Company Quick10K Filing
Quick10K
Gardner Denver Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$28.49 202 $5,754
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
8-K 2019-10-03 Officers, Other Events, Exhibits
8-K 2019-07-31 Earnings, Exhibits
8-K 2019-06-29 Other Events
8-K 2019-06-28 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-05-09 Shareholder Vote
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-30 Enter Agreement, Exhibits
8-K 2019-04-30 Other Events, Exhibits
8-K 2019-02-19 Earnings, Exhibits
8-K 2018-12-18 Officers, Regulation FD, Exhibits
8-K 2018-12-13 Enter Agreement, Exhibits
8-K 2018-11-28 Officers, Regulation FD, Exhibits
8-K 2018-10-31 Enter Agreement, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-10-24 Officers
8-K 2018-09-11 Officers
8-K 2018-08-01 Earnings, Other Events, Exhibits
8-K 2018-05-10 Shareholder Vote
8-K 2018-05-02 Enter Agreement, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-02-07 Officers, Regulation FD, Exhibits
8-K 2018-01-05 Officers, Regulation FD, Exhibits
BRKS Brooks Automation 2,231
LPL LG Display 1,964
MTSC MTS Systems 1,028
CYD China Yuchai 842
SYX Systemax 785
GPRO Gopro 546
ULBI Ultralife 139
UQM UQM Technologies 97
AETI American Electric Technologies 12
ORBK Orbotech 0
GDI 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Note 1. Condensed Consolidated Financial Statements
Note 2. Business Combinations
Note 3. Restructuring
Note 4. Inventories
Note 5. Goodwill and Other Intangible Assets
Note 6. Accrued Liabilities
Note 7. Pension and Other Postretirement Benefits
Note 8. Debt
Note 9. Stock-Based Compensation
Note 10. Accumulated Other Comprehensive (Loss) Income
Note 11. Hedging Activities and Fair Value Measurements
Note 12. Revenue From Contracts with Customers
Note 13. Income Taxes
Note 14. Leases
Note 15. Supplemental Information
Note 16. Contingencies
Note 17. Segment Results
Note 18. Related Party Transactions
Note 19. Earnings per Share
Note 20. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32.1 ex32_1.htm
EX-32.2 ex32_2.htm

Gardner Denver Holdings Earnings 2019-06-30

GDI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow



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 June 30, 2019
or

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

For the transition period from                     to___________
Commission File Number: 001-38095


 
Gardner Denver Holdings, 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 Erie Street, Ste 500
Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices) (Zip Code)

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


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

Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
 
 
 
Common Stock, $0.01 Par Value
GDI
New York Stock Exchange LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer
Accelerated filer
       
Non-accelerated filer
 
Smaller reporting company
       
Emerging growth Company
   

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 

The registrant had outstanding 204,099,619 shares of Common Stock, par value $0.01 per share, as of July 31, 2019.






Table of Contents

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

Page
No.
PART I. FINANCIAL INFORMATION
 
6
39
58
58
PART II. OTHER INFORMATION
 
59
59
60
61
61
61
61
61


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 “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and in this report, 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 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 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.

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.

3

Index

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

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

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

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

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

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

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

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

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

A natural disaster, catastrophe 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.

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.

4

Index

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.

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

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

Website Disclosure

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

5

Index

PART I.
FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

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

   
For the
Three Month
Period Ended
June 30,
   
For the
Six Month
Period Ended
June 30,
 
   
2019
   
2018
   
2019
   
2018
 
Revenues
 
$
629.1
   
$
668.2
   
$
1,249.4
   
$
1,287.7
 
Cost of sales
   
394.7
     
418.9
     
784.5
     
806.6
 
Gross Profit
   
234.4
     
249.3
     
464.9
     
481.1
 
Selling and administrative expenses
   
103.6
     
115.8
     
211.3
     
222.6
 
Amortization of intangible assets
   
30.9
     
31.5
     
62.3
     
62.4
 
Other operating expense, net
   
25.3
     
0.6
     
36.4
     
4.9
 
Operating Income
   
74.6
     
101.4
     
154.9
     
191.2
 
Interest expense
   
22.4
     
26.1
     
44.8
     
52.1
 
Loss on extinguishment of debt
   
0.2
     
0.2
     
0.2
     
0.2
 
Other income, net
   
(1.2
)
   
