Annual Reports

 
Quarterly Reports

  • 10-Q (Aug 4, 2017)
  • 10-Q (Apr 26, 2013)
  • 10-Q (Oct 29, 2012)
  • 10-Q (Aug 2, 2012)
  • 10-Q (May 4, 2012)
  • 10-Q (Nov 7, 2011)

 
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Other

Gardner Denver 10-Q 2017

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2

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 June 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 195,954,248 shares of Common Stock, par value $0.01 per share, as of June 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
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
                         
Revenues
 
$
579.1
   
$
462.0
   
$
1,060.8
   
$
899.0
 
Cost of sales
   
363.2
     
290.5
     
670.3
     
568.7
 
Gross Profit
   
215.9
     
171.5
     
390.5
     
330.3
 
Selling and administrative expenses
   
125.6
     
106.4
     
228.1
     
209.4
 
Amortization of intangible assets
   
30.5
     
30.5
     
58.1
     
60.1
 
Impairment of other intangible assets
   
-
     
1.5
     
-
     
1.5
 
Other operating expense, net
   
161.4
     
7.1
     
169.3
     
13.7
 
Operating (Loss) Income
   
(101.6
)
   
26.0
     
(65.0
)
   
45.6
 
Interest expense
   
39.5
     
42.7
     
85.3
     
85.8
 
Loss on extinguishment of debt
   
50.4
     
-
     
50.4
     
-
 
Other income, net
   
(1.3
)
   
(1.7
)
   
(1.9
)
   
(2.1
)
Loss Before Income Taxes
   
(190.2
)
   
(15.0
)
   
(198.8
)
   
(38.1
)
Benefit for income taxes
   
(43.9
)
   
(10.9
)
   
(45.6
)
   
(24.1
)
Net Loss
   
(146.3
)
   
(4.1
)
   
(153.2
)
   
(14.0
)
Less: Net (loss) income attributable to noncontrolling interests
   
-
     
(0.2
)
   
0.1
     
(0.5
)
Net Loss Attributable to Gardner Denver Holdings, Inc.
 
$
(146.3
)
 
$
(3.9
)
 
$
(153.3
)
 
$
(13.5
)
Basic and diluted loss per share
 
$
(0.83
)
 
$
(0.03
)
 
$
(0.94
)
 
$
(0.09
)

See Notes to Condensed Consolidated Financial Statements.
 
5

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

   
For the Three Month
Period Ended
June 30,
   
For the Six Month
Period Ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Comprehensive Loss Attributable to Gardner Denver Holdings, Inc.
                       
Net loss attributable to Gardner Denver Holdings, Inc.
 
$
(146.3
)
 
$
(3.9
)
 
$
(153.3
)
 
$
(13.5
)
Other comprehensive income (loss), net of tax:
                               
Foreign currency translation adjustments, net
   
64.2
     
(36.8
)
   
89.9
     
5.2
 
Foreign currency (losses) gains, net
   
(25.6
)
   
13.1
     
(29.4
)
   
(5.7
)
Unrecognized (losses) gains on cash flow hedges, net
   
(1.5
)
   
(4.1
)
   
1.5
     
(14.7
)
Pension and other postretirement prior service cost and gain or loss, net
   
(1.5
)
   
3.7
     
(1.3
)
   
4.8
 
Total other comprehensive income (loss), net of tax
   
35.6
     
(24.1
)
   
60.7
     
(10.4
)
Comprehensive loss attributable to Gardner Denver Holdings, Inc.
 
$
(110.7
)
 
$
(28.0
)
 
$
(92.6
)
 
$
(23.9
)
Comprehensive Loss Attributable to Noncontrolling Interests
                               
Net (loss) income attributable to noncontrolling interests
 
$
-
   
$
(0.2
)
 
$
0.1
   
$
(0.5
)
Other comprehensive (loss) income, net of tax:
                               
Foreign currency translation adjustments, net
   
-
     
(0.4
)
   
-
     
0.4
 
Total other comprehensive (loss) income, net of tax
   
-
     
(0.4
)
   
-
     
0.4
 
Comprehensive (loss) income attributable to noncontrolling interests
 
$
-
   
$
(0.6
)
 
$
0.1
   
$
(0.1
)
Total Comprehensive Loss
 
$
(110.7
)
 
$
(28.6
)
 
$
(92.5
)
 
$
(24.0
)

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)

   
June 30,
2017
   
December 31,
2016
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
245.7
   
$
255.8
 
Accounts receivable, net of allowance for doubtful accounts of $19.7 and $18.7, respectively
   
