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

FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017
 
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)


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
       
Non-accelerated filer
☒  (Do not check if a smaller reporting company)
Smaller reporting company
       
   
Emerging growth Company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
The registrant had outstanding 196,010,861 shares of Common Stock, par value $0.01 per share, as of September 30, 2017.
 

Table of Contents

GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX
 
 
Page
No.
PART I. FINANCIAL INFORMATION
 
5
35
53
53
PART II. OTHER INFORMATION
 
54
54
54
54
54
54
55
56
 
2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
In addition to historical information, this Quarterly Report on Form 10-Q (this “Form 10-Q”) may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. All statements, other than statements of historical facts included in this Form 10-Q, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends and other information, may be forward-looking statements. Words such as “estimates,” “expects,” “contemplates,” “will,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “may,” “should” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
 
There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q. Such risks, uncertainties and other important factors that could cause actual results to differ include, among others, the risks, uncertainties and factors set forth under “Risk Factors” in the Company’s prospectus dated May 11, 2017 (the “Prospectus”), as filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2017 pursuant to Rule 424(b)(4) under the Securities Act, and in this report, as such risk factors may be updated from time to time in our periodic filings with the SEC, and are accessible on the SEC’s website at www.sec.gov, and also include the following:
 
·
We have exposure to the risks associated with instability in the global economy and financial markets, which may negatively impact our revenues, liquidity, suppliers and customers.
·
More than half of our sales and operations are in non-U.S. jurisdictions and we are subject to the economic, political, regulatory and other risks of international operations.
·
Our revenues and operating results, especially in the Energy segment, depend on the level of activity in the energy industry, which is affected by volatile oil and gas prices.
·
Our results of operations are subject to exchange rate and other currency risks. A significant movement in exchange rates could adversely impact our results of operations and cash flows.
·
Potential governmental regulations restricting the use, and increased public attention to and litigation regarding the impacts, of hydraulic fracturing or other processes on which it relies could reduce demand for our products.
·
We face competition in the markets we serve, which could materially and adversely affect our operating results.
·
Large or rapid increases in the cost of raw materials and component parts, substantial decreases in their availability, or our dependence on particular suppliers of raw materials and component parts could materially and adversely affect our operating results.
·
Our operating results could be adversely affected by a loss or reduction of business with key customers or consolidation or the vertical integration of our customer base.
·
The loss of, or disruption in, our distribution network could have a negative impact on our abilities to ship products, meet customer demand and otherwise operate our business.
·
Our ongoing and expected restructuring plans and other cost savings initiatives may not be as effective as we anticipate, and we may fail to realize the cost savings and increased efficiencies that we expect to result from these actions. Our operating results could be negatively affected by our inability to effectively implement such restructuring plans and other cost savings initiatives.
·
Our success depends on our executive management and key personnel.
·
Credit and counterparty risks could harm our business.
·
If we are unable to develop new products and technologies, our competitive position may be impaired, which could materially and adversely affect our sales and market share.
·
Cost overruns, delays, penalties or liquidated damages could negatively impact our results, particularly with respect to fixed-price contracts for custom engineered products.
·
The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results of operations, financial condition or strategic objectives.
·
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.
 
3

·
Our business could suffer if we experience employee work stoppages, union and work council campaigns or other labor difficulties.
·
We are a defendant in certain asbestos and silica-related personal injury lawsuits, which could adversely affect our financial condition.
·
Acquisitions and integrating such acquisitions create certain risks and may affect our operating results.
·
A natural disaster, catastrophe or other event could result in severe property damage, which could adversely affect our operations.
·
Information systems failure may disrupt our business and result in financial loss and liability to our customers.
·
The nature of our products creates the possibility of significant product liability and warranty claims, which could harm our business.
·
Environmental compliance costs and liabilities could adversely affect our financial condition.
·
Third parties may infringe upon our intellectual property or may claim we have infringed their intellectual property, and we may expend significant resources enforcing or defending our rights or suffer competitive injury.
·
We face risks associated with our pension and other postretirement benefit obligations.
·
Our substantial indebtedness could have important adverse consequences and adversely affect our financial condition.
·
A significant portion of our total outstanding shares are restricted from immediate sale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
·
Our Sponsor (affiliates of Kohlberg Kravis Roberts & Co. L.P.) controls a majority of the voting power in the Company’s common stock and has significant influence over us, including control over decisions that require the approval of stockholders.

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

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

Website Disclosure

We use our website www.gardnerdenver.com as a channel of distribution of Company information. Financial and other important information regarding the Company is routinely accessible through and posted on our website. Accordingly, investors should monitor our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.  In addition, you may automatically receive e-mail alerts and other information about Gardner Denver Holdings, Inc when you enroll your e-mail address by visiting the “Email Alerts” section of our website at www.investors.gardnerdenver.com. The contents of our website is not, however, a part of this Quarterly Report on Form 10-Q.
 
4

PART I. FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Financial Statements

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

   
For the Three Month
Period Ended
September 30,
   
For the Nine Month
Period Ended
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
                         
Revenues
 
$
649.6
   
$
462.6
   
$
1,710.4
   
$
1,361.6
 
Cost of sales
   
395.7
     
298.4
     
1,066.0
     
867.1
 
Gross Profit
   
253.9
     
164.2
     
644.4
     
494.5
 
Selling and administrative expenses
   
111.1
     
100.9
     
339.1
     
310.3
 
Amortization of intangible assets
   
29.5
     
30.7
     
87.6
     
90.8
 
Impairment of other intangible assets
   
-
     
-
     
-
     
1.5
 
Other operating expense, net
   
17.4
     
12.4
     
186.7
     
26.1
 
Operating Income
   
95.9
     
20.2
     
31.0
     
65.8
 
Interest expense
   
30.1
     
43.0
     
115.4
     
128.7
 
Loss on extinguishment of debt
   
34.1
     
-
     
84.5
     
-
 
Other income, net
   
(0.7
)
   
(0.7
)
   
(2.6
)
   
(2.6
)
Income (Loss) Before Income Taxes
   
32.4
     
(22.1
)
   
(166.3
)
   
(60.3
)
Provision (benefit) for income taxes
   
4.4
     
(9.1
)
   
(41.2
)
   
(33.3
)
Net Income (Loss)
   
28.0
     
(13.0
)
   
(125.1
)
   
(27.0
)
Less: Net (loss) income attributable to noncontrolling  interests
   
-
     
(0.1
)
   
0.1
     
(0.6
)
Net Income (Loss) Attributable to Gardner Denver Holdings, Inc.
 
$
28.0
   
$
(12.9
)
 
$
(125.2
)
 
$
(26.4
)
Basic earnings (loss) per share
 
$
0.14
   
$
(0.09
)
 
$
(0.71
)
 
$
(0.18
)
Diluted earnings (loss) per share
 
$
0.13
   
$
(0.09
)
 
$
(0.71
)
 
$
(0.18
)
 
See Notes to Condensed Consolidated Financial Statements.
 
5

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

   
For the Three Month
Period Ended
September 30,
   
For the Nine Month
Period Ended
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
Comprehensive Income (Loss) Attributable to Gardner Denver Holdings, Inc.
                       
Net income (loss) attributable to Gardner Denver Holdings, Inc.
 
$
28.0
   
$
(12.9
)
 
$
(125.2
)
 
$
(26.4
)
Other comprehensive income (loss), net of tax:
                               
Foreign currency translation adjustments, net
   
41.5
     
(29.4
)
   
131.4
     
12.8
 
Foreign currency (losses) gains, net
   
(14.8
)
   
8.1
     
(44.3
)
   
(10.8
)
Unrecognized gains (losses) on cash flow hedges, net
   
4.0
     
(2.8
)
   
5.5
     
(13.5
)
Pension and other postretirement prior service cost and gain or loss, net
   
(0.6
)
   
5.2
     
(1.9
)
   
6.3
 
Total other comprehensive income (loss), net of tax
   
30.1
     
(18.9
)
   
90.7
     
(5.2
)
Comprehensive income (loss) attributable to Gardner Denver Holdings, Inc.
 
$
58.1
   
$
(31.8
)
 
$
(34.5
)
 
$
(31.6
)
Comprehensive Income Attributable to Noncontrolling Interests
                               
Net (loss) income attributable to noncontrolling interests
 
$
-
   
$
(0.1
)
 
$
0.1
   
$
(0.6
)
Other comprehensive income, net of tax:
                               
Foreign currency translation adjustments, net
   
-
     
0.1
     
-
     
0.6
 
Total other comprehensive income, net of tax
   
-
     
0.1
     
-
     
0.6
 
Comprehensive income attributable to noncontrolling interests
 
$
-
   
$
-
   
$
0.1
   
$
-
 
Total Comprehensive Income (Loss)
 
$
58.1
   
$
(31.8
)
 
$
(34.4
)
 
$
(31.6
)

See Notes to Condensed Consolidated Financial Statements.
 