(2.4
)
   
(2.5
)
   
(4.5
)
Income Before Income Taxes
   
53.2
     
77.5
     
112.4
     
143.4
 
Provision for income taxes
   
8.3
     
17.2
     
20.3
     
40.7
 
Net Income
 
$
44.9
   
$
60.3
   
$
92.1
   
$
102.7
 
Basic earnings per share
 
$
0.22
   
$
0.30
   
$
0.45
   
$
0.51
 
Diluted earnings per share
 
$
0.21
   
$
0.29
   
$
0.44
   
$
0.49
 

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

6

Index
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in millions)

 
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2019
   
2018
   
2019
   
2018
 
Net income
 
$
44.9
   
$
60.3
   
$
92.1
   
$
102.7
 
Other comprehensive loss, net of tax:
                               
Foreign currency translation adjustments, net
   
(6.4
)
   
(67.5
)
   
(6.5
)
   
(33.1
)
Unrecognized (losses) gains on cash flow hedges, net
   
(0.5
)
   
4.7
     
1.4
     
16.1
 
Pension and other postretirement prior service cost and gain or loss, net
   
1.2
     
2.7
     
1.4
     
3.1
 
Total other comprehensive loss, net of tax
   
(5.7
)
   
(60.1
)
   
(3.7
)
   
(13.9
)
Total Comprehensive Income
 
$
39.2
   
$
0.2
   
$
88.4
   
$
88.8
 

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

7

Index
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in millions, except share and per share amounts)

 
June 30,
2019
   
December 31,
2018
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
317.5
   
$
221.2
 
Accounts receivable, net of allowance for doubtful accounts of $18.2 and $17.4, respectively
   
498.6
     
525.4
 
Inventories
   
557.6
     
523.9
 
Other current assets
   
90.2
     
60.7
 
Total current assets
   
1,463.9
     
1,331.2
 
Property, plant and equipment, net of accumulated depreciation of $269.1 and $250.0, respectively
   
345.1
     
356.6
 
Goodwill
   
1,284.9
     
1,289.5
 
Other intangible assets, net
   
1,303.8
     
1,368.4
 
Deferred tax assets
   
1.1
     
1.3
 
Other assets
   
195.5
     
140.1
 
Total assets
 
$
4,594.3
   
$
4,487.1
 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Short-term borrowings and current maturities of long-term debt
 
$
8.0
   
$
7.9
 
Accounts payable
   
331.8
     
340.0
 
Accrued liabilities
   
251.5
     
248.5
 
Total current liabilities
   
591.3
     
596.4
 
Long-term debt, less current maturities
   
1,623.5
     
1,664.2
 
Pensions and other postretirement benefits
   
91.1
     
94.8
 
Deferred income taxes
   
272.9
     
265.5
 
Other liabilities
   
230.2
     
190.2
 
Total liabilities
   
2,809.0
     
2,811.1
 
Commitments and contingencies (Note 16)
               
Stockholders’ equity:
               
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 205,676,965 and 201,051,291 shares issued as of June 30, 2019 and December 31, 2018, respectively
   
2.1
     
2.0
 
Capital in excess of par value
   
2,287.9
     
2,282.7
 
Accumulated deficit
   
(208.4
)
   
(308.7
)
Accumulated other comprehensive loss
   
(258.9
)
   
(247.0
)
Treasury stock at cost; 1,752,448 and 2,881,436 shares as of June 30, 2019 and December 31, 2018, respectively
   
(37.4
)
   
(53.0
)
Total stockholders’ equity
   
1,785.3
     
1,676.0
 
Total liabilities and stockholders’ equity
 
$
4,594.3
   
$
4,487.1
 

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

8

Index

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

 
For the Three Month
Period Ended
June 30,
 
   
2019
   
2018
 
Number of Common Shares Issued (in millions)
           