475.2
     
441.6
 
Inventories
   
485.8
     
443.9
 
Other current assets
   
59.8
     
47.2
 
Total current assets
   
1,266.5
     
1,188.5
 
Property, plant and equipment, net of accumulated depreciation of $172.9 and $146.1, respectively
   
356.2
     
358.4
 
Goodwill
   
1,200.1
     
1,154.7
 
Other intangible assets, net
   
1,459.8
     
1,469.9
 
Deferred tax assets
   
0.9
     
1.4
 
Other assets
   
139.4
     
143.1
 
Total assets
 
$
4,422.9
   
$
4,316.0
 
Liabilities and Stockholders’ Equity
               
Current liabilities:
               
Short-term borrowings and current maturities of long-term debt
 
$
5.9
   
$
24.5
 
Accounts payable
   
246.4
     
214.9
 
Accrued liabilities
   
248.4
     
258.5
 
Total current liabilities
   
500.7
     
497.9
 
Long-term debt, less current maturities
   
1,976.6
     
2,753.8
 
Pensions and other postretirement benefits
   
129.5
     
122.7
 
Deferred income taxes
   
420.2
     
487.6
 
Other liabilities
   
186.9
     
182.2
 
Total liabilities
   
3,213.9
     
4,044.2
 
Commitments and contingencies (Note 14)
               
Stockholders’ equity:
               
Common stock, $0.01 par value; 1,000,000,000 shares authorized;198,074,360  and 150,552,360 shares issued at June 30, 2017 and December 31, 2016, respectively
   
2.0
     
1.5
 
Capital in excess of par value
   
2,260.2
     
1,222.4
 
Accumulated deficit
   
(749.5
)
   
(596.2
)
Accumulated other comprehensive loss
   
(281.7
)
   
(342.4
)
Treasury stock at cost; 2,120,112 and 1,897,454 shares at June 30, 2017 and December 31, 2016, respectively
   
(22.0
)
   
(19.4
)
Total Gardner Denver Holdings, Inc. stockholders’ equity
   
1,209.0
     
265.9
 
Noncontrolling interests
   
-
     
5.9
 
Total stockholders’ equity
   
1,209.0
     
271.8
 
Total liabilities and stockholders’ equity
 
$
4,422.9
   
$
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
Six Month
Period Ended
June 30,
2017
   
For the
Six Month
Period Ended
June 30,
2016
 
             
Cash Flows From Operating Activities:
           
Net loss
 
$
(153.2
)
 
$
(14.0
)
Adjustments to reconcile net loss to net cash provided by operating activities:
               
Amortization of intangible assets
   
58.1
     
60.1
 
Depreciation in cost of sales
   
21.3
     
20.2
 
Depreciation in selling and administrative expenses
   
4.1
     
3.7
 
Impairment of other intangible assets
   
-
     
1.5
 
Stock-based compensation expense
   
156.2
     
-
 
Foreign currency transaction losses (gains), net
   
4.7
     
(3.0
)
Net loss (gain) on asset dispositions
   
2.5
     
(0.1
)
Loss on extinguishment of debt
   
50.4
     
-
 
Deferred income taxes
   
(60.1
)
   
(12.0
)
Changes in assets and liabilities:
               
Receivables
   
(16.0
)
   
16.6
 
Inventories
   
(21.4
)
   
(17.0
)
Accounts payable
   
21.8
     
4.3
 
Accrued liabilities
   
(37.6
)
   
12.1
 
Other assets and liabilities, net
   
(10.8
)
   
(3.4
)
Net cash provided by operating activities
   
20.0
     
69.0
 
Cash Flows From Investing Activities:
               
Capital expenditures
   
(26.8
)
   
(26.0
)
Net cash paid in business combinations
   
(18.8
)
   
-
 
Disposals of property, plant and equipment
   
5.0
     
0.2
 
Net cash used in investing activities
   
(40.6
)
   
(25.8
)
Cash Flows From Financing Activities:
               
Principal payments on long-term debt
   
(859.4
)
   
(13.9
)
Premium paid on extinguishment of senior notes
   
(29.7
)
   
-
 
Proceeds from long-term debt
   
-
     
1.0
 
Proceeds from the issuance of common stock, net of share issuance costs
   
897.3
     
2.9
 
Purchase of treasury stock
   
(2.6
)
   
(10.6
)
Purchase of shares from noncontrolling interests
   
(4.7
)
   
-
 
Payments of debt issuance costs
   
(0.3
)
   
(1.1
)
Other
   
0.2
     
(0.8
)
Net cash provided by (used in) financing activities
   
0.8
     
(22.5
)
Effect of exchange rate changes on cash and cash equivalents
   
9.7
     
(2.6
)
Net (decrease) increase in cash and cash equivalents
   
(10.1
)
   