6

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

   
September 30,
2017
   
December 31,
2016
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
303.0
   
$
255.8
 
Accounts receivable, net of allowance for doubtful accounts of $19.4 and $18.7, respectively
   
531.6
     
441.6
 
Inventories
   
507.6
     
443.9
 
Other current assets
   
61.2
     
47.2
 
Total current assets
   
1,403.4
     
1,188.5
 
Property, plant and equipment, net of accumulated depreciation of $188.5 and $146.1, respectively
   
352.0
     
358.4
 
Goodwill
   
1,216.9
     
1,154.7
 
Other intangible assets, net
   
1,449.7
     
1,469.9
 
Deferred tax assets
   
0.9
     
1.4
 
Other assets
   
129.7
     
143.1
 
Total assets
 
$
4,552.6
   
$
4,316.0
 
Liabilities and Stockholders' Equity
               
Current liabilities:
               
Short-term borrowings and current maturities of long-term debt
 
$
21.1
   
$
24.5
 
Accounts payable
   
263.6
     
214.9
 
Accrued liabilities
   
274.9
     
258.5
 
Total current liabilities
   
559.6
     
497.9
 
Long-term debt, less current maturities
   
2,006.9
     
2,753.8
 
Pensions and other postretirement benefits
   
129.8
     
122.7
 
Deferred income taxes
   
409.2
     
487.6
 
Other liabilities
   
175.3
     
182.2
 
Total liabilities
   
3,280.8
     
4,044.2
 
Commitments and contingencies (Note 14)
               
Stockholders' equity:
               
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 198,130,973 and 150,552,360 shares issued at September 30, 2017 and December 31, 2016, respectively
   
2.0
     
1.5
 
Capital in excess of par value
   
2,264.9
     
1,222.4
 
Accumulated deficit
   
(721.4
)
   
(596.2
)
Accumulated other comprehensive loss
   
(251.7
)
   
(342.4
)
Treasury stock at cost; 2,120,112 and 1,897,454 shares at September 30, 2017 and December 31, 2016, respectively
   
(22.0
)
   
(19.4
)
Total Gardner Denver Holdings, Inc. stockholders' equity
   
1,271.8
     
265.9
 
Noncontrolling interests
   
-
     
5.9
 
Total stockholders' equity
   
1,271.8
     
271.8
 
Total liabilities and stockholders' equity
 
$
4,552.6
   
$
4,316.0
 
 
See Notes to Condensed Consolidated Financial Statements.
 
7

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

   
For the
Nine Month
Period Ended
September 30,
2017
   
For the
Nine Month
Period Ended
September 30,
2016
 
             
Cash Flows From Operating Activities:
           
Net loss
 
$
(125.1
)
 
$
(27.0
)
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Amortization of intangible assets
   
87.6
     
90.8
 
Depreciation in cost of sales
   
33.2
     
30.5
 
Depreciation in selling and administrative expenses
   
6.1
     
5.6
 
Impairment of other intangible assets
   
-
     
1.5
 
Stock-based compensation expense
   
166.0
     
-
 
Foreign currency transaction losses (gains), net
   
6.3
     
(2.6
)
Net loss on asset dispositions
   
2.0
     
1.6
 
Loss on extinguishment of debt
   
84.5
     
-
 
Deferred income taxes
   
(68.1
)
   
(45.8
)
Changes in assets and liabilities:
               
Receivables
   
(65.9
)
   
18.1
 
Inventories
   
(36.4
)
   
(3.8
)
Accounts payable
   
39.8
     
21.3
 
Accrued liabilities
   
(19.8
)
   
3.9
 
Other assets and liabilities, net
   
(26.3
)
   
12.7
 
Net cash provided by operating activities
   
83.9
     
106.8
 
Cash Flows From Investing Activities:
               
Capital expenditures
   
(36.4
)
   
(46.3
)
Net cash paid in business combinations
   
(18.8
)
   
(18.8
)
Net cash received in business divestitures
   
-
     
4.9
 
Proceeds from the termination of derivatives
   
6.2
     
-
 
Disposals of property, plant and equipment
   
5.9
     
0.4
 
Net cash used in investing activities
   
(43.1
)
   
(59.8
)
Cash Flows From Financing Activities:
               
Principal payments on long-term debt
   
(2,872.2
)
   
(20.1
)
Premium paid on extinguishment of senior notes
   
(29.7
)
   
-
 
Proceeds from long-term debt
   
2,010.7
     
1.0
 
Proceeds from the issuance of common stock, net of share issuance costs
   
893.3
     
2.9
 
Purchase of treasury stock
   
(2.6
)
   
(12.6
)
Purchase of shares from noncontrolling interests
   
(5.2
)
   
-
 
Payments of debt issuance costs
   
(2.9
)
   
(1.1
)
Other
   
0.4
     
(0.9
)
Net cash used in financing activities
   
(8.2
)
   
(30.8
)
Effect of exchange rate changes on cash and cash equivalents
   
14.6
     
(2.3
)
Net increase in cash and cash equivalents
   
47.2
     
13.9
 
Cash and cash equivalents, beginning of period
   
255.8
     
228.3
 
Cash and cash equivalents, end of period
 
$
303.0
   
$
242.2
 
Supplemental Cash Flow Information
               
Cash paid for income taxes
 
$
47.4
   
$
22.7
 
Cash paid for interest
 
$
118.1
   
$
137.2
 
Capital expenditures in accounts payable
 
$
3.0
   
$
5.9
 
Property and equipment acquired under capital leases
 
$
-
   
$
7.7
 
Expenditures directly related to our initial public offering in accounts payable
 
$
0.2
   
$
-
 

See Notes to Condensed Consolidated Financial Statements
 
8

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

   
For the
Nine Month
Period Ended
September 30,
2017
 
       
Number of Common Shares Issued (in thousands)
     
Balance at beginning of period
   
150,552
 
Exercise of stock options
   
84
 
Common stock issued for initial public offering
   
47,495
 
Balance at end of period
   
198,131
 
Common Stock
       
Balance at beginning of period
 
$
1.5
 
Exercise of stock options
   
-
 
Common stock issued for initial public offering
   
0.5
 
Balance at end of period
 
$
2.0
 
Capital in Excess of Par Value
       
Balance at beginning of period
 
$
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
)
Stock-based compensation
   
147.3
 
Exercise of stock options
   
0.2
 
Purchase of noncontrolling interest
   
2.4
 
Balance at end of period
 
$
2,264.9
 
Accumulated Deficit
       
Balance at beginning of period
 
$
(596.2
)
Net loss attributable to Gardner Denver Holdings, Inc.
   
(125.2
)
Balance at end of period
 
$
(721.4
)
Accumulated Other Comprehensive Loss
       
Balance at beginning of period
 
$
(342.4
)
Foreign currency translation adjustments, net
   
131.4
 
Foreign currency losses, net
   
(44.3
)
Unrecognized losses on cash flow hedges, net
   
5.5
 
Pension and other postretirement prior service cost and gain or loss, net
   
(1.9
)
Balance at end of period
 
$
(251.7
)
Treasury Stock
       
Balance at beginning of period
 
$
(19.4
)
Purchases of treasury stock
   
(2.6
)
Balance at end of period
 
$
(22.0
)
Total Gardner Denver Holdings, Inc. Stockholders' Equity
 
$
1,271.8
 
Noncontrolling Interests
       
Balance at beginning of period
 
$
5.9
 
Net income attributable to noncontrolling interests
   
0.1
 
Transfer of noncontrolling interest AOCI to consolidated AOCI
   
1.6
 
Purchase of noncontrolling interest
   
(7.6
)
Balance at end of period
 
$
-
 
Total Stockholders' Equity
 
$
1,271.8
 
 
See Notes to Condensed Consolidated Financial Statements.
 
9

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

Note 1. Condensed Consolidated Financial Statements

Basis of Presentation

Gardner Denver Holdings, Inc. is a holding company whose operating subsidiaries are Gardner Denver, Inc. (“GDI”) and certain of GDI’s subsidiaries.  Gardner Denver, Inc 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”).  The financial information presented as of any date other than December 31, 2016 has been prepared from the books and records of the Company without audit.  The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of adjustments associated with acquisition accounting and normal recurring adjustments, necessary for a fair presentation of such financial statements.  All intercompany transactions and accounts have been eliminated in consolidation.

