UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13215
GARDNER DENVER, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 76-0419383
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1800 GARDNER EXPRESSWAY
QUINCY, ILLINOIS 62301
(Address of Principal Executive Offices and Zip Code)
(217) 222-5400
(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 requirement
for the past 90 days.
Yes X No
------- -------
Number of shares outstanding of the issuer's Common Stock, par value
$.01 per share, as of July 30, 2001: 15,574,474 shares.
================================================================================
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2001 2000 2001 2000
-------- ------- -------- --------
Revenues $104,554 $94,888 $205,450 $184,054
Costs and Expenses:
Cost of sales (excluding depreciation
and amortization) 73,307 66,687 144,761 129,594
Depreciation and amortization 4,197 4,031 8,472 7,922
Selling and administrative expenses 16,625 15,275 33,274 30,728
Interest expense 1,547 1,959 3,389 3,776
Other income, net (1,350) (573) (2,291) (1,858)
-------- ------- -------- --------
Income before income taxes 10,228 7,509 17,845 13,892
Provision for income taxes 3,784 2,861 6,602 5,293
-------- ------- -------- --------
Net income $ 6,444 $ 4,648 $ 11,243 $ 8,599
======== ======= ======== ========
Basic earnings per share $ 0.41 $ 0.30 $ 0.73 $ 0.56
======== ======= ======== ========
Diluted earnings per share $ 0.41 $ 0.30 $ 0.72 $ 0.56
======== ======= ======== ========
The accompanying notes are an integral part of this statement.
- 2 -
GARDNER DENVER, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
ASSETS
Current assets:
Cash and equivalents $ 19,673 $ 30,239
Receivables, net 77,201 79,448
Inventories, net 61,271 61,942
Deferred income taxes 6,186 4,887
Other 2,959 3,400
-------- --------
Total current assets 167,290 179,916
-------- --------
Property, plant and equipment, net 66,200 67,104
Intangibles, net 145,611 149,297
Deferred income taxes 2,427 2,855
Other assets 4,764 4,709
-------- --------
Total assets $386,292 $403,881
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 5,631 $ 5,781
Accounts payable and accrued liabilities 57,370 62,462
-------- --------
Total current liabilities 63,001 68,243
-------- --------
Long-term debt, less current maturities 92,308 115,808
Postretirement benefits other than pensions 37,916 39,496
Other long-term liabilities 8,975 9,186
-------- --------
Total liabilities 202,200 232,733
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 15,567,433 shares issued and
outstanding at June 30, 2001 172 170
Capital in excess of par value 162,954 160,343
Treasury stock at cost, 1,663,536 shares at
June 30, 2001 (24,616) (24,508)
Retained earnings 51,281 40,038
Accumulated other comprehensive loss (5,699) (4,895)
-------- --------
Total stockholders' equity 184,092 171,148
-------- --------
Total liabilities and stockholders' equity $386,292 $403,881
======== ========
The accompanying notes are an integral part of this statement.
- 3 -
GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
-----------------------
2001 2000
---------- ----------
Cash flows from operating activities:
Net income $ 11,243 $ 8,599
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,472 7,922
Net loss/(gain) on asset dispositions 63 (851)
Stock issued for employee benefit plans 1,114 916
Deferred income taxes (847) 206
Changes in assets and liabilities:
Receivables 1,137 (6,978)
Inventories (160) (733)
Accounts payable and accrued liabilities (4,237) 974
Other assets and liabilities, net (928) (1,353)
-------- --------
Net cash provided by operating activities 15,857 8,702
-------- --------
Cash flows from investing activities:
Capital expenditures (5,354) (5,051)
Foreign currency hedging transactions (32) 3,261
Disposals of plant and equipment 50 909
Business acquisitions, net of cash acquired -- (9,261)
-------- --------
Net cash used for investing activities (5,336) (10,142)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (26,221) (16,187)
Proceeds from long-term borrowings 6,000 12,000
Proceeds from stock options 1,499 807
Purchase of treasury stock (108) (710)
Other (739) (492)
-------- --------
Net cash used by financing activities (19,569) (4,582)
-------- --------
Effect of exchange rate changes on cash and
equivalents (1,518) (977)
-------- --------
Decrease in cash and equivalents (10,566) (6,999)
-------- --------
Cash and equivalents, beginning of period 30,239 27,317
-------- --------
Cash and equivalents, end of period $ 19,673 $ 20,318
======== ========
The accompanying notes are an integral part of this statement.
