improved pricing in the other markets of our Energy Segment as well as in our Industrials and Medical Segments (1.2% or $28.8 million) and the favorable impact of foreign currencies (1.2% or $28.3$28.9 million). The percentage of consolidated revenues derived from aftermarket parts and services was 37.8% in 2019 compared to 39.2% in 2018 compared to 41.3%2018.2017.Revenues for 2017 were $2,375.42019 was $911.7 million, an increasea decrease of $436.0$100.8 million, or 22.5%10.0%, compared to $1,939.4$1,012.5 million in 2016. The increase in revenues was due primarily to higher revenues from upstream energy exposed markets (20.9% or $405.5 million), the favorable impact of foreign currencies (1.1% or $21.8 million), improved pricing in the other markets of our Energy segment as well as in our Industrials and Medical segments (1.0% or $18.8 million), and higher volume in our Industrials segment including from acquisitions net of divestitures (0.1% or $1.6 million), partially offset by lower volume including acquisitions in other markets in our Energy segment as well as in our Medical segment (0.6% or $11.7 million). The percentage of consolidated revenues derived from aftermarket parts and services was 41.3% in 2017 compared to 34.7% in 2016.See further analysis in the segment results below.Gross ProfitGross profit in 2018, was $1,012.5 million, an increase of $114.6 million, or 12.8%, compared to $897.9 million in 2017, and as a percentage of revenues was 37.2% in 2019 and 37.6% in 2018 and 37.8% in 2017.2018. The increasedecrease in gross profit reflects primarily higherthe lower revenues from upstream energy exposed markets, higher volume in other markets in our Energy Segment as well as in our Industrials and Medical Segments including from acquisitions, improved pricing in the other markets of our Energy Segment as well as in our Industrials and Medical Segments, and the favorableunfavorable impact of foreign currencies.currencies and higher materials and other manufacturing costs, partially offset by improved pricing. The slight decrease in gross profit as a percentage of revenues primarily reflects the unfavorable impact of foreign currencies and higher materials and other manufacturing costs in our Industrials and Energy Segments, growth rates for original equipment revenues greater than the growth rates for aftermarket products and services in our Industrials Segment, and unfavorable product sales mix in our Industrials and Energy Segments.Gross profit in 2017 was $897.9 million, an increase of $181.2 million, or 25.3%, compared to $716.7 million in 2016, and as a percentage of revenues was 37.8% in 2017 and 37.0% in 2016. The increase in gross profit reflects higher revenues from upstream energy exposed markets, higher volume in our Industrials segment including acquisitions and net of divestitures, improved pricing in other markets in our Energy segment as well as in our Industrials and Medical segments, and the favorable impact of foreign currencies, partially offset by lower volume including acquisitions in other markets in our Energy segment as well as in our Medical segment.2018, a decrease of $11.6 million, or 2.6%, compared to $446.2 million in 2017. Selling and administrative expenses includes KKR fees and expenses of $0.0 million in 2018 and $17.3 million in 2017 and expenses related to our public stock offerings and establishment of public company financial reporting of $7.2 million in 2018 and $12.2 million in 2017. Excluding these items, selling and administrative expenses were $427.4 million in 2018 compared to $416.7 million in 2017, and selling and administrative expenses as a percentage of revenues decreased to 15.9% in 2018 from 17.5% in 2017. This increase in selling and administrative expense in 2018 primarily reflects increased professional and consulting fees, increased salaries, and additional selling and administrative expenses from acquisitions, partially offset by decreased incentive compensations.2018. Selling and administrative expenses as a percentage of revenues decreased primarily dueincreased to higher revenues.Selling and administrative expenses were $446.2 million17.8% in 2017, an increase of $31.1 million, or 7.5%, compared to $415.1 million2019 from 16.2% in 2016. Selling and administrative expenses in 2017 includes $12.2 million of expenses related to our public stock offerings and establishment of public company financial reporting and $17.3 million of KKR fees and expenses, compared to $0.2 million and $4.8 million of expenses related to the establishment of public company financial reporting and KKR fees and expenses in 2016, respectively. Excluding these items, selling and administrative expenses were $416.7 million in 2017 compared to $410.1 million in 2016, and selling and37administrative expenses as a percentage of revenues decreased to 17.5% in 2017 from 21.1% in 2016.2018. This increase in selling and administrative expense in 2017expenses was primarily reflectsdue to increased salariesstock based compensation expense and other employee relatedemployee-related expenses, and professional and consulting fees, partially offset by reduced facilities operating expenseslower professional and reduced sales commissions. Selling and administrative expenses as a percentage of revenues decreased primarily due to higher revenues.$118.9 million, and $124.2 million in 2018, 2017 and 2016, respectively.2018. The increase of $6.9 million in 2018 compared to 2017decrease was primarily due to intangibles that became fully amortized in 2019, partially offset by the amortization of intangibles acquired in 2018.The decrease of $5.3 million in 2017 compared to 2016 was primarily due to assets that became fully amortized in 2016, partially offset by changes in foreign currencies.Impairment of Other Intangible AssetsIn 2017, we recorded a non-cash charge for the impairment of other intangible assets of $1.6 million, primarily related to trademarks in our Industrials segment.In 2016, we recorded a non-cash charge for the impairment of other intangible assets of $25.3 million, primarily related to trademarks in our Industrials segment.2018, a decrease of $213.0 million compared to $222.1 million in 2017,2018. The increase was primarily due to lower stock-based compensation expense of $172.3 million and lower employer taxes related to stock-based compensation of $24.3 million, foreign currency transaction gains of $1.9 million in 2018 compared to losses of $9.3 million in 2017, and shareholder litigation settlement recoveries in 2018 of $9.5 million, partially offset by increased restructuring charges of $7.4 million and increased acquisition related expenses and non-cash charges of $6.4 million.Other operating expense, net was $222.1$44.0 million, in 2017, an increase of $173.5 million compared to $48.6 million in 2016, primarily due to the recognition of stock-based compensation expense for stock options and deferred stock units of $175.0 million, employer taxes related to deferred stock units of $19.2 million and increased foreign currency transaction losses of $9.3$8.1 million in 20172019 compared to gains of $5.9$1.9 million in 2016, partially offset by lower employee severance2018, increased restructuring costs of $5.3$4.4 million in 2017 compared to $32.9 million in 2016, and lower environmental remediationshareholder litigation settlement recoveries of $0.9 million in 2017 compared to $5.6 million in 2016.$140.7 million and $170.3 million in 2018, 2017 and 2016, respectively.2018. The decrease of $41.1 million in 2018 compared to 2017 was primarily due to repayments of debt with the proceeds of our initial public offering in 2017 and reduced debt as a result of prepayments in 2018 and a lower2019, partially offset by an increased weighted-average interest rate of 5.4% in 2019 compared to 5.2% in 20182018.6.0%$7.2 million in 2017.2018. The decrease of $29.6 million in 2017 compared to 2016other income, net was primarily due to reduced debt as a resultan increase of repayments of debt with proceeds of our initial public offering, and a decreased weighted-average interest rate of approximately 6.0% in 2017 compared to 6.1% in 2016.Other Income, NetOther income, net was $7.2 million, $3.4 million and $3.6 million in 2018, 2017 and 2016, respectively. The increase in other income, net of $3.8 million in 2018 compared to 2017 was primarily due to a reduction of $5.1$4.6 million in the other components of net periodic benefit cost increased interest incomeand a decrease of $0.8 million and increasedin other financing income, of $0.7 million, partially offset by a decrease in theincreased gains on postretirement plan investments of $2.8$2.9 million. The decrease of $0.2 million in 2017 compared to 2016 was primarily due to an increase of $1.2 million in the other components of net periodic benefit cost partially offset by the increase in the gain on postretirement plan investments of $1.0 million. (Benefit) for Income Taxes2018 compared to a benefit of $131.2 million resulting in a 116.3% effective tax benefit rate in 2017.2018. The increasedecrease in the tax provision38decreaseddecrease in the effective tax rate resultedis primarily from an increasedue to a decrease in pretax book income and an increase in a benefit related to equity compensation, and a reduction of the overall impact of the Tax Act in 2018 compared to the enactment date in 2017.The benefit for income taxes was $131.2 million resulting in a 116.3% effective tax benefit rate in 2017 compared to a benefit of $31.9 million resulting in a 50.5% effective tax benefit rate in 2016. The increase in the tax benefit and the effective tax rate resulted primarily from the Tax Act. There was a $89.6 million deferred benefit associated with the rate moving from 35% to 21%. In 2017, we recognized an ASC 740-30 (formerly APB 23) liability reduction related to the permanent reinvestment of earnings in foreign subsidiaries assertion, resulting in a benefit of $69.0 million which was partially offset by a one-time transition tax provision of approximately $63.3 million. (Loss)2018 compared to a net income of $18.5 million in 2017.2018. The increasedecrease in net income was primarily due to higher operating incomelower gross profit on higherlower revenues and gross profit, lower stock-based compensationhigher other operating expense, lower loss on extinguishment of debt, and lower interest expense,net, partially offset by an increase in the provision for income taxes.Net income was $18.5 million in 2017 compared to a net loss of $31.3 million in 2016. The increase in net income was primarily due to higher operating income on higher revenues and gross profit and lower interest expense and an increase in the benefita lower provision for income taxes, partially offset by higher stock-based compensation expense and loss on extinguishment of debt.increased $120.3decreased $117.0 million to $564.8 million in 2019 compared to $681.8 million in 2018 compared to $561.5 million in 2017.2018. Adjusted EBITDA as a percentage of revenues increased 170decreased 230 basis points to 23.0% in 2019 from 25.3% in 2018 from 23.6% in 2017.2018. The increasedecrease in Adjusted EBITDA was primarily due to higher revenues fromlower revenue in upstream energy exposed markets ($44.2 million), improved pricing in the other markets of our Energy Segment as well as in our Industrials and Medical Segments ($28.8 million), higher volume in other markets in our Energy Segment as well as in our Industrials and Medical Segments including from acquisitions ($63.1 million) and lowersegment of $110.4 million, higher selling and administrative expenses ($22.0 million), partially offset byof $19.4 million, the unfavorable impact of foreign currencies of $15.6 million, higher materials and other manufacturing costs in our Industrials and Energy Segments growth rates for original equipment revenues greater thanMedical segments of $12.4 million and higher volume including acquisitions being offset by the growth rates for aftermarket products and servicesdilutive impact of acquisitions in our Industrials Segment, and unfavorable product sales mix in our Industrials Segment and in other markets in our Energy Segment ($43.5 million).Adjusted EBITDA increased $160.8segment of $7.4 million, to $561.5 million in 2017 compared to $400.7 million in 2016. Adjusted EBITDA as a percentage of revenues increased 290 basis points to 23.6% in 2017 from 20.7% in 2016. The increase in Adjusted EBITDA was primarily due to increased revenues in upstream energy exposed markets ($159.7 million), improved pricing ($18.8 million), and the favorable impact of foreign currencies ($5.9 million), partially offset by lowerimproved pricing of $36.8 million and higher volume in other markets in our Energy segment as well asand in our Industrials and Medical segmentssegment including acquisitions and divestitures ($15.5 million), and higher selling and administrative expenses ($9.3 million).increased $145.4decreased $62.3 million to $332.4 million in 2019 compared to $394.7 million in 2018 compared to $249.3 million in 2017.2018. The increasedecrease was primarily due to increasedlower Adjusted EBITDA, and lower interest expense, partially offset by an increase in thea lower income tax provision, as adjusted.Adjusted Net Income increased $115.7 million to $249.3 million in 2017 compared to $133.6 million in 2016. The increase was primarily due to increased Adjusted EBITDAadjusted and lower interest expense, partially offset by an increase in the income tax provision, as adjusted.392122 “Segment Information” to our audited consolidated financial statements included elsewhere in this Form 10-K.2018, 20172019 and 2016Results
Percent Change2018 Years Ended December 31, 2019 2018 2019 vs. 2018 2019 vs. 2018 Segment Revenues $ 1,301.3 $ 1,303.3 (0.2 )% 3.1 % Segment Adjusted EBITDA $ 296.6 $ 288.2 2.9 % 6.2 % Segment Margin 22.8 % 22.1 % 70 bps 201720182019were $1,303.3$1,301.3 million, an increasea decrease of $172.6$2.0 million, or 15.3%0.2%, compared to $1,130.7$1,303.3 million in 2017.2018. The increasedecrease in Segment Revenues was primarily due to higher volume, including through acquisitions (11.0%unfavorable impact of foreign currencies (3.3% or $124.8$42.4 million), partially offset by improved pricing (2.3% or $25.8$29.8 million), and the favorable impact of foreign currencies (1.9%higher volume including acquisitions (0.8% or $22.0$10.6 million). The percentage of Segment Revenues derived from aftermarket parts and service was 31.4% in 2019 compared to 31.5% in 2018 compared to 34.0% in 2017.20182019 was $288.2$296.6 million, an increase of $45.5$8.4 million, or 18.7%2.9%, from $242.7$288.2 million in 2017.2018. Segment Adjusted EBITDA Margin increased 6070 bps to 22.8% from 22.1% in 2018. The increase in Segment Adjusted EBITDA was due primarily to improved pricing of $29.8 million and lower selling and administrative expenses of $5.1 million, partially offset by the unfavorable impact of foreign currencies of $9.6 million, higher material and other manufacturing costs of $9.5 million, and higher volume including acquisitions offset by the dilutive impact of acquisitions $7.4 million. Years Ended December 31, Percent Change 2019 2018 2019 vs. 2018 2019 vs. 2018 Segment Revenues $ 870.2 $ 1,121.1 (22.4 )% (20.8 )% Segment Adjusted EBITDA $ 225.1 $ 337.8 (33.4 )% (32.3 )% Segment Margin 25.9 % 30.1 % (420) bps 21.5%upstream energy exposed markets (21.0% or $235.6 million), the unfavorable impact of foreign currencies (1.3% or $14.9 million) and lower volume in 2017.other markets in our Energy segment (0.3% or $2.8 million), partially offset by improved pricing in other markets in our Energy segment (0.2% or $2.4 million). The percentage of Segment Revenues derived from aftermarket parts and service was 58.7% in 2019 compared to 56.6% in 2018. Years Ended December 31, Percent Change 2019 2018 2019 vs. 2018 2019 vs. 2018 Segment Revenues $ 280.4 $ 265.4 5.7 % 8.6 % Segment Adjusted EBITDA $ 84.4 $ 75.0 12.5 % 16.3 % Segment Margin 30.1 % 28.3 % 180 bps through acquisitions ($41.0 million),of $9.1 million, improved pricing ($25.8 million)of $4.6 million and the favorable impact of foreign currencies ($6.0 million), partially offset by higher materials and other manufacturing costs, growth rates for original equipment revenues greater than the growth rates for aftermarket products and services, and unfavorable sales mix within original equipment revenues ($26.8 million).2017 vs. 2016Segment Revenues for 2017 were $1,130.7 million, an increase of $48.3 million, or 4.5%, compared to $1,082.4 million in 2016. The increase in Segment Revenues was due to higher volume including acquisitions and net of divestitures (1.9% or $20.4 million, including $18.9 million from upstream energy exposed markets), higher pricing (1.5% or $16.1 million) and the favorable impact of foreign currencies (1.1% or $11.8 million). The percentage of Segment Revenues derived from aftermarket parts and service was 34.0% in 2017 compared to 34.7% in 2016.40Segment Adjusted EBITDA in 2017 was $242.7 million, an increase of $25.1 million, or 11.5%, from $217.6 million in 2016. Segment Adjusted EBITDA Margin increased 140 bps to 21.5% from 20.1% in 2016. The increase in Segment Adjusted EBITDA was due primarily to improved pricing ($16.1 million), higher volume including acquisitions and net of divestitures ($6.0 million, including $13.0 million from upstream energy exposed markets), and the favorable impact of foreign currencies ($2.8 million).Energy Segment Results
Percent Change2018 vs. 2017Segment Revenuesfor 2018were $1,121.1 million, an increase of $106.6 million, or 10.5%, compared to $1,014.5 million in 2017. The increase in Segment Revenues was primarily due to higher revenues from upstream energy exposed markets (8.9% or $90.2 million) and higher volume and pricing in other markets in our Energy Segment (1.5% or $15.1 million) The percentage of Segment Revenues derived from aftermarket parts and service was 56.6% in 2018 compared to 58.0% in 2017.Segment Adjusted EBITDA in 2018 was $337.8 million, an increase of $41.7 million, or 14.1%, from $296.1 million in 2017. Segment Adjusted EBITDA Margin increased 90 bps to 30.1% in 2018 from 29.2% in 2017. The increase in Segment Adjusted EBITDA was primarily due to higher revenues from upstream energy exposed markets ($44.2 million) and higher volume and pricing in other markets in our Energy segment ($8.1 million), partially offset by higher material and manufacturing costs and unfavorable product sales mix in other markets in our Energy Segment ($11.2 million).2017 vs. 2016Segment Revenues for 2017 were $1,014.5 million, an increase of $386.1 million, or 61.4%, compared to $628.4 million in 2016. The increase in Segment Revenues was due to higher revenues from upstream energy exposed markets (61.5% or $386.6 million), and the favorable impact of foreign currencies (1.3% or $8.0 million), partially offset by lower volume in other markets of our Energy segment (1.4% or $8.6 million). The percentage of Segment Revenues derived from aftermarket parts and service was 58.0% in 2017 compared to 47.3% in 2016.Segment Adjusted EBITDA in 2017 was $296.1 million, an increase of $152.3 million, or 105.9%, from $143.8 million in 2016. Segment Adjusted EBITDA Margin increased 630 bps to 29.2% in 2017 from 22.9% in 2016. The increase in Segment Adjusted EBITDA was primarily due to increased revenues from upstream energy exposed markets ($146.7 million), lower selling and administrative expenses ($5.4 million), the favorable impactcosts of foreign currencies ($2.8 million), and lower material and manufacturing costs ($2.0 million), partially offset by lower volume in other markets in our Energy segment ($4.7 million).Medical Segment Results
