filings.toolsIngersoll Rand 10-K 2019-12-31
Filed 2020-02-26. 22 sections, 511K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2019
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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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, Suite 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(s) | Name of Each Exchange on Which Registered |
|---|---|---|
| Common Stock, $0.01 Par Value per share | GDI | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 | ☐ (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 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 aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 28, 2019 was approximately $4,560.2 million based on the closing price of such common equity on the New York Stock Exchange on such date.
The registrant had outstanding 205,211,761 shares of Common Stock, par value $0.01 per share, as of February 19, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference in Part III of this report.
Table of Contents
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K (this “Form 10-K”) 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-K, 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-K. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-K. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. See “Item 1A. Risk Factors” for more information.
Item 1. BUSINESS
Gardner Denver Holdings, Inc. is a holding company whose operating subsidiaries are Gardner Denver, Inc. (“GDI”) and certain of GDI’s subsidiaries. The holding company and its consolidated subsidiaries are collectively referred to in this Annual Report as “we,” “us,” “our,” “ourselves,” “Company,” or “Gardner Denver.”
Service marks, trademarks and trade names, and related designs or logotypes owned by Gardner Denver or its subsidiaries are shown in italics.
Transaction with Ingersoll Rand
In April 2019, the Board of Directors of Gardner Denver approved a merger that will combine Gardner Denver with the industrial segment of Ingersoll-Rand plc (“Ingersoll Rand”) (the “Merger”). To facilitate this Merger, Ingersoll Rand will cause specific assets and liabilities of its industrial segment to be transferred to Ingersoll-Rand U.S. HoldCo, Inc. (“Ingersoll Rand Industrial”), a newly formed wholly-owned subsidiary of Ingersoll Rand, and distribute the shares of common stock of Ingersoll Rand Industrial to Ingersoll Rand’s shareholders. Charm Merger Sub Inc., (“Merger Sub”), which is a newly formed wholly-owned subsidiary of Gardner Denver, will be merged with and into Ingersoll Rand Industrial, with Ingersoll Rand Industrial surviving such merger as a wholly-owned subsidiary of Gardner Denver.
Pursuant to the definitive agreement Gardner Denver entered into with Ingersoll Rand, Ingersoll Rand Industrial and Merger Sub with respect to the Merger (the “Merger Agreement”), Gardner Denver will issue an aggregate number of shares of its common stock to Ingersoll Rand Industrial stockholders which will result in Ingersoll Rand Industrial stockholders owning approximately, but not less than, 50.1% of the shares of Gardner Denver common stock outstanding on a fully-diluted basis upon the closing of the Merger. The number of shares to be issued to Ingersoll Rand Industrial stockholders is based on the exchange ratio set forth in the Merger Agreement. In addition, Ingersoll Rand will receive approximately $1.9 billion in cash from Ingersoll Rand Industrial that will be funded by newly-issued debt that is expected to be deemed issued under the existing Senior Secured Credit Facilities of Gardner Denver upon consummation of the merger. The merger is expected to close on February 29, 2020.
The Merger will result in Gardner Denver acquiring Ingersoll Rand Industrial, which includes compressed air and gas systems and services, power tools, material handling systems, fluid management systems as well as Club Car golf, utility and consumer low-speed vehicles. Following the Merger, the combined company is expected to be renamed and operate under the Ingersoll Rand name and its common stock is expected to be listed on the New York Stock Exchange under Ingersoll Rand’s existing ticker symbol “IR.”
See Note 3 “Business Combinations” to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to the transaction with Ingersoll Rand.
Our Company
We are a leading global provider of mission-critical flow control and compression equipment and associated aftermarket parts, consumables and services, which we sell across multiple attractive end-markets within the industrial, energy and medical industries. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, 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 Gardner Denver, CompAir, Nash, Emco Wheaton, Robuschi, Elmo Rietschle and Thomas, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service.
These attributes, along with over 155 years of engineering heritage, generate strong brand loyalty for our products and foster long-standing customer relationships, which we believe have resulted in leading market positions within each of our operating segments. We have sales in more than 175 countries and our diverse customer base utilizes our products across a wide array of end-markets, including industrial manufacturing, energy (with particular exposure to the North American upstream land-based market), transportation, medical and laboratory sciences, food and beverage packaging and chemical processing.
Our products and services are critical to the processes and systems in which they are utilized, which are often complex and function in harsh conditions where the cost of failure or downtime is high. However, our products typically represent only a small portion of the costs of the overall systems or functions that they support. As a result, our customers place a high value on our application expertise, product reliability and the responsiveness of our service. To support our customers and market presence, we maintain significant global scale with 38 key manufacturing facilities, more than 30 complementary service and repair centers across six continents and approximately 6,600 employees worldwide as of December 31, 2019.
The process-critical nature of our product applications, coupled with the standard wear and tear replacement cycles associated with the usage of our products, generates opportunities to support customers with our broad portfolio of aftermarket parts, consumables and services. Customers place a high value on minimizing any time their operations are offline. As a result, the availability of replacement parts, consumables and our repair and support services are key components of our value proposition. Our large installed base of products provides a recurring revenue stream through our aftermarket parts, consumables and services offerings. As a result, our aftermarket revenue is significant, representing 38% of total Company revenue and approximately 42% of our combined Industrials and Energy segments’ revenue in 2019.
Our Segments
Our business is comprised of three strategic segments.
Industrials
We design, manufacture, market and service a broad range of air compression, vacuum and blower products, including associated aftermarket parts, consumables and services, 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 industrial air tools, vacuum packaging of food products and aeration of waste water, among others.
We offer one of the broadest portfolios of compression, vacuum and blower technology in our markets which we believe, alongside our geographic footprint, allows us to provide differentiated service to our customers globally and maintain leading positions in many of our end-markets. 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. 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 industrial 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, on average, the useful life of a compressor is 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 cost.
Industrial air compressors represent the largest market in which we compete in our Industrials segment and is a product category for which we believe there is significant potential to drive increased sales of our aftermarket parts, consumables and services. We use our direct salesforce and strong distributor relationships, the majority of which are exclusive to our business for the products that we sell through them, to sell our broad portfolio of aftermarket parts, consumables and services. Within our Industrials segment, we primarily sell through the Gardner Denver, CompAir, Elmo Rietschle and Robuschi brands, as well as other leading brand names.
Energy
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 Energy segment serve customers across upstream, midstream and downstream energy markets, 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 energy market applications that we serve.
Our positive displacement pumps are fit-for-purpose to meet the demands and challenges of modern unconventional drilling and hydraulic fracturing activity, particularly in the major basins and shale plays in the North American land market. Our positive displacement pump offering includes mission-critical oil and gas drilling pumps, frac pumps and well servicing pumps, in addition to sales of associated consumables used in the operation of our pumps and aftermarket parts, consumables and services. The products we sell into upstream energy applications are highly aftermarket-intensive, and so we support these products in the field with one of the industry’s most comprehensive service networks, which encompasses locations across all major basins and shale plays in the North American land market. This service network is critical to serving our customers and, by supporting them in the field, to generating demand for new original equipment sales and aftermarket parts, consumables, service and repair sales which in aggregate are often multiples of the cost of the original equipment.
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, petrochemical and industrial applications. Our liquid ring technology utilizes a service liquid to evacuate or compress gas by forming a rotating ring of liquid that acts like a piston to deliver an uninterrupted flow of gas without pulsation. In addition, 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 to serve a wide range of industries. Similar to our positive displacement pumps business, we complement these products with a broad array of aftermarket parts, service and repair capabilities by leveraging our global network of manufacturing and service locations to meet the diverse needs of our customers. Within our Energy segment, we primarily sell through the Gardner Denver, Nash and Emco Wheaton brands, as well as other leading brand names.
Medical
We design, manufacture and market a broad range of highly specialized gas, liquid and precision syringe pumps and compressors that are specified by medical 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 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. Our product performance, quality and long-term reliability are often mission-critical in healthcare applications. We are one of the largest product suppliers in the medical markets we serve and have long-standing customer relationships with industry-leading medical and laboratory equipment providers. Additionally, many of our Medical segment gas and liquid pumps are also used in other technology applications beyond the medical and laboratory sciences. Within our Medical segment, we primarily sell through the Thomas brand, as well as other leading brand names.
Our Industries and Products
We operate in the global markets for flow control and air compression products for the industrial, energy and medical industries. Our highly engineered products and proprietary technologies are focused on serving specialized applications within these attractive and growing industries.
Industrials
Our Industrials segment designs, manufactures, markets and services a broad range of air compression, vacuum and blower products across a wide array of technologies. Compression, vacuum and blower products are used in a wide spectrum of applications in nearly all manufacturing and industrial facilities and many service and process industries in a variety of end-markets, including infrastructure, construction, transportation, food and beverage packaging and chemical processing.
Compression Products
Sales to industrial end-markets include industrial air compression products, as well as associated aftermarket parts, consumables and services. Industrial air compressors compress air to create pressure to power machinery, industrial tools, material handling systems and automated equipment. Compressed air is also used in applications as diversified as snow making and fish farming, on high-speed trains and in hospitals. Compressors can be either stationary or portable, depending on the requirements of the application or customer.
We focus on five basic types of air compression technologies: rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Rotary screw compressors are a newer technology than reciprocating compressors and exhibit better suitability for continuous processes due to a more compact size, less maintenance and better noise profile. We believe our reciprocating piston compressors provide one of the broadest ranges of pressures in the market and are supported by increasing demand across wide-ranging attractive end-markets. Scroll compressors are most commonly seen where less oil-free air is needed, and is most commonly used in medical and food applications where the need for pure, clean and precise air is of great importance. Rotary vane compressors feature high efficiency, compact compression technology and can be found throughout all sectors of industry, including automotive, food and beverage, energy and manufacturing with specialist solutions within transit, gas and snow making. Centrifugal compressors are most effective when in applications that demand larger quantities of oil-free air and are utilized across a wide range of industries.
