| --- | --- | --- |
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, 2018 and 2017 and for the fiscal years ended December 31, 2018, 2017 and 2016 have been derived from our audited consolidated financial statements and related notes to our audited consolidated financial statements included elsewhere in this Form 10-K. The selected consolidated financial data as of December 31, 2016, 2015 and 2014 have been derived from our consolidated financial statements and related notes to our consolidated financial statements not included in this Form 10-K.
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 audited consolidated financial statements and related notes to our audited consolidated financial statements included elsewhere in this Form 10-K.
| (in millions, except per share amounts) | **Year Ended ****December 31, **2018 | | | **Year Ended **December 31, 2017(1) | | | **Year Ended **December 31, 2016(1) | | | **Year Ended **December 31, 2015(1) | | | **Year Ended **December 31, 2014(1) | | |
|---|
| **Consolidated Statements of Operations: ** | | | | | | | | | | | | | | | |
| Revenues | $ | 2,689.8 | | $ | 2,375.4 | | $ | 1,939.4 | | $ | 2,126.9 | | $ | 2,570.0 | |
| Cost of sales | | 1,677.3 | | | 1,477.5 | | | 1,222.7 | | | 1,347.8 | | | 1,633.2 | |
| Gross profit | | 1,012.5 | | | 897.9 | | | 716.7 | | | 779.1 | | | 936.8 | |
| Selling and administrative expenses | | 434.6 | | | 446.2 | | | 415.1 | | | 431.0 | | | 478.9 | |
| Amortization of intangible assets | | 125.8 | | | 118.9 | | | 124.2 | | | 115.4 | | | 113.3 | |
| Impairment of goodwill | | — | | | — | | | — | | | 343.3 | | | 220.6 | |
| Impairment of other intangible assets | | — | | | 1.6 | | | 25.3 | | | 78.1 | | | 14.4 | |
| Other operating expense, net | | 9.1 | | | 222.1 | | | 48.6 | | | 20.7 | | | 64.3 | |
| Operating income (loss) | | 443.0 | | | 109.1 | | | 103.5 | | | (209.4 | ) | | 45.3 | |
| Interest expense | | 99.6 | | | 140.7 | | | 170.3 | | | 162.9 | | | 164.4 | |
| Loss on extinguishment of debt | | 1.1 | | | 84.5 | | | — | | | — | | | — | |
| Other income, net | | (7.2 | ) | | (3.4 | ) | | (3.6 | ) | | (5.6 | ) | | (6.2 | ) |
| Income (loss) before income taxes | | 349.5 | | | (112.7 | ) | | (63.2 | ) | | (366.7 | ) | | (112.9 | ) |
| Provision (benefit) for income taxes | | 80.1 | | | (131.2 | ) | | (31.9 | ) | | (14.7 | ) | | 23.0 | |
| Net income (loss) | | 269.4 | | | 18.5 | | | (31.3 | ) | | (352.0 | ) | | (135.9 | ) |
| Less: Net income (loss) attributable to noncontrolling interest | | — | | | 0.1 | | | 5.3 | | | (0.8 | ) | | (0.9 | ) |
| Net income (loss) attributable to Gardner Denver Holdings, Inc. | $ | 269.4 | | $ | 18.4 | | $ | (36.6 | ) | $ | (351.2 | ) | $ | (135.0 | ) |
| | | | | | | | | | | | | | | |
| Earnings (loss) per share, basic | $ | 1.34 | | $ | 0.10 | | $ | (0.25 | ) | $ | (2.35 | ) | $ | (0.91 | ) |
| Earnings (loss) per share, diluted | $ | 1.29 | | $ | 0.10 | | $ | (0.25 | ) | $ | (2.35 | ) | $ | (0.91 | ) |
| Weighted average shares, basic | | 201.6 | | | 182.2 | | | 149.2 | | | 149.6 | | | 148.9 | |
| Weighted average shares, diluted | | 209.1 | | | 188.4 | | | 149.2 | | | 149.6 | | | 148.9 | |
| | | | | | | | | | | | | | | |
| **Statement of Cash Flow Data: ** | | | | | | | | | | | | | | | |
| Cash flows - operating activities | $ | 444.5 | | $ | 200.5 | | $ | 165.6 | | $ | 172.1 | | $ | 141.8 | |
| Cash flows - investing activities | | (235.0 | ) | | (60.8 | ) | | (82.1 | ) | | (84.0 | ) | | (155.4 | ) |
| Cash flows - financing activities | | (373.0 | ) | | (17.4 | ) | | (43.0 | ) | | (35.0 | ) | | (3.7 | ) |
| | | | | | | | | | | | | | | |
| **Balance Sheet Data (at period end): ** | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 221.2 | | $ | 393.3 | | $ | 255.8 | | $ | 228.3 | | $ | 184.2 | |
| Total assets | | 4,487.1 | | | 4,621.2 | | | 4,316.0 | | | 4,462.0 | | | 5,107.1 | |
| Total liabilities | | 2,811.1 | | | 3,144.4 | | | 4,044.2 | | | 4,056.5 | | | 4,218.5 | |
| Total stockholders’ equity | | 1,676.0 | | | 1,476.8 | | | 271.8 | | | 405.5 | | | 888.6 | |
| | | | | | | | | | | | | | | |
| (in millions, except per share amounts) | **Year Ended ****December 31, **2018 | | | **Year Ended **December 31, 2017(1) | | | **Year Ended **December 31, 2016(1) | | | **Year Ended **December 31, 2015(1) | | | **Year Ended **December 31, 2014(1) | | |