- 4 -
NOTES TO CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Basis of Presentation. The accompanying condensed financial statements
include the accounts of Gardner Denver, Inc. ("Gardner Denver" or the
"Company") and its subsidiaries. All significant intercompany transactions
and accounts have been eliminated. Investments in entities in which the
Company has twenty to fifty percent ownership are accounted for by the equity
method.
The financial information presented as of any date other than December 31 has
been prepared from the books and records without audit. The accompanying
condensed consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information
and footnotes required by generally accepted accounting principles for
complete statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such financial statements, have been included.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
incorporated by reference in Gardner Denver's Annual Report on Form 10-K for
the year ended December 31, 2000.
The results of operations for the three and six months ended June 30, 2001
are not necessarily indicative of the results to be expected for the full
year.
NOTE 2. RECENT ACQUISITIONS.
During 2000, the Company completed three acquisitions. Effective July 1,
2000, the Company acquired 100% of the issued and outstanding stock of CRS
Power Flow, Inc. ("CRS"). On April 5, 2000, the Company acquired 100% of the
issued and outstanding stock of Jetting Systems & Accessories, Inc. ("JSA").
CRS and JSA are both located in Houston, Texas. On January 1, 2000, the
Company acquired substantially all of the assets and assumed certain agreed
upon liabilities of Invincible Airflow Systems, Co., located in Baltic, Ohio.
All acquisitions have been accounted for by the purchase method, and
accordingly, their results are included in the Company's consolidated
financial statements from the respective dates of acquisition. Under the
purchase method, the purchase price is allocated based on the fair value of
assets received and liabilities assumed as of the acquisition date. The
purchase price allocation for CRS, used in preparation of the June 30, 2001
consolidated balance sheet, is preliminary and subject to adjustment when
finalized. Management does not expect the finalization of this allocation to
have a significant impact on the Company's financial position or results of
operations.
As a result of the stability of the product technology, markets and customers
associated with these acquisitions, the cost in excess of net assets acquired
for each acquisition is being
- 5 -
amortized over 40 years, using the straight-line method.
NOTE 3. EARNINGS PER SHARE.
The following table details the calculation of basic and diluted earnings per
share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ --------------------
2001 2000 2001 2000
------- ------- -------- --------
Basic EPS:
Net income $ 6,444 $ 4,648 $ 11,243 $ 8,599
======= ======= ======== ========
Shares
Weighted average number of common
shares outstanding 15,545 15,310 15,499 15,261
======= ======= ======== ========
Basic earnings per common share $ 0.41 $ 0.30 $ 0.73 $ 0.56
======= ======= ======== ========
Diluted EPS:
Net income $ 6,444 $ 4,648 $ 11,243 $ 8,599
======= ======= ======== ========
Shares
Weighted average number of common
shares outstanding 15,545 15,310 15,499 15,261
Assuming conversion of dilutive stock
options issued and outstanding 196 199 196 225
------- ------- -------- --------
Weighted average number of common
shares outstanding, as adjusted 15,741 15,509 15,695 15,486
======= ======= ======== ========
Diluted earnings per common share $ 0.41 $ 0.30 $ 0.72 $ 0.56
======= ======= ======== ========
NOTE 4. INVENTORIES.
JUNE 30, DECEMBER 31,
2001 2000
--------- ------------
Raw materials, including parts and
subassemblies $ 30,239 $ 31,147
Work-in-process 9,237 9,334
Finished goods 25,595 24,987
Perishable tooling and supplies 2,443 2,443
--------- ---------
67,514 67,911
Excess of FIFO costs
over LIFO costs (6,243) (5,969)
--------- ---------
Inventories, net $ 61,271 $ 61,942
========= =========
- 6 -
NOTE 6. COMPREHENSIVE INCOME.
