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Set forth below is our selected consolidated financial data as of the dates and for the periods indicated. The selected consolidated financial data as of December 31, 2017 and 2016 and for the fiscal years ended December 31, 2017, 2016, and 2015 have been derived from our audited consolidated financial statements and related notes thereto included elsewhere in this Form 10-K. The selected consolidated financial data as of December 31, 2015, December 31, 2014, and for the period from July 30, 2013 through December 31, 2013 have been derived from our consolidated financial statements and related notes thereto not included in this Form 10-K. The selected historical consolidated financial data as of July 29, 2013 and for the period from January 1, 2013 through July 29, 2013 have been derived from the consolidated financial statements and related notes thereto of Gardner Denver, Inc., our “accounting predecessor,” not included in this Form 10-K.
Selected historical consolidated financial data are presented for two periods: Predecessor and Successor, which relate to the period preceding the KKR Transaction and the period succeeding the KKR Transaction, respectively. The Company refers to the operations of our accounting predecessor and its subsidiaries for the Predecessor period and the operations of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and subsidiaries for the Successor periods. The financial Successor and Predecessor financial statements are not comparable as a result of the application of acquisition accounting and changes in the Company’s capital structure resulting from the KKR Transaction.
The selected historical consolidated financial data set forth below should be read in conjunction with, and are qualified by reference to, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto included elsewhere in this Form 10-K.
| | Successor | | | | | | | | | | | | | | | | | | | | Predecessor | | |
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| (in millions, except per share amounts) | | Year Ended December 31, 2017 | | | | Year Ended December 31, 2016 | | | | Year Ended December 31, 2015 | | | | Year Ended December 31, 2014 | | | | July 30, 2013 – December 31, 2013 | | | | January 1, 2013 – July 29, 2013 | | |
| Consolidated Statements of Operations: | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | $ | 2,375.4 | | | $ | 1,939.4 | | | $ | 2,126.9 | | | $ | 2,570.0 | | | $ | 978.4 | | | $ | 1,231.6 | |
| Cost of sales | | | 1,477.5 | | | | 1,222.7 | | | | 1,347.8 | | | | 1,633.2 | | | | 666.5 | | | | 799.5 | |
| Gross profit | | | 897.9 | | | | 716.7 | | | | 779.1 | | | | 936.8 | | | | 311.9 | | | | 432.1 | |
| Selling and administrative expenses | | | 446.6 | | | | 414.3 | | | | 427.0 | | | | 476.0 | | | | 193.7 | | | | 263.8 | |
| Amortization of intangible assets | | | 118.9 | | | | 124.2 | | | | 115.4 | | | | 113.3 | | | | 111.9 | | | | 9.9 | |
| Impairment of goodwill | | | - | | | | - | | | | 343.3 | | | | 220.6 | | | | - | | | | - | |
| Impairment of other intangible assets | | | 1.6 | | | | 25.3 | | | | 78.1 | | | | 14.4 | | | | - | | | | - | |
| Other operating expense, net | | | 222.1 | | | | 48.6 | | | | 20.7 | | | | 64.3 | | | | 76.9 | | | | 46.5 | |
| Operating income (loss) | | | 108.7 | | | | 104.3 | | | | (205.4 | ) | | | 48.2 | | | | (70.6 | ) | | | 111.9 | |
| Interest expense | | | 140.7 | | | | 170.3 | | | | 162.9 | | | | 164.4 | | | | 65.4 | | | | 6.6 | |
| Loss on extinguishment of debt | | | 84.5 | | | | - | | | | - | | | | - | | | | - | | | | - | |
| Other income, net | | | (3.8 | ) | | | (2.8 | ) | | | (1.6 | ) | | | (3.3 | ) | | | (2.1 | ) | | | (2.0 | ) |
| (Loss) income before income taxes | | | (112.7 | ) | | | (63.2 | ) | | | (366.7 | ) | | | (112.9 | ) | | | (133.9 | ) | | | 107.3 | |
| (Benefit) provision for income taxes | | | (131.2 | ) | | | (31.9 | ) | | | (14.7 | ) | | | 23.0 | | | | (59.4 | ) | | | 35.4 | |
| Net income (loss) | | | 18.5 | | | | (31.3 | ) | | | (352.0 | ) | | | (135.9 | ) | | | (74.5 | ) | | | 71.9 | |
| Less: Net income (loss) attributable to noncontrolling interest | | | 0.1 | | | | 5.3 | | | | (0.8 | ) | | | (0.9 | ) | | | (1.1 | ) | | | 0.7 | |
| Net income (loss) attributable to Gardner Denver Holdings, Inc. | | $ | 18.4 | | | $ | (36.6 | ) | | $ | (351.2 | ) | | $ | (135.0 | ) | | $ | (73.4 | ) | | $ | 71.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (Loss) per share, basic | | $ | 0.10 | | | $ | (0.25 | ) | | $ | (2.35 | ) | | $ | (0.91 | ) | | | | | | | | |
| Earnings (Loss) per share, diluted | | $ | 0.10 | | | $ | (0.25 | ) | | $ | (2.35 | ) | | $ | (0.91 | ) | | | | | | | | |
| Weighted average shares, basic | | | 182.2 | | | | 149.2 | | | | 149.6 | | | | 148.9 | | | | | | | | | |
