GARDNER DENVER HOLDINGS, INC. (Form: 10-Q, Received: 04/27/2018 16:38:21)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2018

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

For the transition period from to__________

Commission File Number: 001-38095

Gardner Denver Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

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

222 East Erie Street, Suite 500

Milwaukee, Wisconsin 53202

(Address of Principal Executive Offices) (Zip Code)

(414) 212-4700

(Registrant’s Telephone Number, Including Area Code)

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

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒ (Do not check if a smaller reporting company)	Smaller reporting company	☐

		Emerging growth Company	☐

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

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

The registrant had outstanding 198,104,494 shares of Common Stock, par value $0.01 per share, as of April 24, 2018.

Table of Contents

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
	Item 1. Condensed Consolidated Financial Statements	6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	58
	Item 4. Controls and Procedures	59
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings	59
	Item 1A. Risk Factors	60
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	60
	Item 3. Defaults Upon Senior Securities	60
	Item 4. Mine Safety Disclosures	60
	Item 5. Other Information	60
	Item 6. Exhibits	60
SIGNATURES		61

Index

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and in this report, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov , and also include the following:

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

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

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

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

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

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

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

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

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

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

Our success depends on our executive management and other key personnel.

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Credit and counterparty risks could harm our business,

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

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

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

U.S. Federal income tax reform could adversely affect us.

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

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

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

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

A natural disaster, catastrophe or other event could result in severe property damage, which could adversely affect our operations.

Information systems failure may disrupt our business and result in financial loss and liability to our customers.

The nature of our products creates the possibility of significant product liability and warranty claims, which could harm our business.

Environmental compliance costs and liabilities could adversely affect our financial condition.

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

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

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

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

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

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

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

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

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

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

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

Website Disclosure

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

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PART 1. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share amounts)

(Unaudited)

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Revenues	$	619.6		$	481.7
Cost of sales		387.7			307.1
Gross Profit		231.9			174.6
Selling and administrative expenses		106.9			102.3
Amortization of intangible assets		30.9			27.6
Other operating expense, net		4.3			7.9
Operating Income		89.8			36.8
Interest expense		26.0			45.9
Other income, net		(2.0	)		(0.5	)
Income (Loss) Before Income Taxes		65.8			(8.6	)
Provision (benefit) for income taxes		23.4			(1.6	)
Net Income (Loss)		42.4			(7.0	)
Less: Net income attributable to noncontrolling interests		-			0.1
Net Income (Loss) Attributable to Gardner Denver Holdings, Inc.	$	42.4		$	(7.1	)
Basic earnings (loss) per share	$	0.21		$	(0.05	)
Diluted earnings (loss) per share	$	0.20		$	(0.05	)

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

Index

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in millions)

(Unaudited)

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Comprehensive Income Attributable to Gardner Denver Holdings, Inc.
Net income (loss) attributable to Gardner Denver Holdings, Inc.	$	42.4		$	(7.1	)
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net		51.4			25.7
Foreign currency losses, net		(17.0	)		(3.9	)
Unrecognized gains on cash flow hedges, net		11.4			3.0
Pension prior service cost and gain or loss, net		0.4			0.2
Total other comprehensive income, net of tax		46.2			25.0
Comprehensive income attributable to Gardner Denver Holdings, Inc.	$	88.6		$	17.9
Comprehensive Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests	$	-		$	0.1
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net		-			-
Total other comprehensive income, net of tax		-			-
Comprehensive income attributable to noncontrolling interests	$	-		$	0.1
Total Comprehensive Income	$	88.6		$	18.0

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

Index

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except share and per share amounts)

(Unaudited)

	March 31, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	353.8		$	393.3
Accounts receivable, net of allowance for doubtful accounts of $19.5 and $18.7, respectively		541.6			536.3
Inventories		567.2			494.5
Other current assets		50.8			39.5
Total current assets		1,513.4			1,463.6
Property, plant and equipment, net of accumulated depreciation of $219.6 and $203.8, respectively		365.3			363.2
Goodwill		1,308.3			1,227.6
Other intangible assets, net		1,449.2			1,431.2
Deferred tax assets		1.1			1.0
Other assets		138.1			134.6
Total assets	$	4,775.4		$	4,621.2
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt	$	21.1		$	20.9
Accounts payable		284.6			269.7
Accrued liabilities		305.4			271.2
Total current liabilities		611.1			561.8
Long-term debt, less current maturities		2,034.0			2,019.3
Pensions and other postretirement benefits		100.2			99.8
Deferred income taxes		248.3			237.5
Other liabilities		214.1			226.0
Total liabilities		3,207.7			3,144.4
Commitments and contingencies (Note 15)
Stockholders' equity:
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 199,434,219 and 198,377,237 shares issued at March 31, 2018 and December 31, 2017, respectively		2.0			2.0
Capital in excess of par value		2,282.3			2,275.4
Accumulated deficit		(535.7	)		(577.8	)
Accumulated other comprehensive loss		(153.3	)		(199.8	)
Treasury stock at cost; 2,208,106 and 2,159,266 shares at March 31, 2018 and December 31, 2017, respectively		(27.6	)		(23.0	)
Total stockholders' equity		1,567.7			1,476.8
Total liabilities and stockholders' equity	$	4,775.4		$	4,621.2

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

Index

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Dollars in millions)

(Unaudited)

	For the Three Month Period Ended March 31, 2018
Number of Common Shares Issued (in millions)
Balance at beginning of period		198.4
Exercise of stock options		0.4
Issuance of common stock for stock-based compensation plans		0.6
Balance at end of period		199.4
Common Stock
Balance at beginning of period	$	2.0
Exercise of stock options		-
Issuance of common stock for stock-based compensation plans		-
Balance at end of period	$	2.0
Capital in Excess of Par Value
Balance at beginning of period	$	2,275.4
Stock-based compensation		5.2
Exercise of stock options		3.3
Issuance of treasury stock for stock-based compensation plans		(1.6	)
Balance at end of period	$	2,282.3
Accumulated Deficit
Balance at beginning of period	$	(577.8	)
Net income attributable to Gardner Denver Holdings, Inc.		42.4
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2017-12)		(0.3	)
Balance at end of period	$	(535.7	)
Accumulated Other Comprehensive Loss
Balance at beginning of period	$	(199.8	)
Foreign currency translation adjustments, net		51.4
Foreign currency losses, net		(17.0	)
Unrecognized losses on cash flow hedges, net		11.4
Pension and other postretirement prior service cost and gain or loss, net		0.4
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2017-12)		0.3
Balance at end of period	$	(153.3	)
Treasury Stock
Balance at beginning of period	$	(23.0	)
Purchases of treasury stock		(6.2	)
Issuance of treasury stock for stock-based compensation plans		1.6
Balance at end of period	$	(27.6	)
Total Stockholders' Equity	$	1,567.7

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

Index

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Cash Flows From Operating Activities:
Net income (loss)	$	42.4		$	(7.0	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of intangible assets		30.9			27.6
Depreciation in cost of sales		11.4			10.3
Depreciation in selling and administrative expenses		2.7			1.8
Stock-based compensation expense		3.4			-
Foreign currency transaction losses, net		2.6			0.6
(Gains) losses on asset and business disposals		(1.2	)		3.0
Deferred income taxes		2.8			(6.2	)
Changes in assets and liabilities:
Receivables		10.0			11.1
Inventories		(42.9	)		(15.4	)
Accounts payable		8.4			3.2
Accrued liabilities		2.0			(20.6	)
Other assets and liabilities, net		(12.3	)		(11.0	)
Net cash provided by (used in) operating activities		60.2			(2.6	)
Cash Flows From Investing Activities:
Capital expenditures		(10.1	)		(16.4	)
Net cash paid in business combinations		(94.9	)		(0.3	)
Disposals of property, plant and equipment		3.0			0.1
Net cash used in investing activities		(102.0	)		(16.6	)
Cash Flows From Financing Activities:
Principal payments on long-term debt		(5.3	)		(6.1	)
Purchase of treasury stock		(6.2	)		(2.5	)
Proceeds from stock option exercises		3.3			-
Purchase of shares from noncontrolling interests		-			(4.6	)
Other		-			(0.1	)
Net cash used in financing activities		(8.2	)		(13.3	)
Effect of exchange rate changes on cash and cash equivalents		10.5			2.3
Net decrease in cash and cash equivalents		(39.5	)		(30.2	)
Cash and cash equivalents, beginning of period		393.3			255.8
Cash and cash equivalents, end of period	$	353.8		$	225.6
Supplemental Cash Flow Information
Cash paid for income taxes	$	13.8		$	9.3
Cash paid for interest	$	25.7		$	51.6
Capital expenditures in accounts payable	$	6.0		$	5.2

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

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GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in millions, except share and per share amounts)

(Unaudited)

Note 1. Condensed Consolidated Financial Statements

Basis of Presentation

Gardner Denver Holdings, Inc. is a holding company whose operating subsidiaries are Gardner Denver, Inc. (“GDI”) and certain of GDI’s subsidiaries. GDI is a diversified, global manufacturer of highly engineered, application-critical flow control products and provider of related aftermarket parts and services. The accompanying condensed consolidated financial statements include the accounts of Gardner Denver Holdings, Inc. and its majority-owned subsidiaries (collectively referred to herein as “Gardner Denver” or the “Company”). The financial information presented as of any date other than December 31, 2017 has been prepared from the books and records of the Company without audit. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of adjustments associated with acquisition accounting and normal recurring adjustments, necessary for the fair presentation of such financial statements. All intercompany transactions and accounts have been eliminated in consolidation.

The Company’s unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”).

The results of operations for the three month period ended March 31, 2018 is not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2017 has been derived from the Company’s audited financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements.

In May 2017, the Company sold a total of 47,495,000 shares of common stock in an initial public offering of shares of common stock. On November 15, 2017, the Company completed a secondary offering for a total of 25,300,000 shares of common stock held by affiliates of Kohlberg Kravis Roberts & Co. L.P. After completion of the initial public offering and the secondary offering, affiliates of Kohlberg Kravis Roberts & Co. L.P. continue to control a majority of the voting power of the Company’s common stock. As a result, the Company is considered a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange (“NYSE”).

Prior Year Reclassification

In the first quarter of fiscal year 2018, the Company adopted the provisions of ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net periodic Postretirement Benefit Cost (“ASU 2017-07”). The reclassification of certain prior year amounts as a result of the adoption of ASU 2017-07 is detailed below in the section “ Adopted Accounting Standard Updates” within this Note 1 “Condensed Consolidated Financial Statements.”

Adopted Accounting Standard Updates (“ASU”)

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

On January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”) using the modified retrospective approach. Under the modified retrospective approach, the Company is required to recognize the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings as of January 1, 2018, the date of initial application. The cumulative effect of initially applying ASC 606 was immaterial to the Condensed Consolidated Financial Statements, therefore the Company did not record a cumulative transition adjustment.

Index

In conjunction with adoption of ASC 606, the Company updated its significant accounting policy related to revenue recognition disclosed in Note 1 “Summary of Significant Accounting Policies” of the Consolidated Financial Statements in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2017. An overview of the Company’s revenue recognition policy under ASC 606 is included in Note 12 “Revenue from Contracts with Customers.”

Results for the three month period ended March 31, 2018 is presented under ASC 606. Prior periods are not adjusted and will continue to be reported in accordance with ASC 605 Revenue Recognition (“ASC 605”). However, during fiscal year 2018, the Company is required to provide additional disclosures presenting the amount by which each 2018 financial statement line item was affected as a result of applying ASC 606 and an explanation of significant changes in order to present 2018 on a comparative basis under ASC 605.

The following tables summarize the impacts of adopting ASC 606 on the Company’s Condensed Consolidated Financial Statements for the three month period ended March 31, 2018.

Condensed Consolidated Statements of Operations						Balance Without
	As Reported		Adjustments			Adoption of ASC 606
Revenues	$	619.6	$	(3.9	)	$	615.7
Cost of sales		387.7		(2.7	)		385.0
Provision (benefit) for income taxes		23.4		(0.3	)		23.1
Net Income (Loss)		42.4		(0.9	)		41.5

Condensed Consolidated Balance Sheets							Balance Without
	As Reported			Adjustments			Adoption of ASC 606
Assets
Inventories	$	567.2		$	2.7		$	569.9
Other current assets ⁽¹⁾		50.8			(2.7	)		48.1

Liabilities and Stockholders' Equity
Accrued liabilities		305.4			0.9			306.3
Accumulated deficit		(535.7	)		(0.9	)		(536.6	)

⁽¹⁾

Adjustment represents “Contract assets”. See Note 12 “Revenue from Contracts with Customers” for an explanation of the Contract assets account included in “Other Current assets” in the Condensed Consolidated Balance Sheets.

ASU 2017-07 Compensation – Retirement Benefits (Topic 715) – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

The Company adopted FASB ASU 2017-07 on January 1, 2018, the adoption date. The Company applied ASU 2017-07 retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic benefit cost in assets. ASU 2017-07 allows the Company to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. Applying the practical expedient, the Company reclassified $0.1 million of expense from “Selling and administrative expenses” to “Other income, net” within the Condensed Consolidated Statements of Operations for the three month period ended March 31, 2017.

ASU 2017-12 Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities

The Company early adopted FASB ASU 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”) on January 1, 2018, the adoption date, using the modified retrospective approach. As of the adoption date, the Company was the fixed rate payor on 12 interest rate swap contracts that fixed the LIBOR-based index used to determine the interest rates charged on a total of $1,125.0 million of the Company’s LIBOR-based variable rate borrowings. The Company recorded a cumulative-effect adjustment on the adoption date increasing the opening balance of the “Accumulated deficit” line of the Condensed Consolidated Balance Sheets by $0.3 million and decreasing the “Accumulated Other Comprehensive Loss” line of the Condensed Consolidated Balance Sheets by $0.3 million.

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Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this update will replace most of the existing GAAP lease accounting guidance in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for public companies beginning in the first quarter of 2019. The ASU requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. During March 2018 the FASB approved amendments to create an optional transition method that will provide an option to use the effective date of Topic 842 as the date of initial application of the transition. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements and evaluating the method of adoption.

In March 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) . The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The ASU is effective for public companies beginning in the first quarter of 2019. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements.

Note 2. Business Combinations

Acquisition of Runtech Systems Oy

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

Acquisition of LeROI Compressors

On June 5, 2017, the Company acquired 100% of the stock of LeROI Compressors (“LeROI”), a leading North America manufacturer of gas compression equipment and solutions for vapor recovery, biogas, and other process and industrials applications. The Company acquired all of the assets and assumed certain liabilities of LeROI for total cash consideration of $20.4 million, net of cash acquired. Included in the cash consideration is an indemnity holdback of $1.9 million recorded in “Accrued liabilities” and expected to be paid by the end of 2021. The revenues and operating income of LeROI are included in the Company’s condensed consolidated financial statements from the acquisition date and are included in the Industrials segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition of the Non-Controlling Interest in Tamrotor Kompressorit Oy

On March 3, 2017, the Company acquired the remaining 49% non-controlling interest of Tamrotor Kompressorit Oy (“Tamrotor”), a distributor of the Company’s Industrials segment air compression products. The Company acquired the remaining interest in Tamrotor for total cash consideration of $5.2 million, consisting entirely of payments to the former shareholders. Included in the cash consideration was a holdback of $0.5 million that was paid in the third quarter of 2017. This transaction resulted in an increase to “Capital in excess of par value” of $2.3 million and an increase to “Accumulated other comprehensive loss” of $1.5 million in the Condensed Consolidated Balance Sheets.

Index

Acquisition Revenues and Operating Income

Included in the financial statements for these acquisitions subsequent to their date of acquisition was revenue and operating income of $15.2 million and $0.4 million, respectively, for the three month period ended March 31, 2018. No revenue or operating income was recorded for these acquisitions in the Condensed Consolidated Statement of Operations for the three month period ended March 31, 2017.

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

Note 3. Restructuring

Industrials Restructuring Program

The Industrials restructuring program in the Industrials segment, announced in the third quarter of 2014 and revised and expanded during the second quarter of 2016, was substantially completed as of December 31, 2017. Through December 31, 2017, $38.5 million had been charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations. The Company does not anticipate any material future expense related to the Industrials restructuring program and any remaining liabilities will be paid as contractually obligated.

Energy Restructuring Program

The Energy restructuring program in the Energy segment, announced in the fourth quarter of 2016, was substantially completed as of December 31, 2017. Through December 31, 2017, $6.3 million had been charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations. The Company does not anticipate any material future expense related to the Energy restructuring program and any remaining liabilities will be paid as contractually obligated.

Medical Restructuring Program

The Medical restructuring program in the Medical segment, announced in the fourth quarter of 2016, was substantially completed as of December 31, 2017. Through December 31, 2017, $3.2 million had been charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations. The Company does not anticipate any material future expense related to the Medical restructuring program and any remaining liabilities will be paid as contractually obligated.

The activity associated with the Company’s restructuring programs for the three month period ended March 31, 2018 was immaterial.

The following table summarizes the activity associated with the Company’s restructuring programs by segment for the three month period ended March 31, 2017.

	Industrials Program			Energy Program			Medical Program			Total
Balance at December 31, 2016	$	11.1		$	5.6		$	4.2		$	20.9
Charged to expense - Termination benefits		0.6			(0.2	)		(0.1	)		0.3
Charged to expense - Other		0.8			0.6			-			1.4
Payments		(4.6	)		(2.1	)		(0.5	)		(7.2	)
Other, net		0.1			(0.1	)		0.1			0.1
Balance at March 31, 2017	$	8.0		$	3.8		$	3.7		$	15.5

As of March 31, 2018, restructuring reserves of $4.1 million are included in “Accrued liabilities” and restructuring reserves of $0.2 million are included in “Other liabilities” in the Condensed Consolidated Balance Sheets. As of December 31, 2017, restructuring reserves of $6.5 million were included in “Accrued liabilities” and restructuring reserves of $0.2 million were included in “Other liabilities” in the Condensed Consolidated Balance Sheets.

Index

Note 4. Inventories

Inventories as of March 31, 2018 and December 31, 2017 consisted of the following.

	March 31, 2018		December 31, 2017
Raw materials, including parts and subassemblies	$	388.1	$	362.6
Work-in-process		79.7		57.9
Finished goods		86.0		60.6
		553.8		481.1
Excess of LIFO costs over FIFO costs		13.4		13.4
Inventories	$	567.2	$	494.5

Note 5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill attributable to each reportable segment for the three month period ended March 31, 2018 is presented in the table below.

	Industrials		Energy		Medical		Total
Balance as of December 31, 2017	$	561.6	$	460.2	$	205.8	$	1,227.6
Acquisition		63.6		-		-		63.6
Foreign currency translation		9.6		4.9		2.6		17.1
Balance as of March 31, 2018	$	634.8	$	465.1	$	208.4	$	1,308.3

On February 8, 2018, the Company acquired Runtech which is included in the Industrials segment. The excess of the purchase price over the estimated fair values of tangible assets, identifiable assets, and assumed liabilities was recorded as goodwill. As of March 31, 2018, the preliminary purchase price allocation resulted in a total of $63.6 million of goodwill. The allocation of the purchase price is preliminary and subject to refinement based on final fair values of the identified assets acquired and liabilities assumed.

As of March 31, 2018, goodwill included $563.9 million of accumulated impairment losses within the Energy segment since the date of the transaction in which the Company was acquired by an affiliate of Kohlberg Kravis Roberts & Co. L.P. on July 30, 2013 (the “KKR Transaction”). There were no goodwill impairment charges recorded during the three month period ended March 31, 2018.

Index

Other intangible assets as of March 31, 2018 and December 31, 2017 consisted of the following.

	March 31, 2018					December 31, 2017
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Customer lists and relationships	$	1,248.7	$	(507.0	)	$	1,226.8	$	(473.0	)
Technology		23.3		(4.3	)		8.1		(4.0	)
Trademarks		38.4		(11.5	)		30.3		(10.6	)
Backlog		70.5		(67.4	)		65.5		(65.5	)
Other		55.3		(25.5	)		53.6		(23.5	)
Unamortized intangible assets:
Trademarks		628.7		-			623.5		-
Total other intangible assets	$	2,064.9	$	(615.7	)	$	2,007.8	$	(576.6	)

Amortization of intangible assets was $30.9 million for the three month period ended March 31, 2018 and $27.6 million for the three month period ended March 31, 2017.

Amortization of intangible assets is anticipated to be approximately $125.1 million annually in 2019 through 2023 based upon exchange rates as of March 31, 2018.

Note 6. Accrued Liabilities

Accrued liabilities as of March 31, 2018 and December 31, 2017 consisted of the following.