The Company’s unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes included in our prospectus, dated May 11, 2017, filed with the Securities and Exchange Commission (“SEC”) in accordance with Rule 424(b) of the Securities Act of 1933, as amended, on May 15, 2017.

The results of operations for the interim periods ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year.  The balance sheet at December 31, 2016 has been derived from the Company’s audited financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements.

The Company’s initial public offering of shares of common stock was completed in May 2017.  In connection with the offering, the Company sold a total of 47,495,000 shares of common stock for cash consideration of $20.00 per share ($18.90 per share net of underwriting discounts) and received proceeds of $949.9 million.  Expenses for underwriting discounts and commissions related to this offering totaled approximately $52.2 million, resulting in net proceeds of $897.7 million.    Additional expenses directly related to the initial public offering of $4.6 million were incurred and recorded as a reduction to the “Capital in excess of par value” line in the Condensed Consolidated Balance Sheets.  As of September 30, 2017, $4.4 million has been paid from cash on hand and $0.2 million is recorded to the “Accounts payable” line in the Condensed Consolidated Balance Sheets.

After the completion of the initial public offering, affiliates of Kohlberg Kravis Roberts & Co. L.P. continue to control a majority of the voting power of the Company’s common stock.  As a result, the Company is considered a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange (“NYSE”).

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606).  The amendments in this update will replace most of the existing GAAP revenue recognition guidance.  The core principle of this ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and changes in judgments. The ASU is effective for public companies beginning in the first quarter of 2018. The ASU allows for full retrospective adoption applied to all periods presented or modified retrospective adoption with the cumulative effect of initially applying the update recognized at the date of initial application. The Company will adopt this ASU using the modified retrospective approach.  The Company has completed an evaluation of its revenue activities against the requirements of the ASU. During the evaluation, the Company identified certain contractual arrangements involving customer specific application engineering in the Energy segment that may, in certain circumstances, meet the criteria for revenue recognition over time under the new standard. Currently, revenue on these arrangements is recognized when the contract is complete or substantially complete, provided all other revenue recognition criteria have been met. The Company is currently in the process of determining the necessary changes to information systems and business processes to effect the changes in the first quarter of 2018.  The Company has not yet determined the impact on reported revenues and earnings related to the adoption of the ASU.
 
10

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

In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  This update was intended to improve the presentation of net periodic pension costs and net periodic postretirement benefit costs in the financial statements.  The amendments in this ASU requires the Company to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of operating income.  If a separate line item or items are not used to present the other components of net benefit cost, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.  The amendment allows only the service cost component of net benefit cost to be eligible for capitalization.  The ASU is effective for public companies for the annual and interim reporting periods of 2018.  Disclosures of the nature of and reason for the change in accounting principle are required in the first interim and annual periods of adoption.  The amendments in this ASU are to be applied retrospectively for presentation in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets.  A practical expedient allows the Company to use the amount disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements.  Disclosure must be made if the practical expedient was used.  The Company does not expect this ASU to have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.  This update was intended to improve the financial reporting of hedging relationships to better portray the economic results of the Company’s risk management activities in its financial statements through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.  The amendments in this ASU require the Company to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported.  This allows users of the financial statements to better understand the results and costs of the Company’s hedging program.  The Company is required to apply the amendments to cash flow and net investment hedge relationships that exist on the date of adoption using a modified retrospective approach.  The presentation and disclosure requirements must be applied prospectively.  The effective date for adoption is for annual and interim periods beginning after December 15, 2018.  This will require adoption in the first quarter of fiscal year 2019.  The Company is currently assessing the impact of this ASU on its consolidated financial statements and evaluating the timing of adoption.
 
Note 2. Business Combinations

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 $20.5 million, net of cash acquired.  Included in the cash consideration is an indemnity holdback of $2.0 million recorded in “Accrued liabilities” and expected to be paid by the end of 2021.  The revenues and operating income of LeROI are included in the Company’s 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.
 
11

Acquisition of the Non-Controlling Interest in Tamrotor Kompressorit Oy

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

Acquisition of ILS Innovative Laborsysteme GmbH and Zinsser Analytic GmbH

On August 31, 2016, the Company acquired 100% of the stock of ILS Innovative Laborsysteme GmbH (“ILS”) and Zinsser Analytic GmbH (“Zinsser Analytic”).  ILS is a leading manufacturer of highly specialized micro-syringes and valves that are used in liquid handling instruments and is a global supplier to the world’s leading laboratory equipment manufacturers, laboratories and laboratory consumables distributors.  Zinsser Analytic is an established provider of customized automated liquid handling systems, and also offers consumables products including polyethylene that are used in diagnostic or clinical labs.  The Company acquired all of the assets and assumed certain liabilities of ILS and Zinsser Analytic for approximately $18.8 million, net of cash acquired.  The revenues and operating income of ILS and Zinsser Analytic 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.  During the first quarter of 2017, an incremental working capital true-up payment was made for approximately $0.3 million.  This amount is presented within “Net cash paid in business combinations” in the Condensed Consolidated Statements of Cash Flows.

Pro forma information regarding these acquisitions is not considered significant and has not been disclosed.

Note 3. Restructuring

Industrials Restructuring Program

During the second quarter of 2016, the Company revised and expanded the Industrials restructuring program announced in the third quarter of 2014.  The revised program maintains the focus on rationalizing the European manufacturing footprint of the Industrials segment, including the consolidation of manufacturing and distribution operations in Europe and the relocation of certain production to China.  The revised program also includes employee and other actions designed to reduce selling, administrative, and other expenses.  The Company expects to generate significant cost savings from these efforts.

As of September 30, 2017, $37.1 million has been charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations, related to the Industrials restructuring program.

The Company expects to incur approximately $40 to $45 million in restructuring charges related to the Industrials restructuring program.  The Company expects the Industrials restructuring program to conclude in 2017.

Energy Restructuring Program

In the fourth quarter of 2016, the Company committed to a restructuring program in the Energy segment (“Energy restructuring program”) to rationalize manufacturing facilities and to otherwise reduce operating costs.  Actions include employee reductions primarily in North America, Europe and China and the closure of a production facility in North America.  The Company expects to generate significant cost savings from these actions.

As of September 30, 2017, $6.1 million has been charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations, related to the Energy restructuring program.

The Company expects to incur approximately $6 to $7 million in restructuring charges related to the Energy restructuring program.  The Company expects the Energy restructuring program to conclude in 2017.
 
12

Medical Restructuring Program

In the fourth quarter of 2016, the Company committed to a restructuring program in the Medical segment (“Medical restructuring program”) to rationalize manufacturing facilities and to otherwise reduce operating costs.  Actions include employee reductions primarily in North America, Europe, and China and the closure of a production facility in North America.  The Company expects to generate significant cost savings from these actions.

As of September 30, 2017, $4.2 million has been charged to expense through “Other operating expense, net” in the Condensed Consolidated Statements of Operations, related to the Medical restructuring program.

The Company expects to incur approximately $5 to $6 million in restructuring charges related to the medical restructuring program.  The Company expects the Medical restructuring program to conclude in 2017.

The following table summarizes the activity associated with the Company’s restructuring programs by segment for the nine month periods ended September 30, 2017 and 2016:

   
Industrials
Program
   
Energy
Program
   
Medical
Program
   
Total
 
Balance at December 31, 2016
 
$
11.1
   
$
5.6
   
$
4.2
   
$
20.9
 
Charged to expense - termination benefits
   
2.3
     
(0.3
)
   
(0.1
)
   
1.9
 
Charged to expense - other
   
2.1
     
0.7
     
0.2
     
3.0
 
Payments
   
(10.7
)
   
(4.2
)
   
(2.4
)
   
(17.3
)
Other, net
   
0.7
     
-
     
0.3
     
1.0
 
Balance at September 30, 2017
 
$
5.5
   
$
1.8
   
$
2.2
   
$
9.5
 

   
Industrials
Program
   
Energy
Program
   
Medical
Program
   
Total
 
Balance at December 31, 2015
 
$
2.0
   
$
-
   
$
-
   
$
2.0
 
Charged to expense - termination benefits
   
14.7
     
-
     
-
     
14.7
 
Charged to expense - other
   
0.7
     
-
     
-
     
0.7
 
Payments
   
(8.9
)
   
-
     
-
     
(8.9
)
Other, net
   
-
     
-
     
-
     
-
 
Balance at September 30, 2016
 
$
8.5
   
$
-
   
$
-
   
$
8.5
 

As of September 30, 2017, restructuring reserves of $9.1 million were included in “Accrued liabilities” and restructuring reserves of $0.4 million were included in “Other liabilities” in the Condensed Consolidated Balance Sheets.  As of December 31, 2016, restructuring reserves of $20.2 million were included in “Accrued liabilities” and restructuring reserves of $0.7 million were included in “Other liabilities” in the Condensed Consolidated Balance Sheets.
 