Vacuum Products
Industrial vacuum products are integral to manufacturing processes in applications for packaging, pneumatic conveying, drying, holding / lifting, distillation, evacuation, forming / pressing, removal and coating. Within each of these processes are a multitude of sub-applications. As an example of one such end-process, within packaging, a vacuum will be used on blister packaging, foil handling, labeling, carton erection, stacking and palletizing (placing, stacking or transporting goods on pallets), as well as central vacuum supply for entire packaging departments. Management believes that we hold a leading position in our addressable portion of the global vacuum products market.
We focus on five basic types of vacuum technologies: side channel, liquid ring, claw vacuum, screw and rotary vane vacuum pumps. Side channel vacuum pumps are used for conveying gases and gas-air mixtures in a variety of applications, including laser printers, packaging, soil treatment, textiles and food and beverage products. Liquid ring vacuum pumps are used for extreme conditions, which prevail in humid and wet processes across ceramics, environmental, medical and plastics applications. Claw vacuum pumps efficiently and economically generate contact-free vacuum for chemical, environmental and packaging applications. Screw vacuum pumps are a dry running technology used to reduce the carbon footprint and life cycle costs in drying and packaging applications. Rotary vane vacuum pumps are used for vacuum and combined pressure and vacuum applications in the environmental, woodworking, packaging and food and beverage end-markets.
Blower Products
Blower products are used for conveying high volumes of air and gas at various flow rates and at low pressures, and are utilized in a broad range of industrial and environmental applications, including waste water aeration, biogas upgrading and conveying, pneumatic transport and dehydrating applications for food and beverage, cement, pharmaceutical, petrochemical and mobile industrial applications. We also design, manufacture, market and service frac sand blowers within our Industrials segment. In many cases, blowers are a core component for the operation of the entire end-users’ systems. Management believes that we hold a leading position in our addressable portion of the global blower products market.
We focus on several key technologies within blower products: rotary lobe, screw, claw and vane, turbo, side channel and radial blowers. Rotary lobe blowers, screw blowers and claw and vane blowers are positive displacement technologies that have the ability to consistently move the same volume of gas or air and vary the volume flow according to the speed of the machine itself enabling it to adapt the flow condition in a flexible manner despite pressure in the system. Turbo blowers and side channel and radial blowers are dynamic technologies that have the ability to accelerate gas or air through an impeller and transform their kinetic energy at the discharge with some limitation on flexibility.
Energy
Our Energy segment designs, manufactures, markets and services 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 for a number of attractive, growing market sectors with energy exposure, spanning upstream, midstream, downstream and petrochemical applications. The high cost of failure in these applications makes quality and reliability key purchase criteria for end-users and drives demand for our highly engineered and differentiated products.
Upstream
Through the manufacture and aftermarket service of pumps and manufacture of associated aftermarket parts and consumables used in drilling, hydraulic fracturing and well servicing applications, our Energy segment is well-positioned to capitalize on an upstream recovery, particularly in the North American land-based market, where our customers include market-leading hydraulic fracturing (also known as pressure pumping) and contract drilling service companies, as well as certain other types of well service companies. Sales to upstream energy end-markets consist of positive displacement pumps and associated aftermarket parts, most notably fluid ends, as well as consumables and services.
| ● | Positive displacement pumps in the upstream energy end-market primarily move fluid to assist in drilling, hydraulic fracturing and well servicing applications. The majority of positive displacement pumps we sell are frac pumps, which experience significant service intensity during use in the field and, as such, typically have useful life spans of approximately four to six years before needing to be replaced. During that useful life, such pumps will need to receive intermittent repairs as well as major overhauls. In addition, we also sell positive displacement pumps that are used in drilling and well servicing applications. |
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| ● | Fluid ends are a key component of positive displacement pumps that generate the pumping action, along with other parts, such as plungers, and consumables, such as valves, seats and packing, which pressurizes the fluid, in the case of drilling or well servicing applications, or fluid and proppant mixture, in the case of hydraulic fracturing, and propels such fluid or mixture out of the pump and into a series of flow lines that distribute the fluid or mixture into the well. Fluid ends are incorporated in original equipment pumps, and due to the highly corrosive nature of the fluids and the abrasive nature of the proppants used in hydraulic fracturing operations, need to be frequently replaced. |
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The level of profitability at which new wells can be drilled is a primary driver of drilling and completions activities, including hydraulic fracturing. Thus, demand for our Energy and Industrials products exposed to the upstream energy industry is driven by the prices of crude oil and natural gas, and the intensity and activity levels of drilling and hydraulic fracturing.
Midstream and Downstream
Sales to midstream and downstream energy end-markets consist of liquid ring vacuum pumps and compressors and integrated systems, engineered fluid loading and transfer equipment and associated aftermarket parts and services. Our downstream energy business contributes a larger share of revenue and profitability than our midstream energy business.
We focus on two basic types of midstream and downstream energy equipment: fluid transfer equipment and liquid ring vacuum pumps and compressors, which are employed in the midstream and downstream markets, respectively.
| ● | Fluid transfer equipment, including fluid loading systems, tank truck and fleet fueling products and couplers: Fluid loading systems are used in the transfer and loading of hydrocarbons and certain other liquid commodity products in marine and land applications. Tank truck and fleet fueling products allow for safe transfer of liquid products without spillage or contamination while safeguarding the operator and the environment. Operators use Dry-Break® technology couplers and adapters to provide a secure connection for the transfer of liquid products without spillage or contamination while safeguarding the operator and the environment. |
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| ● | Liquid ring vacuum pumps and compressors: Liquid ring vacuum pumps and compressors are designed for continuous duty in harsh environments, including vapor and flare gas recovery equipment (which recovers and compresses certain polluting gases to transmit them for further processing), primarily in downstream applications. The liquid ring technology utilizes a service liquid, typically water, oil or fuel, to evacuate or compress gas by forming a rotating ring of liquid that follows the contour of the body of the pump or compressor and acts like a piston to deliver an uninterrupted flow of gas without pulsation. |
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Petrochemical
Our Energy segment is positioned to capitalize on the large and growing petrochemical industry. Sales to petrochemical end-markets consist of vacuum and compression process systems, both of which are used in harsh, continuous-duty applications. Demand for our petrochemical industry products correlates with growth in the development of new petrochemical plants as well as activity levels therein, which drive demand for aftermarket parts and services on our market-leading installed base of equipment.
Medical
The Medical segment designs, manufactures and markets a broad range of flow control products for the durable medical equipment, laboratory vacuum and automated liquid handling end-markets. Key technologies include gas, liquid and precision syringe pumps and automated liquid handling systems.
Our gas pumps are used for a wide range of applications, such as aspirators, blood analyzers, blood pressure monitors, compression therapy, dental carts, dialysis machines, gas monitors and ventilators. Gas pumps transfer and compress gases and generate vacuum to enable precise flow conditions. Our liquid pump products are primarily used to meter and transfer both neutral and chemically aggressive fluids and our automated liquid handling products, which includes syringe pumps, systems and accessories that are integrated into large scale automated liquid handling systems primarily for clinical, pharmaceutical and environmental analyses.
Our products are also used in the laboratory vacuum equipment space which includes end-use chemically resistant devices used in research and commercial laboratories.
Customers in the durable medical pump end-market and the automated liquid handling end-market develop and manufacture equipment used in a highly regulated environment requiring highly specialized technologies. As a result, relationships with customers are built based on a supplier’s long-term reputation and expertise and deep involvement throughout a product’s evolution, from concept to long-term commercialization. Customers value suppliers that can provide global research and development, regulatory and manufacturing support, as well as sales footprint and expertise to foster close relationships with key decision makers at their company. Combined with the long product life cycle in the regulated medical device space, these factors create a strong, recurring base of business. As a leading pump manufacturer in these markets, we have established a history of innovation that enables us to work closely with our customers to create highly customized flow control solutions for their unique applications. These products are mission-critical in the ultimate device in which they are deployed and remain a key component over the entire life cycle of the end products. The regulated market structure and nature of long-tenured customer relationships enables pump manufacturers to have a highly visible, recurring revenue stream from key customers.
Competition
Industrials
The industrial end-markets we serve are competitive, with an increasing focus on product quality, performance, energy efficiency, customer service and local presence. Although there are several large manufacturers of compression, vacuum and blower products, the marketplace for these products remains highly fragmented due to the wide variety of product technologies, applications and selling channels. Our principal competitors in sales of compression, vacuum and blower products in our Industrials segment include Atlas Copco AB, Ingersoll-Rand plc, Colfax Corp., Flowserve Corporation, IDEX Corporation and Kaeser Compressors, Inc.
Energy
Across our product lines exposed to the energy industry, the competitive landscape is specific to the end-markets served. Our principal competitor for drilling pumps is National Oilwell Varco Inc., and for frac pumps is The Weir Group plc. Within upstream energy, we additionally compete with certain smaller, regional manufacturers of pumps and aftermarket parts, although these are not direct competitors for most of our products. Our principal competitors in sales of fluid transfer equipment include Dover Corporation, SVT GmbH and TechnipFMC plc. Our principal competitors in the sale of liquid ring pumps and compressors are Flowserve Corporation and Busch-Holding GmbH.
Medical
Competition in the medical pump market is primarily based on product quality and performance, as most products must be qualified by the customer for a particular use. Further, there is an increasing demand for more efficient healthcare solutions, which is driving the adoption of premium and high performance systems. Our primary competitors in medical pumps include IDEX Corporation, Watson-Marlow, Inc., KNF Neuberger, Inc. and Thermo Fisher Scientific, as well as other regional and local manufacturers.
Customers and Customer Service
We consider superior customer service to be one of our primary pillars of future success and view it as being built upon a foundation of critical application expertise, an industry leading range of compressor, pump, vacuum and blower products, a global manufacturing and sales presence and a long-standing reputation for quality and reliability. Intense customer focus is at the center of our vision of becoming the industry’s first choice for innovative and application-critical flow control and compression equipment, services and solutions. We strive to collaborate with our customers and become an essential part of their engineering process by drawing on our deep industry and application engineering experience to develop best-in-class products that are critical to the processes and systems in which they operate.
