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 March 31, 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 May 4, 2001: 15,539,864 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
MARCH 31,
---------------------
2001 2000
-------- -------
Revenues $100,896 $89,166
Costs and Expenses:
Cost of sales (excluding depreciation
and amortization) 71,454 62,907
Depreciation and amortization 4,275 3,891
Selling and administrative expenses 16,649 15,453
Interest expense 1,842 1,817
Other income, net (941) (1,284)
-------- -------
Income before income taxes 7,617 6,382
Provision for income taxes 2,818 2,431
-------- -------
Net income $ 4,799 $ 3,951
======== =======
Basic earnings per share $ 0.31 $ 0.26
======== =======
Diluted earnings per share $ 0.31 $ 0.26
======== =======
The accompanying notes are an integral part of this statement.
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GARDNER DENVER, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
ASSETS
Current assets:
Cash and equivalents $ 19,700 $ 30,239
Receivables, net 79,103 79,448
Inventories, net 64,254 61,942
Deferred income taxes 6,184 4,887
Other 2,691 3,400
-------- --------
Total current assets 171,932 179,916
-------- --------
Property, plant and equipment, net 66,524 67,104
Intangibles, net 147,099 149,297
Deferred income taxes 2,368 2,855
Other assets 4,307 4,709
-------- --------
Total assets $392,230 $403,881
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 5,707 $ 5,781
Accounts payable and accrued liabilities 57,674 62,462
-------- --------
Total current liabilities 63,381 68,243
-------- --------
Long-term debt, less current maturities 104,377 115,808
Postretirement benefits other than pensions 38,662 39,496
Other long-term liabilities 8,538 9,186
-------- --------
Total liabilities 214,958 232,733
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 15,528,375 shares issued and
outstanding at March 31, 2001 172 170
Capital in excess of par value 162,303 160,343
Treasury stock at cost, 1,662,608 shares at
March 31, 2001 (24,599) (24,508)
Retained earnings 44,836 40,038
Accumulated other comprehensive loss (5,440) (4,895)
-------- --------
Total stockholders' equity 177,272 171,148
-------- --------
Total liabilities and stockholders' equity $392,230 $403,881
======== ========
The accompanying notes are an integral part of this statement.
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GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2001 2000
------------ -----------
Cash flows from operating activities:
Net income $ 4,799 $ 3,951
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,275 3,891
Net loss (gain) on sale of assets 10 (657)
Stock issued for employee benefit plans 586 426
Deferred income taxes (964) (431)
Changes in assets and liabilities:
Receivables (415) (11,362)
Inventories (2,878) (1,251)
Accounts payable and accrued liabilities (4,218) 1,501
Other assets and liabilities, net 593 (1,306)
-------- --------
Net cash provided by (used for)
operating activities 1,788 (5,238)
-------- --------
Cash flows from investing activities:
Capital Expenditures (2,697) (1,661)
Disposals of property, plant and equipment 31 701
Foreign currency hedging transactions (18) 1,654
Business acquisitions, net of cash acquired -- (8,100)
-------- --------
Net cash used for investing activities (2,684) (7,406)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (12,079) (6,107)
Proceeds from long-term borrowings 3,000 12,000
Proceeds from stock options 1,376 756
Purchase of treasury stock (91) (186)
Other (740) --
-------- --------
Net cash (used for) provided by
financing activities (8,534) 6,463
-------- --------
Effect of exchange rate changes on cash and
equivalents (1,109) (538)
-------- --------
Decrease in cash and equivalents (10,539) (6,719)
-------- --------
Cash and equivalents, beginning of period 30,239 27,317
-------- --------
Cash and equivalents, end of period $ 19,700 $ 20,598
======== ========
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 months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full year.
Certain prior year amounts have been reclassified to conform with current
year presentation.
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 allocations for CRS and JSA, used in preparation of the March
31, 2001 consolidated balance sheet, are 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.
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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 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
MARCH 31,
---------------------------
2001 2000
--------- --------
Basic EPS:
Net income $ 4,799 $ 3,951
========= ========
Shares
Weighted average number of common
shares outstanding 15,452 15,213
========= ========
Basic earnings per common share $ 0.31 $ 0.26
========= ========
Diluted EPS:
Net income $ 4,799 $ 3,951
========= ========
Shares
Weighted average number of common
shares outstanding 15,452 15,213
Assuming conversion of dilutive stock options
issued and outstanding 196 251
--------- --------
Weighted average number of common
shares outstanding, as adjusted 15,648 15,464
========= ========
Diluted earnings per common share $ 0.31 $ 0.26
========= ========
NOTE 4. INVENTORIES.
