UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2019
or

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

For the transition period from                     to_________
Commission File Number: 001-38095
Gardner Denver Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)

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

222 East Erie Street, Suite 500
Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices) (Zip Code)

(414) 212-4700
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 Par Value per share
GDI
New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ☒   No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

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

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 28, 2019 was approximately $4,560.2 million based on the closing price of such common equity on the New York Stock Exchange on such date.

The registrant had outstanding 205,211,761 shares of Common Stock, par value $0.01 per share, as of February 19, 2020.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference in Part III of this report.


Index
Table of Contents

 
Page
No.
PART I
 
3
11
21
22
22
22
 
 
PART II
 
23
23
27
45
47
47
48
49
50
51
52
101
101
102
 
 
PART III
 
102
102
102
103
103
 
 
PART IV
 
103
107
 
 
 
 
 
 

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Index
PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

There are a number of risks, uncertainties, and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-K. Such risks, uncertainties and other important factors include, among others, the risks, uncertainties and factors set forth under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-K.  Moreover, we operate in an evolving environment.  New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.  See “Item 1A. Risk Factors” for more information.

ITEM 1. BUSINESS

Gardner Denver Holdings, Inc. is a holding company whose operating subsidiaries are Gardner Denver, Inc. (“GDI”) and certain of GDI’s subsidiaries.  The holding company and its consolidated subsidiaries are collectively referred to in this Annual Report as “we,” “us,” “our,” “ourselves,” “Company,” or “Gardner Denver.”

Service marks, trademarks and trade names, and related designs or logotypes owned by Gardner Denver or its subsidiaries are shown in italics.

Transaction with Ingersoll Rand

In April 2019, the Board of Directors of Gardner Denver approved a merger that will combine Gardner Denver with the industrial segment of Ingersoll-Rand plc (“Ingersoll Rand”) (the “Merger”).  To facilitate this Merger, Ingersoll Rand will cause specific assets and liabilities of its industrial segment to be transferred to Ingersoll-Rand U.S. HoldCo, Inc. (“Ingersoll Rand Industrial”), a newly formed wholly-owned subsidiary of Ingersoll Rand, and distribute the shares of common stock of Ingersoll Rand Industrial to Ingersoll Rand’s shareholders.  Charm Merger Sub Inc., (“Merger Sub”), which is a newly formed wholly-owned subsidiary of Gardner Denver, will be merged with and into Ingersoll Rand Industrial, with Ingersoll Rand Industrial surviving such merger as a wholly-owned subsidiary of Gardner Denver.

Pursuant to the definitive agreement Gardner Denver entered into with Ingersoll Rand, Ingersoll Rand Industrial and Merger Sub with respect to the Merger (the “Merger Agreement”), Gardner Denver will issue an aggregate number of shares of its common stock to Ingersoll Rand Industrial stockholders which will result in Ingersoll Rand Industrial stockholders owning approximately, but not less than, 50.1% of the shares of Gardner Denver common stock outstanding on a fully-diluted basis upon the closing of the Merger.  The number of shares to be issued to Ingersoll Rand Industrial stockholders is based on the exchange ratio set forth in the Merger Agreement.  In addition, Ingersoll Rand will receive approximately $1.9 billion in cash from Ingersoll Rand Industrial that will be funded by newly-issued debt that is expected to be deemed issued under the existing Senior Secured Credit Facilities of Gardner Denver upon consummation of the merger.  The merger is expected to close on February 29, 2020.

The Merger will result in Gardner Denver acquiring Ingersoll Rand Industrial, which includes compressed air and gas systems and services, power tools, material handling systems, fluid management systems as well as Club Car golf, utility and consumer low-speed vehicles.  Following the Merger, the combined company is expected to be renamed and operate under the Ingersoll Rand name and its common stock is expected to be listed on the New York Stock Exchange under Ingersoll Rand’s existing ticker symbol “IR.”

See Note 3 “Business Combinations” to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to the transaction with Ingersoll Rand.

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Our Company

We are a leading global provider of mission-critical flow control and compression equipment and associated aftermarket parts, consumables and services, which we sell across multiple attractive end-markets within the industrial, energy and medical industries. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under a collection of premier, market-leading brands, including Gardner Denver, CompAir, Nash, Emco Wheaton, Robuschi, Elmo Rietschle and Thomas, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service.

These attributes, along with over 155 years of engineering heritage, generate strong brand loyalty for our products and foster long-standing customer relationships, which we believe have resulted in leading market positions within each of our operating segments. We have sales in more than 175 countries and our diverse customer base utilizes our products across a wide array of end-markets, including industrial manufacturing, energy (with particular exposure to the North American upstream land-based market), transportation, medical and laboratory sciences, food and beverage packaging and chemical processing.

Our products and services are critical to the processes and systems in which they are utilized, which are often complex and function in harsh conditions where the cost of failure or downtime is high. However, our products typically represent only a small portion of the costs of the overall systems or functions that they support. As a result, our customers place a high value on our application expertise, product reliability and the responsiveness of our service. To support our customers and market presence, we maintain significant global scale with 38 key manufacturing facilities, more than 30 complementary service and repair centers across six continents and approximately 6,600 employees worldwide as of December 31, 2019.

The process-critical nature of our product applications, coupled with the standard wear and tear replacement cycles associated with the usage of our products, generates opportunities to support customers with our broad portfolio of aftermarket parts, consumables and services. Customers place a high value on minimizing any time their operations are offline. As a result, the availability of replacement parts, consumables and our repair and support services are key components of our value proposition. Our large installed base of products provides a recurring revenue stream through our aftermarket parts, consumables and services offerings. As a result, our aftermarket revenue is significant, representing 38% of total Company revenue and approximately 42% of our combined Industrials and Energy segments’ revenue in 2019.

Our Segments

Our business is comprised of three strategic segments.

Industrials

We design, manufacture, market and service a broad range of air compression, vacuum and blower products, including associated aftermarket parts, consumables and services, across a wide array of technologies and applications for use in diverse end-markets. Compressors are used to increase the pressure of air or gas, vacuum products are used to remove air or gas in order to reduce the pressure below atmospheric levels, and blower products are used to produce a high volume of air or gas at low pressure. Almost every manufacturing and industrial facility, and many service and process industry applications, use air compression, vacuum and blower products in a variety of process-critical applications such as the operation of industrial air tools, vacuum packaging of food products and aeration of waste water, among others.

We offer one of the broadest portfolios of compression, vacuum and blower technology in our markets which we believe, alongside our geographic footprint, allows us to provide differentiated service to our customers globally and maintain leading positions in many of our end-markets. Our compression products cover the full range of technologies, including rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Our vacuum products and blowers also cover the full technology spectrum; vacuum technologies include side channel, liquid ring, claw vacuum, screw, turbo and rotary vane vacuum pumps among others, while blower technologies include rotary lobe blowers, screw, claw and vane, side channel and radial blowers. The breadth and depth of our product offering creates incremental business opportunities by allowing us to cross-sell our full product portfolio and uniquely address customers’ needs in one complete solution.

We sell our industrial products through an integrated network of direct sales representatives and independent distributors, which is strategically tailored to meet the dynamics of each target geography or end-market. Our large installed base also provides for a significant stream of recurring aftermarket revenue. For example, on average, the useful life of a compressor is between 10 and 12 years. However, a customer typically services the compressor at regular intervals, starting within the first two years of purchase and continuing throughout the life of the product. The cumulative aftermarket revenue generated by a compressor over the product’s life cycle will typically exceed its original cost.

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Industrial air compressors represent the largest market in which we compete in our Industrials segment and is a product category for which we believe there is significant potential to drive increased sales of our aftermarket parts, consumables and services. We use our direct salesforce and strong distributor relationships, the majority of which are exclusive to our business for the products that we sell through them, to sell our broad portfolio of aftermarket parts, consumables and services. Within our Industrials segment, we primarily sell through the Gardner Denver, CompAir, Elmo Rietschle and Robuschi brands, as well as other leading brand names.

Energy

We design, manufacture, market and service a diverse range of positive displacement pumps, liquid ring vacuum pumps, compressors and integrated systems, engineered fluid loading and transfer equipment and associated aftermarket parts, consumables and services. The highly engineered products offered by our Energy segment serve customers across upstream, midstream and downstream energy markets, as well as petrochemical processing, transportation and general industrial sectors. We are one of the largest suppliers of equipment and associated aftermarket parts, consumables and services for the energy market applications that we serve.

Our positive displacement pumps are fit-for-purpose to meet the demands and challenges of modern unconventional drilling and hydraulic fracturing activity, particularly in the major basins and shale plays in the North American land market. Our positive displacement pump offering includes mission-critical oil and gas drilling pumps, frac pumps and well servicing pumps, in addition to sales of associated consumables used in the operation of our pumps and aftermarket parts, consumables and services. The products we sell into upstream energy applications are highly aftermarket-intensive, and so we support these products in the field with one of the industry’s most comprehensive service networks, which encompasses locations across all major basins and shale plays in the North American land market. This service network is critical to serving our customers and, by supporting them in the field, to generating demand for new original equipment sales and aftermarket parts, consumables, service and repair sales which in aggregate are often multiples of the cost of the original equipment.

Our liquid ring vacuum pumps and compressors are highly engineered products specifically designed for continuous duty in harsh environments to serve a wide range of applications, including oil and gas refining and processing, mining, chemical processing, petrochemical and industrial applications. Our liquid ring technology utilizes a service liquid to evacuate or compress gas by forming a rotating ring of liquid that acts like a piston to deliver an uninterrupted flow of gas without pulsation. In addition, our engineered fluid loading and transfer equipment and systems ensure the safe and efficient transportation and transfer of petroleum products as well as certain other liquid commodity products to serve a wide range of industries. Similar to our positive displacement pumps business, we complement these products with a broad array of aftermarket parts, service and repair capabilities by leveraging our global network of manufacturing and service locations to meet the diverse needs of our customers. Within our Energy segment, we primarily sell through the Gardner Denver, Nash and Emco Wheaton brands, as well as other leading brand names.

Medical

We design, manufacture and market a broad range of highly specialized gas, liquid and precision syringe pumps and compressors that are specified by medical and laboratory equipment suppliers and integrated into their final equipment for use in applications, such as oxygen therapy, blood dialysis, patient monitoring, laboratory sterilization and wound treatment, among others. We offer a comprehensive product portfolio across a breadth of technologies to address the medical and laboratory sciences pump and fluid handling industry, as well as a range of end-use vacuum products for laboratory science applications.  Our product performance, quality and long-term reliability are often mission-critical in healthcare applications. We are one of the largest product suppliers in the medical markets we serve and have long-standing customer relationships with industry-leading medical and laboratory equipment providers. Additionally, many of our Medical segment gas and liquid pumps are also used in other technology applications beyond the medical and laboratory sciences. Within our Medical segment, we primarily sell through the Thomas brand, as well as other leading brand names.

Our Industries and Products

We operate in the global markets for flow control and air compression products for the industrial, energy and medical industries. Our highly engineered products and proprietary technologies are focused on serving specialized applications within these attractive and growing industries.

Industrials

Our Industrials segment designs, manufactures, markets and services a broad range of air compression, vacuum and blower products across a wide array of technologies. Compression, vacuum and blower products are used in a wide spectrum of applications in nearly all manufacturing and industrial facilities and many service and process industries in a variety of end-markets, including infrastructure, construction, transportation, food and beverage packaging and chemical processing.

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Compression Products

Sales to industrial end-markets include industrial air compression products, as well as associated aftermarket parts, consumables and services. Industrial air compressors compress air to create pressure to power machinery, industrial tools, material handling systems and automated equipment. Compressed air is also used in applications as diversified as snow making and fish farming, on high-speed trains and in hospitals. Compressors can be either stationary or portable, depending on the requirements of the application or customer.

We focus on five basic types of air compression technologies: rotary screw, reciprocating piston, scroll, rotary vane and centrifugal compressors. Rotary screw compressors are a newer technology than reciprocating compressors and exhibit better suitability for continuous processes due to a more compact size, less maintenance and better noise profile. We believe our reciprocating piston compressors provide one of the broadest ranges of pressures in the market and are supported by increasing demand across wide-ranging attractive end-markets. Scroll compressors are most commonly seen where less oil-free air is needed, and is most commonly used in medical and food applications where the need for pure, clean and precise air is of great importance. Rotary vane compressors feature high efficiency, compact compression technology and can be found throughout all sectors of industry, including automotive, food and beverage, energy and manufacturing with specialist solutions within transit, gas and snow making. Centrifugal compressors are most effective when in applications that demand larger quantities of oil-free air and are utilized across a wide range of industries.

Vacuum Products

Industrial vacuum products are integral to manufacturing processes in applications for packaging, pneumatic conveying, drying, holding / lifting, distillation, evacuation, forming / pressing, removal and coating. Within each of these processes are a multitude of sub-applications. As an example of one such end-process, within packaging, a vacuum will be used on blister packaging, foil handling, labeling, carton erection, stacking and palletizing (placing, stacking or transporting goods on pallets), as well as central vacuum supply for entire packaging departments. Management believes that we hold a leading position in our addressable portion of the global vacuum products market.

We focus on five basic types of vacuum technologies: side channel, liquid ring, claw vacuum, screw and rotary vane vacuum pumps. Side channel vacuum pumps are used for conveying gases and gas-air mixtures in a variety of applications, including laser printers, packaging, soil treatment, textiles and food and beverage products. Liquid ring vacuum pumps are used for extreme conditions, which prevail in humid and wet processes across ceramics, environmental, medical and plastics applications. Claw vacuum pumps efficiently and economically generate contact-free vacuum for chemical, environmental and packaging applications. Screw vacuum pumps are a dry running technology used to reduce the carbon footprint and life cycle costs in drying and packaging applications. Rotary vane vacuum pumps are used for vacuum and combined pressure and vacuum applications in the environmental, woodworking, packaging and food and beverage end-markets.

Blower Products

Blower products are used for conveying high volumes of air and gas at various flow rates and at low pressures, and are utilized in a broad range of industrial and environmental applications, including waste water aeration, biogas upgrading and conveying, pneumatic transport and dehydrating applications for food and beverage, cement, pharmaceutical, petrochemical and mobile industrial applications. We also design, manufacture, market and service frac sand blowers within our Industrials segment. In many cases, blowers are a core component for the operation of the entire end-users’ systems. Management believes that we hold a leading position in our addressable portion of the global blower products market.

We focus on several key technologies within blower products: rotary lobe, screw, claw and vane, turbo, side channel and radial blowers. Rotary lobe blowers, screw blowers and claw and vane blowers are positive displacement technologies that have the ability to consistently move the same volume of gas or air and vary the volume flow according to the speed of the machine itself enabling it to adapt the flow condition in a flexible manner despite pressure in the system. Turbo blowers and side channel and radial blowers are dynamic technologies that have the ability to accelerate gas or air through an impeller and transform their kinetic energy at the discharge with some limitation on flexibility.

Energy

Our Energy segment designs, manufactures, markets and services a diverse range of positive displacement pumps, liquid ring vacuum pumps, compressors and integrated systems, engineered fluid loading and transfer equipment and associated aftermarket parts, consumables and services for a number of attractive, growing market sectors with energy exposure, spanning upstream, midstream, downstream and petrochemical applications. The high cost of failure in these applications makes quality and reliability key purchase criteria for end-users and drives demand for our highly engineered and differentiated products.

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Upstream

Through the manufacture and aftermarket service of pumps and manufacture of associated aftermarket parts and consumables used in drilling, hydraulic fracturing and well servicing applications, our Energy segment is well-positioned to capitalize on an upstream recovery, particularly in the North American land-based market, where our customers include market-leading hydraulic fracturing (also known as pressure pumping) and contract drilling service companies, as well as certain other types of well service companies. Sales to upstream energy end-markets consist of positive displacement pumps and associated aftermarket parts, most notably fluid ends, as well as consumables and services.

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Positive displacement pumps in the upstream energy end-market primarily move fluid to assist in drilling, hydraulic fracturing and well servicing applications. The majority of positive displacement pumps we sell are frac pumps, which experience significant service intensity during use in the field and, as such, typically have useful life spans of approximately four to six years before needing to be replaced. During that useful life, such pumps will need to receive intermittent repairs as well as major overhauls. In addition, we also sell positive displacement pumps that are used in drilling and well servicing applications.

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Fluid ends are a key component of positive displacement pumps that generate the pumping action, along with other parts, such as plungers, and consumables, such as valves, seats and packing, which pressurizes the fluid, in the case of drilling or well servicing applications, or fluid and proppant mixture, in the case of hydraulic fracturing, and propels such fluid or mixture out of the pump and into a series of flow lines that distribute the fluid or mixture into the well. Fluid ends are incorporated in original equipment pumps, and due to the highly corrosive nature of the fluids and the abrasive nature of the proppants used in hydraulic fracturing operations, need to be frequently replaced.

The level of profitability at which new wells can be drilled is a primary driver of drilling and completions activities, including hydraulic fracturing. Thus, demand for our Energy and Industrials products exposed to the upstream energy industry is driven by the prices of crude oil and natural gas, and the intensity and activity levels of drilling and hydraulic fracturing.

Midstream and Downstream

Sales to midstream and downstream energy end-markets consist of liquid ring vacuum pumps and compressors and integrated systems, engineered fluid loading and transfer equipment and associated aftermarket parts and services. Our downstream energy business contributes a larger share of revenue and profitability than our midstream energy business.

We focus on two basic types of midstream and downstream energy equipment: fluid transfer equipment and liquid ring vacuum pumps and compressors, which are employed in the midstream and downstream markets, respectively.

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Fluid transfer equipment, including fluid loading systems, tank truck and fleet fueling products and couplers: Fluid loading systems are used in the transfer and loading of hydrocarbons and certain other liquid commodity products in marine and land applications. Tank truck and fleet fueling products allow for safe transfer of liquid products without spillage or contamination while safeguarding the operator and the environment. Operators use Dry-Break® technology couplers and adapters to provide a secure connection for the transfer of liquid products without spillage or contamination while safeguarding the operator and the environment.

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Liquid ring vacuum pumps and compressors: Liquid ring vacuum pumps and compressors are designed for continuous duty in harsh environments, including vapor and flare gas recovery equipment (which recovers and compresses certain polluting gases to transmit them for further processing), primarily in downstream applications. The liquid ring technology utilizes a service liquid, typically water, oil or fuel, to evacuate or compress gas by forming a rotating ring of liquid that follows the contour of the body of the pump or compressor and acts like a piston to deliver an uninterrupted flow of gas without pulsation.

Petrochemical

Our Energy segment is positioned to capitalize on the large and growing petrochemical industry.  Sales to petrochemical end-markets consist of vacuum and compression process systems, both of which are used in harsh, continuous-duty applications.  Demand for our petrochemical industry products correlates with growth in the development of new petrochemical plants as well as activity levels therein, which drive demand for aftermarket parts and services on our market-leading installed base of equipment.

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Medical

The Medical segment designs, manufactures and markets a broad range of flow control products for the durable medical equipment, laboratory vacuum and automated liquid handling end-markets. Key technologies include gas, liquid and precision syringe pumps and automated liquid handling systems.

Our gas pumps are used for a wide range of applications, such as aspirators, blood analyzers, blood pressure monitors, compression therapy, dental carts, dialysis machines, gas monitors and ventilators. Gas pumps transfer and compress gases and generate vacuum to enable precise flow conditions.  Our liquid pump products are primarily used to meter and transfer both neutral and chemically aggressive fluids and our automated liquid handling products, which includes syringe pumps, systems and accessories that are integrated into large scale automated liquid handling systems primarily for clinical, pharmaceutical and environmental analyses.

Our products are also used in the laboratory vacuum equipment space which includes end-use chemically resistant devices used in research and commercial laboratories.

Customers in the durable medical pump end-market and the automated liquid handling end-market develop and manufacture equipment used in a highly regulated environment requiring highly specialized technologies. As a result, relationships with customers are built based on a supplier’s long-term reputation and expertise and deep involvement throughout a product’s evolution, from concept to long-term commercialization. Customers value suppliers that can provide global research and development, regulatory and manufacturing support, as well as sales footprint and expertise to foster close relationships with key decision makers at their company. Combined with the long product life cycle in the regulated medical device space, these factors create a strong, recurring base of business. As a leading pump manufacturer in these markets, we have established a history of innovation that enables us to work closely with our customers to create highly customized flow control solutions for their unique applications. These products are mission-critical in the ultimate device in which they are deployed and remain a key component over the entire life cycle of the end products. The regulated market structure and nature of long-tenured customer relationships enables pump manufacturers to have a highly visible, recurring revenue stream from key customers.

Competition

Industrials

The industrial end-markets we serve are competitive, with an increasing focus on product quality, performance, energy efficiency, customer service and local presence. Although there are several large manufacturers of compression, vacuum and blower products, the marketplace for these products remains highly fragmented due to the wide variety of product technologies, applications and selling channels. Our principal competitors in sales of compression, vacuum and blower products in our Industrials segment include Atlas Copco AB, Ingersoll-Rand plc, Colfax Corp., Flowserve Corporation, IDEX Corporation and Kaeser Compressors, Inc.

Energy

Across our product lines exposed to the energy industry, the competitive landscape is specific to the end-markets served. Our principal competitor for drilling pumps is National Oilwell Varco Inc., and for frac pumps is The Weir Group plc. Within upstream energy, we additionally compete with certain smaller, regional manufacturers of pumps and aftermarket parts, although these are not direct competitors for most of our products. Our principal competitors in sales of fluid transfer equipment include Dover Corporation, SVT GmbH and TechnipFMC plc. Our principal competitors in the sale of liquid ring pumps and compressors are Flowserve Corporation and Busch-Holding GmbH.

Medical

Competition in the medical pump market is primarily based on product quality and performance, as most products must be qualified by the customer for a particular use. Further, there is an increasing demand for more efficient healthcare solutions, which is driving the adoption of premium and high performance systems. Our primary competitors in medical pumps include IDEX Corporation, Watson-Marlow, Inc., KNF Neuberger, Inc. and Thermo Fisher Scientific, as well as other regional and local manufacturers.

Customers and Customer Service

We consider superior customer service to be one of our primary pillars of future success and view it as being built upon a foundation of critical application expertise, an industry leading range of compressor, pump, vacuum and blower products, a global manufacturing and sales presence and a long-standing reputation for quality and reliability. Intense customer focus is at the center of our vision of becoming the industry’s first choice for innovative and application-critical flow control and compression equipment, services and solutions. We strive to collaborate with our customers and become an essential part of their engineering process by drawing on our deep industry and application engineering experience to develop best-in-class products that are critical to the processes and systems in which they operate.

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We have established strong and long-standing customer relationships with numerous industry leaders. We sell our products directly to end-use customers and to certain OEMs, and indirectly through independent distributors and sales representatives. Our Energy and Medical products are primarily sold directly to end-use customers and OEMs, while approximately 50% of our Industrials sales in 2019 were fulfilled through independent distributors and sales representatives.

We use a direct sales force to serve end-use customers and OEMs because these customers typically require higher levels of technical assistance, more coordinated shipment scheduling and more complex product service than customers that purchase through distributors. We have distribution centers and warehouses that stock parts, accessories and certain products to provide adequate and timely availability.

In addition to our direct sales force, we are also committed to developing and supporting our global network of over 1,000 distributors and representatives who we believe provide us with a competitive advantage in the markets and industries we serve. These distributors maintain an inventory of complete units and parts and provide aftermarket services to end-users. While most distributors provide a broad range of products from different suppliers, we view our distributors as exclusive at the product category level (e.g. compressor, vacuum and blower). For example, a distributor may exclusively carry our compressor technologies, and also source additional components of the broader industrial system in which those products operate from other suppliers. Our service personnel and product engineers provide the distributors’ service representatives with technical assistance and field training, particularly with respect to installation and repair of equipment. We also provide our distributors with sales and product literature, advertising and sales promotions, order-entry and tracking systems and an annual restocking program. Furthermore, we participate in major trade shows and directly market our offerings to generate sales leads and support the distributors’ sales personnel.

Our customer base is diverse, and we did not have any customers that individually provided more than 3% of 2019 consolidated revenues.

Patents, Trademarks, and Other Intellectual Property

We rely on a combination of intellectual property rights, including patents, trademarks, copyrights, trade secrets and contractual provisions to protect our intellectual property. While in the aggregate our more than 600 patents and our trademarks are of considerable importance to the manufacture and marketing of many of our products, we believe that the success of our business depends more on the technical competence, creativity and marketing abilities of our employees than on any individual patent or trademark, and therefore we do not consider any single patent or trademark, group of patents or trademarks, copyright or trade secret to be material to our business as a whole, except for the Gardner Denver trademark. We have registered our trademarks in the countries we deem necessary or in our best interest. We also rely upon trade secret protection for our confidential and proprietary information and techniques, and we routinely enter into confidentiality agreements with our employees as well as our suppliers and other third parties receiving such information.

Pursuant to trademark license agreements, Cooper Industries has exclusive rights to use the Gardner Denver trademark for certain power tools and their components, meaning that we are prevented from using our mark in connection with those products.

Raw Materials and Suppliers

We purchase a wide variety of raw materials to manufacture our products. Our most significant commodity exposures are to cast iron, aluminum and steel. Additionally, we purchase a large number of motors and, therefore, are also exposed to changes in the price of copper, which is a primary component of motors. Most of our raw materials are generally available from a number of suppliers. We have a limited number of long-term contracts with some suppliers of key components, but we believe that our sources of raw materials and components are reliable and adequate for our needs. We use single sources of supply for certain castings, motors and other select engineered components. A disruption in deliveries from a given supplier could therefore have an adverse effect on our ability to meet commitments to our customers. Nevertheless, we believe that we have appropriately balanced this risk against the cost of maintaining a greater number of suppliers. Moreover, we have sought, and will continue to seek, cost reductions in purchases of materials and supplies by consolidating purchases and pursuing alternate sources of supply.

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Employees

As of December 31, 2019, we had approximately 6,600 employees of which approximately 1,900 are located in the United States. Of those employees located outside of the United States, a significant portion are represented by works councils and labor unions, and of those employees located in the United States, approximately 200 are represented by labor unions. We believe that our current relations with employees are satisfactory.

Environmental Matters

We are subject to numerous federal, state, local and foreign laws and regulations relating to the storage, handling, emission and disposal of materials and discharge of materials into the environment. We believe that our existing environmental control procedures are adequate and we have no current plans for substantial capital expenditures in this area. We have an environmental policy that confirms our commitment to a clean environment and compliance with environmental laws. We have an active environmental management program aimed at complying with existing environmental regulations and reducing the generation of pollutants in the manufacturing processes. We are also subject to laws concerning the cleanup of hazardous substances and wastes, such as the U.S. federal “Superfund” and similar state laws that impose liability for cleanup of certain waste sites and for related natural resource damages. We have been identified as a potentially responsible party with respect to several sites designated for cleanup under the “Superfund” or similar state laws. See “Item 3. Legal Proceedings.”

Corporate History

Gardner Denver Holdings, Inc. was incorporated in Delaware on March 1, 2013. Through our predecessors, Gardner Denver was founded in Quincy, Illinois in 1859.  From August 1943 until we were acquired by an affiliate of Kohlberg, Kravis and Roberts & Co. L.P. (“KKR”) on July 30, 2013 (the “KKR Transaction”), we operated as a public company.  We returned to being a public company when we completed our initial public offering in May 2017.  Our common stock is listed on the New York Stock Exchange under the symbol “GDI” and our principal executive offices are located at 222 East Erie Street, Suite 500, Milwaukee, Wisconsin 53202.

Where You Can Find More Information

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”).  Our SEC filings are available to the public over the internet at the SEC’s website at http://www.sec.gov. Our SEC filings are also available on our website at http://www.gardnerdenver.com as soon as reasonably practicable after they are filed with or furnished to the SEC.

We maintain an internet site at http://www.gardnerdenver.com. From time to time, we may use our website as a distribution channel of material company information. Financial and other important information regarding us is routinely accessible through and posted on our website at www.investors.gardnerdenver.com. In addition, you may automatically receive email alerts and other information about us when you enroll your email address by visiting the Email Alerts section at www.investors.gardnerdenver.com. Our website and the information contained on or connected to that site are not incorporated into this Annual Report on Form 10-K.

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ITEM 1A. RISK FACTORS

The following risk factors as well as the other information included in this Form 10-K, including “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto should be carefully considered.  Any of the following risks could materially and adversely affect our business, financial condition or results of operations.  The selected risks described below, however, are not the only risks facing us.  Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations.

Risks Related to Our Pending Merger with Ingersoll Rand Industrial

The pending Merger may have a material adverse effect on us whether or not it is completed.

On April 30, 2019, we entered into the Merger Agreement, pursuant to which, on the terms and subject to the conditions set forth in the Merger Agreement, Ingersoll Rand will separate Ingersoll Rand Industrial and then combine it with the Company. Under the terms of the Merger Agreement, which has been unanimously approved by the Boards of Directors of Ingersoll Rand and the Company, at the time of close, Ingersoll Rand will receive $1.9 billion in cash from Ingersoll Rand Industrial that will be funded by newly-issued debt assumed by the Company in the Merger. Upon close of the transaction, existing Ingersoll Rand shareholders will receive 50.1% of the shares of the Company on a fully diluted basis.

The Merger and the preparation for the integration of our business with Ingersoll Rand Industrial has placed a significant burden on management and internal resources. In addition, if the proposed Merger is completed, the anticipated benefits of the Merger may not be realized fully or at all and may take longer to realize than expected. The integration process will be complex, costly and time-consuming, which could adversely affect our businesses, financial results and financial condition. Even if we are able to integrate Ingersoll Rand Industrial successfully, the Merger may not result in the realization of the full benefits of anticipated cost synergies, innovation, operational efficiencies and incremental revenue growth opportunities that we expect to realize or these benefits may not be achieved within a reasonable period of time. Moreover, the combined company may be unable to implement its business strategy or retain and hire key personnel.

We currently anticipate that we will close the Merger on February 29, 2020, but we cannot be certain that the customary closing conditions will be satisfied or waived on or prior to that date. We may be required to pay to Ingersoll Rand a termination fee of approximately $176 million if the Merger Agreement is terminated under certain circumstances. See also “Risks Related to Our Business—Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.”

Risks Related to Our Business

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

Our financial performance depends, in large part, on conditions in the markets we serve and on the general condition of the global economy, which impacts these markets. Any sustained weakness in demand for our products and services resulting from a contraction or uncertainty in the global economy could adversely impact our revenues and profitability.

In addition, we believe that many of our suppliers and customers access global credit markets to provide liquidity, and in some cases, utilize external financing to purchase products or finance operations. If our customers are unable to access credit markets or lack liquidity, it may impact customer demand for our products and services.

Furthermore, our products are sold in many industries, some of which are cyclical and may experience periodic contractions.  Cyclical weakness in the industries that we serve could adversely affect demand for our products and affect our profitability and financial performance.

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

For the year ended December 31, 2019, approximately 59% of our revenues were from customers in countries outside of the United States.  We have manufacturing facilities in Germany, the United Kingdom, China, Finland, Italy, India and other countries.  We intend to continue to expand our international operations to the extent that suitable opportunities become available. Non-U.S. operations and United States export sales could be adversely affected as a result of: political or economic instability in certain countries; differences in foreign laws, including increased difficulties in protecting intellectual property and uncertainty in enforcement of contract rights; credit risks; currency fluctuations, in particular, changes in currency exchange rates between the U.S. dollar, Euro, British Pound and the Chinese Renminbi; exchange controls; changes in and uncertainties with respect to tariffs and import/export trade restrictions (including changes in United States trade policy toward other countries, such as the imposition of tariffs and the resulting consequences), as well as other changes in political policy in the United States, China, the U.K. and certain European countries (including the impacts of the U.K.’s national referendum resulting in the U.K.’s withdrawal from the European Union); royalty and tax increases; nationalization of private enterprises; civil unrest and protests, strikes, acts of terrorism, war or other armed conflict; shipping products during times of crisis or war; and other factors inherent in foreign operations.

In addition, our expansion into new countries may require significant resources and the efforts and attention of our management and other personnel, which will divert resources from our existing business operations. As we expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these risks associated with our international operations.

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

Demand for certain products of our Energy segment, particularly in the upstream energy market, depends on the level of activity in oil and gas exploration, development and production, and is primarily tied to the number of working and available drilling rigs, number of wells those rigs drill annually, the amount of hydraulic fracturing horsepower required on average to fracture each well and, ultimately, oil and natural gas prices overall. The energy market is volatile as the worldwide demand for oil and natural gas fluctuates.

Generally, when worldwide demand or our customers’ expectations of future prices for these commodities are depressed, the demand for our products used in drilling and recovery applications is reduced. Other factors, including availability of quality drilling prospects, exploration success, relative production costs and political and regulatory environments are also expected to affect the demand for our products. Worldwide military, political and economic events have in the past contributed to oil and gas price volatility and are likely to do so in the future.  A change in economic conditions also puts pressure on our receivables and collections.

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Accordingly, our operating results for any particular period are not necessarily indicative of the operating results for any future period as the markets for our products have historically experienced volatility. In particular, orders in the Energy segment have historically corresponded to demand for oil and gas and petrochemical products and have been influenced by prices and inventory levels for oil and natural gas, rig count, number of wells those rigs drill annually, the amount of hydraulic fracturing horsepower required on average to fracture each well and other economic factors which we cannot reasonably predict. The Energy segment generated approximately 35% of our consolidated revenues for the year ended December 31, 2019.

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.

We conduct our business in many different currencies. A significant portion of our revenue, approximately 56% for the year ended December 31, 2019, is denominated in currencies other than the U.S. dollar. Accordingly, currency exchange rates, and in particular unfavorable movement in the exchange rates between U.S. dollars and Euros, British Pounds and Chinese Renminbi, affect our operating results. The effects of exchange rate fluctuations on our future operating results are unpredictable because of the number of currencies in which we do business and the potential volatility of exchange rates. We are also subject to the risks of currency controls and devaluations. Although historically not significant, if currency controls were enacted in countries where the Company generates significant cash balances, these controls may limit our ability to convert currencies into U.S. dollars or other currencies, as needed, or to pay dividends or make other payments from funds held by subsidiaries in the countries imposing such controls, which could adversely affect our liquidity. Currency devaluations could also negatively affect our operating margins 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.

Oil and natural gas extracted from unconventional sources, such as shale, tight sands and coal bed methane, frequently requires hydraulic fracturing. Recent initiatives to study, regulate or otherwise restrict hydraulic fracturing and processes on which it relies, such as water disposal, as well as litigation over hydraulic fracturing impacts, could adversely affect some of our customers and their demand for our products, which could have a material adverse effect on our business, results of operations and financial condition.

For example, although hydraulic fracturing currently is generally exempt from regulation under the U.S. Safe Drinking Water Act’s (“SDWA”) Underground Injection Control program and is typically regulated by state oil and natural gas commissions or similar agencies, several federal agencies have asserted regulatory authority over certain aspects of the process. These include, among others, a number of regulations issued and other steps taken by the U.S. Environmental Protection Agency (“EPA”) over the last five years, including its New Source Performance Standards issued in 2012, its June 2016 rules establishing new emissions standards for methane and additional standards for volatile organic compounds from certain new, modified and reconstructed equipment and processes in the oil and natural gas source category and its June 2016 rule prohibiting the discharge of wastewater from onshore unconventional oil and natural gas extraction facilities to publicly owned wastewater treatment plants; and the federal Bureau of Land Management (“BLM”) rule in March 2015 that established new or more stringent standards relating to hydraulic fracturing on federal and American Indian lands (which was the subject of litigation and which the BLM rescinded in December 2017). While the EPA in the Trump administration  and the Trump administration more generally have indicated their interest in scaling back or rescinding regulations that inhibit the development of the U.S. oil and gas industry and have taken steps to do so, it is difficult to predict the extent to which such policies will be implemented or the outcome of litigation challenging such implementation, such as the suit the State of California’s attorney general filed in January 2018 challenging the BLM’s rescission of its March 2015 rule referred to above; in July 2018, the federal district judge in the Northern District of California, where the suit was filed, denied motions by the BLM and several petroleum industry groups to transfer the challenge to Wyoming.

Moreover, some states and local governments have adopted, and other governmental entities are considering adopting, regulations that could impose more stringent requirements on hydraulic fracturing operations. For example, Texas, Colorado and North Dakota among others have adopted regulations that impose new or more stringent permitting, disclosure, disposal and well construction requirements on hydraulic fracturing operations. States could also elect to prohibit high volume hydraulic fracturing altogether, following the approach taken by the State of New York in 2015. Local land use restrictions, such as city ordinances, may restrict drilling in general and hydraulic fracturing in particular. Some state and federal regulatory agencies have also recently focused on a connection between the operation of injection wells used for oil and natural gas waste disposal and seismic activity. Similar concerns have been raised that hydraulic fracturing may also contribute to seismic activity. In March 2016, the United States Geological Survey identified six states with the most significant hazards from induced seismicity, including Oklahoma, Kansas, Texas, Colorado, New Mexico and Arkansas. In light of these concerns, some state regulatory agencies have modified their regulations or issued orders to address induced seismicity. For example, in December 2016, the Oklahoma Corporation Commission’s Oil and Gas Conservation Division (the “OCC Division”) and the Oklahoma Geologic Survey released well completion seismicity guidance, which requires operators to take certain prescriptive actions, including mitigation, following anomalous seismic activity within 1.25 miles of hydraulic fracturing operations. In February 2017, the OCC Division issued an order limiting future increases in the volume of oil and natural gas wastewater injected into the ground in an effort to reduce earthquakes in the state, and it announced further requirements (involving seismic monitoring) in February 2018. Ongoing lawsuits have also alleged that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. Increased regulation and attention given to induced seismicity could lead to greater opposition to, and litigation concerning, oil and natural gas activities utilizing hydraulic fracturing or injection wells for waste disposal. The adoption of more stringent regulations regarding hydraulic fracturing and the outcome of litigation over hydraulic fracturing could adversely affect some of our customers and their demand for our products, which could have a material adverse effect on our business, results of operations and financial condition.

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

We actively compete with many companies producing similar products. Depending on the particular product and application, we experience competition based on a number of factors, including price, quality, performance and availability. We compete against many companies, including divisions of larger companies with greater financial resources than we possess. As a result, these competitors may be both domestically and internationally better able to withstand a change in conditions within the markets in which we compete and throughout the global economy as a whole.

In addition, our ability to compete effectively depends on how successfully we anticipate and respond to various competitive factors, including new competitors entering our markets, new products and services that may be introduced by competitors, changes in customer preferences, pricing pressures and new government regulations. If we are unable to anticipate our competitors’ development of new products and services, identify customer needs and preferences on a timely basis, or successfully introduce new products and services or modify existing products and service offerings in response to such competitive factors, we could lose customers to competitors. If we cannot compete successfully, our sales and operating results could be materially and adversely affected.

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 primary raw materials, directly and indirectly, are cast iron, aluminum and steel. We also purchase a large number of motors and, therefore, also have exposure to changes in the price of copper, which is a primary component of motors. We have long-term contracts with only a few suppliers of key components. Consequently, we are vulnerable to fluctuations in prices and availability of such raw materials. Factors such as supply and demand, freight costs and transportation availability, inventory levels of brokers and dealers, the level of imports and general economic conditions may affect the price and availability of raw materials. In addition, we use single sources of supply for certain iron castings, motors and other select engineered components that are critical in the manufacturing of our products. From time to time in recent years, we have experienced disruptions to our supply deliveries for raw materials and component parts and may experience further supply disruptions. Any such disruption could have a material adverse effect on our ability to timely meet our commitments to customers and, therefore, 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.

We derive revenue from certain key customers, in particular with respect to our oilfield service products and services. The loss or reduction of significant contracts with any of these key customers could result in a material decrease of our future profitability and cash flows. In addition, the consolidation or vertical integration of key customers may result in the loss of certain customer contracts or impact demand or competition for our products. Any changes in such customers’ purchasing practices, or decline in such customers’ financial condition, may have a material adverse impact on our business, results of operations and financial condition. Some of our customers are significantly larger than we are, have greater financial and other resources and also have the ability to purchase products from our competitors. As a result of their size and position in the marketplace, some of our customers have significant purchasing leverage and could cause us to materially reduce the price of our products, which could have a material adverse effect on our revenue and profitability. In addition, in the petroleum product market, lost sales may be difficult to replace due to the relative concentration of the customer base. We are unable to predict what effect consolidation in our customers’ industries may have on prices, capital spending by customers, selling strategies, competitive position, our ability to retain customers or our ability to negotiate favorable agreements with customers.

Credit and counterparty risks could harm our business.

The financial condition of our customers could affect our ability to market our products or collect receivables. In addition, financial difficulties faced by our customers as a result of an adverse economic event or other market factors may lead to cancellation or delay of orders. Our customers may suffer financial difficulties that make them unable to pay for a product or solution when payments become due, or they may decide not to pay us, either as a matter of corporate decision-making or in response to changes in local laws and regulations. Although historically not material, we cannot be certain that, in the future, expenses or losses for uncollectible amounts will not have a material adverse effect on our revenues, earnings and cash flows.

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

We have acquired businesses in the past and may continue to acquire businesses or assets in the future. The acquisition and integration of businesses or assets involves a number of risks. The core risks are valuation (negotiating a fair price for the business), integration (managing the process of integrating the acquired company’s people, products, technology and other assets to extract the value and synergies projected to be realized in connection with the acquisition), regulation (obtaining necessary regulatory or other government approvals that may be necessary to complete acquisitions) and diligence (identifying undisclosed or unknown liabilities or restrictions that will be assumed in the acquisition).

In addition, acquisitions outside of the United States often involve additional or increased risks including, for example:

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managing geographically separated organizations, systems and facilities;
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integrating personnel with diverse business backgrounds and organizational cultures;
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complying with non-U.S. regulatory requirements;
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fluctuations in currency exchange rates;
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enforcement of intellectual property rights in some non-U.S. countries;
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difficulty entering new non-U.S. markets due to, among other things, consumer acceptance and business knowledge of these new markets; and
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general economic and political conditions.

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of our combined businesses and the possible loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with acquisitions and the integration of an acquired company’s operations could have an adverse effect on our business, results of operations, financial condition or prospects.

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.

We sell a significant portion of our products through independent distributors and sales representatives. We rely in large part on the orderly operation of this distribution network, which depends on adherence to shipping schedules and effective management. We conduct all of our shipping through independent third parties. Although we believe that our receiving, shipping and distribution process is efficient and well-positioned to support our operations and strategic plans, we cannot provide assurance that we have anticipated all issues or that events beyond our control, such as natural disasters or other catastrophic events, labor disagreements, acquisition of distributors by a competitor, consolidation within our distributor network or shipping problems, will not disrupt our distribution network. If complications arise within a segment of our distribution network, the remaining network may not be able to support the resulting additional distribution demands. Any of these disruptions or complications could negatively impact our revenues and costs.

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.

We continually seek ways to simplify or improve processes, eliminate excess capacity and reduce costs in all areas of our operations, which from time to time includes restructuring activities. We have implemented significant restructuring activities across our global manufacturing, sales and distribution footprint, which include workforce reductions and facility consolidations. From 2015 to 2018, we incurred restructuring charges of approximately $60.7 million across our segments. In 2019, we incurred restructuring charges of $17.1 million.  Costs of future initiatives may be material and the savings associated with them are subject to a variety of risks, including our inability to effectively eliminate duplicative back office overhead and overlapping sales personnel, rationalize manufacturing capacity, synchronize information technology systems, consolidate warehousing and distribution facilities and shift production to more economical facilities. As a result, the contemplated costs to effect these initiatives may materially exceed estimates. The initiatives we are contemplating may require consultation with various employees, labor representatives or regulators, and such consultations may influence the timing, costs and extent of expected savings and may result in the loss of skilled employees in connection with the initiatives.

Although we have considered the impact of local regulations, negotiations with employee representatives and the related costs associated with our restructuring activities, factors beyond the control of management may affect the timing of these projects and therefore affect when savings will be achieved under the plans. There can be no assurance that we will be able to successfully implement these cost savings initiatives in the time frames contemplated (or at all) or that we will realize the projected benefits of these and other restructuring and cost savings initiatives. If we are unable to implement our cost savings initiatives, our business may be adversely affected. Moreover, our continued implementation of cost savings initiatives may have a material adverse effect on our business, results of operations and financial condition.

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In addition, as we consolidate facilities and relocate manufacturing processes to lower-cost regions, our success will depend on our ability to continue to meet customer demand and maintain a high level of quality throughout the transition. Failure to adequately meet customer demand or maintain a high level or quality could have a material adverse effect on our business, results of operations and financial condition.

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

Our future success depends to a significant degree on the skills, experience and efforts of our executive management and other key personnel and their ability to provide us with uninterrupted leadership and direction. The failure to retain our executive officers and other key personnel or a failure to provide adequate succession plans could have an adverse impact. Our future success also depends on our ability to attract, retain and develop qualified personnel at all levels of the organization. The availability of highly qualified talent is limited in a number of the jurisdictions in which we operate, and the competition for talent is robust.  A failure to attract, retain and develop new qualified personnel throughout the organization could have an adverse effect on our operations and implementation of our strategic plan.

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.

The markets in which we operate are characterized by changing technologies and introductions of new products and services. Our ability to develop new products based on technological innovation can affect our competitive position and often requires the investment of significant resources. Difficulties or delays in research, development or production of new products and technologies, or failure to gain market acceptance of new products and technologies, may significantly reduce future revenues and materially and adversely affect our competitive position. We cannot assure you that we will have sufficient resources to continue to make the investment required to maintain or increase our market share or that our investments will be successful. If we do not compete successfully, our business, financial condition, results of operations and cash flows could be materially adversely affected.

