UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 2017
2020
or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
___________to___________
Commission File Number: 001-38095
Gardner Denver Holdings,Ingersoll Rand Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 46-2393770
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)

222 East Erie800-A Beaty Street Suite 500
Milwaukee, Wisconsin 53202Davidson, North Carolina 28036
(Address of Principal Executive Offices) (Zip Code)

(414) 212-4700(704) 655-4000
(Registrant’s Telephone Number, Including Area Code)


Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, $0.01 Par Value per shareIRNew York Stock Exchange

Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer☐☒Accelerated filer☐
    
Non-accelerated filer☒  (Do not check if a smaller reporting company)
☐
Smaller reporting company☐
    
Emerging growth Company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The registrant had outstanding 196,010,861417,059,081 shares of Common Stock, par value $0.01 per share, as of September 30, 2017.July 31, 2020.


Index
Table of Contents

GARDNER DENVER HOLDINGS,INGERSOLL RAND INC. AND SUBSIDIARIES


FORM 10-Q


INDEX

Page
No.
PART I. FINANCIAL INFORMATION 
Item 1. Condensed Consolidated Financial Statements
56
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
3539
Item 3. Quantitative and Qualitative Disclosures About Market Risk
5358
Item 4. Controls and Procedures
5359
PART II. OTHER INFORMATION 
Item 1. Legal Proceedings
5459
Item 1A. Risk Factors
5460
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
5460
Item 3. Defaults Upon Senior Securities
5460
Item 4. Mine Safety Disclosures
5460
Item 5. Other Information
5460
Item 6. Exhibits
5561
SIGNATURES
5662


2
Index
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q (this “Form 10-Q”) may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections.  All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements.  Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements.  The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control.  Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them.  However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q.  Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under “Risk“Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and “Part II. Item 1A. Risk Factors” in our quarterly report on Form 10-Q for the Company’s prospectus dated May 11, 2017 (the “Prospectus”), as filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2017 pursuant to Rule 424(b)(4) under the Securities Act, and in this report,quarterly period ended March 31, 2020, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov,, and also include the following:

·•We have exposure to the risks associated with instability in the global economy
The COVID-19 pandemic has adversely affected our business and financial markets, which may negatively impact our revenues, liquidity, suppliers and customers.
·More than half of our sales and operations are in non-U.S. jurisdictions and we are subject to the economic, political, regulatory and other risks of international operations.
·Our revenues and operating results, especially in the Energy segment, depend on the level of activity in the energy industry, which is affected by volatile oil and gas prices.
·Our results of operations are subject to exchange rate and other currency risks. A significant movement in exchange rates could adversely impact our results of operations, and cash flows.
·Potential governmental regulations restricting the use, and increased public attention to and litigation regarding the impacts, of hydraulic fracturing or other processes on which it relies could reduce demand for our products.
·We face competition in the markets we serve, which could materially and adversely affect our operating results.
·Large or rapid increases in the cost of raw materials and component parts, substantial decreases in their availability, or our dependence on particular suppliers of raw materials and component parts could materially and adversely affect our operating results.
·Our operating results could be adversely affected by a loss or reduction of business with key customers or consolidation or the vertical integration of our customer base.
·The loss of, or disruption in, our distribution network could have a negative impactmaterial and adverse effect on our abilities to ship products, meet customer demandbusiness, results of operations and otherwise operate our business.financial condition in the future;

·•Our ongoing and expected restructuring plans and other cost savings initiatives
The anticipated benefits of our acquisition of the Ingersoll Rand Industrial business may not be as effective as we anticipate, and werealized fully or at all, may failtake longer to realize than expected and the cost savingsintegration process will be complex, costly and increased efficiencies that we expect to result from these actions. Our operating results could be negatively affected by our inability to effectively implement such restructuring plans and other cost savings initiatives.
·Our success depends on our executive management and key personnel.
·Credit and counterparty risks could harm 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.
·Cost overruns, delays, penalties or liquidated damages could negatively impact our results, particularly with respect to fixed-price contracts for custom engineered products.
·The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results of operations, financial condition or strategic objectives.
·A significant portion of our assets consists of goodwill and other intangible assets, the value of which may be reduced if we determine that those assets are impaired.
3
·Our business could suffer if we experience employee work stoppages, union and work council campaigns or other labor difficulties.
·We are a defendant in certain asbestos and silica-related personal injury lawsuits,time-consuming, which could adversely affect our business, financial results and financial condition.

We have exposure to the risks associated with instability in the global economy and financial markets, which may negatively impact our revenues, liquidity, suppliers and customers.

More than half of our sales and operations are in non-U.S. jurisdictions and we are subject to the economic, political, regulatory and other risks of international operations.

Our revenues and operating results, especially in the High Pressure Solutions segment, depend on the level of activity in the energy industry, which is significantly affected by volatile oil and gas prices.

Our results of operations are subject to exchange rate and other currency risks. A significant movement in exchange rates could adversely impact our results of operations and cash flows.

Potential governmental regulations restricting the use, and increased public attention to and litigation regarding the impacts, of hydraulic fracturing or other processes on which it relies could reduce demand for our products.

3


We face competition in the markets we serve, which could materially and adversely affect our operating results.

Large or rapid increases in the cost of raw materials and component parts, substantial decreases in their availability or our dependence on particular suppliers of raw materials and component parts could materially and adversely affect our operating results.

Our operating results could be adversely affected by a loss or reduction of business with key customers or consolidation or the vertical integration of our customer base.

Credit and counterparty risks could harm our business.

Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.

The loss of, or disruption in, our distribution network could have a negative impact on our abilities to ship products, meet customer demand and otherwise operate our business.

Our ongoing and expected restructuring plans and other cost savings initiatives may not be as effective as we anticipate, and we may fail to realize the cost savings and increased efficiencies that we expect to result from these actions. Our operating results could be negatively affected by our inability to effectively implement such restructuring plans and other cost savings initiatives.

Our success depends on our executive management and other key personnel and our ability to attract and retain top talent throughout the Company.

If we are unable to develop new products and technologies, our competitive position may be impaired, which could materially and adversely affect our sales and market share.

Cost overruns, delays, penalties or liquidated damages could negatively impact our results, particularly with respect to fixed-price contracts for custom engineered products.

The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results of operations, financial condition or strategic objectives.

Changes in tax or other laws, regulations, or adverse determinations by taxing or other governmental authorities could increase our effective tax rate and cash taxes paid or otherwise affect our financial condition or operating results.

A significant portion of our assets consists of goodwill and other intangible assets, the value of which may be reduced if we determine that those assets are impaired.

Our business could suffer if we experience employee work stoppages, union and work council campaigns or other labor difficulties.

We are a defendant in certain asbestos and silica-related personal injury lawsuits, which could adversely affect our financial condition.

·•Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.
·A natural disaster, catastrophe, pandemic or other event could result in severe property damage, which could adversely affect our operations.

·Information systems failure may disrupt our business and result in financial loss and liability to our customers.
·The nature of our products creates the possibility of significant product liability and warranty claims, which could harm our business.

·Environmental compliance costs and liabilities could adversely affect our financial condition.
The nature of our products creates the possibility of significant product liability and warranty claims, which could harm our business.
·Third parties may infringe upon our intellectual property or may claim we have infringed their intellectual property, and we may expend significant resources enforcing or defending our rights or suffer competitive injury.

·We face risks associated with our pension and other postretirement benefit obligations.
Environmental compliance costs and liabilities could adversely affect our financial condition.
·Our substantial indebtedness could have important adverse consequences and adversely affect our financial condition.

·A significant portion of our total outstanding shares are restricted from immediate sale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
4
·Our Sponsor (affiliates of Kohlberg Kravis Roberts & Co. L.P.) controls a majority of the voting power in the Company’s common stock and has significant influence over us, including control over decisions that require the approval of stockholders.



Third parties may infringe upon our intellectual property or may claim we have infringed their intellectual property, and we may expend significant resources enforcing or defending our rights or suffer competitive injury.

We face risks associated with our pension and other postretirement benefit obligations.

Our substantial indebtedness could have important adverse consequences and adversely affect our financial condition.

We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Despite our level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt, including off-balance sheet financing, contractual obligations and general and commercial liabilities. This could further exacerbate the risks to our financial condition described above.

The terms of the credit agreement governing the Senior Secured Credit Facilities may restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

We utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates on our variable rate indebtedness and we will be exposed to risks related to counterparty credit worthiness or non-performance of these instruments.

If the financial institutions that are part of the syndicate of our Revolving Credit Facility fail to extend credit under our facility or reduce the borrowing base under our Revolving Credit Facility, our liquidity and results of operations may be adversely affected.

The Company may face risk associated with the discontinuation of and transition from currently used financial reference rates.

We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you.  In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected.  There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct or (iv) our strategy, which is based in part on this analysis, will be successful.  All forward-looking statements in this report apply only as of the date of this report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise.


All references to “we”, “us”, “our”,“we,” “us,” “our,” the “Company” or “Gardner Denver”“Ingersoll Rand” in this Quarterly Report on Form 10-Q mean Gardner Denver Holdings,Ingersoll Rand Inc. and its subsidiaries, unless the context otherwise requires.


Website Disclosure


We use our website www.gardnerdenver.comwww.irco.com as a channel of distribution of Company information. Financial and other important information regarding the Companyus is routinely accessible through and posted on our website. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Gardner Denver Holdings, IncIngersoll Rand Inc. when you enroll your e-mailemail address by visiting the “Email Alerts” section of our website at www.investors.gardnerdenver.cominvestors.irco.com. The contents of our website isare not, however, a part of this Quarterly Report on Form 10-Q.10-Q.

4
5
Index
PART I. FINANCIAL INFORMATION

Item 1.PART I.
Condensed Consolidated Financial Statements
FINANCIAL INFORMATION


ITEM 1.FINANCIAL STATEMENTS

GARDNER DENVER HOLDINGS,INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in millions, except per share amounts)


 
For the Three Month
Period Ended
September 30,
  
For the Nine Month
Period Ended
September 30,
 
 2017  2016  2017  2016  
For the
Three Month
Period Ended
June 30,
  
For the
Six Month
Period Ended
June 30,
 
             2020  2019  2020  2019 
Revenues $649.6  $462.6  $1,710.4  $1,361.6  $1,264.4  $629.1  $2,064.3  $1,249.4 
Cost of sales  395.7   298.4   1,066.0   867.1   904.4   394.7   1,459.8   784.5 
Gross Profit  253.9   164.2   644.4   494.5   360.0   234.4   604.5   464.9 
Selling and administrative expenses  111.1   100.9   339.1   310.3   247.7   110.7   403.1   227.7 
Amortization of intangible assets  29.5   30.7   87.6   90.8   114.6   30.9   169.8   62.3 
Impairment of other intangible assets  -   -   -   1.5 
Other operating expense, net  17.4   12.4   186.7   26.1   49.9   18.2   150.6   20.0 
Operating Income  95.9   20.2   31.0   65.8 
Operating (Loss) Income  (52.2)  74.6   (119.0)  154.9 
Interest expense  30.1   43.0   115.4   128.7   30.8   22.4   57.9   44.8 
Loss on extinguishment of debt  34.1   -   84.5   -   —   0.2   2.0   0.2 
Other income, net  (0.7)  (0.7)  (2.6)  (2.6)  (2.3)  (1.2)  (2.5)  (2.5)
Income (Loss) Before Income Taxes  32.4   (22.1)  (166.3)  (60.3)
Provision (benefit) for income taxes  4.4   (9.1)  (41.2)  (33.3)
Net Income (Loss)  28.0   (13.0)  (125.1)  (27.0)
Less: Net (loss) income attributable to noncontrolling interests  -   (0.1)  0.1   (0.6)
Net Income (Loss) Attributable to Gardner Denver Holdings, Inc. $28.0  $(12.9) $(125.2) $(26.4)
Basic earnings (loss) per share $0.14  $(0.09) $(0.71) $(0.18)
Diluted earnings (loss) per share $0.13  $(0.09) $(0.71) $(0.18)
(Loss) Income Before Income Taxes  (80.7)  53.2   (176.4)  112.4 
Provision for income taxes  95.8   8.3   37.0   20.3 
Net (Loss) Income  (176.5)  44.9   (213.4)  92.1 
Less: Net income attributable to noncontrolling interests  1.1   —   1.0   — 
Net (Loss) Income Attributable to Ingersoll Rand Inc. $(177.6) $44.9  $(214.4) $92.1 
Basic (loss) earnings per share $(0.43) $0.22  $(0.62) $0.45 
Diluted (loss) earnings per share $(0.43) $0.21  $(0.62) $0.44 

The accompanying notes are an integral part of these condensed consolidated financial statements.
See Notes to Condensed Consolidated Financial Statements.
6
GARDNER DENVER HOLDINGS,
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
(Unaudited)
(Dollars in millions)


  
For the Three Month
Period Ended
September 30,
  
For the Nine Month
Period Ended
September 30,
 
  2017  2016  2017  2016 
Comprehensive Income (Loss) Attributable to Gardner Denver Holdings, Inc.            
Net income (loss) attributable to Gardner Denver Holdings, Inc. $28.0  $(12.9) $(125.2) $(26.4)
Other comprehensive income (loss), net of tax:                
Foreign currency translation adjustments, net  41.5   (29.4)  131.4   12.8 
Foreign currency (losses) gains, net  (14.8)  8.1   (44.3)  (10.8)
Unrecognized gains (losses) on cash flow hedges, net  4.0   (2.8)  5.5   (13.5)
Pension and other postretirement prior service cost and gain or loss, net  (0.6)  5.2   (1.9)  6.3 
Total other comprehensive income (loss), net of tax  30.1   (18.9)  90.7   (5.2)
Comprehensive income (loss) attributable to Gardner Denver Holdings, Inc. $58.1  $(31.8) $(34.5) $(31.6)
Comprehensive Income Attributable to Noncontrolling Interests                
Net (loss) income attributable to noncontrolling interests $-  $(0.1) $0.1  $(0.6)
Other comprehensive income, net of tax:                
Foreign currency translation adjustments, net  -   0.1   -   0.6 
Total other comprehensive income, net of tax  -   0.1   -   0.6 
Comprehensive income attributable to noncontrolling interests $-  $-  $0.1  $- 
Total Comprehensive Income (Loss) $58.1  $(31.8) $(34.4) $(31.6)
 
For the Three Month
Period Ended
June 30,
  
For the Six Month
Period Ended
June 30,
 
  2020  2019  2020  2019 
Comprehensive (Loss) Income Attributable to Ingersoll Rand Inc.            
Net (loss) income attributable to Ingersoll Rand Inc. $(177.6) $44.9  $(214.4) $92.1 
Other comprehensive (loss) income, net of tax                
Foreign currency translation adjustments, net  44.9   (6.4)  (47.3)  (6.5)
Unrecognized gain (loss) on cash flow hedges, net  5.5   (0.5)  6.7   1.4 
Pension and other postretirement prior service cost and gain or loss, net  0.5   1.2   3.4   1.4 
Total other comprehensive income (loss), net of tax  50.9   (5.7)  (37.2)  (3.7)
Comprehensive (loss) income attributable to Ingersoll Rand Inc. $(126.7) $39.2  $(251.6) $88.4 
Comprehensive Loss Attributable to Noncontrolling Interests                
Net income attributable to noncontrolling interests $1.1  $—  $1.0  $— 
Other comprehensive income, net of tax                
Foreign currency translation adjustments, net  (0.4)  —   (4.4)  — 
Total other comprehensive loss, net of tax  (0.4)  —   (4.4)  — 
Comprehensive income (loss) attributable to noncontrolling interests  0.7   —   (3.4)  — 
Total Comprehensive (Loss) Income $(126.0) $39.2  $(255.0) $88.4 


See Notes to Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
7
GARDNER DENVER HOLDINGS,
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in millions, millions, except share and per share amounts)


 
September 30,
2017
  
December 31,
2016
  
June 30,
2020
  
December 31,
2019
 
Assets            
Current assets:            
Cash and cash equivalents $303.0  $255.8  $1,173.6  $505.5 
Accounts receivable, net of allowance for doubtful accounts of $19.4 and $18.7, respectively
  531.6   441.6 
Accounts receivable, net of allowance for doubtful accounts of $65.6 and $18.4, respectively  922.2   459.1 
Inventories  507.6   443.9   1,026.4   502.5 
Other current assets  61.2   47.2   204.6   76.8 
Total current assets  1,403.4   1,188.5   3,326.8   1,543.9 
Property, plant and equipment, net of accumulated depreciation of $188.5 and $146.1, respectively  352.0   358.4 
Property, plant and equipment, net of accumulated depreciation of $335.2 and $298.4, respectively  832.0   326.6 
Goodwill  1,216.9   1,154.7   6,055.1   1,287.7 
Other intangible assets, net  1,449.7   1,469.9   4,848.7   1,255.0 
Deferred tax assets  0.9   1.4   13.7   3.0 
Other assets  129.7   143.1   357.0   212.2 
Total assets $4,552.6  $4,316.0  $15,433.3  $4,628.4 
Liabilities and Stockholders' Equity        
Liabilities and Stockholders’ Equity        
Current liabilities:                
Short-term borrowings and current maturities of long-term debt $21.1  $24.5  $39.8  $7.6 
Accounts payable  263.6   214.9   683.5   322.9 
Accrued liabilities  274.9   258.5   754.9   244.1 
Total current liabilities  559.6   497.9   1,478.2   574.6 
Long-term debt, less current maturities  2,006.9   2,753.8   3,816.7   1,603.8 
Pensions and other postretirement benefits  129.8   122.7   271.1   99.7 
Deferred income taxes  409.2   487.6   913.3   251.0 
Other liabilities  175.3   182.2   312.2   229.4 
Total liabilities  3,280.8   4,044.2  $6,791.5  $2,758.5 
Commitments and contingencies (Note 14)        
Stockholders' equity:        
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 198,130,973 and 150,552,360 shares issued at September 30, 2017 and December 31, 2016, respectively  2.0   1.5 
Commitments and contingencies (Note 15)      
Stockholders’ equity        
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 418,592,336 and 206,767,529 shares issued as of June 30, 2020 and December 31, 2019, respectively  4.2   2.1 
Capital in excess of par value  2,264.9   1,222.4   9,256.5   2,302.0 
Accumulated deficit  (721.4)  (596.2)  (356.8)  (141.4)
Accumulated other comprehensive loss  (251.7)  (342.4)  (293.2)  (256.0)
Treasury stock at cost; 2,120,112 and 1,897,454 shares at September 30, 2017 and December 31, 2016, respectively  (22.0)  (19.4)
Total Gardner Denver Holdings, Inc. stockholders' equity  1,271.8   265.9 
Treasury stock at cost; 1,633,875 and 1,701,785 shares as of June 30, 2020 and December 31, 2019, respectively  (35.8)  (36.8)
Total Ingersoll Rand Inc stockholders’ equity $8,574.9  $1,869.9 
Noncontrolling interests  -   5.9   66.9   — 
Total stockholders' equity  1,271.8   271.8 
Total liabilities and stockholders' equity $4,552.6  $4,316.0 
Total stockholders’ equity $8,641.8  $1,869.9 
Total liabilities and stockholders’ equity $15,433.3  $4,628.4 

See Notes to Condensed Consolidated Financial Statements.The accompanying notes are an integral part of these condensed consolidated financial statements.


7
8
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)

  
For the
Nine Month
Period Ended
September 30,
2017
  
For the
Nine Month
Period Ended
September 30,
2016
 
       
Cash Flows From Operating Activities:      
Net loss $(125.1) $(27.0)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Amortization of intangible assets  87.6   90.8 
Depreciation in cost of sales  33.2   30.5 
Depreciation in selling and administrative expenses  6.1   5.6 
Impairment of other intangible assets  -   1.5 
Stock-based compensation expense  166.0   - 
Foreign currency transaction losses (gains), net  6.3   (2.6)
Net loss on asset dispositions  2.0   1.6 
Loss on extinguishment of debt  84.5   - 
Deferred income taxes  (68.1)  (45.8)
Changes in assets and liabilities:        
Receivables  (65.9)  18.1 
Inventories  (36.4)  (3.8)
Accounts payable  39.8   21.3 
Accrued liabilities  (19.8)  3.9 
Other assets and liabilities, net  (26.3)  12.7 
Net cash provided by operating activities  83.9   106.8 
Cash Flows From Investing Activities:        
Capital expenditures  (36.4)  (46.3)
Net cash paid in business combinations  (18.8)  (18.8)
Net cash received in business divestitures  -   4.9 
Proceeds from the termination of derivatives  6.2   - 
Disposals of property, plant and equipment  5.9   0.4 
Net cash used in investing activities  (43.1)  (59.8)
Cash Flows From Financing Activities:        
Principal payments on long-term debt  (2,872.2)  (20.1)
Premium paid on extinguishment of senior notes  (29.7)  - 
Proceeds from long-term debt  2,010.7   1.0 
Proceeds from the issuance of common stock, net of share issuance costs  893.3   2.9 
Purchase of treasury stock  (2.6)  (12.6)
Purchase of shares from noncontrolling interests  (5.2)  - 
Payments of debt issuance costs  (2.9)  (1.1)
Other  0.4   (0.9)
Net cash used in financing activities  (8.2)  (30.8)
Effect of exchange rate changes on cash and cash equivalents  14.6   (2.3)
Net increase in cash and cash equivalents  47.2   13.9 
Cash and cash equivalents, beginning of period  255.8   228.3 
Cash and cash equivalents, end of period $303.0  $242.2 
Supplemental Cash Flow Information        
Cash paid for income taxes $47.4  $22.7 
Cash paid for interest $118.1  $137.2 
Capital expenditures in accounts payable $3.0  $5.9 
Property and equipment acquired under capital leases $-  $7.7 
Expenditures directly related to our initial public offering in accounts payable $0.2  $- 

See Notes to Condensed Consolidated Financial Statements
GARDNER DENVER HOLDINGS,INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(Dollars in millions)


 
For the
Nine Month
Period Ended
September 30,
2017
  
For the Three Month
Period Ended
June 30,
 
    2020  2019 
Number of Common Shares Issued (in thousands)   
Number of Common Shares Issued (in millions)      
Balance at beginning of period  150,552   418.2   203.3 
Exercise of stock options  84 
Common stock issued for initial public offering  47,495 
Issuance of common stock for stock-based compensation plans  0.4   2.4 
Balance at end of period  198,131   418.6   205.7 
Common Stock            
Balance at beginning of period $1.5  $4.2  $2.0 
Exercise of stock options  - 
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 $2.0  $4.2  $2.1 
Capital in Excess of Par Value            
Balance at beginning of period $1,222.4  $9,241.5  $2,289.3 
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  3.7   11.8 
Issuance of treasury stock for stock-based compensation plans  (0.6)  (16.0)
Stock-based compensation  147.3   11.9   2.8 
Exercise of stock options  0.2 
Purchase of noncontrolling interest  2.4 
Balance at end of period $2,264.9  $9,256.5  $2,287.9 
Accumulated Deficit            
Balance at beginning of period $(596.2) $(179.2) $(253.3)
Net loss attributable to Gardner Denver Holdings, Inc.  (125.2)
Net (loss) income attributable to Ingersoll Rand Inc.  (177.6)  44.9 
Balance at end of period $(721.4) $(356.8) $(208.4)
Accumulated Other Comprehensive Loss            
Balance at beginning of period $(342.4) $(344.1) $(253.2)
Foreign currency translation adjustments, net  131.4   44.9   (6.4)
Foreign currency losses, net  (44.3)
Unrecognized losses on cash flow hedges, net  5.5 
Unrecognized gains (losses) on cash flow hedges, net  5.5   (0.5)
Pension and other postretirement prior service cost and gain or loss, net  (1.9)  0.5   1.2 
Balance at end of period $(251.7) $(293.2) $(258.9)
Treasury Stock            
Balance at beginning of period $(19.4) $(36.2) $(47.0)
Purchases of treasury stock  (2.6)  (0.6)  (8.6)
Issuance of treasury stock for stock-based compensation plans  1.0   18.2 
Balance at end of period $(22.0) $(35.8) $(37.4)
Total Gardner Denver Holdings, Inc. Stockholders' Equity $1,271.8 
Total Ingersoll Rand Inc. Stockholders' Equity $8,574.9  $1,785.3 
Noncontrolling Interests            
Balance at beginning of period $5.9  $69.3  $— 
Net income attributable to noncontrolling interests  0.1   1.1   — 
Transfer of noncontrolling interest AOCI to consolidated AOCI  1.6 
Purchase of noncontrolling interest  (7.6)
Foreign currency translation adjustments, net  (1.5)  — 
Adjustments for shares tendered in open offer (Note 1)  (2.0)  — 
Balance at end of period $-  $66.9  $— 
Total Stockholders' Equity $1,271.8 
Total Stockholders’ Equity $8,641.8  $1,785.3 

See Notes to Condensed Consolidated Financial Statements.The accompanying notes are an integral part of these condensed consolidated financial statements.

9
GARDNER DENVER HOLDINGS,
INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(Dollars in millions)

 
For the Six Month
Period Ended
June 30,
 
  2020  2019 
Number of Common Shares Issued (in millions)      
Balance at beginning of period  206.8   201.1 
Issuance of common stock for stock-based compensation plans  0.8   4.6 
Shares issued to acquire Ingersoll Rand Industrial  211.0   — 
Balance at end of period  418.6   205.7 
Common Stock        
Balance at beginning of period $2.1  $2.0 
Issuance of common stock for stock-based compensation plans  —   0.1 
Shares issued to acquire Ingersoll Rand Industrial  2.1   — 
Balance at end of period $4.2  $2.1 
Capital in Excess of Par Value        
Balance at beginning of period $2,302.0  $2,282.7 
Issuance of common stock for stock-based compensation plans  5.9   24.7 
Issuance of treasury stock for stock-based compensation plans  (1.5)  (25.2)
Shares issued for Ingersoll Rand Industrial acquisition  6,917.4   — 
Fair value attributable to pre-merger service for replacement equity awards  8.6   — 
Fair value attributable to pre-merger service for deferred compensation plan  8.9   — 
Cost incurred to issue shares for Ingersoll Rand Industrial acquisition  (1.0)  — 
Stock-based compensation  16.2   5.7 
Balance at end of period $9,256.5  $2,287.9 
Accumulated Deficit        
Balance at beginning of period $(141.4) $(308.7)
Net (loss) income attributable to Ingersoll Rand Inc.  (214.4)  92.1 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02)  —   8.2 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2016-13)  (1.0)  — 
Balance at end of period $(356.8) $(208.4)
Accumulated Other Comprehensive Loss        
Balance at beginning of period $(256.0) $(247.0)
Foreign currency translation adjustments, net  (47.3)  (6.5)
Unrecognized gains on cash flow hedges, net  6.7   1.4 
Pension and other postretirement prior service cost and gain or loss, net  3.4   1.4 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02)  —   (8.2)
Balance at end of period $(293.2) $(258.9)
Treasury Stock        
Balance at beginning of period $(36.8) $(53.0)
Purchases of treasury stock  (1.3)  (17.1)
Issuance of treasury stock for stock-based compensation plans  2.3   32.7 
Balance at end of period $(35.8) $(37.4)
Total Ingersoll Rand Inc. Stockholders' Equity $8,574.9  $1,785.3 
Noncontrolling Interests        
Balance at beginning of period $—  $— 
Noncontrolling interest from acquisition of Ingersoll Rand Industrial  72.3   — 
Net income attributable to noncontrolling interests  1.0   — 
Foreign currency translation adjustments, net  (4.4)  — 
Adjustments for shares tendered in open offer (Note 1)  (2.0)  — 
Balance at end of period $66.9  $— 
Total Stockholders’ Equity $8,641.8  $1,785.3 

The accompanying notes are an integral part of these condensed consolidated financial statements.
10


INGERSOLL RAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 (Dollars in millions)

 
For the
six month
period ended
June 30,
 
  2020  2019 
Cash Flows From Operating Activities:      
Net (Loss) income $(213.4) $92.1 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:        
Amortization of intangible assets  169.8   62.3 
Depreciation in cost of sales  41.7   22.8 
Depreciation in selling and administrative expenses  5.3   4.8 
Stock-based compensation expense  16.2   13.6 
Foreign currency transaction losses, net  7.8   3.7 
Deferred income taxes  25.1   6.5 
Non-cash adjustments to carrying value of LIFO inventories  45.9   — 
Other non-cash adjustments  14.5   (0.1)
Changes in assets and liabilities:        
Receivables  111.5   17.2 
Inventories  (7.8)  (35.0)
Accounts payable  26.5   (0.8)
Accrued liabilities  98.7   (0.9)
Other assets and liabilities, net  (26.0)  (56.1)
Net cash provided by operating activities  315.8   130.1 
Cash Flows From Investing Activities:        
Capital expenditures  (25.4)  (24.7)
Net cash acquired (paid) in business combinations  41.3   (0.5)
Disposals of property, plant and equipment  1.4   0.7 
Net cash provided by (used in) investing activities  17.3   (24.5)
Cash Flows From Financing Activities:        
Principal payments on long-term debt  (1,599.6)  (28.8)
Proceeds from long-term debt  1,980.1   — 
Purchases of treasury stock  (1.3)  (17.1)
Proceeds from stock option exercises  6.8   32.1 
Payments of contingent consideration  (0.7)  (2.0)
Payments of debt issuance costs  (46.6)  (0.3)
Payments of costs incurred to issue shares for Ingersoll Rand Industrial acquisition  (1.0)  — 
Other financing  (0.8)  — 
Net cash provided by (used in) financing activities  336.9   (16.1)
Effect of exchange rate changes on cash and cash equivalents  (1.9)  6.8 
Net increase in cash and cash equivalents  668.1   96.3 
Cash and cash equivalents, beginning of period  505.5   221.2 
Cash and cash equivalents, end of period $1,173.6  $317.5 
Supplemental Cash Flow Information        
Cash paid for income taxes $30.5  $31.5 
Cash paid for interest  54.2   42.5 
Leased assets obtained in exchange for new operating lease liabilities  16.9   3.0 
Capital expenditures in accounts payable  3.1   3.8 

The accompanying notes are an integral part of these condensed consolidated financial statements.

11



INGERSOLL RAND INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in millions, except share and per share amounts)


Note 1. Condensed Consolidated Financial StatementsBasis of Presentation and Recent Accounting Pronouncements


Basis of Presentation


On February 29, 2020, Ingersoll Rand Inc. (formerly known as Gardner Denver Holdings, Inc.) completed the acquisition of the Ingersoll Rand Industrial business (“Ingersoll Rand Industrial”) by way of merger and changed its name from Gardner Denver Holdings, Inc. is a holding company whose operating subsidiaries are Gardner Denver,to Ingersoll Rand Inc.  (“GDI”)The condensed consolidated financial statements as of and certainfor the six month period ended June 30, 2020 include the financial results of GDI’s subsidiaries.  Gardner Denver, IncIngersoll Rand Industrial from the date of acquisition.

Ingersoll Rand Inc. is a diversified, global manufacturer of highly engineered, application-critical flow control products and provider of related aftermarket parts and services.

The accompanying condensed consolidated financial statements include the accounts of Gardner Denver Holdings,Ingersoll Rand Inc. and its majority-owned subsidiaries (collectively referred to herein as “Gardner Denver”“Ingersoll Rand” or the “Company”).  The financial information presented as of any date other than December 31, 2016 has been prepared from the books and records of the Company without audit. 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles generally accepted in the United States of America (“GAAP”)(GAAP) for interim financial information.  Accordingly, they do not include allreporting, the instructions for Form 10-Q and Article 10 of the informationU.S. Securities and notes required by GAAP for complete financial statements.Exchange Commission (SEC) Regulation S-X. In the Company’s opinion, of management, the condensed consolidated financial statements includereflect all adjustments consisting of adjustments associated with acquisition accounting anda normal recurring adjustments,nature necessary for a fair presentationstatement of such financial statements.  All intercompany transactions and accounts have been eliminated in consolidation.

the results for the interim periods presented. The Company’s unaudited interim condensed consolidated financial statements should be read in conjunction with ourthe Company’s audited consolidated financial statements and related notes included in our prospectus, dated May 11, 2017, filed withAnnual Report on Form 10-K for the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act of 1933, as amended, on May 15, 2017.year ended December 31, 2019.


The results of operations for the interim periods ended SeptemberJune 30, 2017 are2020 is not necessarily indicative of the results to be expected for the full year.  The balance sheet at December 31, 2016ongoing novel Coronavirus (“COVID-19”) pandemic is a rapidly evolving situation around the globe that has been derived fromnegatively impacted and could continue to negatively impact the global economy.  The Company’s audited financial statementsoperating results will be subject to fluctuations based on general economic conditions, and the extent to which COVID-19 may ultimately impact its business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as of that date but does not include allthe ultimate extent of the informationspread of the disease and notes required by GAAPthe duration of the outbreak and business closures or business disruptions for complete financial statements.

The Company’s initial public offering of shares of common stock was completed in May 2017.  In connection with the offering, the Company, sold a total of 47,495,000 shares of common stock for cash consideration of $20.00 per share ($18.90 per share net of underwriting discounts)suppliers and received proceeds of $949.9 million.  Expenses for underwriting discounts and commissions related to this offering totaled approximately $52.2 million, resulting in net proceeds of $897.7 million.    Additional expenses directly relatedcustomers.

Immediately prior to the initial public offeringacquisition of $4.6 million were incurred and recorded as a reduction to the “Capital in excess of par value” line in the Condensed Consolidated Balance Sheets.  As of September 30, 2017, $4.4 million has been paid from cash on hand and $0.2 million is recorded to the “Accounts payable” line in the Condensed Consolidated Balance Sheets.

After the completion of the initial public offering,Ingersoll Rand Industrial, affiliates of Kohlberg Kravis Roberts & Co. L.P. continue to control a majority(“KKR”) owned 70,671,135 shares of common stock of the voting powerCompany or approximately 34%, of the total outstanding common stock of the Company.  As of June 30, 2020, KKR owns 44,788,635 shares of common stock of the Company or approximately 11% of the total outstanding common stock of the Company.

The classification of stock-based compensation expense (including related employer tax cost) reported for the three and six month periods ended June 30, 2019 was corrected. As a result, previously reported “Other operating expense, net” was decreased and “Selling and administrative expenses” was increased by $7.1 million for the three month period ended June 30, 2019, and by $16.4 million for the six month period ended June 30, 2019.