We have established strong and long-standing customer relationships with numerous industry leaders. We sell our products directly to end-use customers and to certain OEMs, and indirectly through independent distributors and sales representatives. Our Energy and Medical products are primarily sold directly to end-use customers and OEMs, while approximately 50% of our Industrials sales in 2019 were fulfilled through independent distributors and sales representatives.
We use a direct sales force to serve end-use customers and OEMs because these customers typically require higher levels of technical assistance, more coordinated shipment scheduling and more complex product service than customers that purchase through distributors. We have distribution centers and warehouses that stock parts, accessories and certain products to provide adequate and timely availability.
In addition to our direct sales force, we are also committed to developing and supporting our global network of over 1,000 distributors and representatives who we believe provide us with a competitive advantage in the markets and industries we serve. These distributors maintain an inventory of complete units and parts and provide aftermarket services to end-users. While most distributors provide a broad range of products from different suppliers, we view our distributors as exclusive at the product category level (e.g. compressor, vacuum and blower). For example, a distributor may exclusively carry our compressor technologies, and also source additional components of the broader industrial system in which those products operate from other suppliers. Our service personnel and product engineers provide the distributors’ service representatives with technical assistance and field training, particularly with respect to installation and repair of equipment. We also provide our distributors with sales and product literature, advertising and sales promotions, order-entry and tracking systems and an annual restocking program. Furthermore, we participate in major trade shows and directly market our offerings to generate sales leads and support the distributors’ sales personnel.
Our customer base is diverse, and we did not have any customers that individually provided more than 3% of 2019 consolidated revenues.
Patents, Trademarks, and Other Intellectual Property
We rely on a combination of intellectual property rights, including patents, trademarks, copyrights, trade secrets and contractual provisions to protect our intellectual property. While in the aggregate our more than 600 patents and our trademarks are of considerable importance to the manufacture and marketing of many of our products, we believe that the success of our business depends more on the technical competence, creativity and marketing abilities of our employees than on any individual patent or trademark, and therefore we do not consider any single patent or trademark, group of patents or trademarks, copyright or trade secret to be material to our business as a whole, except for the Gardner Denver trademark. We have registered our trademarks in the countries we deem necessary or in our best interest. We also rely upon trade secret protection for our confidential and proprietary information and techniques, and we routinely enter into confidentiality agreements with our employees as well as our suppliers and other third parties receiving such information.
Pursuant to trademark license agreements, Cooper Industries has exclusive rights to use the Gardner Denver trademark for certain power tools and their components, meaning that we are prevented from using our mark in connection with those products.
Raw Materials and Suppliers
We purchase a wide variety of raw materials to manufacture our products. Our most significant commodity exposures are to cast iron, aluminum and steel. Additionally, we purchase a large number of motors and, therefore, are also exposed to changes in the price of copper, which is a primary component of motors. Most of our raw materials are generally available from a number of suppliers. We have a limited number of long-term contracts with some suppliers of key components, but we believe that our sources of raw materials and components are reliable and adequate for our needs. We use single sources of supply for certain castings, motors and other select engineered components. A disruption in deliveries from a given supplier could therefore have an adverse effect on our ability to meet commitments to our customers. Nevertheless, we believe that we have appropriately balanced this risk against the cost of maintaining a greater number of suppliers. Moreover, we have sought, and will continue to seek, cost reductions in purchases of materials and supplies by consolidating purchases and pursuing alternate sources of supply.
Employees
As of December 31, 2019, we had approximately 6,600 employees of which approximately 1,900 are located in the United States. Of those employees located outside of the United States, a significant portion are represented by works councils and labor unions, and of those employees located in the United States, approximately 200 are represented by labor unions. We believe that our current relations with employees are satisfactory.
Environmental Matters
We are subject to numerous federal, state, local and foreign laws and regulations relating to the storage, handling, emission and disposal of materials and discharge of materials into the environment. We believe that our existing environmental control procedures are adequate and we have no current plans for substantial capital expenditures in this area. We have an environmental policy that confirms our commitment to a clean environment and compliance with environmental laws. We have an active environmental management program aimed at complying with existing environmental regulations and reducing the generation of pollutants in the manufacturing processes. We are also subject to laws concerning the cleanup of hazardous substances and wastes, such as the U.S. federal “Superfund” and similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. We have been identified as a potentially responsible party with respect to several sites designated for cleanup under the “Superfund” or similar state laws. See “Item 3. Legal Proceedings.”
Corporate History
Gardner Denver Holdings, Inc. was incorporated in Delaware on March 1, 2013. Through our predecessors, Gardner Denver was founded in Quincy, Illinois in 1859. From August 1943 until we were acquired by an affiliate of Kohlberg, Kravis and Roberts & Co. L.P. (“KKR”) on July 30, 2013 (the “KKR Transaction”), we operated as a public company. We returned to being a public company when we completed our initial public offering in May 2017. Our common stock is listed on the New York Stock Exchange under the symbol “GDI” and our principal executive offices are located at 222 East Erie Street, Suite 500, Milwaukee, Wisconsin 53202.
Where You Can Find More Information
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. Our SEC filings are also available on our website at http://www.gardnerdenver.com as soon as reasonably practicable after they are filed with or furnished to the SEC.
We maintain an internet site at http://www.gardnerdenver.com. From time to time, we may use our website as a distribution channel of material company information. Financial and other important information regarding us is routinely accessible through and posted on our website at www.investors.gardnerdenver.com. In addition, you may automatically receive email alerts and other information about us when you enroll your email address by visiting the Email Alerts section at www.investors.gardnerdenver.com. Our website and the information contained on or connected to that site are not incorporated into this Annual Report on Form 10-K.
Item 1A. RISK FACTORS
The following risk factors as well as the other information included in this Form 10-K, including “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto should be carefully considered. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. The selected risks described below, however, are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations.
Risks Related to Our Pending Merger with Ingersoll Rand Industrial
The pending Merger may have a material adverse effect on us whether or not it is completed.
On April 30, 2019, we entered into the Merger Agreement, pursuant to which, on the terms and subject to the conditions set forth in the Merger Agreement, Ingersoll Rand will separate Ingersoll Rand Industrial and then combine it with the Company. 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.
The Merger and the preparation for the integration of our business with Ingersoll Rand Industrial has placed a significant burden on management and internal resources. In addition, if the proposed Merger is completed, the anticipated benefits of the Merger may not be realized fully or at all and may take longer to realize than expected. The integration process will be complex, costly and time-consuming, which could adversely affect our businesses, financial results and financial condition. Even if we are able to integrate Ingersoll Rand Industrial successfully, the Merger may not result in the realization of the full benefits of anticipated cost synergies, innovation, operational efficiencies and incremental revenue growth opportunities that we expect to realize or these benefits may not be achieved within a reasonable period of time. Moreover, the combined company may be unable to implement its business strategy or retain and hire key personnel.
We currently anticipate that we will close the Merger on February 29, 2020, but we cannot be certain that the customary closing conditions will be satisfied or waived on or prior to that date. We may be required to pay to Ingersoll Rand a termination fee of approximately $176 million if the Merger Agreement is terminated under certain circumstances. See also “Risks Related to Our Business—Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.”
Risks Related to Our Business
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.
Our financial performance depends, in large part, on conditions in the markets we serve and on the general condition of the global economy, which impacts these markets. Any sustained weakness in demand for our products and services resulting from a contraction or uncertainty in the global economy could adversely impact our revenues and profitability.
In addition, we believe that many of our suppliers and customers access global credit markets to provide liquidity, and in some cases, utilize external financing to purchase products or finance operations. If our customers are unable to access credit markets or lack liquidity, it may impact customer demand for our products and services.
Furthermore, our products are sold in many industries, some of which are cyclical and may experience periodic contractions. Cyclical weakness in the industries that we serve could adversely affect demand for our products and affect our profitability and financial performance.
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.
For the year ended December 31, 2019, approximately 59% of our revenues were from customers in countries outside of the United States. We have manufacturing facilities in Germany, the United Kingdom, China, Finland, Italy, India and other countries. We intend to continue to expand our international operations to the extent that suitable opportunities become available. Non-U.S. operations and United States export sales could be adversely affected as a result of: political or economic instability in certain countries; differences in foreign laws, including increased difficulties in protecting intellectual property and uncertainty in enforcement of contract rights; credit risks; currency fluctuations, in particular, changes in currency exchange rates between the U.S. dollar, Euro, British Pound and the Chinese Renminbi; exchange controls; changes in and uncertainties with respect to tariffs and import/export trade restrictions (including changes in United States trade policy toward other countries, such as the imposition of tariffs and the resulting consequences), as well as other changes in political policy in the United States, China, the U.K. and certain European countries (including the impacts of the U.K.’s national referendum resulting in the U.K.’s withdrawal from the European Union); royalty and tax increases; nationalization of private enterprises; civil unrest and protests, strikes, acts of terrorism, war or other armed conflict; shipping products during times of crisis or war; and other factors inherent in foreign operations.
In addition, our expansion into new countries may require significant resources and the efforts and attention of our management and other personnel, which will divert resources from our existing business operations. As we expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these risks associated with our 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.
Demand for certain products of our Energy segment, particularly in the upstream energy market, depends on the level of activity in oil and gas exploration, development and production, and is primarily tied to the number of working and available drilling rigs, number of wells those rigs drill annually, the amount of hydraulic fracturing horsepower required on average to fracture each well and, ultimately, oil and natural gas prices overall. The energy market is volatile as the worldwide demand for oil and natural gas fluctuates.
Generally, when worldwide demand or our customers’ expectations of future prices for these commodities are depressed, the demand for our products used in drilling and recovery applications is reduced. Other factors, including availability of quality drilling prospects, exploration success, relative production costs and political and regulatory environments are also expected to affect the demand for our products. Worldwide military, political and economic events have in the past contributed to oil and gas price volatility and are likely to do so in the future. A change in economic conditions also puts pressure on our receivables and collections.