Percent Change2018 vs. 2017Segment Revenuesfor 2018were $265.4$1.4 million, an increase of $35.2 million, or 15.3%, compared to $230.2 million in 2017. The increase in Segment Revenues was due to higher volume and pricing (13.2% or $30.3 million) and the41favorable impact of foreign currencies (2.2% or $5.0 million). The percentage of Segment Revenues derived from aftermarket parts, consumables and services was 3.3% in 2018 compared to 3.7% in 2017.Segment Adjusted EBITDA in 2018 was $75.0 million, an increase of $12.6 million, or 20.2%, from $62.4 million in 2017. Segment Adjusted EBITDA Margin increased 120 bps to 28.3% in 2018 from 27.1% in 2017. The increase in Segment Adjusted EBITDA was primarily due to higher volume and pricing ($17.1 million) and favorable impact of foreign currencies ($1.5 million), partially offset by higher material and other manufacturing costs ($6.3 million).2017 vs. 2016Segment Revenues for 2017 were $230.2of $2.9 million an increase of $1.5 million, or 0.7%, compared to $228.7 million in 2016. The increase in Segment Revenues was due to improved pricing (1.1% or $2.6 million), the favorableand unfavorable impact of foreign currencies (0.9% or $2.0 million), partially offset by lower volume including acquisitions (1.3% or $3.1 million). The percentage of Segment Revenues derived from aftermarket parts, consumables and services was 3.7% in 2017 compared to 0.0% in 2016.Segment Adjusted EBITDA in 2017 was $62.4 million, an increase of $0.5 million, or 0.8%, from $61.9 million in 2016. Segment Adjusted EBITDA Margin remained constant at 27.1% in 2017 and 2016. The increase in Segment Adjusted EBITDA was primarily due to improved pricing ($2.6 million), lower selling and administrative expense ($2.1 million), and the favorable impact of foreign currencies ($0.7 million), partially offset by lower volume including acquisitions ($3.7 million), and higher material and other manufacturing costs ($1.2 million).(in millions, except per share amounts) Year Ended December 31, 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Revenues $ 620.3 $ 629.1 $ 596.7 $ 605.8 $ 619.6 $ 668.2 $ 689.3 $ 712.7 Gross profit 230.5 234.4 221.5 225.3 231.9 249.3 262.4 268.9 Operating income 80.2 74.6 72.9 47.6 89.8 101.4 117.7 134.1 Net income 47.1 44.9 41.3 25.8 42.4 60.3 72.2 94.5 Weighted average shares, basic 201.6 203.4 204.2 204.8 201.6 201.8 201.9 201.1 Weighted average shares, diluted 207.7 208.9 209.0 209.4 209.9 209.6 209.1 207.7 Basic earnings per share 0.23 0.22 0.20 0.13 0.21 0.30 0.36 0.47 Diluted earnings per share 0.23 0.21 0.20 0.12 0.20 0.29 0.35 0.45 140.1 147.6 142.2 134.9 148.2 161.6 182.2 189.8 (1) Weighted average shares, basic, weighted average shares, diluted, basic earnings (loss) per share and diluted (loss) earnings per share have not been provided for the quarter prior to the initial public offering due to the significant change in capital structure.(2)See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting the Comparability of our Results of Operations.” (3)(2)Set forth below are the reconciliations of Net Income (Loss) to Adjusted EBITDA
non-cash charges (d)
reporting compliance(g) Year Ended December 31, 2019 Year Ended December 31, 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Net Income 47.1 44.9 41.3 25.8 42.4 60.3 72.2 94.5 Plus: Interest expense 22.4 22.4 23.2 20.9 26.0 26.1 24.4 23.1 Provision for income taxes 12.0 8.3 9.0 2.5 23.4 17.2 22.6 16.9 Depreciation and amortization expense 45.5 44.4 43.1 45.1 45.0 45.3 44.4 45.7 4.1 2.0 9.9 9.6 4.5 8.4 12.3 13.6 1.6 17.1 15.9 20.0 4.6 5.7 2.8 3.6 0.1 - - - - - - - - - - - 1.4 0.5 0.3 0.7 0.6 - - - 0.8 1.1 1.3 1.1 9.3 7.1 0.5 6.2 2.7 (0.8 ) 1.1 (5.3 ) - 0.2 - - - 0.2 0.9 - Foreign currency transaction losses (gains), net 3.1 0.6 (0.6 ) 5.0 2.6 (2.4 ) (0.8 ) (1.3 ) (6.0 ) - - - (4.5 ) - - (5.0 ) 0.3 0.6 (0.1 ) (0.2 ) (0.7 ) - 0.7 2.2 Adjusted EBITDA 140.1 147.6 142.2 134.9 148.2 161.6 182.2 189.8 42
(gains), net(a) Represents non-cash charges for the impairment of other intangible assets.(b)Represents management fees and expenses paid to KKR.(c)Restructuring and related business transformation costs consist of (i) restructuring charges, (ii) severance, sign-on, relocation and executive search costs, (iii) facility reorganization, relocation and other costs, (iv) information technology infrastructure transformation, (v) gains and losses on asset and business disposals, (vi) consultant and other advisor fees and (vii) other miscellaneous costs. These restructuring and related business transformation costs amounted to $38.8 million and $24.7 million for the years ended December 31, 2018 and 2017.(d)(b)Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs) and non-cash charges and credits arising from fair value purchase accounting adjustments. (e)(c)Represents estimated environmental remediation costs and losses relatingrelated to a former production facility.(f)(d)Represents certain expenses related to our initial public offering and subsequent secondary offerings.(g)(e) in 2018 and the accelerated adoption of the new accounting standards (ASC 606 – Revenue from Contracts with Customers and ASC 842 – Leases) in the first quarter of 2018 and 2019 respectively, one year ahead of the required adoption dates for a private company.(h)(f)Represents stock-based compensation expense recognized for stock options outstanding for the year ended December 31, 20182019 of $2.8$19.2 million, reducedincreased by $5.1$3.9 million primarily due to a decrease in the estimated accrual forcosts associated with employer taxes related to DSUs as a result of a lower per share stock price.taxes.20172018 of $2.8 million, reduced by $5.1 million primarily due to a decrease in the estimated accrual for stock options outstanding of $77.6 million and DSUs granted to employees at the date of the initial public offering of $97.4 million under the 2013 Stock Incentive Plan and employer taxes related to DSUs granted to employees at the dateas a result of the initial public offering of $19.2 million.a lower per share stock price.(i)(g)Represents losses on extinguishment of the senior notes, extinguishment of a portionportions of the U.S. Term Loan, refinancingthe amendment of the Original Dollar Term Loan Facility and the Original Euro Term Loan Facilityrevolving credit facility and losses reclassified from AOCI into income related to the amendment of the interest rate swaps in conjunction with the debt repayment.(j)(h)Represents insurance recoveries of the Company’s shareholder litigation settlement in 2014. (k)(i)Includes (i) non-cash impact of net LIFO reserve adjustments, (ii) effects of amortization of prior service costs and amortization of losses in pension and other postretirement benefits (OPEB)postemployment (‘‘OPEB’’) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments.2018,2019, we had $6.5$4.4 million of outstanding letters of credit written against the Revolving Credit Facility and $263.4$445.6 million of unused availability. We also had $26.8$27.6 million of letters of credit outstanding against the Receivables Financing Agreement and $83.3$62.4 million unused availability.2018, 20172019 and 20162018 we were in compliance with all of our debt covenants and no event of default had occurred or was ongoing.43Liquidity Year Ended December 31, 2019 2018 Cash and cash equivalents $ 505.5 $ 221.2 Short-term borrowings and current maturities of long-term debt $ 7.6 $ 7.9 Long-term debt 1,603.8 1,664.2 Total debt $ 1,611.4 $ 1,672.1 10-K.As a result of the KKR Transaction and the significant increase in our long-term debt balance as of July 30, 2013, the KKR Transaction date, we modified our assertion concerning the permanent reinvestment of undistributed earnings of our non-U.S. subsidiaries. We asserted that we intended to repatriate approximately $200.0 million of accumulated earnings for the purpose of servicing our Senior Secured Credit Facilities, which would have resulted in net United States tax liabilities as these foreign earnings were distributed. Due to the Tax Act we decided to reverse ourdo not assert ASC 740-30 (formerly APB 23) position, effective the fourth quarter of 2018. We no longer assert the indefinite reinvestment of our historical non-U.S. earnings or future non-U.S. earnings. The Company adjusted its ASC 740-30records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings as of December 31, 2018 back to the United States. Our deferred income tax liability as of December 31, 20182019 is $5.6$7.8 million which consists mainly of withholding taxes. As a result of the significant reduction in distributable profits due to restructuring and repatriation and the change in assertion, a $3.5 million tax benefit was created in 2018.44 For the Years Ended December 31, 2019 2018 Net Working Capital Current assets $ 1,543.9 $ 1,331.2 Less: Current liabilities 574.6 596.4 Net working capital $ 969.3 $ 734.8 Operating Working Capital Accounts receivable and contract assets $ 488.1 $ 545.0 Plus: Inventories (excluding LIFO) 489.5 510.7 Less: Accounts payable 322.9 340.0 Less: Contract liabilities 51.7 69.6 Operating working capital $ 603.0 $ 646.1 decreased $167.0 millionincreased $234.5 to $969.3 as of December 31, 2019 from $734.8 million as of December 31, 2018 from $901.82018. Operating working capital decreased $43.1 million to $603.0 as of December 31, 2017. Operating working capital decreased $58.9 million to2019 from $646.1 million as of December 31, 2018 from $705.0 million as of December 31, 2017.2018. Operating working capital as of December 31, 20182019 was 24.0%24.6% of 20182019 revenues as compared to 29.7%24.0% as of December 31, 20172018 as a percentage of 20172018 revenues. The decrease in operating working capital was primarily due to higherlower accounts payablereceivable and higher contract liabilities,lower inventories, partially offset by higher accounts receivable and contract assets, and higher inventories. During 2018, management proactively focused on improving net working capital performance through centralized process improvement initiatives. Excluding 2018 acquisitions and the impact of foreign currencies, despite higher revenues in the fourth quarter of 2018 compared to the fourth quarter of 2017 and delays in the timing of collections from certain upstream energy customers,lower accounts receivable decreased modestly resulting from the enhanced receivables collection efforts. The increase in contract assets resulted from the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) in the first quarter of 2018. Excluding 2018 acquisitions and the impact of foreign currencies, inventories as of December 31, 2018 were essentially flat compared to the prior year due to improved management of production inventory levels at certain key manufacturing facilities offset by higher than expected inventory levels in our upstream energy business resulting primarily from reduced demand in the fourth quarter of 2018. Accounts payable increased significantly as of December 31, 2018 as compared to December 31, 2017 due to continuing efforts to standardize and extend vendor payment terms and pay practices. The increase in contract liabilities was primarily due to an acquisition in 2018 and the timing of progress collections on certain long term contracts.Net working capital increased $211.2 million to $901.8 million as of December 31, 2017 from $690.6 million as of December 31, 2016. Operating working capital increased $93.3 million to $705.0 million as of December 31, 2017 from $611.7 million as of December 31, 2016. Operating working capital at December 31, 2017 as a percentage of 2017 revenues was 29.7% as compared to 31.5% at December 31, 2016 as a percentage of 2016 revenues. This increase was primarily due to higher accounts receivable, higher inventories, and lower contract liabilities, partially offset by higher accounts payable.liabilities. The increasedecrease in accounts receivable was primarily due to a higher level oflower sales in the fourth quarter of 20172019 compared to the fourth quarter of 2016 as a result of the recovery2018. The decrease in the upstream energy markets.inventory was due to concerted supply chain optimization initiatives. The increase in accounts receivablecontract assets was also due to a difference in sales mix between the fourth quarter of 2016 and the fourth quarter of 2017. A higher portion of revenues in the fourth quarter of 2016 were related to highly engineered solution product contracts with higher advance payments aheadtiming of revenue recognition thanand billing on our overtime contracts. The decrease in contract liabilities was due to the fourth quartertiming of 2017.customer milestone payments for in-process engineered to order contracts. The increasedecrease in inventoriesaccounts payable was primarily due to additions to inventories in anticipationthe timing of increased demand for certain products primarily in the Energy segment evidenced by increased orders in the Energy segment in the fourth quarter of 2017 compared to the fourth quarter of 2016. The increase in accounts payable was due to increased levels of inventories and continuing efforts to standardize vendor payment terms and pay practices. Contract liabilities were essentially flat as of December 31, 2017 in comparison to 2016.2017 and 2016, respectively. Year Ended December 31, 2019 2018 Cash flows - operating activities $ 343.3 $ 444.5 Cash flows - investing activities (54.3 ) (235.0 ) Cash flows - financing activities (11.5 ) (373.0 ) 300.1 392.3 45(1) See “Item 6. Selected Financial Data” for a reconciliation to the most directly comparable GAAP measure. increased $244.0 milliondecreased $101.2 to $343.3 in 2019 from $444.5 million in 2018, from $200.5 million in 2017, primarily due to higherlower net income (excluding non-cash charges for depreciation and amortization, the impairment of other intangible assets,non-cash restructuring charges, stock-based compensation expense, foreign currency transaction (gains) losses (gains), net, (gain) lossnet losses (gains) on asset dispositions, the loss on the extinguishment of debt, the non-cash change in the LIFO reserve and deferred income taxes), and from cash generated by reduced operating working capital.20182018. Changes in account receivables generated cash of $54.7 million in 2019 compared to using cash of $55.0 million in 2017. Changes in accounts receivable generatedgenerating cash of $13.2 million in 2018 compared to using cash of $65.7 million in 2017 and changes2018. Changes in contract assets used cash of $9.1 million in 2019 compared to using cash of $19.9 million in 2018 compared to no impact on cash in 2017.2018. Changes in inventory usedgenerated cash of $18.7 million in 2019 compared to using cash of $13.0 million in 2018 compared to using cash of $22.7 million in 2017.2018. Changes in accounts payable generatedused cash of $9.2 million in 2019 compared to generating cash of $69.6 million in 2018 as2018. Changes in contract liabilities used cash of $16.4 million in 2019 compared to generating cash of $39.9 million in 2017. Changes in contract liabilities generated cash of $5.0 million in 2018 compared to using cash of $6.5 million in 2017.provided by operating activities increased $34.9 million to $200.5 million in 2017 from $165.6 million in 2016, primarily due to higher net income (excluding non-cash charges for impairments of other intangible assets, stock-based compensation, depreciation and amortization, foreign currency transaction (gains) losses, loss on extinguishment of debt) and deferred income taxes, partially offset by increased cashflows used by working capital.Operating working capital used cash of $55.0 million in 2017 compared to providing cash of $20.5 million in 2016. Changes in accounts receivable used cash of $65.7 million in 2017 compared to using cash of $48.8 million in 2016. Changes in inventory used cash of $22.7 million in 2017 compared to generating cash of $23.5 million in 2016. Changes in accounts payable generated cash of $39.9 million in 2017 as compared to generating cash of $58.1 million in 2016. Changes in advance payments on sales contracts used cash of $6.5 million in 2017 and used cash of $12.3 million in 2016.Investing activitiesCash flows from investing activities included capital expenditures of $43.2 million (1.8% of consolidated revenues) and $52.2 million (1.9% of consolidated revenues), $56.8 million (2.4% of consolidated revenues) in 2019 and $74.4 million (3.8% of consolidated revenues), in 2018, 2017 and 2016, respectively. We currently expect capital expenditures to total approximately $50.0$45.0 million to $60.0$55.0 million in 2019.2020. Cash paid in business combinations was $12.0 million in 2019 and $186.3 million in 2018, $18.8 million in 2017 and $18.8 million in 2016. Proceeds from the termination of derivatives was $6.2 million in 2017.2018. Net proceeds from business divestitures and disposalsthe disposal of property, plant and equipment were $0.9 million and $3.5 million $8.6 millionin 2019 and $11.12018, respectively.2018, 2017,2019 reflects repayments of long-term borrowings of $32.8 million, purchases of treasury stock of $18.6 million, payments of $2.3 million for contingent consideration and 2016, respectively.Financing activitiesapayments of $1.4 million payment offor contingent considerationsconsideration and $0.1 million of other items, partially offset by proceeds from stock option exercises of $6.8 million associated with approved stock-based compensation plans.Cash used in financing activities of $17.4 million in 2017 reflects net repayments of long-term borrowings of $868.6 million, a premium paid on the extinguishment of senior notes of $29.7 million, purchases of treasury stock of $3.6 million, purchases of shares of noncontrolling interest of $5.2 million, and the payment of debt issuance costs of $4.1 million, partially offset by proceeds from the issuance of common stock $893.6 million, net of share issuance costs, and other items of $0.2 million.46Cash used in financing activities of $43.0 million in 2016, reflects scheduled principal payments on long-term borrowings of $25.5 million, purchases of treasury stock of $14.1 million, a $4.7 million payment of contingent consideration related to an acquisition, payments of debt issuance costs of $1.1 million and other items of $0.9 million, partially offset by issuances of common stock of $3.3 million.increased $248.6decreased $92.2 million to $300.1 million in 2019 from $392.3 million in 2018 from $143.7 million in 2017 due to increaseddecreased cash provided by operating activities of $244.0$101.2 million, andpartially offset by a decrease in capital expenditures of $4.6$9.0 million in 20182019 compared to 2017.Free cash flow increased $52.5 million to $143.7 million in 2017 from $91.2 million in 2016 due to increased cash provided by operating activities of $34.9 million and a decrease in capital expenditures of $17.6 million in 2017 compared to 2016.20182019 for all contractual obligations for years subsequent to the year ended December 31, 2018.