For the three months ended June 30, 2001 and 2000, comprehensive income was
$6.2 million and $4.5 million, respectively. For the six months ended June
30, 2001 and 2000, comprehensive income was $10.4 million and $7.7 million,
respectively. Items impacting the Company's comprehensive income, but not
included in net income, consist of foreign currency translation adjustments.
NOTE 7. CASH FLOW INFORMATION.
In the first six months of 2001 and 2000, the Company paid $7.9 million and
$2.3 million, respectively, to the various taxing authorities for income
taxes. Interest paid for the first six months of 2001 and 2000, totaled $3.2
million and $4.2 million respectively.
NOTE 8. SEGMENT INFORMATION.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
2001 2000 2001 2000
---------- --------- ---------- ----------
Revenues:
Compressed Air Products $ 80,063 $ 81,775 $ 159,984 $ 160,195
Petroleum Products 24,491 13,113 45,466 23,859
---------- --------- ---------- ----------
Total $ 104,554 $ 94,888 $ 205,450 $ 184,054
========== ========= ========== ==========
Operating Earnings:
Compressed Air Products $ 5,857 $ 7,955 $ 11,314 $ 14,139
Petroleum Products 4,568 940 7,629 1,671
---------- --------- ---------- ----------
Total 10,425 8,895 18,943 15,810
Interest expense 1,547 1,959 3,389 3,776
Other income, net (1,350) (573) (2,291) (1,858)
---------- --------- ---------- ----------
Income before income taxes $ 10,228 $ 7,509 $ 17,845 $ 13,892
========== ========= ========== ==========
- 7 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
PERFORMANCE IN THE QUARTER ENDED JUNE 30, 2001 COMPARED WITH
THE QUARTER ENDED JUNE 30, 2000
Revenues
Revenues increased $9.7 million (10%) to $104.6 million for the three months
ended June 30, 2001, compared to the same period of 2000. Excluding
incremental revenue from acquisitions, revenues increased $8.2 million (9%)
over the same period of 2000. See Note 2 to the Financial Statements for
further information on the Company's recent acquisitions.
For the three months ended June 30, 2001, revenues for the Compressed Air
Products segment decreased $1.7 million (2%) to $80.1 million compared to the
same period of 2000 due to declining U.S. industrial production which
weakened sales of domestic centrifugal blowers and rotary screw compressors.
Unfavorable foreign currency exchange rates also contributed to this decline,
offsetting incremental revenues from acquisitions. Petroleum Products segment
revenues increased $11.4 million (87%) to $24.5 million for the three months
ended June 30, 2001, compared to the same period of 2000. This increase
resulted from heightened demand for petroleum products due to the continued
high level of oil and natural gas prices.
Costs and Expenses
Gross margin (defined as sales less cost of sales excluding depreciation and
amortization) for the three months ended June 30, 2001 increased $3.0 million
(11%) to $31.2 million compared to the same period of 2000. Gross margin as a
percentage of revenues (gross margin percentage) increased slightly to 29.9%
in the three-month period of 2001 from 29.7% in the same period of 2000. This
increase in the gross margin percentage was principally attributable to
improved operational performance at well stimulation production facilities
partially offset by unfavorable sales mix and higher warranty expense in the
Compressed Air Products segment.
Depreciation and amortization increased 4% to $4.2 million in the three-month
period of 2001, compared with $4.0 million for the same period of 2000. The
increase in depreciation and amortization expense was due to ongoing capital
expenditures and goodwill amortization associated with acquisitions. For the
three-month periods, depreciation and amortization expense as a percentage of
revenues decreased to 4.0% in 2001 from 4.2% in 2000. This percentage
decrease is due to the effect of higher revenues in 2001.