MARCH 31, DECEMBER 31,
2001 2000
------------ ------------
Raw materials, including parts and
subassemblies $ 32,786 $ 31,147
Work-in-process 9,622 9,334
Finished goods 25,641 24,987
Perishable tooling and supplies 2,443 2,443
------------ ------------
70,492 67,911
Excess of current standard costs
over LIFO costs (6,238) (5,969)
------------ ------------
Inventories, net $ 64,254 $ 61,942
============ ============
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NOTE 5. COMPREHENSIVE INCOME.
For the three months ended March 31, 2001 and 2000, comprehensive income was
$4.3 million and $3.2 million, respectively. Items impacting the Company's
comprehensive income, but not included in net income, consist of translation
adjustments including realized and unrealized gains and losses, net of
income taxes, on the foreign currency hedge of the Company's investment in a
foreign subsidiary.
NOTE 6. CASH FLOW INFORMATION.
In the first three months of 2001 and 2000, the Company paid $0.7 million and
$0.4 million, respectively, to the various taxing authorities for income
taxes. Interest paid for the first three months of 2001 and 2000, was $2.4
million and $1.4 million, respectively.
NOTE 7. SEGMENT INFORMATION.
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
------------- -------------
Revenues:
Compressed Air Products $ 79,922 $ 78,420
Petroleum Products 20,974 10,746
------------- -------------
Total $ 100,896 $ 89,166
============= =============
Operating Earnings:
Compressed Air Products $ 5,459 $ 6,184
Petroleum Products 3,059 731
------------- -------------
Total 8,518 6,915
Interest Expense 1,842 1,817
Other Income, net (941) (1,284)
------------- -------------
Income before Income Taxes $ 7,617 $ 6,382
============= =============
NOTE 8. NEW ACCOUNTING STANDARDS.
Effective January 1, 2001, the Company adopted Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (FAS
133) as amended, which requires that all derivative instruments be reported
on the balance sheet at fair value and establishes criteria for designation
and effectiveness of hedging relationships. The adoption of FAS 133 did not
have a material effect on the Company's operating results or financial
condition.
-7-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
Revenues
Revenues increased $11.7 million (13%) to $100.9 million for the three months
ended March 31, 2001, compared to the same period of 2000. Excluding
incremental revenue from acquisitions, revenues increased $9.9 million (11%)
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 March 31, 2001, revenues for the Compressed Air
Products segment increased $1.5 million (2%) to $79.9 million compared to the
same period of 2000 due to acquisitions, increased rotary screw compressor
volume in Europe partially offset by unfavorable foreign currency exchange
rates. Petroleum Products segment revenues increased $10.2 million (95%) to
$21.0 million for the three months ended March 31, 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 March 31, 2001 increased $3.2
million (12%) to $29.4 million compared to the same period of 2000. Gross
margin as a percentage of revenues (gross margin percentage) decreased
slightly to 29.2% in the three-month period of 2001 from 29.4% in the same
period of 2000. This reduction in the gross margin percentage was principally
attributable to an overall unfavorable sales mix (in part relating to
increased petroleum product sales), and higher warranty expense in the
Compressed Air Products segment.
Depreciation and amortization increased 10% to $4.3 million in the first
three months of 2001, compared with $3.9 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 three-month periods, depreciation and amortization expense as a
percentage of revenues decreased to 4.2% in 2001 from 4.4% in 2000. This
percentage decrease is due to the effect of higher revenues in 2001.
Selling and administrative expenses increased in the first three months of
2001 by 8% to $16.6 million from $15.5 million in the same period of 2000.
Excluding incremental expenses from acquisitions, selling and administrative
expenses increased $0.9 million (6%), which was primarily the result of
higher commissions and payroll related expenses. Due to the higher revenues,
selling and administrative expenses as a percentage of revenues declined to
16.5% in the first quarter of 2001 compared to 17.3% in 2000.