13

Note 4. Inventories

Inventories as of September 30, 2017 and December 31, 2016 consisted of the following:

   
September 30,
2017
   
December 31,
2016
 
Raw materials, including parts and subassemblies
 
$
347.1
   
$
312.9
 
Work-in-process
   
69.2
     
45.3
 
Finished goods
   
75.4
     
69.8
 
     
491.7
     
428.0
 
Excess of LIFO costs over FIFO costs
   
15.9
     
15.9
 
Inventories
 
$
507.6
   
$
443.9
 

Note 5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill attributable to each reportable segment for the nine month period ended September 30, 2017 are presented in the table below:

   
Industrials
   
Energy
   
Medical
   
Total
 
Balance as of December 31, 2016
 
$
515.8
   
$
439.9
   
$
199.0
   
$
1,154.7
 
Acquisition
   
7.9
     
-
     
-
     
7.9
 
Foreign currency translation and other (1)
   
31.8
     
16.6
     
5.9
     
54.3
 
Balance as of September 30, 2017
 
$
555.5
   
$
456.5
   
$
204.9
   
$
1,216.9
 

(1)
During the nine month period ended September 30, 2017, the Company recorded an increase in goodwill of $0.4 million as a result of measurement period adjustments in the Medical segment.

On June 5, 2017, the Company acquired LeROI Compressors which is included in the Industrials segment.  The excess of the purchase price over the estimated fair values of tangible assets, identifiable assets, and assumed liabilities was recorded as goodwill.  As of September 30, 2017, the preliminary purchase price allocation resulted in a total of $7.9 million of goodwill.  The allocation of the purchase price is preliminary and subject to adjustment based on final fair values of the identified assets acquired and liabilities assumed.

At September 30, 2017, goodwill included $563.9 million of accumulated impairment losses within the Energy segment.  There were no goodwill impairment charges recorded during the three month or nine month periods ended September 30, 2017.
 
14

Other intangible assets at September 30, 2017 and December 31, 2016 consist of the following:

    
September 30, 2017
   
December 31, 2016
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Gross
Carrying
Amount
   
Accumulated
Amortization
 
Amortized intangible assets:
                       
Customer lists and relationships
 
$
1,216.2
   
$
(442.1
)
 
$
1,160.5
   
$
(345.5
)
Acquired technology
   
8.0
     
(2.8
)
   
7.1
     
(2.2
)
Trademarks
   
30.2
     
(9.7
)
   
27.4
     
(6.9
)
Backlog
   
64.7
     
(64.7
)
   
60.3
     
(60.3
)
Other
   
47.6
     
(21.2
)
   
36.4
     
(16.4
)
Unamortized intangible assets:
                               
Trademarks
   
623.5
     
-
     
609.5
     
-
 
Total other intangible assets
 
$
1,990.2
   
$
(540.5
)
 
$
1,901.2
   
$
(431.3
)
 
Amortization of intangible assets for the three and nine month periods ended September 30, 2017 and 2016 was as follows:

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
                         
Intangible asset amortization expense
 
$
29.5
   
$
30.7
   
$
87.6
   
$
90.8
 

Amortization of intangible assets is anticipated to be approximately $116.9 million annually in 2018 through 2022 based upon exchange rates as of September 30, 2017.

Note 6. Accrued Liabilities

Accrued liabilities as of September 30, 2017 and December 31, 2016 consisted of the following:

   
September 30,
2017
   
December 31,
2016
 
             
Salaries, wages and related fringe benefits
 
$
83.0
   
$
56.5
 
Restructuring
   
9.1
     
20.2
 
Taxes
   
43.1
     
37.1
 
Advance payments on sales contracts
   
55.5
     
43.0
 
Product warranty
   
23.6
     
21.7
 
Accrued interest
   
0.5
     
15.5
 
Other
   
60.1
     
64.5
 
Total accrued liabilities
 
$
274.9
   
$
258.5
 
 
15

A reconciliation of the changes in the accrued product warranty liability for the three and nine month periods ended September 30, 2017 and 2016 are as follows:

   
Three Months
Ended
September 30,
2017
   
Three Months
Ended
September 30,
2016
   
Nine Months
Ended
September 30,
2017
   
Nine Months
Ended
September 30,
2016
 
                         
Balance at beginning of period
 
$
21.7
   
$
24.2
   
$
21.7
   
$
27.6
 
Product warranty accruals
   
6.7
     
3.6
     
17.8
     
12.2
 
Settlements
   
(5.0
)
   
(5.5
)
   
(17.1
)
   
(17.2
)
Charged to other accounts (1)
   
0.2
     
(0.5
)
   
1.2
     
(0.8
)
Balance at end of period
 
$
23.6
   
$
21.8
   
$
23.6
   
$
21.8
 

(1)
Includes primarily the effects of foreign currency translation adjustments for the Company’s subsidiaries with functional currencies other than the USD, and changes in the accrual related to acquisitions.

Note 7. Pension and Other Postretirement Benefits

The following table summarizes the components of net periodic benefit cost for the Company’s defined benefit pension plans and other postretirement benefit plans recognized for the three and nine month periods ended September 30, 2017 and 2016:

   
Pension Benefits
   
Other Postretirement
 
     
U.S. Plans
   
Non-U.S. Plans
   
Benefits
 
Three Months
Ended
September 30,
2017
   
Nine Months
Ended
September 30,
2017
   
Three Months
Ended
September 30,
2017
   
Nine Months
Ended
September 30,
2017
   
Three Months
Ended
September 30,
2017
   
Nine Months
Ended
September 30,
2017
 
                                     
Service cost
 
$
-
   
$
-
   
$
0.5
   
$
1.4
   
$
-
   
$
-
 
Interest cost
   
0.6
     
1.7
     
2.0
     
5.8
     
-
     
0.1
 
Expected return on plan assets
   
(1.1
)
   
(3.3
)
   
(2.7
)
   
(7.7
)
   
-
     
-
 
Recognition of:
                                               
Unrecognized prior service cost
   
-
     
-
     
-
     
-
     
-
     
-
 
Unrecognized net actuarial loss
   
-
     
-
     
1.3
     
3.7
     
-
     
-
 
   
$
(0.5
)
 
$
(1.6
)
 
$
1.1
   
$
3.2
   
$
-
   
$
0.1
 
 
     
Pension Benefits
   
Other Postretirement
 
     
U.S. Plans
   
Non-U.S. Plans
   
Benefits
 
Three Months
Ended
September 30,
2016
   
Nine Months
Ended
September 30,
2016
   
Three Months
Ended
September 30,
2016
   
Nine Months
Ended
September 30,
2016
   
Three Months
Ended
September 30,
2016
   
Nine Months
Ended
September 30,
2016
 
                                     
Service cost
 
$
-
   
$
-
   
$
0.4
   
$
1.3
   
$
-
   
$
-
 
Interest cost
   
0.6
     
2.0
     
2.3
     
7.3
     
-
     
0.1
 
Expected return on plan assets
   
(1.1
)
   
(3.4
)
   
(2.8
)
   
(9.0
)
   
-
     
-
 
Recognition of:
                                               
Unrecognized prior service cost
   
-
     
-
     
-
     
-
     
-
     
-
 
Unrecognized net actuarial loss
   
 -
     
-
     
0.7
     
2.3
     
-
     
-
 
   
$
(0.5
)
 
$
(1.4
)
 
$
0.6
   
$
1.9
   
$
-
   
$
0.1
 
 
16

Note 8. Debt

The Company’s debt at September 30, 2017 and December 31, 2016 is summarized as follows:

   
September 30,
2017
   
December 31,
2016
 
             
Short-term borrowings
 
$
-
   
$
-
 
Long-term debt:
               
Revolving credit facility, due 2020
 
$
-
   
$
-
 
Receivables financing agreement, due 2020
   
-
     
-
 
Term loan denominated in U.S. dollars, due 2020 (1) (3)
   
-
     
1,833.2
 
Term loan denominated in Euros, due 2020 (2) (4)
   
-
     
405.5
 
Term loan denominated in U.S. dollars, due 2024 (5)
   
1,285.5
     
-
 
Term loan denominated in Euros, due 2024 (6)
   
726.4
     
-
 
Senior notes, due 2021 (7)
   
-
     
575.0
 
Second mortgages (8)
   
1.9
     
1.9
 
Capitalized leases and other long-term debt
   
19.3
     
21.6
 
Unamortized debt issuance costs
   
(5.1
)
   
(58.9
)
Total long-term debt, net, including current maturities
   
2,028.0
     
2,778.3
 
Current maturities of long-term debt
   
21.1
     
24.5
 
Total long-term debt, net
 
$
2,006.9
   
$
2,753.8
 
 
(1)
This amount is shown net of unamortized discounts of $5.0 million as of December 31, 2016.