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

A portion of our revenues and earnings is generated through fixed-price contracts for custom engineered products. Certain of these contracts provide for penalties or liquidated damages for failure to timely perform our obligations under the contract, or require that we, at our expense, correct and remedy to the satisfaction of the other party certain defects. Because substantially all of our custom engineered product contracts are at a fixed price, we face the risk that cost overruns, delays, penalties or liquidated damages may exceed, erode or eliminate our expected profit margin, or cause us to record a loss on our projects.

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.

Our global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies, which could result in conflicting legal requirements. These laws and regulations are complex, change frequently, have become more stringent over time and increase our cost of doing business.  These laws and regulations include import and export control, environmental, health and safety regulations, data privacy requirements, international labor laws and work councils and anti-corruption and bribery laws such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, the U.N. Convention Against Bribery and local laws prohibiting corrupt payments to government officials.

We are subject to the risk that we, our employees, our affiliated entities, contractors, agents or their respective officers, directors, employees and agents may take actions determined to be in violation of any of these laws, for which we might be held responsible, particularly as we expand our operations geographically through organic growth and acquisitions. An actual or alleged violation could result in substantial fines, sanctions, civil or criminal penalties, debarment from government contracts, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our results of operations, financial condition or strategic objectives.

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

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 and 2018, 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.  The Tax Act also established new tax laws that significantly affected 2019, 2018 and 2017.

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While we monitor proposals and other developments that would materially impact our tax burden and/or effective tax rate and investigate our options, we could still be subject to increased taxation on a going forward basis no matter what action we undertake if certain legislative proposals or regulatory changes are enacted, certain tax treaties are amended and/or our interpretation of applicable tax or other laws is challenged and determined to be incorrect.  The inability to realize any anticipated tax benefits related to our operations and corporate structure could have a material adverse impact on our results of operations, financial condition and cash flows.  See Note 1 “Summary of Significant Accounting Policies” and Note 15 “Income Taxes” to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to our accounting for income tax matters.

The inability to realize any anticipated tax benefits related to our operations and corporate structure could have a material adverse impact on our results of operations, financial condition and cash flows. Further, the specific future impacts of the Tax Act on holders of our common shares are uncertain and could in certain instances be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our common stock.

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.

As a result of the KKR Transaction, we applied the acquisition method of accounting and established a new basis of accounting on July 30, 2013. Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the tangible and identifiable intangible assets acquired, liabilities assumed and any non-controlling interest. Intangible assets, including goodwill, are assigned to our reporting units based upon their fair value at the time of acquisition. In accordance with GAAP, goodwill and indefinite-lived intangible assets are evaluated for impairment annually, or more frequently if circumstances indicate impairment may have occurred.  In 2017, we recorded an impairment charge related to other intangible assets of $1.6 million primarily within the Industrials segment. As of December 31, 2019, the net carrying value of goodwill and other intangible assets, net represented $2,542.7 million, or 55%, of our total assets. A future impairment, if any, could have a material adverse effect to our consolidated financial position or results of operations. See Note 8 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to impairment testing for goodwill and other intangible assets and the associated charges taken.

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

As of December 31, 2019, we had approximately 6,600 employees of which approximately 1,900 were located in the United States. Of those employees located outside of the United States, a significant portion are represented by works councils and labor unions, and of those employees located in the United States, approximately 200 are represented by labor unions. Although we believe that our relations with employees are satisfactory and have not experienced any material work stoppages, work stoppages have occurred, and may in the future occur, and we may not be successful in negotiating new collective bargaining agreements. In addition, negotiations with our union employees may (1) result in significant increases in our cost of labor, (2) divert management’s attention away from operating our business or (3) break down and result in the disruption of our operations. The occurrence of any of the preceding conditions could impair our ability to manufacture our products and result in increased costs and/or decreased operating results.

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

We have been named as a defendant in many asbestos and silica-related personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources, and typically we are one of approximately 25 or more named defendants. We believe that, given our financial reserves and anticipated insurance recoveries, the pending and potential future lawsuits are not likely to have a material adverse effect on our consolidated financial position, results of operations or liquidity. However, 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 our historical insurers or indemnitors, could cause a different outcome. In addition, even if any damages payable by us in any individual lawsuit are not material, the aggregate damages and related defense costs could be material and could materially adversely affect our financial condition if we were to receive an adverse judgment in a number of these lawsuits. Accordingly, the resolution of pending or future lawsuits may have a material adverse effect on our consolidated financial position, results of operations or liquidity. See Note 20 “Contingencies” to our audited consolidated financial statements included elsewhere in this Form 10-K.

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A natural disaster, catastrophe, pandemic or other event could adversely affect our operations.

Some of our operations involve risks of, among other things, property damage, which could curtail our operations. For example, if one or more of our manufacturing facilities are damaged by severe weather or any other disaster, accident, catastrophe or event, our operations could be significantly interrupted impacting our ability to produce products and sell products to customers. These interruptions might involve significant damage to, among other things, property, and repairs might take from a week or less for a minor incident to many months for a major interruption.  In addition, disruptions in our supply chain due to natural disasters, catastrophes, pandemic or other events could reduce our ability to produce products and satisfy customer demand. Similar interruptions could result from damage to production or other facilities that provide supplies or other raw materials to our plants.  Interruptions to our operations and supply chain could also result from pandemic which could adversely impact our workforce or that of our suppliers, causing disruption to the manufacturing process or our supply chain, and last a week or months depending on the severity of the disruption.

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

Our business is highly dependent on financial, accounting and other data-processing systems and other communications and information systems, including our enterprise resource planning tools. We process a large number of transactions on a daily basis and rely upon the proper functioning of computer systems. If any of these systems fail, whether caused by fire, other natural disaster, power or telecommunications failure, acts of cyber terrorism or war or otherwise, or they do not function correctly, we could suffer financial loss, business disruption, liability to our customers, regulatory intervention or damage to our reputation. If our systems are unable to accommodate an increasing volume of transactions, our ability to grow could be limited. Although we have backup systems, procedures and capabilities in place, they may also fail or be inadequate. Further, to the extent that we may have customer information in our databases, any unauthorized disclosure of, or access to, such information could result in claims under data protection laws and regulations. If any of these risks materialize, our reputation and our ability to conduct our business may be materially adversely affected.

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

Customers use some of our products in potentially hazardous applications that can cause injury or loss of life and damage to property, equipment or the environment. In addition, our products are integral to the production process for some end-users and any failure of our products could result in a suspension of operations. Although we maintain quality controls and procedures, we cannot be certain that our products will be completely free from defects. We maintain amounts and types of insurance coverage that we believe are currently adequate and consistent with normal industry practice for a company of our relative size, and we limit our liability by contract wherever possible. However, we cannot guarantee that insurance will be available or adequate to cover all liabilities incurred. We also may not be able to maintain insurance in the future at levels we believe are necessary and at rates we consider reasonable. We may be named as a defendant in product liability or other lawsuits asserting potentially large claims if an accident occurs at a location where our equipment and services have been or are being used.

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

Our operations and properties are subject to increasingly stringent domestic and foreign laws and regulations relating to environmental protection, including laws and regulations governing air emissions, water discharges, waste management and workplace safety. Under such laws and regulations, we can be subject to substantial fines and sanctions for violations and be required to install costly pollution control equipment or put into effect operational changes to limit pollution emissions or decrease the likelihood of accidental hazardous substance releases.

We use and generate hazardous substances and waste in our manufacturing operations. In addition, many of our current and former properties are, or have been, used for industrial purposes. We have been identified as a potentially responsible party with respect to several sites designated for cleanup under U.S. federal “Superfund” or similar state laws that may impose joint and several liability for cleanup of certain waste sites and for related natural resource damages. An accrued liability on our balance sheet reflects costs that are probable and estimable for our projected financial obligations relating to these matters. If we have underestimated our remaining financial obligations, we may face greater exposure that could have an adverse effect on our financial condition, results of operations or liquidity.

We have experienced, and expect to continue to experience, operating costs to comply with environmental laws and regulations. In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new cleanup requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition, results of operations or liquidity.

17
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.

Our success depends in part on the creation, maintenance and protection of our proprietary technology and intellectual property rights. We rely on a combination of patents, trademarks, trade secrets, copyrights, confidentiality provisions, contractual restrictions and licensing arrangements to establish and protect our proprietary rights. Our nondisclosure agreements and confidentiality agreements may not effectively prevent disclosure of our proprietary information, technologies and processes, and may not provide an adequate remedy in the event of breach of such agreements or unauthorized disclosure of such information, and if a competitor lawfully obtains or independently develops our trade secrets, we would have no right to prevent such competitor from using such technology or information to compete with us, either of which could harm our competitive position. Our applications for patent and trademark protection may not be granted, or the claims or scope of such issued patents or registered trademarks may not be sufficiently broad to protect our products. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable or limited for some of our trademarks and patents in some foreign countries. We may be required to spend significant resources to monitor and police our intellectual property rights, and we cannot guarantee that such efforts will be successful in preventing infringement or misappropriation. If we fail to successfully enforce these intellectual property rights, our competitive position could suffer, which could harm our operating results.

Although we make a significant effort to avoid infringing known proprietary rights of third parties, the steps we take to prevent misappropriation, infringement or other violation of the intellectual property of others may not be successful and from time to time we may receive notice that a third party believes that our products may be infringing certain patents, trademarks or other proprietary rights of such third party. Responding to and defending such claims, regardless of their merit, can be costly and time-consuming, can divert management’s attention and other resources, and we may not prevail. Depending on the resolution of such claims, we may be barred from using a specific technology or other rights, may be required to redesign or re-engineer a product which may require significant resources, may be required to enter into licensing arrangements from the third party claiming infringement (which may not be available on commercially reasonable terms, or at all), or may become liable for significant damages.

If any of the foregoing occurs, our ability to compete could be affected or our business, financial condition and results of operations may be materially adversely affected.

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

We have both funded and unfunded pension and other postretirement benefit plans worldwide.  As of December 31, 2019, our projected benefit obligations under our pension and other postretirement benefit plans exceeded the fair value of plan assets by an aggregate of approximately $101.9 million (“unfunded status”), compared to $96.9 million as of December 31, 2018.  Estimates for the amount and timing of the future funding obligations of these benefit plans are based on various assumptions. These assumptions include discount rates, rates of compensation increases, expected long-term rates of return on plan assets and expected healthcare cost trend rates. If our assumptions prove incorrect, our funding obligations may increase, which may have a material adverse effect on our financial results.

We have invested the plan assets of our funded benefit plans in various equity and debt securities. A deterioration in the value of plan assets could cause the unfunded status of these benefit plans to increase, thereby increasing our obligation to make additional contributions to these plans. An obligation to make contributions to our benefit plans could reduce the cash available for working capital and other corporate uses, and may have an adverse impact on our operations, financial condition and liquidity.

Risks Related to Our Indebtedness

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

We have a significant amount of indebtedness. As of December 31, 2019, we had total indebtedness of $1,611.4 million, and we had availability under the Revolving Credit Facility and the Receivables Financing Agreement of $445.6 million and $62.4 million, respectively.  Our high level of debt could have important consequences, including: making it more difficult for us to satisfy our obligations with respect to our debt; limiting our ability to obtain additional financing to fund future working capital, capital expenditures, investments or acquisitions, or other general corporate requirements; requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions and other general corporate purposes; increasing our vulnerability to adverse changes in general economic, industry and competitive conditions; exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the Senior Secured Credit Facilities, are at variable rates of interest; limiting our flexibility in planning for and reacting to changes in the industries in which we compete; placing us at a disadvantage compared to other, less leveraged competitors; increasing our cost of borrowing; and hampering our ability to execute on our growth strategy.  For a complete description of the Company’s credit facilities and definitions of capitalized terms used in this section, see Note 10 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K.

18
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.

Our ability to make scheduled payments on, or refinance, our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic, industry and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control (as well as and including those factors discussed under “Risks Related to Our Business” above). We may be unable to maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flow and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital, or restructure or refinance our indebtedness. We may not be able to implement any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations.

If we cannot make scheduled payments on our debt, we will be in default and the lenders under the Revolving Credit Facility could terminate their commitments to loan money, and our secured lenders (including the lenders under the Senior Secured Credit Facilities) could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation.

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.

We and our subsidiaries may be able to incur significant additional indebtedness in the future, including off-balance sheet financings, contractual obligations and general and commercial liabilities. Although the credit agreement governing the Senior Secured Credit Facilities contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. In addition, we can increase the borrowing availability under the Senior Secured Credit Facilities by up to $450.0 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 also can incur additional secured indebtedness under the Term Loan Facilities if certain specified conditions are met under the credit agreement governing the Term Loan Facilities. If new debt is added to our current debt levels, the related risks that we now face could intensify.  For a complete description of the Company’s credit facilities and definitions of capitalized terms used in this section, see Note 10 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K.

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.

The credit agreement governing the Senior Secured Credit Facilities contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our best interest, including restrictions on our ability to: incur additional indebtedness and guarantee indebtedness; pay dividends, make other distributions in respect of, or repurchase or redeem capital stock; prepay, redeem or repurchase certain debt; make loans, investments and other restricted payments; sell or otherwise dispose of assets; incur liens; enter into transactions with affiliates; enter into agreements restricting our subsidiaries’ ability to pay dividends; consolidate, merge or sell all or substantially all of our assets; make needed capital expenditures; make strategic acquisitions, investments or enter into joint ventures; plan for or react to market conditions or otherwise execute our business strategies; and engage in business activities, including future opportunities, that may be in our interest.

A breach of the covenants under the credit agreement governing the Senior Secured Credit Facilities could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt principal and/or related interest payments and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our Senior Secured Credit Facilities would permit the lenders under our Revolving Credit Facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our Senior Secured Credit Facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or noteholders accelerate the repayment of our borrowings and/or interest, we and our subsidiaries may not have sufficient assets to repay that indebtedness.

19
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our Senior Secured Credit Facilities and our Receivables Financing Agreement are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed will remain the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.

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.

We have entered into pay-fixed interest rate swap instruments to limit our exposure to changes in variable interest rates. Such instruments will result in economic losses should interest rates not rise above the pay-fixed interest rate in the derivative contracts. We will be exposed to credit-related losses which could impact the results of operations in the event of fluctuations in the fair value of the interest rate swaps due to a change in the credit worthiness or non-performance by the counterparties to the interest rate swaps. See Note 18 “Hedging Activities, Derivative Instruments and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.

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 have access to capital through our Revolving Credit Facility, which is part of our Senior Secured Credit Facilities. Each financial institution which is part of the syndicate for our Revolving Credit Facility is responsible on a several, but not joint, basis for providing a portion of the loans to be made under our facility. If any participant or group of participants with a significant portion of the commitments in our Revolving Credit Facility fails to satisfy its or their respective obligations to extend credit under the facility and we are unable to find a replacement for such participant or participants on a timely basis (if at all), our liquidity may be adversely affected.

The Company may face risk associated with the discontinuation of and transition from currently used financial reference rates.
 
LIBOR and certain other floating rate benchmark indices to which our floating rate debt is tied, including, without limitation, the Euro Interbank Offered Rate (collectively, “IBORs”) are the subject of recent national, international and regulatory guidance and proposals for reform. In a speech on July 27, 2017, Andrew Bailey, the Chief Executive of the Financial Conduct Authority of the U.K., or the FCA, announced the FCA’s intention to cease sustaining LIBOR after 2021. The FCA has statutory powers to require panel banks to contribute to LIBOR where necessary. The FCA has decided not to ask, or to require, that panel banks continue to submit contributions to LIBOR beyond the end of 2021. The FCA has indicated that it expects that the current panel banks will voluntarily sustain LIBOR until the end of 2021. It is possible that the ICE Benchmark Administration Limited (formerly NYSE Euronext Rate Administration Limited), or the IBA, and the panel banks could continue to produce LIBOR on the current basis after 2021, if they are willing and able to do so, but we do not currently anticipate that LIBOR will survive in its current form, or at all. Other jurisdictions have also indicated they will implement reforms or phase-outs, which are currently scheduled to take effect at the end of calendar year 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR. At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates as the transition away from the IBOR benchmarks is anticipated in coming years.
 
As of December 31, 2019, we had $1.6 billion of floated rate debt with maximum maturities extending past 2021 tied to IBOR benchmarks and $825.0 million of interest rate swaps with maximum maturities extending past 2021 tied to IBOR benchmarks. There is currently no definitive information regarding the future utilization of any IBOR benchmark or of any particular replacement rate. In addition, any IBOR benchmark may perform differently during any phase-out period than in the past. As such, the potential effect of any such event on our cost of capital cannot yet be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations and cash flows. In addition, we may need to renegotiate certain of our debt agreements that extend past 2021 with lenders, which could require us to incur significant expense and may subject us to disputes or litigation over the appropriateness or comparability to the relevant IBOR benchmark of the replacement reference rates. We are assessing the impact of a potential transition from IBOR; however, we cannot reasonably estimate the impact of the transition at this time.


20

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

21
ITEM 2. PROPERTIES

Our corporate headquarters is a leased facility located at 222 East Erie Street, Milwaukee, Wisconsin 53202.  The number of significant properties used by each of our segments is summarized by segment, type and geographic location in the tables below.

 
Type of Significant Property
 
   
Manufacturing
   
Warehouse
   
Other(4)
   
Total
 
Industrials
                       
Americas
   
6
     
1
     
0
     
7
 
EMEA(1)
   
10
     
1
     
15
     
26
 
APAC(2)
   
0
     
1
     
8
     
9
 
Industrials Total
   
16
     
3
     
23
     
42
 
                                 
Energy
                               
Americas
   
7
     
1
     
7
     
15
 
EMEA
   
5
     
0
     
1
     
6
 
APAC
   
2
     
0
     
1
     
3
 
Energy Total
   
14
     
1
     
9
     
24
 
                                 
Medical
                               
Americas
   
3
     
0
     
0
     
3
 
EMEA
   
4
     
0
     
1
     
5
 
APAC
   
1
     
0
     
0
     
1
 
Medical Total
   
8
     
0
     
1
     
9
 
                                 
Total (All Segments)
                               
Americas
   
16
     
2
     
7
     
25
 
EMEA
   
19
     
1
     
17
     
37
 
APAC
   
3
     
1
     
9
     
13
 
Company Total(3)
   
38
     
4
     
33
     
75
 

(1)
Europe, Middle East and Africa (“EMEA”)

(2)
Asia Pacific (“APAC”)

(3)
Two facilities are shared between our segments and each is counted once, in the Industrials segment, to avoid double counting.

(4)
Other facilities includes service centers and sales offices.

Of the 75 significant properties included in the above table, 44 of the properties are leased and 31 of the properties are owned.  We believe that our properties, taken as a whole, are in good operating condition and are suitable for our business operations.

ITEM 3. LEGAL PROCEEDINGS

We are a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of our size and sector.  We believe that such proceedings, lawsuits and administrative actions will not materially adversely affect our operations, financial condition, liquidity or competitive position.  For a detailed discussion of certain of these proceedings, lawsuits and administrative actions, see Note 20, “Contingencies” to our audited consolidated financial statements included elsewhere in this form 10-K.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

22
PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our Common Stock, $0.01 par value per share, trades on the New York Stock Exchange (“NYSE”) under the symbol “GDI.”  As of January 31, 2020, there were 106 holders of record of our common stock.  This stockholder figure does not include a substantially greater number of holders whose shares are held of record by banks, brokers, and other financial institutions.

Dividend Policy

We did not declare or pay dividends to the holders of our common stock in the years ended December 31, 2019 and 2018.  We do not intend to pay cash dividends on our common stock in the foreseeable future.  Any future determination to pay dividends will be at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions contained in current or future financing instruments and other factors that our board of directors deem relevant.

Company Purchases

The following table contains detail related to the repurchase of our common stock based on the date of trade during the quarter ended December 31, 2019.

2019 Fourth Quarter Months
 
Total Number of
Shares Purchased(1)
   
Average Price Paid
Per Share(2)
   
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs (3)
   
Maximum Approximate
Dollar Value
of Shares that May Yet
Be Purchased Under the
Plans or Programs (3)
 
October 1, 2019 - October 31, 2019
   
-
   
$
-
     
-
     
220,756,556
 
November 1, 2019 - November 30, 2019
   
38,285
   
$
33.71
     
-
     
220,756,556
 
December 1, 2019 - December 31, 2019
   
1,571
   
$
35.02
     
-
     
220,756,556
 

(1)
All of the shares purchased during the quarter ended December 31, 2019 were in connection with net exercises of stock options.

(2)
The average price paid per share includes brokerage commissions.

(3)
On August 1, 2018, we announced that our Board of Directors had approved a share repurchase program which authorized the repurchase of up to $250.0 million of our outstanding common stock over the next two years, effective August 1, 2018 until and including July 31, 2020.  For a further description of the share repurchase program, see Note 25 “Share Repurchase Program” to our audited consolidated financial statements included elsewhere in this Form 10-K.

ITEM 6. SELECTED FINANCIAL DATA

Set forth below is our selected consolidated financial data as of the dates and for the periods indicated.  The selected consolidated financial data as of December 31, 2019 and 2018 and for the fiscal years ended December 31, 2019, 2018 and 2017 have been derived from our audited consolidated financial statements and related notes to our audited consolidated financial statements included elsewhere in this Form 10-K.  The selected consolidated financial data as of December 31, 2017, 2016 and 2015, and for the fiscal years ended December 31, 2016 and 2015, have been derived from our audited consolidated financial statements and related notes to our audited consolidated financial statements not included in this Form 10-K.

23
The selected historical consolidated financial data set forth below should be read in conjunction with, and are qualified by reference to, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes to our audited consolidated financial statements included elsewhere in this Form 10-K.

(in millions, except per share amounts)
 
Year Ended
December 31,
2019
   
Year Ended
December 31,
2018
   
Year Ended
December 31,
2017
   
Year Ended
December 31,
2016
   
Year Ended
December 31,
2015
 
Consolidated Statements of Operations:
                             
Revenues
 
$
2,451.9
   
$
2,689.8
   
$
2,375.4
   
$
1,939.4
   
$
2,126.9
 
Cost of sales
   
1,540.2
     
1,677.3
     
1,477.5
     
1,222.7
     
1,347.8
 
Gross profit
   
911.7
     
1,012.5
     
897.9
     
716.7
     
779.1
 
Selling and administrative expenses
   
436.4
     
434.6
     
446.2
     
415.1
     
431.0
 
Amortization of intangible assets
   
124.3
     
125.8
     
118.9
     
124.2
     
115.4
 
Impairment of goodwill
   
-
     
-
     
-
     
-
     
343.3
 
Impairment of other intangible assets
   
-
     
-
     
1.6
     
25.3
     
78.1
 
Other operating expense, net
   
75.7
     
9.1
     
222.1
     
48.6
     
20.7
 
Operating income (loss)
   
275.3
     
443.0
     
109.1
     
103.5
     
(209.4
)
Interest expense
   
88.9
     
99.6
     
140.7
     
170.3
     
162.9
 
Loss on extinguishment of debt
   
0.2
     
1.1
     
84.5
     
-
     
-
 
Other income, net
   
(4.7
)
   
(7.2
)
   
(3.4
)
   
(3.6
)
   
(5.6
)
Income (loss) before income taxes
   
190.9
     
349.5
     
(112.7
)
   
(63.2
)
   
(366.7
)
Provision (benefit) for income taxes
   
31.8
     
80.1
     
(131.2
)
   
(31.9
)
   
(14.7
)
Net income (loss)
   
159.1
     
269.4
     
18.5
     
(31.3
)
   
(352.0
)
Less: Net income (loss) attributable to noncontrolling interest
   
-
     
-
     
0.1
     
5.3
     
(0.8
)
Net income (loss) attributable to Gardner Denver Holdings, Inc.
 
$
159.1
   
$
269.4
   
$
18.4
   
$
(36.6
)
 
$
(351.2
)
                                         
Earnings (loss) per share, basic
 
$
0.78
   
$
1.34
   
$
0.10
   
$
(0.25
)
 
$
(2.35
)
Earnings (loss) per share, diluted
 
$
0.76
   
$
1.29
   
$
0.10
   
$
(0.25
)
 
$
(2.35
)
Weighted average shares, basic
   
203.5
     
201.6
     
182.2
     
149.2
     
149.6
 
Weighted average shares, diluted
   
208.9
     
209.1
     
188.4
     
149.2
     
149.6
 
                                         
Statement of Cash Flow Data:
                                       
Cash flows - operating activities
 
$
343.3
   
$
444.5
   
$
200.5
   
$
165.6
   
$
172.1
 
Cash flows - investing activities
   
(54.3
)
   
(235.0
)
   
(60.8
)
   
(82.1
)
   
(84.0
)
Cash flows - financing activities
   
(11.5
)
   
(373.0
)
   
(17.4
)
   
(43.0
)
   
(35.0
)
                                         
Balance Sheet Data (at period end):
                                       
Cash and cash equivalents
 
$
505.5
   
$
221.2
   
$
393.3
   
$
255.8
   
$
228.3
 
Total assets
   
4,628.4
     
4,487.1
     
4,621.2
     
4,316.0
     
4,462.0
 
Total liabilities
   
2,758.5
     
2,811.1
     
3,144.4
     
4,044.2
     
4,056.5
 
Total stockholders’ equity
   
1,869.9
     
1,676.0
     
1,476.8
     
271.8
     
405.5
 
                                         
Other Financial Data (unaudited):
                                       
Adjusted EBITDA(1)
 
$
564.8
   
$
681.8
   
$
561.5
   
$
400.7
   
$
418.9
 
Adjusted net income(1)
   
332.4
     
394.7
     
249.3
     
133.6
     
128.1
 
Capital expenditures
   
43.2
     
52.2
     
56.8
     
74.4
     
71.0
 
Free cash flow(1)
   
300.1
     
392.3
     
143.7
     
91.2
     
101.1
 

(1)
We report our financial results in accordance with GAAP. To supplement this information, we also use the following measures in this Form 10-K: “Adjusted EBITDA,” “Adjusted Net Income” and “Free Cash Flow.” Management believes that Adjusted EBITDA and Adjusted Net Income are helpful supplemental measures to assist us and investors in evaluating our operating results as they exclude certain items whose fluctuation from period to period do not necessarily correspond to changes in the operations of our business. Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation and amortization, as further adjusted to exclude certain non-cash, non-recurring and other adjustment items. We believe that the adjustments applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that we do not expect to continue at the same level in the future. Adjusted Net Income is defined as net income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions.
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.

24
As a result, we and our board of directors regularly use these measures as tools in evaluating our operating and financial performance and in establishing discretionary annual compensation. Such measures are provided in addition to, and should not be considered to be a substitute for, or superior to, the comparable measure under GAAP. In addition, we believe that Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are frequently used by investors, analysts and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity.

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

Set forth below are the reconciliations of net income to Adjusted EBITDA and Adjusted Net Income and cash flows from operating activities to Free Cash Flow.

 
Year Ended December 31,
 
   
2019
   
2018
   
2017
 
Net Income
 
$
159.1
   
$
269.4
   
$
18.5
 
Plus:
                       
Interest expense
   
88.9
     
99.6
     
140.7
 
Provision (benefit) for income taxes
   
31.8
     
80.1
     
(131.2
)
Depreciation expense
   
53.8
     
54.6
     
54.9
 
Amortization expense(a)
   
124.3
     
125.8
     
118.9
 
Impairment of other intangible assets(b)
   
-
     
-
     
1.6
 
KKR fees and expenses(c)
   
-
     
-
     
17.3
 
Restructuring and related business transformation costs(d)
   
25.6
     
38.8
     
24.7
 
Acquisition related expenses and non-cash charges(e)
   
54.6
     
16.7
     
4.1
 
Environmental remediation loss reserve(f)
   
0.1
     
-
     
0.9
 
Expenses related to public stock offerings(g)
   
-
     
2.9
     
4.1
 
Establish public company financial reporting compliance(h)
   
0.6
     
4.3
     
8.1
 
Stock-based compensation(i)
   
23.1
     
(2.3
)
   
194.2
 
Loss on extinguishment of debt(j)
   
0.2
     
1.1
     
84.5
 
Foreign currency transaction losses (gains), net
   
8.1
     
(1.9
)
   
9.3
 
Shareholder litigation settlement recoveries(k)
   
(6.0
)
   
(9.5
)
   
-
 
Other adjustments(l)
   
0.6
     
2.2
     
10.9
 
Adjusted EBITDA
 
$
564.8
   
$
681.8
   
$
561.5
 
Minus:
                       
Interest expense
 
$
88.9
   
$
99.6
   
$
140.7
 
Income tax provision, as adjusted(m)
   
77.9
     
119.0
     
105.4
 
Depreciation expense
   
53.8
     
54.6
     
54.9
 
Amortization of non-acquisition related intangible assets
   
11.8
     
13.9
     
11.2
 
Adjusted Net Income
 
$
332.4
   
$
394.7
   
$
249.3
 
Free Cash Flow
                       
Cash flows - operating activities
 
$
343.3
   
$
444.5
   
$
200.5
 
Minus:
                       
Capital expenditures
   
43.2
     
52.2
     
56.8
 
Free Cash Flow
 
$
300.1
   
$
392.3
   
$
143.7
 

(a)
Represents $112.5 million, $111.9 million and $107.7 million of amortization of intangible assets arising from the KKR Transaction and other acquisitions (customer relationships and trademarks) and $11.8 million, $13.9 million and $11.2 million of amortization of non-acquisition related intangible assets, in each case for the years ended December 31, 2019, 2018 and 2017, respectively.

(b)
Represents non-cash charges for impairment of intangible assets other than goodwill.

(c)
Represents management fees and expenses paid to Kohlberg, Kravis & Roberts & Co., L.P. (“KKR” or “Former Sponsor”).

25

(d)
Restructuring and related business transformation costs consisted of the following.

   
Year Ended December 31,
 
   
2019
   
2018
   
2017
 
Restructuring charges
 
$
17.1
   
$
12.7
   
$
5.3
 
Severance, sign-on, relocation and executive search costs
   
2.5
     
4.1
     
3.5
 
Facility reorganization, relocation and other costs
   
2.4
     
3.1
     
5.3
 
Information technology infrastructure transformation
   
1.2
     
0.8
     
5.2
 
Losses (gains) on asset and business disposals
   
0.8
     
(1.1
)
   
0.8
 
Consultant and other advisor fees
   
0.3
     
14.1
     
1.7
 
Other, net
   
1.3
     
5.1
     
2.9
 
Total restructuring and related business transformation costs
 
$
25.6
   
$
38.8
   
$
24.7
 

(e)
Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs), and non-cash charges and credits arising from fair value purchase accounting adjustments.

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

(g)
Represents certain expenses related to our initial public offering and secondary offerings.

(h)
Represents third party expenses to comply with the requirements of Sarbanes-Oxley and the accelerated adoption of the new accounting standards (ASC 606 – Revenue from Contracts with Customers and ASC 842 – Leases) in the first quarter of 2018 and 2019, respectively, one year ahead of the required adoption dates for a private company.

(i)
Represents stock-based compensation expense recognized for stock options outstanding for the year ended December 31, 2019 of $19.2 million, increased by $3.9 million due to costs associated with employer taxes.

Represents stock-based compensation expense recognized for the year ended December 31, 2018 of $2.8 million, reduced by $5.1 million primarily due to a decrease in the estimated accrual for employer taxes related to deferred stock units (“DSU”) as a result of a lower per share stock price.

Represents stock-based compensation expense recognized for the year ended December 31, 2017 for stock options outstanding of $77.6 million and DSUs granted to employees at the date of the initial public offering of $97.4 million and employer taxes related to DSUs granted to employees at the date of the initial public offering of $19.2 million.

(j)
Represents losses on the extinguishment of the Company’s senior notes, extinguishment of a portion of the U.S. Term Loan, refinancing of the Original Dollar Term Loan Facility and the Original Euro Term Loan Facility and losses reclassified from AOCI into income related to the amendment of the interest rate swaps in conjunction with the debt repayment.

(k)
Represents insurance recoveries of our shareholder litigation settlement in 2014.

(l)
Includes (i) non-cash impact of net LIFO reserve adjustment, (ii) effects of amortization of prior service costs and amortization of losses in pension and other postretirement benefits (“OPEB”) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments.

(m)
Represents our income tax provision adjusted for the tax effect of pre-tax items excluded from Adjusted Net Income and the removal of applicable discrete tax items.  The tax effect of pre-tax items excluded from Adjusted Net Income is computed using the statutory tax rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances.  Discrete tax items include changes in tax laws or rates, changes in uncertain tax positions relating to prior years and changes in valuation allowances. All impacts relating to the Tax Cuts and Jobs Act of 2017 have been included as an adjustment on the ‘Tax law change” line of the table below.

26

The income tax provision, as adjusted for each of the periods presented below consists of the following.

 
Year Ended December 31,
 
   
2019
   
2018
   
2017
 
Provision (benefit) for income taxes
 
$
31.8
   
$
80.1
   
$
(131.2
)
Tax impact of pre-tax income adjustments
   
45.6
     
36.9
     
139.3
 
Tax law change
   
-
     
1.2
     
95.3
 
Discrete tax items
   
0.5
     
0.8
     
2.0
 
Income tax provision, as adjusted
 
$
77.9
   
$
119.0
   
$
105.4
 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with “Item 6. Selected Financial Data” and our audited consolidated financial statements and related notes to our consolidated financial statements included elsewhere in this Form 10-K.  This discussion contains forward-looking statements and involves numerous risks and uncertainties.  Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth under the “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Form 10-K.

Transaction with Ingersoll Rand

In April 2019, our Board of Directors approved a merger that will combine Gardner Denver with the industrial segment of Ingersoll-Rand plc (“Ingersoll Rand”) (the “Merger”).  To facilitate this Merger, Ingersoll Rand will cause specific assets and liabilities of its industrial segment to be transferred to Ingersoll-Rand U.S. HoldCo, Inc. (“Ingersoll Rand Industrial”), a newly formed wholly-owned subsidiary of Ingersoll Rand, and distribute the shares of common stock of Ingersoll Rand Industrial to Ingersoll Rand’s shareholders.  Charm Merger Sub Inc. (“Merger Sub”), which is a newly formed wholly-owned subsidiary of Gardner Denver, will be merged with and into Ingersoll Rand Industrial, with Ingersoll Rand Industrial surviving such merger as a wholly-owned subsidiary of Gardner Denver.

Pursuant to the definitive agreement Gardner Denver entered into with Ingersoll Rand, Ingersoll Rand Industrial and Merger Sub with respect to the Merger (the “Merger Agreement”), Gardner Denver will issue an aggregate number of shares of its common stock to Ingersoll Rand Industrial stockholders which will result in Ingersoll Rand Industrial stockholders owning approximately, but not less than, 50.1% of the shares of Gardner Denver common stock outstanding on a fully-diluted basis upon the closing of the Merger.  The number of shares to be issued to Ingersoll Rand Industrial stockholders is based on the exchange ratio set forth in the Merger Agreement.  In addition, Ingersoll Rand will receive approximately $1.9 billion in cash from Ingersoll Rand Industrial that will be funded by newly-issued debt that is expected to be deemed issued under the existing Senior Secured Credit Facilities of Gardner Denver upon consummation of the merger.  The Merger is expected to close on February 29, 2020.

The Merger will result in Gardner Denver acquiring Ingersoll Rand Industrial, which includes compressed air and gas systems and services, power tools, material handling systems, fluid management systems as well as Club Car golf, utility and consumer low-speed vehicles.  Following the Merger, the combined company is expected to be renamed and operate under the Ingersoll Rand name and its common stock is expected to be listed on the New York Stock Exchange under Ingersoll Rand’s existing ticker symbol “IR.”

See Note 3 “Business Combinations” to our audited consolidated financial statements included elsewhere in this Form 10-K for additional information related to the transaction with Ingersoll Rand.

Executive Overview

Our Company

We are a leading global provider of mission-critical flow control and compression equipment and associated aftermarket parts, consumables and services, which we sell across multiple attractive end-markets within the industrial, energy and medical industries. We manufacture one of the broadest and most complete ranges of compressor, pump, vacuum and blower products in our markets, which, combined with our global geographic footprint and application expertise, allows us to provide differentiated product and service offerings to our customers. Our products are sold under a collection of premier, market-leading brands, including Gardner Denver, CompAir, Nash, Emco Wheaton, Robuschi, Elmo Rietschle and Thomas, which we believe are globally recognized in their respective end-markets and known for product quality, reliability, efficiency and superior customer service. These attributes, along with over 155 years of engineering heritage, generate strong brand loyalty for our products and foster long-standing customer relationships, which we believe have resulted in leading market positions within each of our operating segments. We have sales in more than 175 countries and our diverse customer base utilizes our products across a wide array of end-markets that have favorable near- and long-term growth prospects, including industrial manufacturing, energy (with particular exposure to the North American upstream land-based market), transportation, medical and laboratory sciences, food and beverage packaging and chemical processing.

Our products and services are critical to the processes and systems in which they are utilized, which are often complex and function in harsh conditions where the cost of failure or downtime is high. However, our products and services typically represent only a small portion of the costs of the overall systems or functions that they support. As a result, our customers place a high value on our application expertise, product reliability and the responsiveness of our service. To support our customers and market presence, we maintain significant global scale with 38 key manufacturing facilities, more than 30 complementary service and repair centers across six continents and approximately 6,600 employees worldwide as of December 31, 2019.

The process-critical nature of our product applications, coupled with the standard wear and tear replacement cycles associated with the usage of our products, generates opportunities to support customers with our broad portfolio of aftermarket parts, consumables and services. Customers place a high value on minimizing any time their operations are offline. As a result, the availability of replacement parts, consumables and our repair and support services are key components of our value proposition. Our large installed base of products provides a recurring revenue stream through our aftermarket parts, consumables and services offerings. As a result, our aftermarket revenue is significant, representing 38% of total Company revenue and approximately 42% of our combined Industrials and Energy segments’ revenue in 2019.

27
Our Segments

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

Industrials

In the Industrials segment, we design, manufacture, market and service a broad range of air compression, vacuum and blower products across a wide array of technologies and applications. Almost every manufacturing and industrial facility, and many service and process industries, use air compression and vacuum products in a variety of applications such as operation of pneumatic air tools, vacuum packaging of food products and aeration of waste water. We maintain a leading position in our markets and serve customers globally. We offer comprehensive aftermarket parts and an experienced direct and distributor-based service network world-wide to complement all of our products.  In 2019, the Industrials segment generated Segment Revenue of $1,301.3 million and Segment Adjusted EBITDA of $296.6 million, reflecting a Segment Adjusted EBITDA Margin of 22.8%.

Energy

In the Energy segment, we design, manufacture, market and service a diverse range of positive displacement pumps, liquid ring vacuum pumps and compressors, and engineered loading systems and fluid transfer equipment, consumables, and associated aftermarket parts and services.  We serve customers in the upstream, midstream, and downstream oil and gas markets, and various other markets including petrochemical processing, power generation, transportation, and general industrial. We are one of the largest suppliers in these markets and have long-standing customer relationships. Our positive displacement pumps are used in the oilfield for drilling, hydraulic fracturing, completion and well servicing. Our 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. Our 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 2019, the Energy segment generated Segment Revenue of $870.2 million and Segment Adjusted EBITDA of $225.1 million, reflecting a Segment Adjusted EBITDA Margin of 25.9%.

Medical

In the Medical segment, we design, manufacture and market 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.  Our customers are mainly medium and large durable medical equipment suppliers that integrate our products into their final equipment for use in applications such as oxygen therapy, blood dialysis, patient monitoring, wound treatment, and others. Further, with recent acquisitions, we expanded into liquid handling components and systems used in biotechnology applications including clinical analysis instrumentation. We also have a broad range of end use deep vacuum products for laboratory science applications.  In 2019, the Medical segment generated Segment Revenue of $280.4 million and Segment Adjusted EBITDA of $84.4 million, reflecting a Segment Adjusted EBITDA Margin of 30.1%.

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 part 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.

28
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 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 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 also has limited aftermarket revenues related to certain products.

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. Stock-based compensation expense for employees associated with the manufacture of products or delivery of services to customers is included in cost of sales. We have instituted a global sourcing strategy to take advantage of coordinated purchasing opportunities of key materials across our manufacturing plant locations.

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) KKR fees and expenses; (vii) expenses related to our  public stock offerings and to establish public company reporting compliance; (viii) employee related stock-based compensation for our selling and administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; and (ix) 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.

29
Amortization of Intangible Assets

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

Impairment of Other Intangible Assets

Impairment of other intangible assets includes non-cash charges we recognized for the impairment of intangible assets other than goodwill.

Other Operating Expense, Net

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

Provision (Benefit) for Income Taxes

The provision or benefit 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 35 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.  In addition to energy prices, demand for our upstream energy products are positively impacted by increasing global land rig count, drilled but uncompleted wells, the level of hydraulic fracturing intensity and activity measured by horsepower utilization and lateral lengths as well as drilling and completion capital expenditures.  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.

Foreign Currency Fluctuations

A significant portion of our revenues, approximately 56% for the year ended December 31, 2019, was 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.

30
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.

Variability within Upstream Energy Markets

We sell products and 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.

Demand for upstream 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.

We believe it is helpful to consider the impact of our energy exposure to upstream energy in evaluating our 2018 and 2019 Segment Revenue and Segment Adjusted EBITDA, in order to better understand other drivers of our performance during those periods, including operational improvements.  For the Energy segments, we assess the impact of our exposure to upstream energy as the portion of Energy Segment Adjusted EBITDA of the business unit serving the upstream energy market.

Restructuring and Other Business Transformation Initiatives

We continue to implement business transformation initiatives.  A key element of those business transformation initiatives was restructuring programs within our Industrials, Energy and Medical segments as well as at the Corporate level.  Restructuring charges, program related facility reorganization, relocation and other costs, and related capital expenditures were impacted most significantly.

We announced a restructuring program in the third quarter of 2018 that primarily involves workforce reductions and facility consolidations.  For the years ended December 31, 2019 and 2018, $17.1 million and $12.7 million, respectively were charged to expense related to this restructuring program.

Acquisitions

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, net of cash acquired (inclusive of an indemnity holdback of $1.9 million).

In February 2018, we acquired a leading global manufacturer of turbo vacuum technology systems and optimization solutions for industrial applications in our Industrials segment for total consideration, net of cash acquired, of approximately $94.9 million. In May 2018, we acquired a leading manufacturer of plungers and other well service pump consumable products in our Energy segment for total consideration, net of cash acquired, of approximately $21.0 million (inclusive of cash payments of $18.8 million, a $2.0 million promissory note and a $0.2 million holdback). In November 2018, we acquired a leading manufacturer of rotary screws and piston compressors and associated aftermarket parts in our Industrials segment for total consideration, net of cash acquired, of $16.1 million (inclusive of cash payments of $14.8 million and a $1.3 million holdback). In December 2018, we acquired a leading manufacturer of specialty industrial pumps and associated aftermarket parts in our Industrials segment for total consideration of $58.5 million, net of cash acquired (inclusive of cash payments of $57.8 million and a $0.7 million holdback).

In July 2019, we acquired a company which specializes in customized pump solutions for liquid handling processes for use in medical, process and industrial applications, in our Medical segment for total consideration, net of cash acquired, of $10.0 million (inclusive of cash payments of $5.6 million, a $1.6 million holdback and up to $2.8 million in contingent earn-out provisions). In August 2019, we acquired a provider of vacuum pumps, blowers and compressors in our Industrials segment for total consideration, net of cash acquired, of $7.0 million (inclusive of cash payments of $5.9 million and a $1.1 million deferred payment).

The revenues for these acquisitions subsequent to the respective dates of acquisition included in our financial results were $137.6 million $96.2 million and $13.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. The operating income for these acquisitions subsequent to their respective dates of acquisition, including organic growth since acquisition, included in our financial results was $19.1 million, $8.3 million and $1.4 million for the years ended December 31, 2019, 2018 and 2017, respectively.

31
See Note 3 “Business Combinations” to our audited consolidated financial statements included elsewhere in this Form 10-K for further discussion around the outstanding holdbacks for the years ended December 31, 2019, 2018 and 2017.

Stock-Based Compensation Expense

For the year ended December 31, 2018, we incurred stock-based compensation expense of approximately $2.8 million which was reduced by $5.1 million primarily due to a decrease in the estimated accrual for employer taxes related to deferred stock units (“DSU”) as a result of a lower per share stock price.

For the year ended December 31, 2019, we incurred stock-based compensation expense of approximately $19.2 million which was increased by $3.9 million due to costs associated with employer taxes.  See Note 17 “Stock-Based Compensation” to our audited consolidated financial statements included elsewhere in this Form 10-K for further discussion around our stock-based compensation expense.

Income Taxes

On December 22, 2017, the 2017 Tax Cuts and Jobs Act (“Tax Act”) was enacted into law.  The new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes, including the determination of the transition tax, the remeasurement of our U.S. deferred tax assets and liabilities as well as the reassessment of the net realizability of our deferred tax assets and liabilities, in the period of enactment. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result, we previously provided a provisional estimate of the effect of the Tax Act in our financial statements for 2017 and through the first nine months of 2018.  In the fourth quarter of 2018, we completed our accounting for all of the enactment-date income tax effects of the Tax Act by increasing the total benefit taken in 2017 of $95.3 million to $96.5 million.  Due to the Tax Act, the total U.S. deferred changed from a tax benefit of $89.6 million in 2017 to $74.5 million in 2018, with a 2018 measurement-period adjustment of $15.1 million and the ASC 740-30 (formerly APB 23) liability, related to the permanent reinvestment of earnings in foreign subsidiaries assertion, changed from a tax benefit of $69.0 million in 2017 to $72.5 million in 2018, with a 2018 measurement-period adjustment of $3.5 million. The provisional one-time transition tax of $63.3 million in 2017 decreased to $50.5 million in 2018, with a 2018 measurement-period adjustment of $12.8 million. The total $1.2 million benefit had a (0.3)% impact to the overall rate in 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.