Noncontrolling interests
The Company has a controlling interest of approximately 74% in Ingersoll-Rand India Limited (“IR India Limited”). The remaining shares are owned by unaffiliated shareholders and traded on India stock exchanges regulated by Securities and Exchange Board of India (“SEBI”).
The Company’s common stock.acquisition of Ingersoll Rand Industrial resulted in an indirect change in control of IR India Limited as defined by SEBI Substantial Acquisition of Shares and Takeovers (SAST) regulations. As a result, the Company is consideredwas required to pursue either a “controlled company” within the meaningtender offer for a certain number of noncontrolling shares or a voluntary delisting of the corporate governance standardsentity from India stock exchanges.
On June 22, 2020, the Company initiated a tender offer to purchase up to 26% of outstanding shares of Ingersoll-Rand India Limited from eligible noncontrolling shareholders. The offer price was determined in accordance with SEBI (SAST) regulations as the average market price of shares of IR India Limited on India stock exchanges for a period of sixty days preceding the announcement of the New York Stock Exchange (“NYSE”)Ingersoll Rand Industrial merger transaction, adjusted for imputed interest for the period of time between announcement of the merger and announcement of the tender offer.
12


The Company determined this offer is a freestanding financial instrument and not a contractual redemption right embedded in the related equity securities. In accordance with ASC 480 Distinguishing Liabilities from Equity, a liability is recognized at fair value for a conditional obligation to purchase an undetermined number of shares for a price other than fair value. The liability as of June 30, 2020 was not material to the financial statements. The noncontrolling interest remained classified and measured in accordance with ASC 810 Consolidation with the carrying value presented in permanent equity.
As of June 30, 2020, noncontrolling shareholders with aggregate holdings of 0.8% of outstanding shares submitted acceptance of the tender offer. The expected aggregate offer price for these shares of $2.0 million was recognized as a current liability and presented within Accrued liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2020.

The tender offer expired on July 3, 2020. See Note 19 “Subsequent Events” for further details on the results of the tender offer.

Recently IssuedAdopted Accounting PronouncementsStandard Updates (“ASU”)


In May 2014,August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606)2018-15,Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40); Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update will replace mostrequire 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 noncancelable term of the existing GAAP revenue recognition guidance.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 core principleCompany adopted this guidance prospectively on January 1, 2020.  The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update eliminate, add and modify certain disclosure requirements for fair value measurements as part of its disclosure framework project. The Company adopted this guidance on January 1, 2020.  The adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13,Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which added an impairment model that is based on expected losses rather than incurred losses and is called the Current Expected Credit Losses (“CECL”) model. This impairment model is applicable to loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables as well as any other financial asset with the contractual right to receive cash. Under the new model, an allowance equal to the estimate of lifetime expected credit losses is recognized which will result in more timely loss recognition. The guidance is intended to reduce complexity by decreasing the number of credit impairment models. The Company adopted this guidance on January 1, 2020, using a modified retrospective transition method.  The Company recorded a cumulative-effect adjustment on the adoption date increasing “Accumulated deficit” in the Condensed Consolidated Balance Sheets by $1.0 million and decreasing “Accounts receivable, net of allowance for doubtful accounts” in the Condensed Consolidated Balance Sheets by $1.0 million.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for a limited time to ease the potential burden of accounting for reference rate reform on financial reporting. This guidance applies to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates.  The guidance is effective beginning on March 12, 2020 through December 31, 2022.  The Company has not utilized any of the optional expedients or exceptions available under this ASU.  The Company will continue to assess whether this ASU is that an entity should recognize revenueapplicable throughout the effective period.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the transfer of goods or services equal to the amount that it expects to be entitled to receiveaccounting for those goods or services.income taxes by removing certain exceptions and amending and clarifying existing guidance.  The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and changes in judgments. The ASUguidance is effective for public companies beginning inwith the first quarter of 2018. The ASU allows for full retrospective2021.  Early adoption applied to all periods presented or modified retrospective adoption with the cumulative effect of initially applying the update recognized at the date of initial application. The Company will adopt this ASU using the modified retrospective approach.  The Company has completed an evaluation of its revenue activities against the requirements of the ASU. During the evaluation, the Company identified certain contractual arrangements involving customer specific application engineering in the Energy segment that may, in certain circumstances, meet the criteria for revenue recognition over time under the new standard. Currently, revenue on these arrangements is recognized when the contract is complete or substantially complete, provided all other revenue recognition criteria have been met. The Company is currently in the process of determining the necessary changes to information systems and business processes to effect the changes in the first quarter of 2018.  The Company has not yet determined the impact on reported revenues and earnings related to the adoption of the ASU.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The amendments in this update will replace most of the existing GAAP lease accounting guidance in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  The ASU is effective for public companies beginning in the first quarter of 2019.  The ASU requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.  This approach allows a Company to elect to use a number of optional practical expedients.permitted. The Company is currently assessing the impact of this ASU on its consolidated financial statements and evaluating the method of adoption.

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  This update was intended to improve the presentation of net periodic pension costs and net periodic postretirement benefit costs in the financial statements.  The amendments in this ASU requires the Company to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of operating income.  If a separate line item or items are not used to present the other components of net benefit cost, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.  The amendment allows only the service cost component of net benefit cost to be eligible for capitalization.  The ASU is effective for public companies for the annual and interim reporting periods of 2018.  Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption.  The amendments in this ASU are to be applied retrospectively for presentation in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.  A practical expedient allows the Company to use the amount disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.  Disclosure must be made if the practical expedient was used.  The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.  This update was intended to improve the financial reporting of hedging relationships to better portray the economic results of the Company’s risk management activities in its financial statements through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.  The amendments in this ASU require the Company to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported.  This allows users of the financial statements to better understand the results and costs of the Company’s hedging program.  The Company is required to apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach.  The presentation and disclosure requirements must be applied prospectively.  The effective date for adoption is for annual and interim periods beginning after December 15, 2018.  This will require adoption in the first quarter of fiscal year 2019.  The Company is currently assessing the impact of this ASU on itscondensed consolidated financial statements and evaluating the timing of adoption.
13


In August 2018, the FASB issued ASU 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update eliminate, add and modify certain disclosure requirements for defined benefit pension plans.The guidance is effective for public companies beginning with its annual report for fiscal year 2020.  This ASU will have an immaterial impact on the Company’s condensed consolidated financial statements.

Note 2. Business Combinations


Ingersoll Rand Industrial Acquisition of LeROI Compressors


On June 5, 2017,February 29, 2020, Ingersoll Rand completed the Company acquired 100%acquisition of Ingersoll Rand Industrial for the total estimated purchase consideration of approximately $6,937.0 million which represents Ingersoll Rand common stock with a fair value of LeROI Compressors (“LeROI”),$6,919.5 million and the balance equal to the fair value attributable to pre-acquisition service for replacement equity awards and deferred compensation arrangements settled in shares (or valued by reference to shares) of Ingersoll Rand common stock.  Ingersoll Rand Industrial is a leading North American manufacturerglobal provider of gasmission-critical flow control and compression equipment and solutions for vapor recovery, biogasassociated aftermarket parts, consumables and services.  Ingersoll Rand acquired Ingersoll Rand Industrial to extend and enhance its portfolio of products to address market opportunities in the compressor, blower, pump and other processindustrial product markets.

Immediately prior to the merger, Trane Technologies plc (formerly known as Ingersoll-Rand plc) (“Old IR” or “Trane Technologies”) completed a spin-off in which it distributed 1 share of common stock of Ingersoll-Rand Industrial US. Holdco, Inc. (“SpinCo”), par value $0.01 per share, for each share of Old IR, outstanding as of the record date for the spin-off on February 24, 2020.  In accordance with the merger agreement by and industrial applications.among Ingersoll Rand, Old IR, SpinCo and Charm Merger Sub Inc, a wholly owned subsidiary of Ingersoll Rand (“Merger Sub”), Merger Sub merged with and into SpinCo (the “acquisition”) and each share of common stock of SpinCo, par value $0.01 per share (“SpinCo common stock”), issued and outstanding immediately prior to the acquisition was converted into the right to receive 0.8824 shares of common stock of Ingersoll Rand, par value $0.01 per share (“Ingersoll Rand common stock”).  Immediately after the consummation of the acquisition, approximately 50.1% of the outstanding shares of Ingersoll Rand common stock on a fully-diluted basis was held by SpinCo stockholders and approximately 49.9% of the outstanding shares of the Company common stock on a fully-diluted basis was held by pre-acquisition Ingersoll Rand stockholders.  Since Ingersoll Rand (formerly named Gardner Denver Holdings, Inc.) is the accounting acquirer, the fair value of the equity issued by Ingersoll Rand to SpinCo stockholders in the acquisition was determined by reference to the market price of Ingersoll Rand common stock.  Accordingly, the purchase consideration below reflects the estimated fair value of the Ingersoll Rand shares issued in exchange for shares of SpinCo common stock in the acquisition, which is based on the final closing price of shares of Ingersoll Rand common stock prior to the effective time of the acquisition on February 28, 2020 of $32.79 per share.  The Company acquired all of the assetshas incurred approximately $87.3 million in total acquisition-related costs, including $0.0 million and assumed certain liabilities of LeROI for total cash consideration of $20.5$42.3 million net of cash acquired.  Included in the cash consideration is an indemnity holdback of $2.0three and six month periods ended June 30, 2020, respectively, and $16.3 million recorded in “Accrued liabilities” and expected to be paid by the end of 2021.  The revenues and operating income of LeROI are included in the Company’s consolidated financial statements fromthree and six month periods ended June 30,2019, presented within “Other operating expenses, net” in the Condensed Consolidated Statements of Operations.  In addition, the Company incurred $1.0 million in registration fees to issue shares for the acquisition date and are included in the Industrials segment.  None of the goodwill resulting from this acquisition is deductible for tax purposes.
Acquisition of the Non-Controlling Interest in Tamrotor Kompressorit Oy

On March 3, 2017, the Company acquired the remaining 49% non-controlling interest of Tamrotor Kompressorit Oy (“Tamrotor”), a distributor of the Company’s Industrials segment air compression products.Ingersoll Rand Industrial.  The Company acquired the remaining interest in Tamrotor for total cash consideration of $5.2$1.0 million consisting entirely of payments to the former shareholders.  Included in the cash consideration was a holdback of $0.5 million that was paid in the third quarter of 2017.  This transaction resulted in an increase toreduced “Capital in excess of par value” of $2.3the Condensed Consolidated Balance Sheets.

Preliminary Purchase Price Allocation

In accordance with the FASB’s ASC 805 Business Combinations, Ingersoll Rand was determined to be the accounting acquirer.  As such, Ingersoll Rand applied the acquisition method of accounting with respect to the identifiable assets and liabilities of Ingersoll Rand Industrial, which have been measured at estimated fair value as of the date of the business combination.

Ingersoll Rand Industrial’s assets and liabilities were measured at estimated fair values at February 29, 2020, primarily using Level 3 inputs except for debt, which was measured using Level 2 inputs and noncontrolling interests, which was measured using Level 1 inputs.  Estimates of fair value represent management’s best estimate of assumptions about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates and customer attrition rates, market comparables and others.  Inputs used were generally obtained from historical data supplemented by current and anticipated market conditions and growth rates.

The following table summarizes the preliminary allocation of purchase price to the identifiable assets acquired and liabilities assumed by Ingersoll Rand, with the excess of purchase price over the fair value of Ingersoll Rand Industrial’s net assets recorded as goodwill.  Due to the timing and the magnitude of the transaction and the multi-jurisdictional nature of the net assets acquired, initial accounting for the acquisition is not complete and further measurement period adjustments are expected in fiscal year 2020.  The Company has estimated the preliminary fair value of net assets acquired based on information currently available and will continue to adjust those estimates as additional information becomes available, including the refinement of market participant assumptions and finalization of tax returns in the pre-acquisition period. The Company will reflect measurement period adjustments in the period in which the adjustments are determined.
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The aggregate purchase consideration has been preliminarily allocated as follows.

Purchase Price 
Estimated fair value,
as previously
reported
  
Measurement
period
adjustments(4)
  
Estimated fair
value, as
adjusted
 
Fair value of Ingersoll Rand common stock issued for Ingersoll Rand         
Industrial outstanding common stock(1)
 $6,919.5  $—  $6,919.5 
Fair value attributable to pre-merger service for replacement equity awards(2)
  8.6   —   8.6 
Fair value attributable to pre-merger service for deferred compensation plan(3)
  8.9   —   8.9 
Total purchase consideration $6,937.0  $—  $6,937.0 

Purchase Price Allocation         
Cash $41.3  $—  $41.3 
Accounts receivable  579.9   14.8   594.7 
Inventories  576.2   62.2   638.4 
Other current assets  136.9   (21.2)  115.7 
Property, plant and equipment  520.0   17.1   537.1 
Goodwill  4,278.2   505.9   4,784.1 
Intangible assets  4,501.3   (740.6)  3,760.7 
Other noncurrent assets  269.8   (8.0)  261.8 
Total current liabilities, including current maturities of long-term debt of $19.0 million  (830.6)  48.5   (782.1)
Deferred tax liability  (900.6)  111.4   (789.2)
Long-term debt, net of debt issuance costs and an original issue discount  (1,851.7)  —   (1,851.7)
Other noncurrent liabilities  (310.4)  9.9   (300.5)
Noncontrolling interest  (73.3)  —   (73.3)
  $6,937.0  $—  $6,937.0 

(1)Represents the fair value of 211,023,522 shares of the Company’s common stock issued for Ingersoll Rand Industrial outstanding common stock multiplied by $32.79, the price per share of common stock as of the closing price on February 28, 2020.

(2)Represents the fair value of the replacement equity awards to the extent those related to services provided by the employee of Ingersoll Rand Industrial prior to closing.  See Note 9 “Stock-Based Compensation Plan” for additional information about the replacement equity awards.

(3)Represents the fair value of the deferred compensation plan to be settled in equity.  See Note 7 “Benefit Plans” for additional information about the deferred compensation plan.

(4)The measurement period adjustments were to refine fair value measurements of intangible assets and carrying amounts of certain assets and liabilities, as well as adjustments to related deferred tax liabilities.
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Certain amounts in the Condensed Consolidated Statement of Operations for the three months ended June 30, 2020 would have been different if the measurement period adjustments made in the current period were made as of the acquisition date. The effects on net income (loss) for the three months ended June 30, 2020 are as follows:

 
(Increase)
decrease in
current period
net loss
 
Revenues $0.8 
Cost of sales  (13.7)
Amortization of intangible assets  2.4 
(Loss) Income Before Income Taxes
  (10.5)
(Benefit) provision for income taxes  6.5 
Net (Loss) Income $(4.0)

Summary of Significant Fair Value Methods

The methods used to determine the preliminary fair value of significant identifiable assets and liabilities included in the preliminary allocation of purchase price are discussed below.  The final fair value determination may differ from this preliminary determination.

Inventories

Acquired inventory is comprised of finished goods, work in process and raw materials.  The preliminary fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort.  The preliminary fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort.  The preliminary fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value.  The preliminary fair value step-up of inventory of $116.2 million is comprised of step-up of inventory measured on a First in First Out (“FIFO”) basis of $70.3 million and an increaseinventories measured on a Last In First Out (“LIFO”) basis of $45.9 million. Inventory measured on a FIFO basis is amortized to “Accumulated other comprehensive loss”“Cost of $1.5 millionsales” in the condensed consolidated financial statements as the inventory is sold, which is expected to be a period of four months from the acquisition date.  For inventories measured on a LIFO basis, the acquired inventory becomes the LIFO base layer inventory and subsequently evaluated for lower-of-cost-or-market adjustments, as necessary.

Property, Plant and Equipment

The preliminary fair value of property, plant and equipment was primarily calculated using replacement costs adjusted for the age and condition of the asset, with the exception of real property which was calculated using the market approach, and is summarized below.

Land $59.4 
Buildings  176.3 
Machinery and equipment  256.9 
Office furniture and equipment  13.4 
Other  1.0 
Construction in progress  30.1 
Preliminary fair value of property, plant and equipment $537.1 
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Identifiable Intangible Assets

The estimated preliminary fair value and weighted average useful life of the Ingersoll Rand Industrial identifiable intangible assets are as follows.

Fair Value 
Weighted average
useful life (years)
Tradenames(1)
$1,312.0 Indefinite
Developed technology(2)
 236.0 7
Customer relationships(3)
 2,096.0 13
Backlog(4)
 80.3  <1
Other(5)
 36.4 3
Preliminary fair value of identfiable intangible assets$3,760.7  

(1)Tradenames were identified from brands of Ingersoll Rand Industrial.  The preliminary fair value of tradenames were determined using a relief from royalty methodology which estimates the cost savings generated by a company related to the ownership of an asset for which it would otherwise have had to pay royalties or license fees on revenues earned through the use of the asset.  The discount rate used was determined at the time of measurement based on an analysis of the implied internal rate of return of the transaction, weighted average cost of capital and weighted average return on assets.  Tradenames are expected to have an indefinite useful life.

(2)Developed technology was identified from the products of Ingersoll Rand Industrial.  Preliminary fair values were determined using a relief from royalty methodology with similar methodology and assumptions as described in the tradename description above.  The economic useful life was determined based on the technology cycle related to each developed technology, as well as the cash flows over the forecast period.

(3)Customer relationships represent the preliminary fair value of existing relationships with the Ingersoll Rand Industrial customers.  Its preliminary fair value was determined using the Multi-Period Excess Earning Method which involves isolating the net earnings attributable to the asset being measured based on present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life.  The valuation includes a valuation of the assembled workforce, using the Cost Approach, for purposes of calculating contributory asset charges to be used in the Multi-Period Excess Earning Method valuations.  The economic useful life was determined based on historical customer attrition rates.

(4)
Backlog primarily relates to the dollar value of purchase arrangements with customers, effective, as of a given point in time, that are based on mutually agreed terms which, in some cases, may still be subject to completion of written documentation and may be changed or cancelled by the customer, often without penalty.  Ingersoll Rand Industrial’s backlog consists of these arrangements with assigned shipment dates expected, in most cases, within three to twelve months.  The preliminary fair value was determined using the Multi-Period Excess Earning Method.  The economic useful life is based on the time to fulfill the outstanding order backlog obligation.

(5)Other intangible assets is primarily comprised of software.

The Company believes that the amounts of purchased intangible assets recorded represent the preliminary fair values of and approximates the amounts a market participant would pay for these intangible assets as of the acquisition date.
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Leases, including lease liabilities and right-of-use (“ROU”) assets

Lease liabilities, included in “Accrued liabilities” and “Other non-current liabilities” in the Condensed Consolidated Balance Sheets.

AcquisitionSheets, at the acquisition date, are measured at the present value of ILS Innovative Laborsysteme GmbHthe future minimum lease payments over the remaining lease term and Zinsser Analytic GmbH

On August 31, 2016,the incremental borrowing rate of Ingersoll Rand as if the acquired leases were new leases as of the acquisition date.  ROU assets included in “Other assets” in the Condensed Consolidated Balance Sheets as of the acquisition date, are equal to the amount of the lease liability at the acquisition date adjusted for any off-market terms of the lease.  The remaining lease term is based on the remaining term at the acquisition date plus any renewal or extension options that the Company acquired 100%is reasonably certain will be exercised.

Pension and Other Postretirement Liabilities

Ingersoll Rand recognized a pretax net liability representing the net funded status of Ingersoll Rand Industrial’s defined-benefit pension and other postretirement benefit (“OPEB”) plans.  See Note 7 “Benefit Plans” for further information on the pension and OPEB arrangements.

Long-Term Debt

Ingersoll Rand Services Company incurred $1,900.0 million of indebtedness under the Credit Agreement dated as of February 28, 2020 among Ingersoll Rand Services Company, as borrower, Citibank, N.A. as administrative agent and collateral agent and the lenders party thereto (the “Senior Secured Credit Facility”) prior to the closing of the stockacquisition, and the indebtedness under the Senior Secured Credit Facility will mature February 28, 2027 (or, if such date is not a business day the first business day thereafter).  Ingersoll Rand incurred a total of ILS Innovative Laborsysteme GmbH (“ILS”)$26.9 million debt issuance costs associated with the $1,900.0 million loan under the Senior Secured Credit Facility. The $1,900.0 million of indebtedness under the Credit Agreement was reduced by a $2.4 million original issue discount.

The fair value for long term debt is determined based on the total indebtedness less debt issuance costs as the debt consummated at the time of closing of the acquisition.

Deferred Income Tax Assets and Zinsser Analytic GmbH (“Zinsser Analytic”).  ILS isLiabilities

The acquisition was structured as a leading manufacturermerger and therefore, the Company assumed the historical tax basis of highly specialized micro-syringesIngersoll Rand Industrial’s assets and valves that are used in liquid handling instrumentsliabilities. The deferred income tax assets and is a global supplier toliabilities include the world’s leading laboratory equipment manufacturers, laboratoriesexpected future federal, state 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 allforeign tax consequences associated with temporary differences between the preliminary fair values of the assets acquired and liabilities assumed certain liabilitiesand the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of ILSthe acquisition in the jurisdictions in which legal title of the underlying asset or liability resides.  See Note 13 “Income Taxes” for further information related to income taxes.

Noncontrolling Interests

Ingersoll Rand Industrial has a controlling interest of approximately 74% in Ingersoll-Rand India Limited.  The remaining shares are owned by unaffiliated shareholders and Zinsser Analytic for approximately $18.8traded on India stock exchanges, representing a noncontrolling interest.  Ingersoll Rand’s preliminary fair value of noncontrolling interest is based on market quote of Indian Rupee 639.2 per share, available on the last trading day on February 28, 2020 prior to the closing date of the acquisition.  Considering noncontrolling shares of 8.2 million, the preliminary fair value of noncontrolling interest is $73.3 million.

Other Assets Acquired and Liabilities Assumed (excluding Goodwill)

The Company utilized the carrying values, net of cash acquired.  allowances, to value accounts receivable and accounts payable as well as other current assets and liabilities as it was determined that carrying values represented the fair value of those items at the acquisition date.
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Goodwill

The revenuesexcess of the consideration for the acquisition over the preliminary fair value of net assets acquired was recorded as goodwill.  The estimated goodwill recognized is attributable primarily to expected synergies and expanded market opportunities from combining the Company’s operations with those of Ingersoll Rand Industrial.  The goodwill created in the acquisition is not expected to be deductible for tax purposes and is subject to material revision as the purchase price allocation is completed.  Goodwill arising from the acquisition has been allocated to the Industrial Technologies and Services, High Pressure Solutions, Precision and Science Technologies and Specialty Vehicle Technologies reporting segments.  See Note 5 “Goodwill and Other Intangible Assets” for the allocation of goodwill to segments.

Results of Ingersoll Rand Industrial Subsequent to the Acquisition

The operating incomeresults of ILS and Zinsser Analytic areIngersoll Rand Industrial have been included in the Company’s condensed consolidated financial statements from the date of acquisition datethrough June 30, 2020. The Company’s condensed consolidated statements of operations for the three and six month periods ended June 30, 2020 included revenues of $826.5 million and $1,119.9 million, respectively, and a net loss of $36.4 million and $69.7 million, respectively, which includes the effects of purchase accounting adjustments, primarily the amortization of intangible assets and the impacts on operating expenses of fair value adjustments to acquired inventory and property, plant and equipment.

Unaudited Pro Forma Information

The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Ingersoll Rand Industrial as if the acquisition had been completed on January 1, 2019. The pro forma results have been prepared for comparative purposes only, and do not necessarily represent what the revenue or results of operations would have been had the acquisition been completed on January 1, 2019. In addition, these results are included innot intended to be a projection of future operating results and do not reflect synergies that might be achieved.

The unaudited pro forma information includes adjustments for the Medical segment.  Nonepreliminary purchase price accounting impact (including, but not limited to, amortization and depreciation for intangible assets and property, plant and equipment acquired, adjustments to stock-based compensation expense, the purchase accounting effect on inventory acquired, the purchase accounting effect on deferred revenue, interest expense and amortization of debt issuance costs related to the fair value adjustment to long-term debt, transaction costs and related tax impacts) and the alignment of accounting policies.

The table below reflects the impact of material and nonrecurring adjustments to the unaudited pro forma results for the three month periods ended June 30, 2020 and 2019 that are directly attributable to the acquisition.

 
For the Three Month
Period Ended
June 30,
 
  2020  2019 
Increase (decrease) to revenue as a result of deferred revenue fair value adjustment, net of tax $5.6  $(6.6)
(Decrease) increase to expense as a result of inventory fair value adjustment, net of tax  (58.5)  14.8 
(Decrease) to expense as a result of transaction costs, net of tax  —   (14.6)

The table below reflects the impact of material and nonrecurring adjustments to the unaudited pro forma results for the six months ended June 30, 2020 and 2019 that are directly attributable to the acquisition.

 
For the Six Month
Period Ended
June 30,
 
  2020  2019 
Increase (decrease) to revenue as a result of deferred revenue fair value adjustment, net of tax $5.5  $(8.3)
(Decrease) increase to expense as a result of inventory fair value adjustment, net of tax  (89.6)  89.6 
(Decrease) increase to expense as a result of transaction costs, net of tax  (38.1)  64.0 
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The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of the goodwill resulting from thisCompany’s condensed consolidated results of operations of the combined business had the acquisition is deductibleactually occurred at the beginning of fiscal year 2019 or of the results of the Company’s future results of operations of the combined businesses.

 
For the Three Month
Period Ended
June 30,
  
For the Six Month
Period Ended
June 30,
 
  2020  2019  2020  2019 
Revenues $1,271.6  $1,589.6  $2,541.3  $3,089.6 
Net Income (Loss)  7.0   44.2   6.8   (68.4)

Transactions with Trane Technologies

Certain agreements have been entered into between Ingersoll Rand and Trane Technologies plc, including, among others, an Employee Matters Agreement, a Real Estate Matters Agreement, a Tax Matters Agreement, an Intellectual Property Matters Agreement and a Transition Services Agreement each dated February 29, 2020.  The Transition Services Agreement has a term of twenty four calendar months.  Charges for tax purposes.services under the agreement will be determined on an allocated cost basis, subject to an overall annual aggregate cap.  During the first quarterthree month and six month period ended June 30, 2020, the Company incurred expense of 2017, an incremental working capital true-up payment was made$8.4 million and $10.8 million, respectively, for approximately $0.3 million.  This amount is presented within “Net cash paid in business combinations” inservices received under the Condensed Consolidated Statements of Cash Flows.Transition Service Agreement and related agreements.


Pro forma information regarding these acquisitions is not considered significant and has not been disclosed.

Note 3. Restructuring


Industrials Restructuring Program2020 to 2022


DuringSubsequent to the second quarteracquisition of 2016,Ingersoll Rand Industrial, the Company revised and expanded the Industrialsannounced a restructuring program announced in(“2020 Plan”) to drive efficiencies and synergies, reduce the third quarternumber of 2014.  The revised program maintainsfacilities and optimize operating margin within the focus on rationalizing the European manufacturing footprint of the Industrials segment, including the consolidation of manufacturing and distribution operations in Europe and the relocation of certain production to China.  The revised program also includes employee and other actions designed to reduce selling, administrative, and other expenses.merged Company. The Company expects to generate significantincur total expenses of approximately $350.0 million related to workforce reductions, lease termination costs, other facility rationalization costs and other business related transformation costs from 2020 until 2022. The Company expects to realize approximately $250.0 million in annualized cost savings fromsynergies by the end of 2022. The Company continues to evaluate operating efficiencies and anticipates incurring additional costs in the coming years in connection with these efforts.activities, but is unable to estimate those amounts at this time as such plans are not yet finalized.


As of September Through June 30, 2017, $37.12020,$72.2 million has been was charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations related to the Industrials restructuring program.($57.6 million for Industrial Technologies and Services, $4.9 million for Precision and Science Technologies, $4.1 million for High Pressure Solutions, $0.7 million for Specialty Vehicle Technologies and $4.9 million for Corporate).

The Company expects to incur approximately $40 to $45 million in restructuring charges related to the Industrials restructuring program.  The Company expects the Industrials restructuring program to conclude in 2017.

Energy Restructuring Program

In the fourth quarter of 2016, the Company committed to a restructuring program in the Energy segment (“Energy restructuring program”) to rationalize manufacturing facilities and to otherwise reduce operating costs.  Actions include employee reductions primarily in North America, Europe and China and the closure of a production facility in North America.  The Company expects to generate significant cost savings from these actions.

As of September 30, 2017, $6.1 million has been charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations, related to the Energy restructuring program.

The Company expects to incur approximately $6 to $7 million in restructuring charges related to the Energy restructuring program.  The Company expects the Energy restructuring program to conclude in 2017.
Medical Restructuring Program

In the fourth quarter of 2016, the Company committed to a restructuring program in the Medical segment (“Medical restructuring program”) to rationalize manufacturing facilities and to otherwise reduce operating costs.  Actions include employee reductions primarily in North America, Europe, and China and the closure of a production facility in North America.  The Company expects to generate significant cost savings from these actions.

As of September 30, 2017, $4.2 million has been charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations, related to the Medical restructuring program.

The Company expects to incur approximately $5 to $6 million in restructuring charges related to the medical restructuring program.  The Company expects the Medical restructuring program to conclude in 2017.


The following table summarizes the activity associated with the Company’s restructuring programs by segment for the ninesix month periodsperiod ended SeptemberJune 30, 2017 and 2016:2020.


  
Industrials
Program
  
Energy
Program
  
Medical
Program
  Total 
Balance at December 31, 2016 $11.1  $5.6  $4.2  $20.9 
Charged to expense - termination benefits  2.3   (0.3)  (0.1)  1.9 
Charged to expense - other  2.1   0.7   0.2   3.0 
Payments  (10.7)  (4.2)  (2.4)  (17.3)
Other, net  0.7   -   0.3   1.0 
Balance at September 30, 2017 $5.5  $1.8  $2.2  $9.5 

 
Industrials
Program
  
Energy
Program
  
Medical
Program
  Total  Total 
Balance at December 31, 2015 $2.0  $-  $-  $2.0 
Balance as of December 31, 2019 $5.0 
Charged to expense - termination benefits  14.7   -   -   14.7   66.7 
Charged to expense - other  0.7   -   -   0.7   5.5 
Payments  (8.9)  -   -   (8.9)  (46.1)
Other, net  -   -   -   - 
Balance at September 30, 2016 $8.5  $-  $-  $8.5 
Currency translation adjustment and other  (1.7)
Balance as of June 30, 2020 $29.4 
As of September 30, 2017, restructuring reserves of $9.1 million were included in “Accrued liabilities” and restructuring reserves of $0.4 million were included in “Other liabilities” in the Condensed Consolidated Balance Sheets.  As of December 31, 2016, restructuring reserves of $20.2 million were included in “Accrued liabilities” and restructuring reserves of $0.7 million were included in “Other liabilities” in the Condensed Consolidated Balance Sheets.
Note 4. Inventories


Inventories as of SeptemberJune 30, 20172020 and December 31, 20162019 consisted of the following:following.


 
September 30,
2017
  
December 31,
2016
  
June 30,
2020
  
December 31,
2019
 
Raw materials, including parts and subassemblies $347.1  $312.9  $654.2  $370.5 
Work-in-process  69.2   45.3   86.7   47.6 
Finished goods  75.4   69.8   272.5   71.4 
  491.7   428.0   1,013.4   489.5 
Excess of LIFO costs over FIFO costs  15.9   15.9   13.0   13.0 
Inventories $507.6  $443.9  $1,026.4  $502.5 


Approximately $498.1 million of the increase in inventories from December 31,2019 to June 30,2020 is related to the acquisition of Ingersoll Rand Industrial. In the three month period ended June 30,2020, the Company recorded non-cash adjustments of $45.9 million to reduce the carrying value of inventories acquired in the merger with Ingersoll Rand Industrial accounted for under the LIFO liquidation method.

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Note 5. Goodwill and Other Intangible Assets


The changes in the carrying amount of goodwill attributable to each reportable segment for the ninesix month period ended September June 30, 2017 are2019 is presented in the table below:below.


 Industrials  Energy  Medical  Total  
Industrial
Technologies
and Services
  
Precision
and Science
Technologies
  
High
Pressure
Solutions
  
Specialty
Vehicle
Technologies
  Total 
Balance as of December 31, 2016 $515.8  $439.9  $199.0  $1,154.7 
Balance as of December 31, 2019 $865.4  $227.5  $194.8  $—  $1,287.7 
Acquisition  7.9   -   -   7.9   3,136.0   1,112.3   —   535.8   4,784.1 
Foreign currency translation and other (1)
  31.8   16.6   5.9   54.3   (15.7)  (0.9)  —   (0.1)  (16.7)
Balance as of September 30, 2017 $555.5  $456.5  $204.9  $1,216.9 
Balance as of June 30, 2020 $3,985.7  $1,338.9  $194.8  $535.7  $6,055.1 


(1)During the nine month period ended September 30, 2017, the Company recorded an increase in goodwill of $0.4 million as a result of measurement period adjustments in the Medical segment.

On June 5, 2017, the Company acquired LeROI Compressors which is included in the Industrials segment.  The excess of the purchase price over the estimated fair values of tangible assets, identifiable assets, and assumed liabilities was recorded as goodwill.  As of September 30, 2017, the preliminary purchase price allocation resulted in a total of $7.9 million of goodwill.  The allocation of the purchase price is preliminary and subject to adjustment based on final fair values of the identified assets acquired and liabilities assumed.

At September 30, 2017, goodwill included $563.9 million of accumulated impairment losses within the Energy segment.  There were no goodwill impairment charges recorded during the three month or nine month periods ended September 30, 2017.
Other intangible assets at September as of June 30, 20172020 and December 31, 2016 consist2019 consisted of the following:following.


  September 30, 2017  December 31, 2016  June 30, 2020  December 31, 2019 
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Gross
Carrying
Amount
  
Accumulated
Amortization
  
Gross
Carrying
Amount
  
Accumulated
Amortization
 
Amortized intangible assets:            
Amortized intangible assets            
Customer lists and relationships $1,216.2  $(442.1) $1,160.5  $(345.5) $3,325.8  $(783.0) $1,238.7  $(673.9)
Acquired technology  8.0   (2.8)  7.1   (2.2)
Technology  268.6   (19.0)  30.2   (6.0)
Trademarks  30.2   (9.7)  27.4   (6.9)  39.9   (13.4)  40.4   (11.9)
Backlog  64.7   (64.7)  60.3   (60.3)  146.5   (98.2)  -   - 
Other  47.6   (21.2)  36.4   (16.4)  101.8   (50.6)  64.0   (40.8)
Unamortized intangible assets:                
Unamortized intangible assets                
Trademarks  623.5   -   609.5   -   1,930.3   —   614.3   — 
Total other intangible assets $1,990.2  $(540.5) $1,901.2  $(431.3) $5,812.9  $(964.2) $1,987.6  $(732.6)

Amortization of intangible assets for the three and nine month periods ended September 30, 2017 and 2016 was as follows:

  
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
             
Intangible asset amortization expense $29.5  $30.7  $87.6  $90.8 

Amortization of intangible assets is anticipated to be approximately $116.9$370.0 million annually in 20182020 and $330.0 million to $360.0 million from 2021 through 20222025 based upon the exchange rates as of September June 30, 2017.2020.