Selling and administrative expenses increased in the three-month period of
2001 by 9% to $16.6 million from $15.3 million in the same period of 2000
primarily due to higher payroll related expenses and the impact of
acquisitions. Due to the higher revenues, selling and administrative expenses
as a percentage of revenues declined to 15.9% in the second quarter of 2001
compared to 16.1% in 2000.
Other income for the three months ended June 30, 2001, included approximately
$0.7 million from litigation settlement proceeds and $0.5 million of interest
income related to finalization of
- 8 -
an income tax settlement with the Internal Revenue Service. Excluding the
impact of these non-recurring gains, other income has declined due to lower
foreign currency gains generated from U.S. dollar denominated cash and
receivable balances of foreign subsidiaries in 2001 compared to 2000.
The Compressed Air Products segment generated operating margins (defined as
revenues, less cost of sales, depreciation and amortization, and selling and
administrative expenses) of 7.3% for the three-month period ended June 30,
2001, a decrease from 9.7% for the three-month period of 2000. This decline
was primarily attributable to unfavorable sales mix combined with higher
payroll related expenses and warranty costs.
The Petroleum Products segment generated operating margins of 18.7% for the
three-month period ended June 30, 2001, compared to 7.2% for the same period
in 2000. This increase was primarily attributable to the positive impact of
increased leverage of the segment's fixed and semi-fixed costs over a higher
revenue base.
Interest expense decreased $0.4 million from the prior year period due to
lower average borrowings combined with lower average interest rates. The
average interest rate for the three-month period of 2001 was 6.0%, compared
to 6.5% for the same period of 2000.
Income before income taxes increased $2.7 million (36%) to $10.2 million for
the three months ended June 30, 2001, compared to the same period of 2000.
This improvement was due to increased leverage of the petroleum segment's
fixed and semi-fixed costs on higher revenue volume, improved operational
performance at well stimulation production facilities and the non-recurring
gains included in other income mentioned above.
The provision for income taxes increased by $0.9 million to $3.8 million for
the second quarter of 2001 compared to $2.9 million in 2000, as a result of
the higher income before taxes partially offset by a lower overall effective
tax rate. The Company's effective tax rate for the three month period
decreased to 37.0%, compared to 38.1% in 2000 due to increased savings from
the Company's foreign sales corporation and the implementation of other tax
strategies.
Net income for the three months ended June 30, 2001 increased $1.8 million
(39%) to $6.4 million ($0.41 diluted earnings per share), compared to $4.6
million ($0.30 diluted earnings per share) for the same period of 2000. This
increase in net income is attributable to the same factors that resulted in
increased income before taxes noted above.
- 9 -
PERFORMANCE IN THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH
THE SIX MONTHS ENDED JUNE 30, 2000
Revenues
Revenues increased $21.4 million (12%) to $205.5 million for the six months
ended June 30, 2001, compared to the same period of 2000. Excluding
incremental revenue from acquisitions, revenues increased $18.2 million (10%)
over the same period of 2000. See Note 2 to the Financial Statements for
further information on the Company's recent acquisitions.
For the six months ended June 30, 2001, revenues for the Compressed Air
Products segment decreased slightly to $160.0 million from $160.2 million in
the comparable prior year period. This decrease was due to declining U.S.
industrial production which weakened sales of domestic rotary screw
compressors and centrifugal blowers. Unfavorable foreign currency exchange
rates also contributed to this decline, offsetting incremental revenues from
acquisitions. Petroleum Products segment revenues increased $21.6 million
(91%) to $45.5 million for the six months ended June 30, 2001, compared to
the same period of 2000. This increase resulted from heightened demand for
petroleum products due to the continued high level of oil and natural gas
prices.
Costs and Expenses
Gross margin for the six months ended June 30, 2001 increased $6.2 million
(11%) to $60.7 million compared to the same period of 2000. Gross margin as a
percentage of revenues (gross margin percentage) decreased slightly to 29.5%
in the six-month period of 2001 from 29.6% in the same period of 2000. This
reduction in the gross margin percentage was principally attributable to an
overall unfavorable sales mix and higher warranty expense in the Compressed
Air Products segment.