5 years Payments Due by Period Contractual Obligations Total 2020 2021-2022 2023-2024 Debt $ 1,601.6 $ 6.9 $ 13.9 $ 1,580.8 $ - 313.9 83.4 123.8 101.6 5.1 Finance leases 17.9 0.7 1.6 2.1 13.5 Operating leases 58.1 16.9 22.0 11.6 7.6 186.7 162.6 23.3 0.3 0.5 Total $ 2,178.2 $ 270.5 $ 184.6 $ 1,696.4 $ 26.7 (1) Estimated interest payments for long-term debt were calculated as follows: for fixed-rate debt and term debt, interest was calculated based on applicable rates and payment dates; for variable-rate debt and/or non-term debt, interest rates and payment dates were estimated based on management’s determination of the most likely scenarios for each relevant debt instrument. (2) Purchase obligations consist primarily of agreements to purchase inventory or services made in the normal course of business to meet operational requirements. The purchase obligation amounts do not represent the entire anticipated purchases in the future, but represent only those items for which we are contractually obligated as of December 31, 2018.2019. For this reason, these amounts will not provide a complete and reliable indicator of our expected future cash outflows.20182019 were $96.9$101.9 million. The total pension and other postretirement benefit liabilities are included in our consolidated balance sheet line items “Accrued liabilities” and “Pensions and other postretirement benefits.” Because these liabilities are impacted by, among other items, plan funding levels, changes in plan demographics and assumptions and investment return on plan assets, these liabilities do not represent expected liquidity needs. Accordingly, we did not include these liabilities in the “Contractual Obligations” table above.2019.2020. Furthermore, we expect to contribute a total of approximately $0.3 million to our postretirement life insurance benefit plans during 2019.2020. Future contributions are dependent upon various factors including the performance of the plan assets, benefit payment experience and changes, if any, to current funding requirements. Therefore, no amounts were included in the “Contractual Obligations” table related to expected plan contributions. We generally expect to fund all future contributions to our plans with cash flows from operating activities.47$4.7$5.0 million to our non-U.S. qualified pension plans during 2019. No amounts have been included in the “Contractual Obligations” table related to these plans due to the same reasons indicated above.$5.5$5.4 million for the next several years, and the annual benefit payments for the non-U.S. plans to be in the range of approximately $10.0$10.2 million to $12.0$12.2 million for the next several years.to includeincluding a total litigation reserve of $105.8$118.1 million as of December 31, 20182019 with respect to potential liability arising from our asbestos-related litigation. Other than our asbestos-related litigation reserves, we only have de minimis accrued liabilities and other liabilities on our consolidated balance sheet with respect to other legal proceedings, lawsuits and administrative actions. A more detailed discussion of certain of these proceedings, lawsuits and administrative actions is set forth in “Item 3. Legal Proceedings.”2018-04,2019-04, the impairment test consists of comparing the fair value of the reporting unit to the carrying value of the reporting unit. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; provided, the loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit. If applicable, we consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. We determined fair values for eachall of the reporting units using a combination of the income and market multiples approaches which are weighted 75% and 25%, respectively.20182019 reporting unit valuations ranged from 10.3%9.0% to 11.5%10.0%. Additionally, we assumed 3.0% terminal growth rates for all reporting units.4892.2%42.9%. With each reporting unit’s fair value in excess of its carrying value, no goodwill impairment was recorded.11.3%9.0% to 12.5%10.0%, a terminal growth rate of 3.0%, and royalty rates ranging from 3.0% to 4.0%.hashad a (0.3)% impact to the overall rate in 2018.49twelve month periodyear ended December 31, 20182019 reflects this decision. All of the additional calculations and rule changes found in the Tax Act have been considered in the tax provision for year and quarter ended December 31, 2018.2019. The Company recorded a tax expense of $11.9$2.0 million in the period2019 for the GILTI provisions of the Tax Act that were effective for the first time during 2018.1617 “Stock-Based Compensation Plans” to our audited consolidated financial statements included elsewhere in this Form 10-K.50ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK2018,2019, we had variable rate debt outstanding, net of our interest rate swaps, of $724.1$776.3 million at a current weighted average interest rate of 3.1%3.2%, substantially all of which was incurred under our $2,280.6$2,460.7 million Senior Secured Credit Facility, under which $952.6$927.6 million was outstanding under the $1,285.5 million Dollar Term Loan Facility and €607.3€601.2 million was outstanding under the €615.0 million Euro Term Loan Facility.2018,2019, LIBOR was higher than the 0% floor and EURIBOR was lower than the 0% floor.2018,2019, we were a fixed rate payer on eightfour fixed-floating interest rate swap contracts that effectively fixed the LIBOR-based index used to determine the interest rates charged on our LIBOR-based variable rate borrowings. See Note 1718 “Hedging Activities, Derivative Instruments, and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.20182019 and 20172018 on our interest expense. Year Ended December 31, 2019 2018 Increase (decrease) in market interest rates 100 basis points $ 4.7 $ 4.8 (1.0 ) (0.3 ) (1) A decrease in interest rates would not have impacted our interest expense in 2019 on EURIBOR debt which was lower than the 0% base rate floor under the Senior Secured Credit Facility for the entire fiscal year 2019, but would have impacted interest expense in 2019 on LIBOR debt which was higher than the 0% based rate floors under the Senior Secured Credit Facility for the year ended December 31, 2019. (2) A decrease in interest rates would not have impacted our interest expense in 2018 on EURIBOR debt which was lower than the 0% base rate floor under the Senior Secured Credit Facility for the entire fiscal year 2018, but would have impacted interest expense in 2018 on LIBOR debt which was higher than the 0% based rate floors under the Senior Secured Credit Facility for the year ended December 31, 2018. (2)A decrease in interest rates would not have impacted our interest expense in 2017 on EURIBOR debt which was lower than the 0% base rate floor under the Senior Secured Credit Facility for the entire fiscal year 2017, but would have impacted interest expense in 2017 on LIBOR debt which was higher than the 0% based rate floors under the Senior Secured Credit Facility during the second half of fiscal year 2017.512018,2019, the relative strengthening of the U.S. dollar against foreign currencies had an unfavorable impact on our revenues and results of operations while in 2017,2018, the relative weakening of the U.S. dollar against foreign currencies had a favorable impact on our revenues and results of operations. While future changes in foreign currency exchange rates are difficult to predict, our revenues and earnings may be adversely affected if the U.S. dollar strengthens against foreign currencies.20182019 and 2017.
Pound
Renminbi U.S. Dollar Euro Other Year Ended December 31, 2019 Revenues 44 % 31 % 5 % 6 % 14 % Gross profit 42 % 35 % 6 % 7 % 10 % Year Ended December 31, 2018 Revenues 48 % 30 % 5 % 5 % 12 % Gross profit 48 % 31 % 5 % 7 % 9 % 20182019 and 20172018 are summarized in Note 13 “Accumulated Other Comprehensive Income (Loss)” Income” to our audited consolidated financial statements included elsewhere in this Form 10-K.2018,2019, we were party to sevensix foreign currency forward contracts, all of which are carried on our balance sheet at fair value. See Note 1718 “Hedging Activities, Derivative Instruments, and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.2018,2019, the hypothetical effect of a 10% appreciation in the average exchange rate of the U.S. dollar relative to the principal foreign currencies in which our revenues and gross profit are denominated.
Pound
Renminbi Year Ended December 31, 2019 Euro Revenues $ (69.2 ) $ (11.9 ) $ (13.5 ) Gross profit (30.1 ) (5.3 ) (6.7 ) 52FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA For the Years Ended December 31, 2019 2018 2017 Revenues $ 2,451.9 $ 2,689.8 $ 2,375.4 Cost of sales 1,540.2 1,677.3 1,477.5 Gross Profit 911.7 1,012.5 897.9 Selling and administrative expenses 436.4 434.6 446.2 Amortization of intangible assets 124.3 125.8 118.9 Impairment of other intangible assets — — 1.6 Other operating expense, net 75.7 9.1 222.1 Operating Income 275.3 443.0 109.1 Interest expense 88.9 99.6 140.7 Loss on extinguishment of debt 0.2 1.1 84.5 Other income, net (4.7 ) (7.2 ) (3.4 ) Income (Loss) Before Income Taxes 190.9 349.5 (112.7 ) Provision (benefit) for income taxes 31.8 80.1 (131.2 ) Net Income 159.1 269.4 18.5 Less: Net income attributable to noncontrolling interests — — 0.1 Net Income Attributable to Gardner Denver Holdings, Inc. $ 159.1 $ 269.4 $ 18.4 Basic earnings per share $ 0.78 $ 1.34 $ 0.10 Diluted earnings per share $ 0.76 $ 1.29 $ 0.10 53
Gardner Denver Holdings, Inc. For the Years Ended December 31, 2019 2018 2017 Comprehensive Income Attributable to Gardner Denver Holdings, Inc. Net income attributable to Gardner Denver Holdings, Inc. $ 159.1 $ 269.4 $ 18.4 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments, net (1.5 ) (61.0 ) 106.0 Unrecognized gains on cash flow hedges, net 7.2 18.1 12.4 Pension and other postretirement prior service cost and gain or loss, net (6.5 ) (4.6 ) 24.2 Other comprehensive (loss) income, net of tax (0.8 ) (47.5 ) 142.6 Comprehensive income attributable to Gardner Denver Holdings, Inc. $ 158.3 $ 221.9 $ 161.0 Comprehensive Income Attributable to Noncontrolling Interests Net income attributable to noncontrolling interests $ — $ — $ 0.1 Other comprehensive income, net of tax — — — Comprehensive income attributable to noncontrolling interests $ — $ — $ 0.1 Total Comprehensive Income $ 158.3 $ 221.9 $ 161.1 54
2018
2017 December 31, December 31, 2019 2018 Assets Current assets Cash and cash equivalents $ 505.5 $ 221.2 Accounts receivable, net of allowance for doubtful accounts of $18.4 and $17.4, respectively 459.1 525.4 Inventories 502.5 523.9 Other current assets 76.8 60.7 Total current assets 1,543.9 1,331.2 Property, plant and equipment, net of accumulated depreciation of $298.4 and $250.0, respectively 326.6 356.6 Goodwill 1,287.7 1,289.5 Other intangible assets, net 1,255.0 1,368.4 Deferred tax assets 3.0 1.3 Other assets 212.2 140.1 Total assets $ 4,628.4 $ 4,487.1 Liabilities and Stockholders’ Equity Current liabilities Short-term borrowings and current maturities of long-term debt $ 7.6 $ 7.9 Accounts payable 322.9 340.0 Accrued liabilities 244.1 248.5 Total current liabilities 574.6 596.4 Long-term debt, less current maturities 1,603.8 1,664.2 Pensions and other postretirement benefits 99.7 94.8 Deferred income taxes 251.0 265.5 Other liabilities 229.4 190.2 Total liabilities 2,758.5 2,811.1 Commitments and contingencies (Note 20) Stockholders’ equity Common stock, $0.01 par value; 1,000,000,000 shares authorized; 206,767,529 and 201,051,291 shares issued as of December 31, 2019 and December 31, 2018, respectively 2.1 2.0 Capital in excess of par value 2,302.0 2,282.7 Accumulated deficit (141.4 ) (308.7 ) Accumulated other comprehensive loss (256.0 ) (247.0 ) Treasury stock at cost; 1,701,785 and 2,881,436 shares as of December 31, 2019 and 2018, respectively (36.8 ) (53.0 ) Total stockholders’ equity 1,869.9 1,676.0 Total liabilities and stockholders’ equity $ 4,628.4 $ 4,487.1 55 For the Years Ended December 31, 2019 2018 2017 Number of Common Shares Issued (in millions) Balance at beginning of period 201.1 198.4 150.6 Common stock issued for initial public offering — — 47.5 Issuance of common stock for stock-based compensation plans 5.7 2.7 0.3 Balance at end of period 206.8 201.1 198.4 Common Stock Balance at beginning of period $ 2.0 $ 2.0 $ 1.5 Common stock issued for initial public offering — — 0.5 Issuance of common stock for stock-based compensation plans 0.1 — — Balance at end of period $ 2.1 $ 2.0 $ 2.0 Capital in Excess of Par Value Balance at beginning of period $ 2,282.7 $ 2,275.4 $ 1,222.4 Common stock issued for initial public offering, net of underwriting discounts and commissions — — 897.2 Costs related to initial public offering — — (4.6 ) Issuance of common stock for stock-based compensation plans 34.5 6.8 0.7 Issuance of treasury stock for stock-based compensation plans (26.4 ) (10.4 ) — Stock-based compensation 11.2 10.9 157.3 Purchase of noncontrolling interest — — 2.4 Balance at end of period $ 2,302.0 $ 2,282.7 $ 2,275.4 Accumulated Deficit Balance at beginning of period $ (308.7 ) $ (577.8 ) $ (596.2 ) Net income attributable to Gardner Denver Holdings, Inc. 159.1 269.4 18.4 Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2017-12) — (0.3 ) — Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02) 8.2 — — Balance at end of period $ (141.4 ) $ (308.7 ) $ (577.8 ) Accumulated Other Comprehensive Loss Balance at beginning of period $ (247.0 ) $ (199.8 ) $ (342.4 ) Foreign currency translation adjustments, net (1.5 ) (61.0 ) 106.0 Unrecognized gains on cash flow hedges, net 7.2 18.1 12.4 Pension and other postretirement prior service cost and gain or loss, net (6.5 ) (4.6 ) 24.2 Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2017-12) — 0.3 — Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02) (8.2 ) — — Balance at end of period $ (256.0 ) $ (247.0 ) $ (199.8 ) Treasury Stock Balance at beginning of period $ (53.0 ) $ (23.0 ) $ (19.4 ) Purchases of treasury stock (18.6 ) (11.5 ) (3.6 ) Share repurchase program — (29.2 ) — Issuance of treasury stock for stock-based compensation plans 34.8 10.7 — Balance at end of period $ (36.8 ) $ (53.0 ) $ (23.0 ) Total Gardner Denver Holdings, Inc. Stockholders’ Equity $ 1,869.9 $ 1,676.0 $ 1,476.8 Noncontrolling Interests Balance at beginning of period — — $ 5.9 Net income (loss) attributable to noncontrolling interests — — 0.1 Purchase of noncontrolling interest — — (7.6 ) Transfer of noncontrolling interest AOCI to consolidated AOCI — — 1.6 Balance at end of period $ — $ — $ — Total Stockholders’ Equity $ 1,869.9 $ 1,676.0 $ 1,476.8 56CONTENTS For the Years Ended December 31, 2019 2018 2017 Cash Flows From Operating Activities Net income $ 159.1 $ 269.4 $ 18.5 Adjustments to reconcile net income to net cash provided by operating activities Amortization of intangible assets 124.3 125.8 118.9 Depreciation in cost of sales 44.3 44.8 46.6 Depreciation in selling and administrative expenses 9.5 9.8 8.3 Impairment of other intangible assets — — 1.6 Non-cash restructuring charges 3.3 — — Stock-based compensation expense 19.2 2.8 175.0 Foreign currency transaction losses (gains), net 8.1 (1.9 ) 9.3 Net loss (gain) on asset disposition 0.8 (1.1 ) 0.8 Loss on extinguishment of debt 0.2 1.1 84.5 Non-cash change in LIFO reserve 0.2 0.2 2.6 Deferred income taxes (21.3 ) 4.0 (249.0 ) Changes in assets and liabilities Receivables 54.7 13.2 (65.7 ) Inventories 18.7 (13.0 ) (22.7 ) Accounts payable (9.2 ) 69.6 39.9 Accrued liabilities (26.1 ) (38.9 ) (24.8 ) Other assets and liabilities, net (42.5 ) (41.3 ) 56.7 Net cash provided by operating activities 343.3 444.5 200.5 Cash Flows From Investing Activities Capital expenditures (43.2 ) (52.2 ) (56.8 ) Net cash paid in business combinations (12.0 ) (186.3 ) (18.8 ) Proceeds from the termination of derivatives — — 6.2 Disposals of property, plant and equipment 0.9 3.5 8.6 Net cash used in investing activities (54.3 ) (235.0 ) (60.8 ) Cash Flows From Financing Activities Principal payments on long-term debt (32.8 ) (337.6 ) (2,879.3 ) Premium paid on extinguishment of senior notes — — (29.7 ) Proceeds from long-term debt — — 2,010.7 Proceeds from the issuance of common stock, net of share issuance costs — — 893.6 Purchases of treasury stock (18.6 ) (40.7 ) (3.6 ) Proceeds from stock option exercises 42.7 6.8 — Payments of contingent consideration (2.3 ) (1.4 ) — Payments of debt issuance costs (0.5 ) — (4.1 ) Purchase of shares from noncontrolling interests — — (5.2 ) Other — (0.1 ) 0.2 Net cash used in financing activities (11.5 ) (373.0 ) (17.4 ) Effect of exchange rate changes on cash and cash equivalents 6.8 (8.6 ) 15.2 Increase (decrease) in cash and cash equivalents 284.3 (172.1 ) 137.5 Cash and cash equivalents, beginning of year 221.2 393.3 255.8 Cash and cash equivalents, end of year $ 505.5 $ 221.2 $ 393.3 Supplemental Cash Flow Information Cash paid for income taxes $ 61.6 $ 103.1 $ 55.5 Cash paid for interest $ 85.6 $ 98.5 $ 142.5 Debt issuance costs in accounts payable $ 0.3 $ — $ — Debt issuance costs in accrued liabilities $ 5.6 $ — $ — Capital expenditures in accounts payable $ 4.8 $ 10.0 $ 6.5 Property and equipment acquired under capital leases $ — $ — $ 7.8 57CONSOLIDATED STATEMENTS OF CASH FLOWS(Dollars in millions)The accompanying notes are an integral part of these consolidated financial statements.58Note 1: Summary of Significant Accounting PoliciesNote 1: Summary of Significant Accounting Policies 36%34% of the total outstanding common stock based on the number of shares outstanding as of December 31, 2018.yearyears ended December 31, 2019 and 2018 were recorded under ASC 606 in the Consolidated Statements of Operations. The results in the Consolidated Statements of Operations for the yearsyear ended59 and 2016 were not adjusted from ASC 605, Revenue Recognition (“ASC 605”). See Note 2 “New Accounting Standards” and Note 14 “Revenue from Contracts with Customers” for more discussion of the adoption of ASC 606 and the related significant accounting policies.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.20182019 and 2017,2018, cash of $3.4 million and $4.4$3.4 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.60Upon adoption of ASU 2017-04, theThe impairment test consists of comparing the fair value of the reporting unit to the carrying value of the reporting unit. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; provided, the loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit. If applicable, the Company considers income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The Company determined fair values for each of the reporting units using a combination of the income and market multiple approaches which are weighted 75% and 25%, respectively.611617 “Stock-Based Compensation Plans” for additional information regarding the Company’s equity compensation plans.20182019 and 20172018 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.62hashad a (0.3)% impact to the overall rate in 2018.20182019 reflects this decision. All of the additional calculations and rule changes found in the Tax Act have been considered in the tax provision for the quarter and year ended December 31, 2018.2019. The Company recorded a tax expense of $11.9$2.0 million in the period2019 for the GILTI provisions of the Tax Act that were effective for the first time during 2018.2017 and 2016,2017, the Company spent approximately $25 million, $24 million, $26 million, and $22$26 million, respectively, on research activities relating to the development of new products and new product applications. All such expenditures were funded by the Company, expensed as incurred and recorded to “Selling and administrative expenses” in the Consolidated Statements of Operations.63 (Loss)(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 13 “Accumulated Other Comprehensive (Loss) Income.”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.64 (Loss) per Share (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: New Accounting StandardsPrior Year ReclassificationsIn the first quarter of fiscal year 2018, the Company adopted the provisions of ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). The reclassification of certain prior year amounts as a result of the adoption of ASU 2017-07 is detailed below in section “Adopted Accounting Standard Updates.”For the year ended December 31, 2018, the Company modified its presentation of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations and (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 within the Consolidated Statements of Comprehensive Income, Consolidated Statements of Stockholders’ Equity and in the tables of Note 13 “Accumulated Other Comprehensive (Loss) Income.” Under the modified presentation, these two items, previously presented as “Foreign currency translation adjustments, net” and “Foreign currency gains (losses), net” are now presented together as “Foreign currency translation adjustments, net.” The Consolidated Statements of Comprehensive Income, Consolidated Statement of Stockholders’ Equity and the tables of Note 13 “Accumulated Other Comprehensive (Loss) Income” for the years ended December 31, 2017 and 2016 were reclassified to reflect this change in presentation.Note 2: New Accounting Standards 2014-09, Revenue from Contracts with Customers2016-02, Leases (Topic 606)2018,2019, the Company adopted ASC 606 using the modified retrospective approach. Under the modified retrospective approach, the Company is required to recognize the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings as of January 1, 2018, the date of initial application. The cumulative effect of initially applying ASC 606 was immaterial to the Consolidated Financial Statements. Therefore, the Company did not record a cumulative transition adjustment.In conjunction with the adoption of ASC 606, the Company updated its significant accounting policy related to revenue recognition which can be found in Note 1 “Summary of Significant Accounting Policies” and Note 14 “Revenue from Contracts with Customers.”Results for the year ended December 31, 2018 are presented under ASC 606. Prior periods were not adjusted and will continue to be reported in accordance with ASC 605 Revenue Recognition (“ASC 605”). However, during fiscal year 2018, the Company is required to provide additional disclosures presenting the amount by which each 2018 financial statement line item was affected as a result of applying ASC 606 and an explanation of significant changes in order to present 2018 on a comparative basis under ASC 605.The following table summarizes the impacts of adopting ASC 606 on the Company’s Consolidated Statement of Operations for the year ended December 31, 2018.65Consolidated Statement of Operations