As of June 30,2020, goodwill included $343.3 million of accumulated impairment losses within the High Pressure Solutions segment and $220.6 million of accumulated impairment losses within the Industrial Technologies and Services segment.

Due to the ongoing impacts of COVID-19 and geopolitical events on the upstream energy market, the Company determined that indicators of impairment existed for goodwill and an indefinite-lived tradename of a reporting unit within the High Pressure Solutions segment. As of June 30,2020, quantitative impairment tests were performed and the calculated fair values of the reporting unit and tradename were found to be in excess of the respective carrying values, and therefore no impairments were recorded.

As of June 30,2020, there was no indication that the carrying value of goodwill and other intangible assets associated with the Company’s other reporting units may not be recoverable.  However, a prolonged adverse impact of the COVID-19 pandemic on the Company’s consolidated financial results may require an impairment charge related to one or more of these assets in a future period.

There were 0 goodwill impairment charges recorded during the six month periods ended June 30,2020 and 2019.

Note 6. Accrued Liabilities


Accrued liabilities as of SeptemberJune 30, 20172020 and December 31, 20162019 consisted of the following:following.


 
September 30,
2017
  
December 31,
2016
 
       
June 30,
2020
  
December 31,
2019
 
Salaries, wages and related fringe benefits $83.0  $56.5  $160.9  $60.7 
Contract liabilities  159.9   51.7 
Product warranty  53.9   22.7 
Operating lease liabilities  39.4   17.1 
Restructuring  9.1   20.2   29.4   5.0 
Taxes  43.1   37.1   167.0   22.5 
Advance payments on sales contracts  55.5   43.0 
Product warranty  23.6   21.7 
Accrued interest  0.5   15.5 
Other  60.1   64.5   144.4   64.4 
Total accrued liabilities $274.9  $258.5  $754.9  $244.1 
A reconciliation of the changes in the accrued product warranty liability for the three and ninesix month periods ended SeptemberJune 30, 20172020 and 20162019 are as follows:follows.


 
Three Months
Ended
September 30,
2017
  
Three Months
Ended
September 30,
2016
  
Nine Months
Ended
September 30,
2017
  
Nine Months
Ended
September 30,
2016
  
For the three month
period ended
June 30,
  
For the six month
period ended
June 30,
 
             2020  2019  2020  2019 
Balance at beginning of period $21.7  $24.2  $21.7  $27.6  $53.0  $21.8  $22.7  $23.9 
Product warranty accruals  6.7   3.6   17.8   12.2   2.7   7.8   10.8   14.6 
Acquired warranty  —   —   31.3   — 
Settlements  (5.0)  (5.5)  (17.1)  (17.2)  (2.2)  (6.3)  (10.8)  (15.1)
Charged to other accounts (1)
  0.2   (0.5)  1.2   (0.8)  0.4   0.1   (0.1)  — 
Balance at end of period $23.6  $21.8  $23.6  $21.8  $53.9  $23.4  $53.9  $23.4 


(1)Includes primarilyPrimarily 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.USD.


21


Note 7. Benefit Plans

Acquisition of Ingersoll Rand Industrial

Defined Contribution Plans

In connection with the acquisition of Ingersoll Rand Industrial, the Company acquired certain defined contribution plans.  Most of the Ingersoll Rand Industrial employees in the U.S. are covered by a defined contribution plan.  Employer contributions are determined based on criteria specific to the individual.

Pension and Other Postretirement BenefitsBenefit Plans


The Company acquired a number of pension and postretirement plans worldwide.  As of the date of acquisition of Ingersoll Rand Industrial, the Company recognized the funded status of the acquired defined benefit pension plans.  The funded status is the difference between the fair value of the plan assets and the projected benefit obligation.  Certain Company employees participate in various other postretirement benefit plans that are sponsored by Ingersoll Rand and cover certain U.S. and non – U.S. employees.  The other postretirement benefit plans are unfunded.  The Company funds the other postretirement plans on a pay-as-you-go basis in the form of direct benefit payments.  Other postretirement benefits are contributory with contributions adjusted for annually.  Life insurance plans for retirees are primarily noncontributory.

Deferred Compensation Plans

The Company acquired deferred compensation plans which allow certain key employees to defer a portion of their eligible compensation into a number of investment choices, including the Company’s common stock equivalents.  Except with respect to the Supplemental Employee Savings Plan I and II, which plans settle all investments in cash, any amounts invested in common stock are settled in shares of Ingersoll Rand common stock at the time of distribution.  All other investments are settled in cash.  The portion of the acquired deferred compensation to be settled in shares is accounted for in the consideration transferred.

Net Periodic Benefit Cost

The following table summarizes the components of net periodic benefit cost for the Company’s defined benefit pension plans and other postretirement benefit plans recognized for the three and ninesix month periods ended September June 30, 20172020 and 2016:2019.


 Pension Benefits  Other Postretirement 
U.S. Plans  Non-U.S. Plans  Benefits  Pension Benefits  Other Postretirement 
 
Three Months
Ended
September 30,
2017
  
Nine Months
Ended
September 30,
2017
  
Three Months
Ended
September 30,
2017
  
Nine Months
Ended
September 30,
2017
  
Three Months
Ended
September 30,
2017
  
Nine Months
Ended
September 30,
2017
  U.S. Plans  Non-U.S. Plans  Benefits 
                   
For the
Three Month
Period Ended
June 30,
2020
  
For the
Six Month
Period Ended
June 30,
2020
  
For the
Three Month
Period Ended
June 30,
2020
  
For the
Six Month
Period Ended
June 30,
2020
  
For the
Three Month
Period Ended
June 30,
2020
  
For the
Six Month
Period Ended
June 30,
2020
 
Service cost -  $-  $0.5  $1.4  $-  $-  $1.7  $2.3  $1.2  $1.9  $—  $— 
Interest cost  0.6   1.7   2.0   5.8   -   0.1   2.8   4.0   1.5   3.0   0.2   0.3 
Expected return on plan assets  (1.1)  (3.3)  (2.7)  (7.7)  -   -   (3.9)  (5.5)  (2.7)  (5.4)  —   — 
Recognition of:                                                
Unrecognized prior service cost  -   -   -   -   -   -   —   —   0.1   0.1   —   — 
Unrecognized net actuarial loss  -   -   1.3   3.7   -   -   —   —   0.7   1.4   —   — 
 $(0.5) $(1.6) $1.1  $3.2  $-  $0.1  $0.6  $0.8  $0.8  $1.0  $0.2  $0.3 

   Pension Benefits  Other Postretirement 
U.S. Plans  Non-U.S. Plans  Benefits  Pension Benefits  Other Postretirement 
   
Three Months
Ended
September 30,
2016
  
Nine Months
Ended
September 30,
2016
  
Three Months
Ended
September 30,
2016
  
Nine Months
Ended
September 30,
2016
  
Three Months
Ended
September 30,
2016
  
Nine Months
Ended
September 30,
2016
  U.S. Plans  Non-U.S. Plans  Benefits 
                   
For the
Three Month
Period Ended
June 30,
2019
  
For the
Six Month
Period Ended
June 30,
2019
  
For the
Three Month
Period Ended
June 30,
2019
  
For the
Six Month
Period Ended
June 30,
2019
  
For the
Three Month
Period Ended
June 30,
2019
  
For the
Six Month
Period Ended
June 30,
2019
 
Service cost -  $-  $0.4  $1.3  $-  $-  $—  $—  $0.4  $0.8  $—  $— 
Interest cost  0.6   2.0   2.3   7.3   -   0.1   0.6   1.1   1.9   3.9   0.1   0.1 
Expected return on plan assets  (1.1)  (3.4)  (2.8)  (9.0)  -   -   (0.6)  (1.1)  (2.6)  (5.2)  —   — 
Recognition of:                                                
Unrecognized prior service cost  -   -   -   -   -   -   —   —   0.1   0.1   —   — 
Unrecognized net actuarial loss   -   -   0.7   2.3   -   -   —   0.1   0.5   1.0   —   — 
 $(0.5) $(1.4) $0.6  $1.9  $-  $0.1  $—  $0.1  $0.3  $0.6  $0.1  $0.1 

The components of net periodic benefit cost other than the service cost component are included in “Other income, net” in the Condensed Consolidated Statements of Operations.

16
22

Note 8. Debt


The Company’s debt at SeptemberDebt as of June 30, 20172020 and December 31, 20162019 is summarized as follows:follows.


  
September 30,
2017
  
December 31,
2016
 
       
Short-term borrowings $-  $- 
Long-term debt:        
Revolving credit facility, due 2020 $-  $- 
Receivables financing agreement, due 2020  -   - 
Term loan denominated in U.S. dollars, due 2020 (1) (3)
  -   1,833.2 
Term loan denominated in Euros, due 2020 (2) (4)
  -   405.5 
Term loan denominated in U.S. dollars, due 2024 (5)
  1,285.5   - 
Term loan denominated in Euros, due 2024 (6)
  726.4   - 
Senior notes, due 2021 (7)
  -   575.0 
Second mortgages (8)
  1.9   1.9 
Capitalized leases and other long-term debt  19.3   21.6 
Unamortized debt issuance costs  (5.1)  (58.9)
Total long-term debt, net, including current maturities  2,028.0   2,778.3 
Current maturities of long-term debt  21.1   24.5 
Total long-term debt, net $2,006.9  $2,753.8 
 
June 30,
2020
  
December 31,
2019
 
Short-term borrowings $—  $— 
Long-term debt:        
Revolving credit facility, due 2024
 $—  $— 
Receivables financing agreement, due 2020
  —   — 
Dollar Term Loan, due 2024(1)
  —   927.6 
Euro Term Loan, due 2024(2)
  —   673.9 
Dollar Term Loan B, due 2027(3)
  1,893.0   — 
Dollar Term Loan, due 2027(4)
  924.2   — 
Euro Term Loan, due 2027(5)
  672.7   — 
Dollar Term Loan Series A, due 2027(6)
  394.0   — 
Finance leases and other long-term debt  17.6   18.0 
Unamortized debt issuance costs  (45.0)  (8.1)
Total long-term debt, net, including current maturities  3,856.5   1,611.4 
Current maturities of long-term debt  39.8   7.6 
Total long-term debt, net $3,816.7  $1,603.8 

(1)This amount is shown net of unamortized discounts of $5.0 million as of December 31, 2016.
The weighted-average interest rate was 4.47% for the period from January 1,2020 through February 27,2020.


(2)This amount is shown net of unamortized discounts of $1.4 million as of December 31, 2016.

(3)The weighted-average interest rate was 4.56% for the period from January 1, 2017 through August 17, 2017.

(4)The weighted-average interest rate was 4.75% for the period from January 1, 2017 through August 17, 2017.

(5)At September 30, 2017, the applicable interest rate was 4.08% and the weighted-average rate was 4.01% for the period from August 17, 2017 through September 30, 2017.

(6)At September 30, 2017, the applicable interest rate was 3.00% and the weighted-average rate was 3.00% for the period from August 17, 2017January 1, 2020 through September 30, 2017.February 27, 2020.


(7)(3)ThisAs of June 30, 2020, this amount consistsis presented net of unamortized discounts of $2.3 million.  As of June 30, 2020, the $575.0 million aggregate principal 6.875% senior notes due 2021 that were entered into in connection withapplicable interest rate was 1.93% and the KKR transaction on Julyweighted-average interest rate was 2.54% for the six month period ended June 30, 2013.  Interest on the Senior Notes is payable on February 15 and August 15 of each year.  The senior notes were redeemed in May 2017.2020.


(8)(4)ThisAs of June 30, 2020, this amount consistsis presented net of a fixed-rate 4.80% commercial loan with an outstanding balanceunamortized discounts of €1.6 million at September$1.1 million.  As of June 30, 2017.  This loan is secured by2020, the Company’s facility in Bad Neustadt, Germany.applicable interest rate was 1.93% and the weighted average interest rate was 3.16% for the six month period ended June 30, 2020.

(5)As of June 30, 2020, this amount is presented net of unamortized discounts of $0.8 million.  As of June 30, 2020, the applicable interest rate was 2.00% and the weighted average interest rate was 2.32% for the six month period ended June 30, 2020.

(6)
As of June 30,2020, this amount is presented net of unamortized discounts of $6.0 million.  As of June 30,2020, the applicable interest rate was 2.93% and the weighted average interest rate was 2.93% for the period from June 29,2020 through June 30,2020.
Senior Secured Credit Facilities


Overview

In connection with the transaction in which the Company was acquired by an affiliate of Kohlberg Kravis Roberts & Co. L.P. on July 30, 2013 (the “KKR transaction”), theThe Company entered into a senior secured credit agreementSenior Secured Credit Agreement (“Credit Agreement”) with UBS AG, Stamford Branch, as administrative agent, and other agents, lenders and lenders partyparties thereto (the debt facilities under the Credit Agreement, the “Senior Secured Credit Facilities”) on July 30, 2013.  The Company entered into Amendment No. 1 to the Credit Agreement with UBS AG, Stamford Branch, as administrative agent, and the lenders and other parties thereto on March 4, 2016 (“Amendment No. 1”), Amendment No. 2 on August 17, 2017 (“Amendment No. 2”) and Amendment No. 3 on December 13, 2018 (“Amendment No. 3”).  Amendment No. 4 to the Credit Agreement, among other modifications, replaced UBS AG, as resigning agent, with Citibank, N.A. as successor agent, on June 28, 2019 (“Amendment No. 4”).


The Senior Secured Credit Facilities entered into on July 30, 2013 provided senior secured financing in the equivalentconsisting of approximately $2,825.0 million, consisting of: (i) a senior secured term loan facility (thedenominated in U.S. dollars (as refinanced and otherwise modified from time to time prior to February 28, 2020, the “Original Dollar Term Loan Facility”Loan”) in an aggregate principal amount of $1,900.0 million;, (ii) a senior secured term loan facility (thedenominated in Euros (as refinanced and otherwise modified from time to time prior to February 28, 2020, the “Original Euro Term Loan Facility,” together with the Dollar Term Loan Facility, the “Term Loan Facilities”Loan”) in an aggregate principal amount of €400.0 million; and (iii) a senior secured revolving credit facility (the(as refinanced and otherwise modified from time to time the “Revolving Credit Facility”) in an aggregate principal amount of $400.0 million.  The Revolving Credit Facility is available to be drawn in U.S. dollars (“USD”), Euros (“EUR”), Great British Pounds (“GBP”) and other reasonably acceptableaccepted foreign currencies, subject to certain sublimits for the foreign currencies.


TheSee Note 10 “Debt” to the consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2019 for further information on the amendments to the Senior Secured Credit Facilities.

On February 28, 2020, the Company entered into Amendment No. 15 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as administrative agent,Agreement (“Amendment No. 5”).  Amendment No. 5 refinanced the existing Original Dollar Term Loan and Original Euro Term Loan.  The proceeds from the replacement $927.6 million Dollar Term Loan (“Dollar Term Loan”) and replacement €601.2 million Euro Term Loan (“Euro Term Loan”) were used to refinance the outstanding Original Dollar Term Loan and Original Euro Term Loan.  The proceeds from the Dollar Term Loan and the Euro Term Loan were reduced by an original issue discount of $1.2 million and €0.8 million, respectively.  The Euro Term Loan and Dollar Term Loan will mature on February 28, 2027 (or, if such date is not a business day, the first business day thereafter).  The refinancing of the Original Dollar Term Loan and the Original Euro Term Loan resulted in the write off of unamortized debt issuance costs of $2.0 million which was recorded to “Loss on extinguishment of debt” in the Condensed Consolidated Statements of Operations.

At the time of the acquisition of Ingersoll Rand Industrial, the Credit Agreement was amended to include an additional $1,900.0 million senior secured term loan (“Dollar Term Loan B”) by and among Ingersoll-Rand Services Company, as the borrower, the lenders party thereto and other parties thereto on March 4, 2016 (“Amendment No.1”) and Amendment No. 2Citi, as the administrative agent.  Further, Ingersoll-Rand Services Company, the borrower with respect to the Senior SecuredDollar Term Loan B, was designated as an additional borrower under the Credit Facilities with UBS AG, Stamford Branch, as administrative agent,Agreement.  The Dollar Term Loan B and other agents, lendersthe Dollar Term Loan and the Euro Term Loan have guarantees from the same credit parties theretoand are secured by the same collateral.  The Dollar Term Loan B will mature on August 17, 2017 (“Amendment No. 2”)February 28, 2027 (or, if such date is not a business day, the first business day thereafter). The proceeds from the $1,900.0 million Dollar Term Loan B were reduced by a $2.4 million original issue discount.

23
Amendment No. 1 reduced


On the date of acquisition of Ingersoll Rand Industrial, the aggregate principal borrowing capacityamount of the Revolving Credit Facility increased to $1,000.0 million and the capacity under the Revolving Credit Facility to issue letters of credit increased to $400.0 million.

On June 29,2020, the Company entered into Amendment No. 6 to the Credit Agreement (“Amendment No. 6”).  Amendment No. 6  (i) provided for $400.0 million of incremental term loans (“Dollar Term Loan Series A”), reduced by $40.0an original issue discount of $6.0 million, and (ii) established an increase of $100.0 million to $360.0 million, extended the termRevolving Credit Facility, bringing the total sum 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.

$1,100.0 million. No specific use of proceeds arising from Amendment No. 2 refinanced6 has been identified. The proceeds are expected to be used for general business purposes, including providing incremental liquidity in the Original Dollar Term Loan Facility withevent of a replacement $1,285.5 million senior secured U.S. dollar term loan facility (the ‘‘Dollar Term Loan Facility’’) and the Original Euro Term Loan Facility with a replacement €615.0 million senior secured euro term loan facility (the ‘‘Euro Term Loan Facility’’).  Further the maturity for both term loan facilities was extended to July 30, 2024 and LIBOR Floor was reduced from 1.0% to 0.0%.  The refinanceprolonged adverse impact of the Original Dollar Term Loan Facility and Euro Term Loan Facility resulted inCOVID-19 pandemic.

As of June 30,2020, the write-offsaggregate amount of unamortized debt issuance costs of $29.4 million and original issue discounts of $4.7 million which were recorded to the “Loss on Debt Extinguishment” line of the Condensed Consolidated Statements of Operations.

On July 30, 2018,commitments under the Revolving Credit Facility principal amount will decrease to $269.9was $1,100.0 million resulting from and the maturity of the tranches ofcapacity under the Revolving Credit Facility which are owned by lenders which elected not to modify the original Revolving Credit Facility maturity date and any amounts then outstanding in excessissue letters of $269.9credit was $400.0 million will be required to be paid.  Any principal amounts outstanding as. As of AprilJune 30, 2020, will be due at that time and required to be paid in full.

The borrower of the Dollar Term Loan Facility and the Euro Term Loan Facility is Gardner Denver, Inc.  Prior to the Company entering into Amendment No. 1, GD German Holdings II GmbH became an additional borrower and successor in interest to Gardner Denver Holdings GmbH & Co. KG. GD German Holdings II GmbH, GD First (UK) Limited and Gardner Denver, Inc. are the listed borrowershad 0 outstanding borrowings under the Revolving Credit Facility. The Revolving Credit Facility, includes borrowing capacity available for letters of credit up to $200.0 million and for borrowings on same-day notice, referred to as swingline loans. At September 30, 2017, the Company had $8.0$85.3 million of outstanding letters of credit under the Revolving Credit Facility and unused availability of $352.0 million.

The Senior Secured Credit Facilities provide that the Company will have the right at any time to request incremental term loans and/or revolving commitments in an aggregate principal amount of up to (i) if as of the last day of the most recently ended test period the Consolidated Senior Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) is equal to or less than 5.50 to 1.00, $250.0 million plus (ii) voluntary prepayments and voluntary commitment reductions of the Senior Secured Credit Facilities prior to the date of any such incurrence plus (iii) an additional amount if, after giving effect to the incurrence of such additional amount, the Company does not exceed a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio of 4.50 to 1.00. The lenders under the Senior Secured Credit Facilities are not under any obligation to provide any such incremental commitments or loans, and any such addition of, or increase in commitments or loans, will be subject to certain customary conditions.
To the extent that revolving credit loans and swingline loans plus non-cash collateralized letters of credit under the Revolving Credit Facility are outstanding in an amount exceeding $300.0 million, pro forma compliance with a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio of 7.00 to 1.00 is required for borrowings under the Revolving Credit Facility.$1,014.7 million.


Interest RateRates and Fees


Borrowings under the Dollar Term Loan, Facility, the EuroDollar Term Loan FacilityB, Dollar Term Loan Series A, and the Revolving Credit Facility bear interest at a rate equal to, at the Company’s option, either (a) the greater of LIBOR for the relevant interest period or 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin or (b) a base rate (the ‘‘Base Rate’’“Base Rate”) equal to the highest of (1) the rate of interest publicly announced by the administrative agent as its prime rate in effect at its principal office, in Stamford, Connecticut, (2) the federal funds effective rate plus 0.50% and, (3) LIBOR for an interest period of one month, adjusted for statutory reserve requirements, plus 1.00% and (4) 1.00%, in each case, plus an applicable margin.  Borrowings under the Euro Term Loan bear interest at a rate equal to the greater of LIBOR for the relevant interest period, or 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin.  The applicable margin for (i) the Dollar Term Loan Facilityis 1.75% for LIBOR loans and 0.75% for base rate loans, (ii) the Dollar Term Loan B is 1.75% for LIBOR loans and 0.75% for base rate loans, (iii) the Dollar Term Loan Series A is 2.75% for LIBOR loans and 1.75% for Base Ratebase rate loans, (ii)(iv) the Revolving Credit Facility is 3.25%2.00% for LIBOR loans and 2.25%1.00% for Base Rate loans and (iii)(v) the Euro Term Loan is 3.00%2.00% for LIBOR loans.


The applicable margins under the Revolving Credit Facility may decrease based upon our achievement of certain Consolidated Senior Secured Debt to Consolidated EBITDA Ratios. In addition to payingpayment interest on outstanding principal under the Senior Secured Credit Facilities, the Company is required to pay a commitment fee of 0.50%0.375% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder.  The commitment fee rate will be reducedreduces to 0.375% if our0.25% or 0.125% upon the achievement of a Level I or Level II status, respectively.  Level I status means that the Company’s Consolidated Senior Secured Debt to Consolidated EBITDA Ratio is less than or equal to 3.0 to 1.0. The Company must also pay customary letter of credit fees.

Prepayments

The Senior Secured Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with: (i) 50% of annual excess cash flow (as defined in the Senior Secured Credit Facilities) commencing with the fiscal year ended December 31, 2014 (which percentage will be reduced to 25% if the Company’sFirst Lien Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) is less than or equal to 3.501.75 to 1.00 but greater than 3.00 to 1.00, and which prepayment will not be required if1.00.  Level II status means that the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 3.001.50 to 1.00.  The Company must also pay customary letter of credit fees.

Prepayments

The Senior Secured Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with (i) 50% of annual excess cash flow (as defined in the Senior Credit Facilities) commencing with the fiscal year ending December 31, 2021 (which percentage will be reduced to 25% if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.25 to 1.00 but greater than 2.00 to 1.00, and which prepayment will not be required if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.00 to 1.00);, (ii) 100% of the net cash proceeds of non-ordinary course asset sales or other dispositions of property, subject to reinvestment rights;rights (which percentage will be reduced to 50% if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.25 to 1.00 but greater than 2.00 to 1.00 and which prepayment will not be required if the Company’s Consolidated First Lien Secured Debt to Consolidated EBITDA Ratio is less than or equal to 2.00 to 1.00), and (iii) 100% of the net cash proceeds of any incurrence of debt, other than proceeds from debt permitted under the Senior Secured Credit Facilities.Agreement.


The foregoing mandatory prepayments will be applied to the scheduled installments of principal of the Term Loan Facilitiesterm loans in direct order of maturity.


Subject to the following sentence, theThe Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, subject to certain customary conditions, including reimbursements of the lenders’ redeployment costs actually incurred in the case of a prepayment of LIBOR borrowings other than on the last day of the relevant interest period. Voluntary prepaymentsperiod, provided that (i) any voluntary prepayment of the Dollar Term Loan, Facility and/the Dollar Term Loan B or the Euro Term Loan Facility prior to the date that is six months after the effective date of Amendment No. 2August 28, 2020, in connection with anya repricing transaction the primary purposeshall be subject to a prepayment premium of which is to decrease the effective yield1.00% of the principal amount so prepaid and (ii) any voluntary prepayment of Dollar Term Loan Facility orSeries A prior to December 29,2020, in connection with a repricing transaction shall be subject to a prepayment premium of 1.00% of the Euro Term Loan Facility, as applicable, will require payment of a 1.00% prepayment premium.principal amount so prepaid.


Amortization and Final Maturity


The Dollar Term Loan, Facility amortizesDollar Term Loan B, Dollar Term Loan Series A, and Euro Term Loan amortize in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount of the Dollar Term Loan Facility,such term loan, with the balance beingbalances payable on July 30, 2024. The Euro Term Loan Facility includes repayments in equal quarterly installments in aggregate annual amounts equal to 1.00% ofFebruary 28, 2027 (or, if such date is not a business day, the original principal amount of the Euro Term Loan Facility, with the balance being payable on July 30, 2024.first business day thereafter).


Principal amounts outstanding under the Revolving Credit Facility are due and payable in full at maturity on July 30, 2018, in the case of portions held by non-consenting lenders, and April 30, 2020 with respect to all other borrowings thereunder.

Amendment No. 1 reduced the minimum aggregate principal amount for extension amendments to the facilities from $50.0 million to $35.0 million.
In May 2017, the Company used a portion of the proceeds from the initial public offering to repay $276.8 million principal amount of outstanding borrowings under the Original Dollar Term Loan Facility at par plus accrued and unpaid interest to the date of prepayment of $1.5 million.  The prepayment resulted in the write-off of unamortized debt issuance costs of $4.3 million and unamortized discounts of $0.7 million included in the “Loss on Debt Extinguishment” line of the Condensed Consolidated Statements of Operations.

Guarantee and Security


All obligations of the borrowers under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company and all of its material, wholly-owned U.S. restricted subsidiaries, with customary exceptions including where providing such guarantees are not permitted by law, regulation or contract or would result in adverse tax consequences.


All obligations of the borrowers under the Senior Secured Credit Facilities, and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by substantially all of the assets of the borrowers and each guarantor, including but not limited to: (i) a perfected pledge of the capital stock issued by the borrowers and each subsidiary guarantor and (ii) perfected security interests in substantially all other tangible and intangible assets of the borrowers and the guarantors (subject to certain exceptions and exclusions). The obligations of the non-U.S. borrowers are secured by certain assets in jurisdictions outside of the United States.


Certain Covenants and Events of Default


The Senior Secured Credit Facilities contain a number of covenants that, among other things, restrict, subject to certain exceptions, the Company’s ability to: incur additional indebtedness and guarantee indebtedness; create or incur liens; engage in mergers or consolidations; sell, transfer or otherwise dispose of assets; create limitations on subsidiary distributions; pay dividends and distributions or repurchase its own capital stock; and make investments, loans or advances, prepayments of junior financings, or other restricted payments. In addition, certain restricted payments constituting dividends or distributions (subject to certain exceptions) are subject to pro forma compliance with a Consolidated Total Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) of 5.00 to 1.00. Investments in unrestricted subsidiaries are permitted up to an aggregate amount that does not exceed the greater of $100.0 million and 25% of Consolidated EBITDA.

24


The Revolving Credit Facility also requires that, if the sum of the aggregate principle amount of all borrowings under the Revolving Credit Facility and non-cash collateralized letters of credit outstanding under the Revolving Credit Facility (less the amount of letters of credit outstanding as of June 28, 2019) exceeds 40% of the commitments under the Revolving Credit Facility, the Company’s Consolidated SeniorFirst Lien Secured Debt to Consolidated EBITDA Ratio to not exceed 7.50 to 1.00 for each fiscal quarter when outstanding revolving credit loans and swingline loans plus non-cash collateralized letters of credit under the Revolving Credit Facility (excluding (i) letters of credit in an aggregate amount not to exceed $80.0 million existing on the date of the closing of the Senior Secured Credit Facilities and any extensions thereof, replacement letters of credit or letters of credit issued in lieu thereof, in each case, to the extent the face amount of such letters of credit is not increased above the face amount of the letter of credit being extended, replaced or substituted and (ii) other non-cash collateralized letters of credit in an aggregate amount not to exceed $25.0 million, provided that the aggregate amount of non-cash collateralized letters of credit outstanding excluded pursuant to this provision shall not exceed $50.0 million) exceed $120.0 million.6.25 to 1.00 as of the last day of the fiscal quarter.


The Senior Secured Credit Facilities also contain certain customary affirmative covenants and events of default, including a change of control.default.


Receivables Financing Agreement


In May 2016, the Company
On February 27, 2020, Gardner Denver, Inc., as initial servicer, Gardner Denver Finance II LLC, as borrower, and PNC Bank, National Association as lender, LC participant, LC bank, and administrative agent, entered into the third amendment (the “Third Amendment”) to the Receivables Financing Agreement providing for aggregated borrowingdated as of up to $75.0 million governed by a borrowing base. The Receivables Financing Agreement provides for a lower cost alternative inMay 17, 2016.  Among other changes, the issuance of letters of credit withThird Amendment extended the remaining unused capacity providing additional liquidity.  On June 30, 2017, the Company signed the first amendmentscheduled termination date of the Receivables Financing Agreement which increased the aggregated borrowing capacity by $50.0 million to $125.0 million governed by a borrowing base and extended the term to June 30, 2020.  The Receivables Financing Agreement terminates onfrom June 30, 2020 unless terminated earlier pursuant to its terms.December 30, 2020 and 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” and (iii) make certain other technical changes and updates.  As of SeptemberJune 30, 2017,2020, the Company had no0 outstanding borrowings, under the Receivables Financing Agreement and $33.2$26.6 million of letters of credit outstanding. At September 30, 2017 there was $82.1outstanding and $39.1 million of capacity available under the Receivables Financing Agreement.

Borrowings under the Receivables Financing Agreement accrue interest at a reserve-adjusted LIBOR or a base rate, plus 1.6%. Letters of credit accrue interest at 1.6%.  The Company may prepay borrowings or letters of credit or draw on the Receivables Financing Agreement upon one business day prior written notice and may terminate the Receivables Financing Agreement with 15 days’ prior written notice.
As part of the Receivables Financing Agreement, eligible accounts receivable of certain of our subsidiaries are sold to a wholly owned “bankruptcy remote” special purpose vehicle (“SPV”). The SPV pledges the receivables as security for loans and letters of credit. The SPV is included in our consolidated financial statements and therefore, the accounts receivable owned by it are included in our Condensed Consolidated Balance Sheets. However, the accounts receivable owned by the SPV are separate and distinct from our other assets and are not available to our other creditors should we become insolvent.

The Receivables Financing Agreement contains various customary representations and warranties and covenants, and default provisions which provide for the termination and acceleration of the commitments and loans under the agreement in circumstances including, but not limited to, failure to make payments when due, breach of representations, warranties or covenants, certain insolvency events or failure to maintain the security interest in the trade receivables, a change in control and defaults under other material indebtedness.

Senior Notes

In connection with the KKR transaction, on July 30, 2013, the Company’s direct subsidiary, Gardner Denver, Inc., issued a $575.0 million aggregate principal amount of Senior Notes, which mature on August 15, 2021 pursuant to an indenture, dated as of July 30, 2013, among Renaissance Acquisition Corp. (which merged into Gardner Denver, Inc. in connection with the KKR transaction), the guarantors party thereto and Wells Fargo Bank, National Association, as trustee.

In May 2017, the Company used a portion of the proceeds from the initial public offering to redeem all $575.0 million aggregate principal amount of the Senior Notes at a price of 105.156% of the principal amount redeemed, equal to $604.6 million, plus accrued and unpaid interest to the date of redemption of $10.2 million.  The redemption of the Senior Notes resulted in the write-off of unamortized debt issuance costs of $15.8 million which was recorded to the “Loss on Debt Extinguishment” line of the Condensed Consolidated Statements of Operations.  The premium paid on the Senior Notes, $29.7 million, is included in the “Loss on Debt Extinguishment” line of the Condensed Consolidated Statements of Operations.

Note 9. Stock-Based Compensation

2013 Stock Incentive Plan


The Company adoptedhas outstanding stock-based compensation awards granted under the 2013 Stock Incentive Plan (“2013 Plan”) and the 2017 Omnibus Incentive Plan (“2017 Plan”) as described in Note 17, “Stock-Based Compensation Plans” to the consolidated financial statements in its annual report on October 14, 2013 as amended on April 27, 2015 under whichForm 10-K for the Company may grant stock-based compensationyear ended December 31, 2019.

Acquisition of Ingersoll Rand Industrial

As of the acquisition date of February 29, 2020, Ingersoll Rand Industrial employees’ unvested equity awards to employees, directors and advisors.  The totala limited number of vested awards were converted into equity awards denominated in shares available for grant underof the 2013 Plan and reserved for issuance is 20.9 million shares.  AllCompany’s common stock based on a defined exchange ratio.  Ingersoll Rand Industrial employees’ equity awards were converted into Ingersoll Rand stock options were granted to employees, directors, and advisors with an exercise price equal torestricted stock units.

For converted restricted stock units, the fair value of the Company’s per share common stock.  Following the Company’s initial public offering, the Company may grant stock-based compensation awards pursuant to the 2017 Plan (defined below) and ceased granting new awards pursuant to the 2013 Plan.

Stock options awards vest over either five, four, or three years with 50% of eachequity award vesting based on time and 50% of each award vestingis based on the achievementmarket price of certain financial targets.