Depreciation and amortization increased 7% to $8.5 million in the six-month
period of 2001, compared with $7.9 million for the same period of 2000. The
increase in depreciation and amortization expense was due to ongoing capital
expenditures and goodwill amortization associated with acquisitions. For the
six-month periods, depreciation and amortization expense as a percentage of
revenues decreased to 4.1% in 2001 from 4.3% in 2000. This percentage
decrease is due to the effect of higher revenues in 2001.
Selling and administrative expenses increased in the six-month period of 2001
by 8% to $33.3 million from $30.7 million in the same period of 2000
primarily due to higher payroll related expenses and the impact of
acquisitions. Due to the higher revenues, selling and administrative expenses
as a percentage of revenues declined to 16.2% in 2001 compared to 16.7% in
2000.
Other income for the six months ended June 30, 2001, includes approximately
$1.4 million from litigation settlement proceeds and $0.5 million from
interest income related to finalization of an income tax settlement with the
Internal Revenue Service. Other income for the six months ended June 30, 2000
includes a $0.7 million gain from the sale of the Company's idle facility in
Syracuse, New York. Excluding the impact of these non-recurring gains, other
income has declined due to lower foreign currency gains generated from U.S.
dollar denominated cash and receivable balances of foreign subsidiaries in
2001 compared to 2000.
The Compressed Air Products segment generated operating margins of 7.1% for
- 10 -
the six-month period ended June 30, 2001, a decrease from 8.8% for the six-month
period of 2000. This decline is primarily attributable to unfavorable sales mix
combined with higher payroll related expenses and warranty costs.
The Petroleum Products segment generated operating margins of 16.8% for the
six-month period ended June 30, 2001, compared to 7.0% for the same period in
2000. This increase is primarily attributable to the positive impact of
increased leverage of the segment's fixed and semi-fixed costs over a higher
revenue base.
Interest expense decreased $0.4 million compared to the prior year period to
$3.4 million, due to lower average borrowings. The average interest rate was
6.2% for both six-month periods.
Income before income taxes increased $4.0 million (28%) to $17.8 million for
the six months ended June 30, 2001, compared to the same period of 2000. This
improvement was due to increased leverage of the petroleum segment's fixed
and semi-fixed costs on higher revenue volume, improved operational
performance at well stimulation production facilities and the non-recurring
gains included in other income mentioned above.
The provision for income taxes increased by $1.3 million to $6.6 million for
the six months ended June 30, 2001, compared to $5.3 million in 2000, as a
result of the higher income before taxes partially offset by a lower overall
effective tax rate. The Company's effective tax rate for the six month period
decreased to 37.0%, compared to 38.1% in 2000 due to increased savings from
the Company's foreign sales corporation and the implementation of other tax
strategies.
Net income for the six months ended June 30, 2001 increased $2.6 million
(31%) to $11.2 million ($0.72 diluted earnings per share), compared to $8.6
million ($0.56 diluted earnings per share) for the same period of 2000. This
increase in net income is attributable to the same factors that resulted in
increased income before taxes noted above.
Outlook
Demand for petroleum products is related to market expectations for oil and
natural gas prices. Orders for petroleum products were $35.6 million in the
second quarter of 2001, an increase of $20.6 million compared to the same
period of 2000. For the first six months of 2001, petroleum product orders
were $62.9 million, an increase of $34.2 million compared to the same period
of 2000. Compared to June 30, 2000, backlog for this business segment
increased $17.9 million to $29.5 million on June 30, 2001. These increases
can primarily be attributed to the continued high level of oil and natural
gas prices. Future increases in demand for these products will likely be
dependent upon oil and natural gas prices remaining near current levels,
which the Company cannot predict. However, the Company believes that if oil
and natural gas prices, day rates and the rig count remain near current
levels, demand for well servicing pumps and drilling pumps will be sustained
in 2001.