Balance at beginning of period
   
203.3
     
199.4
 
Issuance of common stock for stock-based compensation plans
   
2.4
     
1.3
 
Balance at end of period
   
205.7
     
200.7
 
Common Stock
               
Balance at beginning of period
 
$
2.0
   
$
2.0
 
Issuance of common stock for stock-based compensation plans
   
0.1
     
 
Balance at end of period
 
$
2.1
   
$
2.0
 
Capital in Excess of Par Value
               
Balance at beginning of period
 
$
2,289.3
   
$
2,282.3
 
Issuance of common stock for stock-based compensation plans
   
11.8
     
1.9
 
Issuance of treasury stock for stock-based compensation plans
   
(16.0
)
   
(8.3
)
Stock-based compensation
   
2.8
     
2.4
 
Balance at end of period
 
$
2,287.9
   
$
2,278.3
 
Accumulated Deficit
               
Balance at beginning of period
 
$
(253.3
)
 
$
(535.7
)
Net income
   
44.9
     
60.3
 
Balance at end of period
 
$
(208.4
)
 
$
(475.4
)
Accumulated Other Comprehensive Loss
               
Balance at beginning of period
 
$
(253.2
)
 
$
(153.3
)
Foreign currency translation adjustments, net
   
(6.4
)
   
(67.5
)
Unrecognized gains on cash flow hedges, net
   
(0.5
)
   
4.7
 
Pension and other postretirement prior service cost and gain or loss, net
   
1.2
     
2.7
 
Balance at end of period
 
$
(258.9
)
 
$
(213.4
)
Treasury Stock
               
Balance at beginning of period
 
$
(47.0
)
 
$
(27.6
)
Purchases of treasury stock
   
(8.6
)
   
(3.0
)
Issuance of treasury stock for stock-based compensation plans
   
18.2
     
8.2
 
Balance at end of period
 
$
(37.4
)
 
$
(22.4
)
Total Stockholders’ Equity
 
$
1,785.3
   
$
1,569.1
 

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

9

Index

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

 
For the Six Month
Period Ended
June 30,
 
   
2019
   
2018
 
Number of Common Shares Issued (in millions)
           
Balance at beginning of period
   
201.1
     
198.4
 
Issuance of common stock for stock-based compensation plans
   
4.6
     
2.3
 
Balance at end of period
   
205.7
     
200.7
 
Common Stock
               
Balance at beginning of period
 
$
2.0
   
$
2.0
 
Issuance of common stock for stock-based compensation plans
   
0.1
     
 
Balance at end of period
 
$
2.1
   
$
2.0
 
Capital in Excess of Par Value
               
Balance at beginning of period
 
$
2,282.7
   
$
2,275.4
 
Issuance of common stock for stock-based compensation plans
   
24.7
     
5.2
 
Issuance of treasury stock for stock-based compensation plans
   
(25.2
)
   
(9.9
)
Stock-based compensation
   
5.7
     
7.6
 
Balance at end of period
 
$
2,287.9
   
$
2,278.3
 
Accumulated Deficit
               
Balance at beginning of period
 
$
(308.7
)
 
$
(577.8
)
Net income
   
92.1
     
102.7
 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2017-12)
   
     
(0.3
)
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02)
   
8.2
     
 
Balance at end of period
 
$
(208.4
)
 
$
(475.4
)
Accumulated Other Comprehensive Loss
               
Balance at beginning of period
 
$
(247.0
)
 
$
(199.8
)
Foreign currency translation adjustments, net
   
(6.5
)
   
(33.1
)
Unrecognized gains on cash flow hedges, net
   
1.4
     
16.1
 
Pension and other postretirement prior service cost and gain or loss, net
   
1.4
     
3.1
 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2017-12)
   
     
0.3
 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02)
   
(8.2
)
   
 
Balance at end of period
 
$
(258.9
)
 
$
(213.4
)
Treasury Stock
               
Balance at beginning of period
 
$
(53.0
)
 
$
(23.0
)
Purchases of treasury stock
   
(17.1
)
   
(9.2
)
Issuance of treasury stock for stock-based compensation plans
   
32.7
     
9.8
 
Balance at end of period
 
$
(37.4
)
 