Priorthe common stock on the grant date.  The replacement restricted stock units will generally be governed by the same terms and conditions as those applicable prior to the Company’s initial public offering in May 2017, the Company had certain repurchase rights on stock acquired through the exerciseacquisition.  The portion of a stock option that created an implicit service period and created a condition in which an optionee may not receive the economic benefitsfair value of the option until the repurchase rights are eliminated. The repurchase rights creating the implicit service period are eliminated at the earlier of an initial public offering or change of control event.  Before the elimination of the repurchase rights, because an initial public offering or change of control were not probable of occurring, no 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 termination of employment.

Under the terms of the 2013 Plan, concurrent with the initial public offering, the Company no longer retains repurchase rights on stock acquired through the exercise of a stock option and the implicit service period was eliminated on outstanding stock options. For the three and nine months ended September 30, 2017, the Company recognized stock-based compensation expense of approximately $7.8 million and $69.2 million, respectively,replacement awards related to time-based and performance-based stock options included in “Other operating expense, net” inservices provided prior to the Condensed Consolidated Statements of Operations. Certain stock awards are expected to be settled in cash (stock appreciation rights “SAR”) and areacquisition was accounted for as liability awards. At September 30, 2017, a liabilityconsideration transferred.  The remaining portion of approximately $13.1 million for SARs is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.
As of September 30, 2017 there was $12.9 million of total unrecognized compensation expense related to outstanding stock options.
A summary of the Company’s stock-based award plan activity, including stock options and SARs, for the nine month period ended September 30, 2017 is presented in the following table (underlying shares in thousands):
  
Shares
  
Weighted-Average
Exercise Price
(per share)
 
Outstanding at December 31, 2016  13,285  $8.85 
Granted  799  $20.00 
Settled  (92) $8.17 
Forfeited  (938) $8.21 
Outstanding at September 30, 2017  13,054  $9.52 
         
Vested at September 30, 2017  6,676  $8.73 
The following assumptions were used to estimate the fair value is associated with future service and will be recognized as compensation expense over the vesting period.

For converted stock options, the exercise price per share of the converted award was equal to the exercise price per share of the stock option award immediately prior to the completion of the acquisition divided by the exchange ratio. The replacement options granted duringwill generally be governed by the nine month period ended September 30, 2017same terms and conditions as those applicable prior to the acquisition.  The portion of fair value of the replacement awards related to services provided prior to the acquisition was accounted for as consideration transferred.  The remaining portion of fair value is associated with future service and will be recognized as compensation expense over the vesting period.  The fair value of stock options that the Company assumed in connection with the acquisition of Ingersoll Rand Industrial was estimated using the Black-Scholes option-pricing model.model with the following assumptions.


Nine Months
Ended
September 30,
2017
Assumptions:Converted Stock Option Awards Assumptions   
Expected life of options (in years)  5.002.0 - 6.253.6 
Risk-free interest rate  1.94 - 2.120.9%
Assumed volatility  41.2 - 45.834.2%
Expected dividend rate  0.000.0%
Concurrent with
25


Stock-Based Compensation

For the Company’s initial public offering in May of 2017, the Company’s Board authorized the grant of 5.5 million deferred stock units (“DSU”) to all permanent employees that had not previously received stock-based awards under the 2013 Plan. The DSUs vested immediately upon grant, however contain restrictions such that the employee may not sell or otherwise realize the economic benefits of the award until certain dates through April 2019. At the date of the grant, the fair value of a DSU was determined to be $17.20 assuming a share price at the pricing date of the initial public offering of $20.00 and a discount for lack of marketability commensurate with the period of the sale restrictions.  Certain DSU awards are expected to be settled in cash and carried at fair value on the balance sheet date.  In the three and nine month periods ended September June 30, 2017,2020 and 2019, the Company recognized stock-based compensation expense forof approximately $12.7 million and $6.0 million, respectively. For the DSU awardssix month periods ended June 30,2020 and 2019, the Company recognized stock-based compensation expense of $2.0approximately $16.2 million and $96.8$13.6 million respectively,, respectively. These costs are included in “Other operating expense, net”“Cost of sales” and “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations. A liability

As of $5.4June 30, 2020, there was $64.5 million is included in “Accrued liabilities”of total unrecognized compensation expense related to outstanding stock options, restricted stock unit awards and performance stock unit awards.

The Company’s stock-based compensation awards are typically granted in the Condensed Consolidated Balance Sheets asfirst quarter of Septemberthe year and primarily consist of stock options, restricted stock units and, commencing in 2020, performance share units.

Stock Option Awards

Stock options are granted to employees with an exercise price equal to the fair value of the Company’s per share common stock on the date of grant.  Stock option awards typically vest over four or five years and expire ten years from the date of grant.

A summary of the Company’s stock option (including SARs) activity for the six month period ended June 30, 2017.2020 is presented in the following table (underlying shares in thousands).


 Shares  
Weighted-Average
Exercise Price
(per share)
 
Stock options outstanding as of December 31, 2019  8,028  $14.14 
Converted Ingersoll Rand Industrial stock options  985   24.72 
Granted  1,460   24.77 
Exercised or settled  (715)  9.80 
Forfeited  (121)  27.30 
Expired  (9)  30.51 
Stock options outstanding as of June 30, 2020  9,628   16.97 
Vested as of June 30, 2020  6,054   11.73 

The following assumptions were used to estimate the fair value of DSUs atoptions granted (excluding previously disclosed modified awards) during the time of grantsix month periods ended June 30, 2020 and 2019 using the Finnerty discount for lackBlack-Scholes option-pricing model.

 
For the six month period ended
June 30,
 
Assumptions 2020  2019 
Expected life of options (in years)  6.3   6.3 
Risk-free interest rate  0.4% - 1.5%  2.4% - 2.6%
Assumed volatility  24.6% - 41.1%  30.7% - 31.8%
Expected dividend rate  0.0%  0.0%

Restricted Stock Unit Awards

Restricted stock units are granted to employees and non-employee directors based on the market price of marketability pricing model:
Nine Months
Ended
September 30,
2017
Assumptions:
Average length of holding period restrictions (years)1.42
Assumed volatility5.15%

2017 Omnibus Incentive Plan

In May 2017, the Company’s Board approvedcommon stock on the 2017 Omnibus Incentive Plan (“2017 Plan”). Undergrant date and recognized in compensation expense over the termsvesting period. A summary of the Plan,Company’s restricted stock unit activity for the Company’s Board may grant up to 8.6 million stock based and other incentive awards. Anysix month period ended June 30, 2020 is presented in the following table (underlying shares of common stock subject to outstanding awards granted under our 2013 Stock Incentive Plan that, after the effective date of the 2017 Plan, expire or are otherwise forfeited or terminated in accordance with their terms are also available for grant under the 2017 Plan.  As of September 30, 2017, no awards have been granted from the 2017 Plan.thousands).

 Shares  
Weighted-Average
Grant-Date
Fair Value
 
Non-vested as of December 31, 2019  719  $29.31 
Converted Ingersoll Rand Industrial restricted stock units  305   33.06 
Granted  715   25.39 
Vested  (224)  29.41 
Forfeited  (43)  28.12 
Non-vested as of June 30, 2020  1,472   28.20 
22
26

Performance Share Unit Awards

Performance share units are granted to employees and are subject to a three year performance period.  The number of shares issued at the end of the performance period is determined by the Company’s total shareholder return percentile rank versus the S&P 500 index for the three year performance period.  The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a three year period.  The Monte Carlo simulation pricing model for the fiscal year 2020 grants utilized the following assumptions: (i) expected term of 2.82 years (equal to the remaining performance measurement period at the grant date), (ii) volatility of 35.2%, (iii) risk-free interest rate of 0.52% and (iv) expected dividend rate of 0.0%.  Compensation expense is recognized based on the grant date fair value.

A summary of the Company’s performance stock unit activity for the six month period ended June 30, 2020 is presented in the following table (underlying shares in thousands).

 Shares  
Weighted-Average
Grant-Date
Fair Value
 
Non-vested as of December 31, 2019  —  $— 
Granted  302   29.72 
Forfeited  (30)  29.72 
Non-vested as of June 30, 2020  272   29.72 

Note 10. Accumulated Other Comprehensive (Loss) Income


The Company’s other comprehensive income (loss) consists of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations; (ii) realized and unrealized foreign currency gains and losses on intercompany notes of a long-term nature and certain hedges of net investments in foreign operations, net of income taxes; (iii) unrealized gains and losses on cash flow hedges (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 7 “Benefit Plans” and Note 11 “Hedging Activities and Fair Value Measurements.”

The before tax income (loss), and related income tax effect and accumulated balances are as follows:follows.


  
For the Three Months Ended
September 30, 2017
  
For the Nine Months Ended
September 30, 2017
 
  
Before-Tax
Amount
  
Tax
Benefit
or (Expense)
  
Net of Tax
Amount
  
Before-Tax
Amount
  
Tax
Benefit
or (Expense)
  
Net of Tax
Amount
 
                  
Foreign currency translation adjustments, net $41.5  $-  $41.5  $131.4  $-  $131.4 
Foreign currency (losses) gains, net  (23.5)  8.7   (14.8)  (71.2)  26.9   (44.3)
Unrecognized (losses) gains on cash flow hedges, net  5.5   (1.5)  4.0   8.9   (3.4)  5.5 
Pension and other postretirement benefit prior service cost and gain or loss, net  (1.1)  0.5   (0.6)  (3.4)  1.5   (1.9)
Other comprehensive income $22.4  $7.7  $30.1  $65.7  $25.0  $90.7 
 
For the Three Month Period Ended
June 30, 2020
  
For the Six Month Period Ended
June 30, 2020
 
  
Before-Tax
Amount
  
Tax
Benefit
or (Expense)
  
Net of Tax
Amount
  
Before-Tax
Amount
  
Tax
Benefit
or (Expense)
  
Net of Tax
Amount
 
Foreign currency translation adjustments, net $41.9  $3.0  $44.9  $(47.7) $0.4  $(47.3)
Unrecognized gains on cash flow hedges, net  7.3   (1.8)  5.5   8.8   (2.1)  6.7 
Pension and other postretirement benefit prior service cost and gain or loss, net  0.4   0.1   0.5   3.9   (0.5)  3.4 
Other comprehensive income (loss) $49.6  $1.3  $50.9  $(35.0) $(2.2) $(37.2)


 
For the Three Months Ended
September 30, 2016
  
For the Nine Months Ended
September 30, 2016
 
 
Before-Tax
Amount
  
Tax
(Expense)
or Benefit
  
Net of Tax
Amount
  
Before-Tax
Amount
  
Tax
(Expense)
or Benefit
  
Net of Tax
Amount
 
 
For the Three Month Period Ended
June 30, 2019
  
For the Six Month Period Ended
June 30, 2019
 
                  
Before-Tax
Amount
  
Tax
(Expense)
or Benefit
  
Net of Tax
Amount
  
Before-Tax
Amount
  
Tax
(Expense) or
Benefit
  
Net of Tax
Amount
 
Foreign currency translation adjustments, net $(29.4) $-   (29.4) $12.8  $-  $12.8  $(8.6) $2.2  $(6.4) $(4.1) $(2.4) $(6.5)
Foreign currency gains (losses), net  11.2   (3.1)  8.1   (18.2)  7.4   (10.8)
Unrecognized gains (losses) on cash flow hedges, net  (4.5)  1.7   (2.8)  (21.7)  8.2   (13.5)  (0.7)  0.2   (0.5)  0.6   0.8   1.4 
Pension and other postretirement benefit prior service cost and gain or loss, net  6.2   (1.0)  5.2   7.5   (1.2)  6.3   1.3   (0.1)  1.2   1.5   (0.1)  1.4 
Other comprehensive income (loss) $(16.5) $(2.4) $(18.9) $(19.6) $14.4  $(5.2)
Other comprehensive loss $(8.0) $2.3  $(5.7) $(2.0) $(1.7) $(3.7)

The tables above include only the other comprehensive (loss) income, net of tax, attributable to Ingersoll Rand Inc. Other comprehensive (loss) income, net, attributable to noncontrolling interest holders was $(0.4) million and $(4.4) million for the three and six months ended June 30,2020, respectively, and related entirely to foreign currency translation adjustments.

On January 1, 2019, the Company adopted ASU 2018-02 which reclassified stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive (loss) income to retained (deficit) earnings.  The Company recorded a cumulative-effect adjustment which increased “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheet by $8.2 million.
23
27

Changes in accumulated other comprehensive (loss) income by component for the ninesix month periods ended September June 30, 20172020 and 20162019 are presented in the following tables table (1):.


  
Cumulative
Currency
Translation
Adjustment
  
Foreign
Currency
Gains and
(Losses)
  
Unrealized
(Losses) Gains
on Cash Flow
Hedges
  
Pension and
Postretirement
Benefit Plans
  Total 
                
Balance at December 31, 2016 $(324.2) $88.6  $(42.2) $(64.6) $(342.4)
Other comprehensive income (loss) before reclassifications  131.4   (44.3)  (3.1)  (4.2)  79.8 
Amounts reclassified from accumulated other comprehensive (loss) income  -   -   8.6   2.3   10.9 
Net current-period other comprehensive income (loss)  131.4   (44.3)  5.5   (1.9)  90.7 
Balance at September 30, 2017 $(192.8) $44.3  $(36.7) $(66.5) $(251.7)
 
Foreign
Currency
Translation
Adjustments, Net
  
Unrealized
(Losses) Gains
on Cash Flow
Hedges
  
Pension and
Postretirement
Benefit Plans
  Total 
Balance as of December 31, 2019 $(193.6) $(10.9) $(51.5) $(256.0)
Other comprehensive (loss) income before reclassifications  (47.3)  (3.2)  2.3   (48.2)
Amounts reclassified from accumulated other comprehensive (loss) income  —   9.9   1.1   11.0 
Other comprehensive (loss) income  (47.3)  6.7   3.4   (37.2)
Balance as of June 30, 2020 $(240.9) $(4.2) $(48.1) $(293.2)


  
Cumulative
Currency
Translation
Adjustment
  
Foreign
Currency
Gains and
(Losses)
  
Unrealized
(Losses) Gains
on Cash Flow
Hedges
  
Pension and
Postretirement
Benefit Plans
  Total 
                
Balance at December 31, 2015 $(248.0) $75.0  $(41.3) $(51.3) $(265.6)
Other comprehensive income (loss) before reclassifications  12.8   (10.8)  (18.5)  4.8   (11.7)
Amounts reclassified from accumulated other comprehensive (loss) income  -   -   5.0   1.5   6.5 
Net current-period other comprehensive income (loss)  12.8   (10.8)  (13.5)  6.3   (5.2)
Balance at September 30, 2016 $(235.2) $64.2  $(54.8) $(45.0) $(270.8)
 
Foreign
Currency
Translation
Adjustments, Net
  
Unrealized
(Losses) Gains
on Cash Flow
Hedges
  
Pension and
Postretirement
Benefit Plans
  Total 
Balance as of December 31, 2018 $(190.6) $(11.4) $(45.0) $(247.0)
Other comprehensive (loss) income before reclassifications  (6.5)  (4.4)  0.5   (10.4)
Amounts reclassified from accumulated other comprehensive (loss) income  —   5.8   0.9   6.7 
Other comprehensive (loss) income  (6.5)  1.4   1.4   (3.7)
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2018-02)  (1.5)  (6.7)  —   (8.2)
Balance as of June 30, 2019 $(198.6) $(16.7) $(43.6) $(258.9)


(1)All amounts are net of tax. Amounts in parentheses indicate debits.


Reclassifications out of accumulated other comprehensive (loss) income for the ninesix month periods ended SeptemberJune 30, 20172020 and 20162019 are presented in the following table:table.


Amount Reclassified from Accumulated Other Comprehensive (Loss) IncomeAmount Reclassified from Accumulated Other Comprehensive (Loss) Income Amount Reclassified from Accumulated Other Comprehensive (Loss) Income 
Details about Accumulated
Other Comprehensive
(Loss) Income Components
 
For the
Nine Months
Ended
September 30,
2017
  
For the
Nine Months
Ended
September 30,
2016
  
Affected Line in the
Statement Where Net
Income is Presented
  
For the six month period ended
June 30,
  
Affected Line in the
Statement Where Net
Income is Presented
 
 2020  2019    
         
Loss on cash flow hedges          $13.2  $7.6  Interest expense 
Interest rate swaps $13.9  $8.1  Interest expense   (3.3)  (1.8) Benefit for income taxes 
  13.9   8.1  Total before tax 
  (5.3)  (3.1) Provision (benefit) for income taxes  $9.9  $5.8  Net of tax 
 $8.6  $5.0  Net of tax            
Amortization of defined benefit pension and other postretirement benefit items $3.7  $2.4  
(1) 
 $1.5  $1.2
(1) 
  (1)
  3.7   2.4  Total before tax   (0.4)  (0.3) Benefit for income taxes 
  (1.4)  (0.9) Provision (benefit) for income taxes  $1.1  $0.9  Net of tax 
 $2.3  $1.5  Net of tax 
Total reclassifications for the period $10.9  $6.5  Net of tax  $11.0  $6.7  Net of tax 

(1)These components are included in the computation of net periodic benefit cost.  See Note 7 “Pension and Other Postretirement Benefits”“Benefit Plans” for additional details.


Note 11. Hedging Activities and Fair Value Measurements


Hedging Activities


The Company is exposed to certain market risks during the normal course of its business arising from adverse changes in interest rates and foreign currency exchange rates. The Company selectively uses derivative financial instruments (“derivatives”(‘‘derivatives’’), including foreign currency forward contracts and interest rate swaps, to manage the risks from fluctuations in foreign currency exchange rates and interest rates, respectively. The Company does not purchase or hold derivatives for trading or speculative purposes. Fluctuations in interest rates and foreign currency exchange rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.


The Company’s exposure to interest rate risk results primarily from its variable-rate borrowings. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by maintaining 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.

28


A substantial portion of the Company’s operations is conducted by its subsidiaries outside of the United States in currencies other than the USD. Almost all of the Company’s non-U.S. subsidiaries conduct their business primarily in their local currencies, which are also their functional currencies. Other than the USD, the EUR, GBP, and Chinese YuanRenminbi are the principal currencies in which the Company and its subsidiaries enter into transactions. The Company is exposed to the impacts of changes in foreign currency exchange rates on the translation of its non-U.S. subsidiaries’ assets, liabilities and earnings into USD. The Company has certain U.S. subsidiaries borrow in currencies other than the USD.


The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency. To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances monthly. The Company also selectively uses forward currency contracts to manage this risk. These contracts for the sale or purchase of European and other currencies generally mature within one year.
Derivative Instruments


The following table summarizes the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the Condensed Consolidated Balance Sheets at September as of June 30, 20172020 and December 31, 2016:2019.


 September 30, 2017 June 30, 2020 
Derivative
Classification
Derivative
Classification
 
Notional
Amount (1)
  
Fair Value (1)
Other Current
Assets
  
Fair Value (1)
Other Assets
  
Fair Value (1)
Accrued
Liabilities
  
Fair Value (1)
Other
Liabilities
 
 
Derivative
Classification
 
Notional
Amount (1)
  
Fair Value (1)
Other Current
Assets
  
Fair Value (1)
Other Assets
  
Fair Value (1)
Accrued
Liabilities
  
Fair Value (1)
Other
Liabilities
                 
Derivatives Designated as Hedging Instruments                                 
Interest rate swap contracts Cash Flow $1,125.0  $-  $-  $8.0  $49.7 Cash Flow $725.0  $—  $—  $4.5  $— 
Derivatives Not Designated as Hedging Instruments                                           
Foreign currency forwards Fair Value $97.4  $0.8  $-  $-  $- Fair Value  144.4   0.4   —   —   — 
     
 December 31, 2016 
 
Derivative
Classification
 
Notional
Amount (1)
  
Fair Value (1)
Other Current
Assets
  
Fair Value (1)
Other Assets
  
Fair Value (1)
Accrued
Liabilities
  
Fair Value (1)
Other
Liabilities
 
Derivatives Designated as Hedging Instruments                      
Cross currency interest rate swap contracts Net Investment $200.0  $-  $26.8  $-  $- 
Interest rate swap contracts Cash Flow $1,125.0  $-  $-  $16.3  $47.2 
Derivatives Not Designated as Hedging Instruments                      
Foreign currency forwards Fair Value $79.0  $0.9  $-  $-  $- Fair Value  139.4   —   —   0.1   — 
Foreign currency forwards Fair Value $42.8  $-  $-  $0.2  $- 


December 31, 2019 
Derivative
Classification
 
Notional
Amount (1)
  
Fair Value (1)
Other Current
Assets
  
Fair Value (1)
Other Assets
  
Fair Value (1)
Accrued
Liabilities
  
Fair Value (1)
Other
Liabilities
 
                 
Derivatives Designated as Hedging Instruments                
Interest rate swap contractsCash Flow $825.0  $—  $—  $13.1  $— 
Derivatives Not Designated as Hedging Instruments                     
Foreign currency forwardsFair Value  55.2   0.5   —   —   — 
Foreign currency forwardsFair Value  106.9   —   —   0.5   — 

(1)Notional amounts represent the gross contract amounts of the outstanding derivatives excluding the total notional amount of positions that have been effectively closed through offsetting positions.  The net gains and net losses associated with positions that have been effectively closed through offsetting positions but not yet settled are included in the asset and liability derivatives fair value columns, respectively.


Gains and lossesLosses on derivatives designated as cash flow hedges included in the Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and ninesix month periods ended SeptemberJune 30, 20172020 and 2016,2019 are as presented in the table below:below.


 
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
  
For the Three
Month Period
Ended
June 30,
  
For the Six
Month Period
Ended
June 30,
 
 2017  2016  2017  2016  2020  2019  2020  2019 
Interest rate swap contracts (1)
                        
Gain (loss) recognized in AOCI on derivatives (effective portion) $1.4  $0.3  $(4.9) $(29.8)
Loss recognized in AOCI on derivatives $(0.6) $(4.6) $(4.3) $(7.0)
Loss reclassified from AOCI into income (effective portion)(1)  (4.1)  (1.7)  (13.9)  (8.1)  (7.9)  (3.9)  (13.2)  (7.6)
(Loss) gain recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)  (2.1)  (0.6)  (2.1)  0.2 

(1)Losses on derivatives reclassified from accumulated other comprehensive income (“AOCI”) into income (effective portion) were included in “Interest expense” in the Condensed Consolidated Statements of Operations.  Ineffective portions of changes in the fair value of cash flow hedges were recognized in earnings and included inwithin “Interest expense” in the Condensed Consolidated Statements of Operations.
2629
At September

As of June 30, 2017,2020, the Company is the fixed rate payor on 154 interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $1,125.0$725.0 million of the Company’s LIBOR-based variable rate borrowings.  These contracts carry fixed rates ranging from 2.9%3.6% to 4.4%4.3% and have expiration dates ranging from 2017 to 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 September June 30, 2017,2020, the Company expects to reclassify losses of $19.6$5.3 million out of AOCI into earnings during the next 12 months.  The Company’s LIBOR-based variable rate borrowings outstanding at September as of June 30, 20172020 were $1,285.5$3,211.2 million and €615.0 million.€598.9 million.


The Company had four9 foreign currency forward contracts outstanding as of September June 30, 20172020 with notional amounts ranging from $2.8$75.1 million to $45.8 million.$5.2 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 Condensed Consolidated Statements of Operations.  The Company’s foreign currency forward contracts are subject to master netting arrangements or agreements between the Company and each counterparty for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract with that certain counterparty.  It is the Company’s practice to recognize the gross amounts in the Condensed Consolidated Balance Sheets.  The amount available to be netted is not material.


The Company’s gains (losses) gains on derivative instruments not designated as accounting hedges and total net foreign currency (losses) gainslosses for the three and ninesix month periods ended September June 30, 20172020 and 20162019 were as follows:follows.


  
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
 
  2017  2016  2017  2016 
Foreign currency forward contracts (losses) gains $(1.8) $1.8  $(6.7) $14.0 
Total net foreign currency (losses) gains  (1.7)  (0.5)  (6.3)  2.6 
 
For the Three
Month Period
Ended
June 30,
  
For the Six
Month Period
Ended
June 30,
 
  2020  2019  2020  2019 
Foreign currency forward contracts gains (losses) $0.5  $(2.2) $(2.1) $(3.8)
Total foreign currency transaction losses, net  (5.2)  (0.6)  (7.8)  (3.7)

The Company has a significant investment in consolidated subsidiaries with functional currencies other than the USD, particularly the EUR.  TheOn August 17,2017, the Company designated its €615.0 millionOriginal Euro Term Loan of approximately €387.0 million as of December 31, 2016 as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies.  The Original Euro Term Loan remained designated as a net investment hedge during 2017 until it was extinguished and replaced on August 17, 2017 by the €615.0 million Euro Term Loan, further described in Note 8 “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.currencies until it was extinguished and replaced on February 28,2020 by a €601.2 million Euro Term Loan, further described in Note 8 “Debt”.  As of June 30,2020, the Euro Term Loan of €598.9 million remained designated.


In December 2014, the Company entered into two cross currency interest rate swaps each with a USD notional amount of $100 million to further hedge the risk of changes in the USD equivalent value of its net investment in EUR functional currency subsidiaries. The cross currency interest rate swaps were designated as hedges for the three and nine month periods ended September 30, 2016 and for the period from January 1, 2017 until August 16, 2017 when they were terminated for proceeds of $6.2 million.  The proceeds from the termination of the cross currency interest rate swaps are included in the “Proceeds from the termination of derivatives” line in the Condensed Consolidated Statements of Cash Flows.  The recorded AOCI at the termination of the cross currency interest rate swaps will remain in AOCI until there is a substantial liquidation of the Company’s net investment in subsidiaries with EUR functional currencies.

The losses and gains from the change in fair value related to the effective portions of the net investment hedges were recorded through other comprehensive income.
The Company’s (loss) gains, and (losses), net of income tax, associated with changes in the value of debt and designated cross currency interest rate swaps for the three month and nine month periods ended September June 30, 20172020 and 2016, and the2019 were as follows.

 
For the Three
Month Period
Ended
June 30,
  
For the Six
Month Period
Ended
June 30,
 
  2020  2019  2020  2019 
(Loss) gain, net of income tax, recorded through other comprehensive income $(9.1) $(7.0) $0.9  $4.7 

The net balance of such (losses) gains and (losses) included in accumulated other comprehensive (loss) income foras of June 30,2020 and 2019 was $74.9 million and $61.3 million, respectively.

For the same periods were as follows:

  
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
 
  2017  2016  2017  2016 
(Loss) gain, net of income tax, recorded through other comprehensive income $(13.6) $(5.1) $(43.2) $(11.6)
Balance included in accumulated other comprehensive (loss) income at September 30, 2017 and 2016, respectively         $39.2  $58.1 
With the exception of the cash proceeds from the termination of the cross currency interest rate swap contracts described earlier,presented, all cash flows associated with derivatives are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows.


Fair Value Measurements


A financial instrument is defined as cash or cash equivalents, evidence of an ownership interest in an entity, or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from another party. The Company’s financial instruments consist primarily of cash and cash equivalents, trade accounts receivables, trade accounts payables, deferred compensation assets and obligations, derivatives and debt instruments. The carrying values of cash and cash equivalents, trade accounts receivables, trade accounts payables, and variable rate debt instruments are a reasonable estimate of their respective fair values.


Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or more advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:follows.


Level 1Quoted prices (unadjusted) in active markets for identical assets or liabilities as of the reporting date.


Level 2
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.


Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
30


The following table summarizestables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September June 30, 2017:2020 and December 31, 2019.


 June 30, 2020 
 Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3  Total 
Financial Assets                        
Foreign currency forwards (1)
 $-  $0.8  $-  $0.8  $—  $0.4  $—  $0.4 
Trading securities held in deferred compensation plan (2)
  5.3   -   -   5.3   7.0   —   —   7.0 
Total $5.3  $0.8  $-  $6.1  $7.0  $0.4  $—  $7.4 
Financial Liabilities                                
Foreign currency forwards(1)
 $—  $0.1  $—  $0.1 
Deferred compensation plans(2)
  19.2   —   —   19.2 
Interest rate swaps (3)
 $-  $57.7  $-  $57.7   —   4.5   —   4.5 
Deferred compensation plan (2)
  5.3   -   -   5.3 
Total $5.3  $57.7  $-  $63.0  $19.2  $4.6  $—  $23.8 

  December 31, 2019 
  Level 1  Level 2  Level 3  Total 
Financial Assets            
Foreign currency forwards(1)
 $—  $0.5  $—  $0.5 
Trading securities held in deferred compensation plan(2)
  7.3   —   —   7.3 
Total $7.3  $0.5  $—  $7.8 
Financial Liabilities                
Foreign currency forwards(1)
 $—  $0.5  $—  $0.5 
Deferred compensation plan(2)
  7.3   —   —   7.3 
Interest rate swaps(3)
  —   13.1   —   13.1 
Total $7.3  $13.6  $—  $20.9 

(1)Based on calculations that use readily observable market parameters asat their basis, such as spot and forward rates.

(2)Based on the quoted price of publicly traded mutual funds and other equity securities which are classified as trading securities and accounted for using the mark-to-market method.


(3)
Measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curves as of September June 30, 2017.2020.  The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.
Note 12. Revenue from Contracts with Customers

Overview

The Company recognizes revenue when the Company has satisfied its obligation and control is transferred to the customer. The amount of revenue recognized includes adjustments for any variable consideration, such as rebates, sales discounts, liquidated damages, etc., which are included in the transaction price, and allocated to each performance obligation. The variable consideration is estimated throughout the course of the contract using the Company’s best estimates.

The majority of the Company’s revenues are derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or services have been rendered.

The Company has certain long duration engineered to order (‘‘ETO’’) contracts that require highly engineered solutions designed to customer specific applications. For contracts where the contractual deliverables have no alternative use and the contract termination clauses provide for the recovery of cost plus a reasonable margin, revenue is recognized over time based on the Company’s progress in satisfying the contractual performance obligations, generally measured as the ratio of actual costs incurred to date to the estimated total costs to complete the contract. For contracts with termination provisions that do not provide for recovery of cost and a reasonable margin, revenue is recognized at a point in time, generally at shipment or delivery to the customer. Identification of performance obligations, determination of alternative use, assessment of contractual language regarding termination provisions, and estimation of total project costs are all significant judgments required in the application of ASC 606.

Contractual specifications and requirements may be modified. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. In the event a contract modification is for goods or services that are not distinct in the contract, and therefore, form part of a single performance obligation that is partially satisfied as of the modification date, the effect of the contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognized on a cumulative catch-up basis.

Taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Sales commissions are due at either collection of payment from customers or recognition of revenue. Applying the practical expedient from ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in ‘‘Selling and administrative expenses’’ in the Condensed Consolidated Statements of Operations.
31


Disaggregation of Revenue

The following tables provide disaggregated revenue by reportable segment for the three month periods ended June 30,2020 and 2019.

 
For the Three Month Period Ended
June 30, 2020
 
  
Industrial
Technologies
and Services
  
Precision and
Science
Technologies
  
High Pressure
Solutions
  
Specialty
Vehicle
Technologies
  Total 
Primary Geographic Markets               
United States $289.8  $83.7  $17.3  $191.1  $581.9 
Other Americas  70.5   9.9   0.6   12.1   93.1 
Total Americas  360.3   93.6   17.9   203.2   675.0 
EMEAI  247.1   63.7   2.3   6.7   319.8 
Asia Pacific  222.2   38.5   1.3   7.6   269.6 
Total $829.6  $195.8  $21.5  $217.5  $1,264.4 
                     
Product Categories                    
Original equipment $502.0  $169.1  $3.5  $160.0  $834.6 
Aftermarket  327.6   26.7   18.0   57.5   429.8 
Total $829.6  $195.8  $21.5  $217.5  $1,264.4 
                     
Pattern of Revenue Recognition                    
Revenue recognized at point in time(1)
 $750.1  $195.8  $21.5  $212.0  $1,179.4 
Revenue recognized over time(2)
  79.5   —   —   5.5   85.0 
Total $829.6  $195.8  $21.5  $217.5  $1,264.4 

 
For the Three Month Period Ended
June 30, 2019
 
  
Industrial
Technologies
and Services
  
Precision and
Science
Technologies
  
High Pressure
Solutions
  
Specialty
Vehicle
Technologies
  Total 
Primary Geographic Markets               
United States $129.1  $39.1  $105.8  $—  $274.0 
Other Americas  35.4   1.5   9.2   —   46.1 
Total Americas  164.5   40.6   115.0   —   320.1 
EMEAI  178.9   27.8   2.6   —   209.3 
Asia Pacific  84.2   13.6   1.9   —   99.7 
Total $427.6  $82.0  $119.5  $—  $629.1 
                     
Product Categories                    
Original equipment $289.7  $79.9  $24.4  $—  $394.0 
Aftermarket  137.9   2.1   95.1   —   235.1 
Total $427.6  $82.0  $119.5  $—  $629.1 
                     
Pattern of Revenue Recognition                    
Revenue recognized at point in time(1)
 $396.2  $82.0  $119.5  $—  $597.7 
Revenue recognized over time(2)
  31.4   —   —   —   31.4 
Total $427.6  $82.0  $119.5  $—  $629.1 

(1)Revenues from short and long duration product and service contracts recognized at a point in time when control is transferred to the customer generally when products delivery has occurred and services have been rendered.

(2)Revenues primarily from long duration ETO product contracts and certain contracts for delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed.
32


The following tables provide disaggregated revenue by reportable segment for the six month periods ended June 30,2020 and 2019.