Accordingly, our operating results for any particular period are not necessarily indicative of the operating results for any future period as the markets for our products have historically experie
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Our corporate headquarters is a leased facility located at 222 East Erie Street, Milwaukee, Wisconsin 53202. The number of significant properties used by each of our segments is summarized by segment, type and geographic location in the tables below.
| Type of Significant Property | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Manufacturing | Warehouse | Other(4) | Total | |||||||||||||
| Industrials | ||||||||||||||||
| Americas | 6 | 1 | 0 | 7 | ||||||||||||
| EMEA(1) | 10 | 1 | 15 | 26 | ||||||||||||
| APAC(2) | 0 | 1 | 8 | 9 | ||||||||||||
| Industrials Total | 16 | 3 | 23 | 42 | ||||||||||||
| Energy | ||||||||||||||||
| Americas | 7 | 1 | 7 | 15 | ||||||||||||
| EMEA | 5 | 0 | 1 | 6 | ||||||||||||
| APAC | 2 | 0 | 1 | 3 | ||||||||||||
| Energy Total | 14 | 1 | 9 | 24 | ||||||||||||
| Medical | ||||||||||||||||
| Americas | 3 | 0 | 0 | 3 | ||||||||||||
| EMEA | 4 | 0 | 1 | 5 | ||||||||||||
| APAC | 1 | 0 | 0 | 1 | ||||||||||||
| Medical Total | 8 | 0 | 1 | 9 | ||||||||||||
| Total (All Segments) | ||||||||||||||||
| Americas | 16 | 2 | 7 | 25 | ||||||||||||
| EMEA | 19 | 1 | 17 | 37 | ||||||||||||
| APAC | 3 | 1 | 9 | 13 | ||||||||||||
| Company Total(3) | 38 | 4 | 33 | 75 |
| (1) | Europe, Middle East and Africa (“EMEA”) |
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| (2) | Asia Pacific (“APAC”) |
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| (3) | Two facilities are shared between our segments and each is counted once, in the Industrials segment, to avoid double counting. |
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| (4) | Other facilities includes service centers and sales offices. |
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Of the 75 significant properties included in the above table, 44 of the properties are leased and 31 of the properties are owned. We believe that our properties, taken as a whole, are in good operating condition and are suitable for our business operations.
Item 3. LEGAL PROCEEDINGS
We are a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of our size and sector. We believe that such proceedings, lawsuits and administrative actions will not materially adversely affect our operations, financial condition, liquidity or competitive position. For a detailed discussion of certain of these proceedings, lawsuits and administrative actions, see Note 20, “Contingencies” to our audited consolidated financial statements included elsewhere in this form 10-K.
Item 4. MINE SAFETY DISCLOSURES
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Common Stock, $0.01 par value per share, trades on the New York Stock Exchange (“NYSE”) under the symbol “GDI.” As of January 31, 2020, there were 106 holders of record of our common stock. This stockholder figure does not include a substantially greater number of holders whose shares are held of record by banks, brokers, and other financial institutions.
Dividend Policy
We did not declare or pay dividends to the holders of our common stock in the years ended December 31, 2019 and 2018. We do not intend to pay cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions contained in current or future financing instruments and other factors that our board of directors deem relevant.
Company Purchases
The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter ended December 31, 2019.
| 2019 Fourth Quarter Months | Total Number of Shares Purchased(1) | Average Price Paid Per Share(2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| October 1, 2019 - October 31, 2019 | - | $ | - | - | 220,756,556 | |||||||||||
| November 1, 2019 - November 30, 2019 | 38,285 | $ | 33.71 | - | 220,756,556 | |||||||||||
| December 1, 2019 - December 31, 2019 | 1,571 | $ | 35.02 | - | 220,756,556 |
| (1) | All of the shares purchased during the quarter ended December 31, 2019 were in connection with net exercises of stock options. |
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| (2) | The average price paid per share includes brokerage commissions. |
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| (3) | On August 1, 2018, we announced that our Board of Directors had approved a share repurchase program which authorized the repurchase of up to $250.0 million of our 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 25 “Share Repurchase Program” to our audited consolidated financial statements included elsewhere in this Form 10-K. |
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Item 6. SELECTED FINANCIAL DATA
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, 2019 and 2018 and for the fiscal years ended December 31, 2019, 2018 and 2017 have been derived from our audited consolidated financial statements and related notes to our audited consolidated financial statements included elsewhere in this Form 10-K. The selected consolidated financial data as of December 31, 2017, 2016 and 2015, and for the fiscal years ended December 31, 2016 and 2015, have been derived from our audited consolidated financial statements and related notes to our audited consolidated financial statements not included in this Form 10-K.
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, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated Statements of Operations: | ||||||||||||||||||||
| Revenues | $ | 2,451.9 | $ | 2,689.8 | $ | 2,375.4 | $ | 1,939.4 | $ | 2,126.9 | ||||||||||
| Cost of sales | 1,540.2 | 1,677.3 | 1,477.5 | 1,222.7 | 1,347.8 | |||||||||||||||
| Gross profit | 911.7 | 1,012.5 | 897.9 | 716.7 | 779.1 | |||||||||||||||
| Selling and administrative expenses | 436.4 | 434.6 | 446.2 | 415.1 | 431.0 | |||||||||||||||
| Amortization of intangible assets | 124.3 | 125.8 | 118.9 | 124.2 | 115.4 | |||||||||||||||
| Impairment of goodwill | - | - | - | - | 343.3 | |||||||||||||||
| Impairment of other intangible assets | - | - | 1.6 | 25.3 | 78.1 | |||||||||||||||
| Other operating expense, net | 75.7 | 9.1 | 222.1 | 48.6 | 20.7 | |||||||||||||||
| Operating income (loss) | 275.3 | 443.0 | 109.1 | 103.5 | (209.4 | ) | ||||||||||||||
| Interest expense | 88.9 | 99.6 | 140.7 | 170.3 | 162.9 | |||||||||||||||
| Loss on extinguishment of debt | 0.2 | 1.1 | 84.5 | - | - | |||||||||||||||
| Other income, net | (4.7 | ) | (7.2 | ) | (3.4 | ) | (3.6 | ) | (5.6 | ) | ||||||||||
| Income (loss) before income taxes | 190.9 | 349.5 | (112.7 | ) | (63.2 | ) | (366.7 | ) | ||||||||||||
| Provision (benefit) for income taxes | 31.8 | 80.1 | (131.2 | ) | (31.9 | ) | (14.7 | ) | ||||||||||||
| Net income (loss) | 159.1 | 269.4 | 18.5 | (31.3 | ) | (352.0 | ) | |||||||||||||
| Less: Net income (loss) attributable to noncontrolling interest | - | - | 0.1 | 5.3 | (0.8 | ) | ||||||||||||||
| Net income (loss) attributable to Gardner Denver Holdings, Inc. | $ | 159.1 | $ | 269.4 | $ | 18.4 | $ | (36.6 | ) | $ | (351.2 | ) | ||||||||
| Earnings (loss) per share, basic | $ | 0.78 | $ | 1.34 | $ | 0.10 | $ | (0.25 | ) | $ | (2.35 | ) | ||||||||
| Earnings (loss) per share, diluted | $ | 0.76 | $ | 1.29 | $ | 0.10 | $ | (0.25 | ) | $ | (2.35 | ) | ||||||||
| Weighted average shares, basic | 203.5 | 201.6 | 182.2 | 149.2 | 149.6 | |||||||||||||||
| Weighted average shares, diluted | 208.9 | 209.1 | 188.4 | 149.2 | 149.6 | |||||||||||||||
| Statement of Cash Flow Data: | ||||||||||||||||||||
| Cash flows - operating activities | $ | 343.3 | $ | 444.5 | $ | 200.5 | $ | 165.6 | $ | 172.1 | ||||||||||
| Cash flows - investing activities | (54.3 | ) | (235.0 | ) | (60.8 | ) | (82.1 | ) | (84.0 | ) | ||||||||||
| Cash flows - financing activities | (11.5 | ) | (373.0 | ) | (17.4 | ) | (43.0 | ) | (35.0 | ) | ||||||||||
| Balance Sheet Data (at period end): | ||||||||||||||||||||
| Cash and cash equivalents | $ | 505.5 | $ | 221.2 | $ | 393.3 | $ | 255.8 | $ | 228.3 | ||||||||||
| Total assets | 4,628.4 | 4,487.1 | 4,621.2 | 4,316.0 | 4,462.0 | |||||||||||||||
| Total liabilities | 2,758.5 | 2,811.1 | 3,144.4 | 4,044.2 | 4,056.5 | |||||||||||||||
| Total stockholders’ equity | 1,869.9 | 1,676.0 | 1,476.8 | 271.8 | 405.5 | |||||||||||||||
| Other Financial Data (unaudited): | ||||||||||||||||||||
| Adjusted EBITDA(1) | $ | 564.8 | $ | 681.8 | $ | 561.5 | $ | 400.7 | $ | 418.9 | ||||||||||
| Adjusted net income(1) | 332.4 | 394.7 | 249.3 | 133.6 | 128.1 | |||||||||||||||
| Capital expenditures | 43.2 | 52.2 | 56.8 | 74.4 | 71.0 | |||||||||||||||
| Free cash flow(1) | 300.1 | 392.3 | 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 to Adjusted EBITDA and Adjusted Net Income and cash flows from operating activities to Free Cash Flow.