Under U.S. GAAP, we are allowed to make an accounting policy election 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 cost method (option 1 above) going forward.  The tax provision for the twelve month period ended December 31, 2019 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 year ended December 31, 2019. The Company recorded a tax expense of $2.0 million in 2019 for the GILTI provisions of the Tax Act that were effective for the first time during 2018.

See Note 15 “Income Taxes” to our audited consolidated financial statements included elsewhere in this Form 10-K.

Outlook

Industrials Segment

The mission-critical nature of our Industrials products across manufacturing processes drives a demand environment and outlook that are correlated with global and regional industrial production, capacity utilization and long-term GDP growth.  In the fourth quarter of 2019, we booked $307.6 million of orders in our Industrials segment, a decrease of 4.6% over the fourth quarter of 2018, or a 3.1% decrease on a constant currency basis. 

32
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 both energy exposure, spanning upstream, midstream, downstream and petrochemical applications.

Our upstream products demand environment and outlook are influenced heavily by 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, global land rig count, drilled but uncompleted wells and other economic factors.  These factors have caused the level of demand for certain of our upstream products to change at times (both positively and negatively) and we expect these trends to continue in the future.  We believe we are well positioned to continue to benefit given our market position, diverse range of equipment, aftermarket parts and consumables and our service presence, despite the current demand environment.

Our midstream and downstream products demand environment and outlook are relatively stable with attractive, long-term growth trends influenced by long-term GDP growth and the continued increase in the production and transportation of hydrocarbon.  Demand for our petrochemical industry products correlates with capital expenditures related to growth and maintenance of 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.

In the fourth quarter of 2019, we booked $171.8 million of orders in our Energy segment, a decrease of 36.3% over the fourth quarter of 2018, or a 35.4% decrease on an constant currency basis.

Medical Segment

In 2020, 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 fourth quarter of 2019 we booked $63.7 million of orders in our Medical segment, a decrease of 3.2% over 2018, or a 1.8% decrease 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 income (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 income (loss) including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions.

We use Free Cash Flow to review the liquidity of our operations. We measure Free Cash Flow as cash flows from operating activities less capital expenditures. We believe Free Cash Flow is a useful supplemental financial measure for us and investors in assessing our ability to pursue business opportunities and investments and to service our debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities.

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.

33
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.

For further information regarding these measures, see “Item 6. Selected Financial Data.”

Results of Operations

Consolidated results should be read in conjunction with segment results and the Segment  Information notes to our audited consolidated financial statements included elsewhere in this Form 10-K, which provide more detailed discussions concerning certain components of our consolidated statements of operations.  All intercompany accounts and transactions have been eliminated within the consolidated results.

This section discusses our results of operations for the year ended December 31, 2019 as compared to the year ended December 31, 2018.  For a discussion and analysis of the year ended December 31, 2018, compared to the same in 2017, please refer to the “Management’s Discussion and Analysis of Financial Condition” and “Results of Operations” included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 27, 2019.

Consolidated Results of Operations for the Years Ended December 31, 2019 and 2018

   
Year Ended December 31,
 
   
2019
   
2018
 
Consolidated Statements of Operations
           
Revenues
 
$
2,451.9
   
$
2,689.8
 
Cost of sales
   
1,540.2
     
1,677.3
 
Gross profit
   
911.7
     
1,012.5
 
Selling and administrative expenses
   
436.4
     
434.6
 
Amortization of intangible assets
   
124.3
     
125.8
 
Impairment of other intangible assets
   
-
     
-
 
Other operating expense, net
   
75.7
     
9.1
 
Operating income
   
275.3
     
443.0
 
Interest expense
   
88.9
     
99.6
 
Loss on extinguishment of debt
   
0.2
     
1.1
 
Other income, net
   
(4.7
)
   
(7.2
)
Income before income taxes
   
190.9
     
349.5
 
Provision for income taxes
   
31.8
     
80.1
 
Net income
 
$
159.1
   
$
269.4
 
                 
Percentage of Revenues
               
Gross profit
   
37.2
%
   
37.6
%
Selling and administrative expenses
   
17.8
%
   
16.2
%
Operating income
   
11.2
%
   
16.5
%
Net income
   
6.5
%
   
10.0
%
Adjusted EBITDA(1)
   
23.0
%
   
25.3
%
                 
Other Financial Data
               
Adjusted EBITDA(1)
 
$
564.8
   
$
681.8
 
Adjusted net income(1)
   
332.4
     
394.7
 
Cash flows - operating activities
   
343.3
     
444.5
 
Cash flows - investing activities
   
(54.3
)
   
(235.0
)
Cash flows - financing activities
   
(11.5
)
   
(373.0
)
Free cash flow(1)
   
300.1
     
392.3
 

(1)
See “Item 6. Selected Financial Data” for a reconciliation to the most directly comparable GAAP measure.

34
Revenues

Revenues for 2019 were $2,451.9 million, a decrease of $237.9 million, or 8.8%, compared to $2,689.8 million in 2018.  The decrease in revenues was due primarily to lower revenues from upstream exposed markets (8.8% or $235.6 million) and the unfavorable impact of foreign currencies (2.4% or $65.2 million), partially offset by improved pricing (1.4% or $36.8 million) and higher volume in our Industrials and Medical segments including acquisitions (1.1% or $28.9 million). The percentage of consolidated revenues derived from aftermarket parts and services was 37.8% in 2019 compared to 39.2% in 2018.

Gross Profit

Gross profit in 2019 was $911.7 million, a decrease of $100.8 million, or 10.0%, compared to $1,012.5 million in 2018, and as a percentage of revenues was 37.2% in 2019 and 37.6% in 2018. The decrease in gross profit reflects primarily the lower revenues from upstream energy exposed markets, the unfavorable impact of foreign currencies and higher materials and other manufacturing costs, partially offset by improved pricing. The slight decrease in gross profit as a percentage of revenues primarily reflects the unfavorable impact of foreign currencies and higher materials and other manufacturing costs in our Industrials and Medical segments, partially offset by improved pricing.

Selling and Administrative Expenses

Selling and administrative expenses were $436.4 million in 2019, an increase of $1.8 million, or 0.4%, compared to $434.6 million in 2018.  Selling and administrative expenses as a percentage of revenues increased to 17.8% in 2019 from 16.2% in 2018. This increase in selling and administrative expenses was primarily due to increased stock based compensation expense and other employee-related expenses, partially offset by lower professional and consultant fees.

Amortization of Intangible Assets

Amortization of intangible assets was $124.3 million in 2019, a decrease of $1.5 million compared to $125.8 million in 2018. The decrease was primarily due to intangibles that became fully amortized in 2019, partially offset by the amortization of intangibles acquired in 2018 and 2019.

Other Operating Expense, Net

Other operating expense, net was $75.7 million in 2019, an increase of $66.6 million compared to $9.1 million in 2018. The increase was primarily due to increased acquisition related expenses and non-cash charges of $44.0 million, foreign currency transaction losses of $8.1 million in 2019 compared to gains of $1.9 million in 2018, increased restructuring costs of $4.4 million and lower shareholder litigation settlement recoveries of $3.5 million.

Interest Expense

Interest expense was $88.9 million in 2019, a decrease of $10.7 million compared to $99.6 million in 2018. The decrease was primarily due to reduced debt as a result of prepayments in 2018 and 2019, partially offset by an increased weighted-average rate of 5.4% in 2019 compared to 5.2% in 2018.

Other Income, Net

Other income, net, was $4.7 million in 2019, a decrease of $2.5 million compared to $7.2 million in 2018. The decrease in other income, net was primarily due to an increase of $4.6 million in the other components of net periodic benefit cost and a decrease of $0.8 million in other financing income, partially offset by increased gains on postretirement plan investments of $2.9 million.

Provision for Income Taxes

The provision for income taxes was $31.8 million resulting in a 16.7% effective tax rate in 2019 compared to a provision of $80.1 million resulting in a 22.9% effective tax provision rate in 2018.  The decrease in the tax provision and the decrease in the effective tax rate is primarily due to a decrease in pretax book income and an increase in a benefit related to equity compensation.

35
Net Income

Net income was $159.1 million in 2019 compared to net income of $269.4 million in 2018. The decrease in net income was primarily due to lower gross profit on lower revenues and higher other operating expense, net, partially offset by lower interest expense and a lower provision for income taxes.

Adjusted EBITDA

Adjusted EBITDA decreased $117.0 million to $564.8 million in 2019 compared to $681.8 million in 2018.  Adjusted EBITDA as a percentage of revenues decreased 230 basis points to 23.0% in 2019 from 25.3% in 2018. The decrease in Adjusted EBITDA was primarily due to lower revenue in upstream energy exposed markets in our Energy segment of $110.4 million, higher selling and administrative expenses of $19.4 million, the unfavorable impact of foreign currencies of $15.6 million, higher materials and other manufacturing costs in our Industrials and Medical segments of $12.4 million and higher volume including acquisitions being offset by the dilutive impact of acquisitions in our Industrials segment of $7.4 million, partially offset by improved pricing of $36.8 million and higher volume in other markets in our Energy segment and in our Medical segment including acquisitions of $10.7 million.

Adjusted Net Income

Adjusted Net Income decreased $62.3 million to $332.4 million in 2019 compared to $394.7 million in 2018. The decrease was primarily due to lower Adjusted EBITDA, partially offset by a lower income tax provision, as adjusted and lower interest expense.

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 consolidated results 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 22 “Segment Information” to our audited consolidated financial statements included elsewhere in this Form 10-K.

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 Years Ended December 31, 2019 and 2018

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

 
Years Ended December 31,
   
Percent Change
   
Constant Currency
Percent Change
 
   
2019
   
2018
   
2019 vs. 2018
   
2019 vs. 2018
 
Segment Revenues
 
$
1,301.3
   
$
1,303.3
     
(0.2
)%
   
3.1
%
Segment Adjusted EBITDA
 
$
296.6
   
$
288.2
     
2.9
%
   
6.2
%
Segment Margin
   
22.8
%
   
22.1
%
 
70 bps
         

36
2019 vs. 2018

Segment Revenues for 2019 were $1,301.3 million, a decrease of $2.0 million, or 0.2%, compared to $1,303.3 million in 2018.  The decrease in Segment Revenues was primarily due to unfavorable impact of foreign currencies (3.3% or $42.4 million), partially offset by improved pricing (2.3% or $29.8 million) and higher volume including acquisitions (0.8% or $10.6 million). The percentage of Segment Revenues derived from aftermarket parts and service was 31.4% in 2019 compared to 31.5% in 2018.

Segment Adjusted EBITDA in 2019 was $296.6 million, an increase of $8.4 million, or 2.9%, from $288.2 million in 2018. Segment Adjusted EBITDA Margin increased 70 bps to 22.8% from 22.1% in 2018. The increase in Segment Adjusted EBITDA was due primarily to improved pricing of $29.8 million and lower selling and administrative expenses of $5.1 million, partially offset by the unfavorable impact of foreign currencies of $9.6 million, higher material and other manufacturing costs of $9.5 million, and higher volume including acquisitions offset by the dilutive impact of acquisitions $7.4 million.

Energy Segment Results

   
Years Ended December 31,
   
Percent Change
   
Constant Currency
Percent Change
 
   
2019
   
2018
   
2019 vs. 2018
   
2019 vs. 2018
 
Segment Revenues
 
$
870.2
   
$
1,121.1
     
(22.4
)%
   
(20.8
)%
Segment Adjusted EBITDA
 
$
225.1
   
$
337.8
     
(33.4
)%
   
(32.3
)%
Segment Margin
   
25.9
%
   
30.1
%
 
(420) bps
         

2019 vs. 2018

Segment Revenues for 2019 were $870.2 million, a decrease of $250.9 million, or 22.4%, compared to $1,121.1 million in 2018.  The decrease in Segment Revenues was primarily due to lower revenues from upstream energy exposed markets (21.0% or $235.6 million), the unfavorable impact of foreign currencies (1.3% or $14.9 million) and lower volume in other markets in our Energy segment (0.3% or $2.8 million), partially offset by improved pricing in other markets in our Energy segment (0.2% or $2.4 million). The percentage of Segment Revenues derived from aftermarket parts and service was 58.7% in 2019 compared to 56.6% in 2018.

Segment Adjusted EBITDA in 2019 was $225.1 million, a decrease of $112.7 million, or 33.4%, from $337.8 million in 2018. Segment Adjusted EBITDA Margin decreased 420 bps to 25.9% from 30.1% in 2018. The decrease in Segment Adjusted EBITDA was due primarily to lower revenues from upstream energy exposed markets of $110.4 million, the unfavorable impact of foreign currencies of $3.9 million and higher selling and administrative expenses of $2.8 million, partially offset by improved pricing in other markets in our Energy segment of $2.4 million.

Medical Segment Results

   
Years Ended December 31,
   
Percent Change
   
Constant Currency
Percent Change
 
   
2019
   
2018
   
2019 vs. 2018
   
2019 vs. 2018
 
Segment Revenues
 
$
280.4
   
$
265.4
     
5.7
%
   
8.6
%
Segment Adjusted EBITDA
 
$
84.4
   
$
75.0
     
12.5
%
   
16.3
%
Segment Margin
   
30.1
%
   
28.3
%
 
180 bps
         

2019 vs. 2018

Segment Revenues for 2019 were $280.4 million, an increase of $15.0 million, or 5.7%, compared to $265.4 million in 2018.  The increase in Segment Revenues was primarily due to higher volume including acquisitions (6.9% or $18.3 million) and improved pricing (1.7% or $4.6 million), partially offset by unfavorable impact of foreign currencies (3.0% or $7.9 million). The percentage of Segment Revenues derived from aftermarket parts and service was 2.6% in 2019 compared to 3.3% in 2018.

Segment Adjusted EBITDA in 2019 was $84.4 million, an increase of $9.4 million, or 12.5%, from $75.0 million in 2018. Segment Adjusted EBITDA Margin increased 180 bps to 30.1% from 28.3% in 2018. The increase in Segment Adjusted EBITDA was due primarily to higher volume including acquisitions of $9.1 million, improved pricing of $4.6 million and lower selling and administrative costs of $1.4 million, partially offset by higher material and other manufacturing costs of $2.9 million and unfavorable impact of foreign currencies of $2.7 million.

37
Unaudited Quarterly Results of Operations

(in millions, except per share amounts)
 
Year Ended December 31, 2019(1)
 
 
Year Ended December 31, 2018
 
 
 
 
Q1
     
Q2
     
Q3
     
Q4
     
Q1
     
Q2
     
Q3
     
Q4
 
Revenues
 
$
620.3
 
 
$
629.1
 
 
$
596.7
 
 
$
605.8
 
 
$
619.6
 
 
$
668.2
 
 
$
689.3
 
 
$
712.7
 
Gross profit
 
 
230.5
 
 
 
234.4
 
 
 
221.5
 
 
 
225.3
 
 
 
231.9
 
 
 
249.3
 
 
 
262.4
 
 
 
268.9
 
Operating income
 
 
80.2
 
 
 
74.6
 
 
 
72.9
 
 
 
47.6
 
 
 
89.8
 
 
 
101.4
 
 
 
117.7
 
 
 
134.1
 
Net income
 
 
47.1
 
 
 
44.9
 
 
 
41.3
 
 
 
25.8
 
 
 
42.4
 
 
 
60.3
 
 
 
72.2
 
 
 
94.5
 
Weighted average shares, basic
 
 
201.6
 
 
 
203.4
 
 
 
204.2
 
 
 
204.8
 
 
 
201.6
 
 
 
201.8
 
 
 
201.9
 
 
 
201.1
 
Weighted average shares, diluted
 
 
207.7
 
 
 
208.9
 
 
 
209.0
 
 
 
209.4
 
 
 
209.9
 
 
 
209.6
 
 
 
209.1
 
 
 
207.7
 
Basic earnings per share
 
 
0.23
 
 
 
0.22
 
 
 
0.20
 
 
 
0.13
 
 
 
0.21
 
 
 
0.30
 
 
 
0.36
 
 
 
0.47
 
Diluted earnings per share
 
 
0.23
 
 
 
0.21
 
 
 
0.20
 
 
 
0.12
 
 
 
0.20
 
 
 
0.29
 
 
 
0.35
 
 
 
0.45
 
Adjusted EBITDA(2)
 
 
140.1
 
 
 
147.6
 
 
 
142.2
 
 
 
134.9
 
 
 
148.2
 
 
 
161.6
 
 
 
182.2
 
 
 
189.8
 

(1)
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting the Comparability of our Results of Operations.”

(2)
Set forth below are the reconciliations of Net Income to Adjusted EBITDA

 
 
Year Ended December 31, 2019
 
 
 
Year Ended December 31, 2018
 
 
 
 
Q1
     
Q2
     
Q3
     
Q4
     
Q1
     
Q2
     
Q3
     
Q4
 
Net Income
 
 
47.1
 
 
 
44.9
 
 
 
41.3
 
 
 
25.8
 
 
 
42.4
 
 
 
60.3
 
 
 
72.2
 
 
 
94.5
 
Plus:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
22.4
 
 
 
22.4
 
 
 
23.2
 
 
 
20.9
 
 
 
26.0
 
 
 
26.1
 
 
 
24.4
 
 
 
23.1
 
Provision for income taxes
 
 
12.0
 
 
 
8.3
 
 
 
9.0
 
 
 
2.5
 
 
 
23.4
 
 
 
17.2
 
 
 
22.6
 
 
 
16.9
 
Depreciation and amortization expense
 
 
45.5
 
 
 
44.4
 
 
 
43.1
 
 
 
45.1
 
 
 
45.0
 
 
 
45.3
 
 
 
44.4
 
 
 
45.7
 
Restructuring and related business transformation costs (a)
 
 
4.1
 
 
 
2.0
 
 
 
9.9
 
 
 
9.6
 
 
 
4.5
 
 
 
8.4
 
 
 
12.3
 
 
 
13.6
 
Acquisition related expenses and non-cash charges (b)
 
 
1.6
 
 
 
17.1
 
 
 
15.9
 
 
 
20.0
 
 
 
4.6
 
 
 
5.7
 
 
 
2.8
 
 
 
3.6
 
Environmental remdiation loss reserve (c)
 
 
0.1
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
Expenses related to public stock offerings(d)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
1.4
 
 
 
0.5
 
 
 
0.3
 
 
 
0.7
 
Establish public company financial reporting compliance(e)
 
 
0.6
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
0.8
 
 
 
1.1
 
 
 
1.3
 
 
 
1.1
 
Stock-based compensation(f)
 
 
9.3
 
 
 
7.1
 
 
 
0.5
 
 
 
6.2
 
 
 
2.7
 
 
 
(0.8
)
 
 
1.1
 
 
 
(5.3
)
Loss on extinguishment of debt(g)
 
 
-
 
 
 
0.2
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
0.2
 
 
 
0.9
 
 
 
-
 
Foreign currency transaction losses (gains), net
 
 
3.1
 
 
 
0.6
 
 
 
(0.6
)
 
 
5.0
 
 
 
2.6
 
 
 
(2.4
)
 
 
(0.8
)
 
 
(1.3
)
Shareholder litigation settlement recoveries(h)
 
 
(6.0
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(4.5
)
 
 
-
 
 
 
-
 
 
 
(5.0
)
Other adjustments(i)
 
 
0.3
 
 
 
0.6
 
 
 
(0.1
)
 
 
(0.2
)
 
 
(0.7
)
 
 
-
 
 
 
0.7
 
 
 
2.2
 
Adjusted EBITDA
 
 
140.1
 
 
 
147.6
 
 
 
142.2
 
 
 
134.9
 
 
 
148.2
 
 
 
161.6
 
 
 
182.2
 
 
 
189.8
 

(a)
Restructuring and related business transformation costs consist of (i) restructuring charges, (ii) severance, sign-on, relocation and executive search costs, (iii) facility reorganization, relocation and other costs, (iv) information technology infrastructure transformation, (v) gains and losses on asset disposals, (vi) consultant and other advisor fees and (vii) other miscellaneous costs.

(b)
Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs) and non-cash charges and credits arising from fair value purchase accounting adjustments.

(c)
Represents estimated environmental remediation costs and losses related to a former production facility.

(d)
Represents certain expenses related to our secondary offerings.

(e)
Represents third party expenses to comply with the requirements of Sarbanes-Oxley and the accelerated adoption of the new accounting standards (ASC 606 – Revenue from Contracts with Customers and ASC 842 – Leases) in the first quarter of 2018 and 2019 respectively, one year ahead of the required adoption dates for a private company.

(f)
Represents stock-based compensation expense recognized for stock options outstanding for the year ended December 31, 2019 of $19.2 million, increased by $3.9 million due to costs associated with employer taxes.

Represents stock-based compensation expense recognized for the year ended December 31, 2018 of $2.8 million, reduced by $5.1 million primarily due to a decrease in the estimated accrual for employer taxes related to DSUs as a result of a lower per share stock price.

(g)
Represents losses on extinguishment of portions of the U.S. Term Loan, the amendment of the revolving credit facility and losses reclassified from AOCI into income related to the amendment of the interest rate swaps in conjunction with the debt repayment.

38
(h)
Represents insurance recoveries of the Company’s shareholder litigation settlement in 2014.

(i)
Includes (i) non-cash impact of net LIFO reserve adjustments, (ii) effects of amortization of prior service costs and amortization of losses in pension and other postemployment (‘‘OPEB’’) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments.

Liquidity and Capital Resources

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

For a description of our material indebtedness, see Note 10 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K.

As of December 31, 2019, we had $4.4 million of outstanding letters of credit written against the Revolving Credit Facility and $445.6 million of unused availability.  We also had $27.6 million of letters of credit outstanding against the Receivables Financing Agreement and $62.4 million unused availability.

As of December 31, 2019 and 2018 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.

 
Year Ended December 31,
 
   
2019
   
2018
 
Cash and cash equivalents
 
$
505.5
   
$
221.2
 
Short-term borrowings and current maturities of long-term debt
 
$
7.6
   
$
7.9
 
Long-term debt
   
1,603.8
     
1,664.2
 
Total debt
 
$
1,611.4
   
$
1,672.1
 

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 10 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K for further details.

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 may from time to time, seek to repay loans that we have borrowed, including the borrowings under the Senior Secured Credit Facilities. 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.

39
The majority of our cash is in jurisdictions outside of the United States.  We do not assert ASC 740-30 (formerly APB 23) indefinite reinvestment of our historical non-U.S. earnings or future non-U.S. earnings. The Company records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the United States. Our deferred income tax liability as of December 31, 2019 is $7.8 million which consists mainly of withholding taxes.

Working Capital

 
For the Years Ended December 31,
 
   
2019
   
2018
 
Net Working Capital
           
Current assets
 
$
1,543.9
   
$
1,331.2
 
Less: Current liabilities
   
574.6
     
596.4
 
Net working capital
 
$
969.3
   
$
734.8
 
                 
Operating Working Capital
               
Accounts receivable and contract assets
 
$
488.1
   
$
545.0
 
Plus: Inventories (excluding LIFO)
   
489.5
     
510.7
 
Less: Accounts payable
   
322.9
     
340.0
 
Less: Contract liabilities
   
51.7
     
69.6
 
Operating working capital
 
$
603.0
   
$
646.1
 

Net working capital increased $234.5 to $969.3 as of December 31, 2019 from $734.8 million as of December 31, 2018. Operating working capital decreased $43.1 million to $603.0  as of December 31, 2019 from $646.1 million as of December 31, 2018. Operating working capital as of December 31, 2019 was 24.6% of 2019 revenues as compared to 24.0% as of December 31, 2018 as a percentage of 2018 revenues.  The decrease in operating working capital was primarily due to lower accounts receivable and lower inventories, partially offset by higher contract assets, lower accounts payable and lower contract liabilities. The decrease in accounts receivable was primarily due to lower sales in 2019 compared to 2018. The decrease in inventory was due to concerted supply chain optimization initiatives. The increase in contract assets was due to the timing of revenue recognition and billing on our overtime contracts. The decrease in contract liabilities was due to the timing of customer milestone payments for in-process engineered to order contracts.  The decrease in accounts payable was primarily due to the timing of vendor cash disbursements.

Cash Flows

The following table reflects the major categories of cash flows for the years ended December 31, 2019 and 2018, respectively.
 
   
Year Ended December 31,
 
   
2019
   
2018
 
Cash flows - operating activities
 
$
343.3
   
$
444.5
 
Cash flows - investing activities
   
(54.3
)
   
(235.0
)
Cash flows - financing activities
   
(11.5
)
   
(373.0
)
Free cash flow (1)
   
300.1
     
392.3
 

(1)
See “Item 6. Selected Financial Data” for a reconciliation to the most directly comparable GAAP measure.

Operating activities

Cash provided by operating activities decreased $101.2 to $343.3 in 2019 from $444.5 million in 2018, due to lower net income (excluding non-cash charges for depreciation and amortization, non-cash restructuring charges, stock-based compensation expense, foreign currency transaction losses (gains), net, net losses (gains) on asset dispositions, loss on the extinguishment of debt, non-cash change in the LIFO reserve and deferred income taxes) and from cash generated by reduced operating working capital.

Operating working capital generated cash of $38.7 million in 2019 compared to generating cash of $54.9 million in 2018. Changes in account receivables generated cash of $54.7 million in 2019 compared to generating cash of $13.2 million in 2018. Changes in contract assets used cash of $9.1 million in 2019 compared to using cash of $19.9 million in 2018. Changes in inventory generated cash of $18.7 million in 2019 compared to using cash of $13.0 million in 2018. Changes in accounts payable used cash of $9.2 million in 2019 compared to generating cash of $69.6 million in 2018. Changes in contract liabilities used cash of $16.4 million in 2019 compared to generating cash of $5.0 million in 2018.

40
Investing activities

Cash flows used by investing activities included capital expenditures of $43.2 million (1.8% of consolidated revenues) and $52.2 million (1.9% of consolidated revenues) in 2019 and 2018, respectively.  We currently expect capital expenditures to total approximately $45.0 million to $55.0 million in 2020.  Cash paid in business combinations was $12.0 million in 2019 and $186.3 million in 2018.  Net proceeds from the disposal of property, plant and equipment were $0.9 million and $3.5 million in 2019 and 2018, respectively.

Financing activities

Cash used in financing activities of $11.5 million in 2019 reflects repayments of long-term borrowings of $32.8 million, purchases of treasury stock of $18.6 million, payments of $2.3 million for contingent consideration and $0.5 million of debt issuance cost payments, partially offset by proceeds from stock option exercises of $42.7 million associated with approved stock-based compensation plans.

Cash used in financing activities of $373.0 million in 2018 reflects repayments of long-term borrowings of $337.6 million, purchases of treasury stock of $40.7 million, payments of $1.4 million for contingent consideration and $0.1 million of other items, partially offset by proceeds from stock option exercises of $6.8 million associated with approved stock-based compensation plans.

Free cash flow

Free cash flow decreased $92.2 million to $300.1 million in 2019 from $392.3 million in 2018 due to decreased cash provided by operating activities of $101.2 million, partially offset by a decrease in capital expenditures of $9.0 million in 2019 compared to 2018.

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.

Contractual Obligations

The following table summarizes our future minimum payments as of December 31, 2019 for all contractual obligations for years subsequent to the year ended December 31, 2019.

         
Payments Due by Period
 
Contractual Obligations
 
Total
   
2020
     
2021-2022
     
2023-2024
   
More than
5 years
 
Debt
 
$
1,601.6
   
$
6.9
   
$
13.9
   
$
1,580.8
   
$
-
 
Estimated interest payments(1)
   
313.9
     
83.4
     
123.8
     
101.6
     
5.1
 
Finance leases
   
17.9
     
0.7
     
1.6
     
2.1
     
13.5
 
Operating leases
   
58.1
     
16.9
     
22.0
     
11.6
     
7.6
 
Purchase obligations(2)
   
186.7
     
162.6
     
23.3
     
0.3
     
0.5
 
Total
 
$
2,178.2
   
$
270.5
   
$
184.6
   
$
1,696.4
   
$
26.7
 

(1)
Estimated interest payments for long-term debt were calculated as follows: for fixed-rate debt and term debt, interest was calculated based on applicable rates and payment dates; for variable-rate debt and/or non-term debt, interest rates and payment dates were estimated based on management’s determination of the most likely scenarios for each relevant debt instrument.

(2)
Purchase obligations consist primarily of agreements to purchase inventory or services made in the normal course of business to meet operational requirements. The purchase obligation amounts do not represent the entire anticipated purchases in the future, but represent only those items for which we are contractually obligated as of December 31, 2019. For this reason, these amounts will not provide a complete and reliable indicator of our expected future cash outflows.

Total pension and other postretirement benefit liabilities recognized on our consolidated balance sheet as of December 31, 2019 were $101.9 million.  The total pension and other postretirement benefit liabilities are included in our consolidated balance sheet line items “Accrued liabilities” and “Pensions and other postretirement benefits.” Because these liabilities are impacted by, among other items, plan funding levels, changes in plan demographics and assumptions and investment return on plan assets, these liabilities do not represent expected liquidity needs. Accordingly, we did not include these liabilities in the “Contractual Obligations” table above.

We fund our U.S. qualified pension plans in accordance with the Employee Retirement Income Security Act of 1974 regulations for the minimum annual required contribution and Internal Revenue Service regulations for the maximum annual allowable tax deduction. We are committed to making the required minimum contributions and expect to contribute a total of approximately $0.1 million to our U.S. qualified pension plans during 2020. Furthermore, we expect to contribute a total of approximately $0.3 million to our postretirement life insurance benefit plans during 2020. Future contributions are dependent upon various factors including the performance of the plan assets, benefit payment experience and changes, if any, to current funding requirements. Therefore, no amounts were included in the “Contractual Obligations” table related to expected plan contributions. We generally expect to fund all future contributions to our plans with cash flows from operating activities.

41
Our non-U.S. pension plans are funded in accordance with local laws and income tax regulations. We expect to contribute a total of approximately $5.0 million to our non-U.S. qualified pension plans during 2019. No amounts have been included in the “Contractual Obligations” table related to these plans due to the same reasons indicated above.

Disclosure of amounts in the “Contractual Obligations” table regarding expected benefit payments in future years for our pension plans and other postretirement benefit plans cannot be properly reflected due to the ongoing nature of the obligations of these plans. We currently anticipate the annual benefit payments for the U.S. plans to be in the range of approximately $4.5 million to $5.4 million for the next several years, and the annual benefit payments for the non-U.S. plans to be in the range of approximately $10.2 million to $12.2 million for the next several years.

Contingencies

We are a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature for a company of our size and in our sector.  We believe that such proceedings, lawsuits and administrative actions will not materially adversely affect our operations, financial condition, liquidity or competitive position. We have accrued liabilities and other liabilities on our consolidated balance sheet, including a total litigation reserve of $118.1 million as of December 31, 2019 with respect to potential liability arising from our asbestos-related litigation.  Other than our asbestos-related litigation reserves, we only have de minimis accrued liabilities and other liabilities on our consolidated balance sheet with respect to other legal proceedings, lawsuits and administrative actions. A more detailed discussion of certain of these proceedings, lawsuits and administrative actions is set forth in “Item 3. Legal Proceedings.”

Critical Accounting Estimates

Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. Certain of these estimates include determining fair value. All of these estimates reflect our best judgment about current, and for some estimates, future economic and market conditions and their effect based on information available as of the date of these financial statements. If these conditions change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may result in future impairments of goodwill, intangibles and long-lived assets, increases in reserves for contingencies, establishment of valuation allowances on deferred tax assets and increase in tax liabilities, among other effects. Also see Note 1 “Summary of Significant Accounting Policies” to our audited consolidated financial statements included elsewhere in this Form 10-K, which discusses the significant accounting policies that we have selected from acceptable alternatives.

Impairment of Goodwill and Other Identified Intangible Assets

We test goodwill for impairment annually in the fourth quarter of each year using data as of October 1 of that year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Upon adoption of ASU 2019-04, the impairment test consists of comparing the fair value of the reporting unit to the carrying value of the reporting unit. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; provided, the loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit. If applicable, we consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. We determined fair values for all of the reporting units using a combination of the income and market multiples approaches which are weighted 75% and 25%, respectively.

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our 2019 reporting unit valuations ranged from 9.0% to 10.0%. Additionally, we assumed 3.0% terminal growth rates for all reporting units.

Under the market multiples approach, fair value is determined based on multiples derived from the stock prices of publically traded guideline companies to develop a business enterprise value (“BEV”) for our reporting units. The application of the market multiples method entails the development of book value multiples based on the market value of the guideline companies. The multiples are developed by first calculating the market value of equity of the guideline companies and then adjusting these multiples for cash and debt to arrive at a BEV multiple. Identifying appropriate guideline companies and computing appropriate market multiples is subjective. We considered various public companies that had reasonably similar qualitative factors as our reporting units while also considering quantitative factors such as revenue growth, profitability and total assets.

42
For all reporting units, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value) was a minimum of 42.9%.  With each reporting unit’s fair value in excess of its carrying value, no goodwill impairment was recorded.

We annually test intangible assets with indefinite lives for impairment utilizing a discounted cash flow valuation referred to as the relief from royalty method. We estimated forecasted revenues for a period of five years with discount rates ranging from 9.0% to 10.0%, a terminal growth rate of 3.0%, and royalty rates ranging from 3.0% to 4.0%.

We review identified intangible assets with defined useful lives and subject to amortization for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset.

Also see Note 8 “Goodwill and Other Intangible Assets” to our audited consolidated financial statements included elsewhere in this Form 10-K.

Income Taxes

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available.

On December 22, 2017, the Tax Act was enacted into law and the new legislation contains several key tax provisions that affected us, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes, including the determination of the transition tax, the remeasurement of our U.S. deferred tax assets and liabilities as well as the reassessment of the net realizability of our deferred tax assets and liabilities in the period of enactment. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date.  As a result, we previously provided a provisional estimate of the effect of the Tax Act in our financial statements for 2017 and through the first nine month period of 2018.  In the fourth quarter of 2018, we completed our accounting for all of the enactment-date income tax effects of the Tax Act by increasing the total benefit taken in 2017 of $95.3 million to $96.5 million.  The total U.S. deferred change due to the Tax Act went from a tax benefit of $89.6 million in 2017 to $74.5 million in 2018, with a 2018 measurement-period adjustment of $15.1 million. The ASC 740-30 (formerly APB 23) liability related to the permanent reinvestment of earnings in foreign subsidiaries assertion, changed from a tax benefit of $69.0 million in 2017 to $72.5 million in 2018, with a 2018 measurement-period adjustment of $3.5 million resulting from a reduction in distributable profits due to restructuring and repatriations and the change in policy that occurred in 2018. The provisional one-time transition tax of $63.3 million in 2017 decreased to $50.5 million in 2018, with a 2018 measurement-period adjustment of $12.8 million. The total $1.2 million benefit had a (0.3)% impact to the overall rate in 2018.

The Tax Act creates a new requirement that certain income (i.e., GILTI) earned by CFCs 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.

Under U.S. GAAP, we are 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”). We determined that we will follow the period cost method (option 1 above) going forward.  The tax provision for the year ended December 31, 2019 reflects this decision.  All of the additional calculations and rule changes found in the Tax Act have been considered in the tax provision for year ended December 31, 2019.  The Company recorded a tax expense of $2.0 million in 2019 for the GILTI provisions of the Tax Act that were effective for the first time during 2018.

43
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years.  Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. Amounts recorded for deferred tax assets related to tax attribute carryforwards, net of valuation allowances, were $12.7 million and $3.5 million as of December 31, 2019 and 2018, respectively.

Stock-Based Compensation

We account for stock-based compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all stock-based payments to employees and non-employees, including grants of stock options and deferred stock units (“DSU”), to be measured based on the grant date fair value of the awards.

The fair value of each stock option grant is estimated using the Black-Scholes-Merton valuation model. The model requires certain assumptions including the estimated expected term of the stock options, the risk-free interest rate and the assumed volatility, of which certain assumptions are highly complex and subjective. The expected option life represents the period of time that the options granted are expected to be outstanding based on management's best estimate of the timing of a liquidity event and the contractual term of the stock option. As there is not sufficient trading history of our common stock, we use a group of our competitors which we believe are similar to us, adjusted for our capital structure, in order to estimate volatility. Our exercise price is the stock price on the date in which shares were granted.

Concurrent with the Company’s initial public offering in May of 2017, the Company’s Board authorized the grant of 5.5 million DSUs to all permanent employees that had not previously received stock-based awards under the 2013 Plan. The DSUs vested immediately upon grant, however contain restrictions such that the employee may not sell or otherwise realize the economic benefits of the award until certain dates through April 2019. The fair value of each DSU grant under the Stock-Based Compensation Plan is estimated on the date of grant or modification using the Finnerty discount for lack of marketability pricing model.  The discount for lack of marketability is commensurate with the period of sale restrictions related to the Company’s initial public offering.

Prior to our initial public offering, our stock price was calculated based on a combination of the income approach and the market approach. Under the income approach, specifically the discounted cash flow method, forecasted cash flows are discounted to the present value at a risk-adjusted discount rate. The valuation analyses determine discrete free cash flows over several years based on forecast financial information provided by management and a terminal value for the residual period beyond the discrete forecast, which are discounted at an appropriate rate to estimate our enterprise value. Under the market approach, specifically the guideline public company method, we select publicly traded companies with similar financial and operating characteristics as us and calculate valuation multiples based on the guideline public company’s financial information and market data. Subsequent to the initial public offering, the estimation of our stock price is no longer necessary as we rely on the market price to determine the market value of our common stock. For additional information related to the assumptions used, see Note 17 “Stock-Based Compensation Plans” to our audited consolidated financial statements included elsewhere in this Form 10-K.

Loss Contingencies

Loss contingencies are uncertain and unresolved matters that arise in the ordinary course of business and result from events or actions by others that have the potential to result in a future loss. Such contingencies include, but are not limited to, asbestos and silica related litigation, environmental obligations, litigation, regulatory proceedings, product quality and losses resulting from other events and developments.

When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the ultimate loss. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of such range. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency.  In particular, as it relates to estimating asbestos and silica contingencies, 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 we have reached settlements, the resolution of coverage issues with other excess insurance carriers with whom we have not yet achieved settlements and the solvency risk with respect to our insurance carriers.  Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and new information must be continuously evaluated to determine both the likelihood of potential loss and whether it is possible to reasonably estimate a range of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure is provided.

44
Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision. We regularly review all contingencies to determine whether the likelihood of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and boundaries of high and low.

Recent Accounting Pronouncements

See Note 2 “New Accounting Standards” to our audited consolidated financial statements included elsewhere in this Form 10-K for a discussion of recent accounting standards.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

As of December 31, 2019, we had variable rate debt outstanding, net of our interest rate swaps, of $776.3 million at a current weighted average interest rate of 3.2%, substantially all of which was incurred under our $2,460.7 million Senior Secured Credit Facility, under which $927.6 million was outstanding under the $1,285.5 million Dollar Term Loan Facility and €601.2 million was outstanding under the €615.0 million Euro Term Loan Facility.

The Dollar Term Loan Facility and the Euro Term Loan Facility bear interest primarily based on LIBOR and EURIBOR, respectively, plus a spread.  The Dollar Term Loan Facility is subject to a 0% LIBOR base rate floor and the Euro Term Loan Facility is subject to a 0% EURIBOR base rate floor.  Thus, the interest rate on the Dollar Term Loan Facility and the Euro Term Loan Facility will fluctuate when LIBOR or EURIBOR, respectively, exceeds that percentage. As of December 31, 2019, LIBOR was higher than the 0% floor and EURIBOR was lower than the 0% floor.

We use interest rate swaps to offset our exposure to interest rate movements. These outstanding interest rate swaps qualify and are designated as cash flow hedges of forecasted LIBOR-based interest payments. As of December 31, 2019, we were a fixed rate payer on four fixed-floating interest rate swap contracts that effectively fixed the LIBOR-based index used to determine the interest rates charged on our LIBOR-based variable rate borrowings. See Note 18 “Hedging Activities, Derivative Instruments, and Credit Risk” to our audited consolidated financial statements included elsewhere in this Form 10-K.

The following table presents the impact of hypothetical changes in market interest rates across the yield curve by 100 basis points, including the effect of our interest rate swaps for the years ended December 31, 2019 and 2018 on our interest expense.

   
Year Ended December 31,
 
   
2019
   
2018
 
Increase (decrease) in market interest rates
           
100 basis points
 
$
4.7
   
$
4.8
 
(100) basis points(1) (2)
   
(1.0
)
   
(0.3
)

(1)
A decrease in interest rates would not have impacted our interest expense in 2019 on EURIBOR debt which was lower than the 0% base rate floor under the Senior Secured Credit Facility for the entire fiscal year 2019, but would have impacted interest expense in 2019 on LIBOR debt which was higher than the 0% based rate floors under the Senior Secured Credit Facility for the year ended December 31, 2019.

(2)
A decrease in interest rates would not have impacted our interest expense in 2018 on EURIBOR debt which was lower than the 0% base rate floor under the Senior Secured Credit Facility for the entire fiscal year 2018, but would have impacted interest expense in 2018 on LIBOR debt which was higher than the 0% based rate floors under the Senior Secured Credit Facility for the year ended December 31, 2018.

45
Foreign Currency Risk

We are exposed to foreign currency risks that arise from our global business operations. Changes in foreign currency exchange rates affect the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries and transactions denominated in currencies other than a subsidiary’s functional currency.  In 2019, the relative strengthening of the U.S. dollar against foreign currencies had an unfavorable impact on our revenues and results of operations while in 2018, the relative weakening of the U.S. dollar against foreign currencies had a favorable impact on our revenues and results of operations.  While future changes in foreign currency exchange rates are difficult to predict, our revenues and earnings may be adversely affected if the U.S. dollar strengthens against foreign currencies.

We seek to minimize our exposure to foreign currency risks through a combination of normal operating activities, including by conducting our international business operations primarily in their functional currencies to match expenses with revenues and the use of foreign currency forward exchange contracts and net investment cross-currency interest rate swaps.  In addition, to mitigate the risk arising from entering into transactions in currencies other than our functional currencies, we typically settle intercompany trading balances monthly.

The table below presents the percentage of revenues and gross profit by principal currency for the years ended December 31, 2019 and 2018.

   
U.S. Dollar
   
Euro
   
British
Pound
   
Chinese
Renminbi
   
Other
 
Year Ended December 31, 2019
                             
Revenues
   
44
%
   
31
%
   
5
%
   
6
%
   
14
%
Gross profit
   
42
%
   
35
%
   
6
%
   
7
%
   
10
%
                                         
Year Ended December 31, 2018
                                       
Revenues
   
48
%
   
30
%
   
5
%
   
5
%
   
12
%
Gross profit
   
48
%
   
31
%
   
5
%
   
7
%
   
9
%

We utilize foreign currency denominated debt obligations supplemented from time to time with cross currency interest rate swaps designated as net investment hedges to selectively hedge portions of our investment in non-U.S. subsidiaries. The currency effects of the designated debt obligations and cross currency interest rate swaps are reflected in accumulated other comprehensive income within our stockholders’ equity, where they partially offset the currency translation effects of our investments in non-U.S. subsidiaries, which in turn partially offset gains and losses recorded on our net investments globally. These currency translation effects and offsetting impacts of our derivatives for the years ended December 31, 2019 and 2018 are summarized in Note 13 “Accumulated Other Comprehensive (Loss) Income” to our audited consolidated financial statements included elsewhere in this Form 10-K.

We also enter into foreign currency forward contracts to manage the risk arising from transaction gains and losses associated with intercompany loans with foreign subsidiaries. Our foreign currency forward contracts are typically short-term and are rolled forward as necessary upon settlement. As of December 31, 2019, we were party to six foreign currency forward contracts, all of which are carried on our balance sheet at fair value. See Note 18 “Hedging Activities, Derivative Instruments, and Credit Risk”  to our audited consolidated financial statements included elsewhere in this Form 10-K.

The table below presents, for the year ended December 31, 2019, the hypothetical effect of a 10% appreciation in the average exchange rate of the U.S. dollar relative to the principal foreign currencies in which our revenues and gross profit are denominated.

   
Year Ended December 31, 2019
 
   
Euro
   
British
Pound
   
Chinese
Renminbi
 
Revenues
 
$
(69.2
)
 
$
(11.9
)
 
$
(13.5
)
Gross profit
   
(30.1
)
   
(5.3
)
   
(6.7
)


46
ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

 
For the Years Ended December 31,
 
   
2019
   
2018
   
2017
 
Revenues
 
$
2,451.9
   
$
2,689.8
   
$
2,375.4
 
Cost of sales
   
1,540.2
     
1,677.3
     
1,477.5
 
Gross Profit
   
911.7
     
1,012.5
     
897.9
 
Selling and administrative expenses
   
436.4
     
434.6
     
446.2
 
Amortization of intangible assets
   
124.3
     
125.8
     
118.9
 
Impairment of other intangible assets
   
—
     
—
     
1.6
 
Other operating expense, net
   
75.7
     
9.1
     
222.1
 
Operating Income
   
275.3
     
443.0
     
109.1
 
Interest expense
   
88.9
     
99.6
     
140.7
 
Loss on extinguishment of debt
   
0.2
     
1.1
     
84.5
 
Other income, net
   
(4.7
)
   
(7.2
)
   
(3.4
)
Income (Loss) Before Income Taxes
   
190.9
     
349.5
     
(112.7
)
Provision (benefit) for income taxes
   
31.8
     
80.1
     
(131.2
)
Net Income
   
159.1
     
269.4
     
18.5
 
Less: Net income attributable to noncontrolling interests
   
—
     
—
     
0.1
 
Net Income Attributable to Gardner Denver Holdings, Inc.
 