 
For the Six Month Period Ended
June 30, 2020
 
  
Industrial
Technologies
and Services
  
Precision
and Science
Technologies
  
High Pressure
Solutions
  
Specialty
Vehicle
Technologies
  Total 
Primary Geographic Markets               
United States $466.9  $133.0  $98.0  $264.8  $962.7 
Other Americas  115.8   14.8   10.8   16.8   158.2 
Total Americas  582.7   147.8   108.8   281.6   1,120.9 
EMEAI  447.7   104.6   6.4   12.2   570.9 
Asia Pacific  303.2   56.2   2.6   10.5   372.5 
Total $1,333.6  $308.6  $117.8  $304.3  $2,064.3 
                     
Product Categories                    
Original equipment $805.2  $268.1  $16.0  $232.7  $1,322.0 
Aftermarket  528.4   40.5   101.8   71.6   742.3 
Total $1,333.6  $308.6  $117.8  $304.3  $2,064.3 
                     
Pattern of Revenue Recognition                    
Revenue recognized at point in time(1)
 $1,209.6  $308.6  $117.8  $297.3  $1,933.3 
Revenue recognized over time(2)
  124.0   —   —   7.0   131.0 
Total $1,333.6  $308.6  $117.8  $304.3  $2,064.3 

 
For the Six Month Period Ended
June 30, 2019
 
  
Industrial
Technologies
and Services
  
Precision
and Science
Technologies
  
High Pressure
Solutions
  
Specialty
Vehicle
Technologies
  Total 
Primary Geographic Markets               
United States $245.6  $76.9  $220.7  $—  $543.2 
Other Americas  65.0   2.2   22.9   —   90.1 
Total Americas  310.6   79.1   243.6   —   633.3 
EMEAI  369.9   56.0   7.7   —   433.6 
Asia Pacific  152.2   26.2   4.1   —   182.5 
Total $832.7  $161.3  $255.4  $—  $1,249.4 
                     
Product Categories                    
Original equipment $563.5  $156.5  $49.3  $—  $769.3 
Aftermarket  269.2   4.8   206.1   —   480.1 
Total $832.7  $161.3  $255.4  $—  $1,249.4 
                     
Pattern of Revenue Recognition                    
Revenue recognized at point in time(1)
 $773.8  $161.3  $255.4  $—  $1,190.5 
Revenue recognized over time(2)
  58.9   —   —   —   58.9 
Total $832.7  $161.3  $255.4  $—  $1,249.4 

(1)Revenues from short and long duration product and service contracts recognized at a point in time when control is transferred to the customer generally when products delivery has occurred and services have been rendered.

(2)Revenues primarily from long duration ETO product contracts and certain contracts for delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed.
33


Performance Obligations

The majority of the Company’s contracts have a single performance obligation as the promise to transfer goods and/or services.  For contracts with multiple performance obligations, the Company utilizes observable prices to determine standalone selling price or cost plus margin if a standalone price is not available. The Company has elected to account for shipping and handling activities as fulfillment costs and not a separate performance obligation.  If control transfers and related revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued.

The Company’s primary performance obligations include delivering standard or configured to order (“CTO”) goods to customers, designing and manufacturing a broad range of equipment customized to a customer’s specifications in ETO arrangements, rendering of services (maintenance and repair contracts), and certain extended or service type warranties.  For incidental items that are immaterial in the context of the contract, costs are expensed as incurred or accrued at delivery.

As of June 30,2020, 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 $378.3 million in the next twelve months and $277.8 million in periods thereafter. The performance obligations that are unsatisfied (or partially satisfied) are primarily related to orders for goods or services that were placed prior to the end of the reporting period and have not been delivered to the customer, on-going work on ETO contracts where revenue is recognized over time and service contracts with an original duration greater than one year.

Contract Balances

The following table provides the contract balances as of June 30,2020 and December 31,2019 presented in the Condensed Consolidated Balance Sheets.

 
June 30,
2020
  
December 31,
2019
 
Accounts receivable $922.2  $459.1 
Contract assets  53.2   29.0 
Contract liabilities  163.4   51.7 

Accounts receivable – Amounts due where the Company’s right to receive cash is unconditional. As of June 30,2020, approximately $575.6 million of the increase in accounts receivable related to the acquisition of Ingersoll Rand Industrial. In the three month period ended June 30,2020, the Company increased its allowance for doubtful accounts by $12.5 million in response to a filing for Chapter 11 bankruptcy protection of a customer in the High Pressure Solutions segment.

Contract assets – The Company’s rights to consideration for the satisfaction of performance obligations subject to constraints apart from timing. Contract assets are transferred to receivables when the right to collect consideration becomes unconditional. Contract assets are presented net of progress billings and related advances from customers.  As of June 30,2020, approximately $17.5 million increase in contract assets related to the acquisition of Ingersoll Rand Industrial.

Contract liabilities – Advance payments received from customers for contracts for which revenue is not yet recognized. Contract liability balances are generally recognized in revenue within twelve months.  As of June 30,2020, approximately $106.8 million increase in contract liabilities receivable related to the acquisition of Ingersoll Rand Industrial.

Contract assets and liabilities are reported in the Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period.  Contract assets and liabilities are presented net on a contract level, where required.

Payments from customers are generally due 30-60 days after invoicing. Invoicing for sales of standard products generally coincides with shipment or delivery of goods. Invoicing for CTO and ETO contracts typically follows a schedule for billing at contractual milestones. Payment milestones normally include down payments upon the contract signing, completion of product design, completion of customer’s preliminary inspection, shipment or delivery, completion of installation, and customer’s on-site inspection. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Condensed Consolidated Balance Sheets.
34


The Company has elected the practical expedient from ASC 606-10-32-18 and does not adjust the transaction price for the effects of a financing component if, at contract inception, the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Note 13. Income Taxes


The following table summarizes the Company’s provision (benefit) for income taxes and effective income tax provision rate for the three and ninesix month periods ended September June 30, 20172020 and 2016:2019.

  
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
 
  2017  2016  2017  2016 
             
Income (loss) before income taxes $32.4  $(22.1) $(166.3) $(60.3)
Provision (benefit) for income taxes $4.4  $(9.1) $(41.2) $(33.3)
Effective income tax rate  13.6%  41.3%  24.8%  55.2%
 
For the Three
Month Period
Ended
June 30,
  
For the Six
Month Period
Ended
June 30,
 
  2020  2019  2020  2019 
(Loss) income before income taxes $(80.7) $53.2  $(176.4) $112.4 
Provision for income taxes $95.8  $8.3  $37.0  $20.3 
Effective income tax provision rate  (118.7%)  15.6%  (21.0%)  18.1%


For the three month period ended September 30, 2017 when compared to the same three month period of 2016, theThe increase in the provision for income taxes is primarily due to the increase in the pre-tax income.  Theand decrease in the effective income tax provision rate is due tofor the decrease in the U.S. loss at a higher tax rate combined with an increase in foreign profits at a lower tax rate.

For the ninethree month period ended September June 30, 20172020 when compared to the same ninethree month period of 2016,2019 is primarily due to a reduction in the decreasepre-tax book income in jurisdictions with lower effective tax rates combined with significant earnings in jurisdictions with higher tax rates. The reduction in pre-tax book income is mainly from the COVID-19 global pandemic, transaction costs associated with the acquisition, and amortization and depreciation expenses associated with the purchase price step up adjustments.

The increase in the provision for income taxes is due to the increase of the pre-tax loss.  The significant increase in the loss in the U.S. was caused by one-time expenses associated with the Company’s initial public offering.  This included offering-related expenses, early termination fees related to the pay down of debt, and stock-based compensation expense.  The decrease in the effective income tax provision rate for the six month period ended June 30,2020 when compared to the same six month period of 2019 is primarily due to thesea reduction in the pre-tax book income in jurisdictions with lower effective tax rates combined with significant earnings in jurisdictions with higher tax rates. The reduction in pre-tax book income is mainly from the COVID-19 global pandemic, transaction costs associated with the acquisition, and amortization and depreciation expenses being benefited at a lower tax rate.associated with the purchase price step up adjustments.


Note 13.14. Supplemental Information


The components of “Other operating expense, net” for the three month and ninesix month periods ended SeptemberJune 30, 20172020 and 2016 are2019 were as follows:follows.


 
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
 
 2017  2016  2017  2016  
For the Three Month
Period Ended
June 30,
  
For the Six Month
Period Ended
June 30,
 
             2020  2019  2020  2019 
Other Operating Expense, Net                        
Foreign currency losses (gains), net $1.7  $0.5  $6.3  $(2.6)
Foreign currency transaction losses, net $5.2  $0.6  $7.8  $3.7 
Restructuring charges, net (1)
  2.8   3.0   4.9   15.4   30.6   0.8   72.2   2.8 
Environmental remediation expenses (2)
  -   -   0.9   - 
Stock-based compensation expense (3)
  9.8   -   166.0   - 
Shareholder litigation settlement recoveries (2)
  —   —   —   (6.0)
Acquisition related expenses and non-cash charges (3)
  13.0   17.1   68.0   18.7 
Other, net  3.1   8.9   8.6   13.3   1.1   (0.3)  2.6   0.8 
Total other operating expense, net $17.4  $12.4  $186.7  $26.1  $49.9  $18.2  $150.6  $20.0 


(1)See Note 3 “Restructuring.”


(2)Estimated environmental remediationRepresents an insurance recovery of the Company’s shareholder litigation settlement in 2014.

(3)Represents costs recorded on an undiscounted basis for a former production facility.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.

(3)Represents stock-based compensation expense recognized for stock options outstanding for the three months and nine months ended September 30, 2017 of $7.8 million and $69.2 million, respectively, and DSUs granted to employees at the date of the initial public offering for the three months and nine months ended September 30, 2017 of $2.0 million and $96.8 million, respectively.  See Note 9 “Stock-Based Compensation”.

29Note 15. Contingencies
Note 14. Contingencies

The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of its size and sector. The Company believes that such proceedings, lawsuits and administrative actions will not materially adversely affect its operations, financial condition, liquidity or competitive position. A more detailed discussionFor further description of certain of thesethe Company’s contingencies, reference is made to Note 20, “Contingencies” in the notes to consolidated financial statements in the Company’s 2019 Form 10-K.
35


The Company is still assessing any possible exposure to various legal proceedings, lawsuits and administrative actions, is set forth below.including future asbestos and silica-related lawsuits and environmental matters, assumed in the acquisition of Ingersoll Rand Industrial.


Asbestos and Silica Related Litigation

The Company has also been named as a defendant in a number of asbestos-related and silica-related personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources and typically the Company is one of approximately 25 or more named defendants.


Predecessors to the Company sometimes manufactured, distributed and/or sold products allegedly at issue in the pending asbestos and silica-related lawsuits (the “Products”). However, neither the Company nor its predecessors ever mined, manufactured, mixed, produced or distributed asbestos fiber or silica sand, the materials that allegedly caused the injury underlying the lawsuits. Moreover, the asbestos-containing components of the Products, if any, were enclosed within the subject Products.

Although the Company has never mined, manufactured, mixed, produced or distributed asbestos fiber or silica sand nor sold products that could result in a direct asbestos or silica exposure, many of the companies that did engage in such activities or produced such products are no longer in operation.  This has led to law firms seeking potential alternative companies to name in lawsuits where there has been an asbestos or silica related injury.

The Company believes that the pending and future asbestos and silica-related lawsuits are not likely to, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Company’s anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the Products described above; the Company’s experience that the vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products or for which the Company otherwise bears responsibility; various potential defenses available to the Company with respect to such matters; and the Company’s prior disposition of comparable matters. However, inherent uncertainties of litigation and future developments, including, without limitation, potential insolvencies of insurance companies or other defendants, an adverse determination in the Adams County Case (discussed below), or other inability to collect from the Company’s historical insurers or indemnitors, could cause a different outcome. While the outcome of legal proceedings is inherently uncertain, based on presently known facts, experience, and circumstances, the Company believes that the amounts accrued on its balance sheet are adequate and that the liabilities arising from the asbestos and silica-related personal injury lawsuits will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. “Accrued liabilities” and “Other liabilities” onof the Condensed Consolidated Balance SheetSheets include a total litigation reserve of $102.8$115.2 million and $108.5$118.1 million as of SeptemberJune 30, 20172020 and December 31, 20162019, 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.


The Company has entered into a series of agreements with certain of its or its predecessors’ legacy insurers and certain potential indemnitors to secure insurance coverage and/or reimbursement for the costs associated with the asbestos and silica-related lawsuits filed against the Company. The Company has also pursued litigation against certain insurers or indemnitors, where necessary.  The Company has an insurance recovery receivable for probable asbestos related recoveries of approximately $97.3 million and $97.3$122.4 million as of SeptemberJune 30, 20172020 and December 31, 20162019, respectively, which was included in “Other assets” onin the Condensed Consolidated Balance Sheets.

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, the Company seeks, among other things, to require certain excess insurer defendants to honor their insurance policy obligations to the Company, including payment in whole or in part of the costs associated with the asbestos-related lawsuits filed against the Company. In October 2011, the Company reached a settlement with one of the insurer defendants, which had issued both primary and excess policies, for approximately the amount of such defendant’s policies 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, the Company prevailed on the first phase of that discovery and motions process (“Phase I”).  Specifically, the Court in the Adams County Case ruled that the Company has rights under all of the policies in the case, subject to their terms and conditions, even though the policies were sold to the Company’s former owners rather than to the Company itself.  On June 9, 2016, the Court denied a motion by several of the insurers who sought permission to appeal the Phase I ruling now rather than waiting until the end of the whole case as is normally required. The case is now proceeding through the discovery process regarding the remaining issues in dispute (“Phase II”).
A majority of the Company’s expected future recoveries of the costs associated with the asbestos-related lawsuits are the subject of the Adams County Case.

The amounts recorded by the Company for asbestos-related liabilities and insurance recoveries are based on currently available information and assumptions that the Company believes are reasonable based on an evaluation of relevant factors. The actual liabilities or insurance recoveries could be higher or lower than those recorded if actual results vary significantly from the assumptions.  There are a number of key variables and assumptions including the number and type of new claims to be filed each year, the resolution or outcome of these claims, the average cost of resolution of each new claim, the amount of insurance available, allocation methodologies, the contractual terms with each insurer with whom the Company has reached settlements, the resolution of coverage issues with other excess insurance carriers with whom the Company has not yet achieved settlements, and the solvency risk with respect to the Company’s insurance carriers.  Other factors that may affect the future liability include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, legal rulings that may be made by state and federal courts, and the passage of state or federal legislation.  The Company makes the necessary adjustments for the asbestos liability and corresponding insurance recoveries on an annual basis unless facts or circumstances warrant assessment as of an interim date.


Environmental Matters


The Company has been identified as a potentially responsible party (“PRP”) with respect to several sites designated for cleanup under U.S. federal “Superfund” or similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. Persons potentially liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although these laws impose joint and several liability on PRPs, in application the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Based on currently available information, the Company was only a small contributor to these waste sites, and the Company has, or is attempting to negotiate, de minimis settlements for their cleanup. The cleanup of the remaining sites is substantially complete and the Company’s future obligations entail a share of the sites’ ongoing operating and maintenance expense. The Company is also addressing four on-site cleanups for which it is the primary responsible party. Three of these cleanup sites are in the operation and maintenance stage and one is in the implementation stage.

The Company has undiscounted accrued liabilities of $7.5$9.2 million and $7.6$6.6 million as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively, on its Condensed Consolidated Balance SheetSheets to the extent costs are known or can be reasonably estimated for its remaining financial obligations for thein relation to 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 15.16. Segment Results


Effective immediately upon the closing of the Ingersoll Rand Industrial acquisition, the Company operated with 4 reportable segments.  As a result of these changes, information that the Company’s chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed.  Therefore, for periods subsequent to February 29, 2020, the Company reports its financial performance based on its new segments.  The Company recasted certain prior period amounts to conform to the revised segment reporting structure.  A description of the Company’s three4 reportable segments, including the specific products manufactured and sold followsis presented below.


In the IndustrialsIndustrial Technologies and Services segment, the Company designs, manufactures, markets and services a broad range of air compression and vacuum equipment as well as fluid transfer equipment, loading systems, power tools and blower products across a wide array of technologies and applications. Almost every manufacturing and industrial facility, and many service and process industries, use airlifting equipment. The Company’s compression and vacuum products are used worldwide in a variety of applications such as operation of pneumatic air tools, vacuum packaging ofindustrial manufacturing, transportation, chemical processing, food products and aeration of waste water. The Company maintains a leading position in its marketsbeverage production, energy, environmental and serves customers globally. Theother applications.  In addition to equipment sales, the Company offers comprehensivea broad portfolio of service options tailored to customer needs and complete range of aftermarket parts, air treatment equipment, controls and an experienced direct and distributor-based service network world-wide to complement all of its products.

In the Energy segment, the Company designs, manufactures, markets and services a diverse range of positive displacement pumps, liquid ring vacuum pumps and compressors, and engineered loading systems and fluid transfer equipment, consumables, and associated aftermarket parts and services. It serves customers in the upstream, midstream, and downstream oil and gas markets, and various other markets including petrochemical processing, power generation, transportation, and general industrial.accessories.  The Company is one of the largest suppliers in these markets and has long-standing customer relationships. Its positive displacement pumps are used in the oilfield for drilling, hydraulic fracturing, completion and well servicing. Its liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, enhanced oil recovery, water extraction in mining and paper and chlorine compression in petrochemical operations.  ItsCompany’s engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials. The Company’s power tools and lifting equipment are used by customers in industrial manufacturing, vehicle maintenance, energy and other markets for precision fastening, bolt removal, grinding, sanding, drilling, demolition and the safe and efficient lifting, positioning and movement of loads.  The Company sells its products primarily through independent distributors worldwide and also sells directly to the customer.
31
In the MedicalPrecision and Science Technologies segment, the Company designs, manufactures and markets a broad range of highly specialized gas, liquidpositive displacement pumps, fluid management equipment and precision syringe pumps and compressors primarilyaftermarket parts for use in the medical, laboratory, industrial manufacturing, water and biotechnology endwastewater, chemical processing, energy, food and beverage, agriculture and other markets.  The Company’s customersproducts are mainly mediumused for a diverse set of applications including precision dosing of chemicals and large durable medicalsupplements, blood dialysis, oxygen therapy, food processing, fluid transfer and dispensing, spray finishing and coating, mixing, high-pressure air and gas management and others.  The Company sells primarily through a broad global network of specialized and national distributors and original equipment suppliers thatmanufacturers (“OEM”) who integrate the Company’s products into their final equipment for use in applications such as oxygen therapy, blood dialysis, patient monitoring, wound treatment,devices and others.  Further, withsystems.

In the recent acquisitions,High Pressure Solutions segment, the Company has expanded into liquid handling componentsdesigns, manufactures, markets and services a diverse range of positive displacement pumps, integrated systems and associated aftermarket parts, consumables and services.  The Company’s 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 biotechnologythe operation of our pumps and aftermarket parts, consumables and services.  The products we sell into upstream energy applications including clinical analysis instrumentation.are highly aftermarket-intensive and so we support these products in the field with one of the industry’s most comprehensive service networks.  The Company’s customers provide drilling, completions and well services to oil and gas operators, particularly in the major basins and plays in the North American land market.  The Company alsois one of the leading suppliers in these upstream energy applications and has long-standing customer relationships.

In the Specialty Vehicle Technologies segment, the Company designs, manufactures and markets Club Car ® golf, utility and consumer low-speed vehicles. The Company has a broad range of end use deep vacuumlong-standing track record as a leading premium manufacturer with strong brand recognition.  Its customers include golf course operators, resorts and hospitality sites, government agencies and municipalities, manufacturing and construction firms, sports and other arenas, colleges and universities and other commercial establishments, as well as individual consumers.  The Company sells its products for laboratory science applications.primarily through independent distributors in over 80 countries worldwide and also sells its products directly to consumers.

36


The Chief Operating Decision Maker (“CODM”) evaluates the performance of itsthe Company’s reportable segments based on, among other measures, Segment Adjusted EBITDA. Management closely monitors the Segment Adjusted EBITDA of each reportable segment to evaluate past performance and actions required to improve profitability. Inter-segment sales and transfers are not significant. Administrative expenses related to the Company’s corporate offices and shared service centers in the United States and Europe, which includes transaction processing, accounting and other business support functions, are allocated to the business segments. Certain administrative expenses, including senior management compensation, treasury, internal audit, tax compliance, certain information technology, and other corporate functions, are not allocated to the business segments.


The following table provides summarized information about the Company’s operations by reportable segment and reconciles Segment Adjusted EBITDA to (Loss) Income (Loss) Before Income Taxes for the three month and nine month periods ended SeptemberJune 30, 20172020 and 2016:2019.

  
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
 
  2017  
2016 (1)
  2017  
2016 (1)
 
             
Revenue            
Industrials $288.2  $265.6  $819.0  $803.6 
Energy  301.6   137.9   719.4   385.8 
Medical  59.8   59.1   172.0   172.2 
Total Revenue $649.6  $462.6  $1,710.4  $1,361.6 
Segment Adjusted EBITDA                
Industrials $63.1  $55.6  $173.7  $156.2 
Energy  98.6   22.0   199.2   70.2 
Medical  16.8   16.6   46.9   44.7 
Total Segment Adjusted EBITDA $178.5  $94.2  $419.8  $271.1 
Less items to reconcile Segment Adjusted EBITDA to                
Income (Loss) Before Income Taxes:                
Corporate expenses not allocated to segments $13.8  $5.2  $30.9  $18.8 
Interest expense  30.1   43.0   115.4   128.7 
Depreciation and amortization expense  43.5   42.9   126.9   126.9 
Impairment of goodwill and other intangible assets (a)  -   -   -   1.5 
Sponsor fees and expenses (b)  -   1.8   17.3   3.8 
Restructuring and related business transformation costs (c)  6.3   18.2   20.5   46.2 
Acquisition related expenses and non-cash charges (d)  1.2   1.9   3.1   3.6 
Environmental remediation loss reserve (e)  -   -   0.9   - 
Expenses related to initial stock offering (f)  0.5   -   3.6   - 
Establish public company financial reporting compliance (g)  3.8   0.1   7.2   0.1 
Stock-based compensation (h)  9.8   -   166.0   - 
Loss on extinguishment of debt (i)  34.1   -   84.5   - 
Other adjustments (j)  3.0   3.2   9.8   1.8 
Income (Loss) Before Income Taxes: $32.4  $(22.1) $(166.3) $(60.3)
  
For the Three Month
Period Ended
June 30,
  
For the Six Month
Period Ended
June 30,
 
 2020  
2019 (1)
  2020  
2019 (1)
 
Revenue            
Industrial Technologies and Services $829.6  $427.6  $1,333.6  $832.7 
Precision and Science Technologies  195.8   82.0   308.6   161.3 
High Pressure Solutions  21.5   119.5   117.8   255.4 
Specialty Vehicle Technologies  217.5   —   304.3   — 
Total Revenue $1,264.4  $629.1  $2,064.3  $1,249.4 
Segment Adjusted EBITDA                
Industrial Technologies and Services $183.8  $96.7  $278.6  $182.2 
Precision and Science Technologies  59.3   24.6   92.2   47.8 
High Pressure Solutions  (15.2)  32.1   8.3   73.9 
Specialty Vehicle Technologies  41.0   —   55.1   — 
Total Segment Adjusted EBITDA $268.9  $153.4  $434.2  $303.9 
Less items to reconcile Segment Adjusted EBITDA to (Loss)                
Income Before Income Taxes:                
Corporate expenses not allocated to segments $27.7  $7.1  $45.2  $18.6 
Interest expense  30.8   22.4   57.9   44.8 
Depreciation and amortization expense (a)
  143.0   44.4   214.1   89.9 
Restructuring and related business transformation costs (b)
  32.2   2.0   74.4   6.1 
Acquisition related expenses and non-cash charges (c)
  95.9   17.1   192.1   18.7 
Stock-based compensation (d)
  12.7   6.2   15.7   14.8 
Foreign currency transaction losses, net  5.2   0.6   7.8   3.7 
Loss on extinguishment of debt (e)
  —   0.2   2.0   0.2 
Shareholder litigation settlement recoveries (f)
  —   —   —   (6.0)
Other adjustments (g)
  2.1   0.2   1.4   0.7 
(Loss) Income Before Income Taxes $(80.7) $53.2  $(176.4) $112.4 


(1)In
For the fourth quarterthree month period ended March 31,2020, as a result of fiscal 2016,the acquisition of Ingersoll Rand Industrial, the Company modifiedchanged its measurement methodology for presenting reconciling items fromof Segment Adjusted EBITDA.  Segment Adjusted EBITDA and the reconciliation to (Loss) Income (Loss) Before Income Taxes.  The reconciling items for the three and nine month periods ended September 30, 2016 have been restatedTaxes was revised to conform to the methodology used infor the three month period ended March 31,2020.

a)Depreciation and amortization expense excludes $1.5 million and $2.7 million of depreciation of rental equipment for the three and ninesix month periods ended SeptemberJune 30, 2017, and included the following:2020.
3237

(a)Represents non-cash charges for impairment of goodwill and other intangible assets.

(b)Represents management fees and expenses paid to KKR, including a monitoring agreement termination fee of $16.2 million paid in the nine months ended September 30, 2017.

(c)b)Restructuring and related business transformation costs consist of the following:following.

 
For the Three Month
Period Ended
June 30,
  
For the Six Month
Period Ended
June 30,
 
  2020  2019  2020  2019 
Restructuring charges $30.6  $0.8  $72.2  $2.8 
Facility reorganization, relocation and other costs  0.1   0.5   0.5   1.1 
Other, net  1.5   0.7   1.7   2.2 
Total restructuring and related business transformation costs $32.2  $2.0  $74.4  $6.1 


  
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
 
  2017  2016  2017  2016 
             
Restructuring charges $2.8  $3.0  $4.9  $15.4 
Severance, sign-on, relocation and executive search costs  0.6   5.7   2.2   12.7 
Facility reorganization, relocation and other costs  1.0   2.9   3.9   6.5 
Information technology infrastructure transformation  0.8   0.6   3.4   1.0 
(Gains) losses on asset and business disposals  (0.6)  1.7   2.0   1.6 
Consultant and other advisor fees  0.5   3.2   1.7   6.9 
Other, net  1.2   1.1   2.4   2.1 
Total restructuring and related business transformation costs $6.3  $18.2  $20.5  $46.2 

(d)c)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)Represents estimated environmental remediation costs and losses relating to a former production facility.

(f)Represents expenses related to the Company’s initial stock offering.

(g)Represents third party expenses to comply with the requirements of Sarbanes-Oxley in 2018 and the accelerated adoption of the new revenue recognition standard (ASC 606 - Revenue from Contracts with Customers) in the first quarter of 2018, one year ahead of the required adoption date for a private company.  These expenses were previously included in ‘Expenses related to initial stock offering’ and prior periods have been restated to conform to current period presentation.

(h)d)Represents stock-based compensation expense recognized for stock options outstandingthe three month and six month periods ended June 30, 2020 of $12.7 million and $16.2 million, respectively, decreased by $0.5 million for the three months and nine monthssix month period ended SeptemberJune 30, 2017 of $7.8 million and $69.2 million, respectively, and DSUs granted2020 due to employees at the date of the initial public offering for the three months and nine months ended September 30, 2017 of $2.0 million and $96.8 million, respectively.  See Note 9 “Stock-Based Compensation”.costs associated with employer taxes.



Represents stock-based compensation expense recognized for the three month and six month periods ended June 30, 2019 of $6.0 million and $13.6 million, respectively, increased by $0.2 million and $1.2 million for the three month and six month periods ended June 30, 2019, respectively, due to costs associated with employer taxes.

(i)e)Represents losses on extinguishment of debt recognized on the redemption of the senior notes and pay down of a portion of the Original Dollar Term Loan Facility with proceeds fromU.S. term loan and the initial public offering in May 2017($50.4 million) and in connection with the refinancingamendment of the Original Dollar Term Loan Facility and Euro Term Loan Facility in August 2017 ($34.1 million).revolving credit facility.


(j)f)Represents an insurance recovery of the Company’ shareholder litigation settlement in 2014.

g)Includes (i) foreign exchange gains and losses, (ii) effects of amortization of prior service costs and amortization of gainslosses in pension and other postretirement benefits (OPEB)postemployment (“OPEB”) expense, (iii)(ii) certain legal and compliance costs and (iv)(iii) other miscellaneous adjustments.

Note 16.17. Related Party Transactions


Affiliates of KKR participated as (i) a lender in the Company’s Senior Secured Credit Facilities discussed in Note 8, “Debt,” (ii) an underwriter in the Company’s initial public offering, and (iii) a providerFacilities. As of services for the debt refinancing transaction.  KKR exited its position in the Dollar Term Loan Facility dueJune 30, 2020, during 2015 and did not hold a position in the Dollar Term Loan Facility due 2020 or the Euro Term Loan Facility due 2020 until their extinguishment on August 17, 2017. KKR held a position in the Euro Term Loan Facility due 2024 of €50.0€44.9 million for and a position in the periodDollar Term Loan B of August 17, 2017$39.9 million.

The Company incurred and paid underwriting fees of $0.8 million and $7.5 million in the three and six month periods ended June 30, 2020, respectively, to September 30, 2017. KKR Capital Markets LLC, an affiliate of our Sponsor, acted as an underwriter in connection with the initial public offering of the Company’s stock and received underwriter discounts and commissions of approximately $8.9 million.  In August 2017, KKR, Capital Markets LLC received $1.5 million for services rendered in connection with the debt refinancing transaction.term loan transactions discussed in Note 8.


The Company entered into a monitoring agreement, dated July 30, 2013, with KKR pursuant to which KKR will provide management, consulting and financial advisory services to the Company and its divisions, subsidiaries, parent entities and controlled affiliates.  Under the terms of the monitoring agreement the Company is, among other things, obligated to pay KKR (or such affiliate(s) as KKR designates) an aggregate annual management fee in the initial annual amount of $3.5 million, payable in arrears at the end of each fiscal quarter, plus upon request all reasonable out of pocket expenses ($0.0 million and $0.7 million of expenses were incurred for the three month periods ended September 30, 2017 and 2016 and $0.0 million and $0.7 million of expenses were incurred for the nine month periods ended September 30, 2017 and 2016) incurred in connection with the provision of services under the agreement.  The management fee increases at a rate of 5% per year effective on January 1, 2014.  In connection with the Company’s initial public offering, the monitoring agreement was terminated in accordance with its terms and the Company paid a termination fee of $16.2 million during the nine month period ended September 30, 2017 which is included in the “Selling and administrative expenses” line of the Condensed Consolidated Statements of Operations.  The Company incurred management fees to KKR of $1.1 million and $3.0 million for the nine month periods ended September 30, 2017 and 2016, respectively.
Note 17. Income 18. (Loss) Earnings Per Share


The computations of basic and diluted income (loss)earnings per share are as follows:follows.

  
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
 
  2017  2016  2017  2016 
             
Net income (loss) $28.0  $(13.0) $(125.1) $(27.0)
Less: Net income (loss) attributable to noncontrolling interests  -   (0.1)  0.1   (0.6)
Net Income (Loss) Attributable to Gardner Denver Holdings, Inc. $28.0  $(12.9) $(125.2) $(26.4)
Income (Loss) per share:                
Basic $0.14  $(0.09) $(0.71) $(0.18)
Diluted $0.13  $(0.09) $(0.71) $(0.18)
Average shares outstanding:                
Basic  201.3   148.8   175.7   148.8 
Dilutive effect of share-based awards  6.8   -   -   - 
Diluted  208.1   148.8   175.7   148.8 
 
For the
Three Month
Period Ended
June 30,
  
For the
Six Month
Period Ended
June 30,
 
  2020  2019  2020  2019 
Net (loss) income attributable to Ingersoll Rand Inc. $(177.6) $44.9  $(214.4) $92.1 
Average shares outstanding                
Basic  417.0   203.4   347.2   202.5 
Diluted  417.0   208.9   347.2   208.4 
Earnings per share                
Basic $(0.43) $0.22  $(0.62) $0.45 
Diluted $(0.43) $0.21  $(0.62) $0.44 


The DSUs described in Note 916, “Stock-Based Compensation” areCompensation Plans” to the consolidated financial statements in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2019 were considered outstanding shares for the purpose of computing basic earnings per share because they will becomewere issued solely upon the passage of time.


For the ninethree month periodperiods ended SeptemberJune 30, 20172020 and 2019, there were 12.33.8 million potentially dilutive stock-based awardsand 1.8 million anti-dilutive shares that were not included in the computation of diluted lossearnings per share because their inclusion would have been anti-dilutive.

share.  For both the three and ninesix month periods ended SeptemberJune 30, 20162020 and 2019, there were 15.03.9 million potentially dilutive stock-based awardsand 1.8 million anti-dilutive shares that were not included in the computation of diluted lossearnings per share because their inclusion would have been anti-dilutive.share.


34Note 19. Subsequent Events

As discussed further in Note 1 “Basis of Presentation and Related Accounting Pronouncements”, the Company initiated a tender offer on June 22, 2020 to purchase shares of its subsidiary, IR India Limited, from noncontrolling shareholders pursuant to regulatory requirements of the Securities Exchange Board of India. The tender period ended on July 3, 2020. Approximately 6% of outstanding shares were tendered for an aggregate offer price of $14.9 million. Settlement of accepted tender offers occurred on July 17, 2020. As a result, the Company’s ownership interest in IR India Limited increased from approximately 74% as of June 30, 2020 to approximately 80%. The Company is required by SEBI regulations to take necessary steps to decrease the non-public shareholding of IR India Limited below 75% within twelve months of the date the non-public shareholding exceeded 75%.

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ItemITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.  This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our prospectus dated May 11, 2017 (the “Prospectus”), as filed withAnnual Report on Form 10-K for the Securitiesfiscal year ended December 31, 2019, and Exchange Commission (the “SEC”)our Quarterly Report on May 15, 2017 pursuant to Rule 424(b)(4) underForm 10-Q for the Securities Act of 1933, as amended, as such risk factors may be updated from time to time in our periodic filings with the SEC.quarterly period ended March 31, 2020.  Actual results may differ materially from those contained in any forward-looking statements.  You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Overview


Our Company


We are a leading global provider of mission-critical flow control and compression equipmentcreation technologies and associated aftermarket parts, consumables and services, which we sell across multiple attractive end-markets within the industrial, energy and medical industries.end-markets. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, when combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under a collection of premier, market-leading brands, including Ingersoll Rand, Gardner Denver, Club Car. CompAir, Nash, Elmo Rietschle, Robuschi, Thomas, Milton Roy, ARO, Emco Wheaton Robuschi, Elmo Rietschle and Thomas,Runtech Systems, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service.


Our Segments


WeSubsequent to the acquisition of Ingersoll Rand Industrial, we reorganized our reportable segments.  As a result, we no longer report our results of operations throughunder the three reportable segments: Industrials,segments of Industrial, Energy and Medical.  Instead, we report utilizing the four reportable segments of Industrial Technologies and Services, Precision and Science Technologies, High Pressure Solutions and Specialty Vehicle Technologies.  Our Chief Operating Decision Maker regularly reviews financial information to allocate resources and assess performance utilizing these reorganized segments.  See Note 5 “Goodwill and Other Intangible Assets” for the allocation of goodwill to the new reportable segments.  See Note 16 “Segment Results” for a description of the new reportable segments.


