<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-23612
GARDNER DENVER MACHINERY 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 10, 1996:
4,865,340 shares.
-----------------------------------------------------------------
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
GARDNER DENVER MACHINERY INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
------ ------
<S> <C> <C>
Revenues $48,569 $49,974
Costs and expenses:
Cost of sales (exclusive of depreciation
and amortization) 33,556 35,057
Depreciation and amortization 1,887 2,168
Selling and administrative expenses 6,097 6,250
Interest expense 594 1,406
------ ------
Income before income taxes 6,435 5,093
Provision for income taxes 2,574 2,292
------ ------
Net income $3,861 $2,801
====== ======
Earnings per share $0.77 $0.59
====== ======
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE> 3
<TABLE>
GARDNER DENVER MACHINERY INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts)
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
------ ------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $8,040 $1,869
Receivables, net 37,488 39,933
Inventories 43,695 46,318
Deferred income taxes 402 -
Other 994 2,217
-------- --------
Total current assets 90,619 90,337
-------- --------
Plant and equipment, net 31,374 32,184
Intangibles, net 42,511 43,050
Deferred income taxes 18,180 17,808
Investment in and advances to affiliate 440 -
Other assets 822 872
-------- --------
Total assets $183,946 $184,251
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $1,444 $1,441
Accounts payable and accrued liabilities 31,949 29,675
Deferred income taxes - 486
-------- --------
Total current liabilities 33,393 31,602
-------- --------
Long-term debt, less current maturities 31,300 36,661
Postretirement benefits other than pensions 59,033 60,108
Other long-term liabilities 571 646
-------- --------
Total liabilities 124,297 129,017
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 4,853,319 shares issued and
outstanding at March 31, 1996 48 48
Capital in excess of par value 133,729 133,175
Retained deficit (74,128) (77,989)
-------- --------
Total stockholders' equity 59,649 55,234
-------- --------
Total liabilities and stockholders'
equity $183,946 $184,251
======== ========
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE> 4
<TABLE>
GARDNER DENVER MACHINERY INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,861 $2,801
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 1,343 1,636
Amortization 544 532
Stock issued for employee benefit plans 287 321
Deferred income taxes (1,260) (730)
Changes in assets and liabilities:
Receivables, net 2,445 (4,090)
Inventories 2,623 (1,267)
Accounts payable and accrued liabilities 2,274 5,565
Other assets and liabilities, net (86) (944)
------ ------
Net cash provided by
operating activities 12,031 3,824
------ ------
Cash flows from investing activities:
Capital expenditures (533) (460)
Disposals of plant and equipment - 13
Investment in affiliate (236) -
------ ------
Net cash used for investing activities (769) (447)
------ ------
Cash flows from financing activities:
Principal payments on long-term debt (5,358) (4,282)
Proceeds from stock options 267 -
------ ------
Net cash used for financing activities (5,091) (4,282)
------ ------
Increase (decrease) in cash and cash equivalents 6,171 (905)
------ ------
Cash and cash equivalents, beginning of period 1,869 3,330
------ ------
Cash and cash equivalents, end of period $8,040 $2,425
====== ======
<FN>
The accompanying notes are an integral part of this statement.
</FN>
</TABLE>
<PAGE> 5
NOTES TO FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies.
Organization. The accompanying financial statements reflect
the operations of Gardner Denver Machinery Inc. ("Gardner
Denver"or the "Company"). Gardner Denver was
incorporated in Delaware on November 18, 1993 and was a
wholly-owned U.S. subsidiary of Cooper Industries, Inc.
("Cooper") until April 15, 1994, (the "Record Date") when
Cooper declared a distribution of shares of Common Stock of
Gardner Denver payable to holders of record of Cooper's
Common Stock at the close of business on the Record Date.
Prior to December 31, 1993, Gardner Denver operated as the
Gardner-Denver Industrial Machinery Division (the
"Gardner-Denver Division") of Cooper.
Basis of Presentation. The accompanying financial
statements include the accounts of the Company and its
majority-owned subsidiaries. All transactions between
Gardner Denver Machinery Inc. and its majority-owned
subsidiaries have been eliminated.
The financial information presented as of any date other than
December 31 has been prepared from the books and records
without audit. The accompanying consolidated financial
statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the
information and the 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.
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 1995 contained
in the Company's 1995 Annual Report to Stockholders.
Interest Rate Swap Agreements. The interest differential to
be paid or received under these agreements is accrued as the
interest rates change, and is recognized over the life of the
agreements. See Note 6 in this document for additional
information on these agreements.
Note 2. Income Taxes.