	March 31, 2018		December 31, 2017

Salaries, wages and related fringe benefits	$	86.4	$	97.3
Restructuring		4.1		6.5
Taxes		48.2		34.5
Contract liabilities ⁽¹⁾		82.3		42.7
Product warranty		24.3		22.3
Accrued interest		0.9		0.8
Other		59.2		67.1
Total accrued liabilities	$	305.4	$	271.2

⁽¹⁾

For purposes of comparability, “Advance payments on sales contracts” as of December 31, 2017 was reclassified to “Contract liabilities.” See Note 12 “Revenue from Contracts with Customers” for an explanation of the Contract liabilities account included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

Index

A reconciliation of the changes in the accrued product warranty liability for the three month periods ended March 31, 2018 and 2017 are as follows.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017

Balance at beginning of period	$	22.3		$	21.7
Product warranty accruals		6.1			5.9
Settlements		(5.4	)		(5.4	)
Charged to other accounts ⁽¹⁾		1.3			0.3
Balance at end of period	$	24.3		$	22.5

⁽¹⁾

Includes primarily the effects of foreign currency translation adjustments for the Company’s subsidiaries with functional currencies other than the USD and changes in the accrual related to acquisitions.

Note 7. Pension and Other Postretirement Benefits

The following table summarizes the components of net periodic benefit cost for the Company’s defined benefit pension plans and other postretirement benefit plans recognized for the three month periods ended March 31, 2018 and 2017.

	Pension Benefits						Other Postretirement
	U.S. Plans			Non-U.S. Plans			Benefits
	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2018

Service cost	$	-		$	0.5		$	-
Interest cost		0.5			1.9			-
Expected return on plan assets		(1.2	)		(3.0	)		-
Recognition of:
Unrecognized prior service cost		-			-			-
Unrecognized net actuarial loss		-			0.5			-
	$	(0.7	)	$	(0.1	)	$	-

Index

	Pension Benefits						Other Postretirement
	U.S. Plans			Non-U.S. Plans			Benefits
	For the Three Month Period Ended March 31, 2017			For the Three Month Period Ended March 31, 2017			For the Three Month Period Ended March 31, 2017

Service cost	$	-		$	0.4		$	-
Interest cost		0.6			1.9			-
Expected return on plan assets		(1.1	)		(2.5	)		-
Recognition of:
Unrecognized prior service cost		-			-			-
Unrecognized net actuarial loss		-			1.2			-
	$	(0.5	)	$	1.0		$	-

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

Note 8. Debt

The Company’s debt as of March 31, 2018 and December 31, 2017 is summarized as follows.

	March 31, 2018			December 31, 2017

Short-term borrowings	$	-		$	-
Long-term debt:
Revolving credit facility, due 2020	$	-		$	-
Receivables financing agreement, due 2020		-			-
Term loan denominated in U.S. dollars, due 2024 ⁽¹⁾		1,279.1			1,282.3
Term loan denominated in Euros, due 2024 ⁽²⁾		753.9			735.9
Capitalized leases and other long-term debt		26.7			26.9
Unamortized debt issuance costs		(4.6	)		(4.9	)
		2,055.1			2,040.2
Current maturities of long-term debt		21.1			20.9
Total long-term debt, net	$	2,034.0		$	2,019.3

⁽¹⁾

As of March 31, 2018, the applicable interest rate was 5.05% and the weighted-average interest rate was 4.46% for the three month period ended March 31, 2018.

⁽²⁾

As of March 31, 2018, the applicable interest rate was 3.00% and the weighted-average interest rate was 3.00% for the three month period ended March 31, 2018.

Index

Senior Secured Credit Facilities

In connection with the KKR transaction, the Company entered into a senior secured credit agreement with UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (the “Senior Secured Credit Facilities”) on July 30, 2013.

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

The Company entered into Amendment No. 1 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as administrative agent, and the lenders and other parties thereto on March 4, 2016 (“Amendment No.1”) and Amendment No. 2 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as administrative agent, and other agents, lenders and parties thereto on August 17, 2017 (“Amendment No. 2”).

Amendment No. 1 reduced the aggregate principal borrowing capacity of the Revolving Credit Facility by $40.0 million to $360.0 million, extended the term of the Revolving Credit Facility to April 30, 2020 with respect to consenting lenders and provided for customary bail-in provisions to address certain European regulatory requirements.

Amendment No. 2 refinanced the Original Dollar Term Loan Facility with a replacement $1,285.5 million senior secured U.S. dollar term loan facility (the ‘‘Dollar Term Loan Facility’’) and the Original Euro Term Loan Facility with a replacement €615.0 million senior secured euro term loan facility (the ‘‘Euro Term Loan Facility’’). Further the maturity for both term loan facilities was extended to July 30, 2024 and LIBOR Floor was reduced from 1.0% to 0.0%.

On July 30, 2018, the Revolving Credit Facility principal amount will decrease to $269.9 million resulting from the maturity of the tranches of the Revolving Credit Facility which are owned by lenders which elected not to modify the original Revolving Credit Facility maturity date, and any amounts then outstanding in excess of $269.9 million will be required to be paid. Any principal amounts outstanding as of April 30, 2020 will be due at that time and required to be paid in full.

The borrower of the Dollar Term Loan Facility and the Euro Term Loan Facility is Gardner Denver, Inc. Prior to the Company entering into Amendment No. 1, GD German Holdings II GmbH became an additional borrower and successor in interest to Gardner Denver Holdings GmbH & Co. KG. GD German Holdings II GmbH, GD First (UK) Limited and Gardner Denver, Inc. are the listed borrowers under the Revolving Credit Facility. The Revolving Credit Facility includes borrowing capacity available for letters of credit up to $200.0 million and for borrowings on same-day notice, referred to as swingline loans. As of March 31, 2018, the Company had $7.4 million of outstanding letters of credit under the Revolving Credit Facility and unused availability of $352.6 million.

The Senior Secured Credit Facilities provide that the Company will have the right at any time to request incremental term loans and/or revolving commitments in an aggregate principal amount of up to (i) if as of the last day of the most recently ended test period the Consolidated Senior Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) is equal to or less than 5.50 to 1.00, $250.0 million plus (ii) voluntary prepayments and voluntary commitment reductions of the Senior Secured Credit Facilities prior to the date of any such incurrence plus (iii) an additional amount if, after giving effect to the incurrence of such additional amount, the Company does not exceed a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio of 4.50 to 1.00. The lenders under the Senior Secured Credit Facilities are not under any obligation to provide any such incremental commitments or loans, and any such addition of, or increase in commitments or loans, will be subject to certain customary conditions.

To the extent that revolving credit loans and swingline loans plus non-cash collateralized letters of credit under the Revolving Credit Facility are outstanding in an amount exceeding $300.0 million, compliance with a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio of 7.00 to 1.00 is required for borrowings under the Revolving Credit Facility.

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Interest Rate and Fees

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

The applicable margins under the Revolving Credit Facility may decrease based upon our achievement of certain Consolidated Senior Secured Debt to Consolidated EBITDA Ratios. In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, the Company is required to pay a commitment fee of 0.50% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The commitment fee rate was reduced to 0.375% because our Consolidated Senior Secured Debt to Consolidated EBITDA Ratio is less than or equal to 3.0 to 1.0. The Company must also pay customary letter of credit fees.

Prepayments

The Senior Secured Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with: (i) 50% of annual excess cash flow (as defined in the Senior Secured Credit Facilities) commencing with the fiscal year ended December 31, 2014 (which percentage will be reduced to 25% if the Company’s Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) is less than or equal to 3.50 to 1.00 but greater than 3.00 to 1.00, and which prepayment will not be required if the Secured Debt to Consolidated EBITDA Ratio is less than or equal to 3.00 to 1.00); (ii) 100% of the net cash proceeds of non-ordinary course asset sales or other dispositions of property, subject to reinvestment rights; and (iii) 100% of the net cash proceeds of any incurrence of debt, other than proceeds from debt permitted under the Senior Secured Credit Facilities.

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

Subject to the following sentence, the Company may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, subject to certain customary conditions, including reimbursements of the lenders’ redeployment costs actually incurred in the case of a prepayment of LIBOR borrowings other than on the last day of the relevant interest period. Voluntary prepayments of the Dollar Term Loan Facility and/or the Euro Term Loan Facility prior to the date that is six months after the effective date of Amendment No. 2 in connection with any repricing transaction, the primary purpose of which is to decrease the effective yield of the Dollar Term Loan Facility or the Euro Term Loan Facility, as applicable, will require payment of a 1.00% prepayment premium.

Amortization and Final Maturity

The Dollar Term Loan Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount of the Dollar Term Loan Facility, with the balance being payable on July 30, 2024. The Euro Term Loan Facility includes repayments in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount of the Euro Term Loan Facility, with the balance being payable on July 30, 2024.

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

Amendment No. 1 reduced the minimum aggregate principal amount for extension amendments to the facilities from $50.0 million to $35.0 million.

Index

Guarantee and Security

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

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

Certain Covenants and Events of Default

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

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

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

Receivables Financing Agreement

In May 2016, the Company entered into the Receivables Financing Agreement, providing for aggregated borrowing of up to $75.0 million governed by a borrowing base. The Receivables Financing Agreement provides for a lower cost alternative in the issuance of letters of credit with the remaining unused capacity providing additional liquidity. On June 30, 2017, the Company signed the first amendment of the Receivables Financing Agreement which increased the aggregated borrowing capacity by $50.0 million to $125.0 million governed by a borrowing base and extended the term to June 30, 2020. The Receivables Financing Agreement terminates on June 30, 2020, unless terminated earlier pursuant to its terms. As of March 31, 2018, the Company had no outstanding borrowings under the Receivables Financing Agreement and $33.3 million of letters of credit outstanding. As of March 31, 2018 there was $72.3 million of capacity available under the Receivables Financing Agreement.

Borrowings under the Receivables Financing Agreement accrue interest at a reserve-adjusted LIBOR or a base rate, plus 1.6%. Letters of credit accrue interest at 1.6%. The Company may prepay borrowings or letters of credit or draw on the Receivables Financing Agreement upon one business day prior written notice and may terminate the Receivables Financing Agreement with 15 days’ prior written notice.

As part of the Receivables Financing Agreement, eligible accounts receivable of certain of our subsidiaries are sold to a wholly owned “bankruptcy remote” special purpose vehicle (“SPV”). The SPV pledges the receivables as security for loans and letters of credit. The SPV is included in our consolidated financial statements and therefore, the accounts receivable owned by it are included in our Condensed Consolidated Balance Sheets. However, the accounts receivable owned by the SPV are separate and distinct from our other assets and are not available to our other creditors should we become insolvent.

Index

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

Note 9. Stock-Based Compensation Plans

2013 Stock Incentive Plan

The Company adopted the 2013 Stock Incentive Plan (“2013 Plan”) on October 14, 2013 as amended on April 27, 2015 under which the Company may grant stock-based compensation awards to employees, directors and advisors. The total number of shares available for grant under the 2013 Plan and reserved for issuance was 20.9 million shares. All stock options were granted to employees, directors, and advisors with an exercise price equal to the fair value of the Company’s per share common stock at the date of grant. Following the Company’s initial public offering, the Company may grant stock-based compensation awards pursuant to the 2017 Plan (defined below) and ceased granting new awards pursuant to the 2013 Plan.

Stock options awards under the 2013 Plan vest over either three, four or five years with 50% of each award vesting based on time and 50% of each award vesting based on the achievement of certain financial targets.

Prior to the Company’s initial public offering in May 2017, the Company had certain repurchase rights on stock acquired through the exercise of a stock option that created an implicit service period and created a condition in which an optionee may not receive the economic benefits of the option until the repurchase rights are eliminated. The repurchase rights creating the implicit service period are eliminated at the earlier of an initial public offering or change of control event. Before the elimination of the repurchase rights, because an initial public offering or change of control were not probable of occurring, no compensation expense was recorded for equity awards.

The Company recognized a liability for compensation expense measured at intrinsic value when it was probable that an employee would receive benefits under the terms of the plan due to termination of employment.

Under the terms of the 2013 Plan, concurrent with the initial public offering, the Company no longer retains repurchase rights on stock acquired through the exercise of a stock option and the implicit service period was eliminated on outstanding stock options.

2017 Omnibus Incentive Plan

In May 2017, the Company’s Board approved the 2017 Omnibus Incentive Plan (“2017 Plan”) under which the Company may grant stock-based compensation awards to employees, directors and advisors. The total number of shares originally available for grant under the 2017 Plan and reserved for issuance was 8.6 million shares. Any shares of common stock subject to outstanding awards granted under the Company’s 2013 Stock Incentive Plan that, after the effective date of the 2017 Plan, expire or are otherwise forfeited or terminated in accordance with their terms are also available for grant under the 2017 Plan. As of March 31, 2018, 7.9 million shares are available for grant under the 2017 Plan. All stock option awards were granted to employees, directors, and advisors with an exercise price equal to the fair value per share of the Company’s common stock at the date of grant. All restricted stock awards were granted to employees, directors, and advisors with a price equal to fair value per share of the Company’s common stock at the date of the grant.

Stock options and restricted stock unit awards under the 2017 Plan generally vest over either four or five years based on time.

Certain stock awards under the 2013 Plan are expected to be settled in cash (stock appreciation rights “SAR”) and are accounted for as liability awards. As of March 31, 2018, a liability of approximately $15.0 million for SARs is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.

Under the 2013 and 2017 Plans, the Company recognized stock-based compensation expense of approximately $3.4 million for the three months ended March 31, 2018. The $3.4 million of stock-based compensation includes expense for modifications of equity awards for certain former employees of $3.8 million and expense for equity awards granted under the 2013 Plan and 2017 Plan of $1.4 million reduced by a benefit for a reduction in the liability for SARs of $1.8 million.

Index

The $3.8 million stock-based compensation for modifications for the three month period ended March 31, 2018 provided continued vesting through scheduled vesting dates and extended expiration dates for certain former employees. The incremental stock-based compensation was determined using the Black-Scholes option pricing model based on assumptions which included expected lives of 1.00 to 1.25 years, a risk-free interest rate of 2.03%, assumed volatility of 26.8% to 27.3% and an expected dividend rate of 0.0%. These costs are included in “Other operating expense, net” in the Condensed Consolidated Statements of Operations.

As of March 31, 2018, there was $28.1 million of total unrecognized compensation expense related to outstanding stock options and restricted stock unit awards .

Stock Option Awards

A summary of the Company’s stock option (including SARs) activity for the three month period ended March 31, 2018 is presented in the following table (underlying shares in thousands).

	Shares			Weighted-Average Exercise Price (per share)
Outstanding at December 31, 2017		12,834		$	9.54
Granted		766		$	32.06
Exercised or settled		(391	)	$	8.42
Forfeited		(85	)	$	8.43
Outstanding at March 31, 2018		13,124		$	10.89
Vested at March 31, 2018		9,068		$	9.07

The following assumptions were used to estimate the fair value of options granted (excluding previously disclosed modified awards) during the three month period ended March 31, 2018 using the Black-Scholes option-pricing model.

	Three Month Period Ended March 31, 2018
Assumptions:
Expected life of options (in years)		7.00 - 7.50
Risk-free interest rate		2.9	%
Assumed volatility		35.1 - 35.4	%
Expected dividend rate		0.0	%

Index

Restricted Stock Unit Awards

A summary of the Company’s restricted stock unit activity for the three month period ended March 31, 2018 is presented in the following table (underlying shares in thousands).

	Shares		Weighted-Average Grant-Date Fair Value
Non-vested at December 31, 2017		-	$	-
Granted		337	$	32.06
Vested		-	$	-
Forfeited		-	$	-
Non-vested at March 31, 2018		337	$	32.06

Note 10. Accumulated Other Comprehensive (Loss) Income

The Company’s other comprehensive (loss) income consists of (i) unrealized foreign currency net gains and losses on the translation of the assets and liabilities of its foreign operations; (ii) realized and unrealized foreign currency gains and losses on intercompany notes of a long-term nature and certain hedges of net investments in foreign operations, net of income taxes; (iii) unrealized gains and losses on cash flow hedges (consisting of interest rate swaps), net of income taxes; and (iv) pension and other postretirement prior service cost and actuarial gains or losses, net of income taxes.

The before tax income (loss) and related income tax effect are as follows.

	For the Three Month Period Ended March 31, 2018									For the Three Month Period Ended March 31, 2017
	Before-Tax Amount			Tax (Expense) or Benefit			Net of Tax Amount			Before-Tax Amount			Tax Benefit or (Expense)			Net of Tax Amount
Foreign currency translation adjustments, net	$	51.4		$	-		$	51.4		$	25.7		$	-		$	25.7
Foreign currency (losses) gains, net		(21.7	)		4.7			(17.0	)		(6.2	)		2.3			(3.9	)
Unrecognized gains (losses) on cash flow hedges, net		15.1			(3.7	)		11.4			4.9			(1.9	)		3.0
Pension and other postretirement benefit prior service cost and gain or loss, net		(1.2	)		1.6			0.4			(0.1	)		0.3			0.2
Other comprehensive income	$	43.6		$	2.6		$	46.2		$	24.3		$	0.7		$	25.0

Index

Changes in accumulated other comprehensive (loss) income by component for the three month periods ended March 31, 2018 and 2017 are presented in the following table ⁽¹⁾ .

	Cumulative Currency Translation Adjustment			Foreign Currency Gains and (Losses)			Unrealized (Losses) Gains on Cash Flow Hedges			Pension and Postretirement Benefit Plans			Total

Balance at December 31, 2017	$	(166.6	)	$	37.0		$	(29.8	)	$	(40.4	)	$	(199.8	)
Other comprehensive income (loss) before reclassifications		51.4			(17.0	)		7.8			-			42.2
Amounts reclassified from accumulated other comprehensive income (loss)		-			-			3.6			0.4			4.0
Other comprehensive income (loss)		51.4			(17.0	)		11.4			0.4			46.2
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2017-12)		-			-			0.3			-			0.3
Balance at March 31, 2018	$	(115.2	)	$	20.0		$	(18.1	)	$	(40.0	)	$	(153.3	)

	Cumulative Currency Translation Adjustment			Foreign Currency Gains and (Losses)			Unrealized (Losses) Gains on Cash Flow Hedges			Pension and Postretirement Benefit Plans			Total

Balance at December 31, 2016	$	(324.2	)	$	88.6		$	(42.2	)	$	(64.6	)	$	(342.4	)
Other comprehensive income (loss) before reclassifications		25.7			(3.9	)		(0.2	)		(0.5	)		21.1
Amounts reclassified from accumulated other comprehensive income (loss)		-			-			3.2			0.7			3.9
Other comprehensive income (loss)		25.7			(3.9	)		3.0			0.2			25.0
Balance at March 31, 2017	$	(298.5	)	$	84.7		$	(39.2	)	$	(64.4	)	$	(317.4	)

⁽¹⁾

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

Index

Reclassifications out of accumulated other comprehensive (loss) income for the three month periods ended March 31, 2018 and 2017 are presented in the following table:

Amount Reclassified from Accumulated Other Comprehensive (Loss) Income
Details about Accumulated Other Comprehensive (Loss) Income Components	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017			Affected Line in the Statement Where Net Income is Presented
Loss on cash flow hedges
Interest rate swaps	$	4.8		$	5.1		Interest expense
		4.8			5.1		Total before tax
		(1.2	)		(1.9	)	Income tax benefit
	$	3.6		$	3.2		Net of tax
Amortization of defined benefit pension and other postretirement benefit items	$	0.5		$	1.2		⁽¹⁾
		0.5			1.2		Total before tax
		(0.1	)		(0.5	)	Income tax benefit
	$	0.4		$	0.7		Net of tax
Total reclassifications for the period	$	4.0		$	3.9		Net of tax

⁽¹⁾

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

Note 11. Hedging Activities and Fair Value Measurements

Hedging Activities

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

The Company’s exposure to interest rate risk results primarily from its variable-rate borrowings. The Company manages its debt centrally, considering tax consequences and its overall financing strategies. The Company manages its exposure to interest rate risk by maintaining a mixture of fixed and variable rate debt and, from time to time, using pay-fixed interest rate swaps as cash flow hedges of variable rate debt in order to adjust the relative fixed and variable proportions.

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

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

Index

Derivative Instruments

The following table summarizes the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017.

		March 31, 2018
	Derivative Classification	Notional Amount ⁽¹⁾		Fair Value ⁽¹⁾ Other Current Assets		Fair Value ⁽¹⁾ Other Assets		Fair Value ⁽¹⁾ Accrued Liabilities		Fair Value ⁽¹⁾ Other Liabilities
Derivatives Designated as Hedging Instruments
Interest rate swap contracts	Cash Flow	$	1,125.0	$	-	$	-	$	8.4	$	23.2
Derivatives Not Designated as Hedging Instruments
Foreign currency forwards	Fair Value	$	19.3	$	0.1	$	-	$	-	$	-
Foreign currency forwards	Fair Value	$	131.6	$	-	$	-	$	0.3	$	-

		December 31, 2017
	Derivative Classification	Notional Amount ⁽¹⁾		Fair Value ⁽¹⁾ Other Current Assets		Fair Value ⁽¹⁾ Other Assets		Fair Value ⁽¹⁾ Accrued Liabilities		Fair Value ⁽¹⁾ Other Liabilities
Derivatives Designated as Hedging Instruments
Interest rate swap contracts	Cash Flow	$	1,125.0	$	-	$	-	$	16.1	$	30.6
Derivatives Not Designated as Hedging Instruments
Foreign currency forwards	Fair Value	$	94.4	$	-	$	-	$	1.2	$	-

⁽¹⁾

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

Gains and losses on derivatives designated as cash flow hedges included in the Condensed Consolidated Statements of Comprehensive (Loss) Income for the three month periods ended March 31, 2018 and 2017 are as presented in the table below. See Note 1 “Condensed Consolidated Financial Statements” for a discussion of the adoption of ASU 2017-12.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Interest rate swap contracts ⁽¹⁾
Gain (loss) recognized in AOCI on derivatives	$	10.3		$	(0.2	)
Loss reclassified from AOCI into income		(4.8	)		(5.1	)

⁽¹⁾

Losses on derivatives reclassified from accumulated other comprehensive income (“AOCI”) into income were included in “Interest expense” in the Condensed Consolidated Statements of Operations, the same income statement line item as the earnings effect of the hedged item.