| Weighted average shares, diluted | | | 188.4 | | | | 149.2 | | | | 149.6 | | | | 148.9 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Statement of Cash Flow Data: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash flows - operating activities | | $ | 200.5 | | | $ | 165.6 | | | $ | 172.1 | | | $ | 141.8 | | | $ | (15.2 | ) | | $ | 77.4 | |
| Cash flows - investing activities | | | (60.8 | ) | | | (82.1 | ) | | | (84.0 | ) | | | (155.4 | ) | | | (3,806.7 | ) | | | (15.1 | ) |
| Cash flows - financing activities | | | (17.4 | ) | | | (43.0 | ) | | | (35.0 | ) | | | (3.7 | ) | | | 3,929.5 | | | | (205.0 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Balance Sheet Data (at period end): | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 393.3 | | | $ | 255.8 | | | $ | 228.3 | | | $ | 184.2 | | | $ | 218.7 | | | $ | 107.4 | |
| Total assets | | | 4,621.2 | | | | 4,316.0 | | | | 4,462.0 | | | | 5,107.1 | | | | 5,420.7 | | | | 2,376.4 | |
| Total liabilities | | | 3,144.4 | | | | 4,044.2 | | | | 4,056.5 | | | | 4,218.5 | | | | 4,226.4 | | | | 847.3 | |
| Total stockholders’ equity | | | 1,476.8 | | | | 271.8 | | | | 405.5 | | | | 888.6 | | | | 1,194.3 | | | | 1,529.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Other Financial Data (unaudited): | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted EBITDA(1) | | $ | 561.5 | | | $ | 400.7 | | | $ | 418.9 | | | | | | | | | | | | | |
| Adjusted net income(1) | | | 249.3 | | | | 133.6 | | | | 128.1 | | | | | | | | | | | | | |
| Capital expenditures | | | 56.8 | | | | 74.4 | | | | 71.0 | | | | | | | | | | | | | |
| Free cash flow(1) | | | 143.7 | | | | 91.2 | | | | 101.1 | | | | | | | | | | | | | |
| (1) | We report our financial results in accordance with GAAP. To supplement this information, we also use the following measures in this Form 10-K: “Adjusted EBITDA,” “Adjusted Net Income” and “Free Cash Flow.” Management believes that Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation and amortization, as further adjusted to exclude certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions. |
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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.
As a result, we 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 measure under GAAP. In addition, we believe that Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are frequently used by investors, analysts and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity.
Adjusted EBITDA, Adjusted Net Income and Free Cash Flow should not be considered as alternatives to net income (loss) or other performance measures calculated 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.
Set forth below are the reconciliations of net income (loss) to Adjusted EBITDA and Adjusted Net Income and cash flows from operating activities to Free Cash Flow.
| | Year Ended December 31, | | | | | | | | | | |
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| (in millions) | | 2017 | | | | 2016 | | | | 2015 | | |
| Net Income (Loss) | | $ | 18.5 | | | $ | (31.3 | ) | | $ | (352.0 | ) |
| Plus: | | | | | | | | | | | | |
| Interest expense | | | 140.7 | | | | 170.3 | | | | 162.9 | |
| Benefit for income taxes | | | (131.2 | ) | | | (31.9 | ) | | | (14.7 | ) |
| Depreciation expense | | | 54.9 | | | | 48.5 | | | | 47.6 | |
| Amortization expense(a) | | | 118.9 | | | | 124.2 | | | | 115.4 | |
| Impairment of goodwill and other intangible assets(b) | | | 1.6 | | | | 25.3 | | | | 421.4 | |
| Sponsor fees and expenses(c) | | | 17.3 | | | | 4.8 | | | | 4.6 | |
| Restructuring and related business transformation costs(d) | | | 24.7 | | | | 78.7 | | | | 31.4 | |
| Acquisition related expenses and non-cash charges(e) | | | 4.1 | | | | 4.3 | | | | 4.8 | |
| Environmental remediation loss reserve(f) | | | 0.9 | | | | 5.6 | | | | - | |
| Expenses related to public stock offerings(g) | | | 4.1 | | | | - | | | | - | |
| Establish public company financial reporting compliance(h) | | | 8.1 | | | | 0.2 | | | | - | |
| Stock-based compensation(i) | | | 194.2 | | | | - | | | | - | |
| Loss on extinguishment of debt(j) | | | 84.5 | | | | - | | | | - | |
| Foreign currency transaction losses (gains), net | | | 9.3 | | | | (5.9 | ) | | | 1.1 | |
| Other adjustments(k) | | | 10.9 | | | | 7.9 | | | | (3.6 | ) |
| Adjusted EBITDA | | $ | 561.5 | | | $ | 400.7 | | | $ | 418.9 | |
| Minus: | | | | | | | | | | | | |
| Interest expense | | $ | 140.7 | | | $ | 170.3 | | | $ | 162.9 | |
| Income tax provision, as adjusted(l) | | | 105.4 | | | | 34.7 | | | | 71.9 | |
| Depreciation expense | | | 54.9 | | | | 48.5 | | | | 47.6 | |
| Amortization of non-acquisition related intangible assets | | | 11.2 | | | | 13.6 | | | | 8.4 | |
| Adjusted Net Income | | $ | 249.3 | | | $ | 133.6 | | | $ | 128.1 | |
| Free Cash Flow | | | | | | | | | | | | |
| Cash flows - operating activities | | $ | 200.5 | | | $ | 165.6 | | | $ | 172.1 | |
| Minus: | | | | | | | | | | | | |
| Capital Expenditures | | | 56.8 | | | | 74.4 | | | | 71.0 | |
| Free Cash Flow | | $ | 143.7 | | | $ | 91.2 | | | $ | 101.1 | |