$
159.1
   
$
269.4
   
$
18.4
 
Basic earnings per share
 
$
0.78
   
$
1.34
   
$
0.10
 
Diluted earnings per share
 
$
0.76
   
$
1.29
   
$
0.10
 

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

47

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

   
 
For the Years Ended December 31,
 
 
 
2019
   
2018
   
2017
 
Comprehensive Income Attributable to Gardner Denver Holdings, Inc.
                 
Net income attributable to Gardner Denver Holdings, Inc.
 
$
159.1
   
$
269.4
   
$
18.4
 
Other comprehensive (loss) income, net of tax:
                       
Foreign currency translation adjustments, net
   
(1.5
)
   
(61.0
)
   
106.0
 
Unrecognized gains on cash flow hedges, net
   
7.2
     
18.1
     
12.4
 
Pension and other postretirement prior service cost and gain or loss, net
   
(6.5
)
   
(4.6
)
   
24.2
 
Other comprehensive (loss) income, net of tax
   
(0.8
)
   
(47.5
)
   
142.6
 
Comprehensive income attributable to Gardner Denver Holdings, Inc.
 
$
158.3
   
$
221.9
   
$
161.0
 
Comprehensive Income Attributable to Noncontrolling Interests
                       
Net income attributable to noncontrolling interests
 
$
—
   
$
—
   
$
0.1
 
Other comprehensive income, net of tax
   
—
     
—
     
—
 
Comprehensive income attributable to noncontrolling interests
 
$
—
   
$
—
   
$
0.1
 
Total Comprehensive Income
 
$
158.3
   
$
221.9
   
$
161.1
 

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

48

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

 
December 31,
   
December 31,
 
   
2019
   
2018
 
Assets
           
Current assets
           
Cash and cash equivalents
 
$
505.5
   
$
221.2
 
Accounts receivable, net of allowance for doubtful accounts of $18.4 and $17.4, respectively
   
459.1
     
525.4
 
Inventories
   
502.5
     
523.9
 
Other current assets
   
76.8
     
60.7
 
Total current assets
   
1,543.9
     
1,331.2
 
Property, plant and equipment, net of accumulated depreciation of $298.4 and $250.0, respectively
   
326.6
     
356.6
 
Goodwill
   
1,287.7
     
1,289.5
 
Other intangible assets, net
   
1,255.0
     
1,368.4
 
Deferred tax assets
   
3.0
     
1.3
 
Other assets
   
212.2
     
140.1
 
Total assets
 
$
4,628.4
   
$
4,487.1
 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Short-term borrowings and current maturities of long-term debt
 
$
7.6
   
$
7.9
 
Accounts payable
   
322.9
     
340.0
 
Accrued liabilities
   
244.1
     
248.5
 
Total current liabilities
   
574.6
     
596.4
 
Long-term debt, less current maturities
   
1,603.8
     
1,664.2
 
Pensions and other postretirement benefits
   
99.7
     
94.8
 
Deferred income taxes
   
251.0
     
265.5
 
Other liabilities
   
229.4
     
190.2
 
Total liabilities
   
2,758.5
     
2,811.1
 
Commitments and contingencies (Note 20)
   
     
 
Stockholders’ equity
               
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 206,767,529 and 201,051,291 shares issued as of December 31, 2019 and December 31, 2018, respectively
   
2.1
     
2.0
 
Capital in excess of par value
   
2,302.0
     
2,282.7
 
Accumulated deficit
   
(141.4
)
   
(308.7
)
Accumulated other comprehensive loss
   
(256.0
)
   
(247.0
)
Treasury stock at cost; 1,701,785 and 2,881,436 shares as of December 31, 2019 and 2018, respectively
   
(36.8
)
   
(53.0
)
Total stockholders’ equity
   
1,869.9
     
1,676.0
 
Total liabilities and stockholders’ equity
 
$
4,628.4
   
$
4,487.1
 

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

49

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

 
For the Years Ended December 31,
 
   
2019
   
2018
   
2017
 
Number of Common Shares Issued (in millions)
                 
Balance at beginning of period
   
201.1
     
198.4
     
150.6
 
Common stock issued for initial public offering
   
—
     
—
     
47.5
 
Issuance of common stock for stock-based compensation plans
   
5.7
     
2.7
     
0.3
 
Balance at end of period
   
206.8
     
201.1
     
198.4
 
Common Stock
                       
Balance at beginning of period
 
$
2.0
   
$
2.0
   
$
1.5
 
Common stock issued for initial public offering
   
—
     
—
     
0.5
 
Issuance of common stock for stock-based compensation plans
   
0.1
     
—
     
—
 
Balance at end of period
 
$
2.1
   
$
2.0
   
$
2.0
 
Capital in Excess of Par Value
                       
Balance at beginning of period
 
$
2,282.7
   
$
2,275.4
   
$
1,222.4
 
Common stock issued for initial public offering, net of underwriting discounts and commissions
   
—
     
—
     
897.2
 
Costs related to initial public offering
   
—
     
—
     
(4.6
)
Issuance of common stock for stock-based compensation plans
   
34.5
     
6.8
     
0.7
 
Issuance of treasury stock for stock-based compensation plans
   
(26.4
)
   
(10.4
)
   
—
 
Stock-based compensation
   
11.2
     
10.9
     
157.3
 
Purchase of noncontrolling interest
   
—
     
—
     
2.4
 
Balance at end of period
 
$
2,302.0
   
$
2,282.7
   
$
2,275.4
 
Accumulated Deficit
                       
Balance at beginning of period
 
$
(308.7
)
 
$
(577.8
)
 
$
(596.2
)
Net income attributable to Gardner Denver Holdings, Inc.
   
159.1
     
269.4
     
18.4
 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2017-12)
   
—
     
(0.3
)
   
—
 
    Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02)
   
8.2
     
—
     
—
 
Balance at end of period
 
$
(141.4
)
 
$
(308.7
)
 
$
(577.8
)
Accumulated Other Comprehensive Loss
                       
Balance at beginning of period
 
$
(247.0
)
 
$
(199.8
)
 
$
(342.4
)
Foreign currency translation adjustments, net
   
(1.5
)
   
(61.0
)
   
106.0
 
Unrecognized gains on cash flow hedges, net
   
7.2
     
18.1
     
12.4
 
Pension and other postretirement prior service cost and gain or loss, net
   
(6.5
)
   
(4.6
)
   
24.2
 
Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2017-12)
   
—
     
0.3
     
—
 
    Cumulative-effect adjustment upon adoption of new accounting standard (ASU 2018-02)
   
(8.2
)
   
—
     
—
 
Balance at end of period
 
$
(256.0
)
 
$
(247.0
)
 
$
(199.8
)
Treasury Stock
                       
Balance at beginning of period
 
$
(53.0
)
 
$
(23.0
)
 
$
(19.4
)
Purchases of treasury stock
   
(18.6
)
   
(11.5
)
   
(3.6
)
Share repurchase program
   
—
     
(29.2
)
   
—
 
Issuance of treasury stock for stock-based compensation plans
   
34.8
     
10.7
     
—
 
Balance at end of period
 
$
(36.8
)
 
$
(53.0
)
 
$
(23.0
)
Total Gardner Denver Holdings, Inc. Stockholders’ Equity
 
$
1,869.9
   
$
1,676.0
   
$
1,476.8
 
Noncontrolling Interests
                       
Balance at beginning of period
   
—
     
—
   
$
5.9
 
Net income (loss) attributable to noncontrolling interests
   
—
     
—
     
0.1
 
Purchase of noncontrolling interest
   
—
     
—
     
(7.6
)
Transfer of noncontrolling interest AOCI to consolidated AOCI
   
—
     
—
     
1.6
 
Balance at end of period
 
$
—
   
$
—
   
$
—
 
Total Stockholders’ Equity
 
$
1,869.9
   
$
1,676.0
   
$
1,476.8
 

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

50

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

 
For the Years Ended December 31,
 
   
2019
   
2018
   
2017
 
Cash Flows From Operating Activities
                 
Net income
 
$
159.1
   
$
269.4
   
$
18.5
 
Adjustments to reconcile net income to net cash provided by operating activities
                       
Amortization of intangible assets
   
124.3
     
125.8
     
118.9
 
Depreciation in cost of sales
   
44.3
     
44.8
     
46.6
 
Depreciation in selling and administrative expenses
   
9.5
     
9.8
     
8.3
 
Impairment of other intangible assets
   
—
     
—
     
1.6
 
Non-cash restructuring charges
   
3.3
     
—
     
—
 
Stock-based compensation expense
   
19.2
     
2.8
     
175.0
 
Foreign currency transaction losses (gains), net
   
8.1
     
(1.9
)
   
9.3
 
Net loss (gain) on asset disposition
   
0.8
     
(1.1
)
   
0.8
 
Loss on extinguishment of debt
   
0.2
     
1.1
     
84.5
 
Non-cash change in LIFO reserve
   
0.2
     
0.2
     
2.6
 
Deferred income taxes
   
(21.3
)
   
4.0
     
(249.0
)
Changes in assets and liabilities
                       
Receivables
   
54.7
     
13.2
     
(65.7
)
Inventories
   
18.7
     
(13.0
)
   
(22.7
)
Accounts payable
   
(9.2
)
   
69.6
     
39.9
 
Accrued liabilities
   
(26.1
)
   
(38.9
)
   
(24.8
)
Other assets and liabilities, net
   
(42.5
)
   
(41.3
)
   
56.7
 
Net cash provided by operating activities
   
343.3
     
444.5
     
200.5
 
Cash Flows From Investing Activities
                       
Capital expenditures
   
(43.2
)
   
(52.2
)
   
(56.8
)
Net cash paid in business combinations
   
(12.0
)
   
(186.3
)
   
(18.8
)
Proceeds from the termination of derivatives
   
—
     
—
     
6.2
 
Disposals of property, plant and equipment
   
0.9
     
3.5
     
8.6
 
Net cash used in investing activities
   
(54.3
)
   
(235.0
)
   
(60.8
)
Cash Flows From Financing Activities
                       
Principal payments on long-term debt
   
(32.8
)
   
(337.6
)
   
(2,879.3
)
Premium paid on extinguishment of senior notes
   
—
     
—
     
(29.7
)
Proceeds from long-term debt
   
—
     
—
     
2,010.7
 
Proceeds from the issuance of common stock, net of share issuance costs
   
—
     
—
     
893.6
 
Purchases of treasury stock
   
(18.6
)
   
(40.7
)
   
(3.6
)
Proceeds from stock option exercises
   
42.7
     
6.8
     
—
 
Payments of contingent consideration
   
(2.3
)
   
(1.4
)
   
—
 
Payments of debt issuance costs
   
(0.5
)
   
—
     
(4.1
)
Purchase of shares from noncontrolling interests
   
—
     
—
     
(5.2
)
Other
   
—
     
(0.1
)
   
0.2
 
Net cash used in financing activities
   
(11.5
)
   
(373.0
)
   
(17.4
)
Effect of exchange rate changes on cash and cash equivalents
   
6.8
     
(8.6
)
   
15.2
 
Increase (decrease) in cash and cash equivalents
   
284.3
     
(172.1
)
   
137.5
 
Cash and cash equivalents, beginning of year
   
221.2
     
393.3
     
255.8
 
Cash and cash equivalents, end of year
 
$
505.5
   
$
221.2
   
$
393.3
 
                         
Supplemental Cash Flow Information
                       
Cash paid for income taxes
 
$
61.6
   
$
103.1
   
$
55.5
 
Cash paid for interest
 
$
85.6
   
$
98.5
   
$
142.5
 
Debt issuance costs in accounts payable
 
$
0.3
   
$
—
   
$
—
 
Debt issuance costs in accrued liabilities
 
$
5.6
   
$
—
   
$
—
 
Capital expenditures in accounts payable
 
$
4.8
   
$
10.0
   
$
6.5
 
Property and equipment acquired under capital leases
 
$
—
   
$
—
   
$
7.8
 

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

51

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

Note 1:
Summary of Significant Accounting Policies

Overview and 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 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”).

In May 2017, the Company sold a total of 47,495,000 shares of common stock in an initial public offering of shares of common stock.  On November 15, 2017, May 2, 2018 and October 31, 2018, the Company completed secondary offerings of 25,300,000 shares, 30,533,478 and 20,000,000 shares, respectively, of common stock held by affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”).  As a result of the secondary offerings, the Company is no longer considered a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange (“NYSE”).  KKR owns 70,671,135 shares of common stock, or approximately 34% of the total outstanding common stock based on the number of shares outstanding as of December 31, 2019.

Principles of Consolidation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The Company regularly evaluates the estimates and assumptions related to the allowance for doubtful accounts, inventory valuation, warranty reserves, fair value of stock-based awards, goodwill, intangible asset, and long-lived asset valuations, employee benefit plan liabilities, over time revenue recognition, income tax liabilities and deferred tax assets and related valuation allowances, uncertain tax positions, restructuring reserves, and litigation and other loss contingencies. Actual results could differ materially and adversely from those estimates and assumptions, and such results could affect the Company’s consolidated net income, financial position, or cash flows.

Foreign Currency Translation

Assets and liabilities of the Company’s foreign subsidiaries, where the functional currency is not the U.S. Dollar (“USD”), are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the year. Adjustments resulting from the translation of the assets and liabilities of foreign operations into USD are excluded from the determination of net income (loss), and are reported in accumulated other comprehensive (loss) income, a separate component of stockholders’ equity, and included as a component of other comprehensive (loss) income. Assets and liabilities of subsidiaries that are denominated in currencies other than the subsidiaries’ functional currency are remeasured into the functional currency using end of period exchange rates, or historical rates for certain balances, where applicable. Gains and losses related to these remeasurements are recorded within the Consolidated Statements of Operations as a component of “Other operating expense, net.”

Revenue Recognition

On January 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”).  The Company adopted the guidance using a modified retrospective approach.  Results for the years ended December 31, 2019 and 2018 were recorded under ASC 606 in the Consolidated Statements of Operations.  The results in the Consolidated Statements of Operations for the year ended December 31, 2017 were not adjusted from ASC 605, Revenue Recognition (“ASC 605”).  See Note 14 “Revenue from Contracts with Customers” for more discussion of the adoption of ASC 606 and the related significant accounting policies.

Leases

On January 1, 2019, the Company adopted FASB ASU 2016-02, Leases (Topic 842) (“ASC 842”) utilizing the optional transition method.  The guidance required the Company to recognize right-of-use lease assets and lease liabilities on the balance sheet for those leases classified as operating leases.  The Consolidated Balance Sheet as of December 31, 2019 reflects the adoption of ASC 842.  The Consolidated Balance Sheet as of December 31, 2018 was not adjusted from ASC 840, Leases (“ASC 840”).  See Note 16 “Leases” for further discussion of the Company’s operating and financing leases.

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Cost of Sales

Cost of sales includes the costs the Company incurs, 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 the most significant materials inputs.  Cost of sales for services includes the direct costs the Company incurs including direct labor, parts and other overhead costs including depreciation of equipment and facilities to deliver repair, maintenance, and other field services to the Company’s customers.

Selling and Administrative Expenses

Selling and administrative expenses consist of (i) employee related salary, stock-based compensation expense, benefits and other expenses for selling, administrative functions and other activities not associated with the manufacture of products or delivery of services to customers; (ii) the costs of marketing and direct costs of selling products and services to customers including internal and external sales commissions; (iii) facilities costs including office rent, maintenance, depreciation, and insurance for selling and administrative activities; (iv) research and development expenditures; (v) professional and consultant fees; and (vi) KKR fees and expenses; (vii) expenses related to the Company’s public stock offerings and to establish public company reporting compliance; and (viii) other miscellaneous expenses.

Cash and Cash Equivalents

Cash and cash equivalents are highly liquid investments primarily consisting of demand deposits and have original maturities of three months or less. Accordingly, the carrying amount of such instruments is considered a reasonable estimate of fair value. As of December 31, 2019 and 2018, cash of $3.4 million and $3.4 million, respectively, was pledged to financial institutions as collateral to support the issuance of standby letters of credit and similar instruments on behalf of the Company.

Accounts Receivable

Trade accounts receivable consist of amounts owed for products shipped to or services performed for customers. Reviews of customers’ creditworthiness are performed prior to order acceptance or order shipment.

Trade accounts receivable are recorded at net realizable value. This value includes an appropriate allowance for doubtful accounts for estimated losses that may result from the Company’s inability to fully collect amounts due from its customers. The allowance is determined based on a combination of factors, including the length of time that the trade receivables are past due, history of write-offs, and the Company’s knowledge of circumstances relating to specific customers’ ability to meet their financial obligations.

Inventories

Inventories, which consist primarily of raw materials and finished goods, are carried at the lower of cost or net realizable value. Fixed manufacturing overhead is allocated to the cost of inventory based on the normal capacity of production facilities. Unallocated overhead during periods of abnormally low production levels is recognized as cost of sales in the period in which it is incurred.

Property, Plant and Equipment

Property, plant and equipment includes the historical cost of land, buildings, equipment, and significant improvements to existing plant and equipment or in the case of acquisitions, a fair market value of assets at the time of acquisition. Repair and maintenance costs that do not extend the useful life of an asset are recorded as an expense as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are generally as follows: buildings — 10 to 30 years; machinery and equipment — 7 to 10 years; office furniture and equipment — 3 to 10 years; and tooling, dies, patterns, etc. — 3 to 5 years.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired, liabilities assumed, and non-controlling interests, if any. Intangible assets, including goodwill, are assigned to the Company’s reporting units based upon their fair value at the time of acquisition. Goodwill and indefinite-lived intangibles such as trademarks are not subject to amortization but are assessed for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired or that there is a probable reduction in the fair value of a reporting unit below its aggregate carrying value.

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The Company tests goodwill for impairment annually in the fourth quarter of each year using data as of October 1 of that year and whenever events or changes in circumstances indicate the carrying value may not be recoverable. The impairment test consists of comparing the fair value of the reporting unit to the carrying value of the reporting unit. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; provided, the loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit. If applicable, the Company considers income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. The Company determined fair values for each of the reporting units using a combination of the income and market multiple approaches which are weighted 75% and 25%, respectively.

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company uses its internal forecasts to estimate future cash flows and includes an estimate of long-term future growth rates based on its most recent views of the long-term outlook for each reporting unit. Actual results may differ from those assumed in the Company’s forecasts. The Company derives its discount rates using a capital asset pricing model and analyzing published rates for industries relevant to its reporting units to estimate the cost of equity financing. The Company uses discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in its internally developed forecasts.  Under the market approach, the Company applies performance multiples from comparable public companies, adjusted for relative risk, profitability, and growth considerations, to the reporting units to estimate fair value.

The Company tests intangible assets with indefinite lives annually for impairment using a relief from royalty discounted cash flow fair value model. The quantitative impairment test for indefinite-lived intangible assets involves a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The relief from royalty method requires the Company to estimate forecasted revenues and determine appropriate discount rates, royalty rates, and terminal growth rates.

See Note 8 “Goodwill and Other Intangible Assets” for additional information related to impairment testing for goodwill and other intangible assets.

Long-Lived Assets Including Intangible Assets With Finite Useful Lives

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives, which vary depending on the type of intangible assets. The estimated useful lives are as follows: customer lists and relationships — 11-13 years, acquired technology — 12-25 years, certain trademarks — 10-20 years, and other intangibles — 1-5 years.

The Company reviews long-lived assets, including identified intangible assets with finite useful lives and subject to amortization for impairment, whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. Such events and circumstances include the occurrence of an adverse change in the market involving the business employing the related long-lived assets or a situation in which it is more likely than not that the Company will dispose of such assets. If the comparison indicates that there is impairment, the impairment loss to be recognized as a non-cash charge to earnings is measured by the amount by which the carrying amount of the assets exceeds their fair value and the impaired assets are written down to their fair value or, if fair value is not readily determinable, to an estimated fair value based on discounted expected future cash flows. Assets to be disposed are reported at the lower of the carrying amount or fair value, less costs to dispose.

Warranty Reserves

Most of the Company’s product sales are covered by warranty provisions that generally provide for the repair or replacement of qualifying defective items for a specified period after the time of sale, typically 12 months. The Company establishes reserves for estimated product warranty costs at the time revenue is recognized based upon historical warranty experience and additionally for any known product warranty issues. The Company’s warranty obligation has been and may in the future be affected by product failure rates, repair or field replacement costs, and additional costs incurred in correcting any product failure.

Stock-Based Compensation

Stock-based compensation is measured for all stock-based equity awards made to employees and non-employee directors based on the estimated fair value as of the grant date. The determination of the fair values of stock-based awards at the grant date requires judgment, including estimating the expected term of the relevant stock-based payment awards and the expected volatility of the Company’s stock.  The fair value of each stock option grant under the stock-based compensation plans is estimated on the date of grant or modification using the Black-Scholes-Merton option-pricing model. The expected stock volatility assumption was based on an average of the historical volatility of certain of the Company’s competitors’ stocks over the expected term of the stock options.  Forfeitures of stock options are accounted for as they occur.  Restricted stock units are valued at the share price on the date of grant.

54

In 2017, deferred stock units were granted and their respective fair values were estimated on the date of grant or modification using the Finnerty discount for lack of marketability pricing model.  The discount for lack of marketability is commensurate with the period of sale restrictions related to the Company’s initial public offering.

See Note 17 “Stock-Based Compensation Plans” for additional information regarding the Company’s equity compensation plans.

Pension and Other Postretirement Benefits

The Company sponsors a number of pension plans and other postretirement benefit plans worldwide. The calculation of the pension and other postretirement benefit obligations and net periodic benefit cost under these plans requires the use of actuarial valuation methods and assumptions. These assumptions include the discount rates used to value the projected benefit obligations, future rate of compensation increases, expected rates of return on plan assets and expected healthcare cost trend rates. The discount rates selected to measure the present value of the Company’s benefit obligations as of December 31, 2019 and 2018 were derived by examining the rates of high-quality, fixed income securities whose cash flows or duration match the timing and amount of expected benefit payments under the plans. In accordance with GAAP, actual results that differ from the Company’s assumptions are recorded in accumulated other comprehensive income (loss) and amortized through net periodic benefit cost over future periods. While management believes that the assumptions are appropriate, differences in actual experience or changes in assumptions may affect the Company’s pension and other postretirement benefit obligations and future net periodic benefit cost.

See Note 11 “Benefit Plans” for disclosures related to Gardner Denver’s benefit plans, including quantitative disclosures reflecting the impact that changes in certain assumptions would have on service and interest costs and benefit obligations.

Income Taxes

The Company has determined income tax expense and other deferred income tax information based on the asset and liability method. Deferred income taxes are provided on temporary differences between assets and liabilities for financial and tax reporting purposes as measured by enacted tax rates expected to apply when temporary differences are settled or realized. A valuation allowance is established for the portion of deferred tax assets for which it is not more likely than not that a tax benefit will be realized.

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company believes that its income tax liabilities, including related interest, are adequate in relation to the potential for additional tax assessments. There is a risk, however, that the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in income tax expense and, therefore, could have a material impact on the Company’s tax provision, net income, and cash flows. The Company reviews its liabilities quarterly, and may adjust such liabilities due to proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations or new case law, negotiations between tax authorities of different countries concerning transfer prices, the resolution of audits, or the expiration of statutes of limitations. Adjustments are most likely to occur in the year during which major audits are closed.

On December 22, 2017, the Tax Act was enacted into law and the new legislation contains several key tax provisions that affected the Company, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others.  The Company was required to recognize the effect of the Tax Act in the period of enactment.  This included the determination of the transition tax, remeasurement of the Company’s U.S. deferred tax assets and liabilities as well as the reassessment of the net realizability of the Company’s deferred tax assets and liabilities.  In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Job Act (“SAB 118”), which allowed the Company to record provisional amounts during a measurement period not to extend more than one year subsequent to the enactment date. As a result, the Company previously provided a provisional estimate of the effect of the Tax Act in its financial statements for 2017 and through the first nine months of 2018.  In the fourth quarter of 2018, the Company completed its accounting for all of the enactment-date income tax effects of the Tax Act and increased the total benefit taken in 2017 of $95.3 million to $96.5 million.  Due to the Tax Act, the total U.S. deferred changed from a tax benefit of $89.6 million in 2017 to $74.5 million in 2018, with a 2018 measurement-period adjustment of $15.1 million. The ASC 740-30 (formally APB 23) liability reduction, relating to the permanently reinvested earnings in foreign subsidiaries assertion, changed from a tax benefit of $69.0 million in 2017 to $72.5 million in 2018, with a 2018 measurement-period adjustment of $3.5 million due to the policy change that occurred in 2018. The provisional one-time transition tax of $63.3 million in 2017 decreased to $50.5 million in 2018, with a 2018 measurement-period adjustment of $12.8 million. The total $1.2 million benefit had a (0.3)% impact to the overall rate in 2018.

55

The Tax Act creates a new requirement that certain income (i.e., Global intangible low taxed income (“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.

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 cost method (option 1 above) going forward.  The tax provision for the year ended December 31, 2019 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  year ended December 31, 2019. The Company recorded a tax expense of $2.0 million in 2019 for the GILTI provisions of the Tax Act that were effective for the first time during 2018.

Research and Development

For the years ended December 31, 2019, 2018 and 2017, the Company spent approximately $25 million, $24 million, and $26 million, respectively, on research activities relating to the development of new products and new product applications. All such expenditures were funded by the Company, expensed as incurred and recorded to “Selling and administrative expenses” in the Consolidated Statements of Operations.

Derivative Financial Instruments

All derivative financial instruments are reported on the balance sheet at fair value. For derivative instruments that are not designated as hedges, any gain or loss on the derivatives is recognized in earnings in the current period. A derivative instrument may be designated as a hedge of the exposure to: (1) changes in the fair value of an asset, liability, or firm commitment, or (2) variability in expected future cash flows, if the hedging relationship is expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk during the period of designation or as a hedge of a net investment in a foreign operation. If a derivative is designated as a fair value hedge, the gain or loss on the derivative and the offsetting loss or gain on the hedged asset, liability, or firm commitment are recognized in earnings. For derivative instruments designated as a cash flow hedge or an eligible net investment in a foreign operation, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified to earnings in the same period that the hedged transaction affects earnings. The ineffective portion of the gain or loss is immediately recognized in earnings. Gains or losses on derivative instruments recognized in earnings are reported in the same line item as the associated hedged transaction in the Consolidated Statements of Operations.

Hedge accounting is discontinued prospectively when (1) it is determined that a derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item; (2) the derivative is sold, terminated, or exercised; (3) the hedged item no longer meets the definition of a firm commitment; or (4) it is unlikely that a forecasted transaction will occur within two months of the originally specified time period.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the derivative continues to be carried on the balance sheet at its fair value, and the changes in the fair value of the hedged asset or liability is recorded to the Consolidated Statements of Operations. When cash flow hedge accounting is discontinued because the derivative is sold, terminated, or exercised, the net gain or loss remains in accumulated other comprehensive income and is reclassified into earnings in the same period that the hedged transaction affects earnings or until it becomes unlikely that a hedged forecasted transaction will occur within two months of the originally scheduled time period. When hedge accounting is discontinued because a hedged item no longer meets the definition of a firm commitment, the derivative continues to be carried on the Consolidated Balance Sheet at its fair value, and any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the balance sheet and recognized as a gain or loss currently in earnings. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur within two months of the originally specified time period, the derivative continues to be carried on the balance sheet at its fair value, and gains and losses reported in accumulated other comprehensive income are recognized immediately in the Consolidated Statements of Operations.

Comprehensive Income

The Company’s comprehensive income consists of net income and other comprehensive income (loss), consisting 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 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. See Note 13 “Accumulated Other Comprehensive (Loss) Income.”

56

Restructuring Charges

The Company incurs costs in connection with the closure and consolidation of facilities and other actions. Such costs include employee termination benefits (one-time arrangements and benefits attributable to prior service), termination of contractual obligations, non-cash asset charges and other direct incremental costs.

A liability is established through a charge to operations for (i) one-time employee termination benefits when management commits to a plan of termination; (ii) employee termination benefits that accumulate or vest based on prior service when it becomes probable that such termination benefits will be paid and the amount of the payment can be reasonably estimated; and (iii) contract termination costs when the contract is terminated or the Company becomes contractually obligated to make such payment. Other direct incremental costs are charged to operations as incurred.

Charges recorded in connection with restructuring plans are included in “Other operating expense, net” in the Consolidated Statements of Operations.

Business Combinations

The Company accounts for business combinations by applying the acquisition method. The Company’s consolidated financial statements include the operating results of acquired entities from the respective dates of acquisition. The Company recognizes and measures the identifiable assets acquired, liabilities assumed, and any non-controlling interest as of the acquisition date at fair value. The excess, if any, of total consideration transferred in a business combination over the fair value of identifiable assets acquired, liabilities assumed, and any non-controlling interest is recognized as goodwill in the Consolidated Balance Sheets. Costs incurred by the Company to effect a business combination other than costs related to the issuance of debt or equity securities are included in the Consolidated Statements of Operations in the period the costs are incurred.

Earnings  per Share

The calculation of earnings per share (“EPS”) is based on the weighted-average number of the Company’s shares outstanding for the applicable period. The calculation of diluted earnings per share reflects the effect of all dilutive potential shares that were outstanding during the respective periods, unless the effect of doing so is antidilutive. The Company uses the treasury stock method to calculate the effect of outstanding share-based compensation awards.

Note 2:
New Accounting Standards

Adopted Accounting Standard Updates (“ASU”)

ASU 2016-02, Leases (Topic 842)

On January 1, 2019, the Company adopted FASB ASU 2016-02, Leases (Topic 842) (“ASC 842”) utilizing the optional transition method.  The amendments in this update replaced most of the existing GAAP lease accounting guidance in order to increase transparency and comparability among organizations by recognizing right-of-use lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current GAAP.  The amendments also expanded disclosure requirements for key information about leasing arrangements.  The Company elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019 whereby these contracts were not reassessed or reclassified from their previous assessment as of December 31, 2018.  The Company updated its internal lease accounting policy to address the new standard, revised the Company’s business processes and controls and completed the implementation and data input for the Company’s lease accounting software solution.  The most significant impact of the standard on the Company was the recognition of an approximate $61.3 million operating right of use (“ROU”) asset and an approximate $61.4 million operating lease liability on the Consolidated Balance Sheet.  The standard did not have a material impact on the Company’s Consolidated Statements of Operations or the Company’s Consolidated Statements of Cash Flows.  See Note 16 “Leases” for further discussion of the Company’s operating and financing leases.

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

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

57

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions and amending and clarifying existing guidance. The guidance is effective for public companies beginning with the annual report for fiscal year 2020. Early adoption is permitted. The Company is currently assessing the impact of this ASU on its consolidated financial statements and evaluating the timing of adoption.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update eliminate, add and modify certain disclosure requirements for fair value measurements as part of its disclosure framework project. The guidance is effective for public companies beginning in the first quarter of 2020.  This ASU will have an immaterial impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this eliminate, add and modify certain disclosure requirements for defined benefit pension plans. The guidance is effective for public companies beginning with its annual report for fiscal year 2020.  This ASU will have an immaterial impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40); Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update require implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangement plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company is required to adopt this new guidance in the first quarter of 2020.  The Company concluded that this ASU will have an immaterial impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which adds an impairment model that is based on expected losses rather than incurred losses and is called the Current Expected Credit Losses (“CECL”) model.  This impairment model is applicable to loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables as well as any other financial asset with the contractual right to receive cash.  Under the new model, an allowance equal to the estimate of lifetime expected credit losses is recognized which will result in more timely loss recognition.  The guidance is intended to reduce complexity by decreasing the number of credit impairment models.  This guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption.  The Company is required to adopt this new guidance in the first quarter of 2020.  The Company reviewed the impact of this ASU on its consolidated financial statements and concluded that any cumulative-effect adjustment would be immaterial.

Note 3:
Business Combinations

The Company acquired seven businesses during the three years ended December 31, 2019. Proforma information has not been provided as the acquisitions did not have a material impact on the Company’s Consolidated Statements of Operations individually or in the aggregate.

Acquisition of Air Compressors and Blowers North Limited

On August 19, 2019, the Company acquired Air Compressors and Blowers North Limited (“ACBN”), a provider of vacuum pumps, blowers and compressors. The Company acquired certain assets of ACBN for total consideration of $7.0 million, which consisted of cash payments of $5.9 million and a $1.1 million deferred payment. The deferred payment is expected to be paid by the end of the first quarter of 2021 and is recorded in “Other liabilities” in the Consolidated Balance Sheets. The revenues and operating income of ACBN are included in the Company’s 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.

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Acquisition of Oina VV AB

On July 3, 2019, the Company acquired Oina VV AB (“Oina”) which specializes in customized pump solutions for liquid handling processes for use in medical, process and industrial applications. The Company acquired all of the assets and assumed certain liabilities of Oina for total consideration, net of cash acquired, of $10.0 million, which consisted of cash payments of $5.6 million, a $1.6 million holdback, and up to $2.8 million in contingent earn-out provisions. The $1.6 million holdback is expected to be paid by the end of the first quarter of 2021 and is recorded in “Other liabilities” in the Consolidated Balance Sheets.  The revenues and operating income of Oina are included in the Company’s consolidated financial statements from the acquisition date and are included in the Medical segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition of MP Pumps, Inc.

On December 12, 2018, the Company acquired MP Pumps, Inc. (“MP Pumps”), a leading manufacturer of specialty industrial pumps and associated aftermarket parts. The Company acquired all of the assets and assumed certain liabilities of MP Pumps for total consideration, net of cash acquired, of $58.5 million, which consisted of cash payments of $57.8 million and a $0.7 million holdback.  Purchase price adjustments reduced the holdback to $0.5 million and it was paid in the first quarter of 2019 and recorded in “Net cash paid in business combinations” in the Consolidated Statements of Cash Flows. The revenues and operating income of MP Pumps are included in the Company’s consolidated financial statements from the acquisition date and are included in the Industrials segment. None of the goodwill resulting from this acquisition is deductible for tax purposes.

Acquisition of DV Systems, Inc.

On November 2, 2018, the Company acquired DV Systems, Inc. (“DV Systems”), a leading manufacturer of rotary screws and piston compressors and associated aftermarket parts. The Company acquired all of the assets and assumed certain liabilities of DV Systems for total consideration, net of cash acquired, of $16.1 million, which consisted of cash payments of $14.8 million and a $1.3 million holdback. Purchase price adjustments increased the holdback to $1.4 million of which $0.3 million was paid in the fourth quarter of 2019 and recorded in “Payments of contingent consideration” in the Consolidated Statements of Cash Flows.  Of the $1.1 million holdback, $0.6 million is expected to be paid by the end of the first quarter of 2020 and $0.5 million is expected to be paid by the end the fourth quarter of 2020. The remaining $1.1 million holdback is recorded in “Accrued liabilities”. The revenues and operating income of DV Systems are included in the Company’s 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 PMI Pump Parts

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

Acquisition of Runtech Systems Oy

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

Acquisition of LeROI Compressors

On June 5, 2017, the Company acquired 100% of the stock of LeROI Compressors (“LeROI”), a leading North American manufacturer of gas compression equipment and solutions for vapor recovery, biogas and other process and industrial 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 was an indemnity holdback of $1.9 million.  During 2018, the holdback was adjusted to $1.7 million for repairs and further reduced by a $0.2 million payment made in the fourth quarter of 2018.  The holdback payment was recorded in “Payments of contingent consideration” in the Consolidated Statements of Cash Flows. Of the $1.5 million holdback, $1.0 million was paid in the second quarter of 2019 and $0.5 million is expected to be paid by the end of the second quarter of 2021. The remaining $0.5 million holdback is recorded in “Other liabilities.” The revenues and operating income of LeROI are included in the Company’s 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.

59

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. 

Acquisition Revenues and Operating Income

The revenue included in the financial statements for these acquisitions subsequent to their acquisition date was $137.6 million, $96.2 million and $13.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.  For the years ended December 31, 2019, 2018 and 2017, operating income included in the financial statements for the acquisitions described above, subsequent to their date of acquisition was $19.1 million, $8.3 million and $1.4 million, respectively.

Transaction with Ingersoll Rand

On April 30, 2019, the Company entered into a definitive agreement with Ingersoll-Rand plc (“Ingersoll Rand”) pursuant to which Ingersoll Rand will separate its Industrial segment (“Ingersoll Rand Industrial”) and then combine it with the Company (the “Merger Agreement”). The transaction is expected to close during early 2020 and will be effected through a “Reverse Morris Trust” transaction pursuant to which Ingersoll Rand Industrial is expected to be spun-off to Ingersoll Rand’s shareholders and simultaneously merged with and surviving as a wholly-owned subsidiary of Gardner Denver (the “Merger”). Under the terms of the Merger Agreement, which has been unanimously approved by the Boards of Directors of Ingersoll Rand and the Company, at the time of close, Ingersoll Rand will receive $1.9 billion in cash from Ingersoll Rand Industrial that will be funded by newly-issued debt assumed by the Company in the Merger. Upon close of the transaction, existing Ingersoll Rand shareholders will receive 50.1% of the shares of the Company on a fully diluted basis.

Note 4:
Restructuring

Restructuring Programs 2014 to 2016

The Company announced restructuring programs in 2014 and 2016 impacting the Industrials, Energy and Medical segments.  These programs were substantially completed as of December 31, 2017. Through December 31, 2017, $48.0 million had been charged to expense through “Other operating expense, net” in the Consolidated Statements of Operations ($38.5 million for Industrials, $6.3 million for Energy and $3.2 million for Medical).  The Company does not anticipate any material future expense related to these restructuring programs and any remaining liabilities will be paid as contractually obligated. 

As of December 31, 2018, a restructuring reserve of $1.3 million related to these programs was included in “Accrued liabilities” and a restructuring reserve of $0.1 million was included in “Other liabilities” in the Consolidated Balance Sheets.  As of December 31, 2019, there were no remaining restructuring reserves related to these programs in the Consolidated Balance Sheets.

Restructuring Program 2018 to 2019

In the third quarter of 2018, the Company announced a restructuring program that primarily involved workforce reductions and facility consolidation. This restructuring program was substantially completed as of December 31, 2019.  Through December 31, 2019, $26.5 million was charged to expense through ‘‘Other operating expense, net’’ in the Consolidated Statements of Operations ($15.9 million for Industrials, $7.9 million for Energy, $1.6 million for Medical and $1.1 million for Corporate).  Additionally, $3.3 million of non-cash asset write-offs in the Energy segment were charged to expense through ‘‘Other operating expense, net’’ in the Consolidated Statements of Operations.  The Company does not anticipate any material future expense related to this restructuring program and any remaining liabilities will be paid as contractually obligated.

60

The following table summarizes the activity associated with the Company’s restructuring programs for the years ended December 31, 2018 and 2019, respectively.

Balance as of December 31, 2017
 
$
—
 
Charged to expense - termination benefits
   
11.5
 
Charged to expense - other
   
1.2
 
Payments
   
(4.1
)
Other, net
   
0.2
 
Balance as of December 31, 2018
 
$
8.8
 
Charged to expense - termination benefits
   
10.8
 
Charged to expense - other
   
3.0
 
Payments
   
(17.8
)
Other, net
   
0.2
 
Balance as of December 31, 2019
 
$
5.0
 

The restructuring reserve related to these programs was $5.0 million and $8.8 million as of December 31, 2019 and 2018, respectively, and recorded in “Accrued liabilities” in the Consolidated Balance Sheets.

Note 5:
Allowance for Doubtful Accounts

The allowance for doubtful trade accounts receivable for the years ended December 31, 2019, 2018 and 2017 consisted of the following.


 
2019
   
2018
   
2017
 
Balance at beginning of the period
 
$
17.4
   
$
18.7
   
$
18.7
 
Provision charged to expense
   
3.6
     
1.8
     
3.5
 
Write-offs, net of recoveries
   
(2.4
)
   
(2.2
)
   
(4.8
)
Charged to other accounts(1)
   
(0.2
)
   
(0.9
)
   
1.3
 
Balance at end of the period
 
$
18.4
   
$
17.4
   
$
18.7
 
(1)
Primarily includes the effect of foreign currency translation adjustments for the Company's subsidiaries with functional currencies other than the USD.


Note 6:  Inventories

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


 
2019
   
2018
 
Raw materials, including parts and subassemblies
 
$
370.5
   
$
369.2
 
Work-in-process
   
47.6
     
58.1
 
Finished goods
   
71.4
     
83.4
 
     
489.5
     
510.7
 
Excess of LIFO costs over FIFO costs
   
13.0
     
13.2
 
Inventories
 
$
502.5
   
$
523.9
 

As of December 31, 2019, $371.3 million (74%) of the Company’s inventory is accounted for on a first-in, first-out (“FIFO”) basis and the remaining $131.2 million (26%) is accounted for on a last-in, first-out (“LIFO”) basis.

As of December 31, 2018, $390.8 million (75%) of the Company’s inventory is accounted for on a first-in, first-out (“FIFO”) basis and the remaining $133.1 million (25%) is accounted for on a last-in, first-out (“LIFO”) basis.

61


Note 7:  Property, Plant and Equipment

Property, plant and equipment, net as of December 31, 2019 and 2018 consisted of the following.


 
2019
   
2018
 
Land and land improvements
 
$
33.7
   
$
35.0
 
Buildings
   
135.0
     
140.8
 
Machinery and equipment
   
294.9
     
275.9
 
Tooling, dies, patterns, etc
   
68.7
     
61.7
 
Office furniture and equipment
   
40.9
     
40.1
 
Other
   
19.6
     
18.9
 
Construction in progress
   
32.2
     
34.2
 
     
625.0
     
606.6
 
Accumulated depreciation
   
(298.4
)
   
(250.0
)
Property, plant and equipment, net
 
$
326.6
   
$
356.6
 


Note 8:  Goodwill and Other Intangible Assets

Goodwill

The changes in the carrying amount of goodwill attributable to each reportable segment for the years ended December 31, 2019 and 2018 are as follows.


 
Industrials
   
Energy
   
Medical
   
Total
 
Balance as of December 31, 2017
 
$
561.6
   
$
460.2
   
$
205.8
   
$
1,227.6
 
Acquisitions
   
89.2
     
8.7
     
—
     
97.9
 
Foreign currency translation and other(1)
   
(18.1
)
   
(15.3
)
   
(2.6
)
   
(36.0
)
Balance as of December 31, 2018
   
632.7
     
453.6
     
203.2
     
1,289.5
 
Acquisitions
   
6.3
     
—
     
2.0
     
8.3
 
Foreign currency translation and other(1)
   
(2.9
)
   
(5.2
)
   
(2.0
)
   
(10.1
)
Balance as of December 31, 2019
 
$
636.1
   
$
448.4
   
$
203.2
   
$
1,287.7
 

(1)
During the years ended December 31, 2018 and 2019, the Company recorded immaterial measurement period adjustments.

The Company acquired two businesses during the year ended December 31, 2019.  The excess of the purchase price over the estimated fair values of intangible assets, identifiable assets and assumed liabilities was recorded as goodwill. The allocation of the purchase price was preliminary for these acquisitions and is subject to refinement based on final fair values of the identified assets acquired and liabilities assumed. The goodwill attributable to the two businesses is as follows. 

2019 Acquisitions
Date of Acquisition
 
Industrials
   
Energy
   
Medical
   
Total
 
Oina
July 3, 2019
 
$
—
   
$
—
   
$
2.0
   
$
2.0
 
ACBN
August 19, 2019
   
6.3
     
—
     
—
     
6.3
 
      
$
6.3
   
$
—
   
$
2.0
   
$
8.3
 

The Company acquired four businesses during the year ended December 31, 2018.  The excess of the purchase price over the estimated fair values of intangible assets, identifiable assets and assumed liabilities was recorded as goodwill. The goodwill attributable to the four businesses is as follows. 

2018 Acquisitions
Date of Acquisition
 
Industrials
   
Energy
   
Medical
   
Total
 
Runtech
February 8, 2018
 
$
63.6
   
$
—
   
$
—
   
$
63.6
 
PMI Pumps
May 29, 2018
   
—
     
8.7
     
—
     
8.7
 
DV Systems
November 2, 2018
   
4.7
     
—
     
—
     
4.7
 
MP Pumps
December 12, 2018
   
20.9
     
—
     
—
     
20.9
 
      
$
89.2
   
$
8.7
   
$
—
   
$
97.9
 

For the years ended December 31, 2019, 2018 and 2017, each reporting unit’s fair value was in excess of its net carrying value, and therefore, no goodwill impairment was recorded.

62

As of December 31, 2019 and 2018, goodwill included a total of $563.9 million of accumulated impairment losses within the Energy segment since the date of the KKR Transaction.