18.1
 
Cash and cash equivalents, beginning of period
   
255.8
     
228.3
 
Cash and cash equivalents, end of period
 
$
245.7
   
$
246.4
 
Supplemental Cash Flow Information
               
Cash paid for income taxes
 
$
31.5
   
$
8.9
 
Cash paid for interest
 
$
92.0
   
$
71.0
 
Capital expenditures in accounts payable
 
$
3.6
   
$
3.2
 
Expenditures directly related to our initial public offering in accounts payable
 
$
3.9
   
$
-
 

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
Six Month
Period Ended
June 30,
2017
   
For the
Six Month
Period Ended
June 30,
2016
 
             
Number of Common Shares Issued (in thousands)
           
Balance at beginning of period
   
150,552
     
150,247
 
Common stock issued for management
   
-
     
277
 
Exercise of stock options
   
27
     
-
 
Common stock issued for initial public offering
   
47,495
     
-
 
Balance at end of period
   
198,074
     
150,524
 
Common Stock
               
Balance at beginning of period
 
$
1.5
   
$
1.5
 
Common stock issued for management
   
-
     
-
 
Exercise of stock options
   
-
     
-
 
Common stock issued for initial public offering
   
0.5
     
-
 
Balance at end of period
 
$
2.0
   
$
1.5
 
Capital in Excess of Par Value
               
Balance at beginning of period
 
$
1,222.4
   
$
1,219.2
 
Common stock issued for initial public offering, net of underwriting discounts and commissions
   
897.2
     
-
 
Costs related to initial public offering
   
(4.3
)
   
-
 
Stock-based compensation
   
142.3
     
-
 
Common stock issued for management
   
-
     
2.9
 
Exercise of stock options
   
0.2
     
-
 
Purchase of noncontrolling interest
   
2.4
     
-
 
Balance at end of period
 
$
2,260.2
   
$
1,222.1
 
Accumulated Deficit
               
Balance at beginning of period
 
$
(596.2
)
 
$
(559.6
)
Net loss attributable to Gardner Denver Holdings, Inc.
   
(153.3
)
   
(13.5
)
Balance at end of period
 
$
(749.5
)
 
$
(573.1
)
Accumulated Other Comprehensive Loss
               
Balance at beginning of period
 
$
(342.4
)
 
$
(265.6
)
Foreign currency translation adjustments, net
   
89.9
     
5.2
 
Foreign currency losses, net
   
(29.4
)
   
(5.7
)
Unrecognized losses on cash flow hedges, net
   
1.5
     
(14.7
)
Pension and other postretirement prior service cost and gain or loss, net
   
(1.3
)
   
4.8
 
Balance at end of period
 
$
(281.7
)
 
$
(276.0
)
Treasury Stock
               
Balance at beginning of period
 
$
(19.4
)
 
$
(5.3
)
Purchases of treasury stock
   
(2.6
)
   
(10.6
)
Balance at end of period
 
$
(22.0
)
 
$
(15.9
)
Total Gardner Denver Holdings, Inc. Stockholders’ Equity
 
$
1,209.0
   
$
358.6
 
Noncontrolling Interests
               
Balance at beginning of period
 
$
5.9
   
$
15.3
 
Net income (loss) attributable to noncontrolling interests
   
0.1
     
(0.5
)
Transfer of noncontrolling interest AOCI to consolidated AOCI
   
1.6
     
-
 
Purchase of noncontrolling interest
   
(7.6
)
   
-
 
Dividends to minority stockholders
   
-
     
(0.9
)
Foreign currency translation adjustments, net
   
-
     
0.4
 
Balance at end of period
 
$
-
   
$
14.3
 
Total Stockholders’ Equity
 
$
1,209.0
   
$
372.9
 

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 June 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 $4.3 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 June 30, 2017, $0.4 million has been paid from cash on hand and $3.9 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 and 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 and timing 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 to 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 to 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.

 
 
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.

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 is a holdback of $0.5 million recorded in “Accrued liabilities” and expected to be paid in 2018.  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.
 
11

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 June 30, 2017, $34.7 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 June 30, 2017, $5.8 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.

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 June 30, 2017, $4.3 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.
 