Adoption of
ASC 606The following table summarizes the impacts of adopting ASC 606 on the Company’s Consolidated Balance Sheet as of December 31, 2018.Consolidated Balance Sheet
Adoption of
ASC 606(1)Adjustment represents “Contract asset.” See Note 14 “Revenue from Contracts with Customers” for an explanation of the Contract assets account included in “Other current assets” in the Consolidated Balance Sheets.ASU 2017-07 Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit CostThe Company adopted FASB ASU 2017-07 on January 1, 2018. The Company applied ASU 2017-07 retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic benefit cost in assets. ASU 2017-07 allows the Company to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. Applying the practical expedient, the Company reclassified $0.4 million of expense and $0.8 million of income from “Selling and administrative expenses” to “Other income, net” within the Consolidated Statements of Operations for the years ended December 31, 2017 and 2016, respectively.ASU 2017-12 Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging ActivitiesThe Company early adopted FASB ASU 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities (“ASU 2018-12”) on January 1, 2018 using the modified retrospective approach. As of the adoption date, the Company was the fixed rate payor on 12 interest rate swap contracts that fixed the LIBOR-based index used to determine the interest rates charged on a total of $1,125.0 million of the Company’s LIBOR-based variable rate borrowings. The Company recorded a cumulative-effect adjustment on the adoption date increasing the opening balance of the “Accumulated deficit” line of the Consolidated Balance Sheets by $0.3 million and decreasing the “Accumulated Other Comprehensive Loss” line of the Consolidated Balance Sheets by $0.3 million.Recently Issued Accounting PronouncementsIn February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). (“ASC 842”) utilizing the optional transition method. The amendments in this update replacereplaced most of the existing GAAP lease accounting guidance in order to increase transparency and comparability among organizations by recognizing right-of-use lease assets and lease liabilities on the balance sheet for those leases66expandexpanded disclosure requirements for key information about leasing arrangements. The Company will adopt ASU 2016-02elected the package of practical expedients in the first quartertransition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of 2019 utilizing the optional transition method.December 31, 2018. The Company updated its internal lease accounting policy to address the new standard, revised the Company’s business processes and controls and completed the implementation and data input for the Company’s lease accounting software solution. The most significant impact of the standard on the Company estimates that the adoption of ASU 2016-02 will result inwas the recognition of right-of-use assetsan approximate $61.3 million operating right of use (“ROU”) asset and an approximate $61.4 million operating lease liabilities for operating leases of approximately $65 million to $75 millionliability on itsthe Consolidated Balance Sheets.Sheet. The Company doesstandard did not expect ASU 2016-02 to have a material impact on its resultsthe Company’s Consolidated Statements of operationsOperations or cash flows.In March 2018, the FASB issued Company’s Consolidated Statements of Cash Flows. See Note 16 “Leases” for further discussion of the Company’s operating and financing leases.amendments in this update allowstandard allowed a reclassification from accumulated other comprehensive (loss) income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulnessas of information reported to financial statement users. However, because the amendments only related to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The ASU is effective for public companies beginning in the first quarter ofJanuary 1, 2019. The Company is currently assessingrecorded a cumulative-effect adjustment on the impact of this ASU on its consolidated financial statements.August 2018,December 2019, the FASB issued ASU 2018-13, Fair Value Measurement2019-12, Income Taxes (Topic 820)740): Disclosure Framework – Changes toSimplifying the Disclosure RequirementsAccounting for Fair Value MeasurementIncome Taxes. The amendments in this update eliminate, addsimplify the accounting for income taxes by removing certain exceptions and modify certain disclosure requirements for fair value measurements as part of its disclosure framework project.amending and clarifying existing guidance. The guidance is effective for public companies beginning inwith the first quarter ofannual report for fiscal year 2020. Early adoption is permitted.The Company is currently assessing the impact of this ASU on its consolidated financial statements and evaluating the timing ofadoption.Early adoption is permitted. The Company is currently assessingThis ASU will have an immaterial impact on the impact of this ASU on itsCompany’s consolidated financial statements and evaluating the timing of adoption.Contract. Contract. The amendments in this update require implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangement plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company is required to adopt this new guidance in the first quarter of 2020. Early adoptionThe Company concluded that this ASU will have an immaterial impact on the Company’s consolidated financial statements.permitted.based on expected losses rather than incurred losses and is called the Current Expected Credit Losses (“CECL”) model. This impairment model is applicable to loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables as well as any other financial asset with the contractual right to receive cash. Under the new model, an allowance equal to the estimate of lifetime expected credit losses is recognized which will result in more timely loss recognition. The guidance is intended to reduce complexity by decreasing the number of credit impairment models. This guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The Company is currently assessingrequired to adopt this new guidance in the first quarter of 2020. The Company reviewed the impact of this ASU on its consolidated financial statements and evaluating the timing of adoption.concluded that any cumulative-effect adjustment would be immaterial.Note 3: Business CombinationsNote 3: Business Combinations seven7 businesses during the three years ended December 31, 2018. 2019. Proforma information regarding these acquisitions is not considered significant and has not been disclosed.$58.5$58.5 million, which consisted of cash payments of $57.8$57.8 million a payable $0.1 million purchase price adjustment and a $0.6$0.7 million holdback. The purchasePurchase price adjustmentadjustments reduced the holdback to $0.5 million and holdback are each expected to beit was paid by the end ofin the first quarter of 2019 and are recorded in “Accrued liabilities”“Net cash paid in business combinations” in the Consolidated Balance Sheets.Statements of Cash Flows. The revenues and operating income of MP Pumps are included in the Company’s consolidated financial statements from the acquisition date and are included in the Industrials segment. NoneNaN of the goodwill resulting from this acquisition is deductible for tax purposes.67$16.1$16.1 million, which consisted of cash payments of $14.8$14.8 million and a $1.3$1.3 million holdback. Purchase price adjustments increased the holdback to $1.4 million of which $0.3 million was paid in the fourth quarter of 2019 and recorded in “Payments of contingent consideration” in the Consolidated Statements of Cash Flows. Of the $1.3$1.1 million holdback, $0.5$0.6 million is expected to be paid by the end of the fourth quarter of 2019, $0.4 million by the end of the secondfirst quarter of 2020 and $0.4$0.5 million is expected to be paid by the end of the fourth quarter of 2020. $0.5The remaining $1.1 million of the holdback is recorded in “Accrued liabilities” in the Consolidated Balance Sheets and the remaining $0.8 million is recorded in “Other liabilities” in the Consolidated Balance Sheets.. The revenues and operating income of DV Systems are included in the Company’s consolidated financial statements from the acquisition date and are included in the Industrials segment. NoneNaN of the goodwill resulting from this acquisition is deductible for tax purposes.20182018. The remaining $1.0 million of the promissory note was paid in the second quarter of 2019 and recorded in “Payments of contingent consideration” in the Consolidated Statements of Cash Flows. The remaining $1.0 million of the promissory note is expected to be paid by the end of the second quarter of 2019 and recorded in “Accrued liabilities” in the Consolidated Balance Sheets. The revenues and operating income of PMI are included in the Company’s consolidated financial statements from the acquisition date and are included in the Energy segment. NoneNaN of the goodwill resulting from this acquisition is deductible for tax purposes.preliminary purchase price allocation resulted in the recording of $63.6 million of goodwill and $31.3 million of amortizable intangible assets as of the acquisition date. NoneNaN of the goodwill resulting from this acquisition is deductible for tax purposes.remaining holdback, $1.0 million is expected to bewas paid by the end ofin the second quarter of 2019 and $0.5 million is expected to be paid by the end of the second quarter of 2021. Of theThe remaining $1.5$0.5 million holdback $1.0 million is recorded in “Accrued liabilities” in the Consolidated Balance Sheets and $0.5 million is recorded in “Other liabilities.” The revenues and operating income of LeROI are included in the Company’s consolidated financial statements from the acquisition date and are included in the Industrials segment. NoneNaN of the goodwill resulting from this acquisition is deductible for tax purposes.68This transaction resulted in an increase to “Capital in excess of par value” of $2.3 million and an increase to “Accumulated other comprehensive loss” of $1.5 million in the Company’s Consolidated Balance Sheets.Acquisition of ILS Innovative Laborsysteme GmbH and Zinsser Analytic GmbHOn August 31, 2016, the Company acquired 100% 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 instruments and is a global supplier to the world’s leading laboratory equipment manufacturers, laboratories and laboratory consumables distributors. Zinsser Analytic is an established provider 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 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. During the first quarter of 2017, an incremental working capital true-up payment was made for approximately $0.3 million. This amount is in “Net cash paid in business combinations” in the Consolidated Statements of Cash Flows. (Loss)$108.0$137.6 million, $27.8$96.2 million and $4.9$13.9 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively. For the years ended December 31, 2019, 2018 2017 and 2016,2017, operating income (loss) included in the financial statements for the acquisitions described above, subsequent to their date of acquisition was $8.8$19.1 million, $3.7$8.3 million and ($0.3)$1.4 million, respectively.Note 4: RestructuringNote 4: Restructuring a restructuring program programs in 2014 and 2016 impacting the Industrials, segment in the third quarter of 2014 and that program was revised and expanded during the second quarter of 2016. In 2016, the Company also announced restructuring programs impacting the Energy and Medical segments. These restructuring programs were substantially completed as of December 31, 2017. Through December 31, 2017, $48.0 million had been charged to expense through “Other operating expense, net” in the Consolidated Statements of Operations ($38.5 million for Industrials, $6.3 million for Energy and $3.2 million for Medical). The Company does not anticipate any material future expense related to these restructuring programs and any remaining liabilities will be paid as contractually obligated. The activity associated with these restructuring programs for the year ended December 31, 2018 was not material.The following table summarizes the activity associated with these restructuring programs for the year ended December 31, 2017.reservesreserve of $1.3 million related to these programs arewas included in “Accrued liabilities” and a restructuring reservesreserve of $0.1 million arewas included in “Other liabilities” in the Consolidated Balance Sheets. As of December 31, 2017,2019, there were 0 remaining restructuring reserves of $6.5 million related to these programs were included in “Accrued liabilities” and restructuring reserves of $0.2 million were included in “Other liabilities” in the Consolidated Balance Sheets.69involvesinvolved workforce reductions and facility consolidation. These actions continued in the fourth quarter and the Company expects additionalThis restructuring activity in the first halfprogram was substantially completed as of 2019 focused on targeted workforce optimization within general and administrative back-office and manufacturing overhead as well as continued facility consolidation. For the year ended December 31, 2018, $12.72019. Through December 31, 2019, $26.5 million was charged to expense through “Other‘‘Other operating expense, net”net’’ in the Consolidated Statements of Operations ($7.215.9 million for Industrials, $3.6$7.9 million for Energy, $1.2$1.6 million for Medical and $0.7$1.1 million for Corporate).thisthe Company’s restructuring programprograms for the yearyears ended December 31, 2018.As of December 31, 2018 and 2019, respectively.Balance as of December 31, 2017 $ — Charged to expense - termination benefits 11.5 Charged to expense - other 1.2 Payments (4.1 ) Other, net 0.2 Balance as of December 31, 2018 $ 8.8 Charged to expense - termination benefits 10.8 Charged to expense - other 3.0 Payments (17.8 ) Other, net 0.2 Balance as of December 31, 2019 $ 5.0 reserves of $8.8 millionreserve related to these programs are includedwas $5.0 million and $8.8 million as of December 31, 2019 and 2018, respectively, and recorded in “Accrued liabilities” in the Consolidated Balance Sheets.Note 5: Allowance for Doubtful AccountsNote 5: Allowance for Doubtful Accounts 2017 and 20162017 consisted of the following. 2019 2018 2017 Balance at beginning of the period $ 17.4 $ 18.7 $ 18.7 Provision charged to expense 3.6 1.8 3.5 Write-offs, net of recoveries (2.4 ) (2.2 ) (4.8 ) (0.2 ) (0.9 ) 1.3 Balance at end of the period $ 18.4 $ 17.4 $ 18.7 (1) Primarily includes the effect of foreign currency translation adjustments for the Company's subsidiaries with functional currencies other than the USD. 20182019 and 20172018 consisted of the following. 2019 2018 Raw materials, including parts and subassemblies $ 370.5 $ 369.2 Work-in-process 47.6 58.1 Finished goods 71.4 83.4 489.5 510.7 Excess of LIFO costs over FIFO costs 13.0 13.2 Inventories $ 502.5 $ 523.9 As of December 31, 2017, $366.9 million (74%) of the Company’s 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.7020182019 and 20172018 consisted of the following. 2019 2018 Land and land improvements $ 33.7 $ 35.0 Buildings 135.0 140.8 Machinery and equipment 294.9 275.9 Tooling, dies, patterns, etc 68.7 61.7 Office furniture and equipment 40.9 40.1 Other 19.6 18.9 Construction in progress 32.2 34.2 625.0 606.6 Accumulated depreciation (298.4 ) (250.0 ) Property, plant and equipment, net $ 326.6 $ 356.6 20182019 and 20172018 are as follows. Industrials Energy Medical Total Balance as of December 31, 2017 $ 561.6 $ 460.2 $ 205.8 $ 1,227.6 Acquisitions 89.2 8.7 — 97.9 (18.1 ) (15.3 ) (2.6 ) (36.0 ) Balance as of December 31, 2018 632.7 453.6 203.2 1,289.5 Acquisitions 6.3 — 2.0 8.3 (2.9 ) (5.2 ) (2.0 ) (10.1 ) Balance as of December 31, 2019 $ 636.1 $ 448.4 $ 203.2 $ 1,287.7 (1) During the year ended December 31, 2017, the Company recorded an increase to goodwill of $0.4 million as a result of measurement period adjustments in the Medical segment.(2)During the yearyears ended December 31, 2018 and 2019, the Company recorded an increase to goodwill of $1.0 million as a result ofimmaterial measurement period adjustments in the Industrials segment.adjustments.four2 businesses during the year ended December 31, 2018.2019. The excess of the purchase price over the estimated fair values of intangible assets, identifiable assets and assumed liabilities was recorded as goodwill. The allocation of the purchase price was preliminary for these acquisitions and is subject to refinement based on final fair values of the identified assets acquired and liabilities assumed. The goodwill attributable to the four2 businesses is as follows.2019 Acquisitions Date of Acquisition Industrials Energy Medical Total Oina July 3, 2019 $ — $ — $ 2.0 $ 2.0 ACBN August 19, 2019 6.3 — — 6.3 $ 6.3 $ — $ 2.0 $ 8.3 2018 are as follows.In 2017, the Company acquired one entity in the Industrials segment as described in Note 3 “Business Combinations.” This acquisition resulted in $7.9 million2018. The excess of goodwill based on the purchase price allocation.2018 Acquisitions Date of Acquisition Industrials Energy Medical Total Runtech February 8, 2018 $ 63.6 $ — $ — $ 63.6 PMI Pumps May 29, 2018 — 8.7 — 8.7 DV Systems November 2, 2018 4.7 — — 4.7 MP Pumps December 12, 2018 20.9 — — 20.9 $ 89.2 $ 8.7 $ — $ 97.9 2017, and 2016,2017, each reporting unit’s fair value was in excess of its net carrying value, and therefore, no0 goodwill impairment was recorded.7120182019 and 2017,2018, goodwill included a total of $563.9 million of accumulated impairment losses within the Energy segment since the date of the KKR Transaction.20182019 and 20172018 consisted of the following.