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2017 | ||||||||||
| Net Income | $ | 159.1 | $ | 269.4 | $ | 18.5 | ||||||
| Plus: | ||||||||||||
| Interest expense | 88.9 | 99.6 | 140.7 | |||||||||
| Provision (benefit) for income taxes | 31.8 | 80.1 | (131.2 | ) | ||||||||
| Depreciation expense | 53.8 | 54.6 | 54.9 | |||||||||
| Amortization expense(a) | 124.3 | 125.8 | 118.9 | |||||||||
| Impairment of other intangible assets(b) | - | - | 1.6 | |||||||||
| KKR fees and expenses(c) | - | - | 17.3 | |||||||||
| Restructuring and related business transformation costs(d) | 25.6 | 38.8 | 24.7 | |||||||||
| Acquisition related expenses and non-cash charges(e) | 54.6 | 16.7 | 4.1 | |||||||||
| Environmental remediation loss reserve(f) | 0.1 | - | 0.9 | |||||||||
| Expenses related to public stock offerings(g) | - | 2.9 | 4.1 | |||||||||
| Establish public company financial reporting compliance(h) | 0.6 | 4.3 | 8.1 | |||||||||
| Stock-based compensation(i) | 23.1 | (2.3 | ) | 194.2 | ||||||||
| Loss on extinguishment of debt(j) | 0.2 | 1.1 | 84.5 | |||||||||
| Foreign currency transaction losses (gains), net | 8.1 | (1.9 | ) | 9.3 | ||||||||
| Shareholder litigation settlement recoveries(k) | (6.0 | ) | (9.5 | ) | - | |||||||
| Other adjustments(l) | 0.6 | 2.2 | 10.9 | |||||||||
| Adjusted EBITDA | $ | 564.8 | $ | 681.8 | $ | 561.5 | ||||||
| Minus: | ||||||||||||
| Interest expense | $ | 88.9 | $ | 99.6 | $ | 140.7 | ||||||
| Income tax provision, as adjusted(m) | 77.9 | 119.0 | 105.4 | |||||||||
| Depreciation expense | 53.8 | 54.6 | 54.9 | |||||||||
| Amortization of non-acquisition related intangible assets | 11.8 | 13.9 | 11.2 | |||||||||
| Adjusted Net Income | $ | 332.4 | $ | 394.7 | $ | 249.3 | ||||||
| Free Cash Flow | ||||||||||||
| Cash flows - operating activities | $ | 343.3 | $ | 444.5 | $ | 200.5 | ||||||
| Minus: | ||||||||||||
| Capital expenditures | 43.2 | 52.2 | 56.8 | |||||||||
| Free Cash Flow | $ | 300.1 | $ | 392.3 | $ | 143.7 |
| (a) | Represents $112.5 million, $111.9 million and $107.7 million of amortization of intangible assets arising from the KKR Transaction and other acquisitions (customer relationships and trademarks) and $11.8 million, $13.9 million and $11.2 million of amortization of non-acquisition related intangible assets, in each case for the years ended December 31, 2019, 2018 and 2017, respectively. |
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| (b) | Represents non-cash charges for impairment of intangible assets other than goodwill. |
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| (c) | Represents management fees and expenses paid to Kohlberg, Kravis & Roberts & Co., L.P. (“KKR” or “Former Sponsor”). |
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| (d) | Restructuring and related business transformation costs consisted of the following. |
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| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2017 | ||||||||||
| Restructuring charges | $ | 17.1 | $ | 12.7 | $ | 5.3 | ||||||
| Severance, sign-on, relocation and executive search costs | 2.5 | 4.1 | 3.5 | |||||||||
| Facility reorganization, relocation and other costs | 2.4 | 3.1 | 5.3 | |||||||||
| Information technology infrastructure transformation | 1.2 | 0.8 | 5.2 | |||||||||
| Losses (gains) on asset and business disposals | 0.8 | (1.1 | ) | 0.8 | ||||||||
| Consultant and other advisor fees | 0.3 | 14.1 | 1.7 | |||||||||
| Other, net | 1.3 | 5.1 | 2.9 | |||||||||
| Total restructuring and related business transformation costs | $ | 25.6 | $ | 38.8 | $ | 24.7 |
| (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. |
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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 our initial public offering and secondary offerings. |
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| (h) | Represents third party expenses to comply with the requirements of Sarbanes-Oxley 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. |
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| (i) | Represents stock-based compensation expense recognized for stock options outstanding for the year ended December 31, 2019 of $19.2 million, increased by $3.9 million due to costs associated with employer taxes. |
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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 and employer taxes related to DSUs granted to employees at the date of the initial public offering of $19.2 million.
| (j) | Represents losses on the extinguishment of the Company’s senior notes, extinguishment of a portion of the U.S. Term Loan, refinancing of the Original Dollar Term Loan Facility and the Original Euro Term Loan Facility and losses reclassified from AOCI into income related to the amendment of the interest rate swaps in conjunction with the debt repayment. |
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| (k) | Represents insurance recoveries of our shareholder litigation settlement in 2014. |
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| (l) | Includes (i) non-cash impact of net LIFO reserve adjustment, (ii) effects of amortization of prior service costs and amortization of losses in pension and other postretirement benefits (“OPEB”) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments. |
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| (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. |
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The income tax provision, as adjusted for each of the periods presented below consists of the following.
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2017 | ||||||||||
| Provision (benefit) for income taxes | $ | 31.8 | $ | 80.1 | $ | (131.2 | ) | |||||
| Tax impact of pre-tax income adjustments | 45.6 | 36.9 | 139.3 | |||||||||
| Tax law change | - | 1.2 | 95.3 | |||||||||
| Discrete tax items | 0.5 | 0.8 | 2.0 | |||||||||
| Income tax provision, as adjusted | $ | 77.9 | $ | 119.0 | $ | 105.4 |
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with “Item 6. Selected Financial Data” and our audited consolidated financial statements and related notes to our consolidated financial statements included elsewhere in this Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth under the “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Form 10-K.
Transaction with Ingersoll Rand
In April 2019, our Board of Directors approved a merger that will combine Gardner Denver with the industrial segment of Ingersoll-Rand plc (“Ingersoll Rand”) (the “Merger”). To facilitate this Merger, Ingersoll Rand will cause specific assets and liabilities of its industrial segment to be transferred to Ingersoll-Rand U.S. HoldCo, Inc. (“Ingersoll Rand Industrial”), a newly formed wholly-owned subsidiary of Ingersoll Rand, and distribute the shares of common stock of Ingersoll Rand Industrial to Ingersoll Rand’s shareholders. Charm Merger Sub Inc. (“Merger Sub”), which is a newly formed wholly-owned subsidiary of Gardner Denver, will be merged with and into Ingersoll Rand Industrial, with Ingersoll Rand Industrial surviving such merger as a wholly-owned subsidiary of Gardner Denver.
Pursuant to the definitive agreement Gardner Denver entered into with Ingersoll Rand, Ingersoll Rand Industrial and Merger Sub with respect to the Merger (the “Merger Agreement”), Gardner Denver will issue an aggregate number of shares of its common stock to Ingersoll Rand Industrial stockholders which will result in Ingersoll Rand Industrial stockholders owning approximately, but not less than, 50.1% of the shares of Gardner Denver common stock outstanding on a fully-diluted basis upon the closing of the Merger. The number of shares to be issued to Ingersoll Rand Industrial stockholders is based on the exchange ratio set forth in the Merger Agreement. In addition, Ingersoll Rand will receive approximately $1.9 billion in cash from Ingersoll Rand Industrial that will be funded by newly-issued debt that is expected to be deemed issued under the existing Senior Secured Credit Facilities of Gardner Denver upon consummation of the merger. The Merger is expected to close on February 29, 2020.
The Merger will result in Gardner Denver acquiring Ingersoll Rand Industrial, which includes compressed air and gas systems and services, power tools, material handling systems, fluid management systems as well as Club Car golf, utility and consumer low-speed vehicles. Following the Merger, the combined company is expected to be renamed and operate under the Ingersoll Rand name and its common stock is expected to be listed on the New York Stock Exchange under Ingersoll Rand’s existing ticker symbol “IR.”
See Note 3 “Business Combinations” to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to the transaction with Ingersoll Rand.
Executive Overview
Our Company
We are a leading global provider of mission-critical flow control and compression equipment and associated aftermarket parts, consumables and services, which we sell across multiple attractive end-markets within the industrial, energy and medical industries. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, 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 Gardner Denver, CompAir, Nash, Emco Wheaton, Robuschi, Elmo Rietschle and Thomas, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service. These attributes, along with over 155 years of engineering heritage, generate strong brand loyalty for our products and foster long-standing customer relationships, which we believe have resulted in leading market positions within each of our operating segments. We have sales in more than 175 countries and our diverse customer base utilizes our products across a wide array of end-markets that have favorable near- and long-term growth prospects, including industrial manufacturing, energy (with particular exposure to the North American upstream land-based market), transportation, medical and laboratory sciences, food and beverage packaging and chemical processing.
Our products and services are critical to the processes and systems in which they are utilized, which are often complex and function in harsh conditions where the cost of failure or downtime is high. However, our products and services typically represent only a small portion of the costs of the overall systems or functions that they support. As a result, our customers place a high value on our application expertise, product reliability and the responsiveness of our service. To support our customers and market presence, we maintain significant global scale with 38 key manufacturing facilities, more than 30 complementary service and repair centers across six continents and approximately 6,600 employees worldwide as of December 31, 2019.
The process-critical nature of our product applications, coupled with the standard wear and tear replacement cycles associated with the usage of our products, generates opportunities to support customers with our broad portfolio of aftermarket parts, consumables and services. Customers place a high value on minimizing any time their operations are offline. As a result, the availability of replacement parts, consumables and our repair and support services are key components of our value proposition. Our large installed base of products provides a recurring revenue stream through our aftermarket parts, consumables and services offerings. As a result, our aftermarket revenue is significant, representing 38% of total Company revenue and approximately 42% of our combined Industrials and Energy segments’ revenue in 2019.
Our Segments
We report our results of operations through three reportable segments: Industrials, Energy and Medical.
Industrials
In the Industrials segment, we design, manufacture, market and service a broad range of air compression, vacuum and blower products across a wide array of technologies and applications. Almost every manufacturing and industrial facility, and many service and process industries, use air compression and vacuum products in a variety of applications such as operation of pneumatic air tools, vacuum packaging of food products and aeration of waste water. We maintain a leading position in our markets and serve customers globally. We offer comprehensive aftermarket parts and an experienced direct and distributor-based service network world-wide to complement all of our products. In 2019, the Industrials segment generated Segment Revenue of $1,301.3 million and Segment Adjusted EBITDA of $296.6 million, reflecting a Segment Adjusted EBITDA Margin of 22.8%.