As of March 31, 2018, the Company is the fixed rate payor on 12 interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $1,125.0 million of the Company’s LIBOR-based variable rate borrowings. These contracts carry fixed rates ranging from 2.9% to 4.4% and have expiration dates ranging from 2018 to 2020. These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted LIBOR-based interest payments. Based on LIBOR-based swap yield curves as of March 31, 2018, the Company expects to reclassify losses of $13.3 million out of AOCI into earnings during the next 12 months. The Company’s LIBOR-based variable rate borrowings outstanding as of March 31, 2018 were $1,279.1 million and €611.9 million.

Index

The Company had three foreign currency forward contracts outstanding as of March 31, 2018 with notional amounts ranging from $19.3 million to $98.9 million. These contracts are used to hedge the change in fair value of recognized foreign currency denominated assets or liabilities caused by changes in currency exchange rates. The changes in the fair value of these contracts generally offset the changes in the fair value of a corresponding amount of the hedged items, both of which are included in the “Other operating expense, net” line on the face of the Condensed Consolidated Statements of Operations. The Company’s foreign currency forward contracts are subject to master netting arrangements or agreements between the Company and each counterparty for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract with that certain counterparty. It is the Company’s practice to recognize the gross amounts in the Condensed Consolidated Balance Sheets. The amount available to be netted is not material.

The Company’s (losses) gains on derivative instruments not designated as accounting hedges and total net foreign currency (losses) gains for the three month periods ended March 31, 2018 and 2017 were as follows:

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Losses on foreign currency forward contracts	$	(1.0	)	$	(2.2	)
Total foreign currency transaction losses, net		(2.6	)		(0.6	)

The Company has a significant investment in consolidated subsidiaries with functional currencies other than the USD, particularly the EUR. The Company designated its Original Euro Term Loan as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies in 2017 until it was extinguished and replaced on August 17, 2017 by a €615.0 million Euro Term Loan, further described in Note 8 “Debt”. On August 17, 2017, the Company designated the €615.0 million Euro Term Loan as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies. As of March 31, 2018, the Euro Term Loan of €611.9 million remained designated.

For the period from January 1, 2017 to August 16, 2017, the Company designated two cross currency interest rate swaps, each with a USD notional amount of $100.0 million as hedges of its net investment in EUR functional subsidiaries. Both cross currency interest rate swaps were terminated on August 16, 2017. The losses and gains from the change in the fair value of the designated net investment hedges were recorded through other comprehensive income. The recorded Accumulated Other Comprehensive (Loss) Income at the termination of the cross currency interest rate swaps will remain in Accumulated Other Comprehensive (Loss) Income until there is a substantial liquidation of the Company’s net investment in subsidiaries with EUR functional currencies.

Index

The Company’s gains and (losses), net of income tax, associated with changes in the value of debt and designated cross currency interest rate swaps for the three month periods ended March 31, 2018 and 2017 and the net balance of such gains and (losses) included in accumulated other comprehensive (loss) income as of March 31, 2018 and 2017 were as follows.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Losses, net of income tax, recorded through other comprehensive income	$	(15.2	)	$	(3.9	)
Balance included in accumulated other comprehensive income at March 31, 2018 and 2017, respectively		17.0			78.5

For the periods presented all cash flows associated with derivatives are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows.

Fair Value Measurements

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

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

Level 1

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

Level 2

Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or

liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities as of the reporting date.

Level 3

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

Index

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2018.

	Level 1		Level 2		Level 3		Total
Financial Assets
Foreign currency forwards ⁽¹⁾	$	-	$	0.1	$	-	$	0.1
Trading securities held in deferred compensation plan ⁽²⁾		6.0		-		-		6.0
Total	$	6.0	$	0.1	$	-	$	6.1
Financial Liabilities
Foreign currency forwards ⁽¹⁾	$	-	$	0.3	$	-	$	0.3
Interest rate swaps ⁽³⁾		-		31.6		-		31.6
Deferred compensation plan ⁽²⁾		6.0		-		-		6.0
Total	$	6.0	$	31.9	$	-	$	37.9

⁽¹⁾

Based on calculations that use readily observable market parameters at their basis, such as spot and forward rates.

⁽²⁾

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

⁽³⁾

Measured as the present value of all expected future cash flows based on the LIBOR-based swap yield curves as of March 31, 2018. The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.

Note 12. Revenue from Contracts with Customers

Overview

The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method. See Note 1 “Condensed Consolidated Financial Statements” for further discussion of the adoption.

The Company recognizes revenue when control is transferred to the customer. The amount of revenue recognized includes adjustments for any variable consideration, such as rebates, sales discounts, liquidated damages, etc., which are included in the transaction price, and allocated to each performance obligation. The variable consideration is estimated throughout the course of the contract using the Company’s best estimates. Judgements impacting variable consideration related to material rebate and sales discount programs, and significant contracts containing liquidated damage clauses are governed by robust management review processes.

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

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

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

Index

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

Disaggregation of Revenue

The following tables provide disaggregated revenue by reportable segment for the three month period ended March 31, 2018.

	Industrials		Energy		Medical		Total
Primary Geographic Markets
United States	$	90.4	$	165.4	$	21.3	$	277.1
Other Americas		21.2		27.5		0.9		49.6
Total Americas	$	111.6	$	192.9	$	22.2	$	326.7
EMEA		161.0		25.2		27.0		213.2
Asia Pacific		44.3		24.1		11.3		79.7
Total	$	316.9	$	242.2	$	60.5	$	619.6

Product Categories
Original equipment ⁽¹⁾	$	215.6	$	91.3	$	58.1	$	365.0
Aftermarket ⁽²⁾		101.3		150.9		2.4		254.6
Total	$	316.9	$	242.2	$	60.5	$	619.6

Pattern of Revenue Recognition
Revenue recognized at point in time ⁽³⁾	$	307.6	$	239.0	$	60.5	$	607.1
Revenue recognized over time ⁽⁴⁾		9.3		3.2		-		12.5
Total	$	316.9	$	242.2	$	60.5	$	619.6

⁽¹⁾

Revenues from sales of capital equipment within the Industrials and Energy Segments and sales of components to original equipment manufacturers in the Medical Segment.

⁽²⁾

Revenues from sales of spare parts, accessories, other components and services in support of maintaining customer owned, installed base of the Company’s original equipment.

⁽³⁾

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

⁽⁴⁾

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

Performance Obligations

The majority of the Company’s contracts have a single performance obligation as the promise to transfer goods and/or services. For contracts with multiple performance obligations, the Company utilizes observable prices to determine standalone selling price or cost plus margin if a standalone price is not available. The Company has elected to expense shipping and handling costs as incurred.

Index

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

As of March 31, 2018, for contracts with an original duration greater than one year, the Company expects to recognize revenue in the future related to unsatisfied (or partially satisfied) performance obligations of $157.4 million in the next twelve months and $64.6 million in periods thereafter. The performance obligations that are unsatisfied (or partially satisfied) are primarily related to orders for goods or services that were placed prior to the end of the reporting period and have not been delivered to the customer, on-going work on ETO contracts where revenue is recognized over time, and service contracts with an original duration greater than one year.

Contract Balances

The following table provides the contract balances as of March 31, 2018 and December 31, 2017 presented on Condensed Consolidated Balance Sheets.

	March 31, 2018		December 31, 2017
Accounts receivable, net of allowance for doubtful accounts of $19.5 and $18.7, respectively	$	541.6	$	536.3
Contract assets		4.8		-
Contract liabilities		82.3		42.7

Accounts receivable - Amounts due where the Company’s right to receive cash is unconditional.

Contract assets – The Company’s rights to consideration for the satisfaction of performance obligations subject to constraints apart from timing. Contract assets are transferred to receivables when the right to collect consideration becomes unconditional. Contract assets are presented net of progress billings and related advances from customers.

Contract liabilities – Advance payments received from customers for contracts for which revenue is not yet recognized. The increase in the contract liabilities account at March 31, 2018 from December 31, 2017 was due primarily to the acquisition of Runtech of $24.8 million and the impact of foreign currencies of $1.3 million. The remaining change is due to the timing of milestone payments received related to projects for production later this year, partially offset by contract liability balances converted to revenue in the period. Contract liability balances are generally recognized in revenue within twelve months.

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

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

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

Note 13. Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified property.

Index

The Tax Act also establishes new tax laws that affected 2018, including, but not limited to, (1) reduction of the U.S. federal corporate tax rate from 35% to 21%; (2) elimination of the corporate alternative minimum tax (“AMT”); (3) the creation of the base erosion anti-abuse tax (“BEAT”), a new minimum tax; (4) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (5) a new provision designed to tax global intangible low-taxed income (“GILTI”), which allows for the possibility of using foreign tax credits (“FTC”) and a deduction of up to 50% to offset the income tax liability (subject to some limitations); (6) a new limitation on deductible interest expense; (7) the repeal of the domestic production activity deduction; (8) limitations on the deductibility of certain executive compensation; (9) limitations on the use of FTCs to reduce the U.S. income tax liability; and (10) limitations on net operating losses (“NOL”) generated after December 31, 2017, to 80% of taxable income.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, a company must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, a company should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Company has not completed the accounting for the income tax effects of certain elements of the Tax Act. If the Company was able to make reasonable estimates of the effects of elements for which an analysis is not yet complete, the Company recorded provisional adjustments, as described above. If the Company was not yet able to make reasonable estimates of the impact of certain elements, the Company has not recorded any adjustments related to those elements and have continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act. As the Company completes the accounting of the income tax effects of the Tax Act, the Company anticipates that additional charges or benefits may be recorded at such time as prescribed by ASC 740 and SAB 118, and as further information becomes available regarding the Tax Act, the Company may make further adjustments to the provisions that have been recorded in the financial statements. The Company also continues to examine the impact the Tax Act.

The Tax Act reduces the corporate tax rate to 21%, effective January 1, 2018. While the Company was able to make a reasonable estimate of the impact of the reduction in corporate rate, that estimate may be affected by other analyses related to the Tax Act, including, but not limited to, a calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences. In the three month period ended March 31, 2018, no changes were made to the benefit recognized of $89.6 million in 2017. In addition, there was a $69.0 million benefit relating to the reduction of the ASC 740-30 liability also due to the change of the ending deferred tax rate for 2017. These benefits taken in 2017 have not changed in three months ended March 31, 2018. This as an estimate at March 31, 2018.

The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, the amount of non-U.S. income taxes paid on such earnings, and the impact of the accumulated overall foreign source loss on our ability to utilize foreign tax credits. The Company was able to make a reasonable estimate at year end 2017 for the Transition Tax and recorded a provisional Transition Tax obligation of $63.3 million. As a result of further technical guidance, an adjustment of additional tax expense of $7.9 million was made in the period relating to the Transition Tax. This adjustment brings the total impact of Transition Tax to $71.3 million. The Company continues to gather additional information to more precisely compute the amount of the Transition Tax and therefore, this amount still an estimate as of March 31, 2018.

The Company’s accounting for the following elements of the Tax Act is incomplete, and the Company is not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments, other than the adjustment related to the effects of the Transitional Tax, were recorded related to ASC 740-30.

Due to complexities, the Company has not yet determined if a change to the policy concerning permanent reinvestment is required as a result of the new Tax Act. No additional adjustments relating to ASC 740-30 have been recorded in accordance with SAB 118.

For 2018, the Tax Act creates a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (“CFC”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.

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Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company has determined that it will follow the period costs method (option 1 above) going forward. The tax provision for the three month period ended March 31, 2018 reflects this decision. All of the additional calculations and rule changes found in The Tax Act have been considered in the tax provision for the three month period ended March 31, 2018.

The following table summarizes the Company’s provision (benefit) for income taxes and effective income tax provision rate for the three month periods ended March 31, 2018 and 2017.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017

Income (loss) before income taxes	$	65.8		$	(8.6	)
Provision (benefit) for income taxes	$	23.4		$	(1.6	)
Effective income tax benefit rate		35.6	%		18.9	%

The increase in the provision for income taxes and increase in the effective income tax provision rate for the three month period ended March 31, 2018 when compared to the same three month period of 2017 is primarily due to the change relating to Transition Tax imposed under the Tax Act of $7.9 million that increased the effective tax rate by approximately 12.0%. The remaining increase in the effective rate was due to the overall increase in forecasted global earnings when compared to the prior year.

Note 14. Supplemental Information

The components of “Other operating expense, net” for the three month periods ended March 31, 2018 and 2017 were as follows.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Other Operating Expense, Net
Foreign currency transaction losses, net	$	2.6		$	0.6
Restructuring charges, net ⁽¹⁾		-			1.7
Environmental remediation expenses ⁽²⁾		-			1.0
Stock-based compensation expense ⁽³⁾		2.7			-
Shareholder litigation settlement recoveries ⁽⁴⁾		(4.5	)		-
Acquisition related expenses and non-cash charges ⁽⁵⁾		3.0			0.8
(Gains) losses on asset and business disposals		(1.2	)		3.0
Other, net		1.7			0.8
Total other operating expense, net	$	4.3		$	7.9

⁽¹⁾

See Note 3 “Restructuring.”

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⁽²⁾

Estimated environmental remediation costs recorded on an undiscounted basis for a former production facility.

⁽³⁾

Represents stock-based compensation expense recognized for the three month period ended March 31, 2018 of $3.4 million reduced by a $0.7 million decrease in the accrual for employer taxes related to DSUs granted to employees at the date of the initial public offering. Prior to the Company’s initial public offering which occurred in May 2017, no stock-based compensation expense was recorded because the Company’s repurchase rights created an implicit service period.

⁽⁴⁾

Represents an insurance recovery of the Company’ shareholder litigation settlement in 2014.

⁽⁵⁾

Note 15. Contingencies

The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of its size and sector. The Company believes that such proceedings, lawsuits and administrative actions will not materially adversely affect its operations, financial condition, liquidity or competitive position. A more detailed discussion of certain of these proceedings, lawsuits and administrative actions is set forth below.

Asbestos and Silica Related Litigation

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

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

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

The Company believes that the pending and future asbestos and silica-related lawsuits are not likely to, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Company’s anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the Products described above; the Company’s experience that the vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products or for which the Company otherwise bears responsibility; various potential defenses available to the Company with respect to such matters; and the Company’s prior disposition of comparable matters. However, inherent uncertainties of litigation and future developments, including, without limitation, potential insolvencies of insurance companies or other defendants, an adverse determination in the Adams County Case (discussed below), or other inability to collect from the Company’s historical insurers or indemnitors, could cause a different outcome. While the outcome of legal proceedings is inherently uncertain, based on presently known facts, experience, and circumstances, the Company believes that the amounts accrued on its balance sheet are adequate and that the liabilities arising from the asbestos and silica-related personal injury lawsuits will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. “Accrued liabilities” and “Other liabilities” on the Condensed Consolidated Balance Sheet include a total litigation reserve of $102.8 million and $105.6 million as of March 31, 2018 and December 31, 2017, with respect to potential liability arising from the Company’s asbestos-related litigation. Asbestos related defense costs are excluded from the asbestos claims liability and are recorded separately as services are incurred. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters may be material to the Company’s consolidated financial position, results of operation or liquidity.

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The Company has entered into a series of agreements with certain of its or its predecessors’ legacy insurers and certain potential indemnitors to secure insurance coverage and/or reimbursement for the costs associated with the asbestos and silica-related lawsuits filed against the Company. The Company has also pursued litigation against certain insurers or indemnitors, where necessary. The Company has an insurance recovery receivable for probable asbestos related recoveries of approximately $96.4 million and $100.4 million as of March 31, 2018 and December 31, 2017, respectively, which was included in “Other assets” on the Consolidated Balance Sheets. During the three month period ended March 31, 2018, the Company received asbestos related insurance recoveries of $9.6 million, of which $4.0 million related to the recovery of indemnity payments, and was recorded as a reduction of the insurance recovery receivable in “Other assets” on the Condensed Consolidated Balance Sheets, and $5.6 million related to reimbursement of previously expensed legal defense costs, and was recorded as a reduction of “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations.

The largest such recent action, Gardner Denver, Inc. v. Certain Underwriters at Lloyd’s, London, et al., was filed on July 9, 2010, in the Eighth Judicial Circuit, Adams County, Illinois, as case number 10-L-48 (the “Adams County Case”). In the lawsuit, the Company seeks, among other things, to require certain excess insurer defendants to honor their insurance policy obligations to the Company, including payment in whole or in part of the costs associated with the asbestos-related lawsuits filed against the Company. In October 2011, the Company reached a settlement with one of the insurer defendants, which had issued both primary and excess policies, for approximately the amount of such defendant’s policies that were subject to the lawsuit. Since then, the case has been proceeding through the discovery and motions process with the remaining insurer defendants. On January 29, 2016, the Company prevailed on the first phase of that discovery and motions process (“Phase I”). Specifically, the Court in the Adams County Case ruled that the Company has rights under all of the policies in the case, subject to their terms and conditions, even though the policies were sold to the Company’s former owners rather than to the Company itself. On June 9, 2016, the Court denied a motion by several of the insurers who sought permission to appeal the Phase I ruling immediately rather than waiting until the end of the whole case as is normally required. The case is now proceeding through the discovery process regarding the remaining issues in dispute (“Phase II”).

A majority of the Company’s expected future recoveries of the costs associated with the asbestos-related lawsuits are the subject of the Adams County Case.

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

Environmental Matters

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

The Company has undiscounted accrued liabilities of $7.3 million and $7.5 million as of March 31, 2018 and December 31, 2017, respectively, on its Condensed Consolidated Balance Sheet to the extent costs are known or can be reasonably estimated for its remaining financial obligations for the environmental matters discussed above and does not anticipate that any of these matters will result in material additional costs beyond amounts accrued. Based upon consideration of currently available information, the Company does not anticipate any material adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations, or cleanup costs relating to these matters.

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Note 16. Segment Results

A description of the Company’s three reportable segments, including the specific products manufactured and sold follows below.

In the Industrials segment, the Company designs, manufactures, markets and services 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. The Company maintains a leading position in its markets and serves customers globally. The Company offers comprehensive aftermarket parts and an experienced direct and distributor-based service network world-wide to complement all of its products.

In the Energy segment, the Company designs, manufactures, markets and services a diverse range of positive displacement pumps, liquid ring vacuum pumps and compressors, and engineered loading systems and fluid transfer equipment, consumables, and associated aftermarket parts and services. It serves customers in the upstream, midstream, and downstream oil and gas markets, and various other markets including petrochemical processing, power generation, transportation, and general industrial. The Company is one of the largest suppliers in these markets and has long-standing customer relationships. Its positive displacement pumps are used in the oilfield for drilling, hydraulic fracturing, completion and well servicing. Its liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, enhanced oil recovery, water extraction in mining and paper and chlorine compression in petrochemical operations. Its engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials.

In the Medical segment, the Company designs, manufactures and markets a broad range of highly specialized gas, liquid and precision syringe pumps and compressors primarily for use in the medical, laboratory and biotechnology end markets. The Company’s customers are mainly medium and large durable medical equipment suppliers that integrate the Company’s products into their final equipment for use in applications such as oxygen therapy, blood dialysis, patient monitoring, wound treatment, and others. Further, with the recent acquisitions, the Company has expanded into liquid handling components and systems used in biotechnology applications including clinical analysis instrumentation. The Company also has a broad range of end use deep vacuum products for laboratory science applications.