12

The following table summarizes the activity associated with the Company’s restructuring programs by segment for the six month periods ended June 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
   
0.7
     
(0.6
)
   
(0.1
)
   
-
 
Charged to expense - other
   
1.2
     
0.7
     
0.2
     
2.1
 
Payments
   
(7.2
)
   
(3.4
)
   
(2.0
)
   
(12.6
)
Other, net
   
0.6
     
-
     
0.2
     
0.8
 
Balance at June 30, 2017
 
$
6.4
   
$
2.3
   
$
2.5
   
$
11.2
 

   
Industrials
Program
   
Energy
Program
   
Medical
Program
   
Total
 
Balance at December 31, 2015
 
$
2.0
   
$
-
   
$
-
   
$
2.0
 
Charged to expense - termination benefits
   
12.0
     
-
     
-
     
12.0
 
Charged to expense - other
   
0.4
     
-
     
-
     
0.4
 
Payments
   
(3.7
)
   
-
     
-
     
(3.7
)
Other, net
   
(0.1
)
   
-
     
-
     
(0.1
)
Balance at June 30, 2016
 
$
10.6
   
$
-
   
$
-
   
$
10.6
 

As of June 30, 2017, restructuring reserves of $10.3 million were included in “Accrued liabilities” and restructuring reserves of $0.9 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.

 
 
Note 4. Inventories

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

   
June 30,
2017
   
December 31,
2016
 
Raw materials, including parts and subassemblies
 
$
331.6
   
$
312.9
 
Work-in-process
   
59.4
     
45.3
 
Finished goods
   
78.9
     
69.8
 
     
469.9
     
428.0
 
Excess of LIFO costs over FIFO costs
   
15.9
     
15.9
 
Inventories
 
$
485.8
   
$
443.9
 
 
13

Note 5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill attributable to each reportable segment for the six month period ended June 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)
 
 
23.5
   
 
9.8
   
 
4.2
   
 
37.5
 
Balance as of June 30, 2017
 
$
547.2
   
$
449.7
   
$
203.2
   
$
1,200.1
 

(1)
During the six months ended June 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 June 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 June 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 six month periods ended June 30, 2017.

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

   
June 30, 2017
   
December 31, 2016
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Gross
Carrying
Amount
   
Accumulated
Amortization
 
Amortized intangible assets:
                       
Customer lists and relationships
 
$
1,200.6
   
$
(410.0
)
 
$
1,160.5
   
$
(345.5
)
Acquired technology
   
7.7
     
(2.6
)
   
7.1
     
(2.2
)
Trademarks
   
29.8
     
(8.8
)
   
27.4
     
(6.9
)
Backlog
   
63.3
     
(63.3
)
   
60.3
     
(60.3
)
Other
   
43.5
     
(19.3
)
   
36.4
     
(16.4
)
Unamortized intangible assets:
                               
Trademarks
   
618.9
     
-
     
609.5
     
-
 
Total other intangible assets
 
$
1,963.8
   
$
(504.0
)
 
$
1,901.2
   
$
(431.3
)

Amortization of intangible assets for the three and six month periods ended June 30, 2017 and 2016 was as follows:

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
                         
Intangible asset amortization expense
 
$
30.5
   
$
30.5
   
$
58.1
   
$
60.1
 
 
Amortization of intangible assets is anticipated to be approximately $115.5 million annually in 2018 through 2022 based upon exchange rates as of June 30, 2017.
 
14

Note 6. Accrued Liabilities

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

   
June 30,
2017
   
December 31,
2016
 
             
Salaries, wages and related fringe benefits
 
$
67.2
   
$
56.5
 
Restructuring
   
10.3
     
20.2
 
Taxes
   
34.6
     
37.1
 
Advance payments on sales contracts
   
59.1
     
43.0
 
Product warranty
   
21.7
     
21.7
 
Accrued interest
   
0.3
     
15.5
 
Other
   
55.2
     
64.5
 
Total accrued liabilities
 
$
248.4
   
$
258.5
 

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

   
Three Months
Ended
June 30,
2017
   
Three Months
Ended
June 30,
2016
   
Six Months
Ended
June 30,
2017
   
Six Months
Ended
June 30,
2016
 
                         
Balance at beginning of period
 
$
22.5
   
$
26.4
   
$
21.7
   
$
27.6
 
Product warranty accruals
   
5.2
     
3.7
     
11.1
     
8.6
 
Settlements
   
(6.7
)
   
(5.3
)
   
(12.1
)
   
(11.6
)
Charged to other accounts (1)
   
0.7
     
(0.6
)
   
1.0
     
(0.4
)
Balance at end of period
 
$
21.7
   
$
24.2
   
$
21.7
   
$
24.2
 

(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.
 