Other income includes approximately $0.7 million from litigation settlement
proceeds for the three months ended March 31, 2001 and a $0.7 million gain
from the sale of the Company's idle facility in Syracuse, New York recorded
in the three months ended March 31, 2000. The decrease in other income of
$0.3 million in 2001 compared to 2000 is due to lower foreign
-8-
currency gains generated from U.S. dollar denominated cash and receivable
balances of foreign subsidiaries.
The Compressed Air Products segment generated operating margins (defined as
revenues, less cost of sales, depreciation and amortization, and selling and
administrative expenses) of 6.8% for the three-month period ended March 31,
2001, a decrease from 7.9% for the three-month period of 2000. This decline
is due to increased warranty, commission and payroll related expenses.
The Petroleum Products segment generated operating margins of 14.6% for the
three-month period ended March 31, 2001, compared to 6.8% 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 remained flat at $1.8 million, as lower average borrowings
were offset by higher average interest rates. The average interest rate for
the three-month period of 2001 was 6.3%, compared to 5.9% for the same period
of 2000.
Income before income taxes increased $1.2 million (19%) to $7.6 million for
the three months ended March 31, 2001, compared to the same period of 2000.
This increase is primarily the result of increased leverage of fixed costs
over a higher revenue base in the Petroleum Products segment as mentioned
above.
The provision for income taxes increased by $0.4 million to $2.8 million for
the first three months of 2001 compared to $2.4 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 months
ended March 31, 2001 decreased to 37.0%, compared to 38.1% in the prior year
period 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 March 31, 2001 increased $0.8 million
(21%) to $4.8 million ($0.31 diluted earnings per share), compared to $4.0
million ($0.26 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 has historically been related to market
conditions and expectations for oil and natural gas prices. Orders for
petroleum products were $27.3 million in the first quarter of 2001, an
increase of $13.7 million compared to the same period of 2000. Compared to
March 31, 2000, backlog for this business segment increased $8.9 million to
$18.4 million on March 31, 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 remain near
current levels, and day rates and the rig count continue to increase, demand
for well servicing pumps and drilling pumps will continue to improve in 2001.
-9-
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
economic growth patterns indicated by the rates of change in the Gross
Domestic Product. In the first quarter of 2001, orders for compressed air
products were $82.6 million, including $1.8 million from acquisitions,
compared to $79.7 million in the same period of 2000. Order backlog for the
Compressed Air Products segment was $51.5 million as of March 31, 2001,
compared to $50.1 million as of March 31, 2000. These increases are primarily
the result of acquisitions and growth in European rotary screw compressor and
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 three months ended March 31, 2001, operating working capital
(defined as receivables plus inventories, less accounts payable and accrued
liabilities) increased $6.8 million due to higher inventory and lower
accounts payable and accrued liabilities.
Cash Flows
During the three months of 2001, the Company generated cash from operations
totaling $1.8 million, compared to a use of $5.2 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 $9.1 million during the three
months ended March 31, 2001. Cash used for other financing activities of $0.7
million for the three months ended March 31, 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 $10.5 million for the three
months ended March 31, 2001.
Capital Expenditures and Commitments
Capital projects to increase operating efficiency and flexibility, expand
production capacity and product quality resulted in expenditures of $2.7
million in the first three months of 2001. This was $1.0 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 March 31,
2001 totaled $4.0 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
-10-
minimum tax obligations which arise from the exercise of incentive stock
options. As of March 31, 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 quarter 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 March 31, 2001, the Credit
Line had an outstanding balance of approximately $70 million, leaving $55
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.
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 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 March 31, 2001.
-11-
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 Gardner Denver, Inc. Long-Term Incentive Plan, as amended
January 1, 2001.
10.11 Gardner Denver, Inc. Management Annual Incentive Plan dated
January 1, 2001.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
March 31, 2001.
-12-
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: May 14, 2001 By: /s/ Ross J. Centanni
----------------------------------------
Ross J. Centanni
Chairman, President & CEO
Date: May 14, 2001 By: /s/ Philip R. Roth
----------------------------------------
Philip R. Roth
Vice President, Finance & CFO
Date: May 14, 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
10.1 Gardner Denver, Inc. Long-Term Incentive Plan, as amended January
1, 2001.
10.11 Gardner Denver, Inc. Management Annual Incentive Plan dated January
1, 2001.
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