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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the fiscal year ended December 31, 1996
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the transition period from to
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Commission file number 0-23654
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GARDNER DENVER MACHINERY INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 76-0419383
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1800 Gardner Expressway 62301
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(Address of Principal Executive Offices) (Zip Code)
(217) 222-5400
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
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(Title of Class)
Rights to Purchase Preferred Stock
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the registrant's voting stock held by
non-affiliates as of March 14, 1997 was $276,537,420.
The number of shares outstanding of the registrant's Common Stock, as of March
14, 1997 was 9,920,625.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Gardner Denver Machinery Inc. Proxy Statement, dated March
26, 1997 (incorporated into Part III of this Annual Report on Form 10-K).
Portions of the 1996 Annual Report to Stockholders (incorporated into Parts
I and II of this Annual Report on Form 10-K).
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PART I
ITEM 1. BUSINESS
GENERAL
Gardner Denver Machinery Inc. ("Gardner Denver" or the "Company") believes,
based on total sales in the United States, it is one of the leading
manufacturers of stationary air compressors and blowers for industrial
applications. Stationary air compressors are used in manufacturing, process
applications and materials handling, and to power air tools and equipment.
Blowers are used primarily in the pneumatic conveying of dry bulk materials,
wastewater aeration and vacuum systems. Gardner Denver also manufactures
petroleum pumps used in oil and gas production, well servicing, well
stimulation, and oil and gas drilling.
In 1996, Gardner Denver had revenues of $218 million, of which approximately
86 percent were derived from sales of compressed air products while
approximately 14 percent were from sales of petroleum products. Approximately
75 percent of the total revenues in 1996 were derived from sales in the United
States and approximately 25 percent were from sales to customers in various
foreign countries. Of the total foreign sales, 28 percent were to Asia, 27
percent to Canada, 19 percent to Latin America, 18 percent to Europe and the
remainder to Africa and Australia.
HISTORY
The Company's business of manufacturing industrial and petroleum equipment
began in 1859 when Robert W. Gardner redesigned the fly-ball governor to
provide speed control for steam engines. By 1900, the then Gardner Company had
expanded its product line to include steam pumps and vertical high-speed air
compressors. In 1927, the Gardner Company merged with Denver Rock Drill, a
manufacturer of equipment for oil wells and mining and construction, and
became the Gardner-Denver Company. In 1979, the Gardner-Denver Company was
acquired by Cooper Industries, Inc. ("Cooper") and operated as 10 unincor-
porated divisions. Two of these divisions, the Gardner-Denver Air Compressor
Division and the Petroleum Equipment Division, were combined in 1985 to form
the Gardner-Denver Industrial Machinery Division (the "Division"). The OPI(R)
pump product line was purchased in 1985 and added to the Division. In 1987,
Cooper acquired the Sutorbilt(R) and DuroFlow(R) blower product lines and the
Joy(R) industrial compressor product line, which were also consolidated into
the Division. Effective December 31, 1993, the assets and liabilities of the
Division were transferred by Cooper to the Company. On April 15, 1994, the
Company was spun-off as an independent company to the shareholders of Cooper.
In 1996, Gardner Denver completed two acquisitions. The first acquisition was
NORAMPTCO, Inc., which was renamed Gardner Denver Holdings Inc. ("GDHI").
GDHI designs, manufactures and sells multistage centrifugal blowers and
exhausters used in various industrial and wastewater applications. GDHI's
products complement the Company's product offering by enabling it to
participate in the centrifugal segment of the air and gas handling industry
and in niche markets having lower noise requirements.
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The second acquisition, TCM Investments, Inc. ("TCM"), is an oil field pump
manufacturer. This acquisition extends the Company's well stimulation pump
product line, provides a physical presence in the oil field market and allows
Gardner Denver to become a sole source supplier of repair parts and
remanufacturing services to some of the Company's customers.
MARKETS AND PRODUCTS
Gardner Denver designs, manufactures and markets compressed air products and
petroleum products. A description of the particular products manufactured and
sold by Gardner Denver in its two industry segments is set forth below.
Compressed Air Products Segment
Gardner Denver designs, manufactures, markets and services a broad line of
reciprocating compressors, rotary screw compressors, positive displacement
blowers and centrifugal blowers to serve all aspects of the industrial market.