(2)
This amount is shown net of unamortized discounts of $1.4 million as of December 31, 2016.

(3)
The weighted-average interest rate was 4.56% for the period from January 1, 2017 through August 17, 2017.

(4)
The weighted-average interest rate was 4.75% for the period from January 1, 2017 through August 17, 2017.

(5)
At September 30, 2017, the applicable interest rate was 4.08% and the weighted-average rate was 4.01% for the period from August 17, 2017 through September 30, 2017.

(6)
At September 30, 2017, the applicable interest rate was 3.00% and the weighted-average rate was 3.00% for the period from August 17, 2017 through September 30, 2017.

(7)
This amount consists of the $575.0 million aggregate principal 6.875% senior notes due 2021 that were entered into in connection with the KKR transaction on July 30, 2013.  Interest on the Senior Notes is payable on February 15 and August 15 of each year.  The senior notes were redeemed in May 2017.

(8)
This amount consists of a fixed-rate 4.80% commercial loan with an outstanding balance of €1.6 million at September 30, 2017.  This loan is secured by the Company’s facility in Bad Neustadt, Germany.
 
17

Senior Secured Credit Facilities

Overview

In connection with the transaction in which the Company was acquired by an affiliate of Kohlberg Kravis Roberts & Co. L.P. on July 30, 2013 (the “KKR transaction”), the Company entered into a senior secured credit agreement with UBS AG, Stamford Branch, as administrative agent, and other agents and lenders party thereto (the “Senior Secured Credit Facilities”) on July 30, 2013.

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

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

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

Amendment No. 2 refinanced the Original Dollar Term Loan Facility with a replacement $1,285.5 million senior secured U.S. dollar term loan facility (the ‘‘Dollar Term Loan Facility’’) and the Original Euro Term Loan Facility with a replacement €615.0 million senior secured euro term loan facility (the ‘‘Euro Term Loan Facility’’).  Further the maturity for both term loan facilities was extended to July 30, 2024 and LIBOR Floor was reduced from 1.0% to 0.0%.  The refinance of the Original Dollar Term Loan Facility and Euro Term Loan Facility resulted in the write-offs of unamortized debt issuance costs of $29.4 million and original issue discounts of $4.7 million which were recorded to the “Loss on Debt Extinguishment” line of the Condensed Consolidated Statements of Operations.

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

The borrower of the Dollar Term Loan Facility and the Euro Term Loan Facility is Gardner Denver, Inc.  Prior to the Company entering into Amendment No. 1, GD German Holdings II GmbH became an additional borrower and successor in interest to Gardner Denver Holdings GmbH & Co. KG. GD German Holdings II GmbH, GD First (UK) Limited and Gardner Denver, Inc. are the listed borrowers under the Revolving Credit Facility. The Revolving Credit Facility includes borrowing capacity available for letters of credit up to $200.0 million and for borrowings on same-day notice, referred to as swingline loans. At September 30, 2017, the Company had $8.0 million of outstanding letters of credit under the Revolving Credit Facility and unused availability of $352.0 million.

The Senior Secured Credit Facilities provide that the Company will have the right at any time to request incremental term loans and/or revolving commitments in an aggregate principal amount of up to (i) if as of the last day of the most recently ended test period the Consolidated Senior Secured Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) is equal to or less than 5.50 to 1.00, $250.0 million plus (ii) voluntary prepayments and voluntary commitment reductions of the Senior Secured Credit Facilities prior to the date of any such incurrence plus (iii) an additional amount if, after giving effect to the incurrence of such additional amount, the Company does not exceed a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio of 4.50 to 1.00. The lenders under the Senior Secured Credit Facilities are not under any obligation to provide any such incremental commitments or loans, and any such addition of, or increase in commitments or loans, will be subject to certain customary conditions.
 
18

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

Interest Rate and Fees

Borrowings under the Dollar Term Loan Facility, the Euro Term Loan Facility and the Revolving Credit Facility bear interest at a rate equal to, at the Company’s option, either (a) the greater of LIBOR for the relevant interest period or 0.00% per annum, in each case adjusted for statutory reserve requirements, plus an applicable margin or (b) a base rate (the ‘‘Base Rate’’) equal to the highest of (1) the rate of interest publicly announced by the administrative agent as its prime rate in effect at its principal office in Stamford, Connecticut, (2) the federal funds effective rate plus 0.50% and (3) LIBOR for an interest period of one month, adjusted for statutory reserve requirements, plus 1.00%, in each case, plus an applicable margin. The applicable margin for (i) the Dollar Term Loan Facility is 2.75% for LIBOR loans and 1.75% for Base Rate loans, (ii) the Revolving Credit Facility is 3.25% for LIBOR loans and 2.25% for Base Rate loans and (iii) the Euro Term Loan is 3.00% for LIBOR loans.

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

Prepayments

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

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

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

Amortization and Final Maturity

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

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

Amendment No. 1 reduced the minimum aggregate principal amount for extension amendments to the facilities from $50.0 million to $35.0 million.
 
19

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 the “Loss on Debt Extinguishment” line of the Condensed 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 pro forma compliance with a Consolidated Total Debt to Consolidated EBITDA Ratio (as defined in the Senior Secured Credit Facilities) of 5.00 to 1.00. Investments in unrestricted subsidiaries are permitted up to an aggregate amount that does not exceed the greater of $100.0 million and 25% of Consolidated EBITDA.

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

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

Receivables Financing Agreement

In May 2016, the Company entered into the Receivables Financing Agreement, providing for aggregated borrowing of up to $75.0 million governed by a borrowing base. The Receivables Financing Agreement provides for a lower cost alternative in the issuance of letters of credit with the remaining unused capacity providing additional liquidity.  On June 30, 2017, the Company signed the first amendment of the Receivables Financing Agreement which increased the aggregated borrowing capacity by $50.0 million to $125.0 million governed by a borrowing base and extended the term to June 30, 2020.  The Receivables Financing Agreement terminates on June 30, 2020, unless terminated earlier pursuant to its terms.  As of September 30, 2017, the Company had no outstanding borrowings under the Receivables Financing Agreement and $33.2 million of letters of credit outstanding. At September 30, 2017 there was $82.1 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.
 
20

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

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 connection with the KKR transaction, on July 30, 2013, the Company’s direct subsidiary, Gardner Denver, Inc., issued a $575.0 million aggregate principal amount of Senior Notes, which mature on August 15, 2021 pursuant to an indenture, dated as of July 30, 2013, among Renaissance Acquisition Corp. (which merged into Gardner Denver, Inc. in connection with the KKR transaction), the guarantors party thereto and Wells Fargo Bank, National Association, as trustee.

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 the 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 recorded to the “Loss on Debt Extinguishment” line of the Condensed Consolidated Statements of Operations.  The premium paid on the Senior Notes, $29.7 million, is included in the “Loss on Debt Extinguishment” line of the Condensed Consolidated Statements of Operations.

Note 9. Stock-Based Compensation

2013 Stock Incentive Plan

The Company adopted the 2013 Stock Incentive Plan (“2013 Plan”) on October 14, 2013 as amended on April 27, 2015 under which the Company may grant stock-based compensation awards to employees, directors and advisors.  The total number of shares available for grant under the 2013 Plan and reserved for issuance is 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.  Following the Company’s initial public offering, the Company may grant stock-based compensation awards pursuant to the 2017 Plan (defined below) and ceased granting new awards pursuant to the 2013 Plan.

Stock options awards vest 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 may not receive the economic benefits of the option until the repurchase rights are eliminated. The repurchase rights creating the implicit service period are eliminated at the earlier of an initial public offering or change of control event.  Before the elimination of the repurchase rights, because an initial public offering or change of control were not probable of occurring, no compensation expense was recorded for equity awards.