| (a) | Represents $107.7 million, $110.6 million and $107.0 million of amortization of intangible assets arising from the KKR Transaction and other acquisitions (customer relationships and trademarks) and $11.2 million, $13.6 million, and $8.4 million of amortization of non-acquisition related intangible assets, in each case for the years ended December 31, 2017, 2016 and 2015, respectively. |
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| (b) | Represents non-cash charges for impairment of goodwill and other intangible assets. |
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| (c) | Represents management fees and expenses paid to our Sponsor, including a monitoring agreement termination fee of $16.2 million paid in 2017 concurrent with our initial public offering on May 12, 2017. |
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| (d) | Restructuring and related business transformation costs consist of the following. |
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| | Year Ended December 31, | | | | | | | | | | |
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| (in millions) | | 2017 | | | | 2016 | | | | 2015 | | |
| Restructuring charges | | $ | 5.3 | | | $ | 32.9 | | | $ | 4.7 | |
| Severance, sign-on, relocation and executive search costs | | | 3.5 | | | | 22.4 | | | | 18.4 | |
| Facility reorganization, relocation and other costs | | | 5.3 | | | | 8.7 | | | | 1.6 | |
| Information technology infrastructure transformation | | | 5.2 | | | | 2.3 | | | | - | |
| Losses (gains) on asset and business disposals | | | 0.8 | | | | 0.1 | | | | (4.5 | ) |
| Consultant and other advisor fees | | | 1.7 | | | | 9.7 | | | | 10.1 | |
| Other, net | | | 2.9 | | | | 2.6 | | | | 1.1 | |
| Total restructuring and related business transformation costs | | $ | 24.7 | | | $ | 78.7 | | | $ | 31.4 | |
| (e) | Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs and non-cash charges and credits arising from fair value purchase accounting adjustments. |
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| (f) | Represents estimated environmental remediation costs and losses relating to a former production facility. |
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| (g) | Represents certain expenses related to the Company’s initial public offering and subsequent secondary offerings. |
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| (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 adoption date for a private company. These expenses were previously included in “Expenses related to the initial public offering” and prior periods have been restated to conform to current period presentation. |
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| (i) | Represents stock-based compensation expense recognized for stock options outstanding ($77.6 million) and DSUs granted to employees at the date of the initial public offering ($97.4 million) under the 2013 Stock Incentive Plan, and employer taxes related to DSUs granted to employees at the date of the initial public offering ($19.2 million). |
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| (j) | Represents losses on extinguishment of debt recognized on the redemption of the senior notes and a portion of the Original Dollar Term Loan Facility with proceeds from the initial public offering in May 2017 ($50.4 million) and in connection with the refinancing of the Original Dollar Term Loan Facility and the Original Euro Term Loan Facility in August 2017 ($34.1 million). |
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| (k) | Includes (i) non-cash impact of net LIFO reserve adjustments, (ii) effects of amortization of prior service costs and amortization of gains in pension and other postretirement benefits (OPEB) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments. Formerly included “Foreign currency transaction losses (gains), net”, the years ended December 31 2016 and 2015 have been restated to conform to the year ended December 31, 2017 presentation. |
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Represents our 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. All impacts relating the Tax Cuts and Jobs Act of 2017 have been included as an adjustment on the ‘Tax law change” line of the table below.
The income tax provision, as adjusted for each of the periods presented below consists of the following.
| | Year Ended December 31, | | | | | | | | | | |
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| (in millions) | | 2017 | | | | 2016 | | | | 2015 | | |
| Benefit for income taxes | | $ | (131.2 | ) | | $ | (31.9 | ) | | $ | (14.7 | ) |
| Tax impact of pre-tax income adjustments | | | 139.3 | | | | 71.8 | | | | 76.7 | |
| Tax law change | | | 95.3 | | | | - | | | | - | |
| Discrete tax items | | | 2.0 | | | | (5.2 | ) | | | 9.9 | |
| Income tax provision, as adjusted | | $ | 105.4 | | | $ | 34.7 | | | $ | 71.9 | |
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