|---|
| **Other Financial Data (unaudited): ** | | | | | | | | | | | | | | | |
| Adjusted EBITDA(2) | $ | 681.8 | | $ | 561.5 | | $ | 400.7 | | $ | 418.9 | | | | |
| Adjusted net income(2) | | 394.7 | | | 249.3 | | | 133.6 | | | 128.1 | | | | |
| Capital expenditures | | 52.2 | | | 56.8 | | | 74.4 | | | 71.0 | | | | |
| Free cash flow(2) | | 392.3 | | | 143.7 | | | 91.2 | | | 101.1 | | | | |
| (1) | In the first quarter of fiscal year 2018, we adopted the provisions of ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). The reclassification of other components of net periodic benefit cost for the years ended December 31, 2017 and 2016 as a result of the adoption of ASU 2017-07 is detailed in Note 2 “New Accounting Standards” to our audited consolidated financial statements included elsewhere in this Form 10-K. For the years ended December 31, 2015 and 2014, we reclassified $4.0 million and $2.9 million of income, respectively, from “Selling and administrative expenses” to “Other income, net.” |
|---|
| (2) | We report our financial results in accordance with GAAP. To supplement this information, we also use the following measures in this Form 10-K: “Adjusted EBITDA,” “Adjusted Net Income” and “Free Cash Flow.” Management believes that Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation and amortization, as further adjusted to exclude certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions. We use Free Cash Flow to review the liquidity of our operations. We measure Free Cash Flow as cash flows from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities. |
|---|
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, | | | | | | | | |
|---|
| 2018 | | | 2017 | | | 2016 | | |
| Net Income (Loss) | $ | 269.4 | | $ | 18.5 | | $ | (31.3 | ) |
| Plus: | | | | | | | | | |
| Interest expense | | 99.6 | | | 140.7 | | | 170.3 | |
| Provision (benefit) for income taxes | | 80.1 | | | (131.2 | ) | | (31.9 | ) |
| Depreciation expense | | 54.6 | | | 54.9 | | | 48.5 | |
| Amortization expense(a) | | 125.8 | | | 118.9 | | | 124.2 | |
| Impairment of other intangible assets(b) | | — | | | 1.6 | | | 25.3 | |
| KKR fees and expenses(c) | | — | | | 17.3 | | | 4.8 | |
| Restructuring and related business transformation costs(d) | | 38.8 | | | 24.7 | | | 78.7 | |
| Acquisition related expenses and non-cash charges(e) | | 16.7 | | | 4.1 | | | 4.3 | |
| Environmental remediation loss reserve(f) | | — | | | 0.9 | | | 5.6 | |
| Expenses related to public stock offerings(g) | | 2.9 | | | 4.1 | | | — | |
| Establish public company financial reporting compliance(h) | | 4.3 | | | 8.1 | | | 0.2 | |
| Stock-based compensation(i) | | (2.3 | ) | | 194.2 | | | — | |
| Loss on extinguishment of debt(j) | | 1.1 | | | 84.5 | | | — | |
| Foreign currency transaction (gains) losses, net | | (1.9 | ) | | 9.3 | | | (5.9 | ) |
| Shareholder litigation settlement recoveries(k) | | (9.5 | ) | | — | | | — | |
| Other adjustments(l) | | 2.2 | | | 10.9 | | | 7.9 | |
| Adjusted EBITDA | $ | 681.8 | | $ | 561.5 | | $ | 400.7 | |
| Minus: | | | | | | | | | |
| Interest expense | $ | 99.6 | | $ | 140.7 | | $ | 170.3 | |
| Income tax provision, as adjusted(m) | | 119.0 | | | 105.4 | | | 34.7 | |
| Depreciation expense | | 54.6 | | | 54.9 | | | 48.5 | |
| Amortization of non-acquisition related intangible assets | | 13.9 | | | 11.2 | | | 13.6 | |
| Adjusted Net Income | $ | 394.7 | | $ | 249.3 | | $ | 133.6 | |
| **Free Cash Flow ** | | | | | | | | | |
| Cash flows - operating activities | $ | 444.5 | | $ | 200.5 | | $ | 165.6 | |
| Minus: | | | | | | | | | |
| Capital expenditures | | 52.2 | | | 56.8 | | | 74.4 | |
| Free Cash Flow | $ | 392.3 | | $ | 143.7 | | $ | 91.2 | |
| (a) | Represents $111.9 million, $107.7 million and $110.6 million of amortization of intangible assets arising from the KKR Transaction and other acquisitions (customer relationships and trademarks) and $13.9 million, $11.2 million and $13.6 million of amortization of non-acquisition related intangible assets, in each case for the years ended December 31, 2018, 2017 and 2016, respectively. |
|---|