15

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 six month periods ended June 30, 2017 and 2016:

   
Pension Benefits
   
Other Postretirement
 
   
U.S. Plans
   
Non-U.S. Plans
   
Benefits
 
   
Three Months
Ended
June 30,
2017
   
Six Months
Ended
June 30,
2017
   
Three Months
Ended
June 30,
2017
   
Six Months
Ended
June 30,
2017
   
Three Months
Ended
June 30,
2017
   
Six Months
Ended
June 30,
2017
 
                                     
Service cost
 
$
-
   
$
-
   
$
0.5
   
$
0.9
   
$
-
   
$
-
 
Interest cost
   
0.6
     
1.1
     
1.9
     
3.8
     
-
     
0.1
 
Expected return on plan assets
   
(1.1
)
   
(2.2
)
   
(2.6
)
   
(5.1
)
   
-
     
-
 
Recognition of:
                                               
Unrecognized prior service cost
   
-
     
-
     
-
     
-
     
-
     
-
 
Unrecognized net actuarial loss
   
-
     
-
     
1.2
     
2.4
     
-
     
-
 
   
$
(0.5
)
 
$
(1.1
)
 
$
1.0
   
$
2.0
   
$
-
   
$
0.1
 

   
Pension Benefits
   
Other Postretirement
 
   
U.S. Plans
   
Non-U.S. Plans
   
Benefits
 
   
Three Months
Ended
June 30,
2016
   
Six Months
Ended
June 30,
2016
   
Three Months
Ended
June 30,
2016
   
Six Months
Ended
June 30,
2016
   
Three Months
Ended
June 30,
2016
   
Six Months
Ended
June 30,
2016
 
                                     
Service cost
 
$
-
   
$
-
   
$
0.4
   
$
0.9
   
$
-
   
$
-
 
Interest cost
   
0.7
     
1.3
     
2.5
     
5.0
     
-
     
0.1
 
Expected return on plan assets
   
(1.1
)
   
(2.3
)
   
(3.1
)
   
(6.2
)
   
-
     
-
 
Recognition of:
                                               
Unrecognized prior service cost
   
-
     
-
     
-
     
-
     
-
     
-
 
Unrecognized net actuarial loss
   
-
     
-
     
0.8
     
1.6
     
-
     
-
 
   
$
(0.4
)
 
$
(1.0
)
 
$
0.6
   
$
1.3
   
$
-
   
$
0.1
 
 
16

Note 8. Debt

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

   
June 30,
2017
   
December 31,
2016
 
             
Short-term borrowings
 
$
-
   
$
-
 
Long-term debt:
               
Revolving credit facility, due 2020
 
$
-
   
$
-
 
Receivables financing agreement, due 2019
   
-
     
-
 
Term loan denominated in U.S. dollars, due 2020 (1)
   
1,553.1
     
1,833.2
 
Term loan denominated in Euros, due 2020 (2)
   
438.5
     
405.5
 
Senior notes, due 2021 (3)
   
-
     
575.0
 
Second mortgages (4)
   
1.8
     
1.9
 
Capitalized leases and other long-term debt
   
21.3
     
21.6
 
Unamortized debt issuance costs
   
(32.2
)
   
(58.9
)
Total long-term debt, net, including current maturities
   
1,982.5
     
2,778.3
 
Current maturities of long-term debt
   
5.9
     
24.5
 
Total long-term debt, net
 
$
1,976.6
   
$
2,753.8
 

(1)
At June 30, 2017, the applicable interest rate was 4.55%, and the weighted-average rate was 4.56% for the six month period ended June 30, 2017.  This amount is shown net of unamortized discounts of $3.7 million and $5.0 million as of June 30, 2017 and December 31, 2016, respectively.

(2)
At June 30, 2017, the applicable interest rate was 4.75%, and the weighted-average rate was 4.75% for the six month period ended June 30, 2017.  This amount is shown net of unamortized discounts of $1.2 million and $1.4 million as of June 30, 2017 and December 31, 2016, respectively.

(3)
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.

(4)
This amount consists of a fixed-rate 4.80% commercial loan with an outstanding balance of €1.6 million at June 30, 2017.  This loan is secured by the Company’s facility in Bad Neustadt, Germany.

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 “Dollar Term Loan Facility”) in an aggregate principal amount of $1,900.0 million; (ii) a senior secured term loan facility (the “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.
 
17

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 (the “Amendment”). The Amendment 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, in addition to other modifications described in this footnote. 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.  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 GDI. On February 29, 2016, prior to the Company’s entering into the Amendment, 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 June 30, 2017, the Company had $17.0 million of outstanding letters of credit written against the Revolving Credit Facility and unused availability under the Revolving Credit Facility of $343.0 million.