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

Under the terms of the 2013 Plan, concurrent with the initial public offering, the Company no longer retains repurchase rights on stock acquired through the exercise of a stock option and the implicit service period was eliminated on outstanding stock options. For the three and nine months ended September 30, 2017, the Company recognized stock-based compensation expense of approximately $7.8 million and $69.2 million, respectively, related to time-based and performance-based stock options included in “Other operating expense, net” in the Condensed Consolidated Statements of Operations. Certain stock awards are expected to be settled in cash (stock appreciation rights “SAR”) and are accounted for as liability awards. At September 30, 2017, a liability of approximately $13.1 million for SARs is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets.
 
21

As of September 30, 2017 there was $12.9 million of total unrecognized compensation expense related to outstanding stock options.
 
A summary of the Company’s stock-based award plan activity, including stock options and SARs, for the nine month period ended September 30, 2017 is presented in the following table (underlying shares in thousands):
 
 
 
Shares
   
Weighted-Average
Exercise Price
(per share)
 
Outstanding at December 31, 2016
   
13,285
   
$
8.85
 
Granted
   
799
   
$
20.00
 
Settled
   
(92
)
 
$
8.17
 
Forfeited
   
(938
)
 
$
8.21
 
Outstanding at September 30, 2017
   
13,054
   
$
9.52
 
 
               
Vested at September 30, 2017
   
6,676
   
$
8.73
 
 
The following assumptions were used to estimate the fair value of options granted during the nine month period ended September 30, 2017 using the Black-Scholes option-pricing model.

   
Nine Months
Ended
September 30,
2017
 
Assumptions:
     
Expected life of options (in years)
   
5.00 - 6.25
 
Risk-free interest rate
   
1.94 - 2.12
%
Assumed volatility
   
41.2 - 45.8
%
Expected dividend rate
   
0.00
%
 
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. 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. At 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.  Certain DSU awards are expected to be settled in cash and carried at fair value on the balance sheet date.  In the three and nine month periods ended September 30, 2017, the Company recognized expense for the DSU awards of $2.0 million and $96.8 million, respectively, included in “Other operating expense, net” in the Condensed Consolidated Statements of Operations. A liability of $5.4 million is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets as of September 30, 2017.

The following assumptions were used to estimate the fair value of DSUs at the time of grant using the Finnerty discount for lack of marketability pricing model:
 
    
Nine Months
Ended
September 30,
2017
 
Assumptions:
     
Average length of holding period restrictions (years)
   
1.42
 
Assumed volatility
   
5.15
%

2017 Omnibus Incentive Plan

In May 2017, the Company’s Board approved the 2017 Omnibus Incentive Plan (“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 our 2013 Stock Incentive Plan that, after the effective date of the 2017 Plan, expire or are otherwise forfeited or terminated in accordance with their terms are also available for grant under the 2017 Plan.  As of September 30, 2017, no awards have been granted from the 2017 Plan.
 
22

Note 10. 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.  The before tax income (loss), related income tax effect and accumulated balances are as follows:

   
For the Three Months Ended
September 30, 2017
   
For the Nine Months Ended
September 30, 2017
 
   
Before-Tax
Amount
   
Tax
Benefit
or (Expense)
   
Net of Tax
Amount
   
Before-Tax
Amount
   
Tax
Benefit
or (Expense)
   
Net of Tax
Amount
 
                                   
Foreign currency translation adjustments, net
 
$
41.5
   
$
-
   
$
41.5
   
$
131.4
   
$
-
   
$
131.4
 
Foreign currency (losses) gains, net
   
(23.5
)
   
8.7
     
(14.8
)
   
(71.2
)
   
26.9
     
(44.3
)
Unrecognized (losses) gains on cash flow hedges, net
   
5.5
     
(1.5
)
   
4.0
     
8.9
     
(3.4
)
   
5.5
 
Pension and other postretirement benefit prior service cost and gain or loss, net
   
(1.1
)
   
0.5
     
(0.6
)
   
(3.4
)
   
1.5
     
(1.9
)
Other comprehensive income
 
$
22.4
   
$
7.7
   
$
30.1
   
$
65.7
   
$
25.0
   
$
90.7
 

   
For the Three Months Ended
September 30, 2016
   
For the Nine Months Ended
September 30, 2016
 
   
Before-Tax
Amount
   
Tax
(Expense)
or Benefit
   
Net of Tax
Amount
   
Before-Tax
Amount
   
Tax
(Expense)
or Benefit
   
Net of Tax
Amount
 
   
                                   
Foreign currency translation adjustments, net
 
$
(29.4
)
 
$
-
     
(29.4
)
 
$
12.8
   
$
-
   
$
12.8
 
Foreign currency gains (losses), net
   
11.2
     
(3.1
)
   
8.1
     
(18.2
)
   
7.4
     
(10.8
)
Unrecognized gains (losses) on cash flow hedges, net
   
(4.5
)
   
1.7
     
(2.8
)
   
(21.7
)
   
8.2
     
(13.5
)
Pension and other postretirement benefit prior service cost and gain or loss, net
   
6.2
     
(1.0
)
   
5.2
     
7.5
     
(1.2
)
   
6.3
 
Other comprehensive income (loss)
 
$
(16.5
)
 
$
(2.4
)
 
$
(18.9
)
 
$
(19.6
)
 
$
14.4
   
$
(5.2
)
 
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Changes in accumulated other comprehensive (loss) income by component for the nine month periods ended September 30, 2017 and 2016 are presented in the following tables (1):

   
Cumulative
Currency
Translation
Adjustment
   
Foreign
Currency
Gains and
(Losses)
   
Unrealized
(Losses) Gains
on Cash Flow
Hedges
   
Pension and
Postretirement
Benefit Plans
   
Total
 
                               
Balance at December 31, 2016
 
$
(324.2
)
 
$
88.6
   
$
(42.2
)
 
$
(64.6
)
 
$
(342.4
)
Other comprehensive income (loss) before reclassifications
   
131.4
     
(44.3
)
   
(3.1
)
   
(4.2
)
   
79.8
 
Amounts reclassified from accumulated other comprehensive (loss) income
   
-
     
-
     
8.6
     
2.3
     
10.9
 
Net current-period other comprehensive income (loss)
   
131.4
     
(44.3
)
   
5.5
     
(1.9
)
   
90.7
 
Balance at September 30, 2017
 
$
(192.8
)
 
$
44.3
   
$
(36.7
)
 
$
(66.5
)
 
$
(251.7
)

   
Cumulative
Currency
Translation
Adjustment
   
Foreign
Currency
Gains and
(Losses)
   
Unrealized
(Losses) Gains
on Cash Flow
Hedges
   
Pension and
Postretirement
Benefit Plans
   
Total
 
                               
Balance at December 31, 2015
 
$
(248.0
)
 
$
75.0
   
$
(41.3
)
 
$
(51.3
)
 
$
(265.6
)
Other comprehensive income (loss) before reclassifications
   
12.8
     
(10.8
)
   
(18.5
)
   
4.8
     
(11.7
)
Amounts reclassified from accumulated other comprehensive (loss) income
   
-
     
-
     
5.0
     
1.5
     
6.5
 
Net current-period other comprehensive income (loss)
   
12.8
     
(10.8
)
   
(13.5
)
   
6.3
     
(5.2
)
Balance at September 30, 2016
 
$
(235.2
)
 
$
64.2
   
$
(54.8
)
 
$
(45.0
)
 
$
(270.8
)

(1)
All amounts are net of tax.  Amounts in parentheses indicate debits.
 
24


Reclassifications out of accumulated other comprehensive (loss) income for the nine month periods ended September 30, 2017 and 2016 are presented in the following table:

Amount Reclassified from Accumulated Other Comprehensive (Loss) Income
 
Details about Accumulated
Other Comprehensive
(Loss) Income Components
 
For the
Nine Months
Ended
September 30,
2017
   
For the
Nine Months
Ended
September 30,
2016
   
Affected Line in the
Statement Where Net
Income is Presented
 
Loss on cash flow hedges
                 
Interest rate swaps
 
$
13.9
   
$
8.1
   
Interest expense
 
     
13.9
     
8.1
   
Total before tax
 
     
(5.3
)
   
(3.1
)
 
Provision (benefit) for income taxes
 
   
$
8.6
   
$
5.0
   
Net of tax
 
Amortization of defined benefit pension and other postretirement benefit items
 
$
3.7
   
$
2.4
   
(1) 
     
3.7
     
2.4
   
Total before tax
 
     
(1.4
)
   
(0.9
)
 
Provision (benefit) for income taxes
 
   
$
2.3
   
$
1.5
   
Net of tax
 
Total reclassifications for the period
 
$
10.9
   
$
6.5
   
Net of tax
 
 
(1)
These components are included in the computation of net periodic benefit cost.  See Note 7 “Pension and Other Postretirement Benefits” for additional details.