IndustrialsIndustrial Technologies and Services


We design, manufacture, market and service a broad range of air and gas compression, vacuum and blower products, fluid transfer equipment, loading systems, power tools and lifting equipment, including associated aftermarket parts, consumables and services,services. We primarily sell under the Ingersoll Rand, Gardner Denver, CompAir, Elmo Rietschle, Robuschi, Nash and Emco Wheaton brands.  Our customers deploy our products across a wide array of technologies and applications for use in diverse end-markets. Compressors are used to increase the pressure of air or gas, vacuum products are used to remove air or gas in order to reduce the pressure below atmospheric levels, and blower products are used to produce a high volume of air or gas at low pressure. Almost every manufacturing and industrial facility, and many service and process industry applications, use air compression, vacuum and blower products in a variety of process-critical applications such as the operation of pneumatic tools, pumps and motion control components, air and gas separation, vacuum packaging of food products and aeration of waste water, among others. Our liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, water extraction in mining and paper and chlorine compression in petrochemical operations. Our engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials. Our power tools and lifting equipment portfolio includes electric and cordless fastening systems, pneumatic bolting tools, drilling and material removal tools, hoists, winches and ergonomic handling devices.  Typical applications for these products include the precision fastening of bolted joints in the production, assembly and servicing of industrial machinery, on-highway and off-highway vehicles, aircraft, electronics and other equipment.

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Our compression products cover the full range of technologies, including rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Our vacuum products and blowers also cover the full technology spectrum; vacuum technologies include side channel, liquid ring, claw vacuum, screw, turbo and rotary vane vacuum pumps among others, while blower technologies include rotary lobe blowers, screw, claw and vane, side channel and radial blowers. Our liquid ring vacuum pumps and compressors are highly engineered products specifically designed for continuous duty in harsh environments to serve a wide range of applications, including oil and gas refining and processing, mining, chemical processing and industrial applications. In addition to our vacuum and blower technology, our engineered fluid loading and transfer equipment and systems ensure the safe and efficient transportation and transfer of petroleum products as well as certain other liquid commodity products in a wide range of industries.

We complement these products with a broad portfolio of service options tailored to customer needs and a complete range of aftermarket parts, air treatment equipment, controls and other accessories delivered through our global network of manufacturing and service locations and distributor partners.  The breadth and depth of our product offering creates incremental business opportunities by allowing us to cross-sell our full product portfolio and uniquely address customers’ needs in one complete solution.

We sell our Industrials products through an integrated network of direct sales representatives and independent distributors, which is strategically tailored to meet the dynamics of each target geography or end-market. Our large installed base also provides for a significant stream of recurring aftermarket revenue. For example, the useful life of a compressor is, on average, between 10 and 12 years. However, a customer typically services the compressor at regular intervals, starting within the first two years of purchase and continuing throughout the life of the product. The cumulative aftermarket revenue generated by a compressor over the product’s life cycle will typically exceed its original sale price.


EnergyPrecision and Science Technologies


We design, manufacture and market a broad range of highly-specialized positive displacement pumps, fluid management systems and aftermarket parts that provide liquid and gas dosing, transfer, dispensing, compression, sampling, pressure management and flow control in specialized or critical applications.  Our product offering covers a range of pump and flow control technologies, including mechanically- and hydraulically-actuated diaphragm pumps, air-operated diaphragm and piston pumps, water-powered pumps, peristaltic pumps, gear pumps, flexible impeller pumps, self-priming centrifugal pumps, syringe pumps, motion control components, filtration/regulation/lubrication components, gas boosters, high pressure valves, hydrogen compression systems, liquid and gas sampling systems, odorant injection systems and more.  These offerings are sold under brands that are highly recognized in their end markets including ARO, Dosatron, Haskel, Milton Roy, Oberdorfer, Thomas and Welch.  Our customer base is composed of a wide range of end users in markets including medical, laboratory, industrial manufacturing, water and waste water, chemical processing, energy, food and beverage, agriculture and others.  Our sales are realized primarily through a combination of independent specialty and national distributors and relationships directly with original equipment manufacturers (“OEM”).

High Pressure Solutions

We design, manufacture, market and service a diverse range of positive displacement pumps, liquid ring vacuum pumps, compressors and integrated systems engineered fluid loading and transfer equipment and associated aftermarket parts, consumables and services. The highly engineered products offered by our EnergyHigh Pressure Solutions segment serve customers acrossin the upstream downstream and midstream energy markets,market, as well as petrochemical processing, transportation and general industrial sectors. We are one of the largest suppliers of equipment and associated aftermarket parts, consumables and services for the upstream energy applications that we serve.


MedicalOur positive displacement pumps are fit-for-purpose to meet the demands and challenges of modern unconventional drilling and hydraulic fracturing activity.  Our 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. 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 value of the original equipment.


The Company’s customers provide drilling, completions and well services to oil and gas operators, particularly in the major basins and plays in the North American land market.  The Company is one of the leading suppliers in these upstream energy applications and has long-standing customer relationships.

Specialty Vehicle Technologies

We design, manufacture and market a broad range of highly specializedgolf car and other low speed vehicles for commercial utility and personal transportation under the Club Car ® brand.  Product offerings include new and used electric, gas liquid and precision syringe pumpsdiesel-powered vehicles, accessories and compressorsaftermarket parts.  Service offerings include repair and maintenance, short-term rentals and digital connectivity services that are specified by medicalenable fleet management, entertainment and laboratory equipment suppliers and integrated into their final equipment for use in applications, such as oxygen therapy, blood dialysis, patient monitoring, laboratory sterilization and wound treatment, among others. We offer a comprehensive product portfolio across a breadth of pump technologies to address the medical and laboratory sciences pump and fluid handling industry, as well as a range of end-use vacuum products for laboratory science applications, and we recently expanded into liquid pumps and automated liquid handling components and systems.provide enhanced end-user experience.

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40
Sales of golf car fleets and turf utility vehicles are primarily derived from golf courses owners and operators around the world.  Utility, all-wheel drive, and multi passenger transport vehicles are used in commercial and maintenance applications at resorts and hospitality sites, government agencies and municipalities, manufacturing and construction firms, sports and other areas, colleges and universities and other commercial establishments.  Our consumer vehicles are generally sold to individuals and families for personal transportation in residential communities, camp grounds and vacation locations.  All of our low speed vehicles are highly featured, and highly customized for their application and are available in multiple colors, fabrics, power trains and accessories.  The majority of sales are derived through a global network of independent distributors and dealers.  We also sell our products directly to certain customers within the golf industry, through company-owned sales resources.

Components of Our Revenue and Expenses


Revenues


We generate revenue from sales of our highly engineered, application-critical productsoriginal equipment and by providing associated aftermarket parts, consumables and services. We sell our products and deliver aftermarket services both directly to end-users and through independent distribution channels, depending on the product line and geography.  Below is a description of our revenues by segment and factors impacting total revenues.

Industrials Revenue

Our Industrials Segment Revenues are generated primarily through sales of air compression, vacuum and blower products to customers in multiple industries and geographies. A significant portion of our sales in the Industrials segment are made to independent distributors. Revenue derived from short duration contracts is recognized at a single point in time when products are shipped or delivered, title and risk of loss are passedcontrol is transferred to the customer, and collection is reasonably assured. Our large installed base of products in our Industrials segment drives demand for recurring aftermarket support services primarily composed of replacement parts sales to our distribution partners and, to a lesser extent, by directly providing replacement parts and repair and maintenance services to end customers. Revenue for services is recognizedgenerally at shipment or when delivery has occurred or as services are performed. Historically, our shipments and revenues have peaked during the fourth quarter as our customers seek to fully utilize annual capital spending budgets.

Energy Revenue

Our Energy Segment Revenues are generated primarily through sales of positive displacement pumps, liquid ring vacuum pumps, compressors and integrated systems and engineered fluid loading and transfer equipment and associated aftermarket parts, consumables and services for use primarily in upstream, midstream, downstream and petrochemical end-markets across multiple geographies. Certain contracts with customers ininvolve significant design engineering to customer specifications, and depending upon the mid- and downstream and petrochemical markets are higher sales value and often have longer lead times and involve more application specific engineering. Revenuecontractual terms, revenue is recognized for these arrangements wheneither over the duration of the contract or at contract completion when equipment is complete or substantially complete, provided all other revenue recognition criteria have been met. The arrangement is considered substantially complete when the Company receives acceptance and remaining tasks are perfunctory or inconsequential and in control of the Company. Provisions for estimated losses on uncompleted contracts are made 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.

Medical Revenue

Our Medical Segment Revenues are generated primarily through sales of highly specialized gas, liquid and precision syringe pumps that are specified by medical and laboratory equipment suppliers for use in medical and laboratory applications. Our products are often subject to extensive collaborative design and specification requirements, as they are generally components specifically designed for, and integrated into, our customers’ products. Revenue is recognized when products are shipped or delivered title and risk of loss pass to the customer, and collection is reasonably assured. Our Medical segment has no substantive aftermarket revenues.customer.


Expenses


Cost of Sales


Cost of sales includes the costs we incur, including purchased materials, labor and overhead related to manufactured products and aftermarket parts sold during a period. Depreciation related to manufacturing equipment and facilities is included in cost of sales. Purchased materials represent the majority of costs of sales, with steel, aluminum, copper and partially finished castings representing our most significant materials inputs. Stock-based compensation expense for employees associated with the manufacture of products or delivery of services to customers is included in cost of sales. We have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations.
Cost of sales for services includes the direct costs we incur, including direct labor, parts and other overhead costs including depreciation of equipment and facilities, to deliver repair, maintenance and other field services to our customers.


Selling and Administrative Expenses


Selling and administrative expenses consist of (i) salaries and other employee-related expenses for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; (ii) facility operating expenses for selling and administrative activities, including office rent, maintenance, depreciation and insurance; (iii) marketing and direct costs of selling products and services to customers including internal and external sales commissions; (iv) research and development expenditures; (v) professional and consultant fees; (vi) sponsor feesexpenses related to our  public stock offerings and expenses;to establish public company reporting compliance; (vii) employee related stock-based compensation for our selling and (vii)administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; and (viii) other miscellaneous expenses. Certain corporate expenses, including those related to our shared service centers in the United States and Europe, that directly benefit our businesses are allocated to our business segments. Certain corporate administrative expenses, including corporate executive compensation, treasury, certain information technology, internal audit and tax compliance, are not allocated to the business segments.


Amortization of Intangible Assets


Amortization of intangible assets includes the periodic amortization of intangible assets recognized when an affiliate of KKR acquired us on July 30, 2013 and intangible assets recognized in connection with businesses we acquired since July 30, 2013, including customer relationships, trademarks, developed technology, backlog and trademarks.internally developed software.


Impairment of Goodwill and Other Intangible Assets
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Impairment of goodwill and other intangible assets includes non-cash charges we recognized for the impairment of goodwill and other intangible assets.


Other Operating Expense, netNet


Other operating expense, net includes foreign currency transaction gains and losses, net, restructuring charges, certain shareholder litigation settlement recoveries, acquisition related expenses and contract settlementnon-cash charges, losses environmental remediation, stock-based compensation expense,and gains on asset disposals and other miscellaneous operating expenses.


Benefit or Provision for Income Taxes


The benefit or provision for income taxes includes U.S. federal, state and local income taxes and all non-U.S. income taxes. We are subject to income tax in approximately 3048 jurisdictions outside of the United States.  Because we conduct operations on a global basis, our effective tax rate depends, and will continue to depend, on the geographic distribution of our pre-tax earnings among several different taxing jurisdictions. Our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions, the availability of tax credits and non-deductible items.

Items Affecting our Reported Results


General Economic Conditions and Capital Spending in the Industries We Serve


Our financial results closely follow changes in the industries and end-markets we serve. Demand for most of our products depends on the level of new capital investment and planned and unplanned maintenance expenditures by our customers. The level of capital expenditures depends, in turn, on the general economic conditions as well as access to capital at reasonable cost. In particular, demand for our IndustrialsIndustrial Technologies and Services products generally correlates with the rate of total industrial capacity utilization and the rate of change of industrial production. Capacity utilization rates above 80% have historically indicated a strong demand environment for industrial equipment. In the midstream and downstream portions of our EnergyIndustrial Technologies and Services segment, overall economic growth and industrial production, as well as secular trends, impact demand for our products.  In our High Pressure Solutions segment, demand for our products that serve upstream energy end-markets are influenced heavily by energy prices and the expectation as to future trends in those prices. Energy prices have historically been cyclical in nature and are affected by a wide range of factors. AsIn addition to energy prices, start improving from low levels observed in the first half of 2016, we have observed increases indemand for our upstream energy products are positively impacted by increasing global land rig count, drilled but uncompleted wells, global land rig count, wellsthe level of hydraulic fracturing intensity and footage drilledactivity measured by horsepower utilization and lateral lengths as well as drilling and completion capital expenditures to positively impact our results of operations. In the midstream and downstream portions of our Energy segment, overall economic growth and industrial production, as well as secular trends, impact demand for our products.expenditures. In our MedicalPrecision and Science Technologies segment we expect demand for our products to be driven by favorable trends, including the growth in healthcare spend and expansion of healthcare systems due to an aging population requiring medical care and increased investment in health solutions and safety infrastructures in emerging economies. Over longer time periods, we believe that demand for all of our products also tends to follow economic growth patterns indicated by the rates of change in the GDP around the world, as augmented by secular trends in each segment. Our ability to grow and our financial performance will also be affected by our ability to address a variety of challenges and opportunities that are a consequence of our global operations, including efficiently utilizing our global sales, manufacturing and distribution capabilities and engineering innovative new product applications for end-users in a variety of geographic markets.
Foreign Currency Fluctuations


A significant portion of our revenues, approximately 61%48% for the yearsix month period ended December 31, 2016,June 30, 2020, 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.

Seasonality

Historically, our shipments and revenues have peaked during the fourth quarter as our customers seek to fully utilize annual capital spending budgets. Also, our EMEA operations generally experience a slowdown during July, August and December holiday seasons. General economic conditions may, however, impact future seasonal variations.

Factors Affecting the Comparability of our Results of Operations


As a result of a number of factors, our historical results of operations are not comparable from period to period and may not be comparable to our financial results of operations in future periods. Key factors affecting the comparability of our results of operations are summarized below.


UpstreamAcquisition of Ingersoll Rand Industrial

On February 29, 2020, we completed the acquisition of Ingersoll Rand Industrial.  We reorganized our reportable segments as a result of the Ingersoll Rand Industrial acquisition and formed four new reportable segments.

Industrial Technologies and Services segment – Ingersoll Rand Industrial’s Compression Technologies and Services (“CTS”) and Power Tools and Lift (“PTL”) businesses joined the legacy Gardner Denver Industrial segment (excluding the Specialty Pump businesses) and the midstream and downstream portions of the Gardner Denver Energy segment to form the new “Industrial Technologies and Services” segment.


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Precision and Science Technologies segment – Ingersoll Rand Industrial’s Precision Flow Systems (“PFS”) and ARO businesses joined the legacy Gardner Denver Medical segment and Specialty Pump businesses from the legacy Gardner Denver Industrial segment to form the new “Precision and Science Technologies” segment.

High Pressure Solutions segment – The upstream energy portion of the legacy Gardner Denver Energy segment was disaggregated to form the new “High Pressure Solutions” segment.

Specialty Vehicle Technologies segment – Ingersoll Rand Industrial’s Club Car golf, utility and consumer low-speed vehicles business formed the new “Specialty Vehicle Technologies” segment.

Ingersoll Rand Industrial is included in our results of operations beginning on the acquisition date (close of business February 29, 2020). Comparability between the three and six month periods ended June 30, 2020 and 2019 will be affected by three months and four months of activity from Ingersoll Rand Industrial, respectively.  Subsequent to the date of acquisition, in the six month period ended June 30, 2020, the Ingersoll Rand Industrial acquisition contributed $659.2 million, $156.4 million, and $304.2 million of revenue to the Industrial Technologies and Services, Precision and Science Technologies and Specialty Vehicle Technologies segments, respectively.

See Note 2 “Business Combinations” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further discussion of the acquisition of Ingersoll Rand Industrial.

Impact of Coronavirus (COVID-19)

We continue to assess and actively manage the impact of the COVID-19 pandemic on our global operations and also the operations of our suppliers and customers.  Overall demand for our products has decreased as a result of the pandemic, which impacted our operating results for the three and six month periods ended June 30, 2020.  We are adhering to all state and country mandates and guidelines wherever we operate. Currently all our major manufacturing locations in the United States, United Kingdom, Germany, Italy, Brazil and China are operational. In some countries, such as India and South Africa, our facilities have opened up throughout the three month period ended June 30, 2020, in accordance with country mandates and guidelines. We are taking certain actions to reduce costs and preserve cash given the rapidly changing environment. The length of time the pandemic will impact our operations, and the operations of our customers and suppliers remains uncertain.  See “The COVID-19 pandemic has adversely affected our business and results of operations, and could have a material and adverse effect on our business, results of operations and financial condition in the future” in Part II Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020.

Conditions in oil and gas markets

During the six month period ended June 30, 2020, oil prices dropped significantly due to declines in demand resulting from the COVID-19 pandemic and risks of significant production increases from Saudi Arabia and Russia. We sell products and provide services to customers ininto upstream energy markets, primarily in our High Pressure Solutions segment, that are influenced heavily by oil and natural gas prices and the United States. Forexpectation of the upstream energy end-market,future prices of those commodities. As a result of decreases in oil prices, we experienced a reduction in demand and consequently pricing within our Energy segment we manufacture pumps and associated aftermarket products and services used in drilling, hydraulic fracturing and well service applications, while inHigh Pressure Solutions segment.

We believe it is helpful to consider the impact of 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 exposedexposure to the upstream energy industry.market in evaluating our 2019 and 2020 Segment Revenue and Segment Adjusted EBITDA for our High Pressure Solutions segment, in order to better understand other drivers of our performance during those periods, including operational improvements.


Our exposureRestructuring and Other Business Transformation Initiatives

Subsequent to upstream energy production levels, coupled with reduced exploration activitythe acquisition of Ingersoll Rand Industrial, we announced a restructuring program (“2020 Plan”) to drive efficiencies and synergies, reduce the deferralnumber of maintenancefacilities and growth capital expendituresoptimize operating margins within our merged Company.  We expect total expenses of approximately $350.0 million related to workforce reductions, lease termination costs, other facility rationalization costs and other business related transformation costs from 2020 until 2022.  We expect to realize approximately $250.0 million in annualized cost synergies by upstream energy companies, negatively impacted our financial resultsthe end of 2022.  We continue to evaluate operating efficiencies and anticipate incurring additional costs in the first half of 2016.coming years in connection with these activities, but we are unable to estimate those amounts at this time as such plans are not yet finalized.


The average daily closing of West Texas Intermediate spot market crude oil prices for the nine month period ended SeptemberThrough June 30, 2017 increased2020, $72.2 million was charged to $49.30 from $41.35expense through “Other operating expense, net” in the same period in 2016. As a result, there has been increased exploration activityCondensed Consolidated Statements of Operations ($57.6 million for Industrial Technologies and capital expenditures by upstream energy companies. According to Baker Hughes, Inc., the average weekly U.S. land rig count increased to 841 during the nine month period ended September 30, 2017 from 459 in 2016,Services, $4.9 million for Precision and according to Spears & Associates, Inc., the annual average monthly new wells drilled in the United States increased to 1,944Science Technologies, $4.1 million for the nine month period ended September 30, 2017 compared to 1,244 in the same period in 2016. We have experienced significant improvement in demandHigh Pressure Solutions, $0.7 million for our upstream energy productsSpecialty Vehicle Technologies and services in the three and nine month periods ended September 30, 2017.$4.9 million for Corporate).

Sponsor Management Fees and Expenses

Through the date of our initial public offering, our Sponsor charged an annual management fee, as well as expenses for services provided under a monitoring agreement. As the date of our initial public offering, the monitoring agreement was terminated and a fee was paid of $16.2 million during the nine month period ended September 30, 2017.

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Stock-based Compensation

Under the terms of the 2013 Plan, subsequent to the initial public offering, the Company recognized stock-based compensation expense of approximately $69.2 million related to time-based and performance-based stock options. As of September 30, 2017, there was $12.9 million of unrecognized stock-based compensation expense related to outstanding stock options that will be recognized in future periods. The Company also recognized $96.8 million of compensation expense related to a grant of 5.5 million deferred stock units (“DSU”) to employees at the date of the initial public offering. The Company expects to make stock-based awards to employees and recognize stock-based compensation expenses in future periods.
Outlook


IndustrialsIndustrial Technologies and Services Segment


The mission-critical nature of our Industrials products across manufacturing processes drives a demand environment and outlook that are highly correlated with global and regional industrial production, capacity utilization and long-term GDP growth. Due to the uncertainty of current economic conditions associated with COVID-19, and its impact on end markets, our near-term visibility is limited.  In the United States and Europe, we are poised to continue benefiting from expected growth in real GDP, along with an expected rebound in industrial production activity in 2017 and 2018. In APAC, despite the recent deceleration, GDP growth remains robust. In the thirdsecond quarter of 2017,2020, we had $294.4$787.9 million of orders in our IndustrialsIndustrial Technologies and Services segment, an increase of 14%85.7% over the thirdsecond quarter of 2016, or an 11% increase on a constant currency basis.2019. Approximately $475.0 million of these orders relate to the acquisition of Ingersoll Rand Industrial.


EnergyPrecision and Science Technologies Segment


Our EnergyDuring the COVID-19 pandemic, the Precision and Science Technologies segment has a diverse rangeseen increased demand for our vacuum pump and compressor solutions used in respirator and ventilator applications.  Demand of equipment and associated aftermarket parts, consumablesother products and services have been curtailed as a result of the COVID-19 pandemic and near-term visibility is limited.  In the second quarter of 2020, we had $201.3 million of orders in our Precision and Science Technologies segment, an increase of 137.7% over 2019.  Approximately $113.4 million of these orders relate to the acquisition of Ingersoll Rand Industrial.

High Pressure Solutions Segment

The demand and outlook for a number of market sectors with energy exposure, spanning upstream, midstream, downstream and petrochemical applications. Demand for certainthe majority of our EnergyHigh Pressure Solutions products has historically corresponded toand services are influenced heavily by the supply and demand dynamics related to oil and natural gas products, and hashave been influenced by oil and natural gas prices, the level and intensity of hydraulic fracturing activity, global land rig count, drilling activity and other economic factors. These factors have caused the level of demand for certain of our Energy products to change at times (both positively and negatively) and we expect these trends to continue in the future. In the third quarter of 2017, we had $251.1 million of orders in our Energy segment, an increase of 48% over the third quarter of 2016, or a 46% increase on a constant currency basis.

An increased number of drilling rigs have reentered the market as crude oil prices have improved from lowpoints observed during the first half of 2016 and the number of drilled but uncompleted wells has grown 72%and other economic factors. The COVID-19 pandemic and related economic repercussions have negatively impacted the global demand for oil and natural gas. These conditions were compounded by the risks of significant production increases from December 2013 to September 2017. We believe we are well positioned to benefit from the expected growth in drilling rigsSaudi Arabia and improvements in crude oil prices. In addition, secular industry trends that are driving increased demand of newer, fit-for-purpose equipment with innovations that increase productivity and are increasing the frequency of replacement, refurbishment and upgrade cycles of pumping equipment and associated consumable products used in drilling and particularly hydraulic fracturing activity by increasing the intensity of such activities. As a result of our expanded direct aftermarket service locations, particularly within North America, we believe we are well positioned to benefit from both the increasing intensity of hydraulic fracturing activity and the increaseRussia in the backlogfirst half of drilled but uncompleted wells. We2020, resulting in downward pressure on commodity prices.  While the ultimate duration of these conditions is unknown, we expect both trends to positively impact our hydraulic fracturing and drilling product mix and our aftermarket to original equipment ratio within the Energy segment.

Our midstream and downstream products provide relatively stablereduced demand with attractive, long-term growth trends related to an expected increase in the production and transportation of hydrocarbons. Demand for our petrochemical industry products correlates with growth into persist through 2020.  In the development of new petrochemical plants as well as activity levels therein. Advancements in the development of unconventional natural gas resources in North America over the past decade have resulted in the abundant availability of locally-sourced natural gas as feedstock for petrochemical plants in North America, supporting long-term growth.

Medical Segment

We believe that demand for products and services in the Medical space will continue to benefit from attractive secular growth trends in the aging population requiring medical care, emerging economies modernizing and expanding their healthcare systems and increased investment globally in health solutions. In addition, we expect growing demand for higher healthcare efficiency, requiring premium and high performance systems. During 2016, 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. We expect 2017 to be a transition year; while a large customer has elected to dual source its requirements for gas pumps, we are also expanding into the liquid pump market and diversifying our customer base. Revenues for the thirdsecond quarter of 2017 increased 7% when excluding the impacts of foreign currency and the dual sourcing customer transition. In the third quarter of 2017,2020, we had $61.1$12.8 million of orders in our MedicalHigh Pressure Solutions segment, an increasea decrease of 19%86.9% over the thirdsecond quarter of 2016, or2019.

Specialty Vehicle Technologies Segment

During 2020, the Specialty Vehicle Technologies segment is seeing consistent demand in golf end markets along with record demand for consumer vehicle and aftermarket parts offerings.  This has helped to offset demand pressure in the commercial end markets as the COVID-19 pandemic continues to impact the hospitality and resort industries.  In the second quarter of 2020, we had $208.2 million of orders in our Specialty Vehicle Technologies segment and are entering the second half with a 17% increase on a constant currency basis.solid backlog position.
How We Assess the Performance of Our Business


We manage operations through the threefour business segments described above. In addition to our consolidated GAAP financial measures, we review various non-GAAP financial measures, including “AdjustedAdjusted EBITDA,” “Adjusted Adjusted Net Income”Income and “FreeFree Cash Flow.”


We believe Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net lossincome (loss) before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net loss(loss) income 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.


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Management and our board of directors regularly use these measures as tools in evaluating our operating and financial performance and in establishing discretionary annual compensation. Such measures are provided in addition to, and should not be considered to be a substitute for, or superior to, the comparable measures under GAAP. In addition, we believe that Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are frequently used by investors and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity.


Adjusted EBITDA, Adjusted Net Income and Free Cash Flow should not be considered as alternatives to net loss(loss) income or any other performance measure derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA, Adjusted Net Income and Free Cash Flow have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under GAAP.


Included in our discussion of our consolidated and segment results below are changes in revenues and Adjusted EBITDA on a Constant Currency basis. Constant Currency information compares results between periods as if exchange rates had remained constant period over period. We define Constant Currency revenues and Adjusted EBITDA as total revenues and Adjusted EBITDA excluding the impact of foreign exchange rate movements and use it to determine the Constant Currency revenue and Adjusted EBITDA growth on a year-over-year basis. Constant Currency revenues and Adjusted EBITDA are calculated by translating current period revenues and Adjusted EBITDA using corresponding prior period exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a Constant Currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.  See “Results of Operations—Non-GAAP“Non-GAAP Financial Measures” below for reconciliation information.

Results of Operations


Consolidated results should be read in conjunction with the segment results section herein and the Segment Results noteNote 16 “Segment Results” to our unaudited condensed consolidated financial statements included elsewhere in this report,Form 10-Q, which provides more detailed discussions concerning certain components of our consolidated statementsCondensed Consolidated Statements of operations.Operations.  All intercompany accounts and transactions have been eliminated within the consolidated results.

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The following table presents selected consolidated resultsConsolidated Results of operationsOperations of our business for the three month and ninesix month periods ended SeptemberJune 30, 20172020 and 2016:2019.


 For the Three Month  For the Six Month 
 Period Ended  Period Ended 
 
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
  June 30,  June 30, 
 2017  2016  2017  2016  2020  2019  2020  2019 
Condensed Consolidated Statement of Operations:                        
Revenues $649.6  $462.6  $1,710.4  $1,361.6  $1,264.4  $629.1  $2,064.3  $1,249.4 
Cost of sales  395.7   298.4   1,066.0   867.1   904.4   394.7   1,459.8   784.5 
Gross profit  253.9   164.2   644.4   494.5   360.0   234.4   604.5   464.9 
Selling and administrative expenses  111.1   100.9   339.1   310.3   247.7   110.7   403.1   227.7 
Amortization of intangible assets  29.5   30.7   87.6   90.8   114.6   30.9   169.8   62.3 
Impairment of other intangible assets  -   -   -   1.5 
Other operating expense, net  17.4   12.4   186.7   26.1   49.9   18.2   150.6   20.0 
Operating income  95.9   20.2   31.0   65.8 
Operating (loss) income  (52.2)  74.6   (119.0)  154.9 
Interest expense  30.1   43.0   115.4   128.7   30.8   22.4   57.9   44.8 
Loss on extinguishment of debt  34.1   -   84.5   -   -   0.2   2.0   0.2 
Other income, net  (0.7)  (0.7)  (2.6)  (2.6)  (2.3)  (1.2)  (2.5)  (2.5)
Income (loss) before income taxes  32.4   (22.1)  (166.3)  (60.3)
Provision (benefit) for income taxes  4.4   (9.1)  (41.2)  (33.3)
Net income (loss)  28.0   (13.0)  (125.1)  (27.0)
Less: Net (loss) income attributable to noncontrolling interest  -   (0.1)  0.1   (0.6)
Net income (loss) attributable to Gardner Denver Holdings, Inc. $28.0  $(12.9) $(125.2) $(26.4)
Income before income taxes  (80.7)  53.2   (176.4)  112.4 
Provision for income taxes  95.8   8.3   37.0   20.3 
Net (loss) income  (176.5)  44.9   (213.4)  92.1 
Less: Net income attributable to noncontrolling interests  1.1   -   1.0   - 
Net (Loss) Income Attributable to Ingersoll Rand Inc. $(177.6) $44.9  $(214.4) $92.1 
                                
Percentage of Revenues:                                
Gross profit  39.1%  35.5%  37.7%  36.3%  28.5%  37.3%  29.3%  37.2%
Selling and administrative expenses  17.1%  21.8%  19.8%  22.8%  19.6%  17.6%  19.5%  18.2%
Operating income  14.8%  4.4%  1.8%  4.8%
Net income (loss)  4.3%  (2.8%)  (7.3%)  (2.0%)
Operating (loss) income  (4.1%)  11.9%  (5.8%)  12.4%
Net (loss) income  (14.0%)  7.1%  (10.3%)  7.4%
Adjusted EBITDA  25.4%  19.2%  22.7%  18.5%  19.1%  23.3%  18.8%  22.8%
                                
Other Financial Data:                                
Adjusted EBITDA(1)
  164.7   89.0   388.9   252.3  $241.2  $146.3  $389.0  $285.3 
Adjusted Net Income (1)
  85.2   23.3   149.2   67.2   129.9   88.5   205.0   166.7 
Cash flows - operating activities  63.9   37.8   83.9   106.8   247.4   61.4   315.8   130.1 
Cash flows - investing activities  (2.4)  (34.0)  (43.1)  (59.8)  (15.8)  (10.0)  17.3   (24.5)
Cash flows - financing activities  (9.1)  (8.3)  (8.2)  (30.8)  378.8   1.2   336.9   (16.1)
Free Cash Flow (1)
  54.3   17.5   47.5   60.5   230.3   50.8   290.4   105.4 


(1)See the “Non-GAAP Financial Measures” section included in this Quarterly Report for a reconciliation to the nearestcomparable GAAP measure.


Revenues


Revenues for the three month period ended SeptemberJune 30, 20172020 were $649.6$1,264.4 million, an increase of $187.0$635.3 million, or 40.4%101.0%, compared to $462.6$629.1 million for the same three month period in 2016.2019.  The increase in revenues was primarily due primarily to higher revenue from upstream energy exposed markets (27.3% or $126.1 million), higher volume in other markets in our Energy segment as well as in our Industrials segmentacquisitions, including acquisitions and netIngersoll Rand Industrial of divestitures (9.9% or $45.6 million), by the favorable impact of foreign currencies (2.5% or $11.4 million), and improved pricing in other markets in our Energy segment as well as in our Industrials and Medical segments (1.1% or $5.0 million),$828.0 million, partially offset by lower volume including acquisitionsvolumes due to the effects of COVID-19 in our MedicalIndustrial Technologies and Services segment (0.2% or $1.1 million).of $89.8 million and our High Pressure Solutions segment of $96.6 million.  The percentage of consolidated revenues derived from aftermarket parts and services was 40.5%33.9% in the three month period ended SeptemberJune 30, 20172020 compared to 37.6%37.4% in the same three month period in 2016.2019.


Revenues for the ninesix month period ended SeptemberJune 30, 20172020 were $1,710.4$2,064.3 million, an increase of $348.8$814.9 million, or 25.6%65.2%, compared to $1,361.6$1,249.4 million for the same ninesix month period in 2016.2019.  The increase in revenues was primarily due primarily to higher revenues from upstream energy exposed markets (22.6% or $308.0 million), higher volume in other markets in our Energy segment as well as in our Industrials segmentacquisitions, including acquisitions and netIngersoll Rand Industrial of divestitures (2.4% or $32.6 million), and improved pricing (0.9% or $12.6 million),$1,122.9 million partially offset by lower volumes due to the effects of COVID-19 in our Industrial Technologies and Services segment of $152.6 million and in our High Pressure Solutions segment of $126.1 million, as well as unfavorable impact of foreign currencies (0.2% or $2.9 million), and lower volume including acquisitions in our Medical segment (0.1% or $1.5 million).of $20.6 million.  The percentage of consolidated revenues derived from aftermarket parts and services was 42.1%35.9% in the ninesix month period ended SeptemberJune 30, 20172020 compared to 34.9%38.4% in the same ninesix month period in 2016.2019.

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Gross Profit


Gross profit for the three month period ended SeptemberJune 30, 20172020 was $253.9$360.0 million, an increase of $89.7$125.6 million, or 54.6%53.6%, compared to $164.2$234.4 million for the same three month period in 2016,2019, and as a percentage of revenues was 39.1%28.5% for the three month period ended SeptemberJune 30, 20172020 and 35.5%37.3% for the same three month period in 2016.2019.  The increase reflects higher revenues from upstream energy exposed markets, higher volume in other markets in our Energy segment as well as in our Industrials segmentgross profit is primarily due to acquisitions, including acquisitions and net of divestitures, improved pricing in our Industrials, Energy and Medical segments, and by favorable impact of foreign currencies,Ingersoll Rand Industrial, partially offset by the runoff of the fair valuation adjustments related to purchase price allocation from inventory into cost of sales, lower volume including acquisitionsvolumes due to the effects of COVID-19 in our Medical segment.Industrial Technologies and Services segment and our High Pressure Solutions segment, and unfavorable product mixes. The decrease in gross profit as a percentage of revenues is primarily due to the runoff of the fair valuation adjustments related to purchase price allocation from inventory into cost of sales and unfavorable product mixes.