In general, demand for compressed air products follows the rate of
manufacturing capacity utilization and the rate of change of industrial
production because compressed air is often used as a fourth utility in the
manufacturing process. Over longer time periods, demand also follows the
- 11 -
economic growth patterns indicated by the rates of change in the Gross
Domestic Product. In the second quarter of 2001, orders for compressed air
products were $77.6 million, compared to $74.8 million in the same period of
2000. For the first six months of 2001, orders for compressed air products
were $160.2 million, compared to $154.5 million in the same period of 2000.
Order backlog for compressed air products was $49.5 million as of June 30,
2001, compared to $44.2 million as of June 30, 2000. These increases are
primarily the result of growth in European rotary screw and sliding vane
compressors, acquisitions and increases in domestic water jetting products
order levels, partially offset by unfavorable foreign currency rates, a
reduction in manufacturing lead times and increased inventory levels on
certain products.
LIQUIDITY AND CAPITAL RESOURCES
Operating Working Capital
During the six months ended June 30, 2001, operating working capital (defined
as receivables plus inventories, less accounts payable and accrued
liabilities) increased $2.2 million due to lower accounts payable and accrued
liabilities partially offset by lower receivables and inventory.
Cash Flows
During the first half of 2001, the Company generated cash from operations
totaling $15.9 million, compared to $8.7 million in the prior year period.
This change is due to the higher net income coupled with a more favorable
change in operating working capital compared to the prior year period. Net
payments on long-term debt totaled $20.2 million during the six months ended
June 30, 2001. Cash used for other financing activities of $0.7 million for
the six months ended June 30, 2001 represents dividends paid to a minority
interest of one of the Company's foreign subsidiaries. The cash flows
provided by operating activities and used in investing and financing
activities resulted in a net cash decrease of $10.6 million for the six
months ended June 30, 2001.
Capital Expenditures and Commitments
Capital projects to increase operating efficiency and flexibility, expand
production capacity and product quality resulted in expenditures of $5.4
million in the first six months of 2001. This was $0.3 million higher than
the level of capital expenditures in the comparable period in 2000 due to the
timing of capital projects. Commitments for capital expenditures at June 30,
2001 totaled $3.9 million. Management expects additional capital
authorizations to be committed during the remainder of the year and that
capital expenditures for 2001 will approximate $15 million, primarily due to
expenditures for cost reductions and additional machining capacity at certain
operations. Capital expenditures related to environmental projects have not
been significant in the past and are not expected to be significant in the
foreseeable future.
In October 1998, Gardner Denver's Board of Directors authorized the
repurchase of up to 1,600,000 shares of the Company's common stock to be used
for general corporate purposes. Approximately 200,000 shares remain available
for repurchase under this program. The Company has also established a Stock
Repurchase Program for its executive officers to provide a means for them to
sell Gardner Denver common stock and obtain sufficient funds to meet
alternative minimum tax obligations which arise from the exercise of
incentive stock options. As of June 30,
- 12 -
2001, a total of 1,572,542 shares have been repurchased at a cost of $22.8
million under both repurchase programs. During the first half of 2001, the
Company accepted shares of its common stock, valued at $0.1 million, which
were tendered for the exercise of stock options.
Liquidity
The Company has a revolving line of credit agreement with an aggregate $125
million borrowing capacity (the "Credit Line"). On June 30, 2001, the Credit
Line had an outstanding balance of approximately $58 million, leaving $67
million available for future use. The Credit Line requires no principal
payments during the term of the agreement, which expires in January 2003.
The Company's borrowing arrangements are generally unsecured and permit
certain investments and dividend payments. There are no material restrictions
on the Company as a result of these arrangements, other than customary
covenants regarding certain earnings, liquidity, and capital ratios.
Management currently expects that the Company's future cash flows will be
sufficient to fund the scheduled debt service under existing credit
facilities and provide required resources for working capital and capital
investments.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations",
and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets". SFAS No.