Note 11. Hedging Activities and Fair Value Measurements

Hedging Activities

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

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

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

The Company and its subsidiaries are also subject to the risk that arises when they, from time to time, enter into transactions in currencies other than their functional currency.  To mitigate this risk, the Company and its subsidiaries typically settle intercompany trading balances monthly. The Company also selectively uses forward currency contracts to manage this risk. These contracts for the sale or purchase of European and other currencies generally mature within one year.
 
25

Derivative Instruments

The following table summarizes the notional amounts, fair values and classification of the Company’s outstanding derivatives by risk category and instrument type within the Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016:

   
September 30, 2017
 
 
 
Derivative
Classification
 
Notional
Amount (1)
   
Fair Value (1)
Other Current
Assets
   
Fair Value (1)
Other Assets
   
Fair Value (1)
Accrued
Liabilities
   
Fair Value (1)
Other
Liabilities
 
Derivatives Designated as Hedging Instruments
                                 
Interest rate swap contracts
 
Cash Flow
 
$
1,125.0
   
$
-
   
$
-
   
$
8.0
   
$
49.7
 
Derivatives Not Designated as Hedging Instruments
                                           
Foreign currency forwards
 
Fair Value
 
$
97.4
   
$
0.8
   
$
-
   
$
-
   
$
-
 
   
 
     
   
December 31, 2016
 
 
 
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
                                           
Cross currency interest rate swap contracts
 
Net Investment
 
$
200.0
   
$
-
   
$
26.8
   
$
-
   
$
-
 
Interest rate swap contracts
 
Cash Flow
 
$
1,125.0
   
$
-
   
$
-
   
$
16.3
   
$
47.2
 
Derivatives Not Designated as Hedging Instruments
                                           
Foreign currency forwards
 
Fair Value
 
$
79.0
   
$
0.9
   
$
-
   
$
-
   
$
-
 
Foreign currency forwards
 
Fair Value
 
$
42.8
   
$
-
   
$
-
   
$
0.2
   
$
-
 

(1)
Notional amounts represent the gross contract amounts of the outstanding derivatives excluding the total notional amount of positions that have been effectively closed through offsetting positions.  The net gains and net losses associated with positions that have been effectively closed through offsetting positions but not yet settled are included in the asset and liability derivatives fair value columns, respectively.

Gains and losses on derivatives designated as cash flow hedges included in the Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine month periods ended September 30, 2017 and 2016, are as presented in the table below:

   
For the Three
Months Ended
September 30,
   
For the Nine
Months Ended
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
Interest rate swap contracts (1)
                       
Gain (loss) recognized in AOCI on derivatives (effective portion)
 
$
1.4
   
$
0.3
   
$
(4.9
)
 
$
(29.8
)
Loss reclassified from AOCI into income (effective portion)
   
(4.1
)
   
(1.7
)
   
(13.9
)
   
(8.1
)
(Loss) gain recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
   
(2.1
)
   
(0.6
)
   
(2.1
)
   
0.2
 
 
(1)
Losses on derivatives reclassified from accumulated other comprehensive income (“AOCI”) into income (effective portion) were included in “Interest expense” in the Condensed Consolidated Statements of Operations.  Ineffective portions of changes in the fair value of cash flow hedges were recognized in earnings and included in “Interest expense” in the Condensed Consolidated Statements of Operations.
 
26

At September 30, 2017, the Company is the fixed rate payor on 15 interest rate swap contracts that effectively fix the LIBOR-based index used to determine the interest rates charged on a total of $1,125.0 million of the Company’s LIBOR-based variable rate borrowings.  These contracts carry fixed rates ranging from 2.9% to 4.4% and have expiration dates ranging from 2017 to 2020.  These swap agreements qualify as hedging instruments and have been designated as cash flow hedges of forecasted LIBOR-based interest payments.  Based on LIBOR-based swap yield curves as of September 30, 2017, the Company expects to reclassify losses of $19.6 million out of AOCI into earnings during the next 12 months.  The Company’s LIBOR-based variable rate borrowings outstanding at September 30, 2017 were $1,285.5 million and €615.0 million.

The Company had four foreign currency forward contracts outstanding as of September 30, 2017 with notional amounts ranging from $2.8 million to $45.8 million. These contracts are used to hedge the change in fair value of recognized foreign currency denominated assets or liabilities caused by changes in currency exchange rates.  The changes in the fair value of these contracts generally offset the changes in the fair value of a corresponding amount of the hedged items, both of which are included in the “Other operating expense, net” line on the face of the Condensed Consolidated Statements of Operations.  The Company’s foreign currency forward contracts are subject to master netting arrangements or agreements between the Company and each counterparty for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract with that certain counterparty.  It is the Company’s practice to recognize the gross amounts in the Condensed Consolidated Balance Sheets.  The amount available to be netted is not material.

The Company’s (losses) gains on derivative instruments not designated as accounting hedges and total net foreign currency (losses) gains for the three and nine month periods ended September 30, 2017 and 2016 were as follows:

   
For the Three
Months Ended
September 30,
   
For the Nine
Months Ended
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
Foreign currency forward contracts (losses) gains
 
$
(1.8
)
 
$
1.8
   
$
(6.7
)
 
$
14.0
 
Total net foreign currency (losses) gains
   
(1.7
)
   
(0.5
)
   
(6.3
)
   
2.6
 
 
The Company has a significant investment in consolidated subsidiaries with functional currencies other than the USD, particularly the EUR.  The Company designated its Original Euro Term Loan of approximately €387.0 million as of December 31, 2016 as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies.  The Original Euro Term Loan remained designated as a net investment hedge during 2017 until it was extinguished and replaced on August 17, 2017 by the €615.0 million Euro Term Loan, further described in Note 8 “Debt.”  On August 17, 2017, the Company designated the €615.0 million Euro Term Loan as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies.

In December 2014, the Company entered into two cross currency interest rate swaps each with a USD notional amount of $100 million to further hedge the risk of changes in the USD equivalent value of its net investment in EUR functional currency subsidiaries. The cross currency interest rate swaps were designated as hedges for the three and nine month periods ended September 30, 2016 and for the period from January 1, 2017 until August 16, 2017 when they were terminated for proceeds of $6.2 million.  The proceeds from the termination of the cross currency interest rate swaps are included in the “Proceeds from the termination of derivatives” line in the Condensed Consolidated Statements of Cash Flows.  The recorded AOCI at the termination of the cross currency interest rate swaps will remain in AOCI until there is a substantial liquidation of the Company’s net investment in subsidiaries with EUR functional currencies.

The losses and gains from the change in fair value related to the effective portions of the net investment hedges were recorded through other comprehensive income.
 
27

The Company’s gains and (losses), net of income tax, associated with changes in the value of debt and designated cross currency interest rate swaps for the three month and nine month periods ended September 30, 2017 and 2016, and the net balance of such gains and (losses) included in accumulated other comprehensive income for the same periods were as follows:

   
For the Three
Months Ended
September 30,
   
For the Nine
Months Ended
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
(Loss) gain, net of income tax, recorded through other comprehensive income
 
$
(13.6
)
 
$
(5.1
)
 
$
(43.2
)
 
$
(11.6
)
Balance included in accumulated other comprehensive (loss) income at September 30, 2017 and 2016, respectively
                 
$
39.2
   
$
58.1
 
 
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 Condensed Consolidated Statements of Cash Flows.

Fair Value Measurements

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

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (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 following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2017:

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Financial Assets
                       
Foreign currency forwards (1)
 
$
-
   
$
0.8
   
$
-
   
$
0.8
 
Trading securities held in deferred compensation plan (2)
   
5.3
     
-
     
-
     
5.3
 
Total
 
$
5.3
   
$
0.8
   
$
-
   
$
6.1
 
Financial Liabilities
                               
Interest rate swaps (3)
 
$
-
   
$
57.7
   
$
-
   
$
57.7
 
Deferred compensation plan (2)
   
5.3
     
-
     
-
     
5.3
 
Total
 
$
5.3
   
$
57.7
   
$
-
   
$
63.0
 
 
(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 September 30, 2017.  The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparties.
 