Carrying
Amount
Amortization
Carrying
Amount
Amortization 2019 2018 Amortized intangible assets: Customer lists and relationships $ 1,238.7 $ (673.9 ) $ 1,245.5 $ (567.8 ) Technology 30.2 (6.0 ) 21.7 (4.8 ) Trademarks 40.4 (11.9 ) 44.9 (13.0 ) Backlog — — 68.8 (68.6 ) Other 64.0 (40.8 ) 62.3 (31.9 ) Unamortized intangible assets: Trademarks 614.3 — 611.3 — Total other intangible assets $ 1,987.6 $ (732.6 ) $ 2,054.5 $ (686.1 ) $118.9 million and $124.2$118.9 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively. Amortization of intangible assets is anticipated to be approximately $119.5$112.5 million annually in 20192020 through 20232024 based upon currency exchange rates as of December 31, 2018.In the fourth quarter of 2018, thenot0t record an impairment chargefor the years ended December 31, 2019 and 2018, related to indefinite-lived intangible assets as a result of the annual impairment test.$1.5$1.6 million related to indefinite-lived trademarks, including $1.2$1.3 million related to two2 trademarks in the Industrials segment and $0.3 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 was discontinued andThe impairments were included in “Impairments of other intangible assets” in the Consolidated Statements of Operations. See Note 4 “Restructuring.”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.7220182019 and 20172018 consisted of the following: 2019 2018 Salaries, wages, and related fringe benefits $ 60.7 $ 62.9 Restructuring 5.0 10.1 Taxes 22.5 24.3 Contract liabilities 51.7 69.6 Product warranty 22.7 23.9 Accrued interest 0.7 0.3 17.1 — Other 63.7 57.4 Total accrued liabilities $ 244.1 $ 248.5 (1) For purposes of comparability, “Advance payments sales contracts” as of December 31, 2017 was reclassified to “Contract liabilities.”January 1, 2019 using the optional transition method. See Note 14 “Revenue from Contracts with Customers”2 “New Accounting Standards” for an explanationfurther discussion of the Contract liabilities account included in “Accrued liabilities” inadoption of ASU 2016-02 and Note 16 “Leases” for discussion of the Consolidated Balance Sheets.Company’s operating and financing leases.and 2017 areis as follows. 2019 2018 Balance at the beginning of period $ 23.9 $ 22.3 Product warranty accruals 30.8 25.6 Settlements (31.9 ) (24.6 ) (0.1 ) 0.6 Balance at the end of period $ 22.7 $ 23.9 (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. 20182019 and 20172018 consisted of the following. 2019 2018 Short-term borrowings $ — $ — Long-term debt $ — $ — Receivables financing agreement, due 2020 — — 927.6 952.6 673.9 696.5 Finance leases and other long-term debt 18.0 26.3 Unamortized debt issuance costs (8.1 ) (3.3 ) Total long-term debt, net, including current maturities 1,611.4 1,672.1 Current maturities of long-term debt 7.6 7.9 Total long-term debt, net $ 1,603.8 $ 1,664.2 (1) (2) 5.27%4.55% and the weighted-average rate was 4.84%5.01% for the year ended December 31, 2018.2019.(2)(3)2018,2019, the applicable interest rate was 3.00% and the weighted-average rate was 3.00% for the year ended December 31, 2018.2019.73The 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 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.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%.On July 30, 2018, the Revolving Credit Facility principal borrowing capacity decreased to $269.9 million resulting from the maturity of the tranches of the Revolving Credit Facility which were owned by lenders that elected not to modify the original Revolving Credit Facility maturity date. Any principal amounts outstanding as of April 30, 2020 will be due at that time and required to be paid in full. As of December 31, 2018, the Company had $6.5 million of outstanding letters of credit under the Revolving Credit Facility and unused availability of $263.4 million.“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 plus742.75%2.25% for LIBOR loans and 1.75%1.25% for Base Rate loans and (iii) the Euro Term Loan Facility is 3.00% for LIBOR loans.Debt Extinguishment”extinguishment of debt” in the Consolidated Statements of Operations.Amendment No. 1 reduced the minimum aggregate principal amount for extension amendments to the facilities from $50.0 million to $35.0 million.$276.8$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$1.5 million. The prepayment resulted in the write-off of unamortized debt issuance costs of $4.3$4.3 million and unamortized discounts of $0.7$0.7 million included in “Loss on Debt Extinguishment”extinguishment of debt” in the Consolidated Statements of Operations.757.506.25 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)(a) 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 (b) non-cash collateralized letters of credit in an aggregate amount not to exceed $25.0 million, provided thatLetters of Credit Outstanding on the Amendment No. 4 Effective Date), exceeds (i) 40.0% of the aggregate amount2019 Revolving Credit Commitments or (ii) prior to the earlier to occur of non-cash collateralized lettersthe satisfaction of credit outstanding excluded pursuant to this provision shall not exceed $50.0 million) exceed $120.0 million.default, including a change of control.On December 13, 2018, the Company entered into Amendment No. 3 to the Senior Secured Credit Agreement dated as of July 30, 2013 (as amended by Amendment No. 1 to the Senior Secured Credit Agreement, dated as of March 4, 2016, and Amendment No. 2 to the Senior Secured Credit Agreement, dated as of August 17, 2017). 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.2018,2019, the Company had no0 outstanding borrowings, under the Receivables Financing Agreement and $26.8$27.6 million of letters of credit outstanding. As of December 31, 2018 there was $83.3outstanding and $62.4 million of capacity available under the Receivables Financing Agreement.76Debt Extinguishment”extinguishment of debt” in the Consolidated Statements of Operations. The premium paid on the Senior Notes, $29.7 million, was included in “Loss“Loss on Debt Extinguishment”extinguishment of debt” in the Consolidated Statements of Operations.20182019 and thereafter are approximately $6.9 million, $7.4$7.6 million, $7.7 million, $7.8 million, $8.0$7.9 million, $1,575.0 million and $1,634.3$13.5 million, respectively.Operating Lease CommitmentsThe annual rental payments for operating leases were $31.7 million, $30.8 million, and $32.3 million in 2018, 2017 and 2016, respectively. Future minimum rental payments for operating leases for the five years subsequent to December 31, 2018 and thereafter are approximately $25.8 million, $19.5 million, $13.9 million, $7.7 million, $5.4 million and $9.4 million, respectively.Note 11: Benefit PlansNote 11: Benefit Plans 77 Pension Benefits U.S. Plans Non-U.S. Plans Other Postretirement Benefits 2019 2018 2019 2018 2019 2018 Reconciliation of Benefit Obligations: Beginning balance $ 57.4 $ 59.7 $ 304.9 $ 335.9 $ 3.1 $ 3.4 Service cost — — 1.5 1.8 — — Interest cost 2.2 2.1 7.7 7.5 0.1 0.1 Plan amendments — — — 3.6 — — Actuarial losses (gains) 4.3 0.4 35.9 (16.8 ) 0.4 (0.1 ) Benefit payments (2.8 ) (2.9 ) (10.3 ) (10.2 ) (0.2 ) (0.2 ) Plan settlements (1.3 ) (1.9 ) — — — — Effect of foreign currency exchange rate changes — — 6.8 (16.9 ) — (0.1 ) Benefit obligations ending balance $ 59.8 $ 57.4 $ 346.5 $ 304.9 $ 3.4 $ 3.1 Reconciliation of Fair Value of Plan Assets: Beginning balance $ 57.7 $ 63.1 $ 212.2 $ 238.7 Actual return on plan assets 7.4 (0.7 ) 35.3 (8.1 ) Employer contributions 0.1 0.1 4.3 4.2 Plan settlements (1.3 ) (1.9 ) — — Benefit payments (2.8 ) (2.9 ) (10.3 ) (10.2 ) Effect of foreign currency exchange rate changes — — 7.6 (12.4 ) Fair value of plan assets ending balance $ 61.1 $ 57.7 $ 249.1 $ 212.2 Funded Status as of Period End $ 1.3 $ 0.3 $ (97.4 ) $ (92.7 ) $ (3.4 ) $ (3.1 ) 20182019 and 20172018 that have not been recognized as a component of net periodic benefit cost are presented in the following table.
Postretirement Benefits U.S. Pension Plans Non-U.S. Pension Plans 2019 2018 2019 2018 2019 2018 Net actuarial losses (gains) $ 5.7 $ 6.7 $ 58.8 $ 48.9 $ 0.2 $ (0.2 ) Prior service cost — — 3.5 3.5 — — Amounts included in accumulated other comprehensive (loss) income $ 5.7 $ 6.7 $ 62.3 $ 52.4 $ 0.2 $ (0.2 ) $2.2$2.9 million of net losses and $0.1$0.2 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, 2019.2020. For other postretirement benefit plans, the Company estimates no0 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, 2019.20182019 and 2017. 2019 2018 Other assets $ 2.3 $ 1.4 Accrued liabilities (2.2 ) (2.1 ) Pension and other postretirement benefits (99.7 ) (94.8 ) 7820182019 and 2017. U.S. Pension Plans Non-U.S. Pension Plans 2019 2018 2019 2018 Projected benefit obligations $ 1.0 $ 1.0 $ 330.1 $ 291.7 Accumulated benefit obligation $ 1.0 $ 1.0 $ 325.3 $ 288.1 Fair value of plan assets $ — $ — $ 235.3 $ 201.2 $57.4$59.8 million and $58.6$57.4 million as of December 31, 20182019 and 2017,2018, respectively. The accumulated benefit obligation for all non-U.S. defined benefit pension plans was $299.1$339.1 million and $329.4$299.1 million as of December 31, 2019 and 2018, and 2017, respectively.2017 and 2016. U.S. Pension Plans 2019 2018 2017 Net Periodic Benefit Cost (Income): Service cost $ — $ — $ — Interest cost 2.2 2.1 2.3 Expected return on plan assets (2.2 ) (4.7 ) (4.4 ) Amortization of prior-service cost — — — Amortization of net actuarial loss 0.1 — — Net periodic benefit cost (income) 0.1 (2.6 ) (2.1 ) Loss due to settlement — — — Total net periodic benefit cost (income) recognized $ 0.1 $ (2.6 ) $ (2.1 ) Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income: Net actuarial (gain) loss $ (0.9 ) $ 5.8 $ (1.5 ) 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 $ (1.0 ) $ 5.8 $ (1.5 ) Total recognized in net periodic benefit (income) cost and other comprehensive (loss) income $ (0.9 ) $ 3.2 $ (3.6 ) Non-U.S. Pension Plans 2019 2018 2017 Net Periodic Benefit Cost (Income): Service cost $ 1.5 $ 1.8 $ 1.9 Interest cost 7.7 7.5 7.8 Expected return on plan assets (10.3 ) (11.6 ) (10.4 ) Amortization of prior-service cost 0.1 — — Amortization of net actuarial loss 2.0 1.8 5.0 Net periodic benefit cost (income) $ 1.0 $ (0.5 ) $ 4.3 Loss due to curtailments — — — Total net periodic benefit cost (income) recognized $ 1.0 $ (0.5 ) $ 4.3 Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income: Net actuarial loss (gain) $ 10.9 $ 2.9 $ (29.9 ) Amortization of net actuarial loss (2.0 ) (1.8 ) (5.0 ) Prior service cost — 3.7 — Amortization of prior service cost (0.1 ) — — Effect of foreign currency exchange rate changes 1.1 (2.8 ) 6.5 Total recognized in other comprehensive (loss) income $ 9.9 $ 2.0 $ (28.4 ) Total recognized in net periodic benefit cost (income) and other comprehensive (loss) income $ 10.9 $ 1.5 $ (24.1 ) 79 Other Postretirement Benefits 2019 2018 2017 Net Periodic Benefit Cost: Service cost $ — $ — $ — Interest cost 0.1 0.1 0.1 Expected return on plan assets — — — Amortization of prior-service cost — — — Amortization of net actuarial loss — — — Net periodic benefit cost $ 0.1 $ 0.1 $ 0.1 Loss due to curtailments or settlements — — — Total net periodic benefit cost recognized $ 0.1 $ 0.1 $ 0.1 Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income: Net actuarial loss (gain) $ 0.4 $ (0.1 ) $ 0.2 Amortization of net actuarial loss — — — Prior service cost — — — Amortization of prior service cost — — — Effect of foreign currency exchange rate changes — 0.1 — Total recognized in other comprehensive (loss) income $ 0.4 $ — $ 0.2 Total recognized in net periodic benefit cost and other comprehensive (loss) income $ 0.5 $ 0.1 $ 0.3 802017 and 2016. Pension Benefits - U.S. Plans 2019 2018 2017 4.0 % 3.6 % 4.0 % 4.0 % 7.75 % 7.75 % Pension Benefits - Non-U.S. Plans 2019 2018 2017 Discount rate 2.6 % 2.3 % 2.3 % Expected long-term rate of return on plan assets 4.9 % 5.0 % 5.0 % Rate of compensation increases 2.8 % 2.8 % 2.8 % Other Postretirement Benefits 2019 2018 2017 Discount rate 4.7 % 4.4 % 4.7 % 20182019 and 2017: Pension Benefits - U.S. Plans 2019 2018 Discount rate 3.0 % 4.0 % Pension Benefits - Non-U.S. Plans 2019 2018 Discount rate 1.7 % 2.6 % Rate of compensation increases 2.7 % 2.8 % Other Postretirement Benefits 2019 2018 Discount rate 3.8 % 4.7 % 2017 and 2016. Other Postretirement Benefits 2019 2018 2017 Healthcare cost trend rate assumed for next year 7.1 % 7.9 % 8.4 % Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 7.1 % 7.9 % 8.4 % Year that the date reaches the ultimate trend rate 2021 2020 2019 20182019 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.8120242025 through 2028.2029. The estimated benefit payments for the non-U.S. pension plans were calculated using foreign exchange rates as of December 31, 2018.