Gross profit for the ninesix month period ended SeptemberJune 30, 20172020 was $644.4$604.5 million, an increase of $149.9$139.6 million, or 30.3%30.0%, compared to $494.5$464.9 million infor the same ninesix month period in 2016,2019, and as a percentage of revenues was 37.7%29.3% for the ninesix month period ended SeptemberJune 30, 20172020 and 36.3%37.2% for the same ninesix month period in 2016.2019.  The increase reflects higher revenues from upstream energy exposed markets, higher volume in other markets in our Energy segment as well as in our Industrials segmentgross profit is primarily due to acquisitions, including acquisitions, improved pricing in our Industrials and Medical segments,Ingersoll Rand Industrial, partially offset by the unfavorable impactrunoff of foreign currencies,the fair valuation adjustments related to purchase price allocation from inventory into cost of sales, lower volumevolumes due to the effects of COVID-19 in our MedicalIndustrial Technologies and Services segment including acquisitions, and lower pricingour High pressure segment, and unfavorable product mixes. The decrease in other markets in our Energy segment.gross profit as a percentage of revenues is primarily due to the runoff of the fair valuation adjustments related to purchase price allocation from inventory into cost of sales and unfavorable product mixes.

Selling and Administrative Expenses


Selling and administrative expenses were $111.1$247.7 million for the three month period ended SeptemberJune 30, 2017,2020, an increase of $10.2$137.0 million, or 10.1%123.8%, compared to $100.9$110.7 million for the same three month period in 2016.2019.  Selling and administrative expenses as a percentage of revenues decreasedincreased to 17.1%19.6% for the three month period ended SeptemberJune 30, 20172020 from 21.8%17.6% in the same three month period in 2016.2019.  The increase in selling and administrative expenses is primarily reflects higher salary and other employee related costs, and professional and consulting fees,due to acquisitions, including Ingersoll Rand Industrial, partially offset by a declinedecrease in Sponsor fees.advertising expenses and employee related expenses including salaries and wages, within our legacy business units.


Selling and administrative expenses were $339.1$403.1 million for the ninesix month period ended SeptemberJune 30, 2017,2020, an increase of $28.8$175.4 million, or 9.3%77.0%, compared to $310.3$227.7 million for the same ninesix month period in 2016.2019. Selling and administrative expenses as a percentage of revenues decreasedincreased to 19.8%19.5% for the ninesix month period ended SeptemberJune 30, 20172020 from 22.8%18.2% in the same ninesix month period in 2016.2019.  The increase in selling and administrative expenses is primarily reflect a sponsor monitoring termination fee, expenses relateddue to our initial public offering, higher professional and consulting fees, higher salary and other employee costs,acquisitions, including Ingersoll Rand Industrial, partially offset by lower facilities operating expenses.  Excluding Sponsor feesa decrease in advertising expenses and initial public offeringemployee related expenses sellingincluding salaries and administrative expenses as a percentage of revenues decreased to 18.6% for the nine month period ended September 30, 2017 from 22.5% in the same nine month period in 2016.wages, within our legacy business units.


Amortization of Intangible Assets


Amortization of intangible assets was $29.5$114.6 million for the three month period ended SeptemberJune 30, 2017 and $30.7 million for the three month period ended September 30, 2016.  The decrease was primarily due to changes in foreign currencies.

Amortization2020, an increase of intangible assets was $87.6 million for the nine month period ended September 30, 2017, a decrease of $3.2$83.7 million, compared to $90.8 million in the same nine month period in 2016.  The decrease was primarily due to changes in foreign currencies and intangibles which became fully amortized in 2016.

Other Operating Expense, Net

Other operating expense, net for the three month period ended September 30, 2017 was $17.4 million, an increase of $5.0 million, compared to $12.4$30.9 million in the same three month period in 2016.2019. The increase was primarily due to the recognitionamortization of stock-based compensation expense for stock options and deferred stock units ($9.8 million), partially offset by lower employee severance costs ($4.7 million).intangible assets related to the acquisition of Ingersoll Rand Industrial.


Other operating expense, netAmortization of intangible assets was $169.8 million for the ninesix month period ended SeptemberJune 30, 2017 was $186.7 million,2020, an increase of $160.6$107.5 million, compared to $26.1$62.3 million in the same ninesix month period in 2016.2019.  The increase was primarily due to the recognitionamortization of stock-based compensation expense for stock options and deferred stock units ($166.0 million), a portion of which ($156.2 million) wasintangible assets related to our initial public offering, an increase in foreign currency losses (gains),the acquisition of Ingersoll Rand Industrial.

Other Operating Expense, Net

Other operating expense, net ($8.9 million), and a charge for environmental remediation expense ($0.9 million) partially offset by a decrease in restructuring charges, net ($10.5 million).
Interest Expense

Interest expensewas $49.9 million for the three month period ended SeptemberJune 30, 2017 was $30.1 million, a decrease2020, an increase of $12.9$31.7 million, compared to $43.0$18.2 million in the same three month period in 2016.2019.  The decreaseincrease was primarily due to reduced debt as a resulthigher restructuring charges of debt payments made with the proceeds from the Company’s initial public offering,$29.8 million and a flat weighted-average interest ratehigher foreign currency transaction losses, net of approximately 6.0% in 2017$4.6 million partially offset by lower acquisition related expenses and 2016.non-cash charges of $4.1 million.


InterestOther operating expense, net was $150.6 million for the ninesix month period ended SeptemberJune 30, 2017 was $115.4 million, a decrease2020, an increase of $13.3$130.6 million, compared to $128.7$20.0 million in the same ninesix month period in 2016.2019.  The decreaseincrease was primarily due to reduced debt ashigher restructuring charges of $69.4 million, higher acquisition related expenses and non-cash charges of $49.3 million, lower shareholder litigation recoveries of $6.0 million and higher foreign currency transaction losses, net of $4.1 million.

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Interest Expense

Interest expense was $30.8 million for the three month period ended June 30, 2020, an increase of $8.4 million, compared to $22.4 million in the same three month period in 2019. The increase was primarily due to the addition of a result of debt payments made$1,900 million term loan entered into in conjunction with the proceeds from the Company’s initial public offering,acquisition of Ingersoll Rand Industrial, partially offset by a higherdecrease in the weighted-average interest rate. The weighted average interest rate was approximately 3.4% for the three month period ended June 30, 2020 and 5.5% in the same period in 2019.

Interest expense was $57.9 million for the six month period ended June 30, 2020, an increase of approximately 6.2% in 2017$13.1 million, compared to 6.0%$44.8 million in 2016.the same six month period in 2019. The increase was primarily due to the addition of a $1,900 million term loan entered into in conjunction with the acquisition of Ingersoll Rand Industrial, partially offset by a decrease in the weighted-average interest rate.  The weighted average interest rate was approximately 4.2% for the six month period ended June 30, 2020 and 5.4% in the same period in 2019.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $2.0 million for the six month period ended June 30, 2020, which was related to the refinancing of the Original Dollar Term Loan and the Original Euro Term Loan.

Other Income, Net


Other income, net was $0.7$2.3 million and $1.2 million in the three month periodmonths ended SeptemberJune 30, 20172020 and 2016, respectively, consisting2019, respectively. The increase was primarily due to the increase in other components of investment income and realized and unrealized gains and losses on investments.net periodic benefit cost.


Other income, net was $2.6$2.5 million in each of the ninesix month periodperiods ended SeptemberJune 30, 20172020 and 2016, respectively, consisting primarily of investment income and realized and unrealized gains and losses on investments.2019.


Provision (Benefit) for Income Taxes


The provision for income taxes was $4.4$95.8 million resulting in a 13.6%(118.7%) effective income tax provision rate for the three month period ended SeptemberJune 30, 2017,2020, compared to a benefitprovision for income taxes of $9.1$8.3 million resulting in a 41.3%15.6% effective income tax benefitprovision rate in the same three month period in 2016.2019.  The increase in the tax provision for the three month period ended June 30, 2020 is primarily due to a reduction in the pre-tax book income in jurisdictions with lower effective tax rates combined with significant earnings in jurisdictions with higher tax rates. The reduction in pre-tax book income is mainly from the COVID-19 global pandemic, the transaction costs associated with the acquisition of Ingersoll Rand Industrial, and additional amortization and depreciation expense associated with the purchase price step up adjustments.

The provision for income taxes was $37.0 million resulting in a (21.0%) effective income tax provision rate for the six month period ended June 30, 2020, compared to a provision for income taxes of $20.3 million resulting in a 18.1% effective income tax provision rate in the same six month period in 2019.  The increase in the tax provision for the six month period ended June 30, 2020 is primarily due is primarily due to a reduction in the increasepre-tax book income in jurisdictions with lower effective tax rates combined with significant earnings in jurisdictions with higher tax rates. The reduction in pre-tax income.  The decrease inbook income is mainly from the effective income tax rate is primarily due toCOVID-19 global pandemic, the decrease in the U.S. loss at a higher tax rate combined with an increase in foreign profits at a lower tax rate.

The benefit for income taxes was $41.2 million resulting in a 24.8% effective income benefit tax rate for the nine month period ended September 30, 2017, compared to a benefit for income taxes of $33.3 million resulting in a 55.2% effective income tax benefit rate in the same nine month period in 2016.  The decrease in the provision for income taxes is due to the increase of the pre-tax loss.  The significant loss in the U.S. was caused by one-time expensestransaction costs associated with the Company’s initial public offering.  This included offering-related expenses, early termination fees relating toacquisition of Ingersoll Rand Industrial, and additional amortization and depreciation expense associated with the pay down of debt, and stock-based compensation expense.  The decrease in the effective income tax rate is primarily due to these expenses being benefited at a lower tax rate.purchase price step up adjustments.


Net (Loss) Income (Loss)


The net incomeNet loss was $28.0$176.5 million for the three month period ended SeptemberJune 30, 20172020 compared to a net lossincome of $13.0$44.9 million in the same three month period in 2016.2019. The increasedecrease in net income was primarily due to higher selling and administrative expenses, increased other operating expenses, net, higher amortization and a higher provision for income on higher revenues, gross profit and lower interest expense,taxes, partially offset by stock-based compensation expense and losshigher gross profit on extinguishment of debt.increased revenues.


The netNet loss was $125.1$213.4 million for the ninesix month period ended SeptemberJune 30, 20172020 compared to a net lossincome of $27.0$92.1 million in the same ninesix month period in 2016.2019. The increaseddecrease in net lossincome was primarily due to higher selling and administrative expenses, associated with the initial public offering, stock-based compensation expense,increased other operating expenses, net, higher amortization and loss on the extinguishment of debt,a higher provision for income taxes, partially offset by higher revenues and gross profit.profit on increased revenues.


48

Adjusted EBITDA


Adjusted EBITDA increased $75.7$94.9 million to $164.7$241.2 million for the three month period ended SeptemberJune 30, 20172020 compared to $89.0$146.3 million in the same three month period in 2016.2019.  Adjusted EBITDA as a percentage of revenues increased 620 decreased 420basis points to 25.4%19.1% for the three month period ended SeptemberJune 30, 20172020 from 19.2%23.3% for the same three month period in 2016.2019.  The increase in Adjusted EBITDA was primarily due to higher volume in our Energy segment and Industrials segmentacquisitions, including acquisitions and netIngersoll Rand Industrial of divestitures of  ($80.9 million), improved pricing ($9.8 million), and the favorable impact of foreign currencies ($3.3 million),$176.2 million, partially offset by higher selling and administrative costs ($11.3 million), higher material and other manufacturing costs ($5.8 million) and lower organic sales volume including acquisitionsof $68.7 million.  The decrease in our Medical segment ($1.2 million).
Adjusted EBITDA increased $136.6 million to $388.9 million for the nine month period ended September 30, 2017 compared to $252.3 million in the same nine month period in 2016. Adjusted EBITDA as a percentage of revenues is primarily attributable to unfavorable margin mix due to the acquisition and inclusion of Ingersoll Rand Industrial results in the three month period ended June 30, 2020.

Adjusted EBITDA increased 420 $103.7 million to $389.0 million for the six month period ended June 30, 2020 compared to $285.3 million in the same six month period in 2019.  Adjusted EBITDA as a percentage of revenues decreased 400basis points to 22.7%18.8% for the ninesix month period ended SeptemberJune 30, 20172020 from 18.5%22.8% for the same ninesix month period in 2016.2019.  The increase in Adjusted EBITDA was primarily due to higher volume in our Energy segment and Industrials segmentacquisitions, including acquisitions and netIngersoll Rand Industrial of divestitures ($135.1 million), lower material and other manufacturing costs ($2.6 million), and improved pricing ($15.9 million),$226.9 million, partially offset by higher sellinglower organic sales volume of $109.0 million.  The decrease in Adjusted EBITDA as a percentage of revenues is primarily attributable to unfavorable margin mix due to the acquisition and administration expenses ($13.7 million), lower volume including acquisitionsinclusion of Ingersoll Rand Industrial results in our Medical segment ($2.6 million), and the unfavorable impact of foreign currencies ($0.7 million).six month period ended June 30, 2020.


Adjusted Net Income


Adjusted Net Income increased $61.9$41.4 million to $85.2$129.9 million for the three month period ended SeptemberJune 30, 2017,2020 compared to $23.3$88.5 million in the same three month period in 2016.2019.  The increase was primarily due to increased Adjusted EBITDA, and lower interest expense, partially offset by higher interest and depreciation expenses and an increase in theincreased income tax provision, as adjusted.


Adjusted Net Income increased $82.0$38.3 million to $149.2$205.0 million for the ninesix month period ended SeptemberJune 30, 20172020 compared to $67.2$166.7 million in the same ninesix month period in 2016.2019.  The increase was primarily due to increased Adjusted EBITDA, and lower interest expense, partially offset by higher interest and depreciation expenses and an increase in theincreased income tax provision, as adjusted.

49

Non-GAAP Financial Measures


Set forth below are the reconciliations of Net (Loss) Income (Loss) to Adjusted EBITDA and Adjusted Net Income and Cash Flows from Operating Activities to Free Cash Flow:Flow.

 
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
  
For the Three Month
Period Ended
June 30,
  
For the Six Month
Period Ended
June 30,
 
 2017  2016  2017  2016  2020  2019  2020  2019 
Net Income (Loss) (1)
 $28.0  $(13.0) $(125.1) $(27.0)
Net (Loss) Income $(176.5) $44.9  $(213.4) $92.1 
Plus:                                
Interest expense  30.1   43.0   115.4   128.7   30.8   22.4   57.9   44.8 
Provision (benefit) for income taxes  4.4   (9.1)  (41.2)  (33.3)
Depreciation expense  13.9   12.2   39.3   36.1 
Provision for income taxes  95.8   8.3   37.0   20.3 
Depreciation expense (a)
  28.4   13.5   44.3   27.6 
Amortization expense (a)(b)  29.5   30.7   87.6   90.8   114.6   30.9   169.8   62.3 
Impairment of goodwill and other intangible assets (b)  -   -   -   1.5 
Sponsor fees and expenses (c)  -   1.8   17.3   3.8 
Restructuring and related business transformation costs (d)  6.3   18.2   20.5   46.2 
Acquisition related expenses and non-cash charges (e)  1.2   1.9   3.1   3.6 
Environmental remediation loss reserve (f)  -   -   0.9   - 
Expenses related to initial stock offering (g)  0.5   -   3.6   - 
Establish public company financial reporting compliance (h)  3.8   0.1   7.2   0.1 
Stock-based compensation (i)  9.8   -   166.0   - 
Loss on extinguishment of debt (j)  34.1   -   84.5   - 
Other adjustments (k)  3.1   3.2   9.8   1.8 
Restructuring and related business transformation costs (c)
  32.2   2.0   74.4   6.1 
Acquisition related expenses and non-cash charges (d)
  95.9   17.1   192.1   18.7 
Stock-based compensation (e)
  12.7   6.2   15.7   14.8 
Foreign currency transaction losses, net  5.2   0.6   7.8   3.7 
Loss on extinguishment of debt (f)
  -   0.2   2.0   0.2 
Shareholder litigation settlement recoveries (g)
  -   -   -   (6.0)
Other adjustments (h)
  2.1   0.2   1.4   0.7 
Adjusted EBITDA $164.7  $89.0  $388.9  $252.3  $241.2  $146.3  $389.0  $285.3 
Minus:                                
Interest expense  30.1   43.0   115.4   128.7  $30.8  $22.4  $57.9  $44.8 
Income tax provision, as adjusted (l)  33.3   7.4   77.8   12.7 
Income tax provision, as adjusted (i)
  46.9   19.2   73.2   40.5 
Depreciation expense  13.9   12.2   39.3   36.1   28.4   13.5   44.3   27.6 
Amortization of non-acquisition related intangible assets  2.2   3.1   7.2   7.6   5.2   2.7   8.6   5.7 
Adjusted Net Income $85.2  $23.3  $149.2  $67.2  $129.9  $88.5  $205.0  $166.7 
Free Cash Flow                                
Cash flows - operating activities  63.9   37.8   83.9   106.8  $247.4  $61.4  $315.8  $130.1 
Minus:                                
Capital expenditures  9.6   20.3   36.4   46.3   17.1   10.6   25.4   24.7 
Free Cash Flow $54.3  $17.5  $47.5  $60.5  $230.3  $50.8  $290.4  $105.4 


(1)a)In the fourth quarterDepreciation and amortization expense excludes $1.5 million and $2.7 million of fiscal year 2016, the Company modified its methodology for presenting reconciling items from Net Income (Loss).  The reconciling itemsdepreciation of rental equipment for the three month and ninesix month periods ended SeptemberJune 30, 2016 have been reclassified to conform to the methodology used in the three month and nine month periods ended September 30, 2017, and include the following:2020.

(a)b)Represents $27.3$109.4 million and $27.6$28.2 million of amortization of intangible assets arising from the KKR transactionacquisition of Ingersoll Rand Industrial and other acquisitions (customer relationships, technology and trademarks) and $2.2$5.2 million and $3.1$2.7 million of amortization of non-acquisition related intangible assets, in each case for the three month periods ended SeptemberJune 30, 20172020 and 2016, respectively.  Represents $80.4 million and $83.2 million of amortization of intangible assets arising from the KKR transaction and other acquisitions (customer relationships and trademarks) and $7.2 million and $7.6 million of amortization of non-acquisition related intangible assets, in each case for the nine month periods ended September 30, 2017 and 2016,2019, respectively.

Represents $161.2 million and $56.6 million of amortization of intangible assets arising from the acquisition of Ingersoll Rand Industrial and other acquisitions (customer relationships, technology and trademarks) and $8.6 million and $5.7 million of amortization of non-acquisition related intangible assets, in each case for the six month periods ended June 30, 2020 and 2019, respectively.

50

c)Restructuring and related business transformation costs consisted of the following.

  
For the Three Month
Period Ended
June 30,
  
For the Six Month
Period Ended
June 30,
 
  2020  2019  2020  2019 
Restructuring charges $30.6   0.8  $72.2   2.8 
Facility reorganization, relocation and other costs  0.1   0.5   0.5   1.1 
Other, net  1.5   0.7   1.7   2.2 
Total restructuring and related business transformation costs $32.2  $2.0  $74.4  $6.1 

(b)Represents non-cash charges for impairment of goodwill and other intangible assets.

(c)Represents management fees and expenses paid to KKR, including a monitoring agreement termination fee of $16.2 million paid in the nine month period ended September 30, 2017.

(d)Restructuring and related business transformation costs consist of the following:
 
 
 
 
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
 
  2017  2016  2017  2016 
             
Restructuring charges $2.8  $3.0  $4.9  $15.4 
Severance, sign-on, relocation and executive search costs  0.6   5.7   2.2   12.7 
Facility reorganization, relocation and other costs  1.0   2.9   3.9   6.5 
Information technology infrastructure transformation  0.8   0.6   3.4   1.0 
(Gains) losses on asset and business disposals  (0.6)  1.7   2.0   1.6 
Consultant and other advisor fees  0.5   3.2   1.7   6.9 
Other, net  1.2   1.1   2.4   2.1 
Total restructuring and related business transformation costs $6.3  $18.2  $20.5  $46.2 
(e)d)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 expenses related to the Company’s initial stock offering.

(h)Represents third party expenses to comply with the requirements of Sarbanes-Oxley in 2018 and the accelerated adoption of the new revenue recognition standard (ASC 606 - Revenue from Contracts with Customers) in the first quarter of 2018, one year ahead of the required adoption date for a private company.  These expenses were previously included in ‘Expenses related to initial stock offering’ and prior periods have been restated to conform to current period presentation.

(i)e)Represents stock-based compensation expense recognized for stock options outstandingthe three month and six month periods ended June 30, 2020 of $12.7 million and $16.2 million, respectively, decreased by $0.5 million for the three months and nine monthssix month period ended SeptemberJune 30, 2017 of $7.8 million and $69.2 million, respectively, and DSUs granted2020 due to employees at the date of the initial public offering for the three months and nine months ended September 30, 2017 of $2.0 million and $96.8 million, respectively.  See Note 9 “Stock-Based Compensation”.costs associated with employer taxes.


Represents stock-based compensation expense recognized for the three month and six month periods ended June 30, 2019 of $6.0 million and $13.6 million, respectively, increased by $0.2 million and $1.2 million for the three month and six month periods ended June 30, 2019, respectively, due to costs associated with employer taxes.

(j)f)Represents losses on extinguishment of debt recognized on the redemption of the senior notes and pay down of a portion of the Original Dollar Term Loan Facility with proceeds fromU.S. term loan and the initial public offering in May 2017 ($50.4 million) and in connection with the refinancingamendment of the Original Dollar Term Loan Facility and Euro Term Loan Facilityrevolving credit facility.

g)Represents an insurance recovery of the Company’ shareholder litigation settlement in August 2017 ($34.1 million).2014.


(k)h)Includes (i) foreign exchange gains and losses, (ii) effects of the amortization of prior service costs and amortization of gainslosses in pension and other postemployment benefits (OPEB)(‘‘OPEB’’) expense, (iii)(ii) certain legal and compliance costs and (iv)(iii) other miscellaneous adjustments.

(l)i)Represents the Company’sour income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of the applicable discrete tax items. The tax effect of pre-tax items excluded from Adjusted Net Income is computed using the statutory tax rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances. Discrete tax items include changes in tax laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances. The adjusted amounts are then used to calculate an adjusted provision for the quarter


The income tax provision, as adjusted for each of the periods presented below consisted of the following.
 
 
 
 
For the Three
Months Ended
September 30,
  
For the Nine
Months Ended
September 30,
 
  2017  2016  2017  2016 
Provision (Benefit) for income taxes $4.4  $(9.1) $(41.2) $(33.3)
Tax impact of pre-tax income adjustments  30.3   16.4   119.0   43.9 
Discrete tax items  (1.4)  0.1   -   2.1 
Income tax provision, as adjusted $33.3  $7.4  $77.8  $12.7 

  For the Three Month  For the Six Month 
  Period Ended  Period Ended 
  June 30,  June 30, 
  2020  2019  2020  2019 
Provision for income taxes $95.8  $8.3  $37.0  $20.3 
Tax impact of pre-tax income adjustments  (48.4)  10.8   40.8   20.5 
Discrete tax items  (0.5)  0.1   (4.6)  (0.3)
Income tax provision, as adjusted $46.9  $19.2  $73.2  $40.5 

Segment Results


Effective February 29, 2020, as a result of the acquisition of Ingersoll Rand Industrial, we reorganized our segments.  We now classify our businessesbusiness into threefour segments: Industrials, EnergyIndustrial Technologies and Medical.

Services, Precision and Science Technologies, High Pressure Solutions and Specialty Vehicle Technologies. Our Corporate operations (as described below) are not discussed separately as any results that had a significant impact on operating results are included in the consolidated results“Results of Operations” discussion above.  We recasted certain prior period amounts to conform to the way we are internally managed and how we monitor segment performance during the current fiscal year.


51

We evaluate the performance of our Segmentssegments based on Segment Revenues and Segment Adjusted EBITDA. Segment Adjusted EBITDA is indicative of operational performance and ongoing profitability. Our management closely monitors Segment Adjusted EBITDA to evaluate past performance and identify actions required to improve profitability.


The Segmentsegment measurements provided to and evaluated by the chief operating decision maker are described in Note 1516 “Segment Results” in the “Notes to Condensed Consolidated Financial Statements”our unaudited condensed consolidated financial statements included elsewhere in this Report.Form 10-Q.

Included in our discussion of our segment results below are changes in Segment Revenues and Segment Adjusted EBITDA on a Constant Currency basis. Constant Currency information compares results between periods as if exchange rates had remained constant period over period. We define Constant Currency as changes in Segment Revenues and Segment Adjusted EBITDA excluding the impact of foreign exchange rate movements. We use these measures to determine the Constant Currency Segment Revenues and Segment Adjusted EBITDA growth on a year-on-year basis. Constant Currency Segment Revenues and Segment Adjusted EBITDA are calculated by translating current period Segment Revenues and Segment Adjusted EBITDA using prior period exchange rates. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not a measure of performance presented in accordance with GAAP.


Segment Results for the Three and NineSix Month Periods Ended SeptemberJune 30, 20172020 and 20162019


The following tables display Segment Revenues, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin (Segment Adjusted EBITDA as a percentage of Segment Revenues) for each of our SegmentsSegments.

Industrial Technologies and illustrate, on a percentage basis, the impact of foreign currency fluctuations on Segment Revenues and Segment Adjusted EBITDA growth.

IndustrialsServices Segment Results

          
Constant Currency
Percent Change
 
 For the Three Months Ended September 30,  Percent Change For the Three Month Period Ended June 30,  Percent Change 
 2017  2016  2017 vs. 2016  2017 vs. 2016  2020  2019  2020 vs. 2019 
Segment Revenues $288.2  $265.6   8.5%  5.9% $829.6  $427.6   94.0%
Segment Adjusted EBITDA $63.1  $55.6   13.5%  10.1% $183.8  $96.7   90.1%
Segment Margin  21.9%  20.9%          22.2%  22.6% (40) bps 


Segment Revenues for the three month period ended SeptemberJune 30, 20172020 were $288.2$829.6 million, an increase of $22.6$402.0 million, or 8.5%94.0%, compared to $265.6$427.6 million in the same three month period in 2016.2019. The increase in Segment Revenues was due to higher volumeacquisitions, including acquisitions and netIngersoll Rand Industrial of divestitures (4.5%$496.7 million or 12.0 million), the favorable impact of foreign currencies (2.6% or $6.9 million)116.2%, and higher pricing (1.4% or $3.7 million).  The percentage of Segment Revenues derived from aftermarket parts and services was 33.4% in the three month period ended September 30, 2017 compared to 35.6% in the same three month period in 2016.
Segment Adjusted EBITDA for the three month period ended September 30, 2017 was $63.1 million, an increase of $7.5$4.7 million or 13.5%, compared to $55.6 million in the same three month period in 2016.  Segment Adjusted EBITDA Margin increased 100 basis points to 21.9% from 20.9% in 2016.  The increase in Segment Adjusted EBITDA was due primarily to higher volume including acquisitions and net of divestitures ($4.3 million), improved pricing ($3.7 million), the favorable impact of foreign currencies ($1.9 million)1.1%, partially offset by higher material and other manufacturing costs ($2.2 million), and higher selling and administrative expense ($0.2 million).

             
Constant Currency
Percent Change
  
  For the Nine Months Ended September 30,  Percent Change
  2017  2016  2017 vs. 2016  2017 vs. 2016 
Segment Revenues $819.0  $803.6   1.9%  2.3%
Segment Adjusted EBITDA $173.7  $156.2   11.2%  11.7%
Segment Margin  21.2%  19.4%        

Segment Revenues for the nine month period ended September 30, 2017 were $819.0 million, an increaselower organic volumes of $15.4$89.8 million or 1.9%, compared to $803.6 million in the same nine month period in 2016.  The increase in Segment Revenues was due to improved pricing (1.4% or $11.4 million)21.0%, and higher volume including acquisitions and net of divestitures (0.9% or $6.7 million), partially offset by the unfavorable impact of foreign currencies (0.4%of $9.7 million or $2.7 million)2.3%. The percentage of Segment Revenues derived from aftermarket parts and service was 34.6%39.5% in the nine month period ended September 30, 2017, compared to 35.0% in the same nine month period in 2016.

Segment Adjusted EBITDA for the nine month period ended September 30, 2017 was $173.7 million, an increase of $17.5 million, or 11.2%, compared to $156.2 million in the same nine month period in 2016.  Segment Adjusted EBITDA Margin increased 180 basis points to 21.2% from 19.4% in 2016.  The increase in Segment Adjusted EBITDA was due primarily to improved pricing ($11.4 million), lower material and other manufacturing costs ($4.8 million), higher volume including acquisitions and net of divestitures ($1.2 million), lower selling and administrative expense ($0.9 million), partially offset by the unfavorable impact of foreign currencies ($0.8 million).

Energy Segment Results
  For the Three Months Ended September 30,  Percent Change  
Constant Currency
Percent Change
 
  2017  2016  2017 vs. 2016  2017 vs. 2016 
Segment Revenues $301.6  $137.9   118.7%  115.9%
Segment Adjusted EBITDA $98.6  $22.0   348.2%  342.7%
Segment Margin  32.7%  16.0%        

Segment Revenues for the three month period ended SeptemberJune 30, 2017 were $301.6 million, an increase of $163.7 million, or 118.7%,2020 compared to $137.9 million32.2% in the same three month period in 2016.  The increase in Segment Revenues was due to higher revenues from upstream energy exposed markets (91.4% or $126.1 million), higher volume  in other markets of our Energy segment (24.4% or $33.6 million), the favorable impact of foreign currencies (2.5% or $3.4 million), and improved pricing in other markets of our Energy segment (0.4% or $0.6 million).  The percentage of Segment Revenues derived from aftermarket parts and services was 54.7% in the three month period ended September 30, 2017 compared to 57.7% in the same three month period in 2016.2019.


Segment Adjusted EBITDA for the three month period ended SeptemberJune 30, 20172020 was $98.6$183.8 million, an increase of $76.6$87.1 million, or 348.2% compared to $22.090.1%, from $96.7 million in the same three month period in 2016.2019.  Segment Adjusted EBITDA Margin increased 1670decreased 40 basis points to 32.7%22.2% from 16.0%22.6% in 2016.2019.  The increase in Segment Adjusted EBITDA was primarily due primarily to higher volume ($76.8 million), , improved pricing ($5.3 million),acquisitions, including Ingersoll Rand Industrial of $115.4 million or 119.3% and the favorable impactlower selling and administrative costs of foreign currencies ($1.3 million)$16.0 million or 16.5%, partially offset by higher materiallower organic sales volume of $36.2 million or 37.4% and manufacturing costs ($4.1 million),unfavorable product mix of $11.7 million or 12.1%. The decrease in Adjusted EBITDA as a percentage of revenues is primarily attributable to unfavorable margin mix due to the acquisition and higher selling and administrative expense ($2.7 million).inclusion of Ingersoll Rand Industrial results in the three month period ended June 30, 2020.

  For the Six Month Period Ended June 30,  Percent Change 
  2020  2019  2020 vs. 2019 
Segment Revenues $1,333.6  $832.7   60.2%
Segment Adjusted EBITDA $278.6  $182.2   52.9%
Segment Margin  20.9%  21.9% (100) bps 
            
Constant Currency
Percent Change
  
  For the Nine Months Ended September 30,  Percent Change 
  2017  2016  2017 vs. 2016  2017 vs. 2016 
Segment Revenues $719.4  $385.8   86.5%  86.3%
Segment Adjusted EBITDA $199.2  $70.2   183.8%  183.2%
Segment Margin  27.7%  18.2%        

Segment Revenues for the ninesix month period ended SeptemberJune 30, 20172020 were $719.4$1,333.6 million, an increase of $333.6$500.9 million, or 86.5%60.2%, compared to $385.8$832.7 million in the same ninesix month period in 2016.2019.  The increase in Segment Revenues was primarily due toacquisitions, including of Ingersoll Rand Industrial of $660.8 million or 79.4%, and higher revenues from upstream energy exposed markets (79.8%pricing of $10.3 million or $308.0 million)1.2%, higherpartially offset by lower organic volume in other markets of our Energy segment (6.7%$152.6 million or $25.8 million)18.3%, the favorableand unfavorable impact of foreign currencies (0.2%of $17.7 million or $0.4 million), partially offset by pricing (0.2% or $0.6 million)2.1%. The percentage of Segment Revenues derived from aftermarket parts and service was 59.9%39.6% in the ninesix month period ended SeptemberJune 30, 20172020 compared to 50.3%32.3% in the same ninesix month period in 2016.2019.


Segment Adjusted EBITDA for the ninesix month period ended SeptemberJune 30, 20172020 was $199.2$278.6 million, an increase of $129.0$96.4 million, or 183.8%52.9%, compared to $70.2from $182.2 million in the same ninesix month period in 2016.2019.  Segment Adjusted EBITDA Margin increased 950decreased 100 basis points to 27.7%20.9% from 18.2%21.9% in 2016.2019.  The increase in Segment Adjusted EBITDA was primarily due primarily to acquisitions, including Ingersoll Rand Industrial of $142.3 million or 78.1%, higher volume ($134.0 million),  improved pricing ($2.7 million),of $10.3 million or 5.7% and the favorable impactlower selling and administrative costs of foreign currencies ($0.2 million)$20.5 million or 11.3%, partially offset by higher materiallower organic sales volumes of $61.5 million or 33.8% and other manufacturing costs ($4.4 million)unfavorable margin mix of $12.9 million or 7.1%. The decrease in Adjusted EBITDA as a percentage of revenues is primarily attributable to unfavorable product mix due to the acquisition and higher sellinginclusion of Ingersoll Rand Industrial results in the six month period ended June 30, 2020.

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Precision and administrative expense ($3.5 million).