Other Intangible Assets

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


 
2019
   
2018
 
   
 
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Gross
Carrying
Amount
   
Accumulated
Amortization
 
Amortized intangible assets:
                       
Customer lists and relationships
 
$
1,238.7
   
$
(673.9
)
 
$
1,245.5
   
$
(567.8
)
Technology
   
30.2
     
(6.0
)
   
21.7
     
(4.8
)
Trademarks
   
40.4
     
(11.9
)
   
44.9
     
(13.0
)
Backlog
   
—
     
—
     
68.8
     
(68.6
)
Other
   
64.0
     
(40.8
)
   
62.3
     
(31.9
)
Unamortized intangible assets:
                               
Trademarks
   
614.3
     
—
     
611.3
     
—
 
Total other intangible assets
 
$
1,987.6
   
$
(732.6
)
 
$
2,054.5
   
$
(686.1
)

Amortization of intangible assets was $124.3 million, $125.8 million and $118.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. Amortization of intangible assets is anticipated to be approximately $112.5 million annually in 2020 through 2024 based upon currency exchange rates as of December 31, 2019.

The Company tests indefinite-lived intangible assets for impairment annually in the fourth quarter of each year using data as of October 1 of that year. The Company determines fair values for each of the indefinite-lived intangible assets using a relief from royalty methodology.

The Company did not record an impairment charge for the years ended December 31, 2019 and 2018, related to indefinite-lived intangible assets as a result of the annual impairment test.

In the fourth quarter of 2017, as a result of the annual impairment test of indefinite-lived intangible assets, the Company recorded an impairment charge of $1.6 million related to indefinite-lived trademarks, including $1.3 million related to two trademarks in the Industrials segment and $0.3 million related to an indefinite-lived trademark in the Energy segment. The impairments were included in “Impairments of other intangible assets” in the Consolidated Statements of Operations.


Note 9:  Accrued Liabilities

Accrued liabilities as of December 31, 2019 and 2018 consisted of the following:


 
2019
   
2018
 
Salaries, wages, and related fringe benefits
 
$
60.7
   
$
62.9
 
Restructuring
   
5.0
     
10.1
 
Taxes
   
22.5
     
24.3
 
Contract liabilities
   
51.7
     
69.6
 
Product warranty
   
22.7
     
23.9
 
Accrued interest
   
0.7
     
0.3
 
Operating lease liabilities(1)
   
17.1
     
—
 
Other
   
63.7
     
57.4
 
Total accrued liabilities
 
$
244.1
   
$
248.5
 

(1)
The Company adopted ASU 2016-02, Leases, on January 1, 2019 using the optional transition method.  See Note 2 “New Accounting Standards” for further discussion of the adoption of ASU 2016-02 and Note 16 “Leases” for discussion of the Company’s operating and financing leases.

63

A reconciliation of the changes in the accrued product warranty liability for the years ended December 31, 2019 and 2018 is as follows.


 
2019
   
2018
 
Balance at the beginning of period
 
$
23.9
   
$
22.3
 
Product warranty accruals
   
30.8
     
25.6
 
Settlements
   
(31.9
)
   
(24.6
)
Charged to other accounts (1)
   
(0.1
)
   
0.6
 
Balance at the end of period
 
$
22.7
   
$
23.9
 

(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 or divestitures of businesses.


Note 10: Debt

Debt as of December 31, 2019 and 2018 consisted of the following.


 
2019
   
2018
 
Short-term borrowings
 
$
—
   
$
—
 
Long-term debt
               
Revolving credit facility, due 2024(1)
 
$
—
   
$
—
 
Receivables financing agreement, due 2020
   
—
     
—
 
Term loan denominated in U.S. dollars, due 2024(2)
   
927.6
     
952.6
 
Term loan denomoinated in Euros, due 2024(3)
   
673.9
     
696.5
 
Finance leases and other long-term debt
   
18.0
     
26.3
 
Unamortized debt issuance costs
   
(8.1
)
   
(3.3
)
Total long-term debt, net, including current maturities
   
1,611.4
     
1,672.1
 
Current maturities of long-term debt
   
7.6
     
7.9
 
Total long-term debt, net
 
$
1,603.8
   
$
1,664.2
 

(1)
On June 28, 2019, the Revolving Credit Facility’s maturity was extended to June 28, 2024 as part of the Amendment described within this Note. As of December 31, 2018, the maturity was April 30, 2020.

(2)
As of December 31, 2019, the applicable interest rate was 4.55% and the weighted-average rate was 5.01% for the year ended December 31, 2019.

(3)
As of December 31, 2019, the applicable interest rate was 3.00% and the weighted-average rate was 3.00% for the year ended December 31, 2019.

Senior Secured Credit Facilities

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 Original 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 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.

64

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.

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”), Amendment No. 2 on August 17, 2017 (“Amendment No.2”) and Amendment No. 3 on December 13, 2018 (“Amendment No.3”).

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. On July 30, 2018, the Revolving Credit Facility principal borrowing capacity decreased to $269.9 million resulting from the maturity of the tranches of the Revolving Credit Facility which were owned by lenders that elected not to modify the original Revolving Credit Facility maturity date.  Any principal amounts outstanding as of April 30, 2020 will be due at that time and required to be paid in full. Amendment No. 1 reduced the minimum aggregate principal amount for extension amendments to the facilities from $50.0 million to $35.0 million.

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%.

Amendment No. 3 amended the definition of “Change of Control” to (i) remove the requirement that certain specified equity holders maintain a minimum ownership level of the outstanding voting stock of the Company, (ii) increase the threshold at which the acquisition of ownership by a person, entity or group of other equity holders constitutes a “Change of Control” from 35% of the outstanding voting stock of the Company to 50% of the outstanding voting stock of the Company and (iii) make certain other corresponding technical changes and updates.

The Company entered into Amendment No. 4 to the Senior Secured Credit Facilities with UBS AG, Stamford Branch, as Resigning Agent and Citibank, N.A. as Successor Agent on June 28, 2019 (“Amendment No. 4”).  Amendment No. 4 (i) refinanced the existing senior secured revolving credit facility with a replacement $450.0 million senior secured revolving credit facility (the “New Revolving Credit Facility”); (ii) extended the maturity of the revolving credit facility to June 28, 2024, (iii) terminated the revolving credit facility commitments of certain lenders under the existing senior secured revolving credit facility under the Senior Secured Credit Facilities, (iv) provided for up to $200.0 million of the New Revolving Credit Facility to be available for the purpose of issuing letters of credit; (v) provided for the replacement of GD First (UK) Limited by Gardner Denver Holdings, Ltd. as the UK Borrower under the Amended Senior Secured Credit Facilities; (vi) transferred the Administrative Agent, Collateral Agent and Swingline Lender roles under the Amended Senior Secured Credit Facilities to Citibank, N.A; and (vii) made certain other corresponding technical changes and updates. At the consummation of the pending merger between Gardner Denver Holdings, Inc., and Ingersoll-Rand plc, Amendment No. 4 increases the aggregate amount of the New Revolving Credit Facility to $1,000.0 million and increases the capacity under the New Revolving Credit Facility to issue letters of credit to $400.0 million.  As a result of Amendment No. 4, the Company wrote off $0.2 million of debt issuance costs to the “Loss on extinguishment of debt” in the Consolidated Statements of Operations for the year ended December 31, 2019.

As of December 31, 2019, the Company had no outstanding borrowings, $4.4 million of outstanding letters of credit under the New Revolving Credit Facility and unused availability of $445.6 million.

Interest Rate and Fees

Borrowings under the Dollar Term Loan Facility, the Euro Term Loan Facility and the New 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 2.25% for LIBOR loans and 1.25% for Base Rate loans and (iii) the Euro Term Loan Facility is 3.00% for LIBOR loans.

65

The applicable margins under the New Revolving Credit Facility may decrease based upon the Company’s 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 New Revolving Credit Facility in respect of the unutilized commitments thereunder. The commitment fee rate was reduced to 0.375% because the Company’s 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.

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.

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. In June 2018, September 2018 and December 2018 the Company used excess cash to repay $100.0 million, $150.0 million and $73.3 million, respectively, of principal on outstanding borrowings under the Dollar Term Loan Facility.  As a result of the June 2018 prepayment, the Company is no longer subject to mandatory quarterly principal installment payments on the Dollar Term Loan Facility.  The prepayments resulted in the write-off of unamortized debt issuance costs of $0.5 million for the year ended December 31, 2018, included in “Loss on extinguishment of debt” in the Consolidated Statements of Operations. In March 2019, the Company used excess cash to repay $25.0 million of principal on outstanding borrowings under the Dollar Term Loan Facility.

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.

In May 2017, the Company used a portion of the proceeds from the initial public offering to repay $276.8 million principal amount of outstanding borrowings under the Original Dollar Term Loan Facility at par plus accrued and unpaid interest to the date of prepayment of $1.5 million.  The prepayment resulted in the write-off of unamortized debt issuance costs of $4.3 million and unamortized discounts of $0.7 million included in “Loss on extinguishment of debt” in the Consolidated Statements of Operations.

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.

66

The Revolving Credit Facility also requires the Company’s Consolidated Senior Secured Debt to Consolidated EBITDA Ratio to not exceed 6.25 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 (a) 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 (b) non-cash collateralized letters of credit in an aggregate amount not to exceed Letters of Credit Outstanding on the Amendment No. 4 Effective Date), exceeds (i) 40.0% of the aggregate 2019 Revolving Credit Commitments or (ii) prior to the earlier to occur of the satisfaction of the Increased Availability Condition and the 2019 Revolving Commitment Reduction Date, 40.0% of the lesser of (A) $450.0 million and (B) the aggregate 2019 Revolving Credit Commitments.

The Senior Secured Credit Facilities also contain certain customary affirmative covenants and events of default.

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 for 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 December 31, 2019, the Company had no outstanding borrowings, $27.6 million of letters of credit outstanding and $62.4 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 the Company’s 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 the Company’s consolidated financial statements and therefore, the accounts receivable owned by it are included in the Company’s Consolidated Balance Sheets. However, the accounts receivable owned by the SPV are separate and distinct from the Company’s other assets and are not available to the Company’s other creditors should the Company become insolvent.

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.

Senior Notes

In May 2017, the Company used a portion of the proceeds from the initial public offering to redeem all $575.0 million aggregate principal amount of its Senior Notes at a price of 105.156% of the principal amount redeemed, equal to $604.6 million, plus accrued and unpaid interest to the date of redemption of $10.2 million.  The redemption of the Senior Notes resulted in the write-off of unamortized debt issuance costs of $15.8 million which was included in “Loss on extinguishment of debt” in the Consolidated Statements of Operations.  The premium paid on the Senior Notes, $29.7 million, was included in “Loss on extinguishment of debt” in the Consolidated Statements of Operations.

Total Debt Maturities

Total debt maturities for the five years subsequent to December 31, 2019 and thereafter are approximately $7.6 million, $7.7 million, $7.8 million, $7.9 million, $1,575.0 million and $13.5 million, respectively.

67

Note 11:
Benefit Plans

Pension and Postretirement Benefit Plans

The Company sponsors a number of pension and postretirement plans worldwide. Pension plan benefits are provided to employees under defined benefit pay-related and service-related plans, which are non-contributory in nature. The Company’s funding policy for the U.S. defined benefit pension plans is to contribute at least the minimum required contribution required by Employee Retirement Income Security Act (“ERISA”), as amended by the Pension Protection Act of 2016 (as amended by MAP-21, HAFTA, and BBA 15). The Company intends to make additional contributions, as necessary, to prevent benefit restrictions in the plans. The Company’s annual contributions to the non-U.S. pension plans are consistent with the requirements of applicable local laws.

The Company also provides postretirement healthcare and life insurance benefits in the United States and South Africa to a limited group of current and retired employees. All of the Company’s postretirement benefit plans are unfunded.

The following table provides a reconciliation of the changes in the benefit obligations (the projected benefit obligation in the case of the pension plans and the accumulated postretirement benefit obligation in the case of the other postretirement plans) and in the fair value of the plan assets for the periods described below.


 
Pension Benefits
             
   
U.S. Plans
   
Non-U.S. Plans
   
Other Postretirement Benefits
 
   
2019
   
2018
   
2019
   
2018
   
2019
   
2018
 
Reconciliation of Benefit Obligations:
                                   
Beginning balance
 
$
57.4
   
$
59.7
   
$
304.9
   
$
335.9
   
$
3.1
   
$
3.4
 
Service cost
   
—
     
—
     
1.5
     
1.8
     
—
     
—
 
Interest cost
   
2.2
     
2.1
     
7.7
     
7.5
     
0.1
     
0.1
 
Plan amendments
   
—
     
—
     
—
     
3.6
     
—
     
—
 
Actuarial losses (gains)
   
4.3
     
0.4
     
35.9
     
(16.8
)
   
0.4
     
(0.1
)
Benefit payments
   
(2.8
)
   
(2.9
)
   
(10.3
)
   
(10.2
)
   
(0.2
)
   
(0.2
)
Plan settlements
   
(1.3
)
   
(1.9
)
   
—
     
—
     
—
     
—
 
Effect of foreign currency exchange rate changes
   
—
     
—
     
6.8
     
(16.9
)
   
—
     
(0.1
)
Benefit obligations ending balance
 
$
59.8
   
$
57.4
   
$
346.5
   
$
304.9
   
$
3.4
   
$
3.1
 
Reconciliation of Fair Value of Plan Assets:
                                               
Beginning balance
 
$
57.7
   
$
63.1
   
$
212.2
   
$
238.7
                 
Actual return on plan assets
   
7.4
     
(0.7
)
   
35.3
     
(8.1
)
               
Employer contributions
   
0.1
     
0.1
     
4.3
     
4.2
                 
Plan settlements
   
(1.3
)
   
(1.9
)
   
—
     
—
                 
Benefit payments
   
(2.8
)
   
(2.9
)
   
(10.3
)
   
(10.2
)
               
Effect of foreign currency exchange rate changes
   
—
     
—
     
7.6
     
(12.4
)
               
Fair value of plan assets ending balance
 
$
61.1
   
$
57.7
   
$
249.1
   
$
212.2
                 
                                                 
Funded Status as of Period End
 
$
1.3
   
$
0.3
   
$
(97.4
)
 
$
(92.7
)
 
$
(3.4
)
 
$
(3.1
)

68

Amounts recognized as a component of accumulated other comprehensive (loss) income as of December 31, 2019 and 2018 that have not been recognized as a component of net periodic benefit cost are presented in the following table.


 
U.S. Pension Plans
   
Non-U.S. Pension Plans
   
Other
Postretirement Benefits
 
   
2019
   
2018
   
2019
   
2018
   
2019
   
2018
 
Net actuarial losses (gains)
 
$
5.7
   
$
6.7
   
$
58.8
   
$
48.9
   
$
0.2
   
$
(0.2
)
Prior service cost
   
—
     
—
     
3.5
     
3.5
     
—
     
—
 
Amounts included in accumulated other comprehensive (loss) income
 
$
5.7
   
$
6.7
   
$
62.3
   
$
52.4
   
$
0.2
   
$
(0.2
)

For defined benefit pension plans, the Company estimates that $2.9 million of net losses and $0.2 million of prior service costs will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost during the year ending December 31, 2020. For other postretirement benefit plans, the Company estimates no net losses and prior service costs will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost during the year ending December 31, 2020.

Pension and other postretirement benefit liabilities and assets are included in the following captions in the Consolidated Balance Sheets as of December 31, 2019 and 2018.


 
2019
   
2018
 
Other assets
 
$
2.3
   
$
1.4
 
Accrued liabilities
   
(2.2
)
   
(2.1
)
Pension and other postretirement benefits
   
(99.7
)
   
(94.8
)

The following table provides information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31, 2019 and 2018.


 
U.S. Pension Plans
   
Non-U.S. Pension Plans
 
   
2019
   
2018
   
2019
   
2018
 
Projected benefit obligations
 
$
1.0
   
$
1.0
   
$
330.1
   
$
291.7
 
Accumulated benefit obligation
 
$
1.0
   
$
1.0
   
$
325.3
   
$
288.1
 
Fair value of plan assets
 
$
—
   
$
—
   
$
235.3
   
$
201.2
 

The accumulated benefit obligation for all U.S. defined benefit pension plans was $59.8 million and $57.4 million as of December 31, 2019 and 2018, respectively. The accumulated benefit obligation for all non-U.S. defined benefit pension plans was $339.1 million and $299.1 million as of December 31, 2019 and 2018, respectively.

69

The following tables provide the components of net periodic benefit cost (income) and other amounts recognized in other comprehensive (loss) income, before income tax effects, for the years ended December 31, 2019, 2018 and 2017.


 
U.S. Pension Plans
 
   
2019
   
2018
   
2017
 
Net Periodic Benefit Cost (Income):
                 
Service cost
 
$
—
   
$
—
   
$
—
 
Interest cost
   
2.2
     
2.1
     
2.3
 
Expected return on plan assets
   
(2.2
)
   
(4.7
)
   
(4.4
)
Amortization of prior-service cost
   
—
     
—
     
—
 
Amortization of net actuarial loss
   
0.1
     
—
     
—
 
Net periodic benefit cost (income)
   
0.1
     
(2.6
)
   
(2.1
)
Loss due to settlement
   
—
     
—
     
—
 
Total net periodic benefit cost (income) recognized
 
$
0.1
   
$
(2.6
)
 
$
(2.1
)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income:
                       
Net actuarial (gain) loss
 
$
(0.9
)
 
$
5.8
   
$
(1.5
)
Amortization of net actuarial loss
   
(0.1
)
   
—
     
—
 
Prior service cost
   
—
     
—
     
—
 
Amortization of prior service cost
   
—
     
—
     
—
 
Effect of foreign currency exchange rate changes
   
—
     
—
     
—
 
Total recognized in other comprehensive (loss) income
 
$
(1.0
)
 
$
5.8
   
$
(1.5
)
Total recognized in net periodic benefit (income) cost and other comprehensive (loss) income
 
$
(0.9
)
 
$
3.2
   
$
(3.6
)


 
Non-U.S. Pension Plans
 
   
2019
   
2018
   
2017
 
Net Periodic Benefit Cost (Income):
                 
Service cost
 
$
1.5
   
$
1.8
   
$
1.9
 
Interest cost
   
7.7
     
7.5
     
7.8
 
Expected return on plan assets
   
(10.3
)
   
(11.6
)
   
(10.4
)
Amortization of prior-service cost
   
0.1
     
—
     
—
 
Amortization of net actuarial loss
   
2.0
     
1.8
     
5.0
 
Net periodic benefit cost (income)
 
$
1.0
   
$
(0.5
)
 
$
4.3
 
Loss due to curtailments
   
—
     
—
     
—
 
Total net periodic benefit cost (income) recognized
 
$
1.0
   
$
(0.5
)
 
$
4.3
 
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income:
                       
Net actuarial loss (gain)
 
$
10.9
   
$
2.9
   
$
(29.9
)
Amortization of net actuarial loss
   
(2.0
)
   
(1.8
)
   
(5.0
)
Prior service cost
   
—
     
3.7
     
—
 
Amortization of prior service cost
   
(0.1
)
   
—
     
—
 
Effect of foreign currency exchange rate changes
   
1.1
     
(2.8
)
   
6.5
 
Total recognized in other comprehensive (loss) income
 
$
9.9
   
$
2.0
   
$
(28.4
)
Total recognized in net periodic benefit cost (income) and other comprehensive (loss) income
 
$
10.9
   
$
1.5
   
$
(24.1
)

70


 
Other Postretirement Benefits
 
   
2019
   
2018
   
2017
 
Net Periodic Benefit Cost:
                 
Service cost
 
$
—
   
$
—
   
$
—
 
Interest cost
   
0.1
     
0.1
     
0.1
 
Expected return on plan assets
   
—
     
—
     
—
 
Amortization of prior-service cost
   
—
     
—
     
—
 
Amortization of net actuarial loss
   
—
     
—
     
—
 
Net periodic benefit cost
 
$
0.1
   
$
0.1
   
$
0.1
 
Loss due to curtailments or settlements
   
—
     
—
     
—
 
Total net periodic benefit cost recognized
 
$
0.1
   
$
0.1
   
$
0.1
 
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Loss) Income:
                       
Net actuarial loss (gain)
 
$
0.4
   
$
(0.1
)
 
$
0.2
 
Amortization of net actuarial loss
   
—
     
—
     
—
 
Prior service cost
   
—
     
—
     
—
 
Amortization of prior service cost
   
—
     
—
     
—
 
Effect of foreign currency exchange rate changes
   
—
     
0.1
     
—
 
Total recognized in other comprehensive (loss) income
 
$
0.4
   
$
—
   
$
0.2
 
Total recognized in net periodic benefit cost and other comprehensive (loss) income
 
$
0.5
   
$
0.1
   
$
0.3
 

The discount rate selected to measure the present value of the Company’s benefit obligations was derived by examining the rates of high-quality, fixed income securities whose cash flows or duration match the timing and amount of expected benefit payments under a plan. The Company selects the expected long-term rate of return on plan assets in consultation with the plans’ actuaries. This rate is intended to reflect the expected average rate of earnings on the funds invested or to be invested to provide plan benefits and the Company’s most recent plan assets target allocations. The plans are assumed to continue in force for as long as the assets are expected to be invested. In estimating the expected long-term rate of return on plan assets, appropriate consideration is given to historical performance of the major asset classes held or anticipated to be held by the plans and to current forecasts of future rates of return for those asset classes. Because assets are held in qualified trusts, expected returns are not adjusted for taxes.

The following weighted-average actuarial assumptions were used to determine net periodic benefit cost (income) for the years ended December 31, 2019, 2018 and 2017.


 
Pension Benefits - U.S. Plans
 
   
2019
   
2018
   
2017
 
Discount rate
   
4.0
%
   
3.6
%
   
4.0
%
Expected long-term rate of return on plan assets
   
4.0
%
   
7.75
%
   
7.75
%


 
Pension Benefits - Non-U.S. Plans
 
   
2019
   
2018
   
2017
 
Discount rate
   
2.6
%
   
2.3
%
   
2.3
%
Expected long-term rate of return on plan assets
   
4.9
%
   
5.0
%
   
5.0
%
Rate of compensation increases
   
2.8
%
   
2.8
%
   
2.8
%


 
Other Postretirement Benefits
 
   
2019
   
2018
   
2017
 
Discount rate
   
4.7
%
   
4.4
%
   
4.7
%

71

The following weighted-average actuarial assumptions were used to determine benefit obligations for the years ended December 31, 2019 and 2018:


 
Pension Benefits - U.S. Plans
 
   
2019
   
2018
 
Discount rate
   
3.0
%
   
4.0
%


 
Pension Benefits - Non-U.S. Plans
 
   
2019
   
2018
 
Discount rate
   
1.7
%
   
2.6
%
Rate of compensation increases
   
2.7
%
   
2.8
%


 
Other Postretirement Benefits
 
   
2019
   
2018
 
Discount rate
   
3.8
%
   
4.7
%

The following actuarial assumptions were used to determine other postretirement benefit plans costs and obligations for the years ended December 31, 2019, 2018 and 2017.


 
Other Postretirement Benefits
 
   
2019
   
2018
   
2017
 
Healthcare cost trend rate assumed for next year
   
7.1
%
   
7.9
%
   
8.4
%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
   
7.1
%
   
7.9
%
   
8.4
%
Year that the date reaches the ultimate trend rate
   
2021
     
2020
     
2019
 

A one-percentage-point increase or decrease in assumed healthcare cost trend rates as of December 31, 2019 would have less than a $0.1 million impact on total service and interest cost components of net periodic benefit costs and less than a $0.1 million impact on the postretirement benefit obligation.

The following table reflects the estimated benefit payments for the next five years and for the years 2025 through 2029. The estimated benefit payments for the non-U.S. pension plans were calculated using foreign exchange rates as of December 31, 2019.


 
Pension Benefits
       
   
U.S. Plans
   
Non-U.S.Plans
   
Other Postretirement
Benefits
 
2020
 
$
5.0
   
$
10.2
   
$
0.3
 
2021
 
$
5.4
   
$
10.5
   
$
0.3
 
2022
 
$
4.8
   
$
11.4
   
$
0.3
 
2023
 
$
4.9
   
$
11.5
   
$
0.3
 
2024
 
$
4.5
   
$
12.2
   
$
0.2
 
Aggregate 2025-2029
 
$
18.8
   
$
68.3
   
$
1.0
 

In 2020, the Company expects to contribute approximately $0.1 million to the U.S. pension plans, approximately $5.0 million to the non-U.S. pension plans, and $0.3 million to the other postretirement benefit plans.

Plan Asset Investment Strategy

The Company’s overall investment strategy and objectives for its pension plan assets is to (i) meet current and future benefit payment needs through diversification across asset classes, investing strategies and investment managers to achieve an optimal balance between risk and return and between income and growth of assets through capital appreciation, (ii) secure participant retirement benefits, (iii) minimize reliance on contributions as a source of benefit security, and (iv) maintain sufficient liquidity to pay benefit obligations and proper expenses.  The composition of the actual investments in various securities changes over time based on short and long-term investment opportunities. None of the plan assets of Gardner Denver’s defined benefit plans are invested in the Company’s common stock. The Company uses both active and passive investment strategies.

In 2018, the Company modified its investment strategy for the U.S. pension plans to a liabilities driven investment strategy to reduce the impact of market fluctuations by matching the pension plan assets to the present value of the future liabilities.

72

Plan Asset Risk Management

The target financial objectives for the pension plans are established in conjunction with periodic comprehensive reviews of each plan’s liability structure. The Company’s asset allocation policy is based on detailed asset and liability model (“ALM”) analyses. A formal ALM study of each major plan is undertaken every 2-5 years or whenever there has been a material change in plan demographics, benefit structure, or funded status. In order to determine the recommended asset allocation, the advisors model varying return and risk levels for different theoretical portfolios, using a relative measure of excess return over treasury bills, divided by the standard deviation of the return (the “Sharpe Ratio”). The Sharpe Ratio for different portfolio options was used to compare each portfolio’s potential return, on a risk-adjusted basis. The Company selected a recommended portfolio that achieved the targeted composite return with the least amount of risk.

The Company’s primary pension plans are in the U.S. and UK which together comprise approximately 73% of the total benefit obligations and 89% of total plan assets as of December 31, 2019. The following table presents the long-term target allocations for these two plans as of December 31, 2019.


 
U.S. Plan
   
UK Plan
 
Asset category:
           
Cash and cash equivalents
   
0
%
   
0
%
Equity
   
0
%
   
40
%
Fixed income
   
100
%
   
30
%
Real estate and other
   
0
%
   
30
%
Total
   
100
%
   
100
%

Fair Value Measurements

The following tables present the fair values of the Company’s pension plan assets as of December 31, 2019 and 2018 by asset category within the ASC 820 hierarchy (as defined in Note 19 “Fair Value Measurements”).


 
December 31, 2019
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
   
Investments
Measured at
NAV (5)
   
Total
 
Asset Category
                             
Cash and cash equivalents(1)
 
$
2.6
   
$
—
   
$
—
   
$
—
   
$
2.6
 
Equity funds:
                                       
U.S. large-cap
   
—
     
5.3
     
—
     
—
     
5.3
 
International equity(2)
   
23.0
     
41.5
     
—
     
59.9
     
124.4
 
Total equity funds
   
23.0
     
46.8
     
—
     
59.9
     
129.7
 
Fixed income funds:
                                       
Corporate bonds - international
   
—
     
25.6
     
—
     
—
     
25.6
 
UK index-linked gilts
   
—
     
29.1
     
—
     
—
     
29.1
 
U.S. fixed income - government securities
   
—
     
—
     
—
     
3.9
     
3.9
 
U.S. fixed income - short duration
   
—
     
—
     
—
     
4.6
     
4.6
 
U.S. fixed income - intermediate duration
   
—
     
—
     
—
     
38.4
     
38.4
 
U.S. fixed income - long corporate
   
—
     
—
     
—
     
14.2
     
14.2
 
Total fixed income funds
   
—
     
54.7
     
—
     
61.1
     
115.8
 
Other types of investments:
                                       
International real estate(3)
   
—
     
43.3
     
—
     
—
     
43.3
 
Other(4)
   
—
     
—
     
18.8
     
—
     
18.8
 
Total
 
$
25.6
   
$
144.8
   
$
18.8
   
$
121.0
   
$
310.2
 

73


 
December 31, 2018
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
   
Investments
Measured at
NAV (5)
   
Total
 
Asset Category
                             
Cash and cash equivalents(1)
 
$
1.3
   
$
—
   
$
—
   
$
—
   
$
1.3
 
Equity funds:
                                       
U.S. large-cap
   
—
     
11.1
     
—
     
—
     
11.1
 
International equity(2)
   
18.2
     
45.2
     
—
     
48.3
     
111.7
 
Total equity funds
   
18.2
     
56.3
     
—
     
48.3
     
122.8
 
Fixed income funds:
                                       
Corporate bonds - international
   
—
     
18.9
     
—
     
—
     
18.9
 
UK index-linked gilts
   
—
     
33.0
     
—
     
—
     
33.0
 
U.S. fixed income - intermediate duration
   
—
     
—
     
—
     
34.8
     
34.8
 
U.S. fixed income - long corporate
   
—
     
—
     
—
     
23.0
     
23.0
 
Total fixed income funds
   
—
     
51.9
     
—
     
57.8
     
109.7
 
Other types of investments:
                                       
International real estate(3)
   
—
     
19.9
     
—
     
—
     
19.9
 
Other(4)
   
—
     
—
     
16.2
     
—
     
16.2
 
Total
 
$
19.5
   
$
128.1
   
$
16.2
   
$
106.1
   
$
269.9
 
(1)
Cash and cash equivalents consist of traditional domestic and foreign highly liquid short-term securities with the goal of providing liquidity and preservation of capital while maximizing return on assets.

(2)
The International category consists of investment funds focused on companies operating in developed and emerging markets outside of the U.S.  These investments target broad diversification across large and mid/small-cap companies and economic sectors.

(3)
International real estate consists primarily of equity and debt investments made, directly or indirectly, in various interests in unimproved and improved real properties.

(4)
Other investments consist of insurance and reinsurance contracts securing the retirement benefits. The fair value of these contracts was calculated at the discount value of premiums paid by the Company, less expenses charged by the insurance providers. The insurance providers with which the Company has placed these contracts are well-known financial institutions with an established history of providing insurance services.

(5)
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.

Defined Contribution Plans

The Company also sponsors defined contribution plans at various locations throughout the world. Benefits are determined and funded regularly based on terms of the plans or as stipulated in a collective bargaining agreement. The Company’s full-time salaried and hourly employees in the U.S. are eligible to participate in Company-sponsored defined contribution savings plans, which are qualified plans under the requirements of Section 401(k) of the Internal Revenue Code. The Company’s contributions to the savings plans are in the form of cash. The Company’s total contributions to all worldwide defined contribution plans for the years ended December 31, 2019, 2018, and 2017 were $19.5 million, $15.9 million and $13.7 million, respectively.

Other Benefit Plans

The Company offers a long-term service award program for qualified employees at certain of its non-U.S. locations. Under this program, qualified employees receive a service gratuity (“Jubilee”) payment once they have achieved a certain number of years of service. The Company’s actuarially calculated obligation equaled $4.3 million and $4.1 million as of December 31, 2019 and 2018, respectively.

There are various other employment contracts, deferred compensation arrangements, covenants not to compete, and change in control agreements with certain employees and former employees. The liabilities associated with such arrangements are not material to the Company’s consolidated financial statements.

74

Note 12:
Stockholders’ Equity

As of December 31, 2019 and 2018, 1,000,000,000 shares of voting common stock were authorized. Shares of common stock outstanding were 205,065,744 and 198,169,855 as of December 31, 2019 and 2018, respectively. The Company is governed by the General Corporation Law of the State of Delaware.  All authorized shares of voting common stock have a par value of $0.01.  Shares of common stock reacquired are considered issued and reported as Treasury shares.

Note 13:
Accumulated Other Comprehensive (Loss) Income

The Company’s other comprehensive income (loss) 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. See Note 11 “Benefit Plans” and Note 18 “Hedging Activities, Derivative Instruments and Credit Risk.”

On January 1, 2019, the Company adopted ASU 2018-02 which reclassified stranded tax effects resulting from the Tax Cuts and Jobs Act from accumulated other comprehensive (loss) income to retained (deficit) earnings.  The Company recorded a cumulative-effect adjustment which increased “Accumulated other comprehensive loss” in the Consolidated Balance Sheet by $8.2 million.

On January 1, 2018, the Company adopted FASB ASU 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities using the modified retrospective approach.  The Company recorded a cumulative effect-adjustment on the adoption date increasing the opening balance of “Accumulated deficit” in the Consolidated Balance Sheets by $0.3 million and decreasing “Accumulated other comprehensive loss” in the Consolidated Balance Sheet by $0.3 million.

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


 
Foreign
Currency
Translation
Adjustments, Net
   
Unrealized
(Losses) Gains
on Cash Flow
Hedges
   
Pension and
Postretirement
Benefit Plans
   
Total
 
Balance as of December 31, 2016
 
$
(235.6
)
 
$
(42.2
)
 
$
(64.6
)
 
$
(342.4
)
Before tax income
   
74.8
     
20.0
     
29.8
     
124.6
 
Income tax effect
   
31.2
     
(7.6
)
   
(5.6
)
   
18.0
 
Other comprehensive income
   
106.0
     
12.4
     
24.2
     
142.6
 
Balance as of December 31, 2017
 
$
(129.6
)
 
$
(29.8
)
 
$
(40.4
)
 
$
(199.8
)
Before tax (loss) income
   
(54.3
)
   
25.3
     
(7.7
)
   
(36.7
)
Income tax effect
   
(6.7
)
   
(7.2
)
   
3.1
     
(10.8
)
Other comprehensive (loss) income
   
(61.0
)
   
18.1
     
(4.6
)
   
(47.5
)
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2017-12)
   
—
     
0.3
     
—
     
0.3
 
Balance as of December 31, 2018
 
$
(190.6
)
 
$
(11.4
)
 
$
(45.0
)
 
$
(247.0
)
Before tax income (loss)
   
4.1
     
8.2
     
(9.3
)
   
3.0
 
Income tax effect
   
(5.6
)
   
(1.0
)
   
2.8
     
(3.8
)
Other comprehensive (loss) income
   
(1.5
)
   
7.2
     
(6.5
)
   
(0.8
)
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2018-02)
   
(1.5
)
   
(6.7
)
   
—
     
(8.2
)
Balance as of December 31, 2019
 
$
(193.6
)
 
$
(10.9
)
 
$
(51.5
)
 
$
(256.0
)

75

Changes in accumulated other comprehensive (loss) income by component for the periods described below are presented in the following table(1).


 
Foreign
Currency
Translation
Adjustments, Net
   
Unrealized
Gains (Losses)
on Cash Flow
Hedges
   
Pension and
Postretirement
Benefit Plans
   
Total
 
Balance as of December 31, 2016
 
$
(235.6
)
 
$
(42.2
)
 
$
(64.6
)
 
$
(342.4
)
Other comprehensive income before reclassifications
   
106.0
     
0.9
     
21.1
     
128.0
 
Amounts reclassified from accumulated other comprehensive (loss) income
   
—
     
11.5
     
3.1
     
14.6
 
Other comprehensive income
   
106.0
     
12.4
     
24.2
     
142.6
 
Balance as of December 31, 2017
 
$
(129.6
)
 
$
(29.8
)
 
$
(40.4
)
 
$
(199.8
)
Other comprehensive (loss) income before reclassifications
   
(61.0
)
   
6.6
     
(6.0
)
   
(60.4
)
Amounts reclassified from accumulated other comprehensive (loss) income
   
—
     
11.5
     
1.4
     
12.9
 
Other comprehensive (loss) income
   
(61.0
)
   
18.1
     
(4.6
)
   
(47.5
)
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2017-12)
   
—
     
0.3
     
—
     
0.3
 
Balance as of December 31, 2018
 
$
(190.6
)
 
$
(11.4
)
 
$
(45.0
)
 
$
(247.0
)
Other comprehensive loss before reclassifications
   
(1.5
)
   
(4.7
)
   
(8.2
)
   
(14.4
)
Amounts reclassified from accumulated other comprehensive (loss) income
   
—
     
11.9
     
1.7
     
13.6
 
Other comprehensive (loss) income
   
(1.5
)
   
7.2
     
(6.5
)
   
(0.8
)
Cumulative effect adjustment upon adoption of new accounting standard (ASU 2018-02)
   
(1.5
)
   
(6.7
)
   
—
     
(8.2
)
Balance as of December 31, 2019
 
$
(193.6
)
 
$
(10.9
)
 
$
(51.5
)
 
$
(256.0
)

(1)
All amounts are net of tax. Amounts in parentheses indicate debits.

Reclassifications out of accumulated other comprehensive (loss) income for the years ended December 31, 2019, 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
 
2019
   
2018
   
2017
 
Affected Line in the
Statement Where Net
Income is Presented
Loss on cash flow hedges Interest rate swaps
 
$
15.6
   
$
15.1
   
$
18.5
 
Interest expense
     
15.6
     
15.1
     
18.5
 
Total before tax
     
(3.7
)
   
(3.6
)
   
(7.0
)
Benefit for income taxes
   
$
11.9
   
$
11.5
   
$
11.5
 
Net of tax
                               
Amortization of defined benefit pension and other postretirement benefit items
 
$
2.2
   
$
1.8
   
$
5.0
(1) 
 
     
2.2
     
1.8
     
5.0
 
Total before tax
     
(0.5
)
   
(0.4
)
   
(1.9
)
Benefit for income taxes
   
$
1.7
   
$
1.4
   
$
3.1
 
Net of tax
Total reclassifications for the period
 
$
13.6
   
$
12.9
   
$
14.6
 
Net of tax
(1)
These components are included in the computation of net periodic benefit cost. See Note 11 “Benefit Plans” for additional details.

76

Note 14:
Revenue from Contracts with Customers

Overview

The Company recognizes revenue when the Company has satisfied its obligation and 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.  Judgments impacting variable consideration related to material rebate and sales discount programs, and significant contracts containing liquidated damage clauses are governed by 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 engineered to order (“ETO”) 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 alternative use, assessment of contractual language regarding termination provisions, and estimation of total project costs are all significant judgments 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.

Taxes assessed by a government 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 either 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 “Selling and administrative expenses” in the Consolidated Statements of Operations.

77

Disaggregation of Revenue

The following table provides disaggregated revenue by reportable segment for the year ended December 31, 2019.


 
Industrials
   
Energy
   
Medical
   
Total
 
Primary Geographic Markets
                       
United States
 
$
393.7
   
$
498.8
   
$
105.5
   
$
998.0
 
Other Americas
   
93.7
     
80.4
     
13.6
     
187.7
 
Total Americas
 
$
487.4
   
$
579.2
   
$
119.1
   
$
1,185.7
 
EMEA
   
613.6
     
165.7
     
111.9
     
891.2
 
Asia Pacific
   
200.3
     
125.3
     
49.4
     
375.0
 
Total
 
$
1,301.3
   
$
870.2
   
$
280.4
   
$
2,451.9
 
                                 
Product Categories
                               
Original equipment(1)
 
$
892.6
   
$
359.5
   
$
273.1
   
$
1,525.2
 
Aftermarket(2)
   
408.7
     
510.7
     
7.3
     
926.7
 
Total
 
$
1,301.3
   
$
870.2
   
$
280.4
   
$
2,451.9
 
                                 
Pattern of Revenue Recognition
                               
Revenue recognized at point in time(3)
 
$
1,252.5
   
$
779.6
   
$
280.4
   
$
2,312.5
 
Revenue recognized over time(4)
   
48.8
     
90.6
     
—
     
139.4
 
Total
 
$
1,301.3
   
$
870.2
   
$
280.4
   
$
2,451.9
 

The following table provides disaggregated revenue by reportable segment for the year ended December 31, 2018.


 
Industrials
   
Energy
   
Medical
   
Total
 
Primary Geographic Markets
                       
United States
 
$
371.8
   
$
706.2
   
$
107.9
   
$
1,185.9
 
Other Americas
   
82.8
     
119.1
     
2.3
     
204.2
 
Total Americas
 
$
454.6
   
$
825.3
   
$
110.2
   
$
1,390.1
 
EMEA
   
646.3
     
179.3
     
108.1
     
933.7
 
Asia Pacific
   
202.4
     
116.5
     
47.1
     
366.0
 
Total
 
$
1,303.3
   
$
1,121.1
   
$
265.4
   
$
2,689.8
 
                                 
Product Categories
                               
Original equipment(1)
 
$
893.0
   
$
486.4
   
$
256.6
   
$
1,636.0
 
Aftermarket(2)
   
410.3
     
634.7
     
8.8
     
1,053.8
 
Total
 
$
1,303.3
   
$
1,121.1
   
$
265.4
   
$
2,689.8
 
                                 
Pattern of Revenue Recognition
                               
Revenue recognized at point in time(3)
 
$
1,256.2
   
$
1,058.9
   
$
265.4
   
$
2,580.5
 
Revenue recognized over time(4)
   
47.1
     
62.2
     
—
     
109.3
 
Total
 
$
1,303.3
   
$
1,121.1
   
$
265.4
   
$
2,689.8
 

(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.  Service revenue represents less than 10% of consolidated revenue.

(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 product delivery has occurred and services have been rendered.

(4)
Revenues primarily from long duration ETO product contracts and certain contracts for the delivery of a significant volume of substantially similar products recognized over time as contractual performance obligations are completed.

78

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 account for shipping and handling activities as fulfillment costs and not a separate performance obligation. If control transfers and related revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued.

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 in ETO arrangements, 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 December 31, 2019, 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 $156.3 million in the next twelve months and $52.4 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 December 31, 2019 and December 31, 2018 presented in the Consolidated Balance Sheets.


 
December 31,
2019
   
December 31,
2018
 
Accounts receivable
 
$
459.1
   
$
525.4
 
Contract assets
   
29.0
     
19.6
 
Contract liabilities
   
51.7
     
69.6
 

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. Contract liability balances are generally recognized in revenue within twelve months.

Contract assets and liabilities are reported on the 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 customers 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 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.

79

Note 15:
Income Taxes

Income (loss) before income taxes for the years ended December 31, 2019, 2018 and 2017 consisted of the following.


 
2019
   
2018
   
2017
 
U.S.
 
$
—
   
$
169.0
   
$
(145.8
)
Non-U.S.
   
190.9
     
180.5
     
33.1
 
Income (loss) before income taxes
 
$
190.9
   
$
349.5
   
$
(112.7
)

The following table details the components of the provision (benefit) for income taxes for the years ended December 31, 2019, 2018 and 2017.


 
2019
   
2018
   
2017
 
Current:
                 
U.S. federal
 
$
6.3
   
$
25.6
   
$
64.0
 
U.S. state and local
   
0.9
     
1.5
     
3.0
 
Non-U.S.
   
45.2
     
47.8
     
49.8
 
Deferred:
                       
U.S. federal
   
(13.2
)
   
14.4
     
(217.5
)
U.S. state and local
   
0.5
     
(0.7
)
   
—
 
Non-U.S.
   
(7.9
)
   
(8.5
)
   
(30.5
)
Provision (benefit) for income taxes
 
$
31.8
   
$
80.1
   
$
(131.2
)

Certain prior period amounts within this Note have been reclassified to conform to the current period presentation.

 The U.S. federal corporate statutory rate is reconciled to the Company’s effective income tax rate for the years ended December 31, 2019, 2018 and 2017 as follows.


 
2019
   
2018
   
2017
 
U.S. federal corporate statutory rate
   
21.0
%
   
21.0
%
   
35.0
%
State and local taxes, less federal tax benefit
   
1.4
     
0.3
     
3.1
 
U.S. deferred change due to U.S. tax law change
   
—
     
4.3
     
79.5
 
Net effects of foreign tax rate differential
   
1.3
     
2.2
     
6.2
 
Sale of subsidiary
   
—
     
0.3
     
(4.6
)
Repatriation cost
   
—
     
(0.5
)
   
3.8
 
U.S. transition tax toll charge net of FTC
   
—
     
(3.7
)
   
(56.2
)
Global Intangible Low-Tax Income ("GILTI")
   
(2.5
)
   
3.4
     
—
 
ASC 740-30 (formerly APB 23)
   
1.2
     
(1.0
)
   
61.2
 
Valuation allowance changes
   
(2.5
)
   
(1.2
)
   
(1.1
)
Uncertain tax positions
   
0.4
     
0.1
     
1.9
 
Equity compensation
   
(9.1
)
   
(3.0
)
   
(9.2
)
Nondeductible foreign interest expense
   
—
     
1.7
     
(3.0
)
Capital gain
   
3.0
     
—
     
—
 
Nondeductible acquistion costs
   
3.5
     
0.1
     
(1.0
)
Other, net
   
(1.0
)
   
(1.1
)
   
0.7
 
Effective income tax rate
   
16.7
%
   
22.9
%
   
116.3
%

80

The principal items that gave rise to deferred income tax assets and liabilities as of December 31, 2019 and 2018 are as follows.


 
2019
   
2018
 
Deferred Tax Assets:
           
Reserves and accruals
 
$
34.1
   
$
51.0
 
Postretirement benefits - pensions
   
19.3
     
17.4
 
Tax loss carryforwards
   
28.4
     
22.7
 
Deferred taxes recorded in other comprehensive income
   
—
     
1.8
 
Foreign tax credit carryforwards
   
52.2
     
53.3
 
Other
   
5.2
     
3.9
 
Total deferred tax assets
   
139.2
     
150.1
 
Valuation allowance
   
(67.9
)
   
(72.5
)
Deferred Tax Liabilities:
               
LIFO inventory
   
(9.3
)
   
(9.3
)
Property, plant and equipment
   
(15.5
)
   
(19.2
)
Intangibles
   
(280.9
)
   
(304.8
)
Unremitted foreign earnings
   
(7.8
)
   
(5.6
)
Deferred taxes recorded in other comprehensive income
   
(4.1
)
   
—
 
Other
   
(1.8
)
   
(2.9
)
Total deferred tax liabilities
   
(319.4
)
   
(341.8
)
Net deferred income tax liability
 
$
(248.1
)
 
$
(264.2
)

The Company believes that it is more likely than not that it will realize its deferred tax assets through the reduction of future taxable income, other than for the deferred tax assets reflected below.  Tax attributes and related valuation allowances as of December 31, 2019 were as follows.