Energy
In the Energy segment, we design, manufacture, market and service a diverse range of positive displacement pumps, liquid ring vacuum pumps and compressors, and engineered loading systems and fluid transfer equipment, consumables, and associated aftermarket parts and services. We serve customers in the upstream, midstream, and downstream oil and gas markets, and various other markets including petrochemical processing, power generation, transportation, and general industrial. We are one of the largest suppliers in these markets and have long-standing customer relationship
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate 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.
As of December 31, 2019, we had variable rate debt outstanding, net of our interest rate swaps, of $776.3 million at a current weighted average interest rate of 3.2%, substantially all of which was incurred under our $2,460.7 million Senior Secured Credit Facility, under which $927.6 million was outstanding under the $1,285.5 million Dollar Term Loan Facility and €601.2 million was outstanding under the €615.0 million Euro Term Loan Facility.
The Dollar Term Loan Facility and the Euro Term Loan Facility bear interest primarily based on LIBOR and EURIBOR, respectively, plus a spread. The Dollar Term Loan Facility is subject to a 0% LIBOR base rate floor and the Euro Term Loan Facility is subject to a 0% EURIBOR base rate floor. Thus, the interest rate on the Dollar Term Loan Facility and the Euro Term Loan Facility will fluctuate when LIBOR or EURIBOR, respectively, exceeds that percentage. As of December 31, 2019, LIBOR was higher than the 0% floor and EURIBOR was lower than the 0% floor.
We use interest rate swaps to offset our exposure to interest rate movements. These outstanding interest rate swaps qualify and are designated as cash flow hedges of forecasted LIBOR-based interest payments. As of December 31, 2019, we were a fixed rate payer on four fixed-floating interest rate swap contracts that effectively fixed the LIBOR-based index used to determine the interest rates charged on our LIBOR-based variable rate borrowings. See Note 18 “Hedging Activities, Derivative Instruments, and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.
The following table presents the impact of hypothetical changes in market interest rates across the yield curve by 100 basis points, including the effect of our interest rate swaps for the years ended December 31, 2019 and 2018 on our interest expense.
| Year Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | |||||||
| Increase (decrease) in market interest rates | ||||||||
| 100 basis points | $ | 4.7 | $ | 4.8 | ||||
| (100) basis points(1) (2) | (1.0 | ) | (0.3 | ) |
| (1) | A decrease in interest rates would not have impacted our interest expense in 2019 on EURIBOR debt which was lower than the 0% base rate floor under the Senior Secured Credit Facility for the entire fiscal year 2019, but would have impacted interest expense in 2019 on LIBOR debt which was higher than the 0% based rate floors under the Senior Secured Credit Facility for the year ended December 31, 2019. |
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| (2) | A decrease in interest rates would not have impacted our interest expense in 2018 on EURIBOR debt which was lower than the 0% base rate floor under the Senior Secured Credit Facility for the entire fiscal year 2018, but would have impacted interest expense in 2018 on LIBOR debt which was higher than the 0% based rate floors under the Senior Secured Credit Facility for the year ended December 31, 2018. |
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Foreign Currency Risk
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. In 2019, the relative strengthening of the U.S. dollar against foreign currencies had an unfavorable impact on our revenues and results of operations while in 2018, the relative weakening of the U.S. dollar against foreign currencies had a favorable impact on our revenues and results of operations. While future changes in foreign currency exchange rates are difficult to predict, our revenues and earnings may be adversely affected if the U.S. dollar strengthens against foreign currencies.
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. 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.
The table below presents the percentage of revenues and gross profit by principal currency for the years ended December 31, 2019 and 2018.
| U.S. Dollar | Euro | British Pound | Chinese Renminbi | Other | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, 2019 | ||||||||||||||||||||
| Revenues | 44 | % | 31 | % | 5 | % | 6 | % | 14 | % | ||||||||||
| Gross profit | 42 | % | 35 | % | 6 | % | 7 | % | 10 | % | ||||||||||
| Year Ended December 31, 2018 | ||||||||||||||||||||
| Revenues | 48 | % | 30 | % | 5 | % | 5 | % | 12 | % | ||||||||||
| Gross profit | 48 | % | 31 | % | 5 | % | 7 | % | 9 | % |
We utilize foreign currency denominated debt obligations supplemented from time to time with cross currency interest rate swaps designated as net investment hedges to selectively hedge portions of our investment in non-U.S. subsidiaries. The currency effects of the designated debt obligations and cross currency interest rate swaps are reflected in accumulated other comprehensive income within our stockholders’ equity, where they partially offset the currency translation effects of our investments in non-U.S. subsidiaries, which in turn partially offset gains and losses recorded on our net investments globally. These currency translation effects and offsetting impacts of our derivatives for the years ended December 31, 2019 and 2018 are summarized in Note 13 “Accumulated Other Comprehensive (Loss) Income” to our audited consolidated financial statements included elsewhere in this Form 10-K.
We also enter into foreign currency forward contracts to manage the risk arising from transaction gains and losses associated with intercompany loans with foreign subsidiaries. Our foreign currency forward contracts are typically short-term and are rolled forward as necessary upon settlement. As of December 31, 2019, we were party to six foreign currency forward contracts, all of which are carried on our balance sheet at fair value. See Note 18 “Hedging Activities, Derivative Instruments, and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.
The table below presents, for the year ended December 31, 2019, the hypothetical effect of a 10% appreciation in the average exchange rate of the U.S. dollar relative to the principal foreign currencies in which our revenues and gross profit are denominated.
| Year Ended December 31, 2019 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Euro | British Pound | Chinese Renminbi | ||||||||||
| Revenues | $ | (69.2 | ) | $ | (11.9 | ) | $ | (13.5 | ) | |||
| Gross profit | (30.1 | ) | (5.3 | ) | (6.7 | ) |
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
| For the Years Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2017 | ||||||||||
| Revenues | $ | 2,451.9 | $ | 2,689.8 | $ | 2,375.4 | ||||||
| Cost of sales | 1,540.2 | 1,677.3 | 1,477.5 | |||||||||
| Gross Profit | 911.7 | 1,012.5 | 897.9 | |||||||||
| Selling and administrative expenses | 436.4 | 434.6 | 446.2 | |||||||||
| Amortization of intangible assets | 124.3 | 125.8 | 118.9 | |||||||||
| Impairment of other intangible assets | — | — | 1.6 | |||||||||
| Other operating expense, net | 75.7 | 9.1 | 222.1 | |||||||||
| Operating Income | 275.3 | 443.0 | 109.1 | |||||||||
| Interest expense | 88.9 | 99.6 | 140.7 | |||||||||
| Loss on extinguishment of debt | 0.2 | 1.1 | 84.5 | |||||||||
| Other income, net | (4.7 | ) | (7.2 | ) | (3.4 | ) | ||||||
| Income (Loss) Before Income Taxes | 190.9 | 349.5 | (112.7 | ) | ||||||||
| Provision (benefit) for income taxes | 31.8 | 80.1 | (131.2 | ) | ||||||||
| Net Income | 159.1 | 269.4 | 18.5 | |||||||||
| Less: Net income attributable to noncontrolling interests | — | — | 0.1 | |||||||||
| Net Income Attributable to Gardner Denver Holdings, Inc. | $ | 159.1 | $ | 269.4 | $ | 18.4 | ||||||
| Basic earnings per share | $ | 0.78 | $ | 1.34 | $ | 0.10 | ||||||
| Diluted earnings per share | $ | 0.76 | $ | 1.29 | $ | 0.10 |
The accompanying notes are an integral part of these consolidated financial statements.
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
| For the Years Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2017 | ||||||||||
| Comprehensive Income Attributable to Gardner Denver Holdings, Inc. | ||||||||||||
| Net income attributable to Gardner Denver Holdings, Inc. | $ | 159.1 | $ | 269.4 | $ | 18.4 | ||||||
| Other comprehensive (loss) income, net of tax: | ||||||||||||
| Foreign currency translation adjustments, net | (1.5 | ) | (61.0 | ) | 106.0 | |||||||
| Unrecognized gains on cash flow hedges, net | 7.2 | 18.1 | 12.4 | |||||||||
| Pension and other postretirement prior service cost and gain or loss, net | (6.5 | ) | (4.6 | ) | 24.2 | |||||||
| Other comprehensive (loss) income, net of tax | (0.8 | ) | (47.5 | ) | 142.6 | |||||||
| Comprehensive income attributable to Gardner Denver Holdings, Inc. | $ | 158.3 | $ | 221.9 | $ | 161.0 | ||||||
| Comprehensive Income Attributable to Noncontrolling Interests | ||||||||||||
| Net income attributable to noncontrolling interests | $ | — | $ | — | $ | 0.1 | ||||||
| Other comprehensive income, net of tax | — | — | — | |||||||||
| Comprehensive income attributable to noncontrolling interests | $ | — | $ | — | $ | 0.1 | ||||||
| Total Comprehensive Income | $ | 158.3 | $ | 221.9 | $ | 161.1 |
The accompanying notes are an integral part of these consolidated financial statements.