Reciprocating compressors range from 5 to 1,000 horsepower and are sold under
the Gardner Denver(R) trademark. Rotary screw compressors range from 7.5 to
500 horsepower and are sold under the Gardner Denver(R), Electra-Screw(R),
Electra-Saver(R), and Twistair(R) trademarks. Gardner Denver previously sold
rotary screw compressors under the Joy(R) trademark until this product line
was discontinued in 1994. Blowers are used to produce a high volume of air at
low pressures and vacuums. Centrifugal blowers produce a constant level of
pressure and varying volumes of air flow. Positive displacement blowers
provide a constant volume of air flow at varying levels of pressure. The
Company's positive displacement blowers range from 0 to 36 pounds per square
inch gauge (PSIG) and 0 to 33,000 cubic feet per minute (CFM) and are sold
under the trademarks Gardner Denver(R), Sutorbilt(R), DuroFlow(R) and
CycloBlower(R). The Company's multistage centrifugal blowers are sold under
the tradename Lamson(TM) and range from 0.5 to 25 PSIG and 100 to 50,000 CFM.
Sales of compressed air products by Gardner Denver in 1996 were $188 million,
of which approximately 78 percent were to customers in the United States.
Almost all domestic manufacturing plants and industrial facilities, as well as
many service industries, utilize air compressors and/or blowers. The largest
markets for Gardner Denver's compressor products are durable goods
manufacturers; process industries (petroleum, primary metals, pharmaceutical,
food and paper); original equipment manufacturers ("OEMs"); manufacturers of
carpet cleaning equipment, pneumatic conveying equipment and dry bulk
trailers; and wastewater treatment facilities.
Manufacturers of machinery and related equipment use stationary compressors
for automated systems, controls, materials handling and special machinery
requirements. The petroleum, primary metals, pharmaceutical, food and paper
industries require compressed air for process, instrumentation and control,
packaging and pneumatic conveying.
Blowers are instrumental to local utilities for aeration in treating
industrial and municipal waste. Blowers are also used in service industries,
for example, residential carpet cleaning to vacuum moisture from carpets
during the shampooing and cleaning process. Blowers are used on trucks that
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vacuum leaves and debris from street sewers and to unload dry bulk and powder
materials such as cement, grain and plastic pellets. Additionally, blowers
are used in air separation processes.
Petroleum Products Segment
Gardner Denver designs, manufactures and markets a diverse group of pumps for
oil and gas production, well servicing, well stimulation and oil and gas
drilling markets. Positive displacement reciprocating pumps are marketed under
the Gardner Denver(R), Ajax(R) and OPI(R) trademarks. In late 1994, the
Company announced it would no longer manufacture drilling rig components,
including drawworks, blocks, rotary tables and swivels, previously sold under
the Gardner Denver(R) trademark. Sales of petroleum products in 1996 were $30
million of which approximately 54 percent were to customers in the United
States.
Typical applications of Gardner Denver(R) pumps in oil and gas production
include oil transfer, salt water disposal, ammine pumping for gas processing,
repressurizing, enhanced oil recovery, hydraulic power and other liquid
transfer applications. Gardner Denver's production pumps range from 16 to 1000
horsepower and consist of horizontal and vertical designed pumps.
Gardner Denver markets one of the most complete product lines of well
servicing pumps. Well servicing operations include repair of downhole pumps
and the replacement of tubing or wellhead equipment, general workover service,
completions (bringing wells into production after drilling), and elimination
or abandonment of wells. Gardner Denver's well servicing products consist of
high pressure plunger pumps ranging from 165 to 880 horsepower.
Gardner Denver also manufactures fracturing pumps for well stimulation; duplex
pumps for shallow drilling, including water well drilling, seismic drilling,
mineral exploration and oil and gas drilling; and mud pumps for drilling rigs.
A small portion of Gardner Denver(R) and Ajax(R) pumps are sold for use in
industrial applications. Gardner Denver's fracturing pumps range from 25 to
2,400 horsepower.
For financial information over the past three years on the Company's
performance by industry segment and the Company's international sales, refer
to Note 10 of the Notes to Consolidated Financial Statements included in
Gardner Denver's 1996 Annual Report to Stockholders and incorporated herein by
reference.