| (b) | Represents non-cash charges for impairment of other intangible assets. |
|---|
| (c) | Represents management fees and expenses paid to Kohlberg, Kravis & Roberts & Co., L.P. (“KKR” or “Former Sponsor”). |
|---|
| (d) | Restructuring and related business transformation costs consist of the following. |
|---|
| Year Ended December 31, | | | | | | | | |
|---|
| 2018 | | | 2017 | | | 2016 | | |
| Restructuring charges | $ | 12.7 | | $ | 5.3 | | $ | 32.9 | |
| Severance, sign-on, relocation and executive search costs | | 4.1 | | | 3.5 | | | 22.4 | |
| Facility reorganization, relocation and other costs | | 3.1 | | | 5.3 | | | 8.7 | |
| Information technology infrastructure transformation | | 0.8 | | | 5.2 | | | 2.3 | |
| (Gains) losses on asset and business disposals | | (1.1 | ) | | 0.8 | | | 0.1 | |
| Consultant and other advisor fees | | 14.1 | | | 1.7 | | | 9.7 | |
| Other, net | | 5.1 | | | 2.9 | | | 2.6 | |
| Total restructuring and related business transformation costs | $ | 38.8 | | $ | 24.7 | | $ | 78.7 | |
| (e) | Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs), and non-cash charges and credits arising from fair value purchase accounting adjustments. |
|---|
| (f) | Represents estimated environmental remediation costs and losses relating to a former production facility. |
|---|
| (g) | Represents certain expenses related to our initial public offering and subsequent secondary offerings. |
|---|
| (h) | Represents third party expenses to comply with the requirements of Sarbanes-Oxley in 2018 and the accelerated adoption of the new accounting standards (ASC 606 – Revenue from Contracts with Customers and ASC 842 – Leases) in the first quarter of 2018 and 2019 respectively, one year ahead of the required adoption dates for a private company. |
|---|
| (i) | Represents stock-based compensation expense recognized for the year ended December 31, 2018 of $2.8 million, reduced by $5.1 million primarily due to a decrease in the estimated accrual for employer taxes related to deferred stock units (“DSU”) as a result of a lower per share stock price. |
|---|
Represents stock-based compensation expense recognized for the year ended December 31, 2017 for stock options outstanding of $77.6 million and DSUs granted to employees at the date of the initial public offering of $97.4 million under the 2013 Stock Incentive Plan, and employer taxes related to DSUs granted to employees at the date of the initial public offering of $19.2 million.
| (j) | Represents losses on extinguishment of the senior notes, extinguishment of a portion of the U.S. Term Loan, refinancing of the Original Dollar Term Loan Facility and the Original Euro Term Loan Facility and losses reclassified from AOCI into income related to the amendment of the interest rate swaps in conjunction with the debt repayment. |
|---|
| (k) | Represents insurance recoveries of our shareholder litigation settlement in 2014. |
|---|
| (l) | Includes (i) the non-cash impact of net LIFO reserve adjustments, (ii) effects of amortization of prior service costs and amortization of losses in pension and other postemployment (“OPEB”) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments. |
|---|
| (m) | Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of applicable discrete tax items. The tax effect of pre-tax items excluded from Adjusted Net Income is computed using the statutory tax rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances. Discrete tax items include changes in tax laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances. All impacts relating to the Tax Cuts and Jobs Act of 2017 have been included as an adjustment on the ‘Tax law change” line of the table below. |
|---|
The income tax provision, as adjusted for each of the periods presented below consists of the following.
| Year Ended December 31, | | | | | | | | |
|---|
| 2018 | | | 2017 | | | 2016 | | |
| Provision (benefit) for income taxes | $ | 80.1 | | $ | (131.2 | ) | $ | (31.9 | ) |
| Tax impact of pre-tax income adjustments | | 36.9 | | | 139.3 | | | 71.8 | |
| Tax law change | | 1.2 | | | 95.3 | | | — | |
| Discrete tax items | | 0.8 | | | 2.0 | | | (5.2 | ) |
| Income tax provision, as adjusted | $ | 119.0 | | $ | 105.4 | | $ | 34.7 | |
filings.tools