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share and per share amounts)
| December 31, | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 505.5 | $ | 221.2 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $18.4 and $17.4, respectively | 459.1 | 525.4 | ||||||
| Inventories | 502.5 | 523.9 | ||||||
| Other current assets | 76.8 | 60.7 | ||||||
| Total current assets | 1,543.9 | 1,331.2 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $298.4 and $250.0, respectively | 326.6 | 356.6 | ||||||
| Goodwill | 1,287.7 | 1,289.5 | ||||||
| Other intangible assets, net | 1,255.0 | 1,368.4 | ||||||
| Deferred tax assets | 3.0 | 1.3 | ||||||
| Other assets | 212.2 | 140.1 | ||||||
| Total assets | $ | 4,628.4 | $ | 4,487.1 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Short-term borrowings and current maturities of long-term debt | $ | 7.6 | $ | 7.9 | ||||
| Accounts payable | 322.9 | 340.0 | ||||||
| Accrued liabilities | 244.1 | 248.5 | ||||||
| Total current liabilities | 574.6 | 596.4 | ||||||
| Long-term debt, less current maturities | 1,603.8 | 1,664.2 | ||||||
| Pensions and other postretirement benefits | 99.7 | 94.8 | ||||||
| Deferred income taxes | 251.0 | 265.5 | ||||||
| Other liabilities | 229.4 | 190.2 | ||||||
| Total liabilities | 2,758.5 | 2,811.1 | ||||||
| Commitments and contingencies (Note 20) | ||||||||
| Stockholders’ equity | ||||||||
| Common stock, $0.01 par value; 1,000,000,000 shares authorized; 206,767,529 and 201,051,291 shares issued as of December 31, 2019 and December 31, 2018, respectively | 2.1 | 2.0 | ||||||
| Capital in excess of par value | 2,302.0 | 2,282.7 | ||||||
| Accumulated deficit | (141.4 | ) | (308.7 | ) | ||||
| Accumulated other comprehensive loss | (256.0 | ) | (247.0 | ) | ||||
| Treasury stock at cost; 1,701,785 and 2,881,436 shares as of December 31, 2019 and 2018, respectively | (36.8 | ) | (53.0 | ) | ||||
| Total stockholders’ equity | 1,869.9 | 1,676.0 | ||||||
| Total liabilities and stockholders’ equity | $ | 4,628.4 | $ | 4,487.1 |
The accompanying notes are an integral part of these consolidated financial statements.
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollars in millions)
| For the Years Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2017 | ||||||||||
| Number of Common Shares Issued (in millions) | ||||||||||||
| Balance at beginning of period | 201.1 | 198.4 | 150.6 | |||||||||
| Common stock issued for initial public offering | — | — | 47.5 | |||||||||
| Issuance of common stock for stock-based compensation plans | 5.7 | 2.7 | 0.3 | |||||||||
| Balance at end of period | 206.8 | 201.1 | 198.4 | |||||||||
| Common Stock | ||||||||||||
| Balance at beginning of period | $ | 2.0 | $ | 2.0 | $ | 1.5 | ||||||
| Common stock issued for initial public offering | — | — | 0.5 | |||||||||
| Issuance of common stock for stock-based compensation plans | 0.1 | — | — | |||||||||
| Balance at end of period | $ | 2.1 | $ | 2.0 | $ | 2.0 | ||||||
| Capital in Excess of Par Value | ||||||||||||
| Balance at beginning of period | $ | 2,282.7 | $ | 2,275.4 | $ | 1,222.4 | ||||||
| Common stock issued for initial public offering, net of underwriting discounts and commissions | — | — |
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of December 31, 2019. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that:
| ● | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
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| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and |
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| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. |
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Because of its inherent limitations, internal control over financial reporting may not prevent and detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our executive officer and our principal financial officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2019.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Form 10-K, and, as part of their audit, has issued its attestation report, included herein, on the effectiveness of our internal control over financial reporting. See “Report of Independent Registered Public Accounting Firm” in Part II, Item 8. Financial Statements and Supplementary Data in this Form 10-K.
Changes in Internal Control Over Financial Reporting
Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. There have been no changes in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
PART III.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Except as set forth below, the information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.
Equity Compensation Plan Information
The following table provides information as of December 31, 2019 about our common stock that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or directors under all of the existing equity compensation plans including our 2013 Stock Incentive Plan and 2017 Omnibus Incentive Plan. All equity compensation plans are described more fully in Note 17 “Stock-Based Compensation Plans” to our audited consolidated financial statements included elsewhere in this Form 10-K.
| Plan Category | Number of Securities to be issued upon Exercise of Outstanding Options, Warrants And Rights(1) | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(2) | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding Securities reflected in the first column)(3) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity compensation plans approved by securityholders | 8,480,011 | $ | 14.34 | 6,848,079 |
| (1) | Total includes 5,962,883 stock options and 25,370 share-settled stock appreciation rights under the Company’s 2013 Stock Incentive Plan and 1,772,604 stock options, 719,154 restricted stock units and no share-settled stock appreciation rights under the Company’s 2017 Omnibus Incentive Plan. |
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| (2) | The weighted average exercise price relates only to stock options. The calculation of the weighted average exercise price does not include outstanding equity awards that are received or exercised for no consideration. |
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| (3) | These shares are available for grant as of December 31, 2019 under the Company’s 2017 Omnibus Incentive Plan. This includes 8,550,000 shares initially authorized for issuance under the Company’s 2017 Omnibus Incentive Plan and shares subject to awards under the Company’s 2013 Stock Incentive Plan that expired or were otherwise forfeited or terminated in accordance with their terms without the delivery of shares of the Company’s common stock in settlement thereof. |
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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE
Financial Statements, Financial Statement Schedule and Exhibits
The consolidated financial statements listed in the accompanying index to consolidated financial statements are filed as part of this Annual Report on Form 10-K.
All financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto.
The exhibits listed in the accompanying exhibit index are filed as part of this Annual Report on Form 10-K.
Index to Consolidated Financial Statements
Schedule to Consolidated Financial Statements
| Schedule I – Condensed Financial Statements Gardner Denver Holdings, Inc. (Parent Company Only) | 112 |
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Exhibits
| Exhibit Number | Exhibit Description | |
|---|---|---|
| 2.1 | Agreement and Plan of Merger, dated as of April 30, 2019, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. Holdco, Inc., Gardner Denver Holdings, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019 (File No. 001-34400)) | |
| 3.1 | Second Amended and Restated Certificate of Incorporation of Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) | |
| 3.2 | Amended and Restated Bylaws of Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) |
| Exhibit Number | Exhibit Description | |
|---|---|---|
| 4.1 | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 filed on May 3, 2017 (File no. 333-216320)) | |
| 4.2 | Amended and Restated Registration Rights Agreement, dated as of May 17, 2017, by and among KKR Renaissance Aggregator L.P.; KKR Renaissance Aggregator GP LLC; Gardner Denver Holdings, Inc. and each of the other parties thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) | |
| 4.3 | Description of Gardner Denver Holdings, Inc.’s Securities | |
| 10.1† | 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.2 | Senior Secured Credit Agreement, dated as of July 30, 2013, among Renaissance Acquisition Corp., the foreign borrowers described therein, Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.3 | Amendment No. 1, dated as of March 4, 2016, to the Senior Secured Credit Agreement, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Gardner Denver, Inc., GD German Holdings II GmbH (as successor in interest to Gardner Denver Holdings GmbH & Co. KG), GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.4 | Amendment No. 2, dated as of August 17, 2017, to the Senior Secured Credit Agreement, among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and the other parties and lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2017 (File no. 001-38095)) | |
| 10.5 | Amendment No. 3, dated as of December 13, 2018, to the Senior Secured Credit Agreement dated as of July 30, 2013, among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and the other parties and lenders part thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2018 (File no. 001-38095) | |
| 10.6 | Pledge Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Renaissance Acquisition Corp., the subsidiary pledgors identified therein and UBS AG, Stamford Branch, as collateral agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.7 | Security Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Renaissance Acquisition Corp., the subsidiary grantors identified therein and UBS AG, Stamford Branch, as collateral agent (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.8 | Guarantee Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), the subsidiary guarantors identified therein and UBS AG, Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.9 | Receivables Financing Agreement, dated as of May 17, 2016, by and among Gardner Denver Finance II LLC, Gardner Denver, Inc., as initial servicer, the various lenders and LC participants from time to time party thereto, PNC Bank, National Association, as LC bank and administrative agent, and PNC Capital Markets LLC, as structuring agent. (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) |
| Exhibit Number | Exhibit Description | |
|---|---|---|
| 10.10 | Indemnification Agreement, dated as of July 30, 2013, by and among KKR Renaissance Aggregator L.P.; KKR Renaissance Aggregator GP LLC; Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.); Gardner Denver, Inc. and Kohlberg Kravis Roberts & Co. L.P. (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.11 | Stockholders Agreement, dated as of May 17, 2018, between Gardner Denver Holdings, Inc. and KKR Renaissance Aggregator L.P. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) | |
| 10.12† | Form of Management Stockholder’s Agreement (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.13† | Form of Director Stockholder’s Agreement (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.14 | Form of Advisor Stockholder’s Agreement (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.15† | Form of Director Stock Option Agreement under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.16† | Form of Management Stock Option Agreement (December 2013) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.17† | Form of Management Stock Option Agreement (May 2015) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.18† | Form of Management Stock Option Agreement (May 2016, 3 year vesting) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.19† | Form of Management Stock Option Agreement (May 2016, 5 year vesting) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.20† | Form of Management Stock Option Agreement (December 2016) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.21† | Form of Amendment to Stock Option Agreement or Stock Appreciation Right Agreement under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) |
| Exhibit Number | Exhibit Description | |
|---|---|---|
| 10.22† | Stock Option Agreement, dated as of March 7, 2014, under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) between Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and Andrew Schiesl (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.23† | Form of Sale Participation Agreement (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.24† | Offer Letter, dated April 17, 2015, between Vicente Reynal and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.25† | Offer Letter, dated November 19, 2015, between Vicente Reynal and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.26† | Offer Letter, dated November 18, 2015, between Todd Herndon and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.27† | Offer Letter, dated September 2, 2016, between Todd Herndon and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.28† | Offer Letter, dated November 25, 2013, between Gardner Denver, Inc. and Andy Schiesl (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320)) | |
| 10.29† | Employment Contract, dated September 11, 2018 between Gardner Denver Deutschland GmbH and Enrique Miñarro Viseras (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 29, 2018 (File No. 001-38095)) | |
| 10.30† | Offer Letter, dated December 18, 2015, between Gardner Denver, Inc. and Neil Snyder (incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K filed on February 16, 2018 (File No. 001-38095)) | |
| 10.31† | 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) | |
| 10.32 | Monitoring Fee Termination Agreement, dated as of May 17, 2017, between Gardner Denver Holdings, Inc. Kohlberg Kravis Roberts & Co. L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095)) | |
| 10.33† | Form of Restricted Stock Unit Grant Notice and Agreement (2018) under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on April 27, 2018 (File No. 001-38095)) | |
| 10.34† | Form of Director Restricted Stock Unit Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on April 27, 2018 (File no. 001-38095)) | |
| 10.35† | Form of Stock Option Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K filed on February 16, 2018 (File no. 001-38095)) | |
| 10.36† | Gardner Denver, Inc. Supplemental Excess Defined Contribution Plan (January 1, 2019 Restatement) (incorporated by reference to Exhibit 10.36 to the Registrants Annual Report on Form 10-K filed on February 27, 2019 (File no. 001-38095)) |
| Exhibit Number | Exhibit Description | |
|---|---|---|
| 10.37† | Transition Agreement, dated as of February 27, 2019, between Gardner Denver, Inc. and Philip T. Herndon (incorporated by reference to Exhibit 10.37 to the Registrants Annual Report on Form 10-K filed on February 27, 2019 (File No. 001-38095)) | |
| 10.38 | Amendment No. 4 to the Credit Agreement, dated as of June 28, 2019, among Gardner Denver Holdings, Inc., GD German Holdings II GmbH, Gardner Denver Holdings Ltd., UBS AS, Stamford Branch as the Resigning Agent, Citibank, N.A. as the Successor Agent and the lenders and other entities party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 2, 2019 (File No. 001-38095)) | |
| 10.39 | Separation and Distribution Agreement, dated as of April 30, 2019, by and between Ingersoll-Rand plc and Ingersoll Rand U.S. HoldCo., Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019 (File No. 001-34400)) | |
| 10.40 | Amendment No. 1 to the Stockholders Agreement, dated as of April 30, 2019, between Gardner Denver Holdings, Inc. and KKR Renaissance Aggregator L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 6, 2019 (File No. 001-38095)) | |
| 10.41† | Transition Agreement, dated as of October 28, 2019, between Gardner Denver, Inc. and Neil Snyder (incorporated by reference to Exhibit 10.4 to the Registrants Quarterly Report on Form 10-Q filed on October 30, 2019 (File No. 001-38095)) | |
| 10.42† | Offer Letter, dated October 3, 2019, between Gardner Denver Holdings, Inc. and Emily A. Weaver | |
| 10.43† | Form of Stock Option Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan | |
| 10.44† | Form of Restricted Stock Unit Grant Notice and Agreement (2019) under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan | |
| 21 | Subsidiaries of Gardner Denver Holdings, Inc. as of December 31, 2019 | |
| 23 | Consent of Independent Registered Public Accounting Firm | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | |
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) |
| † | Identifies exhibits that consists of a management contract or compensatory plan or arrangement. |
|---|
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.
Item 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf on the 26th day of February 2020, by the undersigned, thereunto duly authorized.
| Gardner Denver Holdings, Inc. | ||
|---|---|---|
| By: | /s/ Vicente Reynal | |
| Name: Vicente Reynal | ||
| Title: Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 26th day of February 2020, by the following persons on behalf of the registrant and in the capacities indicated.
| Signature | Capacity | |
|---|---|---|
| /s/ Vicente Reynal | Chief Executive Officer and Director | |
| Vicente Reynal | (principal executive officer), Director | |
| /s/ Emily A. Weaver | Vice President and Chief Financial Officer | |
| Emily A. Weaver | (principal financial officer) | |
| /s/ Michael J. Scheske | Vice President and Corporate Controller | |
| Michael J. Scheske | (principal accounting officer) | |
| /s/ Peter Stavros | Director | |
| Peter Stavros | ||
| /s/ Brandon F. Brahm | Director | |
| Brandon F. Brahm | ||
| /s/ William P. Donnelly | Director | |
| William P. Donnelly | ||
| /s/ William E. Kassling | Director | |
| William E. Kassling | ||
| /s/ Michael V. Marn | Director | |
| Michael V. Marn | ||
| /s/ Nickolas Vande Steeg | Director | |
| Nickolas Vande Steeg | ||
| /s/ Joshua T. Weisenbeck | Director | |
| Joshua T. Weisenbeck | ||
| /s/ Elizabeth Centoni | Director | |
| Elizabeth Centoni |
| /s/ Marc E. Jones | Director | |
|---|---|---|
| Marc E. Jones |
SCHEDULE 1 – GARDNER DENVER HOLDINGS, INC
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in millions)
| For the Years Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2017 | ||||||||||
| Revenues | $ | — | $ | — | $ | — | ||||||
| Cost of sales | 0.6 | — | — | |||||||||
| Gross Profit | (0.6 | ) | — | — | ||||||||
| Operating costs | 10.4 | (1.2 | ) | 19.5 | ||||||||
| Other operating (income) expense, net | (47.0 | ) | (22.4 | ) | 175.0 | |||||||
| Operating Income (Loss) | 36.0 | 23.6 | (194.5 | ) | ||||||||
| Interest income | 42.3 | 41.8 | 20.7 | |||||||||
| Income (Loss) Before Income Taxes | 78.3 | 65.4 | (173.8 | ) | ||||||||
| Income tax (benefit) provision | (5.1 | ) | 3.4 | (16.1 | ) | |||||||
| Income (Loss) of Parent Company | 83.4 | 62.0 | (157.7 | ) | ||||||||
| Equity in undistributed income of subsidiaries | 75.7 | 207.4 | 176.1 | |||||||||
| Net Income | 159.1 | 269.4 | 18.4 | |||||||||
| Other comprehensive (loss) income | (0.8 | ) | (47.5 | ) | 142.6 | |||||||
| Comprehensive Income | $ | 158.3 | $ | 221.9 | $ | 161.0 |
SCHEDULE 1 – GARDNER DENVER HOLDINGS, INC
(PARENT COMPANY ONLY)
BALANCE SHEETS
(Dollars in millions)
| As of December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | — | $ | 1.0 | ||||
| Other current assets | 1.0 | — | ||||||
| Total current assets | 1.0 | 1.0 | ||||||
| Equity in net assets of subsidiaries | 848.5 | 781.9 | ||||||
| Intercompany receivables | 1,019.9 | 885.7 | ||||||
| Deferred tax assets | 8.3 | 15.5 | ||||||
| Total assets | $ | 1,877.7 | $ | 1,684.1 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Other liabilities | $ | 7.8 | $ | 8.1 | ||||
| Total liabilities | 7.8 | 8.1 | ||||||
| Stockholders' equity: | ||||||||
| Common stock, $0.01 par value; 1,000,000,000 shares authorized; 206,767,529 and 201,051,291 shares issued at December 31, 2019 and December 31, 2018, respectively | 2.1 | 2.0 | ||||||
| Capital in excess of par value | 2,302.0 | 2,282.7 | ||||||
| Accumulated deficit | (141.4 | ) | (308.7 | ) | ||||
| Treasury stock at cost; 1,701,785 and 2,881,436 shares at | ||||||||
| December 31, 2019 and 2018, respectively | (36.8 | ) | (53.0 | ) | ||||
| Accumulated other comprehensive loss | (256.0 | ) | (247.0 | ) | ||||
| Total Gardner Denver Holdings, Inc. stockholders' equity | 1,869.9 | 1,676.0 | ||||||
| Total liabilities and stockholders' equity | $ | 1,877.7 | $ | 1,684.1 |
SCHEDULE 1 – GARDNER DENVER HOLDINGS, INC
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in millions)
| For the Years Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2017 | ||||||||||
| Cash Flows From Operating Activities: | ||||||||||||
| Net cash (used in) provided by operating activities | $ | (15.1 | ) | $ | 55.0 | $ | 9.2 | |||||
| Cash Flows From Investing Activities: | ||||||||||||
| Advances to subsidiaries | (10.1 | ) | (20.3 | ) | (899.3 | ) | ||||||
| Net cash used in investing activities | (10.1 | ) | (20.3 | ) | (899.3 | ) | ||||||
| Cash Flows From Financing Activities: | ||||||||||||
| Proceeds from stock option exercises | 42.8 | 6.8 | — | |||||||||
| Purchases of treasury stock | (18.6 | ) | (40.7 | ) | (3.6 | ) | ||||||
| Proceeds from the issuance of common stock | — | — | 893.6 | |||||||||
| Net cash provided by (used in) financing activities | 24.2 | (33.9 | ) | 890.0 | ||||||||
| (Decrease) increase in cash and cash equivalents | (1.0 | ) | 0.8 | (0.1 | ) | |||||||
| Cash and cash equivalents, beginning of year | 1.0 | 0.2 | 0.3 | |||||||||
| Cash and cash equivalents, end of year | $ | — | $ | 1.0 | $ | 0.2 |
SCHEDULE I - GARDNER DENVER HOLDINGS, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
- Overview and Basis of Presentation
On July 30, 2013, Gardner Denver, Inc. was acquired by an affiliate of Kohlberg Kravis Roberts & Co. L.P. (“KKR”). The acquisition (also referred to as the “Merger”) was effected by the merger of Renaissance Acquisition Corp. with and into Gardner Denver, Inc., with Gardner Denver, Inc. being the surviving corporation. As a result of the Merger, Gardner Denver, Inc. became a wholly-owned subsidiary of Gardner Denver Holdings, Inc. (formerly Renaissance Parent Corp.)
Gardner Denver Holdings, Inc. Parent Company only financial information has been derived from its consolidated financial statements and should be read in conjunction with the consolidated financial statements included in this report. The accounting policies for the registrant are the same as those described in Note 1 “Summary of Significant Accounting Policies” to our audited consolidated financial statements included elsewhere in this Form 10-K.
- Subsidiary Transactions
Investment in Subsidiaries
Gardner Denver Holdings, Inc.’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries.
Dividends and Capital Distributions
There were no dividends received from subsidiaries during the years ended December 31, 2019, 2018 and 2017.
- Debt
A discussion of long-term debt, including the five-year debt maturity schedule, can be found in Note 10 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K. Gardner Denver Holdings, Inc. had no long-term debt obligations as of December 31, 2019 and 2018.
- Contingencies
For a summary of contingencies, see Note 20 “Contingencies” to our audited consolidated financial statements included elsewhere in this Form 10-K.