28

Note 12. Income Taxes

The following table summarizes the Company’s provision (benefit) for income taxes and effective income tax rate for the three and nine month periods ended September 30, 2017 and 2016:
 
   
For the Three
Months Ended
September 30,
   
For the Nine
Months Ended
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
                         
Income (loss) before income taxes
 
$
32.4
   
$
(22.1
)
 
$
(166.3
)
 
$
(60.3
)
Provision (benefit) for income taxes
 
$
4.4
   
$
(9.1
)
 
$
(41.2
)
 
$
(33.3
)
Effective income tax rate
   
13.6
%
   
41.3
%
   
24.8
%
   
55.2
%

For the three month period ended September 30, 2017 when compared to the same three month period of 2016, the increase in the provision for income taxes is primarily due to the increase in the pre-tax income.  The decrease in the effective income tax rate is due to the decrease in the U.S. loss at a higher tax rate combined with an increase in foreign profits at a lower tax rate.

For the nine month period ended September 30, 2017 when compared to the same nine month period of 2016, the decrease in the provision for income taxes is due to the increase of the pre-tax loss.  The significant increase in the loss in the U.S. was caused by one-time expenses associated with the Company’s initial public offering.  This included offering-related expenses, early termination fees related to the pay down of debt, and stock-based compensation expense.  The decrease in the effective income tax rate is primarily due to these expenses being benefited at a lower tax rate.

Note 13. Supplemental Information

The components of “Other operating expense, net” for the three month and nine month periods ended September 30, 2017 and 2016 are as follows:

 
For the Three
Months Ended
September 30,
   
For the Nine
Months Ended
September 30,
 
 
2017
   
2016
   
2017
   
2016
 
                         
Other Operating Expense, Net
                       
Foreign currency losses (gains), net
 
$
1.7
   
$
0.5
   
$
6.3
   
$
(2.6
)
Restructuring charges, net (1)
   
2.8
     
3.0
     
4.9
     
15.4
 
Environmental remediation expenses (2)
   
-
     
-
     
0.9
     
-
 
Stock-based compensation expense (3)
   
9.8
     
-
     
166.0
     
-
 
Other, net
   
3.1
     
8.9
     
8.6
     
13.3
 
Total other operating expense, net
 
$
17.4
   
$
12.4
   
$
186.7
   
$
26.1
 

(1)
See Note 3 “Restructuring.”

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

(3)
Represents stock-based compensation expense recognized for stock options outstanding for the three months and nine months ended September 30, 2017 of $7.8 million and $69.2 million, respectively, and DSUs granted to employees at the date of the initial public offering for the three months and nine months ended September 30, 2017 of $2.0 million and $96.8 million, respectively.  See Note 9 “Stock-Based Compensation”.
 
29

Note 14. Contingencies

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

Asbestos and Silica Related Litigation

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

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

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

The Company believes that the pending and future asbestos and silica-related lawsuits are not likely to, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Company’s anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the Products described above; the Company’s experience that the vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products or for which the Company otherwise bears responsibility; various potential defenses available to the Company with respect to such matters; and the Company’s prior disposition of comparable matters. However, inherent uncertainties of litigation and future developments, including, without limitation, potential insolvencies of insurance companies or other defendants, an adverse determination in the Adams County Case (discussed below), or other inability to collect from the Company’s historical insurers or indemnitors, could cause a different outcome. While the outcome of legal proceedings is inherently uncertain, based on presently known facts, experience, and circumstances, the Company believes that the amounts accrued on its balance sheet are adequate and that the liabilities arising from the asbestos and silica-related personal injury lawsuits will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. “Accrued liabilities” and “Other liabilities” on the Condensed Consolidated Balance Sheet include a total litigation reserve of $102.8 million and $108.5 million as of September 30, 2017 and December 31, 2016 respectively, with respect to potential liability arising from the Company’s asbestos-related litigation. Asbestos related defense costs are excluded from the asbestos claims liability and are recorded separately as services are incurred. In the event of unexpected future developments, it is possible that the ultimate resolution of these matters may be material to the Company’s consolidated financial position, results of operation or liquidity.

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 $97.3 million and $97.3 million as of September 30, 2017 and December 31, 2016 which was included in “Other assets” on the Condensed Consolidated Balance Sheets.

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 which 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 now 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”).
 
30

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

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

Environmental Matters

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

The Company has undiscounted accrued liabilities of $7.5 million and $7.6 million as of September 30, 2017 and December 31, 2016, respectively, on its Condensed Consolidated Balance Sheet to the extent costs are known or can be reasonably estimated for its remaining financial obligations for the environmental matters discussed above and does not anticipate that any of these matters will result in material additional costs beyond amounts accrued.  Based upon consideration of currently available information, the Company does not anticipate any material adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations, or cleanup costs relating to these matters.
 
Note 15. Segment Results

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

In the Industrials segment, the Company designs, manufactures, markets and services a broad range of air compression, vacuum and blower products across a wide array of technologies and applications. Almost every manufacturing and industrial facility, and many service and process industries, use air compression and vacuum products in a variety of applications such as operation of pneumatic air tools, vacuum packaging of food products and aeration of waste water. The Company maintains a leading position in its markets and serves customers globally. The Company offers comprehensive aftermarket parts and an experienced direct and distributor-based service network world-wide to complement all of its products.

In the Energy segment, the Company designs, manufactures, markets and services a diverse range of positive displacement pumps, liquid ring vacuum pumps and compressors, and engineered loading systems and fluid transfer equipment, consumables, and associated aftermarket parts and services. It serves customers in the upstream, midstream, and downstream oil and gas markets, and various other markets including petrochemical processing, power generation, transportation, and general industrial. The Company is one of the largest suppliers in these markets and has long-standing customer relationships. Its positive displacement pumps are used in the oilfield for drilling, hydraulic fracturing, completion and well servicing. Its liquid ring vacuum pumps and compressors are used in many power generation, mining, oil and gas refining and processing, chemical processing and general industrial applications including flare gas and vapor recovery, geothermal gas removal, vacuum de-aeration, enhanced oil recovery, water extraction in mining and paper and chlorine compression in petrochemical operations.  Its engineered loading systems and fluid transfer equipment ensure the safe handling and transfer of crude oil, liquefied natural gas, compressed natural gas, chemicals, and bulk materials.
 
31

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 its 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.

The following table provides summarized information about the Company’s operations by reportable segment and reconciles Segment Adjusted EBITDA to Income (Loss) Before Income Taxes for the three month and nine month periods ended September 30, 2017 and 2016:
 
   
For the Three
Months Ended
September 30,
   
For the Nine
Months Ended
September 30,
 
   
2017
   
2016 (1)
   
2017
   
2016 (1)
 
                         
Revenue
                       
Industrials
 
$
288.2
   
$
265.6
   
$
819.0
   
$
803.6
 
Energy
   
301.6
     
137.9
     
719.4
     
385.8
 
Medical
   
59.8
     
59.1
     
172.0
     
172.2
 
Total Revenue
 
$
649.6
   
$
462.6
   
$
1,710.4
   
$
1,361.6
 
Segment Adjusted EBITDA
                               
Industrials
 
$
63.1
   
$
55.6
   
$
173.7
   
$
156.2
 
Energy
   
98.6
     
22.0
     
199.2
     
70.2
 
Medical
   
16.8
     
16.6
     
46.9
     
44.7
 
Total Segment Adjusted EBITDA
 
$
178.5
   
$
94.2
   
$
419.8
   
$
271.1
 
Less items to reconcile Segment Adjusted EBITDA to
                               
Income (Loss) Before Income Taxes:
                               
Corporate expenses not allocated to segments
 
$
13.8
   
$
5.2
   
$
30.9
   
$
18.8
 
Interest expense
   
30.1
     
43.0
     
115.4
     
128.7
 
Depreciation and amortization expense
   
43.5
     
42.9
     
126.9
     
126.9
 
Impairment of goodwill and other intangible assets (a)
   
-
     
-
     
-
     
1.5
 
Sponsor fees and expenses (b)
   
-
     
1.8
     
17.3
     
3.8
 
Restructuring and related business transformation costs (c)
   
6.3
     
18.2
     
20.5
     
46.2
 
Acquisition related expenses and non-cash charges (d)
   
1.2
     
1.9
     
3.1
     
3.6
 
Environmental remediation loss reserve (e)
   
-
     
-
     
0.9
     
-
 
Expenses related to initial stock offering (f)
   
0.5
     
-
     
3.6
     
-
 
Establish public company financial reporting compliance (g)
   
3.8
     
0.1
     
7.2
     
0.1
 
Stock-based compensation (h)
   
9.8
     
-
     
166.0
     
-
 
Loss on extinguishment of debt (i)
   
34.1
     
-
     
84.5
     
-
 
Other adjustments (j)
   
3.0