CUSTOMERS AND CUSTOMER SERVICE
Gardner Denver sells its products through independent distributors and sales
representatives and directly to OEMs, engineering firms and end users. Gardner
Denver uses an employee sales force to service OEM and engineering firm
accounts since these typically require more technical assistance, shipment
scheduling and product service.
In 1996, approximately 80 percent of Gardner Denver's products were sold
through independent distributors and sales representatives, while the
remaining 20 percent were sold direct to OEMs,
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engineering firms and end users. Because a majority of products are marketed
through independent distribution, Gardner Denver is committed to developing and
supporting its distribution network of over 200 distributors and
representatives. Generally, the distributors of Gardner Denver's compressed air
products do not handle competing products. Gardner Denver has a Master
Distribution Center in Memphis, Tennessee that stocks parts, accessories and
small compressor products in order to provide adequate and timely availability.
Gardner Denver also provides its distributors with sales and product literature,
technical assistance and training programs, advertising and sales promotions,
order-entry and tracking systems and an annual restocking program. Gardner
Denver participates in major trade shows and has a telemarketing department to
generate sales leads and support the distributors' sales staffs.
The Company's distributors maintain an inventory of complete units and parts
and provide aftermarket service to end users. There are several hundred field
service representatives for Gardner Denver products in the distributor
network. Gardner Denver's service personnel and product engineers provide the
distributors' service representatives with technical assistance and field
training, particularly with respect to installation and repair of equipment.
Gardner Denver also provides aftermarket support through its remanufacturing
facility near Indianapolis, Indiana. This operation remanufactures and repairs
air ends for rotary screw compressors, blowers and reciprocating compressors.
Outside the United States, Gardner Denver markets its products through a
network of sales representatives, as well as distributors and direct sales
persons. As a result of the acquisition of GDHI, the Company also operates a
blower packaging operation in Europe.
COMPETITION
Over 40 companies manufacture or market industrial air compressors in the
United States. Of these, seven suppliers account for more than 80 percent of
the domestic compressor market. Gardner Denver's principal competitors in the
U.S. compressor market include Ingersoll-Rand, Sullair (a division of
Sundstrand Corporation), Roots (a division of Dresser Industries, Inc.), Atlas
Copco, Quincy Compressor (a division of Coltec Industries) and CompAir. The
principal competitors in the petroleum market include National-Oilwell,
Wheatley/Gaso, Continental Emsco, and IRI International. Each of the Company's
business segments has a strong reputation and the Company's trademarks are
recognized both domestically and internationally.
Demand for air compressors is dependent upon capital spending by manufacturing
and process industries, and upon general economic conditions. Demand for
petroleum products is tied to the number of working and available rigs and oil
and gas prices. The principal competitive factors in all product markets are
quality, performance, price and availability. The relative importance of each
of these factors varies depending on the specific type of product.
The air compressor market and the petroleum pump market are characterized by
mature products, with steady and slow technological advances. Technological
trends in the compressor market include
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development of oil-free air compressors, reduction of noise levels, and advanced
control systems to upgrade the flexibility and precision of regulating pressure
and capacity. Emerging market niches result from new technologies in plastics
extrusion and air separation processes. Trends in the petroleum pump market
include development of larger horsepower and lighter weight pumps.
RESEARCH AND DEVELOPMENT
The Company actively engages in a continuing research and development program.
The Gardner Denver research and development centers are dedicated to various
activities, including new product development, product performance improvement
and new product applications.
Gardner Denver's products are designed to satisfy the safety and performance
standards set by various industry groups and testing laboratories. Care is
exercised throughout the manufacturing and final testing process to ensure
that products conform to industry, government and customer specifications.
Gardner Denver has representatives on the American Petroleum Institute's
working committee and the Company has relationships with standard enforcement
organizations such as Underwriters Laboratories (U.L.), Det Norske Veritas
(DNV) and the Canadian Standard Association (C.S.A.). The Company maintains
ISO 9001 certification on the quality systems of manufacturing and design
locations, excluding those of the subsidiaries acquired in 1996.
Expenditures for research and development sponsored by the Company were $2.4
million for the year ended December 31, 1996, as compared to $1.3 million in
1995 and $1.0 million in 1994.