In the first three months of 1996 and 1995, the Company paid
$0.2 million and $0.6 million, respectively to the various
taxing authorities and recognized $2.6 million and $2.3
million, respectively in tax expense. In addition, during the
first quarter of 1996, the Company received $2.3 million in
tax refunds from an overpayment of federal income taxes in
the fourth quarter of 1995.
<PAGE> 6
Note 3. Inventories.
March 31, December 31,
1996 1995
-------- --------
Raw materials $ 7,806 $ 7,398
Work-in-process 6,357 6,702
Finished goods, including parts
and subassemblies 47,921 47,334
Perishable tooling and supplies 3,096 3,096
------- -------
65,180 64,530
Excess of current standard costs
over LIFO costs (13,665) (10,606)
Excess and slow-moving inventory (7,820) (7,606)
------- -------
Total net inventories $43,695 $46,318
======= =======
Note 4. Long-term Debt and Other Borrowing
Arrangements.
Long-term debt at March 31, 1996 consisted of certain
industrial revenue bonds and other notes due between 1997
and 2001, as well as $30 million from a $65 million credit
facility entered into on November 30, 1995. Proceeds from
this three-year, unsecured, revolving loan were used to repay
a secured, term loan and revolving line of credit, and to
provide for general corporate purposes. At March 31, 1996,
$35 million remained available for additional borrowings.
The revolving loan will mature on November 30, 1998.
Maturities of long-term debt for the five years subsequent to
March 31, 1996 are $1.4 million for 1997; $0.3 million for
1998; $30.3 million for 1999; $0.3 million for 2000; and $0.3
million for 2001.
Total interest expense during the first three months of 1996
and 1995 totaled $0.6 and $1.4 million respectively. Interest
paid for each period was not materially different from the
amount expensed.
Note 5. Earnings per share.
Earnings per share were calculated for the three months
ended March 31, 1996 based on 5,010,961 weighted average
shares outstanding for the period, while earnings per share for
the three months ended March 31, 1995 were calculated
based on 4,776,618 weighted average shares outstanding.
Note 6. Interest Rate Swap Agreements.
At March 31, 1996, the Company had two interest rate swap
agreements with a commercial bank (the "Counter Party")
outstanding, having a cumulative notional principal amount
of $30 million. The swaps provide an average fixed LIBOR
rate of 6%. One interest rate swap terminates in November
1996 and the second in November 1997. The Counter Party
has an option to extend either, or both agreements for one
additional year each. The Company is exposed to credit loss
in the event of nonperformance by the Counter Party to the
interest rate swap agreements. However, the Company does
not anticipate such nonperformance.
<PAGE> 7
Note 7. Investment in and Advances to Affiliate.
On February 13, 1996 the Company exercised an option to
purchase 25% of the common stock in GVM Gesellschaft fur
Schraubenverdichter und Schraubenmotorentechnologie mbH
("GVM"), a private German company. The investment is
accounted for using the equity method. As part of the
agreement, the Company has committed to loan GVM a total
of $0.9 million over the remainder of 1996. As of March 31,
1996, the Company has loaned its affiliate $0.2 million of this
commitment. The agreement specifies the payment of market
interest rates and the re-payment of the loan at the end of five
years. The loan is included in Investment in and Advances to
Affiliate. The Company has an option to acquire an
additional 24% of GVM's aggregate authorized capital by
converting part of its claim to any payments of principal and
accrued interest under the loan into such capital interest.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition.
Results of Operations.
Three Months Ended March 31, 1996
Compared with Three Months Ended March 31, 1995
Revenues
Revenues in the first quarter of 1996 were $48.6 million
compared to $50.0 million in the same quarter of 1995, a
decrease of 2.8%. Revenues in the first quarter of 1995
included approximately $1.9 million from sales of castings
and drilling components which did not recur in 1996 since the
Company's foundry and drilling components product line
were sold in the fourth quarter of 1995. Excluding casting
and drilling components sales in 1995, revenues in the first
quarter of 1996 increased 1.0% from the same period in 1995.
Revenues in the first quarter of 1996 increased $2.0 million
(4.2%) from the fourth quarter of 1995, excluding the sales of
castings and drilling components in 1995.
Excluding castings, revenues for the Compressed Air
Products segment rose 1.1% from $42.8 million in the first
quarter of 1995 to $43.3 million in the same period of 1996.
The Compressed Air Products segment revenues increased
$0.3 million (0.6%) in the first three months of 1996
compared to the fourth quarter of 1995, excluding casting
sales in the fourth quarter. Revenues in the Compressed Air
Products segment reflect the slow growth rate of the U.S.
economy over the past six months compared to the first half
of 1995, as indicated by the lower annual rate of change in
GNP and the decreased capacity utilization rates in
manufacturing facilities. However, orders in the first quarter
of 1996 increased 7% over the fourth quarter of 1995,
indicating an improving rate of growth in the U.S. economy
and the Company's further market penetration of niche
markets.