MedicalScience Technologies Segment Results


           
Constant Currency
Percent Change
  
 For the Three Months Ended September 30,  Percent Change  For the Three Month Period Ended June 30,  Percent Change 
 2017  2016  2017 vs. 2016  2017 vs. 2016  2020  2019  2020 vs. 2019 
Segment Revenues $59.8  $59.1   1.2%  (0.9%) $195.8  $82.0   138.8%
Segment Adjusted EBITDA $16.8  $16.6   1.2%  (1.4%) $59.3  $24.6   141.1%
Segment Margin  28.1%  28.1%          30.3%  30.0% 30 bps 


Segment Revenues for the three month period ended SeptemberJune 30, 20172020 were $59.8$195.8 million, an increase of $0.7$113.8 million, or 1.2%138.8%, compared to $59.1$82.0 million in the same three month period in 2016.2019.  The increase in Segment Revenues was primarily due to the favorable impactacquisitions, including Ingersoll Rand Industrial of foreign currencies (1.7% or $1.0 million), and improved pricing (1.3% or $0.8 million), partially offset by lower volume including acquisitions (1.8% or $1.1 million).   The percentage of Segment Revenues derived from aftermarket parts and services was 3.3% in the three month period ended September 30, 2017 compared to 0.0% in the same three month period in 2016.

Segment Adjusted EBITDA for the three month period ended September 30, 2017 was $16.8 million, an increase of $0.2$113.7 million or 1.2%, compared to $16.6 million in the same three month period in 2016.  Segment Adjusted EBITDA Margin was 28.1%, flat with the same three month period in 2016.  The increase in Segment Adjusted EBITDA was due primarily to improved pricing ($0.8 million), lower material and other manufacturing costs ($0.2 million), the favorable impact of foreign currencies ($0.3 million), and lower selling and administrative expense ($0.1 million), partially offset by lower volume including acquisitions ($1.2 million).

            
Constant Currency
Percent Change
  
  For the Nine Months Ended September 30,  Percent Change 
  2017  2016  2017 vs. 2016  2017 vs. 2016 
Segment Revenues $172.0  $172.2   (0.1%)  0.2%
Segment Adjusted EBITDA $46.9  $44.7   4.9%  5.1%
Segment Margin  27.3%  26.0%        

Segment Revenues for the nine month period ended September 30, 2017 were $172.0 million, a decrease of $0.2 million, or 0.1%, compared to $172.2 million in the same nine month period in 2016.  The decrease in Segment Revenues was due to lower volume including acquisitions (0.8% or $1.5 million), and the unfavorable impact of foreign currencies (0.3% or $0.5 million), partially offset by improved pricing (1.1% or $1.8 million)138.7%. The percentage of Segment Revenues derived from aftermarket parts and service was 3.8%13.6% in the ninethree month period ended SeptemberJune 30, 20172020 compared to 0.0%2.6% in the same ninethree month period in 2016.2019.


Segment Adjusted EBITDA for the ninethree month period ended SeptemberJune 30, 20172020 was $46.9$59.3 million, an increase of $2.2$34.7 million, or 4.9% compared to $44.7141.1%, from $24.6 million in the same ninethree month period in 2016.2019.  Segment Adjusted EBITDA Margin increased 13030 basis points to 27.3%30.3% from 26.0%30.0% in 2016.2019.  The increase in Segment Adjusted EBITDA was primarily due to acquisitions, including Ingersoll Rand Industrial of $32.4 million or 131.7% and higher pricing of $2.2 million or 8.9%.

  For the Six Month Period Ended June 30,  Percent Change 
  2020  2019  2020 vs. 2019 
Segment Revenues $308.6  $161.3   91.3%
Segment Adjusted EBITDA $92.2  $47.8   92.9%
Segment Margin  29.9%  29.6% 30 bps 

Segment Revenues for the six month period ended June 30, 2020 were $308.6 million, an increase of $147.3 million, or 91.3%, compared to $161.3 million in the same six month period in 2019. The increase in Segment Revenues was primarily due to improved pricing ($1.8 million), lower selling and administrative expense ($1.7 million), and lower material and other manufacturing costs ($1.5 million)acquisitions, including of Ingersoll Rand Industrial of $157.8 million or 97.8%, partially offset by lower organic volume of $11.2 million or 6.9%. The percentage of Segment Revenues derived from aftermarket parts and service was 13.1% in the six month period ended June 30, 2020 compared to 3.0% in the same six month period in 2019.

Segment Adjusted EBITDA for the six month period ended June 30, 2020 was $92.2 million, an increase of $44.4 million, or 92.9%, from $47.8 million in the same six month period in 2019.  Segment Adjusted EBITDA Margin increased 30 basis points to 29.9% from 29.6% in 2019.  The increase in Segment Adjusted EBITDA was primarily due to acquisitions, including acquisitions ($2.6 million)Ingersoll Rand Industrial of $45.0 million or 94.1%, and the unfavorable impacthigher pricing of foreign currencies ($0.2 million)$2.9 million or 6.1%, partially offset by lower organic sales volume of $4.6 million or 9.6%.

High Pressure Solutions Segment Results

  For the Three Month Period Ended June 30,  Percent Change 
  2020  2019  2020 vs. 2019 
Segment Revenues $21.5  $119.5   (82.0%)
Segment Adjusted EBITDA $(15.2) $32.1   (147.4%)
Segment Margin  (70.7%)  26.9% (9,760) bps 

Segment Revenues for the three month period ended June 30, 2020 were $21.5 million, a decrease of $98.0 million, or 82.0%, compared to $119.5 million in the same three month period in 2019.  The decrease in Segment Revenues was primarily due to lower volumes of $96.6 million or 80.8% and lower pricing of $1.4 million or 1.2%, as a result of the current downturn in the upstream energy market. The percentage of Segment Revenues derived from aftermarket parts and service was 83.7% in the three month period ended June 30, 2020 compared to 79.6% in the same three month period in 2019.

48
53
Segment Adjusted EBITDA for the three month period ended June 30, 2020 was $(15.2) million, a decrease of $47.3 million, or 147.4%, from $32.1 million in the same three month period in 2019.

Segment Adjusted EBITDA Margin decreased 9,760 basis points to (70.7%) from 26.9% in 2019.  The decrease in Segment Adjusted EBITDA was primarily due to lower sales volume of $32.1 million or 100.0%, higher selling and administrative expenses of $11.4 million or 35.5% which was primarily due to an increase in the allowance for doubtful accounts of $12.5 million as a result of a customer filing for Chapter 11 bankruptcy protection, and lower pricing of $2.8 million or 8.7%.

  For the Six Month Period Ended June 30,  Percent Change 
  2020  2019  2020 vs. 2019 
Segment Revenues $117.8  $255.4   (53.9%)
Segment Adjusted EBITDA $8.3  $73.9   (88.8%)
Segment Margin  7.0%  28.9% (2,190) bps 

Segment Revenues for the six month period ended June 30, 2020 were $117.8 million, a decrease of $137.6 million, or 53.9%, compared to $255.4 million in the same six month period in 2019.  The decrease in Segment Revenues was primarily due to lower volumes of $126.1 million or 49.4% and lower pricing of $10.8 million or 4.2%, as a result of the current downturn in the upstream energy market. The percentage of Segment Revenues derived from aftermarket parts and service was 86.4% in the six month period ended June 30, 2020 compared to 80.7% in the same six month period in 2019.

Segment Adjusted EBITDA for the six month period ended June 30, 2020 was $8.3 million, a decrease of $65.6 million, or 88.8%, from $73.9 million in the same six month period in 2019.  Segment Adjusted EBITDA Margin decreased 2,190 basis points to 7.0% from 28.9% in 2019.  The decrease in Segment Adjusted EBITDA was primarily due to lower sales volume of $43.0 million or 58.2%, lower pricing of $10.8 million or 14.6%, and higher selling and administrative expenses of $10.1 million or 13.7% which was primarily due to an increase in the allowance for doubtful accounts of $12.5 million as a result of a customer filing for Chapter 11 bankruptcy protection.

Specialty Vehicle Technologies Segment Results

The Specialty Vehicle Technologies segment was created subsequent to the acquisition of Ingersoll Rand Industrial.  Therefore, comparative prior period information was not part of our consolidated results.

Segment Revenues for the three and six month periods ended June 30, 2020 were $217.5 million and $304.3 million, respectively. The percentage of Segment Revenues derived from aftermarket parts and service was 26.4% and 23.5% in the three and six month periods ended June 30, 2020, respectively.

Segment Adjusted EBITDA for the three and six month periods ended June 30, 2020 was $41.0 million and $55.1 million, respectively.  Adjusted EBITDA as a percentage of revenue was 18.9% and 18.1% for the three and six month periods ended June 30, 2020, respectively.

Liquidity and Capital Resources


Our operations and strategic objectives require continuing investment. Ourinvestment resources include cash generated from operations and borrowings under our Revolving Credit Facility and the Receivables Financing Agreement.  At September

As of June 30, 2017, the Company2020, we had $8.0$85.3 million of outstanding letters of credit written against the Revolving Credit Facility and $352.0$1,014.7 million of unused availability.  The CompanyWe also had $33.2$26.6 million of letters of credit outstanding against the Receivables Financing Agreement and $82.1$39.1 million of unused availability.  On June 30, 2017, we entered into the first amendment to the Receivables Financing Agreement which increased the aggregated borrowing capacity by $50.0 million to $125.0 million governed by a borrowing base and also extended the term to June 30, 2020.


See the description of these line-of-credit resources as well as our outstanding debt obligations in Note 8 “Debt” to the Condensed Consolidated Financial Statements.consolidated financial statements in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and Note 8 ‘‘Debt’’ to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.


As of SeptemberJune 30, 2017 and 2016, the Company was2020, we were in compliance with all of itsour debt covenants and no event of default had occurred or was ongoing.


54

Liquidity


A substantial portion of our liquidity needs arise from debt service requirements, and from the ongoing cost of operations, working capital and capital expenditures.


 
September 30,
2017
  
December 31,
2016
  
June 30,
2020
  
December 31,
2019
 
Cash and cash equivalents $303.0  $255.8  $1,173.6  $505.5 
Short-term borrowings and current maturities of long-term debt  21.1   24.5   39.8   7.6 
Long-term debt  2,006.9   2,753.8   3,816.7   1,603.8 
Total debt $2,028.0  $2,778.3  $3,856.5  $1,611.4 

We can increase the borrowing availability under the senior secured credit agreement that we and certain of our subsidiaries entered into with UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto on July 30, 2013, as amended by Amendment No. 1 on March 4, 2016 and Amendment No. 2 on August 17, 2017 (the “SeniorSenior Secured Credit Facilities”),Facilities by up to $250$1,600.0 million in the form of additional commitments under the senior secured revolving credit facility (the “RevolvingRevolving Credit Facility”) thereunderFacility and/or incremental term loans plus an additional amount so long as we do not exceed a specified senior secured leverage ratio. We can incur additional secured indebtedness under the senior secured term loan facilities under the Senior Secured Credit Facilities if certain specified conditions are met under the credit agreement governing the Senior Secured Credit Facilities. Our liquidity requirements are significant primarily due to debt service requirements. For a complete description ofSee Note 10 “Debt” to the consolidated financial statements in our credit facilities, refer toannual report on Form 10-K for the fiscal year ended December 31, 2019 and Note 8 “Debt”‘‘Debt’’ to our unaudited condensed consolidated financial statements included elsewhere in the “Notes to the Condensed Consolidated Financial Statements.”this Form 10-Q for further details.


Our principal sources of liquidity have been existing cash and cash equivalents, cash generated from operations and borrowings under the Senior Secured Credit Facilities.Facilities and the Receivables Financing Agreement. Our principal uses of cash will be to provide working capital, meet debt service requirements, fund capital expenditures and finance strategic plans, including possible acquisitions. We may also seek to finance capital expenditures under capital leases or other debt arrangements that provide liquidity or favorable borrowing terms. We continue to consider acquisition opportunities, but the size and timing of any future acquisitions and the related potential capital requirements cannot be predicted. In the event that suitable businesses are available for acquisition upon acceptable terms, we may obtain all or a portion of the necessary financing through the incurrence of additional long-term borrowings. As market conditions warrant, we and our major equity holders, including KKR and its affiliates, may from time to time, seek to repurchase debt securities that we have issued orrepay loans that we have borrowed, including the notes and borrowings under the Senior Secured Credit Facilities, in privately negotiated or open market transactions, by tender offer or otherwise.Facilities. Based on our current level of operations and available cash, we believe our cash flow from operations, together with availability under the Revolving Credit Facility and the Receivables Financing Agreement, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, debt service requirements and capital spending requirements for the foreseeable future. Our business may not generate sufficient cash flows from operations or future borrowings may not be available to us under our Revolving Credit Facility or the Receivables Financing Agreement in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. Our ability to do so depends on, among other factors, prevailing economic conditions, many of which are beyond our control. In addition, upon the occurrence of certain events, such as a change in control, we could be required to repay or refinance our indebtedness. We may not be able to refinance any of our indebtedness, including the Senior Secured Credit Facilities, on commercially reasonable terms or at all. Any future acquisitions, joint ventures, or other similar transactions may require additional capital and there can be no assurance that any such capital will be available to us on acceptable terms or at all.

49
The majorityA substantial portion of our cash is in jurisdictions outside of the U.S.  However, we believe our U.S. operations will generate sufficient cash flows from operations along with our availability under the Revolving Credit Facility and the Receivables Financing Agreement to satisfy our cash needs in the U.S.  As a result of the KKR transaction and the significant increase in our long-term debt balance as of July 30, 2013, we modified our former assertion concerning the permanentUnited States. We do not assert ASC 740-30 (formerly APB 23) indefinite reinvestment of undistributedour historical non-U.S. earnings foror future non-U.S. subsidiaries in theseearnings. The Company records a deferred foreign operations. We intendtax liability to repatriate certaincover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings forback to the purpose of servicing our Senior Secured Credit Facilities in the future, which will result in net U.S. tax liabilities as these foreign earnings are distributed.  Accordingly, we recorded aUnited States. Our deferred income tax liability and the balance at Septemberas of June 30, 20172020 was $78.2$30.3 million associated with the repatriationwhich primarily consisted of certain foreign earnings based upon accumulated earnings of approximately $200.0 million.withholding taxes.


55

Working Capital

 
September 30,
2017
  
December 31,
2016
  
June 30,
2020
  
December 31,
2019
 
Net Working Capital:            
Current assets $1,403.4  $1,188.5  $3,326.8  $1,543.9 
Less: Current liabilities  559.6   497.9   1,478.2   574.6 
Net working capital $843.8  $690.6  $1,848.6  $969.3 
                
Operating Working Capital:                
Accounts receivable $531.6  $441.6 
Accounts receivable and contract assets $975.4  $488.1 
Plus: Inventories (excluding LIFO)  491.7   428.0   1,013.4   489.5 
Less: Accounts payable  263.6   214.9   683.5   322.9 
Less: Advance payments on sales contracts  55.5   43.0 
Less: Contract liabilities  159.9   51.7 
Operating working capital $704.2  $611.7  $1,145.4  $603.0 

In the second quarter of 2017 we revised our definition of operating working capital to, accounts receivable, plus inventories excluding LIFO, less accounts payable, less advance payments on sales contracts. Prior periods have been restated to conform to the current presentation. Net working capital increased $153.2$879.3 million to $843.8$1,848.6 million at Septemberas of June 30, 20172020 from $690.6$969.3 million atas of December 31, 2016.2019. Operating working capital increased $92.5$542.4 million to $704.2$1,145.4 million at Septemberas of June 30, 20172020 from $611.7$603.0 million atas of December 31, 20162019.  The increase in operating working capital is primarily due to higher accounts receivable and higher inventories, partially offset by higher accounts payable and advance payments on sales contracts.  higher contract liabilities.

The increase in accounts receivablesreceivable was primarily due to significantly higher revenues and the differenceacquisition of Ingersoll Rand Industrial of which $575.6 million is included in the June 30, 2020 balance, partially offset by lower sales mix betweenin the second quarter of 2020 compared to the fourth quarter of 2016 and2019. The increase in contract assets was primarily due to the third quarteracquisition of 2017.  A higher portionIngersoll Rand Industrial of revenueswhich $17.5 million is included in the fourth quarter of 2016 were relatedJune 30, 2020 balance and due to highly engineered solution product contracts with higher advance payments aheadthe timing of revenue recognition than in the third quarter of 2017.and billing on our overtime contracts. The increase in inventories was primarily dueattributable to higher inventory costs related to projects expected to ship laterthe acquisition of Ingersoll Rand Industrial of which $498.1 million is included in the year and additions to inventory in anticipation of increased demand for certain products.June 30, 2020 balance. The increase in accounts payablespayable was primarily due to the increaseacquisition of Ingersoll Rand Industrial of which $415.3 million is included in inventoriesthe June 30, 2020 balance and the timing of vendor cash disbursements. The increase in advance payments on sales contractscontract liabilities was primarily due to an increased levelthe acquisition of Ingersoll Rand Industrial of which $103.2 million is included in process engineered to order contracts at the end of the third quarter of 2017 compared to the end of the fourth quarter of 2016.June 30, 2020 balance.
Cash Flows

  For the Nine Months Ended September 30, 
  2017  2016 
Cash flows - operating activities $83.9  $106.8 
Cash flows - investing activities  (43.1)  (59.8)
Cash flows - financing activities  (8.2)  (30.8)
Free cash flow (1)
  47.5   60.5 

The following table reflects the major categories of cash flows for the six month periods ended June 30, 2020 and 2019, respectively.

  For the Six Month Period Ended June 30, 
  2020  2019 
Cash flows - operating activities $315.8  $130.1 
Cash flows - investing activities  17.3   (24.5)
Cash flows - financing activities  336.9   (16.1)
Free cash flow(1)
  290.4   105.4 

(1)See the “Non-GAAP Financial Measures” section included in this Quarterly Report for a reconciliation to the nearest GAAP measure.


Operating Activities


Cash provided by operating activities decreased $22.9increased $185.7 million to $83.9$315.8 million infor the ninesix month period ended SeptemberJune 30, 201720202 from $106.8$130.1 million in the same ninesix month period in 2016,2019, primarily due to cash used by operating working capital of $55.4 milliona larger reduction in the nine month period ended September 30, 2017 compared to cash provided by operating working capital of $49.5 millionaccounts receivable and increases in the same period in 2016 as well as increased cash paid for taxesaccrued liabilities and higher incentive compensation,accounts payable, partially offset by higher gross profits on increased revenueslower net income (excluding non-cash charges for amortization and decreased cash paid for interest.  Changes in accounts receivable used cashdepreciation, stock-based compensation expense, foreign currency transaction losses, net, deferred income taxes and non-cash adjustments to carrying value of $65.9 million in the nine month period ended September 30, 2017 compared to generating cash of $18.1 million in the same nine month period in 2016.  Changes in inventory used cash of $36.4 million in the nine month period ended September 30, 2017 compared to using cash of $3.8 million in the same nine month period in 2016.  Changes in accounts payable generated cash of $39.8 million in the nine month period ended September 30, 2017 compared to generating cash of $21.3 million in the same nine month period ended September 30, 2016.  Changes in advance payments on sales contracts generated cash of $7.1 million in the nine month period ended September 30, 2017 compared to generating cash of $13.9 million in the same nine month period ended September 30, 2016.LIFO inventories).


Investing Activities


Cash usedprovided (used in) by in investing activities included capital expenditures of $36.4$25.4 million and $46.3$24.7 million for the ninesix month periods ended SeptemberJune 30, 20172020 and 2016,2019, respectively. We currently expect capital expenditures to total approximately $50.0Cash acquired in a business combination was $41.3 million to $60.0 million forin the full year in 2017.  Cashsix month period ended June 30, 2020 and cash paid in business combinations for the ninethree month periodsperiod ended SeptemberJune 30, 2017 and 2016 were $18.8 million and $18.8 million, respectively.  Proceeds from the termination of derivatives for the nine month periods ended September 30, 2017 and 2016 were $6.2 million and $0.0 million, respectively.  Net proceeds from business divestitures and disposals of property, plant and equipment were $5.9 million and $5.3 million for the nine month periods ended September 30, 2017 and 2016, respectively.2019 was $0.5 million.


56

Financing Activities


Cash usedprovided by financing activities of $8.2$336.9 million for the ninesix month period ended SeptemberJune 30, 2017 reflects a premium paid on2020 primarily reflected proceeds from long term debt of $1,980.1 million offset by repayments of long term debt of $1,599.6 million and payments of debt issuance costs of $46.6 million.

Cash used in financing activities of $16.1 million for the extinguishmentsix month period ended June 30, 2019 reflected repayments of senior noteslong-term borrowings of $29.7$28.8 million, purchases of treasury stock of $2.6$17.1 million, purchasespayments of sharescontingent consideration of noncontrolling interests of $5.2$2.0 million the paymentand payments of debt issuance costs of $2.9 million, and net repayments of long-term borrowings of $861.5$0.3 million, partially offset by proceeds from the issuancestock option exercises of common stock, net of share issuance costs of $893.3 million.  Cash used by financing activities of $30.8 million for the nine month period ended September 30, 2016 reflects net repayments of long-term borrowings of $19.1 million, purchases of treasury stock of $12.6 million, and the payment of debt issuance costs of $1.1 million, partially offset by the proceeds from the issuance of common stock of $2.9$32.1 million.

Free Cash Flow


Free cash flow decreased $13.0increased $185.0 million to a free cash inflow of $47.5$290.4 million in the ninesix month period ended SeptemberJune 30, 20172020 from a free cash inflow of $60.5$105.4 million in the same ninesix month period in 2016.  The decrease in free cash flow was2019 primarily due to decreasedincreased cash flows fromprovided by operating activities of $22.9 million partially offset by decreased capital expenditures of $9.9 million in the nine month period ended September 30, 2017 compared to the same period in 2016.activities.
Off-Balance Sheet Arrangements


We have no off-balance sheet arrangements that have or are materially likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations


The following table and accompanying disclosures summarizesummarizes our significant contractual obligations at Septemberfuture minimum payments as of June 30, 2017, and the effects such obligations are expected to have on our liquidity and cash flow in future periods:2020.


    Payments Due by Period    Payments Due by Period 
(dollars in millions)
Contractual Obligations
 Total  
Remainder
of 2017
   2018-2019   2020-2021  
After
2022
 
Contractual Obligations Total 
Remainder of
2020
  2021-2022  2023-2024 Thereafter 
Debt(1) $2,013.8  $5.2  $40.9  $40.9  $1,926.8  $3,894.0 $19.5 $78.1 $78.1 $3,718.3 
Estimated interest payments (1)(2)
  688.9   25.9   221.2   198.9   242.9   530.0  45.9  161.0  158.2  164.9 
Capital leases  19.3   0.4   3.5   3.8   11.6 
Finance leases  17.6  0.4  1.6  2.1  13.5 
Operating leases(3)  75.2   6.7   38.8   17.2   12.5   170.3  25.8  82.7  40.5  21.3 
Purchase obligations (2)
  320.0   238.7   80.0   0.9   0.4 
Total $3,117.2  $276.9  $384.4  $261.7  $2,194.2  $4,611.9 $91.6 $323.4 $278.9 $3,918.0 

(1)As of February 28, 2020, we entered into an additional $1,900.0 million term loan in connection with the acquisition of Ingersoll Rand Industrial and as of June 29, 2020, we entered into a $400.0 million term loan.  See Note 8 “Debt” to our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for further details.

(1)(2)Estimated interest payments for variable rate termlong-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 principal amortization schedulesmost likely scenarios for each relevant debt instrument. The increase of estimated interest payments since our previously disclosed contractual obligations on Form 10-K for the fiscal year ended December 31, 2019 was due to the $1,900.0 million term loan  and $400.0 million term loan as defined in the Senior Secured Credit Facilities using three month LIBOR interest rate yield curves and the fixed rates on our interest rate swap contracts.  No borrowings or outstanding balances on the variable rate revolving credit facility are anticipated during the analysis period.discussed above.


(2)(3)PurchaseThe acquisition of Ingersoll Rand Industrial increased our operating leases significantly from our previously disclosed contractual obligations consist primarily of agreements to purchase inventory or services made inon Form 10-K for 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 September 30, 2017.  For this reason, these amounts will not provide a complete and reliable indicatorfiscal year ended December 31, 2019.  Approximately $105.5 million of our expected future cash outflows.total operating leases related to the acquisition of Ingersoll Rand Industrial as June 30, 2020

We entered into purchase obligations which consist primarily of agreements to purchase inventory or services made in the normal course of business to meet operational requirements. We are currently assessing these agreements and the enforceability of the contracts in the context of the COVID-19 pandemic. We believe that we are positioned to meet all current purchase obligations, but will continue to assess due to the rapidly changing environment.

57

Critical Accounting Policies and Estimates


Management has evaluated the accounting policiesestimates used in the preparation of the Company’s condensed consolidated financial statements and related notes and believe those policiesestimates to be reasonable and appropriate. Certain of these accounting policiesestimates require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in the Prospectus, in thesection “Critical Accounting Policies and Estimates” section of “Management’s“Item 7. Management’s Discussion and Analysis”Analysis of Financial Condition and Results of Operations” and in Note 1 “Summary of Significant Accounting Policies” of “Item 8. Financial Statements and Supplementary Data” included in our annual report on Form 10-K for the “Notesfiscal year ended December 31, 2019 except for the additional critical accounting estimate below.

Business Combinations

We apply the acquisition method of accounting with respect to Consolidated Financial Statements.”  There have been no material changesthe identifiable assets and liabilities of a business combination and record the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.  The excess of the cost of the acquired business and the fair value of the assets acquired and liabilities assumed is recognized as goodwill.  Estimates of fair value represent management’s best estimate of assumptions and about future events and uncertainties, including significant judgments related to future cash flows, discount rates, competitive trends, margin and revenue growth assumptions including royalty rates and customer attrition rates, market comparables and others.  Inputs used are generally obtained from historical data supplemented by current and anticipated market conditions and growth rates.

Significant judgment is required in estimating the fair value of identifiable intangible assets and in assigning their respective useful lives.  The fair value estimates are based on historical information and on future expectations and assumptions deemed reasonable by management, but which are inherently uncertain.  See Note 2 “Business Combinations” to our critical accounting policies as comparedcondensed consolidated financial statements included elsewhere in this Form 10-Q for further information regarding the fair value determination of each of the classes of identifiable intangible assets.  Determining the useful life of an intangible asset also requires judgment.  Certain intangibles are expected to have indefinite lives while certain other identifiable intangible assets have determinable lives.  The useful lives of identifiable intangibles with determinable useful lives is based on a variety of factors, including but not limited to, the critical accounting policies described incompetitive environment, product cycles, order life cycles, historical customer attrition rates, market share, operating plans and the Prospectus.macroeconomic environment.  The costs of determinable-lived intangible assets are amortized to expense over the estimated useful life.


Environmental Matters


Information with respect to the effect of compliance with environmental protection requirements and resolution of environmental claims on us and our manufacturing operations is contained in Note 1815 “Contingencies” to the condensed consolidated financial statements.  We believe that as of June 30, 2020, there have been no material changes to the Consolidated Financial Statementsenvironmental matters disclosed in our Prospectusannual report on Form 10-K for the fiscal year ended December 31, 2016.  We believe that at September 30, 2017, there have been no material change to this information.2019.
Recent Accounting Pronouncements


The information set forth in Note 1 “Condensed Consolidated Financial Statements” to our Condensed Consolidated Financial Statements under Part I,1 Item 1 “Financial Statements” under the heading “Recently Issued Accounting Pronouncements” is incorporated herein by reference.

ItemITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate risk as a result of our variable-rate borrowings. We manage our exposure to interest rate risk by maintaining a mixture of fixed and variable debt, and from time to time, use pay-fixed interest rate swaps as cash flow hedges of our variable rate debt in order to adjust the relative fixed and variable portions.


In addition, we are exposed to foreign currency risks that arise from our global business operations. Changes in foreign currency exchange rates affect the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries and transactions denominated in currencies other than a subsidiary’s functional currency. While future changes in foreign currency exchange rates are difficult to predict, our revenues and earnings may be adversely affected if the U.S. dollar further strengthens.


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We seek to minimize our exposure to foreign currency risks through a combination of normal operating activities, including by conducting our international business operations primarily in their functional currencies to match expenses with revenues and the use of foreign currency forward exchange contracts and net investment cross-currency interest rate swaps.debt denominated in currencies other than the U.S. dollar. In addition, to mitigate the risk arising from entering into transactions in currencies other than our functional currencies, we typically settle intercompany trading balances monthly.


As of SeptemberJune 30, 2017,2020, there have been no material changes to our market risk assessment previously disclosed in the Prospectus.annual report on Form 10-K for the fiscal year ended December 31, 2019.

ItemITEM 4.CONTROLS AND PROCEDURES

Controls and Procedures

Disclosure Controls and Procedures


The Company maintains a set of disclosure controls and procedures as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of internal control over financial reporting of a recently acquired business may be omitted from management’s evaluation of disclosure controls and procedures, management is excluding an assessment of such internal controls of Ingersoll Rand Industrial from its evaluation of the effectiveness of the Company’s disclosure controls and procedures. The Company acquired Ingersoll Rand Industrial on February 29, 2020. Based on thattheir evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.


Internal Control Overover Financial Reporting: There hasReporting

Except as described below, there have not been any changechanges in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

53As mentioned above, on February 29, 2020, we completed the acquisition of Ingersoll Rand Industrial.  As part of our ongoing integration of Ingersoll Rand Industrial, we continue to incorporate our controls and procedures into the Ingersoll Rand Industrial subsidiaries and to expand our company-wide controls to reflect the risks inherent in an acquisition of this size and complexity.

PART II. OTHER INFORMATION

ItemPART II.OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

Legal Proceedings

The information set forth in Note 1415 “Contingencies” to our Condensed Consolidated Financial Statements under Part I Item 1 “Financial Statements,” is incorporated herein by reference.

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ItemITEM 1A.
Risk Factors
RISK FACTORS


AsExcept as set forth in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, as of SeptemberJune 30, 2017,2020, there have been no material changes to our risk factors included in our annual report on Form 10-K for the Prospectus.year ended December 31, 2019 (the “Annual Report”).

ItemITEM 2.
Unregistered Sales of Equity Securities and Use of ProceedsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Company Purchases
On May 17, 2017, we completed an initial public offering
The following table contains detail related to the repurchase of our common stock in which we issued and sold 47,495,000 shares of common stock, including 6,195,000 shares of common stock pursuant to the exercise in full of the underwriters’ option to purchase additional shares. The shares sold in the offering were registered under the Securities Act pursuant to our Registration Statement on Form S-1 (File No. 333-216320), which was declared effective by the SEC on May 11, 2017. The common stock is listedbased on the New York Stock Exchange underdate of trade during the symbol “GDI.” The Company’s shares of common stock were sold at an initial offering price of $20.00 per share, which generated net proceeds of approximately $897.7 million to the Company, after deducting underwriting discounts and commissions of approximately $52.2 million. We estimated that we incurred offering expenses of approximately $4.6 million (exclusive of underwriting discounts and commissions). We used the net proceeds from this offering to redeem all $575.0 million aggregate principal amount of our Senior Notes, including applicable redemption premiums, to repay $276.8 million of borrowings under our U.S. dollar-denominated senior secured term loan facility and to pay related fees and expenses.three month period ended June 30, 2020.


  Total Number of  Average Price Paid  
Total Number of
Shares Purchased
as Part of
Publicly Announced
  
Maximum Approximate
Dollar Value
of Shares that May Yet
Be Purchased Under the
 
2020 Second Quarter Months 
Shares Purchased(1)
  
Per Share(2)
  
Plans or Programs (3)
  
Plans or Programs (3)
 
April 1, 2020 - April 30, 2020  -  $-   -  $220,756,556 
May 1, 2020 - May 31, 2020  17,185  $28.94   -  $220,756,556 
June 1, 2020 - June 30, 2020  406  $33.18   -  $220,756,556 
Goldman Sachs & Co. LLC, Citigroup Global Markets Inc., KKR Capital Markets LLC and UBS Securities LLC acted as joint bookrunning managers and as representatives of the underwriters in the offering. Piper Jaffray & Co., Deutsche Bank Securities Inc., Robert W. Baird & Co. Incorporated, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC were also bookrunners in the offering. William Blair & Company, L.L.C., Stifel, Nicolaus & Company, Incorporated, HSBC Securities (USA) Inc., Macquarie Capital (USA) Inc., Credit Agricole Securities (USA) Inc. and Mizuho Securities USA LLC acted as co-managers in the offering.
(1)All of the shares purchased during the three month period ended June 30, 2020 were in connection with net exercises of stock options.

(2)The average price paid per share includes brokerage commissions.

(3)On August 1, 2018, the Company 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’s 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 24 ‘‘Share Repurchase Program’’ to our consolidated financial statements in the annual report on Form 10-K for the fiscal year ended December 31, 2019.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

Item 3.
Defaults Upon Senior Securities

None.
Item 4.
Mine Safety Disclosures

Not applicable.

ItemITEM 5.
Other InformationOTHER INFORMATION


None.

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ITEM 6.EXHIBITS

Item 6.
Exhibits

The following is a list of all exhibits filed or furnished as part of this report:report.


The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosures other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose.  In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual statement of affairs as of the date they were made or at any other time.

Exhibit
No.
Description
  
2.1
Agreement and Plan of Merger, dated as of April 30, 2019, by and among Ingersoll-Rand plc, Gardner Denver Holdings, Inc., Ingersoll-Rand U.S. HoldCo, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019).
2.2
Separation and Distribution Agreement, dated as of April 30, 2019, by and between Ingersoll-Rand plc and Ingersoll-Rand U.S. HoldCo, Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019).
10.1
Joinder Agreement and Amendment No. 26 to the Credit Agreement, dated as of August 17, 2017,June 29, 2020, among Gardner Denver Holdings,Ingersoll Rand Inc., Gardner Denver, Inc., Ingersoll-Rand Services Company, GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent,Gardner Denver Holdings Ltd., Citibank, N.A., and the lenders and other parties and lenders party thereto.thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed by the registrant on August 18, 2017 (File no. 001-38095)July 1, 2020).
10.2
Transition Agreement, dated June 12, 2020, between Ingersoll Rand Inc. and Emily Weaver.
  
31.1
Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
  
31.2
Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
  
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
  
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
  
101.INSInline 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.SCHInline XBRL Taxonomy Extension SchemaScheme Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 27, 2017August 4, 2020GARDNER DENVER HOLDINGS,INGERSOLL RAND INC.
 
By:/s/ Mark R. SweeneyMichael J. Scheske 
Name: Mark R. SweeneyMichael J. Scheske
Vice President and Chief Accounting Officer
Corporate Controller
(Principal Accounting Officer)




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