MANUFACTURING
Gardner Denver has six manufacturing facilities that conduct a broad variety
of processes. At its manufacturing locations, the Company maintains advanced
manufacturing, quality assurance and testing equipment geared to the specific
products that it manufactures, and uses extensive process automation in its
manufacturing operations. Most of the manufacturing facilities utilize
computer aided numerical control tools and manufacturing techniques that
concentrate the equipment necessary to produce similar products in one area of
the plant (cell manufacturing). One operator using cell manufacturing can
monitor and operate several machines, as well as assemble and test products
made by such machines, thereby improving operating efficiency and product
quality while reducing the amount of work-in-process and finished product
inventories.
RAW MATERIALS
The primary raw materials used by Gardner Denver are cast iron and steel. Such
materials are generally available from a number of suppliers. With one
exception, the Company does not currently have long-term contracts with its
suppliers of raw materials, but believes that its sources of raw materials are
reliable and adequate for its needs. As part of the sale of its foundry in
LaGrange, Missouri in December 1995, the Company signed a five-year agreement
with the new owner for the
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supply of cast iron products. The Company has not experienced any significant
supply problems in its operations and does not anticipate any significant supply
problems in the foreseeable future.
BACKLOG
The Company's backlog was approximately $47 million at December 31, 1996 as
compared to approximately $31 million at December 31, 1995 and approximately
$33 million at December 31, 1994. This increase in backlog is attributable to
the addition of the backlog from the acquisitions. Backlog consists of
product orders for which a customer purchase order has been received or
communicated and which are scheduled for shipment within 12 months. Since
orders may be rescheduled or cancelled, backlog does not necessarily reflect
future sales levels.
PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
The Company believes that the success of its business depends more on the
technical competence, creativity and marketing abilities of its employees than
on any individual patent, trademark or copyright. Nevertheless, as part of its
ongoing research, development and manufacturing activities, the Company has a
policy of seeking appropriate patents concerning new products and product
improvements.
Although in the aggregate patents and trademarks are of considerable
importance to the manufacturing and marketing of many of its products, the
Company does not consider any single patent or trademark or group of patents
or trademarks to be material to its business as a whole, except for the
Gardner Denver(R) trademark. Other important trademarks used by Gardner Denver
include DuroFlow(R), Sutorbilt(R), CycloBlower(R), Lamson(TM) and OPI(R).
Joy(R) is a registered trademark of Joy Technologies, Inc. Gardner Denver has
the right to use the Joy(R) trademark on aftermarket parts until November
2027. The Company's right to use this trademark on air compressors expired in
November 1995. Pursuant to trademark license agreements, Cooper has rights to
use the Gardner Denver(R) trademark for certain power tools and Gardner Denver
has rights to use the Ajax(R) trademark for petroleum pumps. Gardner Denver
has registered its trademarks in the countries where it is deemed necessary.
The Company also relies upon trade secret protection for its confidential and
proprietary information. The Company routinely enters into confidentiality
agreements with its employees. There can be no assurance, however, that others
will not independently obtain similar information and techniques or otherwise
gain access to the Company's trade secrets or that the Company can effectively
protect its trade secrets.
EMPLOYEES
As of March 14, 1997, the Company had approximately 1,154 full-time employees,
of which approximately 269 were represented by labor unions. The Company
experienced a work stoppage at its Quincy union operating plant in May 1994
that lasted for seven weeks. All issues were settled and a three-year
contract was executed. In March 1997, the Company and the union at the Quincy
plant executed a five-year contract. In May 1995, prior to its acquisition by
Gardner Denver,
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NORAMPTCO, Inc. experienced a three week work stoppage at its facility in
Syracuse, New York. The Company believes its current relations with employees
are good.
ENVIRONMENTAL MATTERS
The Company is subject to numerous federal, state, local and foreign laws and
regulations relating to the storage, handling, emission and discharge of
materials into the environment. The Company believes that its existing
environmental control procedures are adequate and it has no current plans for
substantial capital expenditures in this area. Gardner Denver has an
environmental policy that confirms its commitment to a clean environment and
to compliance with environmental laws. Gardner Denver has an active
environmental management program aimed at compliance with existing
environmental regulations and developing methods to eliminate or significantly
reduce the generation of pollutants in the manufacturing processes.