Postretirement
Benefits
Plans Pension Benefits U.S. Plans Non-U.S.Plans 2020 $ 5.0 $ 10.2 $ 0.3 2021 $ 5.4 $ 10.5 $ 0.3 2022 $ 4.8 $ 11.4 $ 0.3 2023 $ 4.9 $ 11.5 $ 0.3 2024 $ 4.5 $ 12.2 $ 0.2 Aggregate 2025-2029 $ 18.8 $ 68.3 $ 1.0 2019,2020, the Company expects to contribute approximately $0.1 million to the U.S. pension plans, approximately $4.7$5.0 million to the non-U.S. pension plans, and $0.3 million to the other postretirement benefit plans.2018. 2019. The following table presents the long-term target allocations for these two plans as of December 31, 2018. U.S. Plan UK Plan Asset category: Cash and cash equivalents 0 % 0 % Equity 0 % 40 % Fixed income 100 % 30 % Real estate and other 0 % 30 % Total 100 % 100 % 8220182019 and 20172018 by asset category within the ASC 820 hierarchy (as defined in Note 1819 “Fair Value Measurements”).
Active Markets for
Identical Assets
(Level 1)
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Measured at
NAV(5) December 31, 2019
Active Markets for
Identical Assets
(Level 1)
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Measured at
NAV(5) Total $ 2.6 $ — $ — $ — $ 2.6 — 5.3 — — 5.3 23.0 41.5 — 59.9 124.4 23.0 46.8 — 59.9 129.7 — 25.6 — — 25.6 — 29.1 — — 29.1 U.S. fixed income - government securities — — — 3.9 3.9 U.S. fixed income - short duration — — — 4.6 4.6 U.S. fixed income - intermediate duration — — — 38.4 38.4 U.S. fixed income - long corporate — — — 14.2 14.2 — 54.7 — 61.1 115.8 — 43.3 — — 43.3 — — 18.8 — 18.8 $ 25.6 $ 144.8 $ 18.8 $ 121.0 $ 310.2 December 31, 2018 Total Asset Category $ 1.3 $ — $ — $ — $ 1.3 Equity funds: U.S. large-cap — 11.1 — — 11.1 18.2 45.2 — 48.3 111.7 Total equity funds 18.2 56.3 — 48.3 122.8 Fixed income funds: Corporate bonds - international — 18.9 — — 18.9 UK index-linked gilts — 33.0 — — 33.0 U.S. fixed income - intermediate duration — — — 34.8 34.8 U.S. fixed income - long corporate — — — 23.0 23.0 Total fixed income funds — 51.9 — 57.8 109.7 Other types of investments: — 19.9 — — 19.9 — — 16.2 — 16.2 Total $ 19.5 $ 128.1 $ 16.2 $ 106.1 $ 269.9 (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. 83(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) 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.(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. and 2016 were $19.5 million, $15.9 million and $13.7 million, and $12.8 million, respectively.$4.1$4.3 million and $3.9$4.1 million as of December 31, 2019 and 2018, and 2017, respectively.Note 12: Stockholders’ EquityNote 12: Stockholders’ Equity 20182019 and 2017,2018, 1,000,000,000 shares of voting common stock were authorized. Shares of common stock outstanding were 198,169,855205,065,744 and 196,217,971198,169,855 as of December 31, 20182019 and 2017,2018, respectively. The Company is governed by the General Corporation Law of the State of Delaware. All authorized shares of voting common stock have a par value of $0.01. Shares of common stock reacquired are considered issued and reported as Treasury shares.Note 13: Accumulated Other Comprehensive (Loss) IncomeNote 13: Accumulated Other Comprehensive (Loss) Income 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), net of income taxes; and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes. See Note 11 “Benefit Plans” and Note 1718 “Hedging Activities, Derivative Instruments and Credit Risk.”84
Currency
Translation
Adjustments, Net
(Losses) Gains
on Cash Flow
Hedges
Postretirement
Benefit Plans
Other
Comprehensive
Income Total Balance as of December 31, 2016 $ (235.6 ) $ (42.2 ) $ (64.6 ) $ (342.4 ) Before tax income 74.8 20.0 29.8 124.6 Income tax effect 31.2 (7.6 ) (5.6 ) 18.0 Other comprehensive income 106.0 12.4 24.2 142.6 Balance as of December 31, 2017 $ (129.6 ) $ (29.8 ) $ (40.4 ) $ (199.8 ) Before tax (loss) income (54.3 ) 25.3 (7.7 ) (36.7 ) Income tax effect (6.7 ) (7.2 ) 3.1 (10.8 ) Other comprehensive (loss) income (61.0 ) 18.1 (4.6 ) (47.5 ) Cumulative effect adjustment upon adoption of new accounting standard (ASU 2017-12) — 0.3 — 0.3 Balance as of December 31, 2018 $ (190.6 ) $ (11.4 ) $ (45.0 ) $ (247.0 ) Before tax income (loss) 4.1 8.2 (9.3 ) 3.0 Income tax effect (5.6 ) (1.0 ) 2.8 (3.8 ) Other comprehensive (loss) income (1.5 ) 7.2 (6.5 ) (0.8 ) Cumulative effect adjustment upon adoption of new accounting standard (ASU 2018-02) (1.5 ) (6.7 ) — (8.2 ) Balance as of December 31, 2019 $ (193.6 ) $ (10.9 ) $ (51.5 ) $ (256.0 )
Currency
Translation
Adjustments, Net
(Losses) Gains
on Cash Flow
Hedges
Postretirement
Benefit Plans Total Balance as of December 31, 2016 $ (235.6 ) $ (42.2 ) $ (64.6 ) $ (342.4 ) Other comprehensive income before reclassifications 106.0 0.9 21.1 128.0 Amounts reclassified from accumulated other comprehensive (loss) income — 11.5 3.1 14.6 Other comprehensive income 106.0 12.4 24.2 142.6 Balance as of December 31, 2017 $ (129.6 ) $ (29.8 ) $ (40.4 ) $ (199.8 ) Other comprehensive (loss) income before reclassifications (61.0 ) 6.6 (6.0 ) (60.4 ) Amounts reclassified from accumulated other comprehensive (loss) income — 11.5 1.4 12.9 Other comprehensive (loss) income (61.0 ) 18.1 (4.6 ) (47.5 ) Cumulative effect adjustment upon adoption of new accounting standard (ASU 2017-12) — 0.3 — 0.3 Balance as of December 31, 2018 $ (190.6 ) $ (11.4 ) $ (45.0 ) $ (247.0 ) Other comprehensive loss before reclassifications (1.5 ) (4.7 ) (8.2 ) (14.4 ) Amounts reclassified from accumulated other comprehensive (loss) income — 11.9 1.7 13.6 Other comprehensive (loss) income (1.5 ) 7.2 (6.5 ) (0.8 ) Cumulative effect adjustment upon adoption of new accounting standard (ASU 2018-02) (1.5 ) (6.7 ) — (8.2 ) Balance as of December 31, 2019 $ (193.6 ) $ (10.9 ) $ (51.5 ) $ (256.0 ) (1) All amounts are net of tax. Amounts in parentheses indicate debits. 85
Other Comprehensive
Income Components
Statement Where Net
Income is PresentedAmount Reclassified from Accumulated Other Comprehensive (Loss) Income 2019 2018 2017 Loss on cash flow hedges Interest rate swaps $ 15.6 $ 15.1 $ 18.5 Interest expense 15.6 15.1 18.5 Total before tax (3.7 ) (3.6 ) (7.0 ) Benefit for income taxes $ 11.9 $ 11.5 $ 11.5 Net of tax Amortization of defined benefit pension and other postretirement benefit items $ 2.2 $ 1.8 $ 5.0 2.2 1.8 5.0 Total before tax (0.5 ) (0.4 ) (1.9 ) Benefit for income taxes $ 1.7 $ 1.4 $ 3.1 Net of tax Total reclassifications for the period $ 13.6 $ 12.9 $ 14.6 Net of tax (1) These components are included in the computation of net periodic benefit cost (seecost. See Note 11 “Benefit Plans” for additional details).details.Note 14: Revenue from Contracts with CustomersNote 14: Revenue from Contracts with Customers The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method. See Note 2 “New Accounting Standards” for further discussion of the adoption.86the earlier ofeither 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. Industrials Energy Medical Total Primary Geographic Markets United States $ 393.7 $ 498.8 $ 105.5 $ 998.0 Other Americas 93.7 80.4 13.6 187.7 Total Americas $ 487.4 $ 579.2 $ 119.1 $ 1,185.7 EMEA 613.6 165.7 111.9 891.2 Asia Pacific 200.3 125.3 49.4 375.0 Total $ 1,301.3 $ 870.2 $ 280.4 $ 2,451.9 Product Categories $ 892.6 $ 359.5 $ 273.1 $ 1,525.2 408.7 510.7 7.3 926.7 Total $ 1,301.3 $ 870.2 $ 280.4 $ 2,451.9 Pattern of Revenue Recognition $ 1,252.5 $ 779.6 $ 280.4 $ 2,312.5 48.8 90.6 — 139.4 Total $ 1,301.3 $ 870.2 $ 280.4 $ 2,451.9 Industrials Energy Medical Total Primary Geographic Markets United States $ 371.8 $ 706.2 $ 107.9 $ 1,185.9 Other Americas 82.8 119.1 2.3 204.2 Total Americas $ 454.6 $ 825.3 $ 110.2 $ 1,390.1 EMEA 646.3 179.3 108.1 933.7 Asia Pacific 202.4 116.5 47.1 366.0 Total $ 1,303.3 $ 1,121.1 $ 265.4 $ 2,689.8 Product Categories $ 893.0 $ 486.4 $ 256.6 $ 1,636.0 410.3 634.7 8.8 1,053.8 Total $ 1,303.3 $ 1,121.1 $ 265.4 $ 2,689.8 Pattern of Revenue Recognition $ 1,256.2 $ 1,058.9 $ 265.4 $ 2,580.5 47.1 62.2 — 109.3 Total $ 1,303.3 $ 1,121.1 $ 265.4 $ 2,689.8 (1) Revenues from sales of capital equipment within the Industrials and Energy Segments and sales of components to original equipment manufacturers in the Medical 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 and certain contracts for the delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed. expenseaccount for shipping and handling activities as fulfillment costs as incurred.2018,2019, 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 $198.9$156.3 million in the next twelve months and $35.8$52.4 million in periods thereafter. The performance obligations that are unsatisfied (or partially satisfied) are primarily related to orders for goods or services that were placed prior to the end of the reporting period and have not been delivered to the customer, on-going work on ETO contracts where revenue is recognized over time and service contracts with an original duration greater than one year.8720182019 and December 31, 20172018 presented in the Consolidated Balance Sheets.
2018
2017 Accounts receivable $ 459.1 $ 525.4 Contract assets 29.0 19.6 Contract liabilities 51.7 69.6 The increase in the contract liabilities account as of December 31, 2018 from December 31, 2017 was primarily due to the acquisition of Runtech of $29.0 million. Contract liability balances are generally recognized in revenue within twelve months.Note 15: Income TaxesNote 15: Income Taxes 2017 and 20162017 consisted of the following. 2019 2018 2017 U.S. $ — $ 169.0 $ (145.8 ) Non-U.S. 190.9 180.5 33.1 Income (loss) before income taxes $ 190.9 $ 349.5 $ (112.7 ) 2017 and 2016. 2019 2018 2017 Current: U.S. federal $ 6.3 $ 25.6 $ 64.0 U.S. state and local 0.9 1.5 3.0 Non-U.S. 45.2 47.8 49.8 Deferred: U.S. federal (13.2 ) 14.4 (217.5 ) U.S. state and local 0.5 (0.7 ) — Non-U.S. (7.9 ) (8.5 ) (30.5 ) Provision (benefit) for income taxes $ 31.8 $ 80.1 $ (131.2 ) 88
The U.S. federal corporate statutory rate is reconciled to the Company’s effective income tax rate for the years ended December 31, 2019, 2018 2017 and 20162017 as follows. 2019 2018 2017 U.S. federal corporate statutory rate 21.0 % 21.0 % 35.0 % State and local taxes, less federal tax benefit 1.4 0.3 3.1 U.S. deferred change due to U.S. tax law change — 4.3 79.5 Net effects of foreign tax rate differential 1.3 2.2 6.2 Sale of subsidiary — 0.3 (4.6 ) Repatriation cost — (0.5 ) 3.8 U.S. transition tax toll charge net of FTC — (3.7 ) (56.2 ) Global Intangible Low-Tax Income ("GILTI") (2.5 ) 3.4 — ASC 740-30 (formerly APB 23) 1.2 (1.0 ) 61.2 Valuation allowance changes (2.5 ) (1.2 ) (1.1 ) Uncertain tax positions 0.4 0.1 1.9 Equity compensation (9.1 ) (3.0 ) (9.2 ) Nondeductible foreign interest expense — 1.7 (3.0 ) Capital gain 3.0 — — Nondeductible acquistion costs 3.5 0.1 (1.0 ) Other, net (1.0 ) (1.1 ) 0.7 Effective income tax rate 16.7 % 22.9 % 116.3 % 20182019 and 20172018 are as follows. 2019 2018 Deferred Tax Assets: Reserves and accruals $ 34.1 $ 51.0 Postretirement benefits - pensions 19.3 17.4 Tax loss carryforwards 28.4 22.7 Deferred taxes recorded in other comprehensive income — 1.8 Foreign tax credit carryforwards 52.2 53.3 Other 5.2 3.9 Total deferred tax assets 139.2 150.1 Valuation allowance (67.9 ) (72.5 ) Deferred Tax Liabilities: LIFO inventory (9.3 ) (9.3 ) Property, plant and equipment (15.5 ) (19.2 ) Intangibles (280.9 ) (304.8 ) Unremitted foreign earnings (7.8 ) (5.6 ) Deferred taxes recorded in other comprehensive income (4.1 ) — Other (1.8 ) (2.9 ) Total deferred tax liabilities (319.4 ) (341.8 ) Net deferred income tax liability $ (248.1 ) $ (264.2 ) 8920182019 were as follows.