<PAGE> 8
In the first quarter of 1996, Petroleum Products segment
revenues remained level with the first quarter of 1995,
excluding drilling components, at $5.3 million. Revenues for
the Petroleum Products segment increased $1.7 million
(45.9%) in the first quarter of 1996 compared to the fourth
quarter of 1995, excluding the impact of drilling component
sales in 1995. The significant increase in the Petroleum
Products segment was a result of increased gas prices and
drilling activity, which increased demand for drilling pumps
and replacement parts.
Costs and Expenses
Gross margins (defined as revenues less cost of sales,
exclusive of depreciation and amortization) for the first three
months of 1996 increased $0.1 million (0.6%) from $14.9
million in the first quarter of 1995 to $15.0 million in the
same period of 1996, despite the reduction in revenues.
Gross margin as a percentage of sales improved from 29.8%
in the first quarter of 1995 to 30.9% in the first quarter of
1996. If adjusted to exclude castings and drilling components
sales, which generate below average gross margins, the gross
margin percentage for the first quarter of 1995 would have
been 30.6%. The improvement in 1996 compared to 1995
results from the combined effect of previously completed cost
reduction efforts and manufacturing process improvements
and the fact that 1996 results include increased revenues from
aftermarket sales which generate higher incremental gross
margin.
Gross margin as a percentage of revenues also improved from
the level achieved during the fourth quarter of 1995, adjusted
to exclude the effects of LIFO liquidation income which the
Company recognizes in the fourth quarter of the year and the
nonrecurring castings and drilling component revenues. The
fourth quarter of 1995 adjusted gross margin percentage was
30.5%. Most of the improvement in 1996 compared to the
gross margin percentage in the fourth quarter of 1995 was due
to the increased revenues from aftermarket sales.
Depreciation and amortization decreased 13.0% to $1.9
million, compared with $2.2 million for the first quarter of
1995. The decrease was primarily a result of the disposal of
the foundry assets upon the completion of the sale in 1995.
In addition, the decreased level of capital expenditures in
1994 and 1995 contribute to an expense reduction as existing
assets become fully depreciated. As a percentage of revenues,
depreciation and amortization decreased from 4.3% to 3.9%
due to the effect of lower depreciation and amortization
discussed above.
Selling and administrative expenses decreased by 2.4% to
$6.1 million in the first quarter of 1996 from $6.3 million in
the same period of 1995. As a percentage of revenues, selling
and administrative expenses for the three months were
approximately 12.5% in both 1996 and 1995. Management
continues to focus on cost control, resulting in lower costs for
commissions, salaries and fringe benefits.
Interest expense decreased $0.8 million (57.8%) to $0.6
million in the quarter compared to the same period of 1995
due to a significantly lower debt level and reduced interest
rates in effect during 1996 compared to 1995. The lower
interest rates result from replacing the credit facility which
was in effect during most of 1995 with a revolving credit
facility which provides for a lower rate. See Note 4 of the
<PAGE> 9
Notes to Financial Statements contained in this document for
further information on the Company's borrowing
arrangements.
Income before taxes increased $1.3 million (26.3%) in the
quarter to $6.4 million, compared to $5.1 million for the first
quarter of 1995, due to the interest expense and depreciation
reductions. Lower expenses for selling and administration
and increased gross margin also contributed to the
improvement.
Income taxes increased by $0.3 million to $2.6 million as a
result of the increase in income before taxes. The Company's
effective tax rate declined from 45% in the first quarter of
1995 to 40% in the same period of 1996, which resulted in a
$0.3 million improvement in net income. The reduction in
the Company's effective tax rate is due to benefits generated
through the Company's Foreign Sales Corporation (FSC) and
other tax strategies.
Net income for the three months ended March 31, 1996
increased $1.1 million (37.8%) to $3.9 million from $2.8
million for the same period in 1995 for the reasons previously
discussed. When compared to the fourth quarter of 1995, net
income declined $0.6 million (13.0%) from $4.4 million. The
reduction is caused by the $1.3 million (net of taxes) LIFO
liquidation income which was recognized in the fourth
quarter of 1995 but does not recur in the first quarter of 1996.
Excluding the effect of the LIFO liquidation income, net
income increased $0.7 million (24.9%) in the first quarter of
1996 compared to the fourth quarter of 1995, primarily as a
result of lower selling and administration expenses and
interest.