The Company has been identified as a potentially responsible party ("PRP")
with respect to six sites designated for cleanup under federal "Superfund" or
similar state laws, which impose liability for cleanup of certain waste sites
and for related natural resource damages. Persons potentially liable for such
costs and damages generally include the site owner or operator and persons
that disposed or arranged for the disposal of hazardous substances found at
those sites. Although these laws impose joint and several liability, in
application, the PRPs typically allocate the investigation and cleanup costs
based upon the volume of waste contributed by each PRP. Based on currently
available information, Gardner Denver was only a small contributor to four of
these waste sites and has received de minimus settlements for their cleanup.
The Company has an accrued liability on its balance sheet to the extent costs
are known or can be estimated for its remaining cleanup responsibilities.
Based upon consideration of currently available information, the Company does
not anticipate any materially adverse effect on its results of operations,
financial condition or competitive position as a result of compliance with
federal, state, local or foreign environmental laws or regulations or cleanup
costs relating to the sites discussed above.
ITEM 2. PROPERTIES
Gardner Denver has six manufacturing plants, one distribution center, three
warehouses, a packaging operation and numerous sales offices. The significant
facilities are as follows:
<TABLE>
<CAPTION>
Owned
Location Facility Type Sq. Feet or Leased
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<S> <C> <C> <C>
Quincy, Illinois Executive Office & Sales 600,000 Owned
Office; Manufacturing -
petroleum products and
reciprocating compressors
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<S> <C> <C> <C>
Sedalia, Missouri Manufacturing - rotary 325,000 Owned
compressor products
Syracuse, New York Manufacturing - centrifugal 250,000 Leased
blower products
Tulsa, Oklahoma Manufacturing - well 46,000 Owned
servicing pumps
Tulsa, Oklahoma Remanufacturing - well 12,500 Owned
servicing pumps
Fishers, Indiana Remanufacturing - 60,000 Leased
compressor products
Memphis, Tennessee Distribution Center 98,000 Owned
and Warehouse
Oklahoma City, Oklahoma Sales Office and 8,000 Owned
Warehouse
Bezons, France Packaging and Warehouse 6,270 Leased
</TABLE>
The Sedalia, Missouri facility was previously leased from the City of Sedalia,
Missouri in connection with industrial revenue bond financing. The Company
exercised its option to purchase the property at a nominal price when the
bonds were repaid in March 1997. The Syracuse, New York facility is leased
from the Onondaga County Industrial Development Agency, also in connection
with industrial revenue bond financing, and the Company may purchase the
property at a nominal price when the bonds are repaid. The Company also owns
a 25,000 square foot facility in El Cajon, California, which was acquired as
part of the purchase of NORAMPTCO, Inc. This facility is currently idle and
offered for sale.
The Company also leases sales office space in various U.S. locations and in
three foreign countries (Canada, Singapore and the United Kingdom), and
warehouse space in Quincy.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and administrative
actions; all but one of which are of an ordinary or routine nature incidental
to the operations of the Company.
On June 23, 1995, the Dresser-Rand Company and Bernard Zimmern (the
"Plaintiffs") filed suit in the Circuit Court of the Eighth Judicial Circuit
of Adams County Illinois, against Cooper and Gardner Denver, 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 damages and an unspecified amount in punitive damages. In 1995,
the Plaintiffs' allegation of tortious interference with contractual relations
was dismissed by the court due to the expiration of the applicable statute of
limitations. In 1996, the court found that attorneys' fees incurred by the
Plaintiffs in prior litigation, and requested by the Plaintiffs as
compensatory damages in this litigation, were not recoverable. These
attorneys' fees constituted a large portion of the damages requested in the
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Plaintiffs' complaint. The Plaintiffs have commenced the process to request
an appeal to the court's ruling. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this
report, no matters were submitted to a vote of the stockholders.
EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company, their positions with the Company,
business history and certain other information, as of March 17, 1997, are set
forth below. These officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Office Age
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<S> <C> <C>
Ross J. Centanni President and Chief Executive Officer 51
J. Dennis Shull Vice President, Sales and Marketing 48
Philip R. Roth Vice President, Finance and Chief Financial Officer 46
Roger A. Finnamore Vice President, Engineering and Quality Assurance 52
Steven M. Krivacek Vice President, Human Resources 48
Helen W. Cornell Vice President, Corporate Secretary and Treasurer 38
</TABLE>
Ross J. Centanni, age 51, has been President and Chief Executive Officer and a
director of Gardner Denver since its incorporation in November 1993. Prior to
Gardner Denver's spin-off from Cooper, he was Vice President and General
Manager of the Division, where he also served as Director of Marketing from
August 1985 to June 1990. Mr. Centanni was Director of Corporate Planning for
Cooper from August 1981 until joining the Division in 1985. He has a B.S.
degree in industrial technology and an M.B.A. degree from Louisiana State
University. Mr. Centanni is a director of Boatmen's Bank of Quincy, Illinois
and Denman Services, Inc., a privately held supplier of medical products.