$
(22.4
)
Total Stockholders’ Equity
 
$
1,785.3
   
$
1,569.1
 

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

10

Index

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

 
For the
Six Month
Period Ended
June 30,
2019
   
For the
Six Month
Period Ended
June 30,
2018
 
Cash Flows From Operating Activities:
           
Net income
 
$
92.1
   
$
102.7
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Amortization of intangible assets
   
62.3
     
62.4
 
Depreciation in cost of sales
   
22.8
     
22.8
 
Depreciation in selling and administrative expenses
   
4.8
     
5.0
 
Stock-based compensation expense
   
13.6
     
5.2
 
Foreign currency transaction losses, net
   
3.7
     
0.2
 
Net gain on asset dispositions
   
(0.3
)
   
(1.2
)
Loss on extinguishment of debt
   
0.2
     
0.2
 
Deferred income taxes
   
6.5
     
9.2
 
Changes in assets and liabilities:
               
Receivables
   
17.2
     
43.2
 
Inventories
   
(35.0
)
   
(46.8
)
Accounts payable
   
(0.8
)
   
45.3
 
Accrued liabilities
   
(0.9
)
   
(42.7
)
Other assets and liabilities, net
   
(56.1
)
   
(11.0
)
Net cash provided by operating activities
   
130.1
     
194.5
 
Cash Flows From Investing Activities:
               
Capital expenditures
   
(24.7
)
   
(20.9
)
Net cash paid in business combinations
   
(0.5
)
   
(113.6
)
Disposals of property, plant and equipment
   
0.7
     
3.1
 
Net cash used in investing activities
   
(24.5
)
   
(131.4
)
Cash Flows From Financing Activities:
               
Principal payments on long-term debt
   
(28.8
)
   
(110.5
)
Purchases of treasury stock
   
(17.1
)
   
(9.2
)
Proceeds from stock option exercises
   
32.1
     
5.2
 
Payments of contingent consideration
   
(2.0
)
   
 
Payments of debt issuance costs
   
(0.3
)
   
 
Net cash used in financing activities
   
(16.1
)
   
(114.5
)
Effect of exchange rate changes on cash and cash equivalents
   
6.8
     
(4.1
)
Net increase (decrease) in cash and cash equivalents
   
96.3
     
(55.5
)
Cash and cash equivalents, beginning of period
   
221.2
     
393.3
 
Cash and cash equivalents, end of period
 
$
317.5
   
$
337.8
 
                 
Supplemental Cash Flow Information
               
Cash paid for income taxes
 
$
31.5
   
$
62.4
 
Cash paid for interest
 
$
42.5
   
$
51.7
 
Debt issuance costs in accounts payable
 
$
0.5
   
$
 
Debt issuance costs in accrued liabilities
 
$
5.6
   
$
 
Capital expenditures in accounts payable
 
$
3.8
   
$
3.1
 

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

11

Index
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 (Amounts in millions, except share and per share amounts)

Note 1. Condensed Consolidated Financial Statements

Basis of Presentation

Gardner Denver Holdings, Inc. is a holding company whose operating subsidiaries are Gardner Denver, Inc. (“GDI”) and certain of GDI’s subsidiaries.  GDI 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, Inc. and its majority-owned subsidiaries (collectively referred to herein as “Gardner Denver” or the “Company”).  The financial information presented as of any date other than December 31, 2018 has been prepared from the books and records of the Company without audit.  The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of adjustments associated with acquisition accounting and normal recurring adjustments, necessary for the fair presentation of such financial statements.  All intercompany transactions and accounts have been eliminated in consolidation.

The Company’s unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”).

The results of operations for the  interim periods ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.  The balance sheet as of December 31, 2018 has been derived from the Company’s audited financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements.

In May 2017, the Company sold a total of 47,495,000 shares of common stock in an initial public offering of shares of common stock. On November 15, 2017, May 2, 2018 and October 31, 2018, the Company completed secondary offerings of 25,300,000 shares, 30,533,478 and 20,000,000 shares, respectively, of common stock held by affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”). As a result of the secondary offerings, the Company is no longer considered a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange (“NYSE”). KKR owns 70,671,135 shares of common stock, or approximately 35% of the total outstanding common stock based on the number of shares outstanding as of June 30, 2019.