Subsequent to the Amendment, the Senior Secured Credit Facilities provide that the borrowers 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 Earnings Before Interest, Taxes, Depreciation, and Amortization (“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 pro forma for such incremental facilities.  The lenders under the Senior Secured Credit Facilities are not under any obligation to provide any such incremental commitments or loans, and any such addition of or increase in commitments or loans will be subject to certain customary conditions.

The Company repaid $276.8 million outstanding under the Company’s Dollar Term Loan Facility with proceeds from the Company’s initial public offering.

Interest Rate and Fees

Borrowings under the Dollar Term Loan Facility, Euro Term Loan Facility and the Revolving Credit Facility bear interest at a rate equal to, at the Company’s option, either (a) (1) in respect of the Dollar Term Loan Facility and Euro Term Loan Facility, the greater of LIBOR for the relevant interest period or 1.00% per annum and (2) in respect of the Revolving Credit Facility, subsequent to the Amendment, 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 as of December 31, 2016 for (i) the Dollar Term Loan Facility and Revolving Credit Facility is 3.25% for LIBOR loans and 2.25% for Base Rate loans and (ii) the Euro Term Loan is 3.75% for LIBOR loans.

The applicable margins under the Revolving Credit Facility may decrease based upon the Company’s achievement of certain Consolidated Senior Secured Debt to Consolidated EBITDA Ratios.

In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, the U.S. borrower 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 the 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.
 
18

Prepayments

The Senior Secured Credit Facilities require the U.S. borrower (Gardner Denver, Inc.) 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, this percentage will be reduced to 25% if the Company’s Secured Debt to Consolidated EBITDA Ratio is less than or equal to 3.50 to 1.00 but greater than 3.00 to 1.00.  Such 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 all non-ordinary course asset sales or other dispositions of property in excess of a specified amount and 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.

Any borrower may voluntarily repay outstanding loans under the Senior Secured Credit Facilities at any time without premium or penalty, subject to certain customary conditions, including reimbursements of the lenders’ redeployment costs actually incurred in the case of a prepayment of LIBOR borrowings other than on the last day of the relevant interest period.

Amortization and Final Maturity

The Dollar Term Loan Facility amortizes in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount of the Dollar Term Loan Facility, with the balance being payable on July 30, 2020.  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 Dollar Term Loan Facility at par plus accrued and unpaid interest to the date of prepayment of $1.5 million.  The principal prepayment was first applied to the quarterly installments with the remaining balance used to reduce the balance due on July 30, 2020. As a result of the prepayment, the Company is no longer subject to mandatory quarterly principal installment payments on the Dollar Term Loan Facility.  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.

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, 2020.

Principal amounts outstanding under the Revolving Credit Facility are due and payable in full at maturity.

The Amendment reduced the minimum aggregate principal amount for extension amendments to the facilities from $50.0 million to $35.0 million.

Guarantee and Security

All obligations under the Senior Secured Credit Facilities are unconditionally guaranteed by the Company and all material, wholly-owned U.S. restricted subsidiaries, with customary exceptions including where providing such guarantees is 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 borrower 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 U.S.

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 and its subsidiaries’ 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.
 
19

In addition, subsequent to the Amendment, 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 such provision shall not exceed $50.0 million) exceed $120.0 million.  To the extent that revolving credit loans plus non-cash collateralized letters of credit under the Revolving Credit Facility are outstanding in an amount exceeding $300.0 million, a Consolidated Senior Secured Debt to Consolidated EBITDA Ratio of 7.00 to 1.00 for borrowings under the Revolving Credit Facility is required.

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.  As of June 30, 2017, the Company had no outstanding borrowings under the Receivables Financing Agreement and $29.4 million of letters of credit outstanding. At June 30, 2017 there was $45.6 million of capacity available under the Receivables Financing Agreement.

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

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

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.

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.

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.
 
20

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, $29.6 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. In the three and six month periods ended June 30, 2017, the Company recognized stock-based compensation expense of approximately $61.4 million 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 June 30, 2017, a liability of approximately $10.5 million for SARs is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets as of June 30, 2017.

As of June 30, 2017 there was $16.3 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 six month period ended June 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
   
(77
)
 
$
8.17
 
Forfeited
   
(819
)
 
$
8.21
 
Outstanding at June 30, 2017
   
13,188
   
$
9.51
 
                 
Vested at June 30, 2017
   
6,697
   
$
8.73
 
 
21

The following assumptions were used to estimate the fair value of options granted during the six months ended June 30, 2017 using the Black-Scholes option-pricing model.