J. Dennis Shull, age 48, has been Vice President, Sales and Marketing of the
Company since its incorporation in November 1993. From August 1990 until
November 1993, Mr. Shull was the Director of Marketing for the Division, and
from March 1989 until August 1990 he was the Division's National Sales
Manager. From 1975 through March 1989, he held various sales and marketing
positions with Gardner Denver. Mr. Shull has a B.S. degree in business from
Northeast Missouri State University and an M.A. in business from Webster
University.
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Philip R. Roth, age 46, joined the Company as Vice President, Finance and
Chief Financial Officer in May 1996. Prior to joining Gardner Denver, Mr.
Roth was employed by Emerson Electric Co. for fifteen years, most recently as
the Vice President, Finance and Chief Financial Officer of the Wiegand
Industrial Division. Mr. Roth, a Certified Public Accountant, received his
B.S. degree in Business Administration from the University of Missouri and an
MBA from the Olin School of Business at Washington University.
Roger A. Finnamore, age 52, has been Vice President, Engineering and Quality
Assurance for Gardner Denver since March 1995. Mr. Finnamore previously
served the Company as Director of Engineering and Quality Assurance from June
1991 until his promotion. He served as Director of Manufacturing for the
Division from 1985 until 1991. Mr. Finnamore holds a B.S. degree in
electrical engineering from the University of New Brunswick and is a graduate
of the General Electric Manufacturing Management Program.
Steven M. Krivacek, age 48, has been Vice President, Human Resources for
Gardner Denver since March 1995. He previously served the Company as Director
of Human Resources from 1986 until his promotion. Mr. Krivacek has a B.A. in
economics from California State College and an M.A. in industrial relations
from St. Francis College.
Helen W. Cornell, age 38, has been Vice President, Corporate Secretary and
Treasurer of the Company since April 1996. She served the Company as Vice
President, Corporate Secretary and Assistant Treasurer from March 1995 until
April 1996 and as Corporate Secretary and Assistant Treasurer from November
1993 until March 1995. Ms. Cornell was Manager of Financial Planning and
Analysis for the Division from May 1988 to November 1993. She holds a B.S.
degree in accounting from the University of Kentucky and an M.B.A. from
Vanderbilt University. She is a Certified Public Accountant and a Certified
Management Accountant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Refer to "Stock Information" and "Dividends", contained on page 36 of
Gardner Denver's 1996 Annual Report to Stockholders, and hereby incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Refer to "Financial History", contained on page 11 of Gardner Denver's
1996 Annual Report to Stockholders, and hereby incorporated herein by
reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Refer to "Management's Discussion and Analysis", contained on pages 12
through 17 of Gardner Denver's 1996 Annual Report to Stockholders, and hereby
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to "Report of Independent Public Accountants" and "Consolidated
Financial Statements and Notes", contained on pages 19 through 35 of Gardner
Denver's 1996 Annual Report to Stockholders, and hereby incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors contained under
"Election of Directors", "Nominees for Election", and "Directors Whose Terms
of Office Will Continue After the Meeting" contained on pages 2 and 3 of the
Gardner Denver Proxy Statement, dated March 26, 1997, is hereby incorporated
herein by reference. Information concerning the Company's executive officers
is contained in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information related to executive compensation contained under
"Committees, Compensation and Governance of the Board of Directors" on pages
4 and 5, "Executive Management Compensation" on pages 8 and 9 and "Employee
and Executive Benefit Plans" contained on pages 12 through 14 of the Gardner
Denver Proxy Statement, dated March 26, 1997, is hereby incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under "Security Ownership of Management and Certain
Beneficial Owners" contained on pages 6 and 7 of the Gardner Denver Proxy
Statement, dated March 26, 1997, is hereby incorporated herein by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Alan E. Riedel, Chairman of the Board of Directors of the Company,
currently is of counsel to Squire, Sanders and Dempsey L.L.P., which provided
legal services to the Company during 1996 and continues to render such
services to the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Annual Report
---------------------------------------------
1. Financial Statements and the related report of independent public
accountants are incorporated by reference to the pages shown below in Gardner
Denver's 1996 Annual Report to Stockholders.