Recently Adopted Accounting Standard Updates (“ASU”)

ASU 2016-02, Leases (Topic 842)

On January 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) ASU 2016-02, Leases (Topic 842) (“ASC 842”) utilizing the optional transition method.  The amendments in this update replaced most of the existing GAAP lease accounting guidance in order to increase transparency and comparability among organizations by recognizing right-of-use lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current GAAP.  The amendments also expanded disclosure requirements for key information about leasing arrangements.  The Company elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.  The Company updated its internal lease accounting policy to address the new standard, revised the Company’s business processes and controls and completed the implementation and data input for the Company’s lease accounting software solution.  The most significant impact of the standard on the Company was the recognition of an approximate $61.3 million operating right of use (“ROU”) asset and an approximate $61.4 million operating lease liability on the Condensed Consolidated Balance Sheet. The standard did not have a material impact on both the Company’s Condensed Consolidated Statements of Operations and the Company’s Condensed Consolidated Statements of Cash Flows.  See Note 14, “Leases” for further discussion of the Company’s operating and financing leases.

12

Index

ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On January 1, 2019, the Company adopted FASB ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). The standard allowed a reclassification from accumulated other comprehensive (loss) income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act as of January 1, 2019.  The Company recorded a cumulative-effect adjustment on the adoption date decreasing “Accumulated deficit” in the Condensed Consolidated Balance Sheets by $8.2 million and increasing “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets by $8.2 million.

Recently Issued Accounting Pronouncements

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 guidance is effective for public companies beginning in the first quarter of 2020. Early adoption is permitted. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements and evaluating the timing of adoption.

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this 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. Early adoption is permitted. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements and evaluating the timing of adoption.

In August 2018, the FASB issued ASU 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 require implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangement plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company is required to adopt this new guidance in the first quarter of 2020. Early adoption is permitted. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements and evaluating the timing of adoption.

Note 2. Business Combinations

Acquisition of MP Pumps, Inc.

On December 12, 2018, the Company acquired MP Pumps, Inc. (“MP Pumps”), a leading manufacturer of specialty industrial pumps and associated aftermarket parts. The Company acquired all of the assets and assumed certain liabilities of MP Pumps for total consideration, net of cash acquired, of $58.5 million, which consisted of cash payments of $57.8 million, a payable $0.1 million purchase price adjustment and a $0.6 million holdback. During the first quarter of 2019, an additional purchase price adjustment of $0.2 million removed the $0.1 million payable purchase price adjustment and reduced the holdback to $0.5 million.  The $0.5 million holdback was paid in the first quarter of 2019 and recorded in “Net cash paid in business combinations” in the Condensed Consolidated Statements of Cash Flows. The revenues and operating income of MP Pumps are included in the Company’s condensed consolidated financial statements from 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 DV Systems, Inc.

On November 2, 2018, the Company acquired DV Systems, Inc. (“DV Systems”), a leading manufacturer of rotary screws and piston compressors and associated aftermarket parts. The Company acquired all of the assets and assumed certain liabilities of DV Systems for total consideration, net of cash acquired, of $16.1 million, which consisted of cash payments of $14.8 million and a $1.3 million holdback. During the first quarter of 2019, the purchase price was increased by $0.1 million and resulted in a payable $0.1 million purchase price adjustment. Of the $1.3 million holdback and $0.1 million purchase price adjustment, $0.4 million is expected to be paid by the end of the fourth quarter of 2019, $0.5 million by the end of the first quarter of 2020, and $0.5 million by the end of the fourth quarter of 2020. $0.9 million of the holdback and purchase price adjustment is recorded in “Accrued liabilities” in the Condensed Consolidated Balance Sheets and the remaining $0.5 million is recorded in “Other liabilities” in the Condensed Consolidated Balance Sheets. The revenues and operating income of DV Systems are included in the Company’s condensed consolidated financial statements from the acquisition date and are included in the Industrials segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