Liquidity and Capital Resources
Operating Working Capital
During the three months ended March 31, 1996, operating
working capital (defined as receivables plus inventories, less
accounts payable and accrued liabilities) decreased $7.3
million to $49.2 million. Receivables decreased $2.4 million
since the end of 1995, substantially due to the receipt of a
federal income tax refund in the first quarter of 1996. The
refund resulted from an overpayment of taxes related to the
timing of the sale of the drilling components product line and
the associated inventory liquidation. Taxes were paid
assuming that the inventory liquidation would not be
consummated in 1995, but this sale was completed in late
December. The $2.6 million decrease in inventories was a
result of continued focus on improving inventory turnover
and the shipment of several large orders in 1996 which had
been manufactured in 1995 and held at the customer's request.
Accounts payable and accrued liabilities increased $2.3
million due to the timing of payments of federal and state
income taxes.
Cash Flows
During the three months ended March 31, 1996, the Company
generated cash flows from operations totaling $12.0 million,
an increase of $8.2 million (214.6%) over the comparable
period in 1995. This substantial increase was primarily the
result of the increased net income ($1.1 million) and the
<PAGE> 10
decreased operating working capital ($7.3 million) discussed
previously. The cash flows enabled the Company to expend
$0.5 million on capital expenditures, invest $0.2 million in an
affiliate and repay $5.4 million of long-term debt, resulting
in an increase in the cash balance of $6.2 million.
Capital Expenditures and Commitments
Capital projects to reduce product costs, improve product
quality, increase manufacturing efficiency and operating
flexibility or expand production capacity resulted in
expenditures of $0.5 million in the first three months of 1996,
which was not materially different than capital expenditures
in the same period in 1995. Commitments for capital
expenditures as of March 31, 1996 totaled $5.9 million,
although management expects additional capital
authorizations to be committed during the remainder of the
year.
Pending Litigation
The Company is a defendant (together with Cooper) in a
lawsuit alleging misappropriation of trade secrets and
interference with contractual relations in connection with
research and development of single screw design technology
and its related manufacturing techniques. The suit requests
$4.66 million in compensatory damage and an unspecified
amount in punitive damages. As part of the spin-off of the
Company from Cooper, the Company agreed to indemnify
Cooper for losses incurred in this type of lawsuit. Although
the extent of the liability, if any, remains unknown,
management does not believe the ultimate resolution of this
legal action will have a materially adverse impact on the
results of operations or the financial condition of the
Company.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
11.0 Computation of earnings per share for the
three months ended March 31, 1996.
27.0 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended March 31, 1996.
<PAGE> 11
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 MACHINERY INC.
Date: May 10, 1996
By: /s/Ross J. Centanni
------------------------------
Ross J. Centanni
President and
Chief Executive Officer
Date: May 10, 1996
By: /s/Harry Jefferson III
------------------------------
Harry Jefferson III
Vice President, Finance
(Principal Financial Officer)
<PAGE> 12
GARDNER DENVER MACHINERY INC.
Exhibit Index
Exhibit
No. Description
11.0 Computation of earnings per share for the three
months ended March 31, 1996.
27.0 Financial Data Schedule.
<PAGE> 1
Exhibit 11.0
<TABLE>
COMPUTATION OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended
March 31,
1996 1995
------ ------
<S> <C> <C>
Primary earnings
Net Income $3,861 $2,801
====== ======
Shares
Weighted average number of common
shares outstanding 4,828 4,721
Assuming conversion of options issued
and outstanding 183 56
------ ------
Weighted average number of common
shares outstanding as adjusted 5,011 4,777
====== ======
Primary earnings per common share $0.77 $0.59
====== ======
Fully diluted earnings*
Net Income $3,861 $2,801
====== ======
Shares
Weighted average number of common
shares outstanding 4,828 4,721
Assuming conversion of options issued
and outstanding 216 51
------ ------
Weighted average number of common
shares outstanding as adjusted 5,044 4,772
====== ======
Fully diluted earnings per common share $0.77 $0.59
====== ======
<FN>
*This calculation is submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083 although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in dilution of
less than 3%.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000916459
<NAME> GARDNER DENVER MACHINERY INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,040
<SECURITIES> 0
<RECEIVABLES> 39,936
<ALLOWANCES> (2,448)
<INVENTORY> 43,695
<CURRENT-ASSETS> 90,619
<PP&E> 125,826
<DEPRECIATION> (94,452)
<TOTAL-ASSETS> 183,946
<CURRENT-LIABILITIES> 33,393
<BONDS> 32,744
0
0
<COMMON> 48
<OTHER-SE> 59,601
<TOTAL-LIABILITY-AND-EQUITY> 183,946
<SALES> 48,283
<TOTAL-REVENUES> 48,569
<CGS> 33,550
<TOTAL-COSTS> 33,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 594
<INCOME-PRETAX> 6,435
<INCOME-TAX> 2,574
<INCOME-CONTINUING> 3,861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,861
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