Page No.
--------
Report of Independent Public Accountants 19
Gardner Denver Machinery Inc. and Subsidiaries
Consolidated Statement of Operations for Each of the
Three Years in the Period Ended December 31, 1996 20
Consolidated Balance Sheets as of
December 31, 1996 and December 31, 1995 21
Consolidated Statement of Stockholders' Equity for
Each of the Three Years in the Period Ended
December 31, 1996 22
Consolidated Statement of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1996 23
Notes to Consolidated Financial Statements 24-35
The financial statement schedules listed below should be read in
conjunction with the financial statements listed above. Financial statement
schedules not included in this Annual Report on Form 10-K have been omitted
because they are not applicable or the required information is shown in the
financial statements or notes hereto.
Page 13
<PAGE> 14
2. Schedules
---------
Report of Arthur Andersen LLP S-1
Schedule II - Valuation and Qualifying Accounts S-2
3. Exhibits
--------
2.1 Stock Purchase Agreement, dated as of July 11, 1996, among
Gardner Denver Machinery Inc., Jacques Lepage, Suzanne
Lepage, Anne Lepage and Arthur Lepage, filed as Exhibit 2.0
to Gardner Denver Machinery Inc.'s Current Report on Form
8-K, dated August 9, 1996, as amended, and incorporated
herein by reference.
2.2 Stock Purchase Agreement, dated as of August 10, 1996, among
Gardner Denver Machinery Inc., TCM Investments, Inc. and the
Holders of all the Issued and Outstanding Common Stock and
Options to Acquire Common Stock of TCM Investments, Inc., filed
as Exhibit 2.2 to Gardner Denver Machinery Inc.'s Quarterly
Report on Form 10-Q, dated November 14, 1996, and incorporated
herein by reference.
3.1 Certificate of Incorporation of Gardner Denver Machinery Inc.,
dated as of November 17, 1993, filed as Exhibit 3.1 to Gardner
Denver Machinery Inc.'s Registration Statement on Form 10,
effective on March 31, 1994, and incorporated herein by
reference.
3.2 ByLaws of Gardner Denver Machinery Inc., filed as
Exhibit 3.2 to Gardner Denver Machinery Inc.'s Registration
Statement in Form 10, effective on March 31, 1994, and
incorporated herein by reference.
4.1 Rights Agreement dated as of January 18, 1995, between Gardner
Denver Machinery Inc. and First Chicago Trust Company of New
York as Rights Agent, filed as Exhibit 4 to Form 8-K, dated
January 18, 1995, and incorporated herein by reference.
4.2 Note Purchase Agreement, dated as of September 26, 1996, filed
as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly
Report on Form 10-Q, dated November 14, 1996, and incorporated
herein by reference.
10.1 Asset Transfer Agreement, by and between Cooper Industries,
Inc. and Gardner Denver Machinery Inc., with schedules and
exhibits thereto, filed as Exhibit 10.2 to Gardner Denver
Machinery Inc.'s Registration Statement on Form 10, effective
on March 31, 1994, and incorporated herein by reference.
Page 14
<PAGE> 15
10.2 Distribution Agreement by and between Cooper Industries, Inc.
and Gardner Denver Machinery Inc., filed as Exhibit 10.1 to
Gardner Denver Machinery Inc.'s Registration Statement on
Form 10, effective on March 31, 1994, and incorporated herein
by reference.
10.3<F*> Gardner Denver Machinery Inc. Long-Term Stock Incentive Plan,
as amended.
10.4<F*> Gardner Denver Machinery Inc. Employee Stock Purchase Plan
filed as Exhibit 10.8 to Gardner Denver Machinery Inc.'s
Registration Statement on Form 10, effective on March 31, 1994,
and incorporated herein by reference.
10.5<F*> Gardner Denver Machinery Inc. Supplemental Excess Defined
Benefit Plan filed as Exhibit 10.9 to Gardner Denver Machinery
Inc