Allowance
Period Ends Tax Benefit Tax Attributes to be Carried Forward U.S. federal net operating loss $ 0.3 $ — Unlimited U.S. federal capital loss 0.4 (0.4) 2021 U.S. federal capital loss 2.1 (2.1) U.S. federal tax credit 52.3 (52.3) Alternative minimum tax credit 1.0 — Unlimited U.S. state and local net operating losses 1.6 — U.S. state and local tax credit 0.5 — Non U.S. net operating losses 8.6 (7.6) Unlimited Non U.S. capital losses 0.5 (0.5) Unlimited Excess interest 14.9 (1.2) Unlimited Other deferred tax assets 3.9 (3.8) Unlimited Total tax carryforwards $ 86.1 $ (67.9) 2017 and 20162017 are as follows. 2019 2018 2017 Valuation allowance for deferred tax assets at beginning of the period $ 72.5 $ 47.9 $ 33.6 Revaluation and change due to U.S. Tax Reform — 23.4 10.7 Charged to tax expense (5.4 ) (4.2 ) 3.1 Charged to other accounts 0.1 (1.3 ) 1.6 0.7 6.7 (1.1 ) Valuation allowance for deferred tax assets at end of the period $ 67.9 $ 72.5 $ 47.9 (1)Deductions relate to the realization of net operating losses or the removal of deferred tax assets.$12.6 million and $6.8$12.6 million for the years ended December 31, 2019, 2018 and 2017, and 2016, respectively. The net decreaseincrease in this balance primarily relates to $0.5increases related to prior-year positions of $0.6 million in lapseand currency fluctuations of statute of limitations and $0.6 million in changes due to currency fluctuations.$0.4 million. Included in total unrecognized benefits as ofat December 31, 20182019 is $11.5$12.5 million of unrecognized tax benefits that would affect the Company's effective tax rate if recognized, of which $0.7 $0.9 million would be offset by a reduction of a corresponding deferred tax asset. The balance of total unrecognized tax benefits is not expected to significantly increase or decrease within the next twelve months. Below is a tabular reconciliation of the changes in total unrecognized tax benefits during the years ended December 31, 2019, 2018 2017 and 2016. 2019 2018 2017 Beginning balance $ 11.5 $ 12.6 $ 6.8 Gross increases for tax positions of prior years 0.6 — 11.2 Gross decreases for tax positions of prior years — — — Gross increases for tax positions of current year — — 0.6 Settlements — — (6.2 ) Lapse of statute of limitations — (0.5 ) (0.3 ) Changes due to currency fluctuations 0.4 (0.6 ) 0.5 Ending balance $ 12.5 $ 11.5 $ 12.6 as ofat December 31, 20182019 and 20172018 include accrued interest and penalties of $1.3 million and $0.9 million, and $0.8 million, respectively.90forbeginning with the 2015 and 2017 tax years,year, and state returns are open beginning with the 20132015 tax year. During 2018, the Company started and closed the 2014 and 2016 tax year IRS audits. No current U.S. federal audits are active as of December 31, 2018. In the United Kingdom, tax years prior to 2012 are closed. However, theThe Company is currentlystill under audit in the United Kingdom which had originally includedrelated to tax years 2012 to 2014, but2012-2015. During 2019, the Company was expanded to 2015 in December of 2017. The auditnotified that the United Kingdom is auditing 2017 tax year. This examination has not been completedconcluded as of the date of these financial statements. In Germany, generally, the tax years 2011 and beyond remain open to examination. and 2011-2014 German tax years are currently under audit.also commenced a general tax audit fordoes not assert the tax years 2011 to 2014 for Germany during 2018.The Company recorded a deferred tax liability of approximately $114.0 million as of the KKR Transaction for the anticipated repatriation of a limited amount of unremitted foreign earnings generated prior to the KKR Transaction. These accumulated earnings of non-U.S. subsidiaries amounting to approximately $287.0 million are expected to supplement 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 tax liability was adjusted to $94.1 million as of December 31, 2014, $94.6 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. Due to the Tax Act, effective the fourth quarter of 2018, the Company decided to reverse its ASC 740-30 (formerly APB 23) position, and no longer asserts indefinite reinvestment for anyof the Company’s historical non-U.S. earnings or future non-U.S. earnings. The Company adjusted its ASC 740-30records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the United States. The Company’s deferred income tax liability as of December 31, 2018 back2019 was $Note 16: Leases U.S. Asinitial 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.result,discount rate established at the commencement date. Due to the absence of an implicit rate in the Company’s lease contracts, an incremental borrowing rate is used in the determination of the present value of future lease payments. Incremental borrowing rates for a lease are based on the lease term, lease currency and the Company’s credit spread. Operating ROU assets are recorded deferred taxas 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.$5.6 millionits 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. 2019 Operating lease cost $ 20.4 Finance lease cost Amortization of right-of-use assets $ 1.4 Interest on lease liabilities 1.6 Total finance lease cost $ 3.0 Short-term lease cost $ 1.7 2019 Supplemental Cash Flows Information Cash Paid for Amounts Included in the Measurement of Lease Liabilities Operating cash flows from operating leases $ 20.3 Operating cash flows from finance leases $ 1.6 Financing cash flows from finance leases $ 0.9 Leased Assets Obtained in Exchange for New Operating Lease Liabilities $ 8.0 Operating leases Other assets $ 53.8 Accrued liabilities 17.1 Other liabilities 41.0 Total operating lease liabilities $ 58.1 Finance Leases Property, plant and equipment $ 16.9 Short-term borrowings and current maturities of long-term debt 0.7 Long-term debt, less current maturities 17.2 Total finance lease liabilities $ 17.9 Weighted Average Remaining Lease Term (in years) Operating leases 4.5 Finance leases 13.6 Weighted Average Discount Rate Operating leases 2.3 % Finance leases 6.3 % 2020 $ 18.0 $ 1.8 2021 13.6 1.8 2022 9.7 1.9 2023 6.9 1.9 2024 5.2 2.0 Thereafter 7.8 18.7 Total lease payments $ 61.2 $ 28.1 Less imputed interest (3.1 ) (10.2 ) Total $ 58.1 $ 17.9 relates mainlyfuture minimum rental payments for operating leases for the five years subsequent to withholding tax.December 31, 2018 and thereafter were approximately $25.8 million, $19.5 million, $13.9 million, $7.7 million, $5.4 million and $9.4 million, respectively. As of December 31, 2018, future minimum rental payments for capital leases for the five years subsequent to December 31, 2018 and thereafter were approximately $0.8 million, $1.0 million, $1.1 million, $1.2 million, $1.4 million and $20.7 million, respectively.Note 16: Stock-Based Compensation PlansNote 17: Stock-Based Compensation Plans may grantgrants stock-based compensation awards pursuant to the 2017 Plan and ceased granting new awards pursuant to the 2013 Plan.no0 compensation expense was recorded for equity awards. 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 the termination of employment. The repurchase rights creating the implicit service period were eliminated at the initial public offering.91$2.8Company recognized $19.2 million, $2.8 million and $77.6 million of stock-based compensation expense for the years ended December 31, 2019, 2018 and 2017.stock appreciation rights (“SAR”)SARs of $8.2 million. The $3.8 million of stock-based compensation expense for modifications for the year ended December 31, 2018 provided continued vesting through scheduled vesting dates and extended expiration dates for certain former employees. The incremental stock-based compensation was determined using the Black-Scholes option pricing model based on assumptions which included expected lives of 1.0 to 1.3 years, a risk-free rate of 2.0%, assumed volatility of 26.8% to 27.3% and an expected dividend rate of 0.0%. These costs are included in “Other operating expense, net” in the Consolidated Statements of Operations.2018 and 2017,2019, there was $20.3 million and $9.1$30.0 million of total unrecognized compensation expense related to outstanding stock options and restricted stock awards.20182019 and 20172018 a liability of approximately $7.9$7.8 million and $16.8$7.9 million, respectively, for SARs was included in “Accrued liabilities” in the Consolidated Balance Sheets.yearsyear ended December 31, 2018, 2017 and 20162019 is presented in the following table (underlying shares in thousands).
Exercise Price
(per share)
Remaining
Contractual
Term (years)
Intrisic Value
of In-The-Money
Options (in millions)Stock-Based Compensation Awards Shares Outstanding at December 31, 2018 12,352 $ 10.93 Granted 1,141 $ 27.45 Excercised or Settled (5,222 ) $ 8.83 Forfeited (226 ) $ 27.46 Expired (17 ) $ 31.61 Outstanding at December 31, 2019 8,028 $ 14.14 5.9 $ 179.8 Vested at December 31, 2019 6,075 $ 9.93 5.0 $ 161.4 2017 and 2016. 2019 2018 2017 Assumptions: Expected life of options (in years) 6.3 7.0 - 7.5 5.0 - 6.3 Risk-free interest rate 1.7% - 2.6 % 2.9% - 3.1 % 1.9% - 2.1 % Assumed volatility 24.8%-31.8 % 31.1%-35.4 % 41.2% -45.8 % Expected dividend rate 0.0 % 0.0 % 0.0 % 9220182019 is presented in the following table (underlying shares in thousands).
Grant-Date
Fair Value Shares Non-vested as of December 31, 2018 362 $ 31.78 Granted 476 $ 27.82 Vested (48 ) $ 30.88 Forfeited (71 ) $ 30.51 Non-vested as of December 31, 2019 719 $ 29.31 TheWhile the DSUs vested immediately upon grant, however,they contained restrictions such that the employee may not sell or otherwise realize the economic benefits of the award until certain dates through May 2019. $97.4 million of compensation expense for the DSU awards was recognized in the year ended December 31, 2017 and included in “Other operating expense, net” in the Consolidated Statements of Operations.Note 17: Note 18: Hedging Activities, Derivative Instruments and Credit Risk Derivative Instruments and Credit RiskHedging Activitiesmaintaining a mixture of fixed and variable rate debt and, 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.9320182019 and December 31, 2017.
Classification
Amount(1)
Other Current
Assets
Other Assets
Accrued
Liabilities
Other
LiabilitiesDecember 31, 2019
Classification
Amount(1)
Other Current
Assets
Other Assets
Accrued
Liabilities
Other
Liabilities Cash Flow $ 825.0 $ — $ — $ 13.1 $ — Fair Value $ 55.2 $ 0.5 $ — $ — $ — Foreign currency forwards Fair Value $ 106.9 $ — $ — $ 0.5 $ — December 31, 2018 Derivatives Designated as Hedging Instruments Interest rate swap contracts Cash Flow $ 925.0 $ — $ — $ 11.2 $ 8.7 Derivatives Not Designated as Hedging Instruments Foreign currency forwards Fair Value $ 143.3 $ 1.3 $ — $ — $ — Foreign currency forwards Fair Value $ 27.5 $ — $ — $ 0.1 $ — (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. and 2016 are as presented in the table below. See Note 2 “New Accounting Standards” for a discussion of the adoption of ASU 2017-12. 2019 2018 2017 Interest Rate Swap Contracts (Loss) gain recognized in AOCI on derivatives $ (7.4 ) $ 10.1 $ 1.5 (15.6 ) (14.5 ) (18.5 ) — (0.6 ) — (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.(2) In the third quarter of 2018, the Company used excess cash to pay down $150.0 million of its Dollar Term Loan Facility. Due to this unforecasted pay down of debt, the Company paid $2.7 million in the amendment of the interest rate swap contracts to reflect the updated forecasted cash flows. The updated forecasts caused certain hedged items to be deemed probable of not occurring in the future and thus, the Company accelerated the release of AOCI related to those hedged items. Losses reclassified from AOCI into income (missed forecast) were included in “Loss on extinguishment of debt” in the Consolidated Statements of Operations. 2018,2019, the Company iswas the fixed rate payor on eight4 interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $925.0$825.0 million of the Company’s LIBOR-based variable rate borrowings. These contracts carry fixed rates ranging from 3.3%3.6% to 4.3% and have expiration dates ranging from 2019 to 2020.expire in 2020. These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted LIBOR-based interest payments. Based on LIBOR-based swap yield curves as of December 31, 2018,2019, the Company expects to reclassify losses of $12.9$14.1 million out of AOCI into earnings during the next 12 months. The Company’s LIBOR-based variable rate borrowings outstanding as of December 31, 20182019 were $952.6$927.6 million and €607.3€601.2 million.94seven6 foreign currency forward contracts outstanding as of December 31, 20182019 with notional amounts ranging from $7.6$10.0 million to $47.3$56.1 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. (losses) on derivative instruments not designated as accounting hedges and total net foreign currency transaction (losses) gains (losses) for the years ended December 31, 2019, 2018 2017 and 20162017 were as follows. 2019 2018 2017 Foreign currency forward contracts (losses) gains $ (4.9 ) $ 5.2 $ (7.0 ) Total foreign currency transaction (losses) gains, net (8.1 ) 1.9 (9.3 ) The Company designated its Original Euro Term Loan as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies in 2017 until it was extinguished and replaced on August 17, 2017 by a €615.0 million Euro Term Loan, further described in Note 10 “Debt.” On August 17, 2017, the Company designated the €615.0 million Euro Term Loan as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies. As of December 31, 2018,2019, the Euro Term Loan of €607.3€601.2 million remained designated.For the year ended December 31, 2016 and for the period from January 1, 2017 to August 16, 2017, the Company designated two cross currency interest rate swaps, each with a USD notional amount of $100.0 million as hedges of its net investment in EUR functional subsidiaries. Both cross currency interest rate swaps were terminated on August 16, 2017. The losses and gains from the change in the fair value of the designated net investment hedges were recorded through other comprehensive income. 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. 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, 20182019 and 2017,2018, and the net balance of such gains and (losses) included in accumulated other comprehensive (loss) income as of December 31, 20182019 and 20172018 were as follows. 2019 2018 Gain, net of income tax, recorded through other comprehensive income $ 12.0 $ 24.4 Balance included in accumulated other comprehensive (loss) income as of December 31, 2019 and 2018, respectively 75.8 56.5 no0 off-balance sheet derivative instruments as of December 31, 20182019 or 2017.952018.20182019 or 2017.2018.Note 18: Fair Value MeasurementsNote 19: Fair Value Measurements Level 1 Pricesprices (unadjusted) in active markets for identical assets or liabilities as of the reporting date.test.tests. The valuation of trademarks was based upon current sales projections and the relief from royalty method was applied. No impairment charge wascharges were recorded as a result of this analysis.these analyses. Each trademark carrying value was in excess of its fair value.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.96 December 31, 2019 Level 1 Level 2 Level 3 Total Financial Assets $ — $ 0.5 $ — $ 0.5 7.3 — — 7.3 Total $ 7.3 $ 0.5 $ — $ 7.8 Financial Liabilities $ — $ 0.5 $ — $ 0.5 — 13.1 — 13.1 7.3 — — 7.3 Total $ 7.3 $ 13.6 $ — $ 20.9 December 31, 2018 Level 1 Level 2 Level 3 Total Financial Assets $ — $ 1.3 $ — $ 1.3 5.8 — — 5.8 Total $ 5.8 $ 1.3 $ — $ 7.1 Financial Liabilities $ — $ 0.1 $ — $ 0.1 — 19.9 — 19.9 5.8 — — 5.8 Total $ 5.8 $ 20.0 $ — $ 25.8 (1) Based on calculations that use readily observable market parameters as their basis, such as spot and forward rates. (2) Based on the quoted price of publicly traded mutual funds which are classified as trading securities and accounted for using the mark-to-market method. (3) Measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curves as of December 31, 2018.2019. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.Note 19: ContingenciesNote 20: Contingencies 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.97onin the Consolidated Balance SheetSheets include a total litigation reserve of $105.8$118.1 million and $105.6$105.8 million as of December 31, 20182019 and December 31, 2017,2018 respectively, with respectregards to potential liability arising from the Company’s asbestos-related litigation. Asbestos related defense costs are excluded from the asbestos claims liability and are recorded separately as services are incurred. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters may be material to the Company’s consolidated financial position, results of operation or liquidity.$103.0$122.4 million and $100.4$103.0 million as of December 31, 20182019 and 2017,December 31, 2018, respectively, which was included in “Other assets” in the Consolidated Balance Sheets. During the year ended December 31, 2018, the Company received asbestos related insurance recoveries of $14.4 million, of which $6.2 million related to the recovery of indemnity payments, and was recorded as a reduction of the insurance recovery receivable in “Other assets” in the Consolidated Balance Sheets, and $8.2 million related to the reimbursement of previously expensed legal defense costs, and was recorded as a reduction of “Selling and administrative expenses” in the Consolidated Statements of Operations.98four4 on-site cleanups for which it is the primary responsible party. ThreeNaN of these cleanup sites are in the operation and maintenance stage and one1 is in the implementation stage.$6.9$6.6 million and $7.5$6.9 million as of December 31, 20182019 and December 31, 2017,2018, 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 20: Other Operating ExpenseNote 21: Other Operating Expense arefor the years ended December 31, 2019, 2018 and 2017 were as follows. For the Years Ended December 31, 2019 2018 2017 Other Operating Expense, Net Foreign currency transaction losses (gains), net $ 8.1 $ (1.9 ) $ 9.3 17.1 12.7 5.3 0.1 — 0.9 (6.0 ) (9.5 ) — 53.8 9.8 3.4 (Gains) losses on asset and business disposals 0.8 (1.1 ) 0.8 1.8 (0.9 ) 202.4 Total other operating expense, net $ 75.7 $ 9.1 $ 222.1 (1) See Note 4 “Restructuring.” (2) Estimated environmental remediation costs recorded on an undiscounted basis for a former production facility. (3)Represents stock-based compensation expense recognized for the year ended December 31, 2018 of $2.8 million, reduced by $5.1 million primarily due to a decrease in the estimated accrual for employer taxes related to DSUs as a result of a lower per share stock price.Represents stock-based compensation expense recognized for the year ended December 31, 2017 for stock options outstanding of $77.6 million and DSUs granted to employees at the date of the initial public offering of $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 of $19.2 million.99(4)(3)Represents insurance recoveries of the Company’s shareholder litigation settlement in 2014. (5)(4)Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs), and non-cash charges and credits arising from fair value purchase accounting adjustments. Note 21: Segment Information(5) Note 22: Segment Reporting three3 reportable segments, including the specific products manufactured and sold follows below.2017 and 2016. 