   
Six Months
Ended
June 30,
2017
 
Assumptions:
     
Expected life of options (in years)
   
5.00 - 6.25
 
Risk-free interest rate
   
1.94 - 2.12
%
Assumed volatility
   
41.20 - 45.80
%
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 vest 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. A total of $94.8 million of compensation expense for the DSU award was recognized in the three month period ended June 30, 2017 and included in “Other operating expense, net” in the Condensed Consolidated Statements of Operations. Certain DSU awards are expected to be settled in cash and a liability of $3.4 million is included in “Accrued liabilities” in the Condensed Consolidated Balance Sheets as of June 30, 2017.

The fair value of a DSU was determined to be $17.20 assuming a share price at the pricing date of the initial public offering of $20.00 and a discount for lack of marketability commensurate with the period of the sale restrictions.

The following assumptions were used to estimate the fair value of DSUs granted during the six months ended June 30, 2017 using the Finnerty discount for lack of marketability pricing model:

   
Six Months
Ended
June 30,
2017
 
Assumptions:
     
Average length of holding period restrictions (years)
   
1.42
 
Assumed volatility
   
51.5
%

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 June 30, 2017, no awards have been granted from the 2017 Plan.

 
 
Note 10. Accumulated Other Comprehensive (Loss) Income

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

   
For the Three Months Ended
June 30, 2017
   
For the Six Months Ended
June 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
 
$
64.2
   
$
-
   
$
64.2
   
$
89.9
   
$
-
   
$
89.9
 
Foreign currency (losses) gains, net
   
(41.5
)
   
15.9
     
(25.6
)
   
(47.7
)
   
18.3
     
(29.4
)
Unrecognized (losses) gains on cash flow hedges, net
   
(1.4
)
   
(0.1
)
   
(1.5
)
   
3.4
     
(1.9
)
   
1.5
 
Pension and other postretirement benefit prior service cost and gain or loss, net
   
(2.3
)
   
0.8
     
(1.5
)
   
(2.3
)
   
1.0
     
(1.3
)
Other comprehensive income
 
$
19.0
   
$
16.6
   
$
35.6
   
$
43.3
   
$
17.4
   
$
60.7
 
 
22

   
For the Three Months Ended
June 30, 2016
   
For the Six Months Ended
June 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
 
$
(36.8
)
 
$
-
     
(36.8
)
 
$
5.2
   
$
-
   
$
5.2
 
Foreign currency gains (losses), net
   
19.4
     
(6.3
)
   
13.1
     
(9.9
)
   
4.2
     
(5.7
)
Unrecognized gains (losses) on cash flow hedges, net
   
(6.6
)
   
2.5
     
(4.1
)
   
(23.7
)
   
9.0
     
(14.7
)
Pension and other postretirement benefit prior service cost and gain or loss, net
   
4.5
     
(0.8
)
   
3.7
     
5.9
     
(1.1
)
   
4.8
 
Other comprehensive income (loss)
 
$
(19.5
)
 
$
(4.6
)
 
$
(24.1
)
 
$
(22.5
)
 
$
12.1
   
$
(10.4
)

Changes in accumulated other comprehensive (loss) income by component for the six month periods ended June 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
   
89.9
     
(29.4
)
   
(4.6
)
   
(2.8
)
   
53.1
 
Amounts reclassified from accumulated other comprehensive (loss) income
   
-
     
-
     
6.1
     
1.5
     
7.6
 
Net current-period other comprehensive income (loss)
   
89.9
     
(29.4
)
   
1.5
     
(1.3
)
   
60.7
 
Balance at June 30, 2017
 
$
(234.3
)
 
$
59.2
   
$
(40.7
)
 
$
(65.9
)
 
$
(281.7
)
 
23

   
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
   
5.2
     
(5.7
)
   
(18.7
)
   
3.8
     
(15.4
)
Amounts reclassified from accumulated other comprehensive (loss) income
   
-
     
-
     
4.0
     
1.0
     
5.0
 
Net current-period other comprehensive income (loss)
   
5.2
     
(5.7
)
   
(14.7
)
   
4.8
     
(10.4
)
Balance at June 30, 2016
 
$
(242.8
)
 
$
69.3
   
$
(56.0
)
 
$
(46.5
)
 
$
(276.0
)

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

Reclassifications out of accumulated other comprehensive (loss) income for the six month periods ended June 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
Six Month
Period Ended
June 30,
2017
   
For the
Six Month
Period Ended
June 30,
2016
   
Affected Line in the
Statement Where Net
Income is Presented
 
                 
Loss on cash flow hedges - interest rate swaps
 
$
9.8
   
$
6.4
   
Interest expense
 
     
9.8
     
6.4
   
Total before tax
 
     
(3.7
)
   
(2.4
)
 
Provision (benefit) for income taxes
 
   
$
6.1
   
$
4.0
   
Net of tax
 
Amortization of defined benefit pension and other postretirement benefit items
 
$
2.4
   
$
1.6
   
(1) 
 
     
2.4
     
1.6
   
Total before tax
 
     
(0.9
)
   
(0.6
)
 
Provision (benefit) for income taxes
 
   
$
1.5
   
$
1.0
   
Net of tax
 
Total reclassifications for the period
 
$
7.6
   
$
5.0
   
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.
 