 
Tax Benefit
 
 
Valuation
Allowance
 
 
Carryforward
Period Ends
Tax Attributes to be Carried Forward
 
 
 
 
 
 
 
 
U.S. federal net operating loss
 
$
0.3
 
 
$
—
 
 
Unlimited
U.S. federal capital loss
 
 
0.4
 
 
 
(0.4)
 
 
2021
U.S. federal capital loss
 
 
2.1
 
 
 
(2.1)
 
 
2030-2039
U.S. federal tax credit
 
 
52.3
 
 
 
(52.3)
 
 
2021-2037
Alternative minimum tax credit
 
 
1.0
 
 
 
—
 
 
Unlimited
U.S. state and local net operating losses
 
 
1.6
 
 
 
—
 
 
2020-2039
U.S. state and local tax credit
 
 
0.5
 
 
 
—
 
 
2020-2039
Non U.S. net operating losses
 
 
8.6
 
 
 
(7.6)
 
 
Unlimited
Non U.S. capital losses
 
 
0.5
 
 
 
(0.5)
 
 
Unlimited
Excess interest
 
 
14.9
 
 
 
(1.2)
 
 
Unlimited
Other deferred tax assets
 
 
3.9
 
 
 
(3.8)
 
 
Unlimited
Total tax carryforwards
 
$
86.1
 
 
$
(67.9)
 
 
  

A reconciliation of the changes in the valuation allowance for deferred tax assets for the years ended December 31, 2019, 2018 and 2017 are as follows.


 
2019
   
2018
   
2017
 
Valuation allowance for deferred tax assets at beginning of the period
 
$
72.5
   
$
47.9
   
$
33.6
 
Revaluation and change due to U.S. Tax Reform
   
—
     
23.4
     
10.7
 
Charged to tax expense
   
(5.4
)
   
(4.2
)
   
3.1
 
Charged to other accounts
   
0.1
     
(1.3
)
   
1.6
 
Deductions(1)
   
0.7
     
6.7
     
(1.1
)
Valuation allowance for deferred tax assets at end of the period
 
$
67.9
   
$
72.5
   
$
47.9
 


(1)          Deductions relate to the realization of net operating losses or the removal of deferred tax assets.


81
Total unrecognized tax benefits were $12.5 million, $11.5 million and $12.6 million for the years ended December 31, 2019, 2018 and 2017, respectively. The net increase in this balance primarily relates to increases related to prior-year positions of $0.6 million and currency fluctuations of $0.4 million. Included in total unrecognized benefits at December 31, 2019 is $12.5 million of unrecognized tax benefits that would affect the Company's effective tax rate if recognized, of which $0.9 million would be offset by a reduction of a corresponding deferred tax asset. The balance of total unrecognized tax benefits is not expected to significantly increase or decrease within the next twelve months. Below is a tabular reconciliation of the changes in total unrecognized tax benefits during the years ended December 31, 2019, 2018 and 2017.


 
2019
   
2018
   
2017
 
Beginning balance
 
$
11.5
   
$
12.6
   
$
6.8
 
Gross increases for tax positions of prior years
   
0.6
     
—
     
11.2
 
Gross decreases for tax positions of prior years
   
—
     
—
     
—
 
Gross increases for tax positions of current year
   
—
     
—
     
0.6
 
Settlements
   
—
     
—
     
(6.2
)
Lapse of statute of limitations
   
—
     
(0.5
)
   
(0.3
)
Changes due to currency fluctuations
   
0.4
     
(0.6
)
   
0.5
 
Ending balance
 
$
12.5
   
$
11.5
   
$
12.6
 

The Company includes interest expense and penalties related to unrecognized tax benefits as part of the provision for income taxes. The Company's income tax liabilities at December 31, 2019 and 2018 include accrued interest and penalties of $1.3 million and $0.9 million, respectively.

The statutes of limitations for U.S. Federal tax returns are open beginning with the 2017 tax year, and state returns are open beginning with the 2015 tax year.

The Company is subject to income tax in approximately 35 jurisdictions outside the U.S.  The statute of limitations varies by jurisdiction with 2005 being the oldest year still open. The Company's significant operations outside the U.S. are located in the United Kingdom and Germany.The Company is still under audit in the United Kingdom related to tax years 2012-2015.  During 2019, the Company was notified that the United Kingdom is auditing 2017 tax year.  This examination has not been concluded as of the date of these financial statements.  In Germany, generally, the tax years 2011 and beyond remain open and 2011-2014 German tax years are currently under audit.

The Company does not assert the ASC 740-30 (formerly APB 23) indefinite reinvestment of the Company’s historical non-U.S. earnings or future non-U.S. earnings. The Company records a deferred foreign tax liability to cover all estimated withholding, state income tax and foreign income tax associated with repatriating all non-U.S. earnings back to the United States. The Company’s deferred income tax liability as of December 31, 2019 was $7.8 million which primarily consisted of withholding taxes.

Note 16:
Leases

The Company adopted ASC 842 on January 1, 2019 using the optional transition method.  See Note 2 “New Accounting Standards” for further discussion of the adoption.

The Company has operating and financing leases for real estate, vehicles, IT equipment, office equipment and production equipment.  The Company determines if an arrangement is a lease and identifies the classification of the lease as a financing lease or an operating lease at inception.  Operating leases are recorded as operating lease right-of-use assets (“ROU assets”) in “Other assets” and operating lease liabilities in “Accrued liabilities” and “Other liabilities” in the Consolidated Balance Sheets.  Financing leases are recorded as financing ROUs in “Property, plant and equipment” and lease liabilities in “Short-term borrowings and current maturities of long-term debt” and “Long-term debt, less current maturities” in the Consolidated Balance Sheets.

At the date of commencement, lease liabilities are recorded at the present value of the future minimum lease payments over the lease term.  The lease term is equal to the initial term at commencement plus any renewal or extension options that the Company is reasonably certain will be exercised.  ROU assets at the date of commencement are equal to the amount of the initial lease liability, the initial direct costs incurred by the Company and any prepaid lease payments less any incentives received.

Subsequent to the commencement date, operating lease liabilities are recorded at the present value of unpaid lease payments discounted at a discount rate established at the commencement date.  Due to the absence of an implicit rate in the Company’s lease contracts, an incremental borrowing rate is used in the determination of the present value of future lease payments.  Incremental borrowing rates for a lease are based on the lease term, lease currency and the Company’s credit spread.  Operating ROU assets are recorded as the beginning balance less accumulated amortization with accumulated amortization equaling the straight-lined lease expense less the periodic accretion of the lease liability using the effective interest rate method.

82

Subsequent to the commencement date, financing lease liabilities are increased to reflect interest on the lease liability and decreased for principal lease payments made.  The financing ROU asset is measured at cost less amortization expense and any accumulated impairment loss.  Amortization expense is calculated on a straight-line basis over the lease term or remaining useful life.

The Company’s lease terms allow for the extension or termination of its leases and accounts for the extension and termination when it is reasonably certain that the Company will exercise the option or terminate the lease. Reassessment of the lease term occurs when there is a significant event or a significant change in circumstances that is within the control of the Company that directly affects whether the Company is reasonably certain to exercise or not to exercise an option to extend or terminate the lease or to purchase the underlying asset.

Contractual specifications and requirements may be modified.  The Company considers contract modifications to exist when the modification includes a change to the contractual terms, scope of the lease or the consideration given.  In the event that the right to use an additional asset is granted and the lease payments associated with the additional asset are commensurate with the ROU asset’s standalone price, the modification is accounted for as a separate contract and the original contract remains unchanged.  In the event that a single lease is modified, the Company reassessed the classification of the modified lease as of the effective date of the modification based on the modified terms and accounts for initial direct costs, lease incentives and any other payments made to or by the Company in connection with the modification in the same manner that items would be accounted for in connection with a new lease.  If there is an additional ROU asset included, the lease term is extended or reduced, or the consideration is the only change in the contract, the Company reallocates the remaining consideration in the contract and remeasures the lease liability using a discount rate determined at the effective date of the modification.  The remeasured lease liability for the modified lease is an adjustment to the corresponding ROU asset and does not impact the Consolidated Statements of Operations.  In the event of a full or partial termination, the carrying value of the ROU asset decreases on a basis proportionate to the full or partial termination and any difference between the reduction in the lease liability and the proportionate reduction of the ROU asset is recognized as a gain or loss at the effective date of the modification.

The Company elected not to recognize short-term leases on its balance sheet and continues to expense such leases.  The Company also elected the practical expedient allowing the Company to account for each separate lease component of a contract and its associated non-lease component as a single lease component.  This practical expedient was applied to all underlying asset classes.  Variable lease expense was not material.

The components of lease expense for the year ended December 31, 2019 was as follows.


 
2019
 
Operating lease cost
 
$
20.4
 
 
       
Finance lease cost
       
Amortization of right-of-use assets
 
$
1.4
 
Interest on lease liabilities
   
1.6
 
Total finance lease cost
 
$
3.0
 
 
       
Short-term lease cost
 
$
1.7
 

Supplemental cash flow information related to leases for the year ended December 31, 2019 was as follows.

 
 
2019
 
Supplemental Cash Flows Information
     
Cash Paid for Amounts Included in the Measurement of Lease Liabilities
     
Operating cash flows from operating leases
 
$
20.3
 
Operating cash flows from finance leases
 
$
1.6
 
Financing cash flows from finance leases
 
$
0.9
 
Leased Assets Obtained in Exchange for New Operating Lease Liabilities
 
$
8.0
 


83
Supplemental balance sheet information related to leases was as follows.


 
December 31,
2019
 
Operating leases
     
Other assets
 
$
53.8
 
 
       
Accrued liabilities
   
17.1
 
Other liabilities
   
41.0
 
Total operating lease liabilities
 
$
58.1
 
 
       
Finance Leases
       
Property, plant and equipment
 
$
16.9
 
 
       
Short-term borrowings and current maturities of long-term debt
   
0.7
 
Long-term debt, less current maturities
   
17.2
 
Total finance lease liabilities
 
$
17.9
 
 
       
Weighted Average Remaining Lease Term (in years)
       
Operating leases
   
4.5
 
Finance leases
   
13.6
 
 
       
Weighted Average Discount Rate
       
Operating leases
   
2.3
%
Finance leases
   
6.3
%

Maturities of lease liabilities as of December 31, 2019 were as follows.


 
Operating
Leases
   
Finance
Leases
 
2020
 
$
18.0
   
$
1.8
 
2021
   
13.6
     
1.8
 
2022
   
9.7
     
1.9
 
2023
   
6.9
     
1.9
 
2024
   
5.2
     
2.0
 
Thereafter
   
7.8
     
18.7
 
Total lease payments
 
$
61.2
   
$
28.1
 
Less imputed interest
   
(3.1
)
   
(10.2
)
Total
 
$
58.1
   
$
17.9
 

As of December 31, 2018, future minimum rental payments for operating leases for the five years subsequent to December 31, 2018 and thereafter were approximately $25.8 million, $19.5 million, $13.9 million, $7.7 million, $5.4 million and $9.4 million, respectively. As of December 31, 2018, future minimum rental payments for capital leases for the five years subsequent to December 31, 2018 and thereafter were approximately $0.8 million, $1.0 million, $1.1 million, $1.2 million, $1.4 million and $20.7 million, respectively.

Note 17:
Stock-Based Compensation Plans

The Company has outstanding stock-based compensation awards granted under the 2013 Stock Incentive Plan (“2013 Plan”) and the 2017 Omnibus Incentive Plan (“2017 Plan”).  Following the Company’s initial public offering, the Company grants stock-based compensation awards pursuant to the 2017 Plan and ceased granting new awards pursuant to the 2013 Plan.

2017 Omnibus Incentive Plan

In May 2017, the Company’s Board approved the 2017 Plan.  Under the terms of the Plan, the Company’s Board may grant up to 8.6 million stock based and other incentive awards. Any shares of common stock subject to outstanding awards granted under the Company’s 2013 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.  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.  Stock option awards typically vest over four or five years and expire ten years from the date of grant.

84

2013 Stock Incentive Plan

The Company adopted the 2013 Plan on October 14, 2013 as amended on April 27, 2015 under which the Company had the ability to 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.  Stock option awards vested over either five, four, or three 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 did not receive the economic benefits of the option until the repurchase rights were eliminated. Before the elimination of the repurchase rights, 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 the termination of employment.  The repurchase rights creating the implicit service period were eliminated at the initial public offering.

Stock-Based Compensation Expense

The Company recognized $19.2 million, $2.8 million and $77.6 million of stock-based compensation expense for the years ended December 31, 2019, 2018 and 2017.

For the year ended December 31, 2019, the $19.2 million of stock-based compensation expense included expense for modifications of certain equity awards for certain former employees of $1.0 million, expense for equity awards granted under the 2013 Plan and 2017 Plan of $10.2 million and an increase in the liability for stock appreciation rights (“SAR”) of $8.0 million. The $1.0 million of stock-based compensation expense for modifications provided continued vesting through scheduled vesting dates of certain equity awards for certain former employees.  These costs are included in “Cost of sales” and “Selling and administrative expenses” in the Consolidated Statements of Operations.

For the year ended December 31, 2018, the $2.8 million of stock-based compensation expense included 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 $7.2 million reduced by a benefit for a reduction in the liability for SARs of $8.2 million.  The $3.8 million of stock-based compensation expense for modifications 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 1.0 to 1.3 years, a risk-free rate of 2.0%, assumed volatility of 26.8% to 27.3% and an expected dividend rate of 0.0%.

For the year ended December 31, 2017, the Company recognized stock-based compensation expense of approximately $77.6 million.

As of December 31, 2019, there was $30.0 million of total unrecognized compensation expense related to outstanding stock options and restricted stock awards.

SARs, granted under the 2013 Plan are expected to be settled in cash and are accounted for as liability awards.  As of December 31, 2019 and 2018 a liability of approximately $7.8 million and $7.9 million, respectively, for SARs was included in “Accrued liabilities” in the Consolidated Balance Sheets.

85

Stock Option Awards

A summary of the Company’s stock option (including SARs) activity for the year ended December 31, 2019 is presented in the following table (underlying shares in thousands).

Stock-Based Compensation Awards
             
 
 
Shares
   
Weighted-Average
Exercise Price
(per share)
   
Wtd. Avg.
Remaining
Contractual
Term (years)
   
Aggregate
Intrisic Value
of In-The-Money
Options (in millions)
 
Outstanding at December 31, 2018
   
12,352
   
$
10.93
             
Granted
   
1,141
   
$
27.45
             
Excercised or Settled
   
(5,222
)
 
$
8.83
             
Forfeited
   
(226
)
 
$
27.46
             
Expired
   
(17
)
 
$
31.61
             
Outstanding at December 31, 2019
   
8,028
   
$
14.14
     
5.9
   
$
179.8
 
Vested at December 31, 2019
   
6,075
   
$
9.93
     
5.0
   
$
161.4
 

The per-share weighted average grant date fair value of stock options granted during the years ended December 31, 2019, 2018 and 2017 was $10.16, $13.67 and $9.16, respectively.

The total intrinsic value of stock options exercised was $109.8 million, $20.8 million and $5.8 million during the years ended December 31, 2019, 2018 and 2017, respectively.

The following assumptions were used to estimate the fair value of options and SARs granted during the years ended December 31, 2019, 2018 and 2017.


 
2019
   
2018
   
2017
 
Assumptions:
                 
Expected life of options (in years)
   
6.3
     
7.0 - 7.5
     
5.0 - 6.3
 
Risk-free interest rate
   
1.7% - 2.6
%
   
2.9% - 3.1
%
   
1.9% - 2.1
%
Assumed volatility
   
24.8%-31.8
%
   
31.1%-35.4
%
   
41.2% -45.8
%
Expected dividend rate
   
0.0
%
   
0.0
%
   
0.0
%

Restricted Stock Unit Awards

A summary of the Company’s restricted stock unit activity for the year ended December 31, 2019 is presented in the following table (underlying shares in thousands).


 
Shares
   
Weighted-Average
Grant-Date
Fair Value
 
Non-vested as of December 31, 2018
   
362
   
$
31.78
 
Granted
   
476
   
$
27.82
 
Vested
   
(48
)
 
$
30.88
 
Forfeited
   
(71
)
 
$
30.51
 
Non-vested as of December 31, 2019
   
719
   
$
29.31
 

Deferred Stock Units

Concurrent with the Company’s initial public offering in May of 2017, the Company’s Board authorized the grant of 5.5 million deferred stock units (“DSU”) to all permanent employees that had not previously received stock-based awards under the 2013 Plan.  While the DSUs vested immediately upon grant, they contained restrictions such that the employee may not sell or otherwise realize the economic benefits of the award until certain dates through May 2019.  $97.4 million of compensation expense for the DSU awards was recognized in the year ended December 31, 2017 and included in “Other operating expense, net” in the Consolidated Statements of Operations.

As of the date of the grant, the fair value of a DSU was determined to be $17.20 assuming a share price at the pricing date of the initial public offering of $20.00 and a discount for lack of marketability commensurate with the period of the sale restrictions.  The Company estimated the fair value of DSUs at the time of grant using the Finnerty discount for lack of marketability pricing model.  The model assumed a holding restriction period of 1.42 years and volatility of 51.5%.

86

Note 18:
Hedging Activities, Derivative Instruments and Credit Risk

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 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 Renminbi 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.

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 Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018.


December 31, 2019
 
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
 
$
825.0
   
$
—
   
$
—
   
$
13.1
   
$
—
 
Derivatives Not Designated as Hedging Instruments
                                         
Foreign currency forwards
Fair Value
 
$
55.2
   
$
0.5
   
$
—
   
$
—
   
$
—
 
Foreign currency forwards
Fair Value
 
$
106.9
   
$
—
   
$
—
   
$
0.5
   
$
—
 


December 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
 
$
925.0
   
$
—
   
$
—
   
$
11.2
   
$
8.7
 
Derivatives Not Designated as Hedging Instruments
                                         
Foreign currency forwards
Fair Value
 
$
143.3
   
$
1.3
   
$
—
   
$
—
   
$
—
 
Foreign currency forwards
Fair Value
 
$
27.5
   
$
—
   
$
—
   
$
0.1
   
$
—
 

(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.

87

Gains and losses on derivatives designated as cash flow hedges included in the Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2019, 2018 and 2017 are presented in the table below.


 
2019
   
2018
   
2017
 
Interest Rate Swap Contracts
                 
(Loss) gain recognized in AOCI on derivatives
 
$
(7.4
)
 
$
10.1
   
$
1.5
 
Loss reclassified from AOCI into income (effective portion)(1)
   
(15.6
)
   
(14.5
)
   
(18.5
)
Loss reclassified from AOCI into income (missed forecast)(2)
   
—
     
(0.6
)
   
—
 

(1)
Losses on derivatives reclassified from accumulated other comprehensive income (“AOCI”) into income were included in “Interest expense” in the Consolidated Statements of Operations.

(2)
In the third quarter of 2018, the Company used excess cash to pay down $150.0 million of its Dollar Term Loan Facility. Due to this unforecasted pay down of debt, the Company paid $2.7 million in the amendment of the interest rate swap contracts to reflect the updated forecasted cash flows. The updated forecasts caused certain hedged items to be deemed probable of not occurring in the future and thus, the Company accelerated the release of AOCI related to those hedged items. Losses reclassified from AOCI into income (missed forecast) were included in “Loss on extinguishment of debt” in the Consolidated Statements of Operations.

As of December 31, 2019, the Company was the fixed rate payor on four interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $825.0 million of the Company’s LIBOR-based variable rate borrowings.  These contracts carry fixed rates ranging from 3.6% to 4.3% and expire in 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 December 31, 2019, the Company expects to reclassify losses of $14.1 million out of AOCI into earnings during the next 12 months.  The Company’s LIBOR-based variable rate borrowings outstanding as of December 31, 2019 were $927.6 million and €601.2 million.

The Company had six foreign currency forward contracts outstanding as of December 31, 2019 with notional amounts ranging from $10.0 million to $56.1 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 within “Other operating expense, net” in the 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 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 transaction (losses) gains for the years ended December 31, 2019, 2018 and 2017 were as follows.


 
2019
   
2018
   
2017
 
Foreign currency forward contracts (losses) gains
 
$
(4.9
)
 
$
5.2
   
$
(7.0
)
Total foreign currency transaction (losses) gains, net
   
(8.1
)
   
1.9
     
(9.3
)

The Company has a significant investment in consolidated subsidiaries with functional currencies other than the USD, particularly the EUR. 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 December 31, 2019, the Euro Term Loan of €601.2 million remained designated.

The Company’s gains, net of income tax, associated with changes in the value of debt for the years ended December 31, 2019 and 2018, and the net balance of such gains included in accumulated other comprehensive (loss) income as of December 31, 2019 and 2018 were as follows.


 
2019
   
2018
 
Gain, net of income tax, recorded through other comprehensive income
 
$
12.0
   
$
24.4
 
Balance included in accumulated other comprehensive (loss) income as of December 31, 2019 and 2018, respectively
   
75.8
     
56.5
 


88
With the exception of the cash proceeds from the termination of the cross currency interest rate swap contracts described earlier, all cash flows associated with derivatives are classified as operating cash flows in the Consolidated Statements of Cash Flows.

There were no off-balance sheet derivative instruments as of December 31, 2019 or 2018.

Credit Risk

Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable. Because the notional amount of the derivative instruments only serves as a basis for calculating amounts receivable or payable, the risk of loss with any counterparty is limited to a fraction of the notional amount. The Company minimizes the credit risk related to derivatives by transacting only with multiple, high-quality counterparties that are major financial institutions with investment-grade credit ratings. The Company has not experienced any financial loss as a result of counterparty nonperformance in the past. The majority of the derivative contracts to which the Company is a party, settle monthly or quarterly, or mature within one year. Because of these factors, the Company believes it has minimal credit risk related to derivative contracts as of December 31, 2019.

Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and industries to which the Company’s products and services are sold, as well as their dispersion across many different geographic areas. As a result, the Company does not believe it has any significant concentrations of credit risk as of December 31, 2019 or 2018.

Note 19:
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 (an 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.


The Company assessed indefinite-lived intangible assets, trademarks, in conjunction with the 2019 and 2018 annual goodwill impairment tests.  The valuation of trademarks was based upon current sales projections and the relief from royalty method was applied.  No impairment charges were recorded as a result of these analyses. Each trademark carrying value was in excess of its fair value for the 2019 and 2018 annual goodwill impairment tests.

The Company assessed indefinite-lived intangible assets, trademarks, in conjunction with the 2017 annual goodwill impairment test.  The valuation of trademarks was based upon current sales projections and the relief from royalty method was applied.  As a result of this analysis, trademarks with carrying amounts aggregating to $36.7 were written down to their estimated fair value of $35.2 million.  These represented Level 3 assets measured on a nonrecurring basis subsequent to their original recognition.  This resulted in a total non-cash impairment charge of $1.5 million.  The fair value was determined using the relief from royalty method.

Refer to Note 1 “Summary of Significant Accounting Policies” for a discussion of the valuation assumptions utilized in the valuation of goodwill and indefinite-lived intangible assets.

89

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis.


 
December 31, 2019
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial Assets
                       
Foreign currency forwards(1)
 
$
—
   
$
0.5
   
$
—
   
$
0.5
 
Trading securities held in deferred compensation plan(2)
   
7.3
     
—
     
—
     
7.3
 
Total
 
$
7.3
   
$
0.5
   
$
—
   
$
7.8
 
Financial Liabilities
                               
Foreign currency forwards(1)
 
$
—
   
$
0.5
   
$
—
   
$
0.5
 
Interest rate swaps(3)
   
—
     
13.1
     
—
     
13.1
 
Deferred compensation plan(2)
   
7.3
     
—
     
—
     
7.3
 
Total
 
$
7.3
   
$
13.6
   
$
—
   
$
20.9
 


 
December 31, 2018
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial Assets
                       
Foreign currency forwards(1)
 
$
—
   
$
1.3
   
$
—
   
$
1.3
 
Trading securities held in deferred compensation plan(2)
   
5.8
     
—
     
—
     
5.8
 
Total
 
$
5.8
   
$
1.3
   
$
—
   
$
7.1
 
Financial Liabilities
                               
Foreign currency forwards(1)
 
$
—
   
$
0.1
   
$
—
   
$
0.1
 
Interest rate swaps(3)
   
—
     
19.9
     
—
     
19.9
 
Deferred compensation plan(2)
   
5.8
     
—
     
—
     
5.8
 
Total
 
$
5.8
   
$
20.0
   
$
—
   
$
25.8
 

(1)
Based on calculations that use readily observable market parameters as 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 December 31, 2019.  The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.

Note 20:
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 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.

90

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” in the Consolidated Balance Sheets include a total litigation reserve of $118.1 million and $105.8 million as of December 31, 2019 and December 31, 2018 respectively, with regards 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.

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 $122.4 million and $103.0 million as of December 31, 2019 and December 31, 2018, respectively, which was included in “Other assets” in the Consolidated Balance Sheets. During the year ended December 31, 2018, the Company received asbestos related insurance recoveries of $14.4 million, of which $6.2 million related to the recovery of indemnity payments, and was recorded as a reduction of the insurance recovery receivable in “Other assets” in the Consolidated Balance Sheets, and $8.2 million related to the reimbursement of previously expensed legal defense costs, and was recorded as a reduction of “Selling and administrative expenses” in the 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.

91

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 $6.6 million and $6.9 million as of December 31, 2019 and December 31, 2018, respectively, on its Consolidated Balance Sheets 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.

Note 21:
Other Operating Expense

The components of “Other operating expense, net” for the years ended December 31, 2019, 2018 and 2017 were as follows.


 
For the Years Ended December 31,
 
   
2019
   
2018
   
2017
 
Other Operating Expense, Net
                 
Foreign currency transaction losses (gains), net
 
$
8.1
   
$
(1.9
)
 
$
9.3
 
Restructuring charges (1)
   
17.1
     
12.7
     
5.3
 
Environmental remediation expenses (2)
   
0.1
     
—
     
0.9
 
Shareholder litigation settlement recoveries(3
   
(6.0
)
   
(9.5
)
   
—
 
Acquisition related expenses and non-cash charges(4)
   
53.8
     
9.8
     
3.4
 
(Gains) losses on asset and business disposals
   
0.8
     
(1.1
)
   
0.8
 
Other, net (5)
   
1.8
     
(0.9
)
   
202.4
 
Total other operating expense, net
 
$
75.7
   
$
9.1
   
$
222.1
 

Certain prior period amounts have been reclassified to conform to the current period presentation.

(1)
See Note 4 “Restructuring.”

(2)
Estimated environmental remediation costs recorded on an undiscounted basis for a former production facility.

(3)
Represents insurance recoveries of the Company’s shareholder litigation settlement in 2014.

(4)
Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs), and non-cash charges and credits arising from fair value purchase accounting adjustments.

(5)
Includes stock-based compensation expense recognized for the year ended December 31, 2017 for stock options outstanding of $77.6 million.  Prior to the initial public offering in May 2017, no compensation expense was recorded.  As of the initial public offering in May 2017, repurchase rights that created the implicit service period were eliminated and expense for the period from grant until the initial public offering were recognized in May 2017.  Also in May 2017, DSUs were granted to employees at the date of the initial public offering of $97.4 million under the 2013 Stock Incentive Plan and employer taxes related to the DSUs granted to employees at the date of the initial public offering of $19.2 million.

92

Note 22:
Segment Reporting


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.

93

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 years ended December 31, 2019, 2018 and 2017.


 
2019
   
2018
   
2017
 
Revenue
                 
Industrials
 
$
1,301.3
   
$
1,303.3
   
$
1,130.7
 
Energy
   
870.2
     
1,121.1
     
1,014.5
 
Medical
   
280.4
     
265.4
     
230.2
 
Total Revenue
 
$
2,451.9
   
$
2,689.8
   
$
2,375.4
 
Segment Adjusted EBITDA
                       
Industrials
 
$
296.6
   
$
288.2
   
$
242.7
 
Energy
   
225.1
     
337.8
     
296.1
 
Medical
   
84.4
     
75.0
     
62.4
 
Total Segment Adjusted EBITDA
   
606.1
     
701.0
     
601.2
 
Less items to reconcile Segment Adjusted EBITDA to Income (Loss) Before Income Taxes:
                       
Corporate expenses not allocated to segments(1)
   
41.3
     
19.2
     
39.7
 
Interest expense
   
88.9
     
99.6
     
140.7
 
Depreciation and amortization expense
   
178.1
     
180.4
     
173.8
 
Impairment of other intangible assets(2)
   
—
     
—
     
1.6
 
KKR fees and expenses(3)
   
—
     
—
     
17.3
 
Restructuring and related business transformation costs(4)
   
25.6
     
38.8
     
24.7
 
Acquisition related expenses and non-cash charges(5)
   
54.6
     
16.7
     
4.1
 
Environmental remediation loss reserve(6)
   
0.1
     
—
     
0.9
 
Expenses related to public stock offerings(7)
   
—
     
2.9
     
4.1
 
Establish public company financial reporting compliance(8)
   
0.6
     
4.3
     
8.1
 
Stock-based compensation(9)
   
23.1
     
(2.3
)
   
194.2
 
Loss on extinguishment of debt(10)
   
0.2
     
1.1
     
84.5
 
Foreign currency transaction losses (gains), net
   
8.1
     
(1.9
)
   
9.3
 
Shareholder litigation settlement recoveries(11)
   
(6.0
)
   
(9.5
)
   
—
 
Other adjustments(12)
   
0.6
     
2.2
     
10.9
 
Income (Loss) Before Income Taxes
 
$
190.9
   
$
349.5
   
$
(112.7
)

(1)
Includes insurance recoveries of asbestos legal fees of $8.2 million in the year ended December 31, 2018.

(2)
Represents non-cash charges for impairment of intangible assets other than goodwill.

(3)
Represents management fees and expenses paid to KKR.

(4)
Restructuring and related business transformation costs consist of the following.


 
Year Ended December 31,
 
   
2019
   
2018
   
2017
 
Restructuring charges
 
$
17.1
   
$
12.7
   
$
5.3
 
Severance, sign-on, relocation and executive search costs
   
2.5
     
4.1
     
3.5
 
Facility reorganization, relocation and other costs
   
2.4
     
3.1
     
5.3
 
Information technology infrastructure transformation
   
1.2
     
0.8
     
5.2
 
Losses (gains) on asset and business disposals
   
0.8
     
(1.1
)
   
0.8
 
Consultant and other advisor fees
   
0.3
     
14.1
     
1.7
 
Other, net
   
1.3
     
5.1
     
2.9
 
Total restructuring and related business transformation costs
 
$
25.6
   
$
38.8
   
$
24.7
 

(5)
Represents costs associated with successful and/or abandoned acquisitions, including third-party expenses, post-closure integration costs (including certain incentive and non-incentive cash compensation costs) and non-cash charges and credits arising from fair value purchase accounting adjustments.

(6)
Represents estimated environmental remediation costs and losses relating to a former production facility.

94

(7)
Represents expenses related to the Company’s initial stock offering and subsequent secondary offerings.

(8)
Represents third party expenses to comply with the requirements of Sarbanes-Oxley and the accelerated adoption of the new accounting standards (ASC 606 – Revenue from Contracts with Customers and ASC 842 – Leases) in the first quarter of 2018 and 2019, respectively, one year ahead of the required adoption dates for a private company.

(9)
Represents stock-based compensation expense recognized for stock options outstanding for the year ended December 31, 2019 of $19.2 million and associated employer taxes of  $3.9 million. 


Represents stock-based compensation expense recognized for stock options outstanding for the year ended December 31, 2018 of $2.8 million, reduced by $5.1 million primarily due to a decrease in the estimated accrual for employer taxes related to DSUs as a result of a lower per share stock price. 


Represents stock-based compensation expense recognized for the year ended December 31, 2017 for stock options outstanding of $77.6 million and DSUs granted to employees at the date of the initial public offering of $97.4 million and employer taxes related to DSUs granted to employees at the date of the initial public offering of $19.2 million.

(10)
Represents losses on the extinguishment of the Company’s senior notes, the extinguishment of a portion of the U.S. Term Loan, and the refinancing of the Original Dollar Term Loan Facility and the Original Euro Term Loan Facility as well as losses reclassified from AOCI into income related to the amendment of the interest rate swaps in conjunction with the debt repayment.


(11)
Represents insurance recoveries of the Company’s shareholder litigation settlement in 2014.


(12)
Includes (i) non-cash impact of net LIFO reserve adjustment, (ii) effects of amortization of prior service costs and amortization of losses in pension and other postretirement benefits (“OPEB”) expense, (iii) certain legal and compliance costs and (iv) other miscellaneous adjustments.

The following tables provide summarized information about the Company’s reportable segments.

Identifiable Assets


 
2019
   
2018
   
2017
 
Industrials
 
$
2,024.9
   
$
2,108.1
   
$
2,029.4
 
Energy
   
1,594.8
     
1,661.9
     
1,681.5
 
Medical
   
481.9
     
488.9
     
511.1
 
Total
   
4,101.6
     
4,258.9
     
4,222.0
 
General corporate (unallocated)
   
526.8
     
228.2
     
399.2
 
Total identifiable assets
 
$
4,628.4
   
$
4,487.1
   
$
4,621.2
 

Depreciation and Amortization Expense


 
2019
   
2018
   
2017
 
Industrials
 
$
100.3
   
$
99.8
   
$
94.5
 
Energy
   
55.3
     
57.1
     
56.7
 
Medical
   
22.5
     
23.5
     
22.6
 
Total depreciation and amortization expense
 
$
178.1
   
$
180.4
   
$
173.8
 

Capital Expenditures


 
2019
   
2018
   
2017
 
Industrials
 
$
23.1
   
$
24.7
   
$
26.7
 
Energy
   
15.3
     
22.7
     
21.1
 
Medical
   
4.8
     
4.8
     
9.0
 
Total capital expenditures
 
$
43.2
   
$
52.2
   
$
56.8
 


95
The following table presents property, plant and equipment by geographic region for the years ended December 31, 2019, 2018 and 2017.


 
Property, Plant and Equipment, net
 
   
2019
   
2018
   
2017
 
United States
 
$
179.6
   
$
199.9
   
$
198.4
 
Other Americas
   
5.9
     
6.3
     
6.8
 
Total Americas
   
185.5
     
206.2
     
205.2
 
EMEA(1)
   
117.3
     
126.3
     
132.3
 
Asia Pacific
   
23.8
     
24.1
     
25.7
 
Total
 
$
326.6
   
$
356.6
   
$
363.2
 


(1)          Europe, Middle East and Africa (“EMEA”)

Note 23:
Related Party

Affiliates of KKR participated as (i) a lender in the Company’s Senior Secured Credit Facilities discussed in Note 10 “Debt,” (ii) an underwriter in the Company’s initial public offering and its secondary offering by certain selling stockholders in May 2018, and (iii) a provider of services for the fiscal years 2019 and 2017 debt refinancing transactions.  KKR held a position in the Euro Term Loan Facility of €49.0 million and €33.5 million as of December 31, 2019 and 2018, respectively.  KKR Capital Markets LLC, an affiliate of KKR, acted as an underwriter in connection with the initial public offering of the Company’s stock and received underwriter discounts and commissions of approximately $8.9 million for the year ended December 31, 2017. In May 2018, KKR Capital Markets LLC acted as an underwriter in connection with the secondary offering of the Company’s stock by certain selling stockholders and received underwriter discounts and commissions of approximately $5.2 million. In June 2019, KKR Capital Markets LLC was the joint lead arranger and bookrunner of Amendment No. 4 to the Credit Agreement and earned $0.4 million in structuring fees for their involvement in the Amendment. In August 2017, KKR Capital Markets LLC received $1.5 million for services rendered in connection with the debt refinancing transaction.

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 increased at a rate of 5% per year effective on January 1, 2014.  In connection with the Company’s initial public offering, the monitoring agreement was terminated in accordance with its terms and the Company paid a termination fee of $16.2 million during the year ended December 31, 2017 which was included in “Selling and administrative expenses” in the Consolidated Statements of Operations.  Prior to the termination of the monitoring agreement, the Company incurred management fees to KKR of $1.1 million for the year ended December 31, 2017.

Note 24:
Earnings Per Share

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


 
Years Ended December 31,
 
   
2019
   
2018
   
2017
 
Net income attributable to Gardner Denver Holdings, Inc.
 
$
159.1
   
$
269.4
   
$
18.4
 
Average shares outstanding:
                       
Basic
   
203.5
     
201.6
     
182.2
 
Diluted
   
208.9
     
209.1
     
188.4
 
Earnings per share:
                       
Basic
 
$
0.78
   
$
1.34
   
$
0.10
 
Diluted
 
$
0.76
   
$
1.29
   
$
0.10
 

For the years ended December 31, 2019, 2018 and 2017, there were 1.8 million, 0.8 million and 0.7 million anti-dilutive shares that were not included in the computation of diluted earnings per share.

96

Note 25:
Share Repurchase Program

On August 1, 2018, the Board of Directors of Gardner Denver authorized a share repurchase program pursuant to which the Company may repurchase up to $250.0 million of its common stock effective through July 31, 2020, the date on which the repurchase program will expire.  Under the repurchase program, Gardner Denver is authorized to repurchase shares through open market purchases, privately-negotiated transactions or otherwise in accordance with all applicable securities laws and regulations, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities Act of 1934.  The share repurchase program does not obligate Gardner Denver to acquire any particular amount of common stock, and it may be suspended or terminated at any time at the Company’s discretion.  The timing and amount of any purchases of common stock will be based on Gardner Denver’s liquidity, general business and market conditions, debt covenant restrictions and other factors, including alternative investment opportunities and Gardner Denver’s desire to repay indebtedness.

For the year ended December 31, 2018, the Company repurchased 1,203,178 shares under the August 1, 2018 program at a weighted average price of $24.31 per share for an aggregate value of $29.2 million. There were no shares repurchased under the August 1, 2018 program for the year ended December 31, 2019.

97

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the stockholders and the Board of Directors of Gardner Denver Holdings, Inc.
 
Opinions on the Financial Statements and Internal Control over Financial Reporting
 
We have audited the accompanying consolidated balance sheets of Gardner Denver Holdings, Inc., and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
 
Change in Accounting Principle
 
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for leases in the year ended December 31, 2019 due to the adoption of Financial Accounting Standards Board ASU No. 2016-02, Leases (Topic 842) using the optional transition method with effect from January 1, 2019.
 
Basis for Opinions
 
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
 
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
 
Definition and Limitations of Internal Control over Financial Reporting
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
98
Critical Audit Matter
 
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
 
Asbestos-Related and Silica-Related Litigation – Liability and Insurance Recovery Receivable – Refer to Note 20 to the Financial Statements
 
Critical Audit Matter Description
 
The Company has 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.  At December 31, 2019, the Company has recorded an estimated liability of $118.1 million with respect to the Company’s asbestos-related and silica- related litigation.  The Company uses a third-party actuary to assist in determining certain assumptions and in calculating the estimated liability.  The estimated liability is based on currently available information and assumptions, including the estimated future number and type of new claims to be filed each year, the estimated future resolution or outcome of new and pending claims, and the estimated average cost of resolution of each new and pending claim.
 
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 and silica-related recoveries of $122.4 million. The estimated asset is based on key variables and assumptions used to determine the recorded amounts, including the amount of insurance available, allocation methodologies, the resolution of coverage issues with other excess coverage carriers with whom the Company has not yet achieved settlements, and the solvency risk with respect to the Company’s insurance carriers.
 
We identified the liability for asbestos and silica litigation and the related insurance recovery receivable as a critical audit matter because of the significant judgments made by management to estimate the liability and related recoverability of insurance proceeds. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial and insurance recovery specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to estimated future claims development, the estimated resolution or outcome of these claims, the estimated average cost of resolution of each claim and, separately, the expected recoverability of claims through insurance.
 
How the Critical Audit Matter Was Addressed in the Audit
 
Our audit procedures related to the estimated liability for asbestos-related and silica-related litigation included the following, among others:
 
●
We tested the effectiveness of internal controls related to the estimated liability for asbestos-related and silica-related litigation, including those over the estimated future claims development, the estimated resolution or outcome of these claims, and the estimated average cost of resolution of each claim.
 
●
We evaluated the methods and assumptions used by the Company to determine the estimated liability by:
 
o
Testing the underlying claim and settlement cost data that served as inputs for the actuarial analysis, including testing historical and pending claims by comparing key attributes to accounting records and legal documents to assess the accuracy and completeness of the data.
 
o
With the assistance of our actuarial specialists, we evaluated whether the estimates of future claim numbers and types, number of claims expected to be dismissed or sustained and the estimated average cost of resolution used in the Company’s calculations were reasonable in relation to historical claim trends at the Company.
 
o
With the assistance of our actuarial specialists, we independently recalculated the liability based on the Company’s estimates of future claim numbers and types and assumptions of estimated future resolution or outcome of the claims and estimated average cost of resolution of each claim.
 
o
With the assistance of our actuarial specialists, we developed independent estimates of the liability using available third-party estimates of future claim numbers and types that we determined were reputable and widely-accepted in the industry and compared our independent estimates to the Company’s recorded liability.
 
99
Our audit procedures related to the insurance recovery receivable for probable asbestos and silica-related recoveries included the following, among others:
 
●
We tested the effectiveness of internal controls related to the insurance recovery receivable for probable asbestos and silica-related recoveries.
 
●
With the assistance of our insurance recovery specialists, we evaluated the Company’s analysis of the solvency of insurance carriers with policies with the Company or its predecessors.  With the assistance of these specialists, we read the Company’s analysis and supporting documentation of policy coverage by year as compared to estimated claims per year to assess the Company’s determination of coverage by claim year.  With the assistance of these specialists, we obtained legal opinions regarding recoverability that the Company had obtained from external counsel and read associated legal proceedings to evaluate the Company’s assessment of the probability of recovery.
 

/s/ DELOITTE & TOUCHE LLP

Milwaukee, WI
February 26, 2020

We have served as the Company's auditor since 2013.

100
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of December 31, 2019.  Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that:

●
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

●
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

●
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent and detect misstatements.  Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our executive officer and our principal financial officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on that evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2019.

Deloitte & Touche LLP, an independent registered public accounting firm, has audited the Consolidated Financial Statements included in this Form 10-K, and, as part of their audit, has issued its attestation report, included herein, on the effectiveness of our internal control over financial reporting.  See “Report of Independent Registered Public Accounting Firm” in Part II, Item 8. Financial Statements and Supplementary Data in this Form 10-K.

Changes in Internal Control Over Financial Reporting

Regulations under the Exchange Act require public companies, including our Company, to evaluate any change in our “internal control over financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. There have been no changes in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

101
ITEM 9B. OTHER INFORMATION

None.

PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference.  We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference.  We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Except as set forth below, the information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference.  We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.

Equity Compensation Plan Information

The following table provides information as of December 31, 2019 about our common stock that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or directors under all of the existing equity compensation plans including our 2013 Stock Incentive Plan and 2017 Omnibus Incentive Plan.  All equity compensation plans are described more fully in Note 17 “Stock-Based Compensation Plans” to our audited consolidated financial statements included elsewhere in this Form 10-K.

Plan Category
 
Number of Securities
to be issued upon
Exercise of Outstanding
Options, Warrants
And Rights(1)
   
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights(2)
   
Number of Securities
Remaining Available for
Future Issuance under Equity
Compensation Plans (excluding
Securities reflected in
the first column)(3)
 
Equity compensation plans approved by securityholders
   
8,480,011
   
$
14.34
     
6,848,079
 

(1)
Total includes 5,962,883 stock options and 25,370 share-settled stock appreciation rights under the Company’s 2013 Stock Incentive Plan and 1,772,604 stock options, 719,154 restricted stock units and no share-settled stock appreciation rights under the Company’s 2017 Omnibus Incentive Plan.

(2)
The weighted average exercise price relates only to stock options.  The calculation of the weighted average exercise price does not include outstanding equity awards that are received or exercised for no consideration.

(3)
These shares are available for grant as of December 31, 2019 under the Company’s 2017 Omnibus Incentive Plan.  This includes 8,550,000 shares initially authorized for issuance under the Company’s 2017 Omnibus Incentive Plan and shares subject to awards under the Company’s 2013 Stock Incentive Plan that expired or were otherwise forfeited or terminated in accordance with their terms without the delivery of shares of the Company’s common stock in settlement thereof.

102
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item will be included in our definitive proxy statement for the 2020 Annual Meeting of Stockholders and is incorporated herein by reference. We will file such definitive proxy statement with the SEC pursuant to Regulation 14A within 120 days of the fiscal year ended December 31, 2019.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE

Financial Statements, Financial Statement Schedule and Exhibits

The consolidated financial statements listed in the accompanying index to consolidated financial statements are filed as part of this Annual Report on Form 10-K.

All financial statement schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto.

The exhibits listed in the accompanying exhibit index are filed as part of this Annual Report on Form 10-K.