141 requires that all business combinations be accounted for using the
purchase method of accounting and requires separate recognition of intangible
assets that meet certain criteria. This statement applies to all business
combinations completed after June 30, 2001. The adoption of SFAS 141 will not
have a significant impact on the Company's financial statements.
SFAS 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. This statement
also provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. SFAS
No. 142 is effective for fiscal periods beginning after December 15, 2001. As
a result of this new standard, the Company will continue to amortize existing
goodwill through the remainder of 2001, at which time amortization will
cease and a transitional impairment test will be performed. The Company
is currently reviewing the new standard and evaluating the impact on its
future financial condition, results of operations, and accounting policies
and practices. Amortization of goodwill for the six months ended June 30,
2001, totaled $2.2 million.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
All of the statements in this Management's Discussion and Analysis, other
than historical facts, are forward-looking statements made in reliance upon
the safe harbor of the Private Securities Litigation Reform Act of 1995,
including, without limitation, certain statements made under the
- 13 -
caption "Outlook". As a general matter, forward-looking statements are those
focused upon anticipated events or trends and expectations and beliefs
relating to matters that are not historical in nature. Such forward-looking
statements are subject to uncertainties and factors relating to Gardner
Denver's operations and business environment, all of which are difficult to
predict and many of which are beyond the control of the Company. These
uncertainties and factors could cause actual results to differ materially
from those matters expressed in or implied by such forward-looking
statements. The following uncertainties and factors, among others, could
affect future performance and cause actual results to differ materially from
those expressed in or implied by forward-looking statements: the ability to
identify, negotiate and complete future acquisitions; the speed with which
the Company is able to integrate its recent acquisitions and realize the
related financial benefit; the domestic and/or worldwide level of oil and
natural gas prices and oil and gas drilling and production, which affect
demand for the Company's petroleum products; changes in domestic and/or
worldwide industrial production and industrial capacity utilization rates,
which affect demand for the Company's compressed air products; pricing of
Gardner Denver products; the degree to which the Company is able to penetrate
niche markets; the ability to maintain and to enter into key purchasing and
supply relationships; and the continued successful implementation of cost
reduction efforts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's exposure to market risk
between December 31, 2000 and June 30, 2001.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was held
pursuant to notice on May 1, 2001. At the Annual Meeting, Frank J. Hansen,
Thomas M. McKenna and Diane K. Schumacher were elected to serve as directors
for a three-year term expiring in 2004. There were 14,220,065 affirmative
votes cast and 89,135 votes withheld concerning Mr. Hansen's election as a
director; 14,213,523 affirmative votes cast and 95,677 votes withheld
concerning Mr. McKenna's election as a director; and 14,214,486 affirmative
votes cast and 94,714 votes withheld concerning Mrs. Schumacher's election as
a director. Stockholders also elected to amend the Long-Term Incentive Plan
and the Employee Stock Purchase Plan. There were 9,434,290 affirmative votes
cast, 2,630,318 votes against and 2,244,592 abstaining votes or non-votes
concerning the Long-Term Incentive Plan and 11,933,870 affirmative votes
cast, 136,729 votes against and 2,238,601 abstaining votes or non-votes
concerning the Employee Stock Purchase Plan. Finally, stockholders also
approved the new Management Annual Incentive Plan, with 13,464,699
affirmative votes cast, 434,052 votes against and 410,449 abstaining votes or
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
3.2 ByLaws of Gardner Denver, Inc., as amended on July 31, 2001.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended June
30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GARDNER DENVER, INC.
Date: August 13, 2001 By: /s/ Ross J. Centanni
--------------------------------
Ross J. Centanni
Chairman, President & CEO
Date: August 13, 2001 By: /s/ Philip R. Roth
--------------------------------
Philip R. Roth
Vice President, Finance & CFO
Date: August 13, 2001 By: /s/ Daniel C. Rizzo, Jr.
--------------------------------
Daniel C. Rizzo, Jr.
Vice President and Corporate
Controller (Chief Accounting Officer)
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GARDNER DENVER, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
3.2 ByLaws of Gardner Denver, Inc., as amended on July 31, 2001.
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