24

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’s exposure to these risks is managed through a combination of operating and financing activities.  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 commodity prices, 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.
 
The Company uses foreign currency forward contracts and net investment hedge contracts to manage certain foreign currency risks.  The Company also uses interest rate swap contracts to manage risks associated with interest rate fluctuations.
 
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 June 30, 2017 and December 31, 2016:

     
June 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
                               
Cross currency interest rate swap contracts
Net Investment
 
$
200.0
   
$
-
   
$
12.7
   
$
-
   
$
-
 
Interest rate swap contracts
Cash Flow
 
$
1,125.0
   
$
-
   
$
-
   
$
6.9
   
$
53.6
 
Derivatives Not Designated as Hedging Instruments
                                         
Foreign currency forwards
Fair Value
 
$
25.3
   
$
0.2
   
$
-
   
$
-
   
$
-
 
Foreign currency forwards
Fair Value
 
$
69.9
   
$
-
   
$
-
   
$
1.4
   
$
-
 

      
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 six month periods ended June 30, 2017 and 2016, are as presented in the table below:

   
For the Three
Month Period Ended
June 30,
   
For the Six
Month Period Ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Interest rate swap contracts (1)
                       
Loss recognized in AOCI on derivatives (effective portion)
 
$
(6.1
)
 
$
(9.9
)
 
$
(6.3
)
 
$
(30.2
)
Loss reclassified from AOCI into income (effective portion)
   
(4.7
)
   
(3.4
)
   
(9.8
)
   
(6.4
)
Gain recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
   
-
     
0.7
     
-
     
0.7
 

(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.

At June 30, 2017, the Company is the fixed rate payor on 16 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 2.4% 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 June 30, 2017, the Company expects to reclassify losses of $19.8 million out of AOCI into earnings during the next 12 months.  The Company’s LIBOR-based variable rate borrowings outstanding at June 30, 2017 were $1,556.7 million and €385.0 million.
 
26

The Company had four foreign currency forward contracts outstanding as of June 30, 2017 with notional amounts ranging from $5.8 million to $43.0 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 six month periods ended June 30, 2017 and 2016 were as follows:

   
For the Three
Month Period Ended
June 30,
   
For the Six
Month Period Ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Foreign currency forward contracts (losses) gains
 
$
(2.7
)
 
$
13.6
   
$
(4.9
)
 
$
12.2
 
Total net foreign currency (losses) gains
   
(4.0
)
   
6.0
     
(4.7
)
   
3.0
 

The Company has a significant investment in consolidated subsidiaries with functional currencies other than the USD, particularly the EUR.  The Company designated its Euro Term Loan due in 2020 of approximately €385.0 million and €387.0 million at June 30, 2017 and December 31, 2016, respectively, as a hedge of the Company’s net investment in subsidiaries with EUR functional currencies. Accordingly, changes in the USD equivalent value of the Euro Term Loan were recorded through other comprehensive income. 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 Euro functional currency subsidiaries with both cross currency interest rate swaps being designated as hedges for the three month and six month periods ended June 30, 2017 and 2016.

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.  The losses and gains from changes in fair value of the ineffective portion of the hedge for the three month and six month periods ended June 30, 2017 and 2016 were included in foreign currency exchange (gains) losses, net in “Other operating expense, net” in the Condensed Consolidated Statements of Operations.

The Company’s gains and (losses), net of income tax, associated with changes in the value of debt and designated interest rate swaps for the three month and six month periods ended June 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
Month Period Ended
June 30,
   
For the Six
Month Period Ended
June 30,
 
   
2017
   
2016
   
2017
   
2016
 
(Loss) gain, net of income tax, recorded through other comprehensive income
 
$
(25.7
)
 
$
10.5
   
$
(29.6
)
 
$
(6.5
)
Balance included in accumulated other comprehensive (loss) income at June 30, 2017 and 2016, respectively
                 
$
52.7
   
$
59.2
 

All cash flows associated with derivatives are classified as operating cash flows in the Condensed Consolidated Statements of Cash Flows.

Fair Value Measurements

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.
 
27

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017:

   
Level 1
   
Level 2