2019 2018 2017 Revenue Industrials $ 1,301.3 $ 1,303.3 $ 1,130.7 Energy 870.2 1,121.1 1,014.5 Medical 280.4 265.4 230.2 Total Revenue $ 2,451.9 $ 2,689.8 $ 2,375.4 Segment Adjusted EBITDA Industrials $ 296.6 $ 288.2 $ 242.7 Energy 225.1 337.8 296.1 Medical 84.4 75.0 62.4 Total Segment Adjusted EBITDA 606.1 701.0 601.2 Less items to reconcile Segment Adjusted EBITDA to Income (Loss) Before Income Taxes: 41.3 19.2 39.7 Interest expense 88.9 99.6 140.7 Depreciation and amortization expense 178.1 180.4 173.8 — — 1.6 — — 17.3 25.6 38.8 24.7 54.6 16.7 4.1 0.1 — 0.9 — 2.9 4.1 0.6 4.3 8.1 23.1 (2.3 ) 194.2 0.2 1.1 84.5 Foreign currency transaction losses (gains), net 8.1 (1.9 ) 9.3 (6.0 ) (9.5 ) — 0.6 2.2 10.9 Income (Loss) Before Income Taxes $ 190.9 $ 349.5 $ (112.7 ) 100(1) Includes insurance recoveries of asbestos legal fees of $8.2 million in the year ended December 31, 2018. (2) Represents non-cash charges for impairment of intangible assets other intangible assets.than goodwill.(3) Represents management fees and expenses paid to KKR. (4) Restructuring and related business transformation costs consist of the following. Year Ended December 31, 2019 2018 2017 Restructuring charges $ 17.1 $ 12.7 $ 5.3 Severance, sign-on, relocation and executive search costs 2.5 4.1 3.5 Facility reorganization, relocation and other costs 2.4 3.1 5.3 Information technology infrastructure transformation 1.2 0.8 5.2 Losses (gains) on asset and business disposals 0.8 (1.1 ) 0.8 Consultant and other advisor fees 0.3 14.1 1.7 Other, net 1.3 5.1 2.9 Total restructuring and related business transformation costs $ 25.6 $ 38.8 $ 24.7 (5) Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs) and non-cash charges and credits arising from fair value purchase accounting adjustments. (6) Represents estimated environmental remediation costs and losses relating to a former production facility. (7) Represents expenses related to the Company’s initial stock offering and subsequent secondary offerings. (8) in 2018 and the accelerated adoption of the new accounting standards (ASC 606 – Revenue from Contracts with Customers and ASC 842 – Leases) in the first quarter of 2018 and 2019, respectively, one year ahead of the required adoption dates for a private company.(9) 20182019 of $2.8$19.2 million reduced by $5.1 million primarily due to a decrease in the estimated accrual forand associated employer taxes related to DSUs as a result of a lower per share stock price. See Note 16 “Stock-Based Compensation Plans.”$3.9 million.101(10) andas well as losses reclassified from AOCI into income related to the amendment of the interest rate swaps in conjunction with the debt repayment.(11) Represents insurance recoveries of the Company’s shareholder litigation settlement in 2014. (12) Includes (i) the non-cash impact of net LIFO reserve adjustments,adjustment, (ii) effects of amortization of prior service costs and amortization of losses in pension and other postretirement benefits (“OPEB”) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments. 2019 2018 2017 Industrials $ 2,024.9 $ 2,108.1 $ 2,029.4 Energy 1,594.8 1,661.9 1,681.5 Medical 481.9 488.9 511.1 Total 4,101.6 4,258.9 4,222.0 General corporate (unallocated) 526.8 228.2 399.2 Total identifiable assets $ 4,628.4 $ 4,487.1 $ 4,621.2 2019 2018 2017 Industrials $ 100.3 $ 99.8 $ 94.5 Energy 55.3 57.1 56.7 Medical 22.5 23.5 22.6 Total depreciation and amortization expense $ 178.1 $ 180.4 $ 173.8 2019 2018 2017 Industrials $ 23.1 $ 24.7 $ 26.7 Energy 15.3 22.7 21.1 Medical 4.8 4.8 9.0 Total capital expenditures $ 43.2 $ 52.2 $ 56.8 2017 and 2016. Property, Plant and Equipment, net 2019 2018 2017 United States $ 179.6 $ 199.9 $ 198.4 Other Americas 5.9 6.3 6.8 Total Americas 185.5 206.2 205.2 117.3 126.3 132.3 Asia Pacific 23.8 24.1 25.7 Total $ 326.6 $ 356.6 $ 363.2 Note 23: (1)Europe, Middle East and Africa (“EMEA”)Related PartySee Note 14 “Revenue from Contracts with Customers” for revenue by geographic region.102Note 22: Related Partyyearyears 2019 and 2017 debt refinancing transaction.transactions. KKR held a position in the Euro Term Loan Facility of €33.5€49.0 million and €49.9€33.5 million as of December 31, 20182019 and 2017,2018, respectively. 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 for the year ended December 31, 2017. In May 2018, KKR Capital Markets LLC acted as an underwriter in connection with the secondary offering of the Company’s stock by certain selling stockholders and received underwriter discounts and commissions of approximately $5.2 million. In June 2019, KKR Capital Markets LLC was the joint lead arranger and bookrunner of Amendment No. 4 to the Credit Agreement and earned $0.4 million in structuring fees for their involvement in the Amendment.In August 2017, KKR Capital Markets LLC received $1.5 million for services rendered in connection with the debt refinancing transaction.onin the Consolidated Statements of Operations. Prior to the termination of the monitoring agreement, the Company incurred management fees to KKR of $1.1 million and $4.1 million for the years ended December 31, 2017 and 2016 and out of pocket expenses of $0.7 million for the year ended December 31, 2016.Note 23: Earnings (Loss) Per ShareNote 24: Earnings Per Share (loss) per share are as follows.The DSUs described in Note 16 “Stock-Based Compensation Plans” are considered outstanding shares for the purpose of computing basic earnings (loss) per share because they will become issued solely upon the passage of time. Years Ended December 31, 2019 2018 2017 Net income attributable to Gardner Denver Holdings, Inc. $ 159.1 $ 269.4 $ 18.4 Average shares outstanding: Basic 203.5 201.6 182.2 Diluted 208.9 209.1 188.4 Earnings per share: Basic $ 0.78 $ 1.34 $ 0.10 Diluted $ 0.76 $ 1.29 $ 0.10 yearyears ended December 31, 2019, 2018 and 2017, there were 1.8 million, 0.8 million and 0.7 million anti-dilutive shares that were not included in the computation of diluted lossearnings per share.For the year ended December 31, 2016, there were 13.3 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.103Note 24: Share Repurchase ProgramNote 25: Share Repurchase Program 104,“Company”"Company") as of December 31, 20182019 and 2017,2018, the related consolidated statements of operations, comprehensive income, (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2018,2019, 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, 2018,2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).20182019 and 2017,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2019, 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, 2018,2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.overOver Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.105● 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: o 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. o 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. o 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. o 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. ● 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. 27, 2019106NoneITEM 9A.CONTROLS AND PROCEDURES2018.2019. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2018.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● 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 regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.● 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. 2018.ITEM 9B.Transition Agreement with Philip T. HerndonOn February 27, 2019, we entered into a Transition Agreement (the “Transition Agreement”) with Mr. Herndon. Under the Transition Agreement, subject to Mr. Herndon’s continued compliance with the restrictive covenants and his non revocation of the release and waiver of claims therein, he is entitled to:a cash payment in the amount $639,830 payable in (i) ten equal monthly installments of $34,083 and (ii) a lump sum of $299,000;subject to his electing to receive benefits under COBRA, continued group health coverage (on the same basis as actively employed employees of the Company) for 10 months following his last date of employment;None.pursuant to the terms of the respective grant agreements, accelerated vesting of his outstanding restricted stock units (“RSUs”) and options granted pursuant to the Company’s 2017 Omnibus Incentive Plan that would have vested on the next vesting date following his termination date; andcontinued vesting of his outstanding options granted pursuant to the Company’s 2013 Stock Incentive Plan for Key Employees in accordance with their terms following his termination date as if he remained an employee of the Company.Under the Transition Agreement, Mr. Herndon is subject to various restrictive covenants; Mr. Herndon also continues to be subject to the covenants in his Management Stockholder’s Agreement.The foregoing description of the Transition Agreement is qualified in its entirety by reference to the Transition Agreement, which is filed as Exhibit 10.37 hereto and incorporated herein by reference.ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE20192020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2018.2019.ITEM 11.EXECUTIVE COMPENSATION20192020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2018.
2019.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS20192020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2018.20182019 about our common stock that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or directors under all of the existing equity compensation plans including our 2013 Stock Incentive Plan and 2017 Omnibus Incentive Plan. All equity compensation plans are described more fully in Note 1617 “Stock-Based Compensation Plans” to our audited consolidated financial statements included elsewhere in this Form 10-K.Plan Category Equity compensation plans approved by securityholders 8,480,011 $ 14.34 6,848,079 108
to be issued upon
Exercise of Outstanding
Options, Warrants
And Rights(1)
Exercise Price of
Outstanding Options,
Warrants and Rights(2)
Remaining Available for
Future Issuance under Equity
Compensation Plans (excluding
Securities reflected in
the first column)(3)(1) Total includes 10,828,9575,962,883 stock options and 119,24125,370 share-settled stock appreciation rights under the Company’s 2013 Stock Incentive Plan and 834,8361,772,604 stock options, 719,154 restricted stock units and 7,085no share-settled stock appreciation rights under the Company’s 2017 Omnibus Incentive Plan.(2) The weighted average exercise prices for the Company’s 2017 Omnibus Incentive Planprice relates only to stock options. The calculation of the weighted average exercise price does not include outstanding equity awards that are received or exercised for no consideration.(3) These shares are available for grant as of December 31, 20182019 under the Company’s 2017 Omnibus Incentive Plan. This includes 8,550,000 shares initially authorized for issuance under the Company’s 2017 Omnibus Incentive Plan and shares subject to awards under the Company’s 2013 Stock Incentive Plan that expired or were otherwise forfeited or terminated in accordance with their terms without the delivery of shares of the Company’s common stock in settlement thereof.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE20192020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2018.2019.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES20192020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2018.2019.109ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULE47 48 49 50 51 52 98 Exhibit Number Exhibit Description Agreement and Plan of Merger, dated as of April 30, 2019, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. Holdco, Inc., Gardner Denver Holdings, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019 (File No. 001-34400)) 110ExhibitsExhibit NumberExhibit DescriptionSecond Amended and Restated Certificate of Incorporation of Gardner Denver Holdings, 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)) Amended and Restated Bylaws of Gardner Denver Holdings, 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)) Exhibit Number Exhibit Description 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)) Amended and Restated Registration Rights Agreement, dated as of May 17, 2017, by and among KKR Renaissance Aggregator L.P.; KKR Renaissance Aggregator GP LLC; Gardner Denver Holdings, Inc. and each of the other parties thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) Description of Gardner Denver Holdings, Inc.’s Securities 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) 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)) Amendment No. 1, dated as of March 4, 2016, to the Senior Secured Credit Agreement, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Gardner Denver, Inc., GD German Holdings II GmbH (as successor in interest to Gardner Denver Holdings GmbH & Co. KG), GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) Amendment No. 2, dated as of August 17, 2017, to the Senior Secured Credit Agreement, among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and the other parties and lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2017 (File no. 001-38095)) 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 (File no. 001-38095) 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)) 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)) 111Exhibit NumberExhibit DescriptionReceivables 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)) Exhibit Number Exhibit Description 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)) Stockholders Agreement, dated as of May 17, 2017,2018, between Gardner Denver Holdings, Inc. and KKR Renaissance Aggregator L.P. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (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)) 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)) 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)) 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)) 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)) 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)) 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)) 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)) 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)) Exhibit Number Exhibit Description Stock Option Agreement, dated as of March 7, 2014, under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) between Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and Andrew Schiesl (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) 112Exhibit NumberExhibit DescriptionForm 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)) 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)) 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)) 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)) Employment Contract, dated September 11, 2018 between Gardner Denver Deutschland GmbH and Enrique Miñarro Viseras (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 29, 2018 (File No. 001-38095)) Offer Letter, dated December 18, 2015, between Gardner Denver, Inc. and Neil Snyder (incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K filed on February 16, 2018 (File No. 001-38095)) 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) Monitoring Fee Termination Agreement, dated as of May 17, 2017, between Gardner Denver Holdings, Inc. Kohlberg Kravis Roberts & Co. L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) 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 (File No. 001-38095)) Form of Director Restricted Stock Unit Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 20182017 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 (File no. 001-38095))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 (File no. 001-38095)) Gardner Denver, Inc. Supplemental Excess Defined Contribution Plan (January 1, 2019 Restatement) (incorporated by reference to Exhibit 10.36 to the Registrants Annual Report on Form 10-K filed on February 27, 2019 (File no. 001-38095)) Exhibit Number Exhibit Description Transition Agreement, dated as of February 27, 2019, between Gardner Denver, Inc. and Philip T. Herndon (incorporated by reference to Exhibit 10.37 to the Registrants Annual Report on Form 10-K filed on February 27, 2019 (File No. 001-38095)) 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 (File No. 001-38095)) 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 (File No. 001-34400)) 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 (File No. 001-38095)) Transition Agreement, dated as of October 28, 2019, between Gardner Denver, Inc. and Neil Snyder (incorporated by reference to Exhibit 10.4 to the Registrants Quarterly Report on Form 10-Q filed on October 30, 2019 (File No. 001-38095)) Offer Letter, dated October 3, 2019, between Gardner Denver Holdings, Inc. and Emily A. Weaver 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 Subsidiaries of Gardner Denver Holdings, Inc. as of December 31, 20182019Consent 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 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.ITEM 16.FORM 10-K SUMMARYNone11327th26th day of February 2019,2020, by the undersigned, thereunto duly authorized./s/ /s/ Vicente Reynal27th26th day of February 20192020, by the following persons on behalf of the registrant and in the capacities indicated.CapacityCapacity Vicente Reynal (principal executive officer), Director Vicente Reynal Neil D. Snyder Emily A. WeaverVice President and Chief Financial Officer Emily A. Weaver (principal financial officer) Neil D. SnyderVice President and Corporate Controller Michael J. Scheske (principal accounting officer) Michael J. ScheskeDirector Director Director Director Director Director Director Director Director 114 (LOSS) For the Years Ended December 31, 2019 2018 2017 Revenues $ — $ — $ — Cost of sales 0.6 — — Gross Profit (0.6 ) — — Operating costs 10.4 (1.2 ) 19.5 Other operating (income) expense, net (47.0 ) (22.4 ) 175.0 Operating Income (Loss) 36.0 23.6 (194.5 ) Interest income 42.3 41.8 20.7 Income (Loss) Before Income Taxes 78.3 65.4 (173.8 ) Income tax (benefit) provision (5.1 ) 3.4 (16.1 ) Income (Loss) of Parent Company 83.4 62.0 (157.7 ) Equity in undistributed income of subsidiaries 75.7 207.4 176.1 Net Income 159.1 269.4 18.4 Other comprehensive (loss) income (0.8 ) (47.5 ) 142.6 Comprehensive Income $ 158.3 $ 221.9 $ 161.0 115 As of December 31, 2019 2018 Assets Current assets: Cash and cash equivalents $ — $ 1.0 Other current assets 1.0 — Total current assets 1.0 1.0 Equity in net assets of subsidiaries 848.5 781.9 Intercompany receivables 1,019.9 885.7 Deferred tax assets 8.3 15.5 Total assets $ 1,877.7 $ 1,684.1 Liabilities and Stockholders' Equity Other liabilities $ 7.8 $ 8.1 Total liabilities 7.8 8.1 Stockholders' equity: Common stock, $0.01 par value; 1,000,000,000 shares authorized; 206,767,529 and 201,051,291 shares issued at December 31, 2019 and December 31, 2018, respectively 2.1 2.0 Capital in excess of par value 2,302.0 2,282.7 Accumulated deficit (141.4 ) (308.7 ) Treasury stock at cost; 1,701,785 and 2,881,436 shares at December 31, 2019 and 2018, respectively (36.8 ) (53.0 ) Accumulated other comprehensive loss (256.0 ) (247.0 ) Total Gardner Denver Holdings, Inc. stockholders' equity 1,869.9 1,676.0 Total liabilities and stockholders' equity $ 1,877.7 $ 1,684.1 116 For the Years Ended December 31, 2019 2018 2017 Cash Flows From Operating Activities: Net cash (used in) provided by operating activities $ (15.1 ) $ 55.0 $ 9.2 Cash Flows From Investing Activities: Advances to subsidiaries (10.1 ) (20.3 ) (899.3 ) Net cash used in investing activities (10.1 ) (20.3 ) (899.3 ) Cash Flows From Financing Activities: Proceeds from stock option exercises 42.8 6.8 — Purchases of treasury stock (18.6 ) (40.7 ) (3.6 ) Proceeds from the issuance of common stock — — 893.6 Net cash provided by (used in) financing activities 24.2 (33.9 ) 890.0 (Decrease) increase in cash and cash equivalents (1.0 ) 0.8 (0.1 ) Cash and cash equivalents, beginning of year 1.0 0.2 0.3 Cash and cash equivalents, end of year $ — $ 1.0 $ 0.2 117no0 dividends received from subsidiaries during the years ended December 31, 2019, 2018 2017 and 2016.no0 long-term debt obligations as of December 31, 20182019 and 2017.1920 “Contingencies” to our audited consolidated financial statements included elsewhere in this Form 10-K.118