Index to Consolidated Financial Statements

47
 
48
 
49
 
50
 
51
 
52
 
98

Schedule to Consolidated Financial Statements

 
112

Exhibits

Exhibit Number
 
Exhibit Description
2.1
 
Agreement and Plan of Merger, dated as of April 30, 2019, by and among Ingersoll-Rand plc, Ingersoll-Rand U.S. Holdco, Inc., Gardner Denver Holdings, Inc. and Charm Merger Sub Inc. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019 (File No. 001-34400))
     
3.1
 
Second Amended and Restated Certificate of Incorporation of Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095))
 
 
 
3.2
 
Amended and Restated Bylaws of Gardner Denver Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095))

103

Exhibit Number
 
Exhibit Description
4.1
 
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the Registrant’s Registration Statement on Form S-1 filed on May 3, 2017 (File no. 333-216320))
 
 
 
4.2
 
 
Amended and Restated Registration Rights Agreement, dated as of May 17, 2017, by and among KKR Renaissance Aggregator L.P.; KKR Renaissance Aggregator GP LLC; Gardner Denver Holdings, Inc. and each of the other parties thereto (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095))
     
4.3
 
Description of Gardner Denver Holdings, Inc.’s Securities
 
 
 
 
2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Senior Secured Credit Agreement, dated as of July 30, 2013, among Renaissance Acquisition Corp., the foreign borrowers described therein, Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Amendment No. 1, dated as of March 4, 2016, to the Senior Secured Credit Agreement, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Gardner Denver, Inc., GD German Holdings II GmbH (as successor in interest to Gardner Denver Holdings GmbH & Co. KG), GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Amendment No. 2, dated as of August 17, 2017,  to the Senior Secured Credit Agreement, among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and the other parties and lenders party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2017 (File no. 001-38095))
 
 
 
 
Amendment No. 3, dated as of December 13, 2018, to the Senior Secured Credit Agreement dated as of July 30, 2013, among Gardner Denver Holdings, Inc., Gardner Denver, Inc., GD German Holdings II GmbH, GD First (UK) Limited, UBS AG, Stamford Branch, as administrative agent, and the other parties and lenders part thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2018 (File no. 001-38095)
 
 
 
 
Pledge Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Renaissance Acquisition Corp., the subsidiary pledgors identified therein and UBS AG, Stamford Branch, as collateral agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Security Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), Renaissance Acquisition Corp., the subsidiary grantors identified therein and UBS AG, Stamford Branch, as collateral agent (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Guarantee Agreement, dated as of July 30, 2013, among Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.), the subsidiary guarantors identified therein and UBS AG, Stamford Branch, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Receivables Financing Agreement, dated as of May 17, 2016, by and among Gardner Denver Finance II LLC, Gardner Denver, Inc., as initial servicer, the various lenders and LC participants from time to time party thereto, PNC Bank, National Association, as LC bank and administrative agent, and PNC Capital Markets LLC, as structuring agent. (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))

104

Exhibit Number
 
Exhibit Description
 
Indemnification Agreement, dated as of July 30, 2013, by and among KKR Renaissance Aggregator L.P.; KKR Renaissance Aggregator GP LLC; Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.); Gardner Denver, Inc. and Kohlberg Kravis Roberts & Co. L.P. (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Stockholders Agreement, dated as of May 17, 2018, between Gardner Denver Holdings, Inc. and KKR Renaissance Aggregator L.P. (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095))
 
 
 
 
Form of Management Stockholder’s Agreement (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Director Stockholder’s Agreement (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Advisor Stockholder’s Agreement (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Director Stock Option Agreement under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Management Stock Option Agreement (December 2013) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Management Stock Option Agreement (May 2015) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Management Stock Option Agreement (May 2016, 3 year vesting) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Management Stock Option Agreement (May 2016, 5 year vesting) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Management Stock Option Agreement (December 2016) under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Amendment to Stock Option Agreement or Stock Appreciation Right Agreement under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and its Subsidiaries (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))

105

Exhibit Number
 
Exhibit Description
 
Stock Option Agreement, dated as of March 7, 2014, under the 2013 Stock Incentive Plan for Key Employees of Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) between Gardner Denver Holdings, Inc. (formerly known as Renaissance Parent Corp.) and Andrew Schiesl (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Form of Sale Participation Agreement (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Offer Letter, dated April 17, 2015, between Vicente Reynal and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Offer Letter, dated November 19, 2015, between Vicente Reynal and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Offer Letter, dated November 18, 2015, between Todd Herndon and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Offer Letter, dated September 2, 2016, between Todd Herndon and Gardner Denver, Inc. (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Offer Letter, dated November 25, 2013, between Gardner Denver, Inc. and Andy Schiesl (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-1 filed on February 28, 2017 (File no. 333-216320))
 
 
 
 
Employment Contract, dated September 11, 2018 between Gardner Denver Deutschland GmbH and Enrique Miñarro Viseras (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on October 29, 2018 (File No. 001-38095))
 
 
 
 
Offer Letter, dated December 18, 2015, between Gardner Denver, Inc. and Neil Snyder (incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K filed on February 16, 2018 (File No. 001-38095))
 
 
 
 
2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095))
 
 
 
 
Monitoring Fee Termination Agreement, dated as of May 17, 2017, between Gardner Denver Holdings, Inc. Kohlberg Kravis Roberts & Co. L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 17, 2017 (File no. 001-38095))
 
 
 
 
Form of Restricted Stock Unit Grant Notice and Agreement (2018) under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on April 27, 2018 (File No. 001-38095))
 
 
 
 
Form of Director Restricted Stock Unit Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on April 27, 2018 (File no. 001-38095))
 
 
 
 
Form of Stock Option Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K filed on February 16, 2018 (File no. 001-38095))
 
 
 
 
Gardner Denver, Inc. Supplemental Excess Defined Contribution Plan (January 1, 2019 Restatement) (incorporated by reference to Exhibit 10.36 to the Registrants Annual Report on Form 10-K filed on February 27, 2019 (File no. 001-38095))

106

Exhibit Number
 
Exhibit Description
 
Transition Agreement, dated as of February 27, 2019, between Gardner Denver, Inc. and Philip T. Herndon (incorporated by reference to Exhibit 10.37 to the Registrants Annual Report on Form 10-K filed on February 27, 2019 (File No. 001-38095))
 
 
 
 
 
Amendment No. 4 to the Credit Agreement, dated as of June 28, 2019, among Gardner Denver Holdings, Inc., GD German Holdings II GmbH, Gardner Denver Holdings Ltd., UBS AS, Stamford Branch as the Resigning Agent, Citibank, N.A. as the Successor Agent and the lenders and other entities party thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 2, 2019 (File No. 001-38095))
 
 
 
 
 
Separation and Distribution Agreement, dated as of April 30, 2019, by and between Ingersoll-Rand plc and Ingersoll Rand U.S. HoldCo., Inc. (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by Ingersoll-Rand plc on May 6, 2019 (File No. 001-34400))
 
 
 
 
 
Amendment No. 1 to the Stockholders Agreement, dated as of April 30, 2019, between Gardner Denver Holdings, Inc. and KKR Renaissance Aggregator L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on May 6, 2019 (File No. 001-38095))
 
 
 
 
Transition Agreement, dated as of October 28, 2019, between Gardner Denver, Inc. and Neil Snyder (incorporated by reference to Exhibit 10.4 to the Registrants Quarterly Report on Form 10-Q filed on October 30, 2019 (File No. 001-38095))
     
 
Offer Letter, dated October 3, 2019, between Gardner Denver Holdings, Inc. and Emily A. Weaver
     
 
Form of Stock Option Grant Notice and Agreement under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan
     
 
Form of Restricted Stock Unit Grant Notice and Agreement (2019) under the Gardner Denver Holdings, Inc. 2017 Omnibus Incentive Plan
 
 
 
21
 
Subsidiaries of Gardner Denver Holdings, Inc. as of December 31, 2019
 
 
 
23
 
Consent of Independent Registered Public Accounting Firm
 
 
 
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
 
 
 
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
 
 
 
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
 
 
 
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
 
 
 
101.INS
 
 
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
 
 
 
101.SCH
 
Inline XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
Inline XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
104
 
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)

†
Identifies exhibits that consists of a management contract or compensatory plan or arrangement.

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

ITEM 16. FORM 10-K SUMMARY

None.


107
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf  on the 26th day of February 2020, by the undersigned, thereunto duly authorized.

 
Gardner Denver Holdings, Inc.
 
 
 
 
By:
 /s/ Vicente Reynal
 
 
Name: Vicente Reynal
 
 
Title: Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 26th day of February 2020, by the following persons on behalf of the registrant and in the capacities indicated.

Signature
 
Capacity
/s/ Vicente Reynal
 
 
Chief Executive Officer and Director
Vicente Reynal
 
(principal executive officer), Director
 
 
 
/s/ Emily A. Weaver
 
Vice President and Chief Financial Officer
Emily A. Weaver
 
(principal financial officer)
 
 
 
/s/ Michael J. Scheske
 
Vice President and Corporate Controller
Michael J. Scheske
 
(principal accounting officer)
 
 
 
/s/ Peter Stavros
 
Director
Peter Stavros
 
 
 
 
 
/s/ Brandon F. Brahm
 
Director
Brandon F. Brahm
 
 
 
 
 
/s/ William P. Donnelly
 
Director
William P. Donnelly
 
 
 
 
 
/s/ William E. Kassling
 
Director
William E. Kassling
 
 
 
 
 
/s/ Michael V. Marn
 
Director
Michael V. Marn
 
 
 
 
 
/s/ Nickolas Vande Steeg
 
Director
Nickolas Vande Steeg
 
 
 
 
 
/s/ Joshua T. Weisenbeck
 
Director
Joshua T. Weisenbeck
 
 
 
 
 
/s/ Elizabeth Centoni
 
Director
Elizabeth Centoni
 
 

/s/ Marc E. Jones
 
Director
Marc E. Jones
 
 

108
Index

SCHEDULE 1 – GARDNER DENVER HOLDINGS, INC
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in millions)

 
For the Years Ended December 31,
 
   
2019
   
2018
   
2017
 
Revenues
 
$
—
   
$
—
   
$
—
 
Cost of sales
   
0.6
     
—
     
—
 
Gross Profit
   
(0.6
)
   
—
     
—
 
Operating costs
   
10.4
     
(1.2
)
   
19.5
 
Other operating (income) expense, net
   
(47.0
)
   
(22.4
)
   
175.0
 
Operating Income (Loss)
   
36.0
     
23.6
     
(194.5
)
Interest income
   
42.3
     
41.8
     
20.7
 
Income (Loss) Before Income Taxes
   
78.3
     
65.4
     
(173.8
)
Income tax (benefit) provision
   
(5.1
)
   
3.4
     
(16.1
)
Income (Loss) of Parent Company
   
83.4
     
62.0
     
(157.7
)
Equity in undistributed income of subsidiaries
   
75.7
     
207.4
     
176.1
 
Net Income
   
159.1
     
269.4
     
18.4
 
Other comprehensive (loss) income
   
(0.8
)
   
(47.5
)
   
142.6
 
Comprehensive Income
 
$
158.3
   
$
221.9
   
$
161.0
 

109
Index
SCHEDULE 1 – GARDNER DENVER HOLDINGS, INC
(PARENT COMPANY ONLY)
BALANCE SHEETS
(Dollars in millions)

 
As of December 31,
 
   
2019
   
2018
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
—
   
$
1.0
 
Other current assets
   
1.0
     
—
 
Total current assets
   
1.0
     
1.0
 
Equity in net assets of subsidiaries
   
848.5
     
781.9
 
Intercompany receivables
   
1,019.9
     
885.7
 
Deferred tax assets
   
8.3
     
15.5
 
Total assets
 
$
1,877.7
   
$
1,684.1
 
                 
Liabilities and Stockholders' Equity
               
Other liabilities
 
$
7.8
   
$
8.1
 
Total liabilities
   
7.8
     
8.1
 
Stockholders' equity:
               
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 206,767,529 and 201,051,291 shares issued at December 31, 2019 and December 31, 2018, respectively
   
2.1
     
2.0
 
Capital in excess of par value
   
2,302.0
     
2,282.7
 
Accumulated deficit
   
(141.4
)
   
(308.7
)
Treasury stock at cost; 1,701,785 and 2,881,436 shares at
               
December 31, 2019 and 2018, respectively
   
(36.8
)
   
(53.0
)
Accumulated other comprehensive loss
   
(256.0
)
   
(247.0
)
Total Gardner Denver Holdings, Inc. stockholders' equity
   
1,869.9
     
1,676.0
 
Total liabilities and stockholders' equity
 
$
1,877.7
   
$
1,684.1
 

110
Index
SCHEDULE 1 – GARDNER DENVER HOLDINGS, INC
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in millions)

 
For the Years Ended December 31,
 
   
2019
   
2018
   
2017
 
Cash Flows From Operating Activities:
                 
Net cash (used in) provided by operating activities
 
$
(15.1
)
 
$
55.0
   
$
9.2
 
                         
Cash Flows From Investing Activities:
                       
Advances to subsidiaries
   
(10.1
)
   
(20.3
)
   
(899.3
)
Net cash used in investing activities
   
(10.1
)
   
(20.3
)
   
(899.3
)
                         
Cash Flows From Financing Activities:
                       
Proceeds from stock option exercises
   
42.8
     
6.8
     
—
 
Purchases of treasury stock
   
(18.6
)
   
(40.7
)
   
(3.6
)
Proceeds from the issuance of common stock
   
—
     
—
     
893.6
 
Net cash provided by (used in) financing activities
   
24.2
     
(33.9
)
   
890.0
 
(Decrease) increase in cash and cash equivalents
   
(1.0
)
   
0.8
     
(0.1
)
Cash and cash equivalents, beginning of year
   
1.0
     
0.2
     
0.3
 
Cash and cash equivalents, end of year
 
$
—
   
$
1.0
   
$
0.2
 

111
Index
SCHEDULE I - GARDNER DENVER HOLDINGS, INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Overview and Basis of Presentation

On July 30, 2013, Gardner Denver, Inc. was acquired by an affiliate of Kohlberg Kravis Roberts & Co. L.P. (“KKR”). The acquisition (also referred to as the “Merger”) was effected by the merger of Renaissance Acquisition Corp. with and into Gardner Denver, Inc., with Gardner Denver, Inc. being the surviving corporation. As a result of the Merger, Gardner Denver, Inc. became a wholly-owned subsidiary of Gardner Denver Holdings, Inc. (formerly Renaissance Parent Corp.)

Gardner Denver Holdings, Inc. Parent Company only financial information has been derived from its consolidated financial statements and should be read in conjunction with the consolidated financial statements included in this report. The accounting policies for the registrant are the same as those described in Note 1 “Summary of Significant Accounting Policies” to our audited consolidated financial statements included elsewhere in this Form 10-K.

2. Subsidiary Transactions

Investment in Subsidiaries

Gardner Denver Holdings, Inc.’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries.

Dividends and Capital Distributions

There were no dividends received from subsidiaries during the years ended December 31, 2019, 2018 and 2017.

3. Debt

A discussion of long-term debt, including the five-year debt maturity schedule, can be found in Note 10 “Debt” to our audited consolidated financial statements included elsewhere in this Form 10-K. Gardner Denver Holdings, Inc. had no long-term debt obligations as of December 31, 2019 and 2018.

4. Contingencies

For a summary of contingencies, see Note 20 “Contingencies” to our audited consolidated financial statements included elsewhere in this Form 10-K.

112
Exhibit 4.3

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

The following is brief description of the securities of Gardner Denver Holdings, Inc. (the “Company” “we,” “us” and “our”) registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The following description of the Company’s common stock, par value $0.01 per share, is subject in all respects to the General Corporate Law of the State of Delaware (the “DGCL”) and to the full text of the Company’s second amended and restated certificate of incorporation (the “charter”)and the Company’s amended and restated bylaws (the “bylaws”).

General

Pursuant to our charter, our authorized capital stock consists of:


•
1,000,000,000 shares of common stock, par value $0.01 per share; and


•
100,000,000 shares of preferred stock, par value $0.01 per share.

Common Stock

Voting Rights

Holders of our common stock are entitled to one vote for each share held of record on all matters to which stockholders are entitled to vote generally, including the election or removal of directors.  The holders of our common stock do not have cumulative voting rights in the election of directors.  The holders of our common stock are not entitled to vote on any amendment to our charter that relates solely to the terms of one or more outstanding series of preferred stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon.  The number of authorized shares of preferred stock or common stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Company entitled to vote thereon.

Dividends

The DGCL permits a corporation to declare and pay dividends out of “surplus” or, if there is no “surplus,” out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. “Surplus” is defined as the excess of the net assets of the corporation over the amount determined to be the capital of the corporation by the board of directors. The capital of the corporation is typically calculated to be (and cannot be less than) the aggregate par value of all issued shares of capital stock. Net assets equals the fair value of the total assets minus total liabilities. The DGCL also provides that dividends may not be paid out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets.

Declaration and payment of any dividend is subject to the discretion of our board of directors. The time and amount of dividends is dependent upon our financial condition, operations, cash requirements and availability, debt repayment obligations, capital expenditure needs and restrictions in our debt instruments, industry trends, the provisions of Delaware law affecting the payment of dividends to stockholders and any other factors our board of directors may consider relevant.

Liquidation Rights

Upon the Company’s liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our common stock are entitled to receive pro rata the Company’s remaining assets available for distribution.

Preemptive and Other Rights

Holders of our common stock do not have preemptive, subscription, redemption or conversion rights. The common stock is not subject to further calls or assessment by the Company. There is no redemption or sinking fund provisions applicable to the common stock.

Preferred Stock

Our charter authorizes our board of directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or by the New York Stock Exchange (“NYSE”), the authorized shares of preferred stock will be available for issuance without further action by common stockholders. Our board of directors may determine, with respect to any series of preferred stock, the powers (including voting powers), preferences and relative participations, optional or other special rights, and the qualifications, limitations or restrictions thereof, of that series, including, without limitation:


•
the designation of the series;


•
the number of shares of the series, which our board of directors may, except where otherwise provided in the preferred stock designation, increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares then outstanding);


•
whether dividends, if any, will be cumulative or non-cumulative and the dividend rate of the series;


•
the dates at which dividends, if any, will be payable;


•
the redemption rights and price or prices, if any, for shares of the series;


•
the terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;


•
the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Company;


•
whether the shares of the series will be convertible into shares of any other class or series, or any other security, of the Company or any other corporation, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate or rates, any rate adjustments, the date or dates as of which the shares will be convertible and all other terms and conditions upon which the conversion may be made;


•
restrictions on the issuance of shares of the same series or of any other class or series; and


•
the voting rights, if any, of the holders of the series.

We could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of a stockholder might believe to be in its best interests or in which a stockholder might receive a premium for our common stock over the market price of the common stock. Additionally, the issuance of preferred stock may adversely affect the holders of our common stock by restricting dividends on the common stock, diluting the voting power of the common stock or subordinating the liquidation rights of the common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stock.

Anti-Takeover Effects of Our Charter and Bylaws and Certain Provisions of Delaware Law

Our charter, bylaws and the DGCL, which are summarized in the following paragraphs, contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of our board of directors. These provisions are intended to avoid costly takeover battles, reduce our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize stockholder value in connection with any unsolicited offer to acquire the Company. However, these provisions may have an anti-takeover effect and may delay, deter or prevent a merger or acquisition of the Company by means of a tender offer, a proxy contest or other takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the prevailing market price for the shares of common stock held by stockholders.

Authorized but Unissued Capital Stock

Delaware law does not require stockholder approval for any issuance of authorized shares. However, the listing requirements of the NYSE, which would apply if and so long as our common stock remains listed on the NYSE, require stockholder approval of certain issuances equal to or exceeding 20% of the then outstanding voting power or then outstanding number of shares of common stock. These additional shares may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.

Our board of directors may generally issue preferred shares on terms calculated to discourage, delay or prevent a change of control of the Company or the removal of our management. Moreover, our authorized but unissued shares of preferred stock are available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans.

One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive our stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

Classified Board of Directors

Our charter provides that our board of directors be divided into three classes of directors, with the classes to be as nearly equal in number as possible, and with the directors serving three-year terms. As a result, approximately one-third of our board of directors are elected each year. The classification of directors has the effect of making it more difficult for stockholders to change the composition of our board of directors. Our charter and bylaws provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, the number of directors are fixed from time to time exclusively pursuant to a resolution adopted by our board of directors.

Business Combinations

We have opted out of Section 203 of the DGCL; however, our charter contains similar provisions providing that the Company may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, unless:


•
prior to such time, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;


•
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or


•
at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at least 662∕3% of the outstanding voting stock that is not owned by the interested stockholder.

Generally, a “business combination” includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an “interested stockholder” is a person who, together with that person’s affiliates and associates, owns, or within the previous three years owned, 15% or more of our voting stock. For purposes of this section only, “voting stock” has the meaning given to it in Section 203 of the DGCL.

Under certain circumstances, this provision makes it more difficult for a person who would be an “interested stockholder” to effect various business combinations with a corporation for a three-year period. This provision may encourage companies interested in acquiring the Company to negotiate in advance with our board of directors because the stockholder approval requirement would be avoided if our board of directors approves either the business combination or the transaction which results in the stockholder becoming an interested stockholder. These provisions also may have the effect of preventing changes in our board of directors and may make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests.

Our charter provides that KKR Renaissance Aggregator L.P. (“KKR Renaissance Aggregator”) and its affiliates and any of their respective direct or indirect transferees and any group as to which such persons are a party do not constitute “interested stockholders” for purposes of this provision.

Removal of Directors; Vacancies

Under the DGCL, unless otherwise provided in our charter, directors serving on a classified board may be removed by the stockholders only for cause. Our charter provides that directors may be removed with or without cause upon the affirmative vote of a majority in voting power of all outstanding shares of stock entitled to vote thereon, voting together as a single class; provided, however, at any time when KKR Renaissance Aggregator and its affiliates beneficially own, in the aggregate, less than 40% in voting power of the stock of the Company entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of holders of at least 662∕3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class. In addition, our charter also provides that, subject to the rights granted to one or more series of preferred stock then outstanding or the rights granted under the Stockholders Agreement, dated as of May 17, 2017, between the Company and KKR Renaissance Aggregator (the “Stockholders Agreement”), any vacancies on our board of directors are filled only by the affirmative vote of a majority of the remaining directors, even if less than a quorum, by a sole remaining director or by the stockholders; provided, however, at any time when KKR Renaissance Aggregator and its affiliates beneficially own, in the aggregate, less than 40% in voting power of the stock of the Company entitled to vote generally in the election of directors, any newly created directorship on the board of directors that results from an increase in the number of directors and any vacancy occurring in the board of directors may only be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director (and not by stockholders).

No Cumulative Voting

Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. Our charter does not authorize cumulative voting. Therefore, stockholders holding a majority in voting power of the shares of our stock entitled to vote generally in the election of directors are able to elect all of our directors.

Special Stockholder Meetings

Our charter provides that special meetings of our stockholders may be called at any time only by or at the direction of the board of directors or the chairman of the board of directors; provided, however, so long as KKR Renaissance Aggregator and its affiliates own, in the aggregate, less than 40% in voting power of the stock of the Company entitled to vote generally in the election of directors, special meetings of our stockholders shall also be called by the board of directors or the chairman of the board of directors at the request of KKR Renaissance Aggregator and its affiliates. Our bylaws prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of the Company.

Requirements for Advance Notification of Director Nominations and Stockholder Proposals

Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of the board of directors. In order for any matter to be “properly brought” before a meeting, a stockholder will have to comply with advance notice requirements and provide the Company with certain information. Generally, to be timely, a stockholder’s notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the immediately preceding annual meeting of stockholders. Our bylaws also specify requirements as to the form and content of a stockholder’s notice. Our bylaws allow the chairman of the meeting at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions do not apply to KKR Renaissance Aggregator and its affiliates so long as the Stockholders Agreement remains in effect. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to influence or obtain control of the Company.

Stockholder Action by Written Consent

Pursuant to Section 228 of the DGCL, any action required to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of our common stock entitled to vote thereon were present and voted, unless our charter provides otherwise. Our charter precludes stockholder action by written consent at any time when KKR Renaissance Aggregator and its affiliates beneficially own, in the aggregate, less than 40% in voting power of the stock of the Company entitled to vote generally in the election of directors; provided, that any action required or permitted to be taken by the holders of preferred stock, voting separately as a series or separately as a class with one or more other such series, may be taken by written consent to the extent provided by the applicable certificate of designation relating to such series.

Supermajority Provisions

Our charter and bylaws provide that the board of directors is expressly authorized to make, alter, amend, change, add to, rescind or repeal, in whole or in part, our bylaws without a stockholder vote in any matter not inconsistent with the laws of the State of Delaware or our charter. For as long as KKR Renaissance Aggregator and its affiliates beneficially own, in the aggregate, at least 40% in voting power of the stock of the Company entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our stockholders requires the affirmative vote of a majority in voting power of the outstanding shares of our common stock present in person or represented by proxy and entitled to vote on such amendment, alteration, rescission or repeal. At any time when KKR Renaissance Aggregator and its affiliates beneficially own, in the aggregate, less than 40% in voting power of the stock of the Company entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our stockholders requires the affirmative vote of the holders of at least 662∕3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class.

The DGCL provides generally that the affirmative vote of a majority of the outstanding shares entitled to vote thereon, voting together as a single class, is required to amend a corporation’s certificate of incorporation, unless the certificate of incorporation requires a greater percentage.

Our charter provides that at any time when KKR Renaissance Aggregator and its affiliates beneficially own, in the aggregate, less than 40% in voting power of the stock of the Company entitled to vote generally in the election of directors, the following provisions in our charter may be amended, altered, repealed or rescinded only by the affirmative vote of the holders of at least 662∕3 in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class:


•
the provision requiring a 662∕3% supermajority vote for stockholders to amend our bylaws;


•
the provisions providing for a classified board of directors (the election and term of our directors);


•
the provisions regarding resignation and removal of directors;


•
the provisions regarding competition and corporate opportunities;


•
the provisions regarding entering into business combinations with interested stockholders;


•
the provisions regarding stockholder action by written consent;


•
the provisions regarding calling special meetings of stockholders;


•
the provisions regarding filling vacancies on our board of directors and newly created directorships;


•
the provisions eliminating monetary damages for breaches of fiduciary duty by a director; and


•
the amendment provision requiring that the above provisions be amended only with a 662∕3% supermajority vote.

The combination of the classification of our board of directors, the lack of cumulative voting and the supermajority voting requirements make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of the Company by replacing our board of directors. Because our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management.

These provisions may have the effect of deterring hostile takeovers, delaying, or preventing changes in control of our management or the Company, such as a merger, reorganization or tender offer. These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of the Company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions are also intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. Such provisions may also have the effect of preventing changes in management.

Dissenters’ Rights of Appraisal and Payment

Under the DGCL, with certain exceptions, our stockholders have appraisal rights in connection with a merger or consolidation of the Company. Pursuant to the DGCL, stockholders who properly request and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery. Our stockholders will not be entitled to exercise appraisal or dissenter’s rights under the DGCL in connection with the merger.

Stockholders’ Derivative Actions

Under the DGCL, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of our shares at the time of the transaction to which the action relates or such stockholder’s stock thereafter devolved by operation of law.

Exclusive Forum

Our charter provides that unless the Company consents to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of the Company, (ii) action asserting a claim of breach of a fiduciary duty owed by any director or officer of the Company to the Company or its stockholders, creditors or other constituents, (iii) action asserting a claim against the Company or any director or officer of the Company arising pursuant to any provision of the DGCL or our charter or bylaws or (iv) action asserting a claim against the Company or any director or officer of the Company governed by the internal affairs doctrine; provided, that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state court sitting in the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Company shall be deemed to have notice of and consented to the forum provisions in our charter. The exclusive forum provision may apply to any of the foregoing types of actions; however, the Court of Chancery of the State of Delaware is not the sole and exclusive forum for actions brought under the federal securities laws. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Further, the enforceability of similar forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be unenforceable. The combined company’s exclusive forum provision will not relieve it of its duties to comply with the federal securities laws and the rules and regulations thereunder, and its stockholders will not be deemed to have waived its compliance with these laws, rules and regulations.

Conflicts of Interest

Delaware law permits corporations to adopt provisions renouncing any interest or expectancy in certain opportunities that are presented to the corporation or its officers, directors or stockholders. Our charter, to the maximum extent permitted from time to time by Delaware law, renounces any interest or expectancy that the Company has in, or right to be offered an opportunity to participate in, specified business opportunities that are from time to time presented to our officers, directors or stockholders or their respective affiliates, other than those officers, directors, stockholders or affiliates who are the Company’s or its subsidiaries’ employees. Our charter provides that, to the fullest extent permitted by law, each of KKR Renaissance Aggregator or any of its affiliates or any director who is not employed by the Company (including any non-employee director who serves as one of the Company’s officers in both his director and officer capacities) or his or her affiliates has no duty to refrain from (i) engaging in a corporate opportunity in the same or similar lines of business in which the Company or its affiliates now engage or propose to engage or (ii) otherwise competing with the Company or its affiliates. In addition, to the fullest extent permitted by law, in the event that KKR Renaissance Aggregator or any of its affiliates or any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself or its or his affiliates or for the Company or its affiliates, such person will have no duty to communicate or offer such transaction or business opportunity to the Company or any of its affiliates and they may take any such opportunity for themselves or offer it to another person or entity. Our charter does not renounce our interest in any business opportunity that is expressly offered to a non-employee director solely in his or her capacity as a director or officer of the Company. To the fullest extent permitted by law, no business opportunity will be deemed to be a potential corporate opportunity for the Company unless it would be permitted to undertake the opportunity under its second amended and restated certificate of incorporation, it has sufficient financial resources to undertake the opportunity and the opportunity would be in line with its business.

Limitations on Liability and Indemnification of Officers and Directors

The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties, subject to certain exceptions. Our charter includes a provision that eliminates the personal liability of directors for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL. The effect of these provisions is to eliminate the rights of the Company and our stockholders, through stockholders’ derivative suits on the Company’s behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior. However, exculpation does not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends, repurchases or redemptions or derived an improper benefit from his or her actions as a director.

Our bylaws provide that it must generally indemnify, and advance expenses to, its directors and officers to the fullest extent authorized by the DGCL. We are also expressly authorized to carry directors’ and officers’ liability insurance providing indemnification for our directors, officers and certain employees for some liabilities. the Company believes that these indemnification and advancement provisions and insurance are useful to attract and retain qualified directors and executive officers.

The limitation of liability, indemnification and advancement provisions in our Charter and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit the Company and its stockholders.

Transfer Agent and Registrar

American Stock Transfer & Trust Company, LLC is the transfer agent and registrar for our common stock.


Exhibit 10.42

 

October 3, 2019

Ms. Emily Weaver
11027 Westridge Dr.
Mukilteo, WA

Dear Emily,
 
This letter confirms my offer to you to join Gardner Denver Holdings, Inc. (the “Company”) as Senior Vice President and Chief Financial Officer, reporting directly to me as the Chief Executive Officer of the Company. Please note that the Company intends to change its name to Ingersoll-Rand after the closing of the proposed merger between the Company and the industrial segment of Ingersoll-Rand plc (the “Merger”).
 
This offer is contingent upon your successful completion of a pre-employment drug screening with acceptable results, and proof of your right to work in the United States on your first day of employment.
 
The terms of this offer include the following:
 

1.
Salary: Your annual base salary will be $575,000 paid on a semi-monthly basis. You  will be eligible for your first salary review during our annual salary planning process in April 2021.
 

2.
Signing Bonus: You will receive a one-time payment in the amount of  $500,000, payable within ten (10) business days following your Date of Hire (as defined below). Should you voluntarily terminate your employment with the Company without Good Reason (as defined below) or be involuntarily terminated by the Company for Cause (as defined below) within 24 months from the Date of Hire (as defined below), you will be required to repay to repay this amount in full.
 

3.
Management Incentive Plan: Beginning in 2020 and for each subsequent fiscal year, you will be eligible to earn an annual cash incentive award under the Company’s Management Incentive Plan, subject to the terms and conditions of such plan as in effect from time to time (the “MIP”). Your target annual incentive opportunity under the MIP for each fiscal year will be 85% of your annual base salary as in effect at the end of the given fiscal year (the “Target Bonus”). Your actual annual cash incentive award may be greater or lesser than your target annual incentive opportunity, depending on the Company’s performance against its goals and otherwise as may be provided under the MIP.

 
The specific performance objectives and measures for your annual incentive opportunity will be defined for each fiscal year, and your annual incentive award will be calculated, approved, and paid after financial results for the given fiscal year have been finalized, all in accordance with the terms of the MIP.
 
Your annual bonus in respect of the 2019 fiscal year will be equal to the Target Bonus, prorated based on the period of time during which you are employed by the Company in 2019.
 

4.
Long Term Incentive Plan: Beginning in 2020, you will be eligible to participate in the Company’s long term incentive plan. Your target annual equity grant opportunity under the plan will be equal to $1,650,000, with your actual award being more or less than your target opportunity depending on your individual performance and the Company’s performance against its goals and otherwise as may be provided under the plan. The annual equity grant under the Company’s long term incentive plan currently consists of 50% stock option (with a ten year term) and 50% restricted stock (with both awards vesting in equal tranches over the four year period after the grant date), which is subject to change if changes are made to the overall plan or executive grants generally by the Company’s Compensation Committee. In the past, the grant date for annual long term incentive awards has been in the first quarter of each year. In addition to the foregoing, you will receive an equity grant as close to the Date of Hire as possible and in no case later than December 31, 2019, that will be equal to $2,500,000 in grant date value (the “Initial Equity Grant”). This grant will be comprised of 75% restricted stock ($1,875,000) and 25% stock option ($625,000). The stock option will have a ten-year term and a per share exercise price equal to the fair market value of a share of the Company’s common stock on the date of grant, and the number of shares subject to the option grant will be determined using the Black-Scholes model. Each of the restricted stock and option grants will vest over four years with no vesting on the first anniversary of the grant date, and then vesting in equal thirds on the second, third and fourth anniversaries of the grant date, and are otherwise subject to the terms and conditions of the long term incentive plan and those contained in the standard executive grant documents. The terms of the Initial Equity Grant will provide for full acceleration of vesting if within two years of a change of control, the Company terminates your employment without Cause or you terminate your employment for Good Reason.


5.
Retirement Plans: You will be eligible to participate in the Company’s retirement savings plans, subject to the terms of such plans as may be in effect from time to time.


6.
Health and Welfare Benefits Coverage: As of your Date of Hire, you will be eligible for health and welfare benefits coverage, including medical, dental, and life insurance  and disability, along with a comprehensive wellness program for your health and well- being. The Company’s benefits plan coverage year begins on each April 1st and ends on the subsequent March 31st.

 

7.
Work Location; Relocation: Initially, your work location will be Milwaukee, Wisconsin, and you may commute to Milwaukee from your current residence. Your airfare, hotel (or corporate apartment), meals, and other commuting costs between Seattle and Milwaukee will not be treated as relocation benefits and will be reimbursed subject to the Company’s travel policies. Following the closing of the Merger, or sooner as we may agree, your work location will be Davidson, North Carolina. You will be eligible for the benefits under the Company’s executive relocation program with respect to the move of your family to Davidson. You are required to complete your and your family’s relocation to Davidson by no later than June 1, 2020 (or as otherwise agreed to by the Company), unless the Merger is delayed or terminated (in which case you will relocate to  Milwaukee, WI by a date reasonably agreed to by you and the Company).
 

8.
Vacation: You will receive four weeks of paid vacation per year.


9.
Date of Hire: Your employment with the Company will commence on December 1, 2019, or such earlier date as  you and the Company may agree (your “Date of Hire”).  You hereby agree to resign from your current employment effective as of a date to be mutually agreed with the Company, but in no event later than October 9, 2019.
 

10.
Severance Arrangements: If the Company withdraws this offer before your Date of  Hire without Cause, terminates your employment without Cause, or you resign for Good Reason, the Company will:
 

a.
pay you an amount equal to your then current annual base salary, which amount shall be payable in 12 substantially equal monthly installments following the termination date with the first installment occurring in the calendar month after the month of the termination date (and pay you the Section 2 $500,000 signing bonus and Section 13 legal fees, if not previously paid to you); and
 

b.
so long as you timely elect to continue to participate in the Company’s group health plan under COBRA, provide you with continued coverage under such group health plan on the same basis as actively employed employees of the Company for the 12 month period commencing with the first day of the calendar month following the date your employment terminates (or, if earlier, through the date you become employed by another employer and are eligible for comparable group health plan coverage at such employer).

“Cause” for purposes of this offer means your (a) willful neglect in the performance of the your duties for the Company or its affiliates or willful or repeated failure or refusal to perform such duties; (b) engagement in conduct in connection with your employment or service with the Company or its affiliates, which results in, or could reasonably be expected to result in, material harm to the business or reputation of the Company or any of its affiliates; (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 of its affiliates; (d) engaging in any act of moral turpitude, illegality or harassment, whether or not such act was committed in connection with your services to the Company or any of its affiliates; (f) material violation of the Company’s Code of Conduct or any other written policies of the Company or its affiliates, 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 any of its affiliates; (g) fraud or misappropriation, embezzlement or misuse of funds or property belonging to the Company or any of its affiliates; (h) act of personal dishonesty that involves personal profit in connection with the your employment or service to the Company or any of its affiliates; or (i) material misrepresentation of any information provided by you to the Company during your pre-employment discussions and/or negotiations with the Company.

 
‘‘Good Reason’’ for purposes of this offer letter means any of the following actions if taken without your prior written consent: (1) a material adverse change in your position causing it to be of materially less stature, responsibility, or authority or the assignment to you of any material duties inconsistent with the customary duties of your position (provided that if the Company or its successor entity ceases to be a publicly traded entity or if the Merger is delayed or does not close, any such fact shall not by itself constitute a change in your existing position); (2) the relocation of the offices at which you are principally employed to a location which is more than 50 miles from the offices at which you are principally employed immediately prior to such relocation (not including your anticipated move to Davidson, North Carolina or Milwaukee, Wisconsin); or (3) a reduction in your base salary or the Target Bonus percentage or amount you are eligible to earn under the MIP; provided, however, that nothing herein shall be construed to guarantee your MIP award payable for any fiscal year if the applicable performance targets are not met; and provided, further, that it shall not constitute Good Reason if the Company makes an appropriate pro rata adjustment to the applicable amount payable and targets under the MIP in the event of a change in the fiscal year. Unless you provide written notification of an event described in any of clauses (1)-(3) above within ninety (90) days after you know or have reason to know of the occurrence of  any such event, you shall be deemed to have consented thereto and such event shall no longer constitute Good Reason for purposes of this letter. If you provides such written notification to the Company, the Company shall have ten (10) Business Days from the date of receipt of such notice to effect a cure of the event described therein and, upon cure thereof by the Company to your reasonable satisfaction, such event shall no longer constitute Good Reason for purposes of this letter. A resignation for Good Reason shall be considered to be and treated for all purposes as a Termination without Cause under this letter.
 
Receipt of the above severance payments and benefits is contingent on your execution (without revocation) of a waiver and release agreement in a form customarily used by the Company by not later than 60 days following the date on which your employment terminates and is subject to your continued compliance with any applicable restrictive covenants contained in any agreement entered into with the Company or any of its affiliates. No severance payments will commence until the waiver and release agreement becomes effective (with the first payment including all payments that would otherwise have been made if this sentence did not apply) and, if the aforementioned 60-day period spans two calendar years and if required to comply with Internal Revenue Code Section 409A, such first payment will be made in the second calendar year. For purposes of Internal Revenue Code Section 409A, each installment of the severance payments shall be deemed to be a separate payment.

 

11.
Restrictive Covenants: By signing and accepting this offer of employment, you represent and warrant that: (a) you are not subject to any pre-existing restrictive covenant or other contractual or legal obligation with any person, company or business enterprise restricting your ability to work for the Company that you have not disclosed to the Company; (b) you have not and shall not bring onto Company premises, or use in the course of your employment with the Company, any confidential or proprietary information of another person, company or business enterprise to whom you previously provided services; and (c) you are not relying on any representations, promises or agreements not expressly contained in this offer letter or any legal advice except as provided by your own counsel. You further agree to keep this offer, its terms and any confidential or proprietary information of the Company that you may acquire during the process of receiving and negotiating this offer, confidential.
 

12.
Indemnity: You have provided to the Company a complete and correct copy of an Agreement Regarding Competition and Protection of Proprietary Information that you entered into with your immediate prior employer, Fortive Corporation (the “Prior Employer,” and the foregoing agreement, the “Prior Employer Restrictive Covenant Agreement”). You hereby represent to the Company that you have not breached any of your lawful obligations to the Prior Employer under the Prior Employer Restrictive Covenant Agreement, and further agree to continue to comply with your lawful obligations under the Prior Employer Restrictive Covenant Agreement. Both you and the Company acknowledge and agree that you and it respectively reviewed your post- termination obligations under the Prior Employer Restrictive Covenant Agreement and have separately concluded that your employment with the Company, both pre and post- Merger, does not violate Section 5 of the Prior Employer Restrictive Covenant  Agreement (the “Prior Employer Non-Compete Covenant”) (and therefore under no circumstances will the Company deem your employment with the Company to be a breach of any of your representations contained herein). The Company shall defend, indemnify and hold you harmless from, against and in connection with: (A) any Proceeding (as defined below); and (B) any attorneys’ fees, expert and other fees, costs, fines, filing fees, penalties, travel expenses, liabilities, damages, settlements, judgments  or other expenses or amounts of any kind whatsoever in each case brought or alleged against you or incurred or suffered by you as a result of any act or omission arising from, relating to, or occurring in connection with your pre-employment discussions with, negotiations with, or employment with the Company or its Affiliates, which act or omission is or is alleged to be in violation of the Prior Employer Restrictive Covenant Agreement. A “Proceeding” includes but is not limited to any threatened or actual legal  or administrative action or proceeding, whether civil or criminal, including any government or regulatory proceedings, arbitrations, lawsuits, mediations, settlement discussions and investigations in which you are or may be made, or are threatened to be made, a party, witness or other participant.

 
The Company’s obligation to defend, indemnify and hold you harmless is subject to the following conditions: (a) you promptly notify the Company in writing of the existence or threat of any such Proceeding; (b) the Company shall have full control of the response to any Proceeding and the defense thereof, including any agreement relating to the settlement thereof; (c) you shall provide your full cooperation in connection with any such Proceeding (including appeals); and (d) you have not breached any of your representations contained herein. You may, at your own expense, participate in such defense and in any settlement discussions through separate counsel of your choice, on a monitoring, non-controlling basis. The Company will not be responsible for any settlement or compromise entered into by you without the Company’s consent. The foregoing duty to defend and indemnify you shall apply to the fullest extent permitted by applicable law. If, as a result of a Proceeding, you are enjoined or otherwise prohibited from working for a period of time for the Company in the position of Chief Financial Officer for the Company, the Company shall continue to pay your base salary and any annual bonus you would have earned if working (but no other payment or benefits otherwise described in this offer letter) for any such period of time; provided, that you have not breached any of your representations contained herein. The Company further agrees to maintain a commercially reasonable directors and officers liability insurance policy.
 

13.
Legal Fees: The Company will reimburse you for the legal fees you incur in connection with the negotiation of this offer letter, up to a maximum amount of $10,000. This amount shall be paid to you in all cases in 2019.
 

14.
Other Conditions: This offer of employment, and your continued employment hereunder, is further conditioned upon your signed agreement to, and ongoing  compliance with, any code of conduct, business ethics and restrictive covenant agreements required to be signed by senior level employees of the Company.
 

15.
Miscellaneous: The Company shall be entitled to withhold from the payment of any compensation and provision of any benefit under this offer letter such amounts as may be required by applicable law, including without limitation for purposes of the payment of payroll and income taxes. This offer letter and any dispute hereunder shall be interpreted and governed in accordance with the laws of the State of Delaware without reference to rules relating to conflicts of law. This offer letter supersedes and replaces in its entirety any verbal or written agreements, promises or statements between the parties with respect to the subject matters herein.  In the event of a conflict between the terms of this offer  and the terms of any other agreement or Company policy, the terms of this offer letter will prevail.

 
Emily, I am very excited about the prospect of you accepting this offer and becoming part of our executive team. I am confident that together we can achieve our goal of growing the Company and creating significant value for all stakeholders.

 
Sincerely,

/s/ Vicente Reynal
 
Vicente Reynal
 
 
Chief Executive Officer
 
Cc: Andy Schiesl

I have read and accept this offer of employment and agree to the terms and conditions

ACCEPTED AND AGREED:

/s/ Emily Weaver
 
Name
 
   
10/3/2019
 
Date
 

Offer of employment expires four (4) days from the date of this offer letter unless an extension is mutually agreed upon.


Exhibit 10.43

OPTION GRANT NOTICE
UNDER THE
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 Options (each Option representing the right to purchase one share of Common Stock) at an Exercise Price per share as set forth below. The Options 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.
 
Participant:
[Participant Name]
   
Date of Grant:
[Grant Date]
   
Vesting Commencement Date:
[Vest From Date]
   
Number of Options:
[Number of Shares Granted]
   
Option Exercise Price:
[Grant Price]
   
Option Period Expiration Date:
Ten years from Date of Grant
   
Type of Option:
Nonqualified Stock Option
   
Vesting Schedule:
Provided the Participant has not undergone a Termination prior to the time of each applicable vesting date (or event), the Options shall become vested and exercisable as to 25% of the Options on each of the first, second, third and fourth anniversaries of the Vesting Commencement Date (each, a “Vesting Date”).
   
 
In the event of the Participant’s Termination, all vesting with respect to the Options shall cease and all unvested Options 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 Options 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 Options 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 Options 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.