13

Index

Acquisition of PMI Pump Parts

On May 29, 2018, the Company acquired PMI Pump Parts (“PMI”), a leading manufacturer of plungers and other well service pump consumable products. The Company acquired all of the assets and assumed certain liabilities of PMI for total consideration, net of cash acquired, of $21.0 million, which consisted of cash payments of $18.8 million, a $2.0 million promissory note and a $0.2 million holdback. The $0.2 million holdback and $1.0 million of the promissory note were paid in the fourth quarter of 2018.  The remaining $1.0 million of the promissory note was paid in the second quarter of 2019 and recorded in “Payments for contingent consideration” in the Condensed Consolidated Statements of Cash Flows. The revenues and operating income of PMI are included in the Company’s condensed consolidated financial statements from the acquisition date and are included in the Energy segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition of Runtech Systems Oy

On February 8, 2018, the Company acquired 100% of the stock of Runtech Systems Oy (“Runtech”), a leading global manufacturer of turbo vacuum technology systems and optimization solutions for industrial applications. The Company acquired all of the assets and assumed certain liabilities of Runtech for total cash consideration of $94.9 million, net of cash acquired. The revenues and operating income of Runtech are included in the Company’s condensed consolidated financial statements from the acquisition date and are included in the Industrials segment. The purchase price allocation resulted in the recording of $63.6 million of goodwill and $31.3 million of amortizable intangible assets as of the acquisition date. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition Revenues and Operating Income (Loss)

The following table summarizes the revenue and operating income (loss) of these acquisitions for the periods presented subsequent to their date of acquisition.


 
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2019
   
2018
   
2019
   
2018
 
Revenue
 
$
29.2
   
$
15.7
   
$
55.0
   
$
23.6
 
Operating income (loss)
   
4.6
     
(0.9
)
   
6.6
     
(2.0
)

Pro forma information regarding these acquisitions have not been provided as they did not have a material impact on the Company’s condensed consolidated results of operations individually or in the aggregate.

Transaction with Ingersoll Rand

On April 30, 2019, the Company entered into a definitive agreement with Ingersoll-Rand plc (“Ingersoll Rand”) pursuant to which Ingersoll Rand will separate its Industrial segment (“Ingersoll Rand Industrial”) and then combine it with the Company (the “Merger Agreement”). The transaction will be effected through a “Reverse Morris Trust” transaction pursuant to which Ingersoll Rand Industrial is expected to be spun-off to Ingersoll Rand’s shareholders and simultaneously merged with and surviving as a wholly-owned subsidiary of Gardner Denver (the “Merger”). Under the terms of the Merger Agreement, which has been unanimously approved by the Boards of Directors of Ingersoll Rand and the Company, at the time of close, Ingersoll Rand will receive $1.9 billion in cash from Ingersoll Rand Industrial that will be funded by newly-issued debt assumed by the Company in the Merger. Upon close of the transaction, existing Ingersoll Rand shareholders will receive 50.1% of the shares of the Company on a fully diluted basis.

14

Index

The Merger is expected to close in early 2020, subject to approval by the Company’s stockholders, regulatory approvals and customary closing conditions.

Note 3. Restructuring

Restructuring Program 2018

In the third quarter of 2018, the Company announced a restructuring program that primarily involves workforce reductions and facility consolidation. These actions are expected to continue throughout 2019 and are focused on targeted workforce optimization within general and administrative back-office and manufacturing overhead as well as continued facility consolidation. In the six month period ended June 30, 2019, $2.8 million was charged to expense through ‘‘Other operating expense, net’’ in the Condensed Consolidated Statements of Operations ($1.9 million for Industrials, $1.1 million for Energy and $(0.2) million for Medical).

The following table summarizes the activity associated with the Company’s restructuring programs for the six month period ended June 30, 2019.


 
Total
 
Balance as of December 31, 2018
 
$
10.1
 
Charged to expense - Termination benefits
   
2.4
 
Charged to expense - Other
   
0.4
 
Payments
   
(7.0
)
Other, net
   
(0.1
)
Balance as of June 30, 2019
 
$
5.8
 

As of June 30, 2019, restructuring reserves of $5.8 million are included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets. As of December 31, 2018, restructuring reserves of $10.1 million related to these programs were included in ‘‘Accrued liabilities’’ in the Consolidated Balance Sheets.