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

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The following table provides summarized information about the Company’s operations by reportable segment and reconciles Segment Adjusted EBITDA to Income (Loss) Before Income Taxes for the three month periods ended March 31, 2018 and 2017.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017

Revenue
Industrials	$	316.9		$	248.0
Energy		242.2			178.3
Medical		60.5			55.4
Total Revenue	$	619.6		$	481.7
Segment Adjusted EBITDA
Industrials	$	66.8		$	47.2
Energy		68.0			38.5
Medical		15.9			14.6
Total Segment Adjusted EBITDA	$	150.7		$	100.3
Less items to reconcile Segment Adjusted EBITDA to
Income (Loss) Before Income Taxes ⁽¹⁾ :
Corporate expenses not allocated to segments ^(a)	$	2.5		$	8.2
Interest expense		26.0			45.9
Depreciation and amortization expense		45.0			39.7
Sponsor fees and expenses ^(b)		-			1.1
Restructuring and related business transformation costs ^(c)		4.5			8.6
Acquisition related expenses and non-cash charges ^(d)		4.6			0.7
Environmental remediation loss reserve ^(e)		-			1.0
Expenses related to public stock offerings ^(f)		1.4			1.3
Establish public company financial reporting compliance ^(g)		0.8			1.3
Stock-based compensation ^(h)		2.7			-
Foreign currency transaction losses, net		2.6			0.6
Shareholder litigation settlement recoveries ⁽ⁱ⁾		(4.5	)		-
Other adjustments ^(j)		(0.7	)		0.5
Income (Loss) Before Income Taxes	$	65.8		$	(8.6	)

⁽¹⁾

The reconciling items for the three month period ended March 31, 2017 have been reclassified to conform to the methodology used in the three month period ended March 31, 2018, and include the following.

^(a)

Includes insurance recoveries of asbestos legal fees of $5.6 million in the first quarter of 2018.

^(b)

Represents management fees and expenses paid to the Company’s Sponsor.

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^(c)

Restructuring and related business transformation costs consist of the following.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017

Restructuring charges	$	-		$	1.7
Severance, sign-on, relocation and executive search costs		2.0			1.0
Facility reorganization, relocation and other costs		0.6			1.1
Information technology infrastructure transformation		-			0.7
(Gains) losses on asset and business disposals		(1.2	)		3.0
Consultant and other advisor fees		2.6			0.4
Other, net		0.5			0.7
Total restructuring and related business transformation costs	$	4.5		$	8.6

^(d)

Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs and non-cash charges and credits arising from fair value purchase accounting adjustments. For the three month period ended March 31, 2018 and March 31, 2017, respectively, $3.0 million and $0.8 million, respectively, of acquisition related expenses and non-cash charges were recorded to the line “Other Operating Expense, net” in the Condensed Consolidated Statement of Operations.

^(e)

Represents estimated environmental remediation costs and losses relating to a former production facility.

^(f)

Represents certain expenses related to the Company’s initial public offering and subsequent secondary offerings.

^(g)

Represents third party expenses to comply with the requirements of Sarbanes-Oxley in 2018 and the accelerated adoption of the new revenue recognition standard (ASC 606 – Revenue from Contracts with Customers ) in the first quarter of 2018, one year ahead of the required adoption date for a private company.

^(h)

⁽ⁱ⁾

Represents an insurance recovery of the Company’ shareholder litigation settlement in 2014.

^(j)

Includes (i) the effects of the amortization of prior service costs and the amortization of gains in pension and other postretirement benefits (OPEB) expense, (ii) certain legal and compliance costs and (iii) other miscellaneous adjustments.

Note 17. Related Party Transactions

Affiliates of KKR participated as (i) a lender in the Company’s Senior Secured Credit Facilities discussed in Note 8, “Debt,” (ii) an underwriter in the Company’s initial public offering, and (iii) a provider of services for the fiscal year 2017 debt refinancing transaction. KKR held a position in the Euro Term Loan Facility of €49.8 million as of March 31, 2018.

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The Company entered into a monitoring agreement, dated July 30, 2013, with KKR pursuant to which KKR will provide management, consulting and financial advisory services to the Company and its divisions, subsidiaries, parent entities and controlled affiliates. Under the terms of the monitoring agreement the Company was, among other things, obligated to pay KKR (or such affiliate(s) as KKR designates) an aggregate annual management fee in the initial annual amount of $3.5 million, payable in arrears at the end of each fiscal quarter, plus upon request all reasonable out of pocket expenses incurred in connection with the provision of services under the agreement. The management fee increases at a rate of 5% per year effective on January 1, 2014. In May 2017, in connection with the Company’s initial public offering, the monitoring agreement was terminated. The Company incurred management fees to KKR of $1.1 million and no out of pocket expenses for the three month period ended March 31, 2017.

Note 18. Earnings (Loss) Per Share

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

	For the Three Month Period Ended March 31, 2018		For the Three Month Period Ended March 31, 2017

Net income (loss)	$	42.4	$	(7.0	)
Less: Net income attributable to noncontrolling interests		-		0.1
Net income (loss) attributable to Gardner Denver Holdings, Inc.	$	42.4	$	(7.1	)
Average shares outstanding:
Basic		201.6		148.5
Diluted		209.9		148.5
Earnings (loss) per share:
Basic	$	0.21	$	(0.05	)
Diluted	$	0.20	$	(0.05	)

The DSUs described in Note 15, “Stock-Based Compensation” of the Consolidated Financial Statements in our annual report on Form 10-K for the fiscal year ended December 31, 2017 are considered outstanding shares for the purpose of computing basic earnings (loss) per share because they will become issued solely upon the passage of time.

For the three month period ended March 31, 2018, there were 0.7 million anti-dilutive shares that were not included in the computation of diluted earnings per share. For the three month period ended March 31, 2017, there was 12.6 million potentially dilutive stock-based awards that were not included in the computation of diluted loss per share because their inclusion would be anti-dilutive.

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ITEM 2.

MANGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q.

Overview

Our Company

We are a leading global provider of mission-critical flow control and compression 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.

Our Segments

We report our results of operations through three reportable segments: Industrials, Energy and Medical.

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. We sell our Industrials products through an integrated network of direct sales representatives and independent distributors, which is strategically tailored to meet the dynamics of each target geography or end-market.

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.

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, and we recently expanded into liquid pumps and automated liquid handling components and systems.

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Components of Our Revenue and Expenses

Revenues

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

Industrials Revenue

Our Industrials Segment Revenues are generated primarily through sales of air compression, vacuum and blower products to customers in multiple industries and geographies. A significant portion of our sales in the Industrials segment are made to independent distributors. The majority of Industrials segment revenues are derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or services have been rendered. Certain contracts may involve significant design engineering to customer specifications, and depending on the contractual terms, revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer. Our large installed base of products in our Industrials segment drives demand for recurring aftermarket support services primarily composed of replacement parts sales to our distribution partners and, to a lesser extent, by directly providing replacement parts and repair and maintenance services to end customers. Revenue for services is recognized when services are performed. Historically, our shipments and revenues have peaked during the fourth quarter as our customers seek to fully utilize annual capital spending budgets.

Energy Revenue

Our Energy Segment Revenues are generated primarily through sales of positive displacement pumps, liquid ring vacuum pumps, compressors and integrated systems and engineered fluid loading and transfer equipment and associated aftermarket parts, consumables and services for use primarily in upstream, midstream, downstream and petrochemical end-markets across multiple geographies. The majority of Energy segment is derived from short duration contracts and revenue is recognized at a single point in time when control is transferred to the customer, generally at shipment or when delivery has occurred or services have been rendered. Certain contracts with customers in the mid- and downstream and petrochemical markets are higher sales value and often have longer lead times and involve more application specific engineering. Depending on the contractual terms, revenue is recognized either over the duration of the contract or at contract completion when equipment is delivered to the customer. Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined to be probable. As a result, the timing of these contracts can result in significant variation in reported revenue from quarter to quarter. Our large installed base of products in our Energy segment drives demand for recurring aftermarket support services to customers, including replacement parts, consumables and repair and maintenance services. The mix of aftermarket to original equipment revenue within the Energy segment is impacted by trends in upstream energy activity in North America. Revenue for services is recognized when services are performed. In response to customer demand for faster access to aftermarket parts and repair services, we expanded our direct aftermarket service locations in our Energy segment, particularly in North American markets driven by upstream energy activity. Energy segment products and aftermarket parts, consumables and services are sold both directly to end customers and through independent distributors, depending on the product category and geography.

Medical Revenue

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

Expenses

Cost of Sales

Cost of sales includes the costs we incur, including purchased materials, labor and overhead related to manufactured products and aftermarket parts sold during a period. Depreciation related to manufacturing equipment and facilities is included in cost of sales. Purchased materials represent the majority of costs of sales, with steel, aluminum, copper and partially finished castings representing our most significant materials inputs. We have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations.

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Cost of sales for services includes the direct costs we incur, including direct labor, parts and other overhead costs including depreciation of equipment and facilities, to deliver repair, maintenance and other field services to our customers.

Selling and Administrative Expenses

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

Amortization of Intangible Assets

Amortization of intangible assets includes the periodic amortization of intangible assets recognized when an affiliate of our Sponsor acquired us on July 30, 2013 and intangible assets recognized in connection with businesses we acquired since July 30, 2013, including customer relationships and trademarks.

Other Operating Expense, Net

Other operating expense, net includes foreign currency gains and losses, restructuring charges, certain litigation and contract settlement losses and recoveries, environmental remediation, stock-based compensation expense and other miscellaneous operating expenses.

Benefit or Provision for Income Taxes

The benefit or provision for income taxes includes U.S. federal, state and local income taxes and all non-U.S. income taxes. We are subject to income tax in approximately 33 jurisdictions outside of the United States. Because we conduct operations on a global basis, our effective tax rate depends, and will continue to depend, on the geographic distribution of our pre-tax earnings among several different taxing jurisdictions. Our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions, the availability of tax credits and non-deductible items.

Items Affecting our Reported Results

General Economic Conditions and Capital Spending in the Industries We Serve

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

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Foreign Currency Fluctuations

A significant portion of our revenues, approximately 51% for the three month period ended March 31, 2018, were denominated in currencies other than the U.S. dollar. Because much of our manufacturing facilities and labor force costs are outside of the United States, a significant portion of our costs are also denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates can therefore impact our results of operations and are quantified when significant to our discussion.

Seasonality

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

Factors Affecting the Comparability of our Results of Operations

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

Upstream Energy

We sell products and provide services to customers in upstream energy markets, primarily in the United States. For the upstream energy end-market, in our Energy segment we manufacture pumps and associated aftermarket products and services used in drilling, hydraulic fracturing and well service applications, while in our Industrials segment we sell dry bulk frac sand blowers, which are used in hydraulic fracturing operations. We refer to these products and services in the Energy and Industrial segments as “upstream energy.” Our Medical segment is not exposed to the upstream energy industry.

Our exposure to upstream energy production levels, coupled with reduced exploration activity and the deferral of maintenance and growth capital expenditures by upstream energy companies, favorably impacted our financial results in the first three months of 2018.

The average daily closing of West Texas Intermediate spot market crude oil prices for the three month period ended March 31, 2018 increased to $62.47 from $51.77 in the same period in 2017. As a result, there has been increased exploration activity and capital expenditures by upstream energy companies. According to Baker Hughes, Inc., the average weekly U.S. land rig count increased to 966 during the three month period ended March 31, 2018 from 742 in 2017, and, according to Spears & Associates, Inc., the annual average monthly new wells drilled in the United States increased to 2,066 for the three month period ended March 31, 2018 compared to 1,666 in the same period in 2017. We have experienced increased demand for our upstream energy products and services in the three month period ended March 31, 2018.

Restructuring and Other Business Transformation Initiatives

Our top priority since the completion of the KKR Transaction in 2013 has been the transformation of our business. In 2014, we commenced operational excellence initiatives to streamline our cost structure and support margin expansion, including through manufacturing footprint reduction, selling and administrative expense efficiency, and strategic sourcing in our Industrials, Energy and Medical segments.

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A key element of our business transformation initiatives are restructuring programs within our Industrials, Energy, and Medical segments. Restructuring charges, program related facility reorganization, relocation and other costs, and related capital expenditures were impacted most significantly by these business transformation initiatives. Under these restructuring programs, we incurred restructuring charges of $0.0 million and $1.7 million in the three month periods ended March 31, 2018 and 2017, respectively. These restructuring programs were completed in 2017. We generally expect that the savings associated with these restructuring programs will recover the associated costs within two to three years of such costs being incurred. In addition, we incurred program related facility reorganization, relocation and other costs of $4.5 million and $6.9 million in the three month periods ended March 31, 2018 and 2017, respectively.

Acquisitions

Given our global reach, market leading position in our various product categories, strong channel access and aftermarket presence and operational excellence competency, our Company provides an attractive acquisition platform in the flow control and compression equipment sectors. Part of our strategy for growth is to acquire complementary flow control and compression equipment businesses, which provide access to new technologies or geographies or improve our aftermarket offerings.

In June 2017, within our Industrials segment, we acquired a leading North American manufacturer of gas compression equipment and solutions for vapor recovery, biogas and other process and industrial applications for approximately $20.4 million (inclusive of an indemnity holdback of $1.9 million recorded in “Accrued liabilities”). In February 2018, within our industrials segment, we acquired a leading global manufacturer of turbo vacuum technology systems and optimization solutions for industrial applications for approximately $94.9 million net of cash acquired.

Sponsor Management Fees and Expenses

Through the date of our initial public offering, our Sponsor charged an annual management fee, as well as fees and expenses for services provided. In May, 2017, in connection with the Company’s initial public offering, the monitoring agreement was terminated. Sponsor fees and expenses were $1.1 million for the three month periods ended March 31, 2017.

Stock-Based Compensation Expense

Under the terms of the 2013 Stock Incentive Plan and the 2017 Omnibus Incentive Plans stock-based compensation expense of $3.4 million recognized for the three month period ended March 31, 2018. Prior to the Company’s initial public offering which occurred in May 2017, no stock-based compensation expense was recognized.

Income Taxes

See Note 13 “Income Taxes” to our condensed consolidated financial statements included elsewhere in this Form 10-Q.

Outlook

Industrials Segment

The mission-critical nature of our Industrials products across manufacturing processes drives a demand environment and outlook that are highly correlated with global and regional industrial production, capacity utilization and long-term GDP growth. In the United States and Europe, we are poised to continue benefiting from expected growth in real GDP, along with a continued rebound in industrial production activity in 2018. In APAC, despite the recent deceleration, GDP growth remains robust. In the first quarter of 2018, we had $337.8 million of orders in our Industrials segment, an increase of 18.2% over the first quarter of 2017, or a 9.6% increase on a constant currency basis.

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Energy Segment

Our Energy segment has a diverse range of equipment and associated aftermarket parts, consumables and services for a number of market sectors with energy exposure, spanning upstream, midstream, downstream and petrochemical applications. Demand for certain of our Energy products has historically corresponded to the supply and demand dynamics related to oil and natural gas products, and has been influenced by oil and natural gas prices, the level and intensity of hydraulic fracturing activity, rig count, drilling activity and other economic factors. These factors have caused the level of demand for certain of our Energy products to change at times (both positively and negatively) and we expect these trends to continue in the future. In the first quarter of 2018, we had $291.0 million of orders in our Energy segment, an increase of 19.3% over the first quarter of 2017, or a 16.2% increase on a constant currency basis.

An increased number of drilling rigs have reentered the market as crude oil prices have improved from low points observed during the first half of 2016 and the number of drilled but uncompleted wells has grown 84% from December 2013 to March 2018. Land rig count in the United States has increased 159% from 384 rigs in May 2016 to 993 rigs in March 2018 compared to a relatively flat rig count growth in the rest of the world over this same time period. This trend is expected to continue, as Spears & Associates, Inc. projects the U.S. land rig count to grow 16% from the first quarter of 2018 to the fourth quarter of 2018, compared to 5% for the rest of the world (excluding Canada) over this same time period. We believe we are well positioned to benefit from the expected growth in drilling rigs and improvements in crude oil prices. In addition, secular industry trends that are driving increased demand of newer, fit-for-purpose equipment with innovations that increase productivity. As a result of our expanded direct aftermarket service locations, particularly within North America, we believe we are well positioned to benefit from both the increasing intensity of hydraulic fracturing activity and the increase in the backlog of drilled but uncompleted wells.

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

Medical Segment

During 2016, we focused on the development and introduction of new products and applications to access the liquid pump market, leveraging our technology and expertise in gas pumps. We believe 2017 was a transition year; while a large customer has elected to dual source its requirements for gas pumps, we expanded into the liquid pump market and diversified our customer base. Entering 2018, we believe that demand for products and services in the Medical space will continue to benefit from attractive secular growth trends in the aging population requiring medical care, emerging economies modernizing and expanding their healthcare systems and increased investment globally in health solutions. In addition, we expect growing demand for higher healthcare efficiency, requiring premium and high performance systems. In the first quarter of 2018, we had $75.0 million of orders in our Medical segment, an increase of 18.6% over the first quarter of 2017, or a 10.8% increase on a constant currency basis.

How We Assess the Performance of Our Business

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

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

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

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

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

See “Non-GAAP Financial Measures” below for reconciliation information.

Results of Operations

Consolidated results should be read in conjunction with the segment results section herein and Note 16 “Segment Results” of our unaudited Consolidated Financial Statements included elsewhere in this report, which provides more detailed discussions concerning certain components of our Condensed Consolidated Statements of Operations. All intercompany accounts and transactions have been eliminated within the consolidated results.

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The following table presents selected Consolidated Results of Operations of our business for the three month periods ended March 31, 2018 and 2017.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Condensed Consolidated Statement of Operations:
Revenues	$	619.6		$	481.7
Cost of sales		387.7			307.1
Gross profit		231.9			174.6
Selling and administrative expenses		106.9			102.3
Amortization of intangible assets		30.9			27.6
Other operating expense, net		4.3			7.9
Operating income		89.8			36.8
Interest expense		26.0			45.9
Other income, net		(2.0	)		(0.5	)
Income (loss) before income taxes		65.8			(8.6	)
Provision (benefit) for income taxes		23.4			(1.6	)
Net income (loss)		42.4			(7.0	)
Less: Net income attributable to noncontrolling interest		-			0.1
Net income (loss) attributable to Gardner Denver Holdings, Inc.	$	42.4		$	(7.1	)

Percentage of Revenues:
Gross profit		37.4	%		36.2	%
Selling and administrative expenses		17.3	%		21.2	%
Operating income		14.5	%		7.6	%
Net income (loss)		6.8	%		(1.5	%)
Adjusted EBITDA		23.9	%		19.1	%

Other Financial Data:
Adjusted EBITDA ⁽¹⁾		148.2			92.1
Adjusted Net Income ⁽¹⁾		80.7			20.1
Cash flows - operating activities		60.2			(2.6	)
Cash flows - investing activities		(102.0	)		(16.6	)
Cash flows - financing activities		(8.2	)		(13.3	)
Free Cash Flow ⁽¹⁾		50.1			(19.0	)

⁽¹⁾

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

Revenues

Revenues for the three month period ended March 31, 2018 were $619.6 million, an increase of $137.9 million, or 28.6%, compared to $481.7 million for the same three month period in 2017. The increase in revenues was due primarily to higher revenues from upstream energy exposed markets in our Energy Segment (11.7% or $56.3 million), higher volume in our Industrials segment including acquisitions as well as higher volume in the other markets in our Energy segment and our Medical segment (9.3% or $44.7 million), the favorable impact of foreign currencies (6.7% or $32.2 million), and improved pricing in our Industrials and Medical segments (1.0% or $4.7 million). The percentage of consolidated revenues derived from aftermarket parts and services was 41.1% in the three month period ended March 31, 2018 compared to 44.8% in the same three month period in 2017.

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Gross Profit

Gross profit for the three month period ended March 31, 2018 was $231.9 million, an increase of $57.3 million, or 32.8%, compared to $174.6 million for the same three month period in 2017, and as a percentage of revenues was 37.4% for the three month period ended March 31, 2018 and 36.2% for the same three month period in 2017. The increase in gross profit reflects higher revenues from upstream energy exposed markets, higher volume in our Industrials segment including acquisitions, higher volume in the other markets in our Energy segment and our Medical segment, and improved pricing in our Industrials and Medical segments.

Selling and Administrative Expenses

Selling and administrative expenses were $106.9 million for the three month period ended March 31, 2018, an increase of $4.6 million, or 4.5%, compared to $102.3 million for the same three month period in 2017. Selling and administrative expenses as a percentage of revenues decreased to 17.3% for the three month period ended March 31, 2018 from 21.2% in the same three month period in 2017. The increase in selling and administrative expenses primarily reflects higher salaries and other employee related costs, higher professional and consulting fees, partially offset by insurance recoveries for asbestos legal fees in 2018 ($5.6 million), and lower Sponsor fees.

Amortization of Intangible Assets

Amortization of intangible assets was $30.9 million for the three month period ended March 31, 2018, an increase of $3.3 million, compared to $27.6 million in the same three month period in 2017. The increase was primarily due to amortization of intangibles acquired in the second quarter of 2017 and the first quarter of 2018, as well as changes in foreign currencies.

Other Operating Expense, Net

Other operating expense, net for the three month period ended March 31, 2018 was $4.3 million, a decrease of $3.6 million, compared to $7.9 million in the same three month period in 2017. The decrease was primarily due to a shareholder litigation settlement recovery received in 2018 ($4.5 million), an increase in gains (losses) on sales of assets and business disposals ($4.2 million, consisting of $1.2 million of gains the three month period ended March 31, 2018 compared to losses of $3.0 million in the same period in 2017), lower restructuring charges, net ($1.7 million) and lower environmental remediation ($1.0 million), partially offset by increased stock-based compensation expense ($3.4 million), increased acquisition related expenses ($2.2 million), and increased foreign currency losses, net ($2.0 million).