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Further, in the event of the Participant’s Qualifying Termination during the two-year period following a Change in Control, all unvested Options 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.

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“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.

 
*          *          *
 
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THE UNDERSIGNED PARTICIPANT ACKNOWLEDGES RECEIPT OF THIS OPTION GRANT NOTICE, THE GLOBAL AWARD AGREEMENT AND THE PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF OPTIONS HEREUNDER, AGREES TO BE BOUND BY THE TERMS OF THIS OPTION GRANT NOTICE, THE GLOBAL AWARD AGREEMENT AND THE PLAN.
 
GARDNER DENVER HOLDINGS, INC.
 
PARTICIPANT1
     
By:
   
Title:
   

[Participant Name]

[Participant ID]

[Acceptance Date]

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
UNDER THE
GARDNER DENVER HOLDINGS, INC.
2017 OMNIBUS INCENTIVE PLAN
 
Pursuant to the Option 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 Options.  Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to the Participant the number of Options provided in the Grant Notice (with each Option representing the right to purchase one share of Common Stock), at an Exercise Price per share as provided in the Grant Notice (Options are referred to herein as “Awards”).  The Company may make one or more additional grants of Options 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 Options hereunder and makes no implied promise to grant additional Options.
 
2. Vesting.  Subject to the conditions contained herein and the Plan, the Options shall vest as provided in the Grant Notice.
 
3. Exercise and Vesting of Options Following Termination. In the event of Participant’s Termination (a) by the Company for Cause, all outstanding Options granted pursuant to the Grant Notice shall immediately terminate and expire; (b) due to death or Disability, each outstanding unvested granted pursuant to the Grant Notice (after taking into account any accelerated vesting described in the Vesting Schedule of the Grant Notice) shall immediately terminate and expire and each outstanding vested Option shall remain exercisable for one year thereafter (but in no event beyond the expiration of the Option Period); and (c) for any reason other than as set forth in this Section 3, each outstanding unvested Option granted pursuant to this Grant Notice (after taking into account any accelerated vesting described in the Vesting Schedule of the Grant Notice) shall immediately terminate and expire and each outstanding vested Option shall remain exercisable for 90 days thereafter (but in no event beyond the expiration of the Option Period).
 
4. Method of Exercising Options. The Options may be exercised by the delivery of notice of the number of Options that are being exercised accompanied by payment in full of the Exercise Price applicable to the Options so exercised.  Such notice shall be delivered either (x) in writing to the Company at its principal office or at such other address as may be established by the Committee, to the attention of the Company Secretary; or (y) to a third-party plan administrator as may be arranged for by the Company or the Committee from time to time for purposes of the administration of outstanding Options under the Plan, in the case of either (x) or (y), as communicated to the Participant by the Company from time to time.  Payment of the aggregate Exercise Price may be made using any of the methods described in Section 7(d)(i) or (ii)(B) of the Plan; provided, that the Participant shall obtain written consent from the Company prior to the use of the method described in Section 7(d)(ii)(A) or (C) of the Plan.
 
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5. Issuance of Shares Upon Exercise of Options.  Following the exercise of an Option hereunder, as promptly as practical after receipt of such notification and full payment of such Exercise Price and any required income or other tax withholding amount (as provided in Section 9 hereof), the Company shall issue or transfer, or cause such issue or transfer, to the Participant the number of shares with respect to which the Options have been so exercised, and shall either (a) deliver, or cause to be delivered, to the Participant a certificate or certificates therefor, registered in the Participant’s name or (b) cause such shares to be credited to the Participant’s account at the third-party plan administrator.
 
6. 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 Options 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.
 
7. Non-Transferability. The Options 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 Options, 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 Options shall terminate and become of no further effect.
 
8. No Rights as Stockholder. The Participant or a Permitted Transferee of the Options shall have no rights as a stockholder with respect to any share of Common Stock covered by an Option until the Participant or the Permitted Transferee 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 or the Permitted Transferee shall become the holder of record or the beneficial owner thereof.
 
9. 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 Options (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 exercise of the Option 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.
 
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(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 Options 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, exercise, 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 Options 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, exercise, vesting or settlement of the Options, 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, exercise, 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.
 
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(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.
 
10. 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.
 
11. 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.
 
12. Binding Effect.  This Award Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.
 
13. 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.
 
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14. 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 Options 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 Options; or (ii) require that the Participant forfeit any gain realized on the exercise of the Options or the disposition of any shares of Common Stock received upon the exercise of the Options, 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 Options shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with applicable law.
 
15. 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;
 
(c)          all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
 
(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;
 
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(h)          the future value of the underlying shares of Common Stock is unknown and cannot be predicted with certainty;
 
(i)           the Options will not have value if the underlying shares of Common Stock do not increase in value, and if the Participant exercises the Option and acquires shares of Common Stock, the value of such shares of Common Stock may increase or decrease, even below the Exercise Price;
 
(j)           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);
 
(k)          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); and the period (if applicable) during which Participant may exercise an Option after Termination will commence as of such date and will not be extended by any notice 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
 
(l)           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.
 
16. 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.
 
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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, exercised, 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.

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17. 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.
 
18. 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.
 
19. 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.
 
20. 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., Options) 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.
 
21. 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.
 
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22. 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.
 
23. 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.
 
24. 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.
 
25. 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.
 
26. 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.
 
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Appendix A

Restrictive Covenants


1.
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:
 
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(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 territory 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 restriction 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.
 
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(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.
 

2.
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.
 
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(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.
 
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(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).
 
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ADDENDUM
 
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.
 
Notifications
 
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 Options are exercised 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.

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Australia
 
Terms and Conditions

Australia Offer Document.  The Options 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.

Notifications

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.

Austria
 
Notifications
 
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).

Brazil
 
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 exercise of the Option, the sale of shares of Common Stock acquired under the Plan or the receipt of dividends.

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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 exercise the Options 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.

Notifications
 
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.

Canada
 
Terms and Conditions
 
Form of Payment for Options. Due to legal restrictions in Canada, the Participant may not pay the Option Exercise Price or Tax-Related Items by surrendering shares of Common Stock that the Participant already owns or by attesting to the ownership of 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 16 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.
 
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Notifications
 
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., Options) 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.  Options 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.

China
 
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 exercise or 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 and the aggregate Exercise Price, if any.
 
Form of Payment for Options. To facilitate compliance with any applicable laws or regulations in China, the Participant will be required to pay the Exercise Price through the delivery of irrevocable instructions to a broker to sell all of the shares of Common Stock obtained upon exercise of the Option and to deliver promptly to the Company an amount out of the proceeds of such sale equal to the aggregate Exercise Price for the shares of Common Stock being purchased. The remaining proceeds of the sale of the shares of Common Stock, less any Tax-Related Items and broker’s fees or commissions, will be remitted to the Participant in accordance with any applicable exchange control laws and regulations. The Company reserves the right to allow additional forms of payment depending on the development of local law.
 
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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.
 
Notifications
 
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.
 
Czech Republic
 
Notifications
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.

Finland
 
No country-specific provisions apply.

Germany
 
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Notifications
 
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.

Hong Kong
 
Terms and Conditions
 
Sale Restriction.  Shares of Common Stock acquired under the Plan are accepted as a personal investment.  In the event the Options vest and become exercisable 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.
 
Notifications

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 exercise and/or 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.

India

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Terms and Conditions

Form of Payment for Options. Due to legal restrictions in India, the Participant may pay the Exercise Price by (a) cash or check made payable to the Company; or (b) by means of a cashless “sell all” method of exercise through the designated broker, such that all shares of Common Stock subject to the exercised Options will be sold immediately upon exercise (i.e., “same day sale”) and the sale proceeds, less the Exercise Price, any applicable Tax-Related Items and broker’s fees or commissions, will be remitted to the Participant in accordance with the Participant’s instructions to the designated broker.  The Company reserves the right to provide the Participant with additional methods of exercise depending on the development of local law.

Notifications

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.

Italy

Terms and Conditions
 
Data Privacy.  The following provision replaces Section 16 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 Options or other entitlement to shares granted, canceled, exercised, 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.
 
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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 9; Section 13; Section 15; Section 17; Section 18; Section 20; Section 24 and the Data Privacy provision included above.

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Notifications

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.

Netherlands
 
No country-specific terms apply.

Poland
 
Notifications
 
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.

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Singapore
 
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.

Notifications

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., Options, 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.

South Africa
 
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 9 of the Award Agreement:
 
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By accepting the Award, the Participant agrees that, immediately upon exercise of the Option, 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.
 
Tax Clearance Certificate for Cash Exercise Options.  If the Participant exercises the Option using a cash exercise method, the Participant must obtain and provide to the Employer or any third party designated by the Employer or the Company, a Tax Clearance Certificate (with respect to Foreign Investments) bearing the official stamp and signature of the Exchange Control Department of the South African Revenue Service (“SARS”).  The Participant must renew this Tax Clearance Certificate every twelve months, or such other period as may be required by the SARS.  If the Participant exercises the Option by a cashless method whereby no funds are remitted out of South Africa, no Tax Clearance Certificate is required.
 
Notifications
 
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 exercising the Option to ensure compliance with applicable exchange control regulations.  The Participant is responsible for ensuring compliance with all exchange control laws in South Africa.

South Korea
 
Notifications

Exchange Control Information.  If the Participant remits funds out of Korea to pay the Exercise Price of the Option, the remittance of funds must be confirmed by a foreign exchange bank in Korea.  The Participant may be required to submit the following supporting documents evidencing the nature of the remittance to the bank together with the confirmation application (i) the Award Agreement, (ii) the Plan; and (iii) the Participant’s certificate of employment.  This confirmation is not necessary if the Participant pays the Exercise Price through the delivery of irrevocable instructions to a broker to sell the share of Common Stock obtained upon exercise of the Option and to deliver promptly to the Company an amount of the proceeds of such sale equal to the aggregate Exercise Price for the shares of Common Stock being purchased, because in this case there is no remittance of funds out of Korea.

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.

Spain
 
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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 exercise of the Option 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.

Notifications

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.

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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.

Switzerland
 
Notifications
 
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)).

Thailand

Notifications

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.

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United Arab Emirates

Notifications

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.

United Kingdom
 
Terms and Conditions
 
Responsibility for Taxes.  The following provision supplements Section 9 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.
 
Notwithstanding the foregoing, if the Participant is a director or executive officer (within the meaning of Section 13(k) of the Exchange Act), the terms of the immediately foregoing provision will not apply.  In such case, if the amount of any income tax due is not collected from or paid by the Participant within 90 days of the end of the U.K. tax year in which an event giving rise to the indemnification described above occurs, the amount of any uncollected income tax may constitute an additional benefit to the Participant on which additional income tax and National Insurance Contributions (“NICs”) may be payable   The Participant acknowledges that the Company or the Employer may recover any such additional income tax and national insurance contributions at any time thereafter by any of the means referred to in the Award Agreement.  However, the Participant is primarily responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime.

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EXHIBIT A
 
OFFER DOCUMENT

GARDNER DENVER HOLDINGS, INC.
2017 OMNIBUS INCENTIVE PLAN

OFFER OF OPTIONS
TO AUSTRALIAN RESIDENT EMPLOYEES

Gardner Denver Holdings, Inc. (the “Company”) is pleased to provide you with this offer to participate in its 2017 Omnibus Incentive Plan (the “Plan”).  This offer sets out information regarding the grant of Options (“Awards”) to Australian resident employees of the Company and any Subsidiary.  This Offer Document is provided by the Company to ensure compliance of the Plan with the Australian Securities and Investments Commission’s (“ASIC”) Class Order 14/1000 and relevant provisions of the Corporations Act 2001.
 
Capitalized terms used but not defined herein shall have the meaning provided in the Plan.
 
You are being provided with copies of and/or access to the following documents:
 
(a)
Option Grant Notice;
 
(b)
Award summary including award details: date of grant, number of shares granted, and specific details of vesting dates and %’s ;
 
(c)
the Global Award Agreement and the addendum attached thereto (the “Agreement”);
 
(d)
the Plan; located at: https://www.sec.gov/Archives/edgar/data/1699150/000156761917001043/s001556x15_ex10-2.htm
 
(e)
The Plan Prospectus  (the “Prospectus”)
 
(collectively, the “Additional Documents”)
 
The Additional Documents provide further information to help you make an informed investment decision about participating in the Plan.  Neither the Plan nor the Prospectus is a prospectus for the purposes of the Corporations Act 2001.
 
You should not rely upon any oral statements made in relation to this offer.  You should rely only upon the statements contained in the Agreement and the Additional Documents when considering participation in the Plan.
 
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General Information

Securities Law Notification.  Investment in shares of Common Stock involves a degree of risk.  Participants who elect to participate in the Plan should monitor their participation and consider all risk factors relevant to the acquisition of shares of Common Stock under the Plan as set out in the Agreement and the Additional Documents.
 
The information contained in this offer is general information only.  It is not advice or information that takes into account your objectives, financial situation and needs.
 
You should consider obtaining your own financial product advice from an independent person who is licensed by ASIC to give advice about participation in the Plan.
 
Additional Risk Factors for Australian Residents.  You should have regard to risk factors relevant to investment in securities generally and, in particular, to the holding of shares of Common Stock.  For example, the price at which the shares of Common Stock are quoted on the New York Stock Exchange may increase or decrease due to a number of factors.  There is no guarantee that the price of the shares of Common Stock will increase.  Factors that may affect the price of the shares of Common Stock include fluctuations in the domestic and international market for listed stocks, general economic conditions, including interest rates, inflation rates, commodity and oil prices, changes to government fiscal, monetary or regulatory policies, legislation or regulation, the nature of the markets in which the Company operates and general operational and business risks.
 
More information about potential factors that could affect the Company’s business and financial results is included in the Company’s Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K.  Copies of these reports are available at http://www.sec.gov/, on the Company’s “Investor Relations” page at http://investors.gardnerdenver.com/, and upon request to the Company.
 
In addition, you should be aware that the Australian dollar value of any shares of Common Stock acquired at vesting and/or exercise will be affected by the U.S. dollar/Australian dollar exchange rate.  Participation in the Plan involves certain risks related to fluctuations in this rate of exchange.
 
Common Stock.  Common stock of a U.S. corporation is analogous to ordinary shares of an Australian corporation.  Each holder of the Company’s Common Stock is entitled to one vote for every share of Common Stock.
 
Dividends may be paid on the shares of Common Stock out of any funds of the Company legally available for dividends at the discretion of the Board.
 
The shares of Common Stock are traded on the New York Stock Exchange (“NYSE”) in the United States of America under the symbol “GDI”.
 
The shares of Common Stock are not liable to any further calls for payment of capital or for other assessment by the Company and have no sinking fund provisions, pre-emptive rights, conversion rights or redemption provisions.
 
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Ascertaining the Market Price of Shares.  You may ascertain the current market price of the shares of Common Stock as traded on the NYSE under the symbol “GDI” at https://www.nyse.com/.   The Australian dollar equivalent of that price can be obtained at: http://www.rba.gov.au/statistics/frequency/exchange-rates.html.
 
This will not be a prediction of what the market price per share of Common Stock will be when you exercise your Options.
 
Tax Notification
 
The following is a summary of the tax consequences as of March 2018 for an Australian resident Participant who receives Options under the Plan.  This summary is necessarily general in nature and does not purport to be tax advice in relation to an actual or potential recipient of Awards.
 
If you are a citizen or resident of another country or are considered a citizen or resident of another country for local law purposes, or transfer employment and/or residence after you are granted Awards, the information contained in this summary may not be applicable to you.
 
If you intend to accept Awards under the Plan, then you should not rely on the summary as anything other than a broad guide and you should seek appropriate professional advice as to how the tax or other laws in Australia and in any other applicable country apply to your specific situation before making the decision to accept.
 
Taxation of the Awards

1.
Australian Tax Consequences


(a)
What is the effect of the grant of the Awards?
 
The Australian tax legislation contains specific rules, in Subdivision 83A-C of the Income Tax Assessment Act 1997, governing the taxation of shares and rights (called “ESS interests”) acquired by employees under employee share schemes.  The Awards granted under the Plan should be regarded as a right to acquire shares and accordingly, an ESS interest for these purposes.
 
Your assessable income includes the “discount” given in relation to the acquisition of the ESS interest at grant, unless the ESS interest is either subject to a real risk of forfeiture, or you are genuinely restricted from immediately disposing of the ESS interest and there is a statement in the grant materials that deferral is to apply, in which case you will be subject to deferred taxation.
 
The terms of your Awards are set out in the Plan and the Agreement.  Your Awards are non-transferable and the Agreement contains a statement that tax deferral is to apply.  Accordingly, you will be subject to deferred taxation (i.e., you generally should not be subject to tax when the Awards are granted to you).
 
You will be required to include an amount in your assessable income for the income year in which the earliest of the following events occurs in relation to your Awards (the “ESS deferred taxing point”):
 
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(i)           there are both no longer any genuine restrictions on the vesting of the Awards, or the underlying shares of Common Stock being disposed of, and there is no real risk of you forfeiting the Awards or underlying shares of Common Stock;
 
(ii)          you cease relevant employment (i.e., when you are no longer employed by the Company or your employer) to the extent you retain the Awards; or
 
(iii)        15 years from when the Awards were granted.
 
Generally, this means you will be subject to tax when the Awards are settled upon vesting or exercise, as applicable, and the shares of Common Stock are no longer subject to any genuine restrictions on disposal.  However, the ESS deferred taxing point for the Awards will be moved to the time you sell the underlying shares of Common Stock if you sell the underlying shares of Common Stock within 30 days of the original ESS deferred taxing point.
 

(b)
What is the amount that I must include in my assessable income if an ESS deferred taxing point occurs?
 
The amount you must include in your assessable income in the income year (i.e., the financial year ending 30 June) in which the ESS deferred taxing point occurs in relation to the Awards will be the difference between the “market value” of the underlying shares of Common Stock at the ESS deferred taxing point and the cost base of the Awards (which should be the exercise price paid to acquire the underlying shares of Common Stock for Options).
 
If, however, you sell the underlying shares of Common Stock in an arm’s length transaction within 30 days of the ESS deferred taxing point (i.e., typically within 30 days of vesting or exercise, as applicable), the amount to be included in your assessable income in the income year in which the sale occurs will be equal to the difference between the sale proceeds and the cost base of the Awards (which should include any incremental costs you incur in connection with the sale, e.g., brokerage fees).
 

(c)
What is the market value of the underlying shares of Common Stock?
 
The “market value” of the underlying shares of Common Stock at the ESS deferred taxing point is determined according to the ordinary meaning of “market value” expressed in Australian currency.  The Company will determine the market value in accordance with guidelines prepared by the Australian Tax Office.
 
The Company has the obligation to provide you with certain information about your participation in the Plan at certain times, including after the end of the income year in which the ESS deferred taxing point occurs.  This may assist you in determining the market value of the underlying shares of Common Stock at the ESS deferred taxing point.  However, this estimate may not be correct if you sell the shares of Common Stock within 30 days of the acquisition date, in which case it is your responsibility to report and pay the appropriate amount of tax based on the sale proceeds.
 
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(d)
What happens if I cease employment before my Awards vest?
 
If you cease employment with the Company or any Subsidiary prior to the vesting date of some or all of the Awards and the Awards are forfeited, you may be treated as if you never acquired the forfeited Awards, in which case no amount will be included in your assessable income.
 

(e)
What tax consequences will apply when I sell my shares of Common Stock?
 
You may also be subject to capital gains tax when you subsequently sell the shares of Common Stock (other than gains realized on the disposal of shares of Common Stock within 30 days after the original ESS deferred taxing point, in which case your treatment will be limited to the income tax consequences described above in paragraph 1(b)).
 
Provided you dispose of the shares of Common Stock in an arm’s length transaction2, you will be subject to capital gains tax to the extent that the sale proceeds exceed your cost base in the shares of Common Stock sold.  Your cost base in the shares of Common Stock will generally be equal to the market value of the shares of Common Stock at the ESS deferred taxing point (which will usually be the date you acquired the shares) plus any incremental costs you incur in connection with the sale (e.g., brokerage fees).

The amount of any capital gain you realize must be included in your assessable income for the year in which the shares of Common Stock are sold.  However, if you hold the shares of Common Stock for at least one year prior to selling (excluding the dates you acquired and sold the shares of Common Stock), you may be able to apply a discount to the amount of capital gain that you are required to include in your assessable income.  If this discount is available, you may calculate the amount of capital gain to be included in your assessable income by first subtracting all available capital losses from your capital gains and then multiplying each capital gain by the discount percentage of 50%.

If the sale proceeds are lower than your cost base in the shares of Common Stock sold (assuming the sale occurred in an arm’s length transaction), you will realize a capital loss.  Capital losses may be used to offset capital gains realized in the current tax year or in any subsequent tax year, but may not be used to offset other types of income (e.g., salary or wage income).
 

(f)
What are the tax consequences if a dividend is paid on the shares?
 
If you continue to hold the shares of Common Stock, you may be entitled to receive dividends on the shares of Common Stock if the Board, in its discretion, declares a dividend.  Any dividends paid on shares of Common Stock must be included in your assessable income in the tax year they are received.  The dividends are also subject to U.S. federal withholding tax at source.  You may be entitled to a foreign tax offset against your Australian income tax for the U.S. federal income tax withheld on any dividends.
 
2
If you sell your shares on the NYSE, this will generally be considered an arm’s length transaction.

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(g)
What are the tax withholding and reporting obligations in relation to any income that I may realize pursuant to my participation in the Plan?
 
You will be responsible for reporting any income attributable to your Awards in your tax return and paying any tax liability.  It is also your responsibility to report and pay any Australian tax liability on any dividends received and/or any capital gains arising from the disposal of the shares of Common Stock that you acquire under the Plan.
 
Your employer will be required to withhold the tax due at the ESS deferred taxing point only if you have not provided your Tax File Number or Australian Business Number (as applicable) to your employer.
 
However, your employer must provide to you (generally, by no later than 14 July after the end of the income year) and the Commissioner of Taxation (generally, by no later than 14 August after the end of the income year) a statement containing certain information about your participation in the Plan in the income year in which the original ESS deferred taxing point occurs (typically, the year you acquire the shares), including an estimate of the market value of the underlying shares of Common Stock at the taxing point.  Please note that, if you sell the shares of Common Stock within 30 days of acquisition, your taxing point will not be at acquisition; as such, the amount reported by your employer may differ from your actual taxable amount (which would be based on the value of the shares of Common Stock when sold, not the acquisition date).  It is your responsibility to ensure that you complete your tax return properly.
 
2.
United States Tax Consequences

Participants (who are not U.S. citizens or permanent residents) will not be subject to U.S. tax by reason only of the grant and vesting of the Awards, the acquisition of the shares of Common Stock or the sale of shares of Common Stock, except as described in the dividends section above.  However, liability for U.S. taxes may accrue if a Participant is otherwise subject to U.S. taxes.
 
The above is an indication only of the likely U.S. taxation consequences for Australian resident Participants granted Awards under the Plan.  Participants should seek their own advice as to the U.S. taxation consequences of Plan participation.
 
 
Exhibit 10.44

RESTRICTED STOCK UNIT GRANT NOTICE
UNDER THE
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.
 
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 first, second, third and fourth 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.

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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.

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“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.

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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.
 
PARTICIPANT1
     
     
By:
   
Title:
   

[Participant Name]

[Participant ID]

[Acceptance Date]

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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.

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GLOBAL AWARD AGREEMENT
UNDER THE
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
 
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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.
 
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(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.
 
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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:
 
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(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;
 
(c)          all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
 
(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
 
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(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.

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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.
 
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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.
 
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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.
 
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Appendix A

Restrictive Covenants


1.
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:
 
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(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.
 
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(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.
 

2.
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.
 
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(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.
 
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(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).
 
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ADDENDUM
 
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.
 
Notifications
 
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.

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Australia
 
Terms and Conditions

Australia Offer Document.  The 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.

Notifications

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.

Austria
 
Notifications
 
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).

Brazil
 
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.

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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.

Notifications
 
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.

Canada
 
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.
 
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Notifications
 
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.

China
 
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.
 
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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.
 
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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.
 
Notifications
 
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.
 
Czech Republic
 
Notifications

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.

Finland
 
No country-specific provisions apply.

Germany
 
Notifications
 
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.

Hong Kong
 
Terms and Conditions
 
Form of Restricted Stock Unit Settlement.  The following provision supplements Section 3 of the Award Agreement:
 
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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.
 
Notifications

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. 

India

Notifications

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.

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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.

Italy

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.
 
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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.

Notifications

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.

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Netherlands
 
No country-specific terms apply.

Poland
 
Notifications
 
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.

Singapore
 
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.

Notifications

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.

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South Africa
 
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.
 
Notifications
 
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.

South Korea
 
Notifications

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.

30
Spain
 
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.

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Notifications

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.

Switzerland
 
Notifications
 
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)).

32
Thailand

Notifications

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

Notifications

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.

United Kingdom
 
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:

33
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.
 
Notwithstanding the foregoing, if the Participant is a director or executive officer (within the meaning of Section 13(k) of the Exchange Act), the terms of the immediately foregoing provision will not apply.  In such case, if the amount of any income tax due is not collected from or paid by the Participant within 90 days of the end of the U.K. tax year in which an event giving rise to the indemnification described above occurs, the amount of any uncollected income tax may constitute an additional benefit to the Participant on which additional income tax and National Insurance Contributions (“NICs”) may be payable   The Participant acknowledges that the Company or the Employer may recover any such additional income tax and national insurance contributions at any time thereafter by any of the means referred to in the Award Agreement.  However, the Participant is primarily responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime.

34
EXHIBIT A
 
OFFER DOCUMENT

GARDNER DENVER HOLDINGS, INC.
2017 OMNIBUS INCENTIVE PLAN

OFFER OF RESTRICTED STOCK UNITS
TO AUSTRALIAN RESIDENT EMPLOYEES


Gardner Denver Holdings, Inc. (the “Company”) is pleased to provide you with this offer to participate in its 2017 Omnibus Incentive Plan (the “Plan”).  This offer sets out information regarding the grant of Restricted Stock Units (“Awards”) to Australian resident employees of the Company and any Subsidiary.  This Offer Document is provided by the Company to ensure compliance of the Plan with the Australian Securities and Investments Commission’s (“ASIC”) Class Order 14/1000 and relevant provisions of the Corporations Act 2001.
 
Capitalized terms used but not defined herein shall have the meaning provided in the Plan.
 
You are being provided with copies of and/or access to the following documents:
 
(a)
Restricted Stock Unit Grant Notice;
 
(b)
Award summary including award details: date of grant, number of shares granted, and specific details of vesting dates and %’s;
 
(c)
the Global Award Agreement and the addendum attached thereto (the “Agreement”);
 
(d)
the Plan; located at: https://www.sec.gov/Archives/edgar/data/1699150/000156761917001043/s001556x15_ex10-2.htm
 
(e)
The Plan Prospectus (the “Prospectus”)
 
(collectively, the “Additional Documents”)
 
The Additional Documents provide further information to help you make an informed investment decision about participating in the Plan.  Neither the Plan nor the Prospectus is a prospectus for the purposes of the Corporations Act 2001.
 
You should not rely upon any oral statements made in relation to this offer.  You should rely only upon the statements contained in the Agreement and the Additional Documents when considering participation in the Plan.

35
General Information

Securities Law Notification.  Investment in shares of Common Stock involves a degree of risk.  Participants who elect to participate in the Plan should monitor their participation and consider all risk factors relevant to the acquisition of shares of Common Stock under the Plan as set out in the Agreement and the Additional Documents.
 
The information contained in this offer is general information only.  It is not advice or information that takes into account your objectives, financial situation and needs.
 
You should consider obtaining your own financial product advice from an independent person who is licensed by ASIC to give advice about participation in the Plan.
 
Additional Risk Factors for Australian Residents.  You should have regard to risk factors relevant to investment in securities generally and, in particular, to the holding of shares of Common Stock.  For example, the price at which the shares of Common Stock are quoted on the New York Stock Exchange may increase or decrease due to a number of factors.  There is no guarantee that the price of the shares of Common Stock will increase.  Factors that may affect the price of the shares of Common Stock include fluctuations in the domestic and international market for listed stocks, general economic conditions, including interest rates, inflation rates, commodity and oil prices, changes to government fiscal, monetary or regulatory policies, legislation or regulation, the nature of the markets in which the Company operates and general operational and business risks.
 
More information about potential factors that could affect the Company’s business and financial results is included in the Company’s Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K.  Copies of these reports are available at http://www.sec.gov/, on the Company’s “Investor Relations” page at http://investors.gardnerdenver.com/, and upon request to the Company.
 
In addition, you should be aware that the Australian dollar value of any shares of Common Stock acquired at vesting will be affected by the U.S. dollar/Australian dollar exchange rate.  Participation in the Plan involves certain risks related to fluctuations in this rate of exchange.
 
Common Stock.  Common stock of a U.S. corporation is analogous to ordinary shares of an Australian corporation.  Each holder of the Company’s Common Stock is entitled to one vote for every share of Common Stock.
 
Dividends may be paid on the shares of Common Stock out of any funds of the Company legally available for dividends at the discretion of the Board.
 
The shares of Common Stock are traded on the New York Stock Exchange (“NYSE”) in the United States of America under the symbol “GDI”.
 
The shares of Common Stock are not liable to any further calls for payment of capital or for other assessment by the Company and have no sinking fund provisions, pre-emptive rights, conversion rights or redemption provisions.
 
36
Ascertaining the Market Price of Shares.  You may ascertain the current market price of the shares of Common Stock as traded on the NYSE under the symbol “GDI” at https://www.nyse.com/.   The Australian dollar equivalent of that price can be obtained at: http://www.rba.gov.au/statistics/frequency/exchange-rates.html.
 
This will not be a prediction of what the market price per share of Common Stock will be when the Restricted Stock Units vest.
 
Tax Notification
 
The following is a summary of the tax consequences as of March 2018 for an Australian resident Participant who receives Restricted Stock Units under the Plan.  This summary is necessarily general in nature and does not purport to be tax advice in relation to an actual or potential recipient of Awards.
 
If you are a citizen or resident of another country or are considered a citizen or resident of another country for local law purposes, or transfer employment and/or residence after you are granted Awards, the information contained in this summary may not be applicable to you.
 
If you intend to accept Awards under the Plan, then you should not rely on the summary as anything other than a broad guide and you should seek appropriate professional advice as to how the tax or other laws in Australia and in any other applicable country apply to your specific situation before making the decision to accept.
 
Taxation of the Awards

1.
Australian Tax Consequences
 

(a)
What is the effect of the grant of the Awards?
 
The Australian tax legislation contains specific rules, in Subdivision 83A-C of the Income Tax Assessment Act 1997, governing the taxation of shares and rights (called “ESS interests”) acquired by employees under employee share schemes.  The Awards granted under the Plan should be regarded as a right to acquire shares and accordingly, an ESS interest for these purposes.
 
Your assessable income includes the “discount” given in relation to the acquisition of the ESS interest at grant, unless the ESS interest is either subject to a real risk of forfeiture, or you are genuinely restricted from immediately disposing of the ESS interest and there is a statement in the grant materials that deferral is to apply, in which case you will be subject to deferred taxation.
 
The terms of your Awards are set out in the Plan and the Agreement.  Your Awards are non-transferable and the Agreement contains a statement that tax deferral is to apply.  Accordingly, you will be subject to deferred taxation (i.e., you generally should not be subject to tax when the Awards are granted to you).
 
You will be required to include an amount in your assessable income for the income year in which the earliest of the following events occurs in relation to your Awards (the “ESS deferred taxing point”):
 
37
(i)            there are both no longer any genuine restrictions on the vesting of the Awards, or the underlying shares of Common Stock being disposed of, and there is no real risk of you forfeiting the Awards or underlying shares of Common Stock;
 
(ii)           you cease relevant employment (i.e., when you are no longer employed by the Company or your employer) to the extent you retain the Awards; or
 
(iii)          15 years from when the Awards were granted.
 
Generally, this means you will be subject to tax when the Awards are settled upon vesting, and the shares of Common Stock are no longer subject to any genuine restrictions on disposal.  However, the ESS deferred taxing point for the Awards will be moved to the time you sell the underlying shares of Common Stock if you sell the underlying shares of Common Stock within 30 days of the original ESS deferred taxing point.
 

(b)
What is the amount that I must include in my assessable income if an ESS deferred taxing point occurs?
 
The amount you must include in your assessable income in the income year (i.e., the financial year ending 30 June) in which the ESS deferred taxing point occurs in relation to the Awards will be the difference between the “market value” of the underlying shares of Common Stock at the ESS deferred taxing point and the cost base of the Awards (which should be nil for the Restricted Stock Units because you do not pay anything to acquire the Restricted Stock Units or the underlying shares of Common Stock).
 
If, however, you sell the underlying shares of Common Stock in an arm’s length transaction within 30 days of the ESS deferred taxing point (i.e., typically within 30 days of vesting), the amount to be included in your assessable income in the income year in which the sale occurs will be equal to the difference between the sale proceeds and the cost base of the Awards (which should include any incremental costs you incur in connection with the sale, e.g., brokerage fees).
 

(c)
What is the market value of the underlying shares of Common Stock?
 
The “market value” of the underlying shares of Common Stock at the ESS deferred taxing point is determined according to the ordinary meaning of “market value” expressed in Australian currency.  The Company will determine the market value in accordance with guidelines prepared by the Australian Tax Office.
 
The Company has the obligation to provide you with certain information about your participation in the Plan at certain times, including after the end of the income year in which the ESS deferred taxing point occurs.  This may assist you in determining the market value of the underlying shares of Common Stock at the ESS deferred taxing point.  However, this estimate may not be correct if you sell the shares of Common Stock within 30 days of the acquisition date, in which case it is your responsibility to report and pay the appropriate amount of tax based on the sale proceeds.
 
38

(d)
What happens if I cease employment before my Awards vest?
 
If you cease employment with the Company or any Subsidiary prior to the vesting date of some or all of the Awards and the Awards are forfeited, you may be treated as if you never acquired the forfeited Awards, in which case no amount will be included in your assessable income.
 

(e)
What tax consequences will apply when I sell my shares of Common Stock?
 
You may also be subject to capital gains tax when you subsequently sell the shares of Common Stock (other than gains realized on the disposal of shares of Common Stock within 30 days after the original ESS deferred taxing point, in which case your treatment will be limited to the income tax consequences described above in paragraph 1(b)).
 
Provided you dispose of the shares of Common Stock in an arm’s length transaction,2 you will be subject to capital gains tax to the extent that the sale proceeds exceed your cost base in the shares of Common Stock sold.  Your cost base in the shares of Common Stock will generally be equal to the market value of the shares of Common Stock at the ESS deferred taxing point (which will usually be the date you acquired the shares) plus any incremental costs you incur in connection with the sale (e.g., brokerage fees).

The amount of any capital gain you realize must be included in your assessable income for the year in which the shares of Common Stock are sold.  However, if you hold the shares of Common Stock for at least one year prior to selling (excluding the dates you acquired and sold the shares of Common Stock), you may be able to apply a discount to the amount of capital gain that you are required to include in your assessable income.  If this discount is available, you may calculate the amount of capital gain to be included in your assessable income by first subtracting all available capital losses from your capital gains and then multiplying each capital gain by the discount percentage of 50%.

If the sale proceeds are lower than your cost base in the shares of Common Stock sold (assuming the sale occurred in an arm’s length transaction), you will realize a capital loss.  Capital losses may be used to offset capital gains realized in the current tax year or in any subsequent tax year, but may not be used to offset other types of income (e.g., salary or wage income).
 

(f)
What are the tax consequences if a dividend is paid on the shares?
 
If you continue to hold the shares of Common Stock, you may be entitled to receive dividends on the shares of Common Stock if the Board, in its discretion, declares a dividend.  Any dividends paid on shares of Common Stock must be included in your assessable income in the tax year they are received.  The dividends are also subject to U.S. federal withholding tax at source.  You may be entitled to a foreign tax offset against your Australian income tax for the U.S. federal income tax withheld on any dividends.
 

2 If you sell your shares on the NYSE, this will generally be considered an arm’s length transaction.
 
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(g)
What are the tax withholding and reporting obligations in relation to any income that I may realize pursuant to my participation in the Plan?
 
You will be responsible for reporting any income attributable to your Awards in your tax return and paying any tax liability.  It is also your responsibility to report and pay any Australian tax liability on any dividends received and/or any capital gains arising from the disposal of the shares of Common Stock that you acquire under the Plan.
 
Your employer will be required to withhold the tax due at the ESS deferred taxing point only if you have not provided your Tax File Number or Australian Business Number (as applicable) to your employer.
 
However, your employer must provide to you (generally, by no later than 14 July after the end of the income year) and the Commissioner of Taxation (generally, by no later than 14 August after the end of the income year) a statement containing certain information about your participation in the Plan in the income year in which the original ESS deferred taxing point occurs (typically, the year you acquire the shares), including an estimate of the market value of the underlying shares of Common Stock at the taxing point.  Please note that, if you sell the shares of Common Stock within 30 days of acquisition, your taxing point will not be at acquisition; as such, the amount reported by your employer may differ from your actual taxable amount (which would be based on the value of the shares of Common Stock when sold, not the acquisition date).  It is your responsibility to ensure that you complete your tax return properly.
 
2.
United States Tax Consequences
 
Participants (who are not U.S. citizens or permanent residents) will not be subject to U.S. tax by reason only of the grant and vesting of the Awards, the acquisition of the shares of Common Stock or the sale of shares of Common Stock, except as described in the dividends section above.  However, liability for U.S. taxes may accrue if a Participant is otherwise subject to U.S. taxes.
 
The above is an indication only of the likely U.S. taxation consequences for Australian resident Participants granted Awards under the Plan.  Participants should seek their own advice as to the U.S. taxation consequences of Plan participation.
 

Exhibit 21

Entity Name
Domestic
Jurisdiction
Gardner Denver SudAmerica S.r.l.
Argentina
Gardner Denver Industries Pty Ltd.
Australia
CompAir GmbH
Austria
Gardner Denver Austria GmbH
Austria
Gardner Denver Intl Ltd Middle East Regional Rep Office
Bahrain
Gardner Denver Belgium NV
Belgium
Gardner Denver Brasil Industria E Comercio de Maquinas Ltda.
Brazil
Gardner Denver Nash Brasil Industria E Comercio De Bombas Ltda
Brazil
Gardner Denver Canada Corp
Canada
CompAir International Trading (Shanghai) Co Ltd
China
Gardner Denver Machinery (Shanghai) Co., Ltd.
China
Gardner Denver Nash Machinery Ltd.
China
Gardner Denver Thomas Pneumatic Systems (Wuxi) Co., Ltd.
China
Runtech Systems (Shanghai) Co. Ltd.
China
Shanghai CompAir Compressors Co Ltd
China
Welch Vacuum Equipment (Shanghai) Co. Ltd.
China
Gardner Denver Cyprus Investments Ltd.
Cyprus
Gardner Denver Cyprus Investments II Ltd.
Cyprus
Gardner Denver CZ + SK sro
Czech Republic
Gardner Denver Oy
Finland
GD Investment KY
Finland
Runtech Systems OY
Finland
Gardner Denver France SAS
France
Emco Wheaton Gmbh
Germany
Gardner Denver Bad Neustadt Real Estate GmbH & Co KG
Germany
Gardner Denver Deutschland GmbH
Germany
Gardner Denver Finance Inc & Co KG
Germany
Gardner Denver Kirchhain Real Estate GmbH & Co KG
Germany
Gardner Denver Schopfheim GmbH
Germany
Gardner Denver Schopfheim Real Estate GmbH & Co KG
Germany
Gardner Denver Thomas GmbH
Germany
Gardner Denver Thomas Real Estate GmbH & Co KG
Germany
GD German Holdings GmbH
Germany
GD German Holdings I Gmbh
Germany
GD German Holdings II GmbH
Germany
GD German Investments GmbH
Germany
ILS Inovative Laborsysteme GmbH
Germany
TIWR Real Estate GmbH & Co. KG
Germany
Zinsser Analytik GmbH
Germany
Gardner Denver Hong Kong Investments Limited
Hong Kong
Gardner Denver Hong Kong Ltd
Hong Kong
Gardner Denver Engineered Products India Private Limited
India
Indonesia Foreign Trade Representative Office
Indonesia
Gardner Denver Ltd. Branch (Ireland)
Ireland
Gardner Denver Italy Holdings S.r.L.
Italy
Gardner Denver S.r.l.
Italy
Garo Dott. Ing. Roberto Gabbioneta S.r.l.
Italy
Gardner Denver Japan, Ltd.
Japan
CompAir (Hankook) Korea Co. Ltd.
Korea
CompAir Korea Ltd
Korea
Gardner Denver Korea, Ltd.
Korea
GD Industrial Products Malaysia SDN. BHD.
Malaysia
Gardner Denver Nederland BV
Netherlands
Gardner Denver Nederland Investments B.V.
Netherlands
GD Global Ventures I B.V.
Netherlands
GD Global Ventures II B.V.
Netherlands
GD Global Ventures III B.V.
Netherlands
Gardner Denver Industries Pty Ltd. Branch
New Zealand

Tamrotor Marine Compressors AS
Norway
Gardner Denver Polska Sp z.o.o.
Poland
Emco Wheaton GmbH Branch
Russia
Gardner Denver Pte Ltd.
Singapore
Gardner Denver Slovakia, s.r.o.
Slovakia
CompAir South Africa (SA) (Pty) Ltd.
South Africa
Gardner Denver Ltd South Africa
South Africa
Enza Air Propriety Limited (South Africa)
South Africa
Gardner Denver Iberica, SL
Spain
Gardner Denver Sweden AB
Sweden
Oina VV Aktiebolag
Sweden
Gardner Denver Schweiz AG
Switzerland
Gardner Denver Taiwan Ltd.
Taiwan
Gardner Denver (Thailand) Co. Ltd.
Thailand
Gardner Denver FZE
United Arab Emirates
CompAir Acquisition (No. 2) Ltd.
United Kingdom
CompAir Acquisition Ltd.
United Kingdom
CompAir BroomWade Ltd.
United Kingdom
CompAir Finance Ltd.
United Kingdom
CompAir Holdings Limited
United Kingdom
CompAir Holman Ltd
United Kingdom
Consolidated Distribution Holdings Ltd.
United Kingdom
Gardner Denver Group Svcs Ltd
United Kingdom
Gardner Denver Holdings Limited
United Kingdom
Gardner Denver Industries Ltd.
United Kingdom
Gardner Denver International Ltd.
United Kingdom
Gardner Denver Ltd.
United Kingdom
GD Aria Holdings #2 Limited
United Kingdom
GD Aria Holdings Limited
United Kingdom
GD Aria Investments Limited
United Kingdom
GD First UK Ltd
United Kingdom
GD Global Holdings UK II Ltd.
United Kingdom
GD UK Finance Ltd.
United Kingdom
ILMVAC (UK) Ltd.
United Kingdom
Shanghai Compressors & Blowers Ltd.
United Kingdom
211 E. Russell Road LLC
USA
Boardwalk Enterprises, LLC
USA
Charm Merger Sub Inc.
USA
Emco Wheaton USA Inc
USA
Gardner Denver Cyprus Investments Ltd. - US Branch
USA
Gardner Denver Cyprus Investments II Ltd. - US Branch
USA
Gardner Denver Finance II LLC
USA
Gardner Denver Holdings, Inc.
USA
Gardner Denver International, Inc.
USA
Gardner Denver Investments, Inc.
USA
Gardner Denver Nash LLC
USA
Gardner Denver Petroleum Pumps, LLC
USA
Gardner Denver Thomas, Inc.
USA
Gardner Denver, Inc.
USA
GD Global Holdings, Inc.
USA
GD Global Holdings II, Inc.
USA
LeRoi International Inc
USA
Rotary Compression Technologies, Inc.
USA
Runtech Systems Inc.
USA
Thomas Industries, Inc.
USA
Tri-Continent Scientific, Inc.
USA
Zinsser NA, Inc.
USA


Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-228090 on Form S-3, Registration Statement No. 333-217944 on Form S-8, and Registration Statement No. 333-235748 on Form S-4, of our report dated February 26, 2020, relating to the consolidated financial statements of Gardner Denver Holdings, Inc., and the effectiveness of Gardner Denver Holdings, Inc.’s internal control over financial reporting appearing in this Annual Report on Form 10-K of Gardner Denver Holdings, Inc., for the year ended December 31, 2019.

/s/ DELOITTE & TOUCHE LLP
Milwaukee, WI

February 26, 2020


Exhibit 31.1
 
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

I, Vicente Reynal, certify that:
 
1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of Gardner Denver Holdings, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: February 26, 2020

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


Exhibit 31.2
 
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002 

I, Emily A. Weaver, certify that:
 
1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of Gardner Denver Holdings, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: February 26, 2020
 
 
 
/s/ Emily A. Weaver
 
 
Emily A. Weaver
 
Vice President and Chief Financial Officer
 
(Principal Financial Officer)


Exhibit 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Gardner Denver Holdings, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Vicente Reynal, Chief Executive Officer and Director of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
•   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
•   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.
 
Date: February 26, 2020
 
   
 
/s/ Vicente Reynal
 
 
Vicente Reynal
 
Chief Executive Officer and Director
 
(Principal Executive Officer)


Exhibit 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Gardner Denver Holdings, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Emily A. Weaver, Vice President and Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
•   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
•   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.
 
Date: February 26, 2020
 
   
 
/s/ Emily A. Weaver
 
 
Emily A. Weaver
 
Vice President and Chief Financial Officer
 
(Principal Financial Officer)