Note 4. Inventories

Inventories as of June 30, 2019 and December 31, 2018 consisted of the following.


 
June 30,
2019
   
December 31,
2018
 
Raw materials, including parts and subassemblies
 
$
403.4
   
$
369.2
 
Work-in-process
   
59.9
     
58.1
 
Finished goods
   
81.1
     
83.4
 
     
544.4
     
510.7
 
Excess of LIFO costs over FIFO costs
   
13.2
     
13.2
 
Inventories
 
$
557.6
   
$
523.9
 

15

Index

Note 5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill attributable to each reportable segment for the six month period ended June 30, 2019 is presented in the table below.


 
Industrials
   
Energy
   
Medical
   
Total
 
Balance as of December 31, 2018
 
$
632.7
   
$
453.6
   
$
203.2
   
$
1,289.5
 
Foreign currency translation and other (1)
   
(2.2
)
   
(2.3
)
   
(0.1
)
   
(4.6
)
Balance as of June 30, 2019
 
$
630.5
   
$
451.3
   
$
203.1
   
$
1,284.9
 

(1)
During the six month period ended June 30, 2019, the Company recorded an increase in goodwill of $0.2 million as a result of measurement period adjustments in the Industrials segment.


As of June 30, 2019, goodwill included a total of $563.9 million of accumulated impairment losses within the Energy segment. There were no goodwill impairment charges recorded during the six month periods ended June 30, 2019 and 2018.

Other intangible assets as of June 30, 2019 and December 31, 2018 consisted of the following.


 
June 30, 2019
   
December 31, 2018
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Gross
Carrying
Amount
   
Accumulated
Amortization
 
Amortized intangible assets
                       
Customer lists and relationships
 
$
1,241.9
   
$
(620.9
)
 
$
1,245.5
   
$
(567.8
)
Technology
   
21.5
     
(5.3
)
   
21.7
     
(4.8
)
Trademarks
   
44.7
     
(14.6
)
   
44.9
     
(13.0
)
Backlog
   
68.6
     
(68.6
)
   
68.8
     
(68.6
)
Other
   
62.8
     
(36.7
)
   
62.3
     
(31.9
)
Unamortized intangible assets
                               
Trademarks
   
610.4
     
     
611.3
     
 
Total other intangible assets
 
$
2,049.9
   
$
(746.1
)
 
$
2,054.5
   
$
(686.1
)

Amortization of intangible assets for the three and six month periods ended June 30, 2019 and 2018 were as follows.


 
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2019
   
2018
   
2019
   
2018
 
Intangible asset amortization expense
 
$
30.9
   
$
31.5
   
$
62.3
   
$
62.4
 

Amortization of intangible assets is anticipated to be approximately $123.2 million annually in 2020 through 2024 based upon exchange rates as of June 30, 2019.

16

Index

Note 6. Accrued Liabilities

Accrued liabilities as of June 30, 2019 and December 31, 2018 consisted of the following.


 
June 30,
2019
   
December 31,
2018
 
Salaries, wages and related fringe benefits
 
$
64.4
   
$
62.9
 
Restructuring
   
5.8
     
10.1
 
Taxes
   
21.5
     
24.3
 
Contract liabilities
   
60.6
     
69.6
 
Product warranty
   
23.4
     
23.9
 
Accrued interest
   
0.7
     
0.3
 
Operating lease liabilities(1)
   
17.5
     
 
Other
   
57.6
     
57.4
 
Total accrued liabilities
 
$
251.5
   
$
248.5
 

(1)
The Company adopted ASU 2016-02, Leases, on January 1, 2019 using the optional transition method.  See Note 1 “Condensed Consolidated Financial Statements” for further discussion of the adoption of ASU 2016-02 and Note 14 “Leases” for discussion of the Company’s operating and financing leases.


A reconciliation of the changes in the accrued product warranty liability for the three and six month periods ended June 30, 2019 and 2018 are as follows.


 
For the
Three Month
Period Ended