Condensed Consolidated Financial Statements (Policies)

9 Months Ended

Sep. 30, 2018

Condensed Consolidated Financial Statements [Abstract]

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

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

The results of operations for the interim periods ended September 30, 2018 are not necessarily indicative of the results to be expected for the full year. The balance sheet as of December 31, 2017 has been derived from the Company’s audited financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements.

In May 2017, the Company sold a total of 47,495,000 shares of common stock in an initial public offering of shares of common stock. On November 15, 2017 and May 2, 2018, the Company completed secondary offerings of 25,300,000 shares and 30,533,478 shares respectively, of common stock held by affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”). As a result of the May 2018 secondary offering, the Company is no longer considered a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange (“NYSE”). KKR currently owns 90,721,409 shares of common stock, or approximately 46% of the total outstanding common stock based on the number of shares outstanding as of September 30, 2018.

Prior Year Reclassification

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

Adopted Accounting Standard Updates ("ASU")

Adopted Accounting Standard Updates (“ASU”)

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

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

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

Results for the three month and nine month periods ended September 30, 2018 are presented under ASC 606. Prior periods are not adjusted and will continue to be reported in accordance with ASC 605 Revenue Recognition (“ASC 605”). However, during fiscal year 2018, the Company is required to provide additional disclosures presenting the amount by which each 2018 financial statement line item was affected as a result of applying ASC 606 and an explanation of significant changes in order to present 2018 on a comparative basis under ASC 605.

The following table summarizes the impacts of adopting ASC 606 on the Company’s Condensed Consolidated Statements of Operations for the three month period ended September 30, 2018.

Condensed Consolidated Statements of Operations

	As Reported		Adjustments			Balance Without Adoption of ASC 606
Revenues	$	689.3	$	(8.7	)	$	680.6
Cost of sales		426.9		(5.4	)		421.5
Provision (benefit) for income taxes		22.6		(0.8	)		21.8
Net Income (Loss)		72.2		(2.5	)		69.7

The following table summarizes the impacts of adopting ASC 606 on the Company’s Condensed Consolidated Statements of Operations for the nine month period ended September 30, 2018.

Condensed Consolidated Statements of Operations

	As Reported		Adjustments			Balance Without Adoption of ASC 606
Revenues	$	1,977.1	$	(18.1	)	$	1,959.0
Cost of sales		1,233.6		(11.2	)		1,222.4
Provision (benefit) for income taxes		63.2		(1.8	)		61.4
Net Income (Loss)		174.9		(5.1	)		169.8

The following table summarizes the impacts of adopting ASC 606 on the Company’s Condensed Consolidated Balance Sheets as of September 30, 2018.

Condensed Consolidated Balance Sheets

	As Reported			Adjustments			Balance Without Adoption of ASC 606
Assets
Inventories	$	550.1		$	11.2		$	561.3
Other current assets⁽¹⁾		63.4			(11.2	)		52.2

Liabilities and Stockholders' Equity
Accrued liabilities		258.9			5.1			264.0
Accumulated deficit		(403.2	)		(5.1	)		(408.3	)

⁽¹⁾

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

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

The Company adopted FASB ASU 2017-07 on January 1, 2018, the adoption date. The Company applied ASU 2017-07 retrospectively for the presentation of the service cost component and the other components of net periodic benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic benefit cost in assets. ASU 2017-07 allows the Company to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. Applying the practical expedient, the Company reclassified $0.1 million and $0.2 million of expenses from “Selling and administrative expenses” to “Other income, net” within the Condensed Consolidated Statements of Operations for the three month and nine month periods ended September 30, 2017.

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

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

Recently Issued Accounting Pronouncements

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

The Company established an implementation team and selected a third party lease accounting software solution which will serve as a central repository of active leases and assist in the compliance with the new reporting requirements. The implementation team has been reassessing business processes, drafting an internal policy to address the new standard, extracting lease data for inclusion in the new lease software, determining a process to identify and update the Company’s incremental borrowing rate and understanding the impact on disclosures. The team is also determining which practical expedients to elect. The Company is still finalizing its evaluation of the impact of the new lease standard on its condensed consolidated financial statements and expects to record right of use assets and lease liabilities for its operating leases on its condensed consolidated balance sheets. The Company will adopt the new standard utilizing the optional transition method.

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

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

In August 2018, the FASB issued ASU 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this eliminate, add and modify certain disclosure requirements for defined benefit pension plans. The guidance is effective for public companies beginning with its annual report for fiscal year 2020. Early adoption is permitted. The Company is currently assessing the impact of this ASU on its consolidated financial statements and evaluating the timing of adoption.

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