Interest Expense

Interest expense for the three month period ended March 31, 2018 was $26.0 million, a decrease of $19.9 million, compared to $45.9 million in the same three month period in 2017. The decrease was primarily due to reduced debt as a result of repayments of debt with proceeds of the Company’s initial public offering in May 2017, and a decreased weighted-average interest rate of approximately 5.1% in the three month period ended March 31, 2018 compared to 6.6% in the same period in 2017.

Other Income, Net

Other income, net was $2.0 million in the three month period ended March 31, 2018 and $0.5 million in the same three month period in 2017, consisting primarily of investment income and realized and unrealized gains and losses on investments.

Provision (Benefit) for Income Taxes

The provision for income taxes was $23.4 million resulting in a 35.6% effective income tax provision rate for the three month period ended March 31, 2018, compared to a benefit for income taxes of $1.6 million resulting in an 18.9% effective income tax benefit rate in the same three month period in 2017. The increase in the provision for income taxes and increase in the effective income tax provision rate is primarily due to the change relating to Transition Tax imposed under the Tax Cuts and Jobs Act of 2017 of $7.9 million. This discrete item increased the rate in the quarter by 12.0%. The remaining additional increase in rate was as a result of the overall increase in estimated global earnings in 2018 when compared to 2017.

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Net Income (Loss)

Net income was $42.4 million for the three month period ended March 31, 2018 compared to a net loss of $7.0 million in the same three month period in 2017. The increase in net income (loss) was primarily due to higher gross profit on increased revenues, reduced interest expense, and lower other operating expenses, net, partially offset by higher selling and administrative expenses, higher amortization expenses, and an increased provision for income taxes.

Adjusted EBITDA

Adjusted EBITDA increased $56.1 million to $148.2 million for the three month period ended March 31, 2018 compared to $92.1 million in the same three month period in 2017. Adjusted EBITDA as a percentage of revenues increased 480 basis points to 23.9% for the three month period ended March 31, 2018 from 19.1% for the same three month period in 2017. The increase in Adjusted EBITDA was primarily due to increased revenues in upstream energy exposed markets in our Energy segment ($30.1 million), higher volume in our Industrials segment including acquisitions as well as higher volume in the other markets in our Energy segment and our Medical segment ($18.0 million), the favorable impact of foreign currencies ($7.2 million), and lower selling and administrative expenses ($5.4 million).

Adjusted Net Income

Adjusted Net Income increased $60.6 million to $80.7 million for the three month period ended March 31, 2018 compared to $20.1 million in the same three month period in 2017. The increase was primarily due to increased Adjusted EBITDA and lower interest expense, partially offset by an increase in the income tax provision, as adjusted.

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Non-GAAP Financial Measures

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

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Net Income (Loss) ⁽¹⁾	$	42.4		$	(7.0	)
Plus:
Interest expense		26.0			45.9
Provision (benefit) for income taxes		23.4			(1.6	)
Depreciation expense		14.1			12.1
Amortization expense ^(a)		30.9			27.6
Sponsor fees and expenses ^(b)		-			1.1
Restructuring and related business transformation costs ^(c)		4.5			8.6
Acquisition related expenses and non-cash charges ^(d)		4.6			0.7
Environmental remediation loss reserve ^(e)		-			1.0
Expenses related to public stock offerings ^(f)		1.4			1.3
Establish public company financial reporting compliance ^(g)		0.8			1.3
Stock-based compensation ^(h)		2.7			-
Foreign currency transaction losses, net		2.6			0.6
Shareholder litigation settlement recoveries ⁽ⁱ⁾		(4.5	)		-
Other adjustments ^(j)		(0.7	)		0.5
Adjusted EBITDA	$	148.2		$	92.1
Minus:
Interest expense	$	26.0		$	45.9
Income tax provision, as adjusted ^(k)		24.5			12.2
Depreciation expense		14.1			12.1
Amortization of non-acquisition related intangible assets		2.9			1.8
Adjusted Net Income	$	80.7		$	20.1
Free Cash Flow
Cash flows - operating activities	$	60.2		$	(2.6	)
Minus:
Capital expenditures		10.1			16.4
Free Cash Flow	$	50.1		$	(19.0	)

⁽¹⁾

^(a)

Represents $28.0 million and $25.8 million of amortization of intangible assets arising from the KKR transaction and other acquisitions (customer relationships and trademarks) and $2.9 million and $1.8 million of amortization of non-acquisition related intangible assets, in each case for the three month periods ended March 31, 2018 and 2017, respectively.

^(b)

Represents management fees and expenses paid to our Sponsor.

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^(c)

Restructuring and related business transformation costs consist of the following.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017

Restructuring charges	$	-		$	1.7
Severance, sign-on, relocation and executive search costs		2.0			1.0
Facility reorganization, relocation and other costs		0.6			1.1
Information technology infrastructure transformation		-			0.7
(Gains) losses on asset and business disposals		(1.2	)		3.0
Consultant and other advisor fees		2.6			0.4
Other, net		0.5			0.7
Total restructuring and related business transformation costs	$	4.5		$	8.6

^(d)

^(e)

Represents estimated environmental remediation costs and losses relating to a former production facility.

^(f)

Represents certain expenses related to our initial public offering and subsequent secondary offerings.

^(g)

^(h)

⁽ⁱ⁾

Represents an insurance recovery of the Company’ shareholder litigation settlement in 2014.

^(j)

Includes (i) effects of amortization of prior service costs and amortization of gains in pension and other postemployment (OPEB) expense, (ii) certain legal and compliance costs, and (iii) other miscellaneous adjustments.

^(k)

Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of the applicable discrete tax items. The tax effect of pre-tax items excluded from Adjusted 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 adjustments 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 consisted of the following.

	For the Three Month Period Ended March 31, 2018			For the Three Month Period Ended March 31, 2017
Provision (benefit) for income taxes	$	23.4		$	(1.6	)
Tax impact of pre-tax income adjustments		8.9			12.8
Tax law change		(7.9	)		-
Discrete tax items		0.1			1.0
Income tax provision, as adjusted	$	24.5		$	12.2

Segment Results

We classify our businesses into three segments: Industrials, Energy and Medical. Our Corporate operations (as described below) are not discussed separately as any results that had a significant impact on operating results are included in the “Results of Operations” discussion above.

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

The segment measurements provided to and evaluated by the chief operating decision maker are described in Note 16 “Segment Results” in the “Notes to Consolidated Financial Statements” included in this Report.

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

Segment Results for the Three Month Periods Ended March 31, 2018 and 2017

The following tables display Segment Revenues, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin (Segment Adjusted EBITDA as a percentage of Segment Revenues) for each of our Segments and illustrates, on a percentage basis, the impact of foreign currency fluctuations on Segment Revenues and Segment Adjusted EBITDA growth.

Industrials Segment Results

										Constant Currency
	For the Three Month Period Ended March 31,						Percent Change			Percent Change
	2018			2017			2018 vs. 2017			2018 vs. 2017
Segment Revenues	$	316.9		$	248.0			27.8	%		18.6	%
Segment Adjusted EBITDA	$	66.8		$	47.2			41.5	%		29.7	%
Segment Margin		21.1	%		19.0	%	210 bps

Segment Revenues for the three month period ended March 31, 2018 were $316.9 million, an increase of $68.9 million, or 27.8%, compared to $248.0 million in the same three month period in 2017. The increase in Segment Revenues was due to higher volume including acquisitions (16.8% or $41.5 million), the favorable impact of foreign currencies (9.2% or $22.9 million), and improved pricing (1.8% or $4.5 million). The percentage of Segment Revenues derived from aftermarket parts and service was 32.0% in the three month period ended March 31, 2018 compared to 36.1% in the same three month period in 2017.

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Segment Adjusted EBITDA for the three month period ended March 31, 2018 was $66.8 million, an increase of $19.6 million, or 41.5%, compared to $47.2 million in the same three month period in 2017. Segment Adjusted EBITDA Margin increased 210 basis points to 21.1% from 19.0% in 2017. The increase in Segment Adjusted EBITDA was due primarily to higher volume including acquisitions ($16.2 million), and the favorable impact of foreign currencies ($5.5 million).

Energy Segment Results

										Constant Currency
	For the Three Month Period Ended March 31,						Percent Change			Percent Change
	2018			2017			2018 vs. 2017			2018 vs. 2017
Segment Revenues	$	242.2		$	178.3			35.8	%		32.6	%
Segment Adjusted EBITDA	$	68.0		$	38.5			76.6	%		74.6	%
Segment Margin		28.1	%		21.6	%	650 bps

Segment Revenues for the three month period ended March 31, 2018 were $242.2 million, an increase of $63.9 million, or 35.8%, compared to $178.3 million in the same three month period in 2017. The increase in Segment Revenues was due to higher revenues from upstream energy exposed markets (31.6% or $56.3 million), the favorable impact of foreign currencies (2.9% or $5.1 million), and higher volume in other markets of our Energy segment (1.3% or $2.5 million). The percentage of Segment Revenues derived from aftermarket parts and service was 62.3% in the three month period ended March 31, 2018 compared to 70.9% in the same three month period in 2017.

Segment Adjusted EBITDA for the three month period ended March 31, 2018 was $68.0 million, an increase of $29.5 million, or 76.6%, compared to $38.5 million in the same three month period in 2017. Segment Adjusted EBITDA Margin increased 650 basis points to 28.1% from 21.6% in 2017. The increase in Segment Adjusted EBITDA was due primarily due to increased revenues from upstream energy exposed markets ($30.1 million).

Medical Segment Results

										Constant Currency
	For the Three Month Period Ended March 31,						Percent Change			Percent Change
	2018			2017			2018 vs. 2017			2018 vs. 2017
Segment Revenues	$	60.5		$	55.4			9.2	%		1.3	%
Segment Adjusted EBITDA	$	15.9		$	14.6			8.9	%		(0.3	%)
Segment Margin		26.3	%		26.4	%	(10) bps

Segment Revenues for the three month period ended March 31, 2018 were $60.5 million, an increase of $5.1 million, or 9.2% compared to $55.4 million in the same three month period in 2017. The increase in Segment Revenues was due to the favorable impact of foreign currencies (7.7% or $4.3 million), higher volume (1.1% or $0.6 million), and improved pricing (0.4% or $0.2 million). The percentage of Segment Revenues derived from aftermarket parts and service was 4.0% in the three month period ended March 31, 2018 compared to 0.0% in the same three month period in 2017.

Segment Adjusted EBITDA for the three month period ended March 31, 2018 was $15.9 million, an increase of $1.3 million, or 8.9%, compared to $14.6 million in the same three month period in 2017. The increase in Segment Adjusted EBITDA was due primarily to higher volume ($0.3 million) and the favorable impact of foreign currencies ($1.3 million).

Index

Liquidity and Capital Resources

Our investment resources include cash generated from operations and borrowings under our Revolving Credit Facility and the Receivables Financing Agreement.

As of March 31, 2018, we had $7.4 million of outstanding letters of credit written against the Revolving Credit Facility and $352.6 million of unused availability. We also had $33.3 million of letters of credit outstanding against the Receivables Financing Agreement and $72.3 million of unused availability.

See the description of these line-of-credit resources as well as our outstanding debt obligations in Note 8 “Debt” to the Condensed Consolidated Financial Statements.

As of March 31, 2018 and 2017, we were in compliance with all of our debt covenants and no event of default had occurred or was ongoing.

Liquidity

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

	March 31, 2018		December 31, 2017
Cash and cash equivalents	$	353.8	$	393.3
Short-term borrowings and current maturities of long-term debt		21.1		20.9
Long-term debt		2,034.0		2,019.3
Total debt	$	2,055.1	$	2,040.2

We can increase the borrowing availability under the Senior Secured Credit Facilities by up to $250.0 million in the form of additional commitments under the Revolving Credit Facility and/or incremental term loans plus an additional amount so long as we do not exceed a specified senior secured leverage ratio. We can incur additional secured indebtedness under the Term Loan Facilities if certain specified conditions are met under the credit agreement governing the Senior Secured Credit Facilities. Our liquidity requirements are significant primarily due to debt service requirements. See Note 8 “Debt” to our condensed consolidated financial statements included elsewhere in this Form 10-Q.

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

Index

The majority of our cash is in jurisdictions outside of the United States. However, we believe our U.S. operations will generate sufficient cash flows from operations along with our availability under the Revolving Credit Facility and the Receivables Financing Agreement to satisfy our cash needs in the United States. As a result of the KKR transaction and the significant increase in our long-term debt balance as of July 30, 2013, at the acquisition date, we modified our assertion concerning the permanent reinvestment of undistributed earnings for non-U.S. subsidiaries in these foreign operations. We intend to repatriate certain foreign earnings for the purpose of servicing our Senior Secured Credit Facilities, which will result in net U.S. tax liabilities as these foreign earnings are distributed. We have previously asserted that we intend to repatriate about $200.0 million of accumulated earnings and while we currently have sufficient cash flows in the U.S. as of March 31, 2018 we are maintaining that assertion. We are still evaluating our positon from a business perspective in light of the Tax Cuts and Job Act and have only adjusted our deferred liability for the impacts of the transitional tax. Our deferred income tax liability related to unremitted earnings as of March 31, 2018 is $10.7 million which consists mainly of withholding taxes. No additional adjustments relating to taxation and unremitted earning have been recorded in accordance with SAB 118, as we are not currently able to reasonably estimate the impact as of the filing of the March 31, 2018 financial statements.

Working Capital

	March 31, 2018		December 31, 2017
Net Working Capital:
Current assets	$	1,513.4	$	1,463.6
Less: Current liabilities		611.1		561.8
Net working capital	$	902.3	$	901.8

Operating Working Capital:
Accounts receivable and contract assets	$	546.4	$	536.3
Plus: Inventories (excluding LIFO)		553.8		481.1
Less: Accounts payable		284.6		269.7
Less: Contract liabilities ⁽¹⁾		82.3		42.7
Operating working capital	$	733.3	$	705.0

⁽¹⁾

For purposes of comparability, “Advance payments on sales contracts” as of December 31, 2017 was reclassified to “Contract liabilities.”

Net working capital increased $0.5 million to $902.3 million as of March 31, 2018 from $901.8 million as of December 31, 2017. Operating working capital increased $28.3 million to $733.3 million as of March 31, 2018 from $705.0 million as of December 31, 2017 due to higher accounts receivables, contract assets and higher inventories, partially offset by higher accounts payable and higher contract liabilities. The increase in accounts receivables was primarily due to the impact of foreign currencies and the timing of customer cash collections, partially offset by lower sales in the first quarter of 2018 compared to the fourth quarter of 2017. The increase in contract assets resulted from the adoption of ASC 606 in the first quarter of 2018. The increase in inventories was primarily due to additions to inventory in anticipation of increased demand for certain products, higher inventory costs related to projects expected to ship later in the year, and the impact of foreign currencies. The increase in accounts payable was primarily due to increased inventories, the timing of vendor cash disbursements, and the impact of foreign currencies. The increase in contract liabilities was primarily due to an acquisition in the first quarter of 2018 and the timing of customer milestone payments for in-process engineered to order contracts at the end of the first quarter of 2018 compared to the end of the fourth quarter of 2017.

Index

Cash Flows

The following table reflects the major categories of cash flows for the three month periods ended March 31, 2018 and 2017, respectively:

	For the Three Month Periods Ended March 31,
	2018			2017
Cash flows - operating activities	$	60.2		$	(2.6	)
Cash flows - investing activities		(102.0	)		(16.6	)
Cash flows - financing activities		(8.2	)		(13.3	)
Free cash flow ⁽¹⁾		50.1			(19.0	)

Operating Activities

Cash provided by operating activities increased $62.8 million to $60.2 million for the three month period ended March 31, 2018 from a use of cash of $2.6 million in the same three month period in 2017, primarily due to higher net income (excluding non-cash charges for stock-based compensation, depreciation and amortization, foreign currency transaction (gains) losses and deferred income taxes and certain insurance recoveries, partially offset by increased cash used by operating working capital. Operating working capital used cash of $17.2 million in the three month period ended March 31, 2018 compared to generating cash of $12.0 million in the same three month period in 2017. Changes in accounts receivables generated cash of $5.3 million in the three month period ended March 31, 2018 compared to generating cash of $11.1 million in the same three month period in 2017. Changes in inventory used cash of $42.9 million in the three month period ended March 31, 2018 compared to using cash of $15.4 million in the same three month period in 2017. Changes in accounts payable generated cash of $8.4 million in the three month period ended March 31, 2018 compared to generating cash of $3.2 million in the same three month period in 2017. Changes in contract liabilities generated cash of $12.0 million in the three month period ended March 31, 2018 compared to generating cash of $13.1 million in the three month period ended March 31, 2017.

Investing Activities

Cash used in investing activities included capital expenditures of $10.1 million and $16.4 million for the three month periods ended March 31, 2018 and 2017, respectively, invested primarily to support sales growth initiatives and increase operating efficiency. We currently expect capital expenditures to total approximately $65.0 million to $75.0 million for the full year 2018. Cash paid in business combinations for the three month periods ended March 31, 2018 and 2017 was $94.9 million and $0.3 million, respectively. Net proceeds from the disposals of property, plant and equipment were $3.0 million and $0.1 million for the three month periods ended March 31, 2018 and 2017, respectively.

Financing Activities

Cash used in financing activities of $8.2 million for the three month period ended March 31, 2018 reflects net repayments of long-term borrowings of $5.3 million and purchases of treasury stock of $6.2 million, partially offset by proceeds from stock option exercises of $3.3 million. Cash used in financing activities was $13.3 million for the three month period ended March 31, 2017 reflects net repayments of long-term borrowings of $6.1 million, purchases of shares from noncontrolling interests of $4.6 million and purchases of treasury stock of $2.5 million.

Free Cash Flow

Free cash flow increased $69.1 million to $50.1 million in the three month period ended March 31, 2018 from ($19.0) million in the same three month period in 2017 due to increased cash provided by operating activities of $62.8 million and a decrease in capital expenditures of $6.3 million.

Off-Balance Sheet Arrangements

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

Index

Critical Accounting Estimates

Management has evaluated the accounting estimates used in the preparation of the Company’s condensed consolidated financial statements and related notes and believe those estimates to be reasonable and appropriate. Certain of these accounting estimates require the application of significant judgment by management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. Besides the critical accounting estimates related to ASC 606 documented herein, the most significant areas involving management judgments and estimates may be found in the section “Critical Accounting Estimates” of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 1 “Summary of Significant Accounting Policies” of “Item 8. Financial Statements and Supplementary Data” included in our annual report on Form 10-K for the fiscal year ended December 31, 2017.

Revenue Recognition (ASC 606)

Accounting for long-term ETO contracts which require revenue recognition over time involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and total expected costs to complete a contract and that profit is recognized over the life of the contract. Such estimates are governed by a robust management review process.

Contract estimates are based on various assumptions to project the outcome of future events that may extend for more than a year. These assumptions include labor productivity and availability, the complexity of the work to be performed, estimated cost, availability of materials, and the performance of subcontractors.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments resulting from changes in estimated profits on contracts under the cumulative catch-up method. Under this method, the impact of an adjustment to the amount of profit recognized to date is recorded in the period the adjustment is identified. Revenues and profit in future periods of contract performance is recognized using the adjusted estimate. Provisions for estimated losses on uncompleted contracts are recognized in the period in which such losses are determined to be probable.

Environmental Matters

Information with respect to the effect of compliance with environmental protection requirements and resolution of environmental claims on us and our manufacturing operations is contained in Note 18 “Contingencies” of the Consolidated Financial Statements in our annual report on Form 10-K for the fiscal year ended December 31, 2017. We believe that as of March 31, 2018, there have been no material changes to this information.

Recent Accounting Pronouncements

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

Index

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 debt denominated in currencies other than the U.S. dollar. In addition, to mitigate the risk arising from entering into transactions in currencies other than our functional currencies, we typically settle intercompany trading balances monthly.

As of March 31, 2018, there have been no material changes to our market risk assessment previously disclosed in the annual report on Form 10-K for the fiscal year ended December 31, 2017.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Internal Control over Financial Reporting

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

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The information set forth in Note 14 “Contingencies” to our Condensed Consolidated Financial Statements under Part I Item 1 “Financial Statements,” is incorporated herein by reference.

Index

ITEM 1A.

RISK FACTORS

As of March 31, 2018, there have been no material changes to our risk factors included in our annual report on Form 10-K for the fiscal year ended December 31, 2017.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

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

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

Exhibit No.	Description

10.1	Form of Restricted Stock Unit Grant Notice and Agreement (2018) under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan

10.2	Form of Director Restricted Stock Unit Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan

31.1	Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

31.2	Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

Index

SIGNATURES

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

Date: April 27, 2018	GARDNER DENVER HOLDINGS, INC.

	By:	/s/ Mark R. Sweeney
	Name: Mark R. Sweeney
	Vice President and Chief Accounting Officer
	(Principal Accounting Officer)

RESTRICTED STOCK UNIT GRANT NOTICE

GARDNER DENVER HOLDINGS, INC.

2017 OMNIBUS INCENTIVE PLAN

Gardner Denver Holdings, Inc. (the “ Company ”), pursuant to its 2017 Omnibus Incentive Plan (the “ Plan ”), hereby grants to the Participant set forth below the number of Restricted Stock Units. The Restricted Stock Units are subject to all of the terms and conditions as set forth herein, in the Global Award Agreement (attached hereto or previously provided to the Participant in connection with a prior grant), and in the Plan, all of which are incorporated herein in their entirety. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.

Vesting Commencement Date:

Number of Restricted Stock Units:

[Number of Shares Granted]

Provided the Participant has not undergone a Termination prior to the time of each applicable vesting date (or event), the Restricted Stock Units shall become vested as to 25% of each of the Restricted Stock Units on each of the second, third, fourth and fifth anniversaries of the Vesting Commencement Date (each, a “ Vesting Date ”).

In the event of the Participant’s Termination, all vesting with respect to the Restricted Stock Units shall cease and all unvested Restricted Stock Units shall be forfeited by the Participant for no consideration as of the date of such Termination; provided , that in the event of the Participant’s Qualifying Termination or Approved Retirement, the Restricted Stock Units that would have vested on the first Vesting Date otherwise scheduled to occur immediately following the date of such Qualifying Termination or Approved Retirement shall vest as of the date of Qualifying Termination or Approved Retirement, as applicable; and provided further that in the event of the Participant’s death or Disability, the Restricted Stock Units that would have vested on the first and second Vesting Date otherwise scheduled to occur immediately following the date of such death or Disability shall vest as of the date of death or Disability. Notwithstanding the foregoing, if the Company receives a legal opinion that there has been a legal judgment and/or legal development in the Participant’s jurisdiction that would likely result in the favorable treatment that applies to the Restricted Stock Units if the Participant’s Termination occurs as a result of Participant’s Approved Retirement being deemed unlawful and/or discriminatory, the Company may determine that the Participant’s Retirement is no longer an Approved Retirement and the remaining provisions will govern.

Further, in the event of the Participant’s Qualifying Termination during the two-year period following a Change in Control, all Restricted Stock Units shall immediately vest as of the date of Qualifying Termination.

“ Approved Retirement ” means a Retirement that occurs following the Participant’s receipt of written confirmation by the Company that such Retirement will be designated as an “Approved Retirement” for purposes of the Plan. The designation of an Approved Retirement shall be made by the Company in its sole discretion, and the Company’s determination as to whether a Retirement is an Approved Retirement shall be final and binding upon the Participant.

“ Cause ” means the Participant’s (A) willful neglect in the performance of the Participant’s duties for the Service Recipient or willful or repeated failure or refusal to perform such duties; (B) engagement in conduct in connection with the Participant’s employment or service with the Service Recipient, which results in, or could reasonably be expected to result in, material harm to the business or reputation of the Company or any other member of the Company Group; (C) conviction of, or plea of guilty or no contest to, (I) any felony; or (II) any other crime that results in, or could reasonably be expected to result in, material harm to the business or reputation of the Company or any other member of the Company Group; (D) engaging in any act of moral turpitude, illegality or harassment, whether or not such act was committed in connection with the Participant’s services to the Company Group; (E) material violation of the Company’s Code of Conduct or any other written policies of the Company or the Service Recipient, including, but not limited to, those relating to sexual harassment or the disclosure or misuse of confidential information, or those set forth in the manuals or statements of policy of the Company or Service Recipient; (F) fraud or misappropriation, embezzlement or misuse of funds or property belonging to the Company or any other member of the Company Group; or (G) act of personal dishonesty that involves personal profit in connection with the Participant’s employment or service to the Service Recipient.

“ Detrimental Activity ” means any of the following: (i) unauthorized disclosure of any confidential or proprietary information of any member of the Company Group; (ii) any activity that would be grounds to terminate the Participant’s employment or service with the Service Recipient for Cause; or (iii) a breach by the Participant of any restrictive covenant by which such Participant is bound, including, without limitation, the covenants attached to the Global Award Agreement as Appendix A .

“ Qualifying Termination ” means a Termination by the Company without Cause.

“ Retirement ” means the Participant’s Termination as a result of the Participant’s voluntary resignation on or after the date on which the Participant has reached age 62 and has completed at least 10 years of service with the Company Group.

THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THIS RESTRICTED STOCK UNIT GRANT NOTICE, THE GLOBAL AWARD AGREEMENT AND THE PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF RESTRICTED STOCK UNITS HEREUNDER, AGREES TO BE BOUND BY THE TERMS OF THIS RESTRICTED STOCK UNIT GRANT NOTICE, THE GLOBAL AWARD AGREEMENT AND THE PLAN.

GARDNER DENVER HOLDINGS, INC.

¹	To the extent that the Company has established, either itself or through a third-party plan administrator, the ability to accept this award electronically, such acceptance shall constitute the Participant’s signature hereof.

GLOBAL AWARD AGREEMENT

GARDNER DENVER HOLDINGS, INC.

2017 OMNIBUS INCENTIVE PLAN

Pursuant to the Restricted Stock Unit Grant Notice (the “ Grant Notice ”) delivered to the Participant (as defined in the Grant Notice), and subject to the terms of this Global Award Agreement (this “ Award Agreement ”) and the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (the “ Plan ”), Gardner Denver Holdings, Inc. (the “ Company ”) and the Participant agree as follows. Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan.

1. Grant of Restricted Stock Units . Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant the number of Restricted Stock Units provided in the Grant Notice (with each Restricted Stock Unit representing an unfunded, unsecured right to receive one share of Common Stock) (Restricted Stock Units are referred to herein as “ Awards ”). The Company may make one or more additional grants of Restricted Stock Units to the Participant under this Award Agreement by providing the Participant with a new Grant Notice, which may also include any terms and conditions differing from this Award Agreement to the extent provided therein. The Company reserves all rights with respect to the granting of additional Restricted Stock Units hereunder and makes no implied promise to grant additional Restricted Stock Units.

2. Vesting . Subject to the conditions contained herein and the Plan, the Restricted Stock Units shall vest and the restrictions on such Restricted Stock Units shall lapse as provided in the Grant Notice. With respect to any Restricted Stock Unit, the period of time that such Restricted Stock Unit remains subject to vesting shall be its Restricted Period.

3. Settlement of Restricted Stock Units . The provisions of Section 9(d)(ii) of the Plan are hereby incorporated by reference and made a part hereof.

4. Company; Participant .

(a) The term “ Company ” as used in this Award Agreement with reference to employment shall include the Company and its Subsidiaries.

(b) Whenever the word “ Participant ” is used in any provision of this Award Agreement under circumstances where the provision should logically be construed to apply to the executors, the administrators, or the person or persons to whom the Restricted Stock Units may be transferred by will or by the laws of descent and distribution, the word “Participant” shall be deemed to include such person or persons.

5. Non-Transferability . The Restricted Stock Units are not transferable by the Participant except to Permitted Transferees in accordance with applicable laws and Section 14(b) of the Plan. Except as otherwise provided herein, no assignment or transfer of the Restricted Stock Units, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such assignment or transfer the Restricted Stock Units shall terminate and become of no further effect.

6. No Rights as Stockholder . The Participant or a Permitted Transferee of the Restricted Stock Units shall have no rights as a stockholder with respect to any share of Common Stock underlying a Restricted Stock Unit unless and until the Participant shall have become the holder of record or the beneficial owner of such Common Stock and no adjustment shall be made for dividends or distributions or other rights in respect of such share of Common Stock for which the record date is prior to the date upon which the Participant shall become the holder of record or the beneficial owner thereof.

7. Tax Withholding .

(a) The Participant shall be required to pay to the Company an amount equal to the amount of any income, employment and/or other applicable taxes that are statutorily required to be withheld in respect of the Restricted Stock Units (the “ Tax Obligation ”), payable, at the Participant’s election, either (x) in cash (by check or wire transfer) or (y) if there is a public market for the shares of Common Stock at such time, by means of a broker-assisted “cashless settlement” pursuant to which the Company is delivered (including telephonically to the extent permitted by the Company) a copy of irrevocable instructions to a stockbroker to sell the shares of Common Stock otherwise issuable upon the settlement of the Restricted Stock Units and to deliver promptly to the Company an amount equal to the Tax Obligation. Alternatively, the Company may elect, in its sole discretion, to satisfy this requirement by withholding such amount from any cash compensation or other cash amounts owing to the Participant.

(b) Without limiting the foregoing, the Company may (but is not obligated to), in its sole discretion, permit or require the Participant to satisfy, all or any portion of the minimum income, employment and/or other applicable taxes that are statutorily required to be withheld with respect to the Restricted Stock Units by (i) the delivery of the shares of Common Stock (which are not subject to any pledge or other security interest) that have been both held by the Participant and vested for at least six (6) months (or such other period as established from time to time by the Committee in order to avoid adverse accounting treatment under applicable accounting standards) having an aggregate Fair Market Value equal to such minimum statutorily required withholding liability (or portion thereof); or (ii) having the Company withhold from the shares of Common Stock otherwise issuable or deliverable to, or that would otherwise be retained by, the Participant upon the grant, vesting or settlement of the Award, as applicable, a number of shares of Common Stock with an aggregate Fair Market Value equal to an amount, subject to clause (c) below, not in excess of such minimum statutorily required withholding liability (or portion thereof).

(c) The Company, subject to its having considered the applicable accounting impact of any such determination, has full discretion to allow the Participant to satisfy, in whole or in part, any additional income, employment and/or other applicable taxes payable by them with respect to the Restricted Stock Units by electing to have the Company withhold from the shares of Common Stock otherwise issuable or deliverable to, or that would otherwise be retained by, the Participant upon the grant, vesting or settlement of the Restricted Stock Units, as applicable, shares of Common Stock having an aggregate Fair Market Value that is greater than the applicable minimum required statutory withholding liability (but such withholding may in no event be in excess of the maximum statutory withholding amount(s) in the Participant’s relevant tax jurisdiction), in which case, the Participant may receive a refund in cash of any amount withheld that exceeds the amount remitted to the applicable tax authorities and will have no entitlement to the equivalent in shares of Common Stock or to any interest on such over-withheld amount.

(d) The Participant acknowledges that, regardless of any action taken by the Company, or, if different, the Participant’s employer (the “ Employer ”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Participant’s participation in the Plan and legally applicable to the Participants (the “ Tax-Related Items ”), is and remains the Participant’s responsibility and may exceed the amount, if any, actually withheld by the Company or the Employer. The Participant further acknowledges that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspects of the Awards, including but not limited to, the grant, vesting or settlement of the Award, as applicable, the subsequent sale of shares of Common Stock acquired under the Plan and the receipt of any dividends; and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Awards to reduce or eliminate the Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Participant is subject to Tax-Related Items in more than one jurisdiction, the Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

(e) Prior to any relevant taxable or tax withholding event, as applicable, the Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Participant authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any obligations with regard to all Tax-Related Items by any of the means set forth herein.

(f) If the obligations for Tax-Related Items is satisfied by withholding in shares of Common Stock, for tax purposes, the Participant is deemed to have been issued the full number of shares of Common Stock, notwithstanding that a number of the shares of Common Stock are held back solely for the purpose of paying the Tax-Related Items. The Company may refuse to issue or deliver the shares of Common Stock or proceeds from the sale of shares of Common Stock if the Participant fails to comply with the Participant’s obligations in connection with the Tax-Related Items.

8. Notice . Every notice or other communication relating to this Award Agreement between the Company and the Participant shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by such party in a notice mailed or delivered to the other party as herein provided; provided that, unless and until some other address be so designated, all notices or communications by the Participant to the Company shall be mailed or delivered to the Company at its principal executive office, to the attention of the Company Secretary, and all notices or communications by the Company to the Participant may be given to the Participant personally or may be mailed to the Participant at the Participant’s last known address, as reflected in the Company’s records. Notwithstanding the above, all notices and communications between the Participant and any third-party plan administrator shall be mailed, delivered, transmitted or sent in accordance with the procedures established by such third-party plan administrator and communicated to the Participant from time to time.

9. No Right to Continued Service . This Award Agreement does not confer upon the Participant any right to continue as an employee or service provider to the Company.

10. Binding Effect . This Award Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.

11. Waiver and Amendments . Except as otherwise set forth in Section 13 of the Plan, any waiver, alteration, amendment or modification of any of the terms of this Award Agreement shall be valid only if made in writing and signed by the parties hereto; provided, however , that any such waiver, alteration, amendment or modification is consented to on the Company’s behalf by the Committee. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.

12. Restrictive Covenants; Clawback/Forfeiture .

(a) Participant acknowledges and recognizes the highly competitive nature of the businesses of the Company and its Affiliates and accordingly agrees, in his capacity as an equity (and/or equity-based Award) holder in the Company, to the provisions of Appendix A to this Award Agreement (the “ Restrictive Covenants ”). The Restricted Stock Units granted hereunder shall be subject to Participant’s continued compliance with such restrictions. For the avoidance of doubt, the Restrictive Covenants contained in this Award Agreement are in addition to, and not in lieu of, any other restrictive covenants or similar covenants or agreements between the Participant and the Company or any of its Affiliates.

(b) Notwithstanding anything to the contrary contained herein or in the Plan, if the Participant has engaged in or engages in any Detrimental Activity, then the Committee may, in its sole discretion, take actions permitted under the Plan, including: (i) cancel the Restricted Stock Units; or (ii) require that the Participant forfeit any gain realized on the vesting of the Restricted Stock Units and repay such gain to the Company. In addition, if the Participant receives any amount in excess of what the Participant should have received under the terms of this Award Agreement for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error), the Participant shall be required to repay any such excess amount to the Company. Without limiting the foregoing, all Restricted Stock Units shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with applicable law.

13. Nature of Grant . In accepting the Awards, the Participant acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time;

(b) the grant of the Awards is exceptional, voluntary and occasional and does not create any contractual or other right to receive any future awards, or benefits in lieu of awards, even if awards have been granted in the past;

(d) the Participant is voluntarily participating in the Plan;

(e) the Awards, any shares of Common Stock acquired under the Plan and the income from and value of same, are not intended to replace any pension rights or compensation;

(f) the Awards, any shares of Common Stock acquired under the Plan and the income from and value of same, are not part of normal or expected compensation or salary for any purposes, including but not limited to calculating any severance, resignation, termination, redundancy, dismissal end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(g) unless otherwise agreed with the Company in writing, the Awards and any shares of Common Stock acquired under the Plan, and the income from and value of same, are not granted in consideration for, or in connection with, the service the Participant may provide as an officer or director of a Subsidiary;

(h) the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;

(i) no claim or entitlement to compensation or damages shall arise from forfeiture of the Participant’s Awards resulting from Participant’s Termination (for any reason whatsoever and whether or not in breach of local labor laws);

(j) for purposes of the Awards, a Termination will be deemed to have occurred as of the date the Participant is no longer providing services to the Company or any Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any). Unless otherwise determined by the Committee, the Participant’s right to vest in the Award will terminate as of such date and will not be extended by any notice period ( e.g., the Participant’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under labor laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any). The Committee shall have the exclusive discretion to determine when the Participant is no longer actively providing services for purposes of the Awards (including whether the Participant may still be considered to be providing services while on a leave of absence); and

(k) neither the Company, the Employer nor any other Subsidiary shall be liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of the Awards or any amounts due to the Participant pursuant to the settlement of the Awards or subsequent sale of shares of Common Stock acquired under the Plan.

14. Data Privacy . The Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data as described in this Award Agreement and any other grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan.

The Participant understands that the Company and the Employer may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address, email address and telephone number, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares of Common Stock held in the Company, details of all awards or any other entitlement to shares of Common Stock or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Participant’s favor (“ Data ”), for the exclusive purpose of implementing, administering and managing the Plan.

The Participant understands that Data will be transferred to Fidelity Stock Plan Services, LLC and its affiliates (“ Fidelity ”), or any such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than the Participant’s country. The Participant understands that the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the Participant’s local human resources representative. The Participant authorizes the Company, Fidelity and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Participant’s participation in the Plan. The Participant understands that the Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan. The Participant understands that the Participant may, at any time, view Data, request information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case, without cost, by contacting the Participant’s local human resources representative. Further, the Participant understands that the Participant is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to revoke the Participant’s consent, the Participant’s employment status or service relationship with the Employer will not be affected; the only consequence of refusing or withdrawing the Participant’s consent is that the Company would not be able to grant Awards or other equity awards to the Participant or administer or maintain such awards. Therefore, the Participant understands that refusing or withdrawing the Participant’s consent may affect the Participant’s ability to participate in the Plan. For more information on the consequences of the Participant’s refusal to consent or withdrawal of consent, the Participant understands that he or she may contact the Participant’s local human resources representative.

Finally, upon request of the Company or the Employer, the Participant agrees to provide an executed data privacy consent form (or any other agreements or consents) that the Company or the Employer may deem necessary to obtain from the Participant for the purpose of administering the Participant’s participation in the Plan in compliance with the data privacy laws in the Participant’s country, either now or in the future. The Participant understands and agrees that the Participant will not be able to participate in the Plan if the Participant fails to provide any such consent or agreement requested by the Company and/or the Employer.

15. Country-Specific Provisions . Notwithstanding any provisions in this Award Agreement, the Awards shall be subject to any additional terms and conditions set forth in the Addendum for the Participant’s country. If the Participant relocates to one of the countries included in the Addendum, the terms and conditions for such country will apply to the Participant to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons.

16. Language . By electing to accept this Award Agreement, the Participant acknowledges that he or she is sufficiently proficient in English, or has consulted with an advisor who is sufficiently proficient in English so as to allow the Participant, to understand the terms and conditions of this Award Agreement. If the Participant has received this Award Agreement or any other documentation related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

17. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the Awards and on any shares of Common Stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

18. Insider Trading/Market-Abuse Laws . The Participant may be subject to insider trading restrictions and/or market abuse laws based on the exchange on which the shares of Common Stock are listed and in applicable jurisdictions, including the Participant’s country and the designated broker’s country, which may affect the Participant’s ability to accept, acquire, sell or otherwise dispose of the shares of Common Stock, rights to the shares of Common Stock ( i.e. , Restricted Stock Units) or rights linked to the value of the shares of Common Stock under the Plan during such times as the Participant is considered to have “inside information” regarding the Company (as defined by the laws in the applicable jurisdictions). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Participant placed before possessing inside information. Furthermore, the Participant may be prohibited from (i) disclosing inside information to any third party, including fellow employees and (ii) “tipping” third parties or causing them to otherwise buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Participant acknowledges that it is the Participant’s responsibility to comply with any applicable restrictions and the Participant should speak with the Participant’s personal advisor on this matter.

19. Foreign Asset/Account Reporting Requirements and Exchange Controls . The Participant acknowledges that the Participant’s country may have certain foreign asset and/or account reporting requirements and exchange controls which may affect the Participant’s ability to acquire or hold shares of Common Stock acquired under the Plan or cash received from participating in the Plan in a brokerage or bank account outside the Participant’s country. The Participant may be required to report such accounts, assets or transactions to the tax or other authorities in the Participant’s country. The Participant also may be required to repatriate sale proceeds or other funds received as a result of the Participant’s participation in the Plan to the Participant’s country through a designated bank or broker within a certain time after receipt. The Participant acknowledges that it is the Participant’s responsibility to be compliant with such regulations, and the Participant should consult the Participant’s personal legal advisor for any details.

20. Severability . The provisions of this Award Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

21. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participant’s participation in the Plan or Participant’s acquisition or sale of shares of Common Stock. The Participant understands and agrees that the Participant should consult with his or her own personal legal and financial advisors regarding the Participant’s participation in the Plan before taking any action related to the Plan.

22. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company. Further, the parties hereto shall be entitled to rely on delivery of a facsimile or other electronic copy of this Award Agreement, and delivery by either party of such facsimile or electronic copy shall be legally effective to create a valid and binding agreement between the parties in accordance with the terms hereof.

23. Governing Law and Venue . This Award Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law thereof. Notwithstanding anything contained in this Award Agreement, the Grant Notice or the Plan to the contrary, if any suit or claim is instituted by the Participant or the Company relating to this Award Agreement, the Grant Notice or the Plan, the Participant hereby submits to the exclusive jurisdiction of and venue in the courts of Delaware.

24. Plan . The terms and provisions of the Plan are incorporated herein by reference. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Award Agreement (including the Grant Notice), the Plan shall govern and control.

25. Section 409A . It is intended that the Restricted Stock Units granted hereunder shall be exempt from Section 409A of the Code pursuant to the “short-term deferral” rule applicable to such section, as set forth in the regulations or other guidance published by the Internal Revenue Service thereunder.

Restrictive Covenants

Non-Competition; Non-Solicitation; Non-Disparagement .

(a) Participant acknowledges and recognizes the highly competitive nature of the businesses of the Company and its Affiliates and accordingly agrees as follows:

(i) During Participant’s employment with the Company or its Subsidiaries (the “ Employment Term ”) and for a period of one year following the date Participant ceases to be employed by the Company or its Subsidiaries (the “ Restricted Period ”), Participant will not, whether on Participant’s own behalf or on behalf of or in conjunction with any person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise whatsoever (“ Person ”), directly or indirectly solicit or assist in soliciting in competition with the Restricted Group in the Business, the business of any then current or prospective client or customer with whom Participant (or his direct reports) had personal contact or dealings on behalf of the Company during the one-year period preceding Participant’s termination of employment.

(ii) During the Restricted Period, Participant will not directly or indirectly:

(A) engage in the Business in any geographical area where the Restricted Group engages in the Business;

(B) enter the employ of, or render any services to any Person engaged in the Business, except where such employment or services do not relate in any manner to the Business;

(C) acquire a financial interest in, or otherwise become actively involved with, any Person engaged in the Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or

(D) intentionally and adversely interfere with, or attempt to adversely interfere with, business relationships between the members of the Restricted Group and any of their clients, customers, suppliers, partners, members or investors.

(iii) Notwithstanding anything to the contrary in this Appendix A , Participant may, directly or indirectly own, solely as an investment, securities of any Person engaged in a Business which are publicly traded on a national or regional stock exchange or on the over-the-counter market if Participant (i) is not a controlling person of, or a member of a group which controls, such person and (ii) does not, directly or indirectly, own 5% or more of any class of securities of such Person.

(iv) During the Employment Term and for a period of one year from the date Participant ceases to be employed by the Company or its Subsidiaries, Participant will not, whether on Participant’s own behalf or on behalf of or in conjunction with any Person, directly or indirectly:

(A) solicit or encourage any employee of the Restricted Group to leave the employment of the Restricted Group;

(B) hire any employee who was employed by the Restricted Group as of the date of Participant’s termination of employment with the Company or who left the employment of the Restricted Group coincident with, or within one year prior to or after, the termination of Participant’s employment with the Company; or

(C) encourage any consultant or independent contractor of the Restricted Group to cease working with the Restricted Group.

(v) For purposes of this Appendix A :

(A) “ Business ” shall mean the business of the design, manufacture, distribution and marketing of air and gas compressors, blowers, pumps and fluid transfer systems and related activities, and any other business activity in which the Company and its subsidiaries may, after the date of this Agreement, become engaged, or take substantial steps to engage.

(B) “ Restricted Group ” shall mean, collectively, the Company and its Subsidiaries and, to the extent engaged in the Business, their respective Affiliates.

(b) Non-Disparagement . Participant will not at any time (whether during or after Participant’s Employment Term) make public statements or public comments intended to be (or having the effect of being) of defamatory or disparaging nature regarding (including any statements or comments likely to be harmful to the business, business reputation or personal reputation of) the Company or any of its Subsidiaries or Affiliates or any of their respective businesses, shareholders, members, partners, employees, agents, officers, directors or contractors (it being understood that comments made in Participant’s good faith performance of his duties hereunder shall not be deemed disparaging or defamatory for purposes of this paragraph); provided that the Participant shall be permitted to make truthful disclosures that are required by applicable law, regulations or order of a court or government agency.

(c) It is expressly understood and agreed that although Participant and the Company consider the restrictions contained in this Section 1 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Appendix A is an unenforceable restriction against Participant, the provisions of this Appendix A shall not be rendered void but shall be deemed amended to apply as to such maximum time and terri-tory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restric-tion contained in this Appendix A is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.

(d) The period of time during which the provisions of Section 1(a) shall be in effect shall be extended by the length of time during which Participant is in breach of the terms hereof as determined by any court of competent jurisdiction on the Company’s application for injunctive relief.

(e) The provisions of Section 1 hereof shall survive the termination of Participant’s employment for any reason, including but not limited to, any termination other than for Cause (except as otherwise set forth in Section 1 hereof).

(f) The provisions of Section 1(a)(i), (ii), (iii) and (iv)(B) hereof shall not apply if Participant’s principal place of employment is in the state of California.

Confidentiality; Intellectual Property .

(a) Confidentiality .

(i) Participant will not at any time (whether during or after Participant’s Employment Term) (x) retain or use for the benefit, purposes or account of Participant or any other Person; or (y) disclose, divulge, reveal, communicate, share, transfer or provide access to any Person outside the Company (other than its professional advisors who are bound by confidentiality obligations or otherwise in performance of Participant’s duties under Participant’s employment and pursuant to customary industry practice), any non-public, proprietary or confidential information—including without limitation trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designs and other intellectual property, information concerning finances, investments, profits, pricing, costs, products, services, vendors, customers, clients, partners, investors, personnel, compensation, recruiting, training, advertising, sales, marketing, promotions, government and regulatory activities and approvals—concerning the past, current or future business, activities and operations of the Company, its Subsidiaries or Affiliates and/or any third party that has disclosed or provided any of same to the Company on a confidential basis (“ Confidential Information ”) without the prior written authorization of the Board.

(ii) “Confidential Information” shall not include any information that is (a) generally known to the industry or the public other than as a result of Participant’s breach of this covenant; (b) made legitimately available to Participant by a third party without breach of any confidentiality obligation of which Participant has knowledge; or (c) required by law to be disclosed; provided that with respect to subsection (c) Participant shall give prompt written notice to the Company of such requirement, disclose no more information than is so required, and reasonably cooperate with any attempts by the Company to obtain a protective order or similar treatment.

(iii) Except as required by law, Participant will not disclose to anyone, other than Participant’s family (it being understood that, in this Agreement, the term “family” refers to Participant, Participant’s spouse, children, parents and spouse’s parents) and advisors, the existence or contents of this Agreement; provided that Participant may disclose to any prospective future employer the provisions of this Appendix A . This Section 2(a)(iii) shall terminate if the Company publicly discloses a copy of this Agreement (or, if the Company publicly discloses summaries or excerpts of this Agreement) to the extent so disclosed.

(iv) Upon termination of Participant’s employment with the Company for any reason, Participant shall (x) cease and not thereafter commence use of any Confidential Information or intellectual property (including without limitation, any patent, invention, copyright, trade secret, trademark, trade name, logo, domain name or other source indicator) owned or used by the Company, its Subsidiaries or Affiliates and (y) immediately destroy, delete, or return to the Company, at the Company’s option, all originals and copies in any form or medium (including memoranda, books, papers, plans, computer files, letters and other data) in Participant’s possession or control (including any of the foregoing stored or located in Participant’s office, home, laptop or other computer, whether or not Company property) that contain Confidential Information, except that Participant may retain only those portions of any personal notes, notebooks and diaries that do not contain any Confidential Information.

(b) Intellectual Property .

(i) If Participant has created, invented, designed, developed, contributed to or improved any works of authorship, inventions, intellectual property, materials, documents or other work product (including without limitation, research, reports, software, databases, systems, applications, presentations, textual works, content, or audiovisual materials) (“ Works ”), either alone or with third parties, prior to Participant’s employment by the Company, that are relevant to or implicated by such employment (“ Prior Works ”), Participant hereby grants the Company a perpetual, non-exclusive, royalty-free, worldwide, assignable, sublicensable license under all rights and intellectual property rights (including rights under patent, industrial property, copyright, trademark, trade secret, unfair competition and related laws) therein for all purposes in connection with the Company’s current and future business.

(ii) If Participant creates, invents, designs, develops, contributes to or improves any Works, either alone or with third parties, at any time during Participant’s employment by the Company and within the scope of such employment and with the use of any Company resources (“ Company Works ”), Participant shall promptly and fully disclose same to the Company and hereby irrevocably assigns, transfers and conveys, to the maximum extent permitted by applicable law, all rights and intellectual property rights therein (including rights under patent, industrial property, copyright, trademark, trade secret, unfair competition and related laws) to the Company to the extent ownership of any such rights does not vest originally in the Company.

(iii) Participant shall take all reasonably requested actions and execute all reasonably requested documents (including any licenses or assignments required by a government contract) at the Company’s expense (but without further remuneration) to assist the Company in validating, maintaining, protecting, enforcing, perfecting, recording, patenting or registering any of the Company’s rights in the Prior Works and Company Works. If the Company is unable for any other reason, after reasonable attempt, to secure Participant’s signature on any document for this purpose, then Participant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Participant’s agent and attorney in fact, to act for and in Participant’s behalf and stead to execute any documents and to do all other lawfully permitted acts required in connection with the foregoing.

(iv) Participant shall not improperly use for the benefit of, bring to any premises of, divulge, disclose, communicate, reveal, transfer or provide access to, or share with the Company any confidential, proprietary or non-public information or intellectual property relating to a former employer or other third party without the prior written permission of such third party. Participant shall comply with all relevant policies and guidelines of the Company that are from time to time previously disclosed to Participant, including regarding the protection of Confidential Information and intellectual property and potential conflicts of interest. Participant acknowledges that the Company may amend any such policies and guidelines from time to time, and that Participant remains at all times bound by their most current version from time to time previously disclosed to Participant.

(v) The provisions of Section 2 hereof shall survive the termination of Participant’s employment for any reason (except as otherwise set forth in Section 2(a)(iii) hereof).

COUNTRY-SPECIFIC PROVISIONS

Terms and Conditions

This Addendum includes additional terms and conditions that govern the Awards granted to the Participant under the Plan if the Participant works and/or resides in one of the countries listed below. Capitalized terms used but not defined in this Addendum have the meanings set forth in the Plan and/or the Award Agreement.

If the Participant is a citizen or resident of a country other than the one in which the Participant is currently working and/or residing, is considered a resident of another country for local law purposes or transfers employment and/or residency between countries after the Date of Grant, the Company shall, in its sole discretion, determine to what extent the terms and conditions contained herein apply to the Participant under these circumstances.

This Addendum also includes information regarding securities laws, exchange controls and certain other issues of which the Participant should be aware with respect to the Participant’s participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of March 2018. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Participant not rely on the information noted herein as the only source of information relating to the consequences of the Participant’s participation in the Plan because the information may be out of date at the time the Restricted Stock Units vest or the shares of Common Stock acquired under the Plan are sold.

In addition, the information is general in nature and may not apply to the Participant’s particular situation, and the Company is not in a position to assure the Participant of any particular result. Accordingly, the Participant should seek appropriate professional advice as to how the relevant laws in the Participant’s country may apply to his or her situation.

Finally, if the Participant is a citizen or resident of a country other than the one in which the Participant is currently working and/or residing, is considered a resident of another country for local law purposes or transfers employment and/or residency between countries after the Date of Grant, the information contained herein may not be applicable in the same manner to the Participant.

Terms and Conditions

Australia Offer Document . T he Restricted Stock Units are intended to comply with the provisions of the Corporations Act 2001, Australia Securities and Investment Commission (“ ASIC ”) Regulatory Guide 49 and ASIC Class Order CO 14/1000. Additional details are set forth in the Offer Document, which has been included as Exhibit A to this Addendum.

Tax Information . Subdivision 83A-C of the Income Tax Assessment Act 1997 applies to the Awards granted in accordance with the terms and conditions of the Grant Notice, the Plan and this Award Agreement (subject to the requirements of the Income Tax Assessment Act 1997).

Exchange Control Information . Exchange control reporting is required for cash transactions exceeding AUD 10,000 and international fund transfers. If an Australian bank is assisting the Participant with the transaction, the bank will file the report on the Participant ’s behalf. If there is no Australian bank involved in the transfer, the Participant will be required to file the report.

Exchange Control Information . If the Participant holds shares of Common Stock obtained through the Plan outside of Austria, the Participant may be required to submit reports to the Austrian National Bank as follows: (i) on a quarterly basis if the value of the shares of Common Stock as of any given quarter meets or exceeds EUR 30,000,000; and (ii) on an annual basis if the value of the shares of Common Stock as of December 31 meets or exceeds EUR 5,000,000. The quarterly reporting date is as of the last day of the respective quarter; the deadline for filing the quarterly report is the 15th day of the month following the end of the respective quarter. The deadline for filing the annual report is January 31 of the following year.

In addition, when shares of Common Stock are sold or a dividend is received, the Participant may be required to comply with certain exchange control obligations if the cash amounts are held outside Austria. If the transaction volume of all the Participant’s accounts abroad meets or exceeds EUR 10,000,000, the movements and balances of all accounts must be reported monthly, as of the last day of the month, on or before the 15th day of the following month on the prescribed form (Meldungen SI-Forderungen und/oder SI-Verpflichtungen) .

Terms and Conditions

Compliance with the Law . In accepting the Awards, the Participant acknowledges his or her agreement to comply with applicable Brazilian laws and to pay any and all applicable Tax-Related Items associated with the vesting of the Restricted Stock Units, the sale of shares of Common Stock acquired under the Plan or the receipt of dividends.

Labor Law Acknowledgement . In accepting the Awards, the Participant agrees that he or she is (i) making an investment decision, (ii) the Participant will be entitled to receive shares of Common Stock pursuant to the Restricted Stock Units only if the vesting conditions are met and any necessary services are rendered by the Participant between the Date of Grant and vesting, and (iii) the value of the underlying shares of Common Stock is not fixed and may increase or decrease in value without compensation to the Participant.

Exchange Control Information . If the Participant is a resident or domiciled in Brazil, he or she will be required to submit an annual declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights is equal to or greater than USD 100,000. The assets and rights that must be reported include shares of Common Stock.

Terms and Conditions

Form of Restricted Stock Unit Settlement . The following provision supplements Section 3 of the Award Agreement:

Notwithstanding any discretion in Section 9 of the Plan, the Restricted Stock Units will be settled only in shares of Common Stock.

The following provisions will apply if the Participant is a resident of Québec:

English Language Provision . The parties acknowledge that it is their express wish that the present Award Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.

Les parties reconnaissent avoir exigé la rédaction en anglais de la présente convention, ainsi que de tous documents, avis et procédures judiciaires, exécutés, donnés ou intentés en vertu de, ou liés directement ou indirectement à, la présente convention.

Data Privacy . This provision supplements Section 14 of the Award Agreement:

The Participant hereby authorizes the Company and the Company’s representatives to discuss with and obtain all relevant information from all personnel, professional or not, involved in the administration and operation of the Plan. The Participant further authorizes the Company, any related company and the administrator of the Plan to disclose and discuss the Plan with their advisors. The Participant further authorizes the Company and any related company to record such information and to keep such information in the Participant’s employee file.

Securities Law Information . The Participant may not be permitted to sell within Canada the shares of Common Stock acquired under the Plan. The Participant may only be permitted to sell shares of Common Stock acquired under the Plan through the designated broker appointed under the Plan, if any (or any other broker acceptable to the Company), provided the resale of shares of Common Stock acquired under the Plan takes place outside Canada through the facilities of a stock exchange on which the shares of Common Stock are listed.

Foreign Asset/Account Reporting Information . Specified foreign property including shares of Common Stock and rights to shares of Common Stock ( e.g., Restricted Stock Units) held by a Canadian resident employee must generally be reported annually on a Form T1135 (Foreign Income Verification Statement) if the total cost of his or her specified foreign property exceeds CAD 100,000 at any time during the year. If applicable, Form T1135 is due by April 30th of the following year. Restricted Stock Units must be reported - generally at nil cost - if the CAD 100,000 cost threshold is exceeded because the Participant holds other specified foreign property. When shares of Common Stock are acquired, their cost generally is the adjusted cost base (“ ACB ”) of the shares of Common Stock. The ACB would ordinarily equal the fair market value of the shares of Common Stock at the time of the acquisition, but if the Participant owns other shares of Common Stock, this ACB may have to be averaged with the ACB of the other shares of Common Stock. The Participant should consult with a personal advisor to ensure that the Participant complies with the applicable requirements.

The following Terms and Conditions apply to Participants that are subject to the exchange control restrictions and regulations in the People’s Republic of China (“ China ”), including the requirements imposed by the State Administration of Foreign Exchange (“ SAFE ”), as determined by the Company in its sole discretion.

Terms and Conditions

Satisfaction of Regulatory Obligations . The settlement of the Awards upon vesting is conditioned upon the Company securing and maintaining all necessary approvals from SAFE and any other applicable government entities in China to permit the operation of the Plan in China, as determined by the Company it its sole discretion. If or to the extent the Company is unable to complete the registration or maintain the registration, no shares of Common Stock shall be issued under the Plan. In this case, the Company retains the discretion to settle any Awards in cash paid through local payroll in an amount equal to the Fair Market Value of the Shares subject to the Awards less any Tax-Related Items.

Sale Requirement . To facilitate compliance with any applicable laws or regulations in China, the Participant agrees and acknowledges that the Company (or a brokerage firm instructed by the Company, if applicable) reserves the right to require the immediate sale of any shares of Common Stock issued to the Participant at vesting/settlement of the Restricted Stock Units. The Participant understands and agrees that any such immediate sale of shares of Common Stock will occur as soon as is practical following vesting of the Restricted Stock Units. Alternatively, if the shares of Common Stock are not immediately sold, the Company will require the sale of any shares of Common Stock the Participant may then hold within six months (or such other period as may be required under applicable legal or exchange control requirements) following the Participant’s Termination.

The Participant agrees that the Company is authorized to instruct its designated broker to assist with the sale of the shares of Common Stock on the Participant’s behalf pursuant to this authorization, and the Participant expressly authorizes the designated broker to complete the sale of such shares of Common Stock. The Participant also agrees to sign any agreements, forms and/or consents that may be reasonably requested by the Company (or the designated broker) to effectuate the sale of the shares of Common Stock (including, without limitation, as to the transfers of the proceeds and other exchange control matters noted below) and to otherwise cooperate with the Company with respect to such matters, provided that he or she shall not be permitted to exercise any influence over how, when or whether the sales occur. Upon the sale of the shares of Common Stock, the Participant will receive the cash proceeds from the sale, less any applicable Tax-Related Items, brokerage fees or commissions, in accordance with applicable exchange control laws and regulations.

The Participant acknowledges that the designated broker is under no obligation to arrange for the sale of the shares of Common Stock at any particular price. Due to fluctuations in the share price and/or applicable exchange rates between the settlement date and (if later) the date on which the shares of Common Stock are sold, the amount of proceeds ultimately distributed to the Participant may be more or less than the market value of the shares of Common Stock upon vesting (which is the amount relevant to determining the Participant’s liability for Tax-Related Items). The Participant understands and agrees that the Company is not responsible for the amount of any loss that the Participant may incur and that the Company assumes no liability for any fluctuations in the share price and/or any applicable exchange rate.

Designated Broker Account . If shares of Common Stock issued upon the vesting/settlement of the Restricted Stock Units are not immediately sold, the Participant acknowledges that the Participant is required to maintain the shares of Common Stock in an account as may be selected by the Company until the shares of Common Stock are sold through the designated broker (as further detailed below).

Exchange Control Restrictions . The Participant understands and agrees that, pursuant to local exchange control requirements, he or she will be required to immediately repatriate the cash proceeds from the sale of shares of Common Stock and any cash dividends paid on such shares of Common Stock to China. The Participant further understands that, under local law, such repatriation of cash proceeds may need to be effectuated through a special exchange control account established by the Company, the Employer or any other Subsidiary, and the Participant hereby consents and agrees that any proceeds from the sale of shares of Common Stock or any cash dividends paid on such Shares may be transferred to such special account prior to being delivered to the Participant.

The proceeds may be paid to the Participant in U.S. dollars or local currency at the Company’s discretion. In the event the proceeds are paid to the Participant in U.S. dollars, he or she understands that he or she will be required to set up a U.S. dollar bank account in China and provide the bank account details to the Employer and/or the Company so that the proceeds may be deposited into this account. If the proceeds are paid to the Participant in local currency, the Company is under no obligation to secure any particular exchange conversion rate and/or conversion date and the Company may face delays in converting the proceeds to local currency due to exchange control restrictions. The Participant agrees to bear any currency fluctuation risk between the time the shares of Common Stock are sold or dividends are received and the time the proceeds are distributed through any such special exchange account. The Participant further agrees to comply with any other requirements that may be imposed by the Company in the future in order to facilitate compliance with exchange control requirements in China.

Exchange Control Information . The Participant may be required to report to SAFE all details of the Participant’s foreign financial assets and liabilities, as well as details of any economic transactions conducted with non-PRC residents.

Exchange Control Information . Proceeds from the sale of shares of Common Stock and any dividends paid on such shares of Common Stock may be held in a cash account abroad and the Participant is no longer required to report the opening and maintenance of a foreign account to the Czech National Bank (“ CNB ”), unless the CNB notifies the Participant specifically that such reporting is required. Upon request of the CNB, the Participant may need to file a notification within 15 days of the end of the calendar quarter in which the Participant acquires shares of Common Stock under the Plan.

No country-specific provisions apply.

Exchange Control Information . Cross-border payments in excess of EUR 12,500 must be reported monthly to the German Federal Bank. If the Participant receives a payment in excess of this amount, the Participant is responsible for electronically reporting to the German Federal Bank by the fifth day of the month following the month in which the payment occurs. The form of report ( Allgemeines Meldeportal Statistik ) can be accessed via the German Federal Bank’s website (www.bundesbank.de) and is available in both German and English.

Terms and Conditions

Form of Restricted Stock Unit Settlement . The following provision supplements Section 3 of the Award Agreement:

Notwithstanding any discretion in Section 9 of the Plan, the Restricted Stock Units will be settled only in shares of Common Stock.

Sale Restriction . Shares of Common Stock acquired under the Plan are accepted as a personal investment. In the event the or Restricted Stock Units vest and shares of Common Stock are issued to the Participant (or the Participant’s heirs) within six months of the Date of Grant, the Participant (or the Participant’s heirs) agrees that the shares of Common Stock will not be offered to the public or otherwise disposed of prior to the six-month anniversary of the Date of Grant.

Nature of Scheme . The Participant acknowledges that the Company specifically intends that the Plan will not be an occupational retirement scheme for purposes of the Occupational Retirement Schemes Ordinance (“ ORSO ”). Notwithstanding the foregoing, if the Plan is deemed to constitute an occupational retirement scheme for purposes of ORSO, the Award granted shall be void.

Securities Law Information . Warning: The contents of this document have not been reviewed by any regulatory authority in Hong Kong. The Participant is advised to exercise caution in relation to the offer. If the Participant is in any doubt about any of the contents of this document, the Participant should obtain independent professional advice. Neither the grant of the Award nor the shares of Common Stock acquired upon vesting constitutes a public offering of securities under Hong Kong law and is available only to employees of the Company and its Subsidiaries. This Award Agreement, the Plan and other incidental communication materials distributed in connection with the Award (i) have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong, and (ii) are intended only for the personal use of each eligible employee of the Company or its Subsidiaries and may not be distributed to any other person.

Exchange Control Information . The Participant understands that he or she must repatriate any proceeds from the sale of shares of Common Stock acquired under the Plan and any cash dividends to India and convert the proceeds into local currency within a reasonable time after receipt (i.e., 90 days from the sale of shares of Common Stock and 180 days from receipt of dividends, or within such time as prescribed under applicable Indian exchange control laws as may be amended from time to time). The Participant will receive a foreign inward remittance certificate (“ FIRC ”) from the bank where the Participant deposits the foreign currency. The Participant should retain the FIRC as evidence of the repatriation of funds in the event the Reserve Bank of India or the Employer requests proof of repatriation. It is the Participant’s responsibility to comply with applicable exchange control laws in India.

Foreign Asset/Account Reporting Information . The Participant is required to declare foreign bank accounts and any foreign financial assets (including shares of Common Stock acquired under the Plan) in the Participant’s annual tax return. It is the Participant’s responsibility to comply with this reporting obligation and the Participant should confer with the Participant’s personal tax advisor in this regard.

Terms and Conditions

Data Privacy . The following provision replaces Section 14 of the Award Agreement in its entirety .

Pursuant to Section 13 of the Legislative Decree no 196/2003, the Participant understands that the Company may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address, email address and telephone number, date of birth, social insurance number, passport number or other identification number, salary, nationality, job title, any shares or directorships held in the Company, details of all Restricted Stock Units or other entitlement to shares granted, canceled, vested, unvested or outstanding in the Participant’s favor (“ Data ”), for the exclusive purpose of implementing, managing and administering the Plan.

The Participant also understands that providing the Company with Data is necessary for the performance of the Plan, which represents the legal basis for the collection, use, processing and transfer of the Data, and that the Participant’s refusal to provide such Data would make it impossible for the Company to perform its contractual obligations and may affect the Participant’s ability to participate in the Plan. The Controller of personal data processing is Gardner Denver Holdings, Inc. with registered offices at 222 East Erie Street, Suite 500, Milwaukee, WI 53202, United States of America, and, pursuant to Legislative Decree no. 196/2003, its representative in Italy is Gardner Denver S.r.l. with registered offices at Via Tevere, 6, Lonate Pozzolo, 21015 Varese, Italy.

The Participant further understands that the Company and any Subsidiary will transfer Data amongst themselves as necessary for the purpose of implementation, administration and management of the Participant’s participation in the Plan, and that the Company and any Subsidiary may each further transfer Data to third parties assisting the Company in the implementation, administration and management of the Plan, including any requisite transfer to a broker or another third party with whom the Participant may elect to deposit any Shares acquired under the Plan. Such recipients may receive, possess, use, retain and transfer the Data in electronic or other form, for the purposes of implementing, administering and managing the Participant’s participation in the Plan. The Participant understands that these recipients may be located in the European Economic Area, or elsewhere, such as the U.S. Should the Company exercise its discretion in suspending all necessary legal obligations connected with the management and administration of the Plan, it will delete Data as soon as it has accomplished all the necessary legal obligations connected with the management and administration of the Plan.

The Participant understands that Data-processing related to the purposes specified above shall take place under automated or non-automated conditions, anonymously when possible, that comply with the purposes for which Data is collected and with confidentiality and security provisions, as set forth by applicable laws and regulations, with specific reference to Legislative Decree no. 196/2003.

The processing activity, including communication, the transfer of Data abroad, including outside the European Economic Area, as herein specified and pursuant to applicable laws and regulations, does not require the Participant’s consent thereto as the processing is necessary to performance of contractual obligations related to implementation, administration and management of the Plan. The Participant understands that, pursuant to Section 7 of the Legislative Decree no. 196/2003, the Participant has the right to, including but not limited to, access, delete, update, correct or terminate, for legitimate reason, the Data processing. The Participant also understands that he or she has the right to Data portability and to lodge a complaint with the Italian supervisory authority. Furthermore, the Participant is aware that Data will not be used for direct marketing purposes. In addition, Data provided can be reviewed and questions or complaints can be addressed by contacting the Participant’s local human resources representative.

Plan Document Acknowledgement . In accepting the Awards, the Participant acknowledges that he or she has received a copy of the Plan, the Grant Notice and this Award Agreement and has reviewed the Plan, the Grant Notice and this Award Agreement, in their entirety and fully understands and accepts all provisions of the Plan, the Grant Notice and this Award Agreement.

The Participant further acknowledges that he or she has read and specifically and expressly approves the Grant Notice and the following sections of this Award Agreement: Section 1; Section 7; Section 11; Section 13; Section 15; Section 16; Section 18; Section 22 and the Data Privacy provision included above.

Foreign Asset/Account Reporting Information . If the Participant is an Italian resident and holds investments or financial assets outside of Italy ( e.g., cash, shares of Common Stock) during any fiscal year which may generate income taxable in Italy, the Participant is required to report such investments or assets on his or her annual tax return for such fiscal year (on UNICO Form, RW Schedule, or on a special form if the Participant is not required to file a tax return). These reporting obligations will also apply to Italian residents who are the beneficial owners of foreign financial assets under Italian money laundering provisions. The Participant should consult his or her personal advisor to ensure compliance with applicable reporting obligations.

Foreign Asset Tax . The value of financial assets held outside of Italy by individual residents of Italy is subject to a foreign asset tax. The taxable amount will be the fair market value of the financial assets ( e.g., shares of Common Stock) assessed at the end of the calendar year. The value of the financial assets held abroad must be reported in Form RM of the annual tax return. The Participant should consult his or her personal tax advisor for additional information about the foreign financial assets tax.

No country-specific terms apply.

Foreign Asset/Account Reporting Information . Polish residents holding foreign securities ( e.g., shares of Common Stock) and/or maintaining accounts abroad must report information to the National Bank of Poland on transactions and balances of the securities and cash deposited into such accounts if the value of such securities and cash (when combined with all other assets possessed abroad) exceeds PLN 7 million. If required, the reports must be filed on a quarterly basis on special forms that are available on the website of the National Bank of Poland. Polish residents should consult with their personal tax advisor to determine their personal reporting obligations.

Exchange Control Information . If a Polish resident transfers funds in excess of EUR 15,000 (or PLN 15,000 if such transfer of funds is connected with the business activity of an entrepreneur) into Poland, the funds must be transferred via a Polish bank account or financial institution. Polish residents are required to retain the documents connected with a foreign exchange transaction for a period of five years, as measured from the end of the year in which such transaction occurred.

Terms and Conditions

Sale Restriction . Shares of Common Stock acquired under the Plan may not be sold or otherwise offered for sale in Singapore prior to the six-month anniversary of the Date of Grant, unless such sale or offer in Singapore is made pursuant to the exemptions under Part XIII Division (1) Subdivision (4) (other than section 280) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“ SFA ”) or pursuant to, and in accordance with the conditions of, any other applicable provision(s) of the SFA.

Securities Law Information . The grant of the Awards is being made pursuant to the “Qualifying Person” exemption under section 273(1)(f) of the SFA and is not made with a view to the shares of Common Stock acquired under the Plan being subsequently offered for sale to any other party. The Plan has not been, and will not be, lodged or registered as a prospectus with the Monetary Authority of Singapore.

Chief Executive Officer and Director Notification Requirement . Directors and the Chief Executive Officer (“ CEO ”) of a Singapore Subsidiary are subject to certain notification requirements under the Singapore Companies Act. Directors and the CEO must notify the Singapore Subsidiary in writing of an interest ( e.g., Restricted Stock Units, shares of Common Stock, etc.) in the Company or any related companies within two business days of (i) its acquisition or disposal, (ii) any change in a previously disclosed interest ( e.g., when the shares of Common Stock are sold), or (iii) becoming a director / CEO.

Terms and Conditions

Securities Law Information . In compliance with South African securities laws, the Participant acknowledges that the documents listed below are available for the Participant’s review at the address listed below:

(a)

the Company’s most recent annual financial statements: http://investors.gardnerdenver.com/

(b)

the Company’s most recent Plan prospectus, which is available by logging into Gardner Denver Holdings’ equity plan portal at: NetBenefits.com;

The Participant acknowledges that he or she may have a copy of the above documents sent to the Participant, without fee, on written request to Gardner Denver Holdings, Inc., ATTN: Andrew Schiesl, Vice President and General Counsel, 222 E. Erie Street, Suite 500, Milwaukee, WI 53202, USA.

Responsibility for Taxes . The following provision supplements Section 7 of the Award Agreement:

By accepting the Award, the Participant agrees that, immediately upon the vesting of the Restricted Stock Units, the Participant will notify the Employer of the amount of any gain realized. If the Participant fails to advise the Employer of the gain realized upon the taxable event, the Participant may be liable for a fine. The Participant will be solely responsible for paying any difference between the actual tax liability and the amount withheld.

Exchange Control Information . To participate in the Plan, the Participant must comply with exchange control regulations and rulings in South Africa. Because the exchange control regulations are subject to change, the Participant should consult his or her personal legal advisor prior to vesting in Restricted Stock Units to ensure compliance with applicable exchange control regulations. The Participant is responsible for ensuring compliance with all exchange control laws in South Africa.

Foreign Asset/Account Reporting Information . If the Participant is a Korean resident, the Participant must declare all of his or her foreign financial accounts (e.g., non-Korean bank accounts, brokerage accounts, etc.) to the Korean tax authority and file a report with respect to such accounts if the value of such accounts exceeds KRW 1 billion (or an equivalent amount in foreign currency). The Participant should consult with his or her personal tax advisor to determine the Participant’s personal reporting obligations.

Terms and Conditions

Labor Law Acknowledgment . In accepting the Awards, the Participant consents to participation in the Plan and acknowledges that the Participant has received a copy of the Plan.

The Participant understands that the Company has unilaterally, gratuitously and in its own discretion decided to grant Awards under the Plan to certain individuals who may be employees of the Company or a Subsidiary throughout the world. The decision is a limited decision that is entered into upon the express assumption and condition that any grant will not bind the Company or a Subsidiary, other than as set forth in this Award Agreement. Consequently, the Participant understands that the Awards are granted on the assumption and condition that the Awards and any shares of Common Stock acquired upon the vesting of the Restricted Stock Units are not a part of any employment contract (either with the Company or a Subsidiary) and shall not be considered a mandatory benefit, salary for any purposes (including severance compensation), or any other right whatsoever. Further, the Participant understands that the Awards would not be granted to the Participant but for the assumptions and conditions referred to above; thus, the Participant acknowledges and freely accepts that should any or all of the assumptions be mistaken, or should any of the conditions not be met for any reason, any grant of or right to the Awards shall be null and void.

The Participant understands and agrees that, as a condition of the grant of the Awards, in the event of the Participant’s Termination for any reason other than the Participant’s death, Disability, Qualifying Termination or Approved Retirement as provided in the Grant Notice (including the reasons listed below) will automatically result in the loss of the Awards to the extent the Awards have not vested as of the date of the Participant’s Termination. This will be the case, for example, even if (i) the Participant is considered to be unfairly dismissed without good cause ( i.e. , subject to a “ despido improcedente ”); (ii) the Participant is dismissed for disciplinary or objective reasons or due to a collective dismissal; (iii) the Participant terminates service due to a change of work location, duties or any other employment or contractual condition; (iv) the Participant terminates service due to a unilateral breach of the Participant’s contract by the Company or a Subsidiary; or (v) the Participant’s employment terminates for any other reason whatsoever. Consequently, upon the Participant’s Termination for any of the above reasons, he or she may automatically lose any rights to the Awards that were not vested on the date of his or her Termination, as described in the Plan, the Grant Notice and this Award Agreement.

Exchange Control Information . To participate in the Plan, the Participant must declare the acquisition and sale of shares of Common Stock to the Dirección General de Comercio e Inversiones (“ DGCI ”) for statistical purposes. The Participant also must declare the ownership of any shares of Common Stock with the DGCI each January while the shares of Common Stock are owned, unless the amount of shares of Common Stock acquired or sold exceeds the applicable threshold (currently EUR 1,502,530), or the Participant holds 10% or more of the share capital of the Company or other such amount that would entitle the Participant to join the Board, in which case the filing is due within one month after the sale.

In addition, the Participant may be required to electronically declare to the Bank of Spain any foreign accounts (including brokerage accounts held abroad), any foreign instruments (including shares of Common Stock acquired under the Plan), and any transactions with non-Spanish residents (including any payments for shares of Common Stock made pursuant to the Plan), depending on the balances in such accounts together with the value of such instruments as of December 31 of the relevant year, or the volume of transactions with non-Spanish residents during the relevant year.

Securities Law Information . No “offer of securities to the public,” as defined under Spanish law, has taken place or will take place in the Spanish territory in connection with the grant of the Award. This Award Agreement has not been nor will it be registered with the Comisión Nacional del Mercado de Valores , and does not constitute a public offering prospectus.

Foreign Asset/Account Reporting Information . To the extent that the Participant holds assets ( e.g. , cash or shares of Common Stock held in a bank or brokerage account) outside of Spain with a value in excess of EUR 50,000 per type of right or asset as of December 31 each year (or at any time during the year in which Participant sells or disposes of such asset), the Participant is required to report information on such assets on his or her tax return for such year. After such assets are initially reported, the reporting obligation will only apply for subsequent years if the value of any previously-reported assets increases by more than EUR 20,000. The Participant should consult with his or her personal tax advisor to ensure compliance with applicable reporting requirements.

Securities Law Information . The grant of the Awards and any shares of Common Stock acquired under the Plan are not intended to be publicly offered in or from Switzerland. Neither this document nor any other materials relating to the Awards (1) constitute a prospectus as such term is understood pursuant to article 652a of the Swiss Code of Obligations, (2) may be publicly distributed or otherwise made publicly available in Switzerland, or (3) have been or will be filed with, approved or supervised by any Swiss regulatory authority (in particular, the Swiss Financial Market Supervisory Authority ( FINMA )).

Exchange Control Information . If the Participant realizes USD 50,000 or more in a single transaction from the sale of shares of Common Stock or the payment of dividends, the Participant is required to repatriate the funds to Thailand and then either convert such proceeds into Thai Baht or deposit the proceeds into a foreign currency account opened with any commercial bank in Thailand within 360 days of repatriation. Further, for repatriated proceeds of USD 50,000 or more, the Participant must specifically report the inward remittance to the Bank of Thailand on a Foreign Exchange Transaction Form. If the Participant fails to comply with these obligations, the Participant may be subject to penalties assessed by the Bank of Thailand. The Participant is personally responsible for complying with exchange control restrictions in Thailand.

United Arab Emirates

Securities Law Information . The Awards granted under the Plan are being offered only to eligible employees of the Company, its Subsidiaries or the Employer and is in the nature of providing equity incentives to eligible employees of the Company, its Subsidiaries or the Employer. Any documents related to the Awards, including the Plan, this Award Agreement and any other grant documents (“ Award Documents ”), are intended for distribution only to such eligible employees and must not be delivered to, or relied on by, any other person.

The United Arab Emirates securities or financial/economic authorities have no responsibility for reviewing or verifying any Award Documents and have not approved the Award Documents nor taken steps to verify the information set out in them, and thus, are not responsible for their content.

The Participant is aware that he or she should, as a prospective stockholder, conduct his or her own due diligence on the securities. The Participant acknowledges that if he or she does not understand the contents of the Award Documents, the Participant should consult an authorized financial advisor.

Terms and Conditions

Form of Restricted Stock Unit Settlement . The following provision supplements Section 3 of the Award Agreement:

Notwithstanding any discretion in Section 9 of the Plan, the Restricted Stock Units will be settled only in shares of Common Stock.

Responsibility for Taxes . The following provision supplements Section 7 of the Award Agreement:

The Participant agrees to be liable for any Tax-Related Items and hereby covenants to pay any such Tax-Related Items, as and when requested by the Company or, if different, the Employer or by Her Majesty’s Revenue & Customs (“ HMRC ”) (or any other tax or relevant authority). The Participant also agrees to indemnify and keep indemnified the Company and, if different, the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC (or any other tax or relevant authority) on the Participant’s behalf.

Participant :	[Participant Name]

Date of Grant :	[Grant Date]

Vesting Commencement Date:	[Vest From Date]

Number of Restricted Stock Units:	[Number of Shares Granted]

Vesting Schedule :	Provided the Participant has not undergone a Termination prior to the time of each applicable vesting date (or event), the Restricted Stock Units shall become vested as to 25% of each of the Restricted Stock Units on each of the second, third, fourth and fifth anniversaries of the Vesting Commencement Date (each, a “ Vesting Date ”).

	In the event of the Participant’s Termination, all vesting with respect to the Restricted Stock Units shall cease and all unvested Restricted Stock Units shall be forfeited by the Participant for no consideration as of the date of such Termination; provided , that in the event of the Participant’s Qualifying Termination or Approved Retirement, the Restricted Stock Units that would have vested on the first Vesting Date otherwise scheduled to occur immediately following the date of such Qualifying Termination or Approved Retirement shall vest as of the date of Qualifying Termination or Approved Retirement, as applicable; and provided further that in the event of the Participant’s death or Disability, the Restricted Stock Units that would have vested on the first and second Vesting Date otherwise scheduled to occur immediately following the date of such death or Disability shall vest as of the date of death or Disability. Notwithstanding the foregoing, if the Company receives a legal opinion that there has been a legal judgment and/or legal development in the Participant’s jurisdiction that would likely result in the favorable treatment that applies to the Restricted Stock Units if the Participant’s Termination occurs as a result of Participant’s Approved Retirement being deemed unlawful and/or discriminatory, the Company may determine that the Participant’s Retirement is no longer an Approved Retirement and the remaining provisions will govern.

	Further, in the event of the Participant’s Qualifying Termination during the two-year period following a Change in Control, all Restricted Stock Units shall immediately vest as of the date of Qualifying Termination.

Definitions:	“ Approved Retirement ” means a Retirement that occurs following the Participant’s receipt of written confirmation by the Company that such Retirement will be designated as an “Approved Retirement” for purposes of the Plan. The designation of an Approved Retirement shall be made by the Company in its sole discretion, and the Company’s determination as to whether a Retirement is an Approved Retirement shall be final and binding upon the Participant.

	“ Cause ” means the Participant’s (A) willful neglect in the performance of the Participant’s duties for the Service Recipient or willful or repeated failure or refusal to perform such duties; (B) engagement in conduct in connection with the Participant’s employment or service with the Service Recipient, which results in, or could reasonably be expected to result in, material harm to the business or reputation of the Company or any other member of the Company Group; (C) conviction of, or plea of guilty or no contest to, (I) any felony; or (II) any other crime that results in, or could reasonably be expected to result in, material harm to the business or reputation of the Company or any other member of the Company Group; (D) engaging in any act of moral turpitude, illegality or harassment, whether or not such act was committed in connection with the Participant’s services to the Company Group; (E) material violation of the Company’s Code of Conduct or any other written policies of the Company or the Service Recipient, including, but not limited to, those relating to sexual harassment or the disclosure or misuse of confidential information, or those set forth in the manuals or statements of policy of the Company or Service Recipient; (F) fraud or misappropriation, embezzlement or misuse of funds or property belonging to the Company or any other member of the Company Group; or (G) act of personal dishonesty that involves personal profit in connection with the Participant’s employment or service to the Service Recipient.

	/s/ Vicente Reynal
	Vicente Reynal
	Chief Executive Officer and Director
	(Principal Executive Officer)

	/s/ Philip T. Herndon
	Philip T. Herndon
	Vice President and Chief Financial Officer
	(Principal Financial Officer)

	/s/Vicente Reynal
	Vicente Reynal
	Chief Executive Officer and Director
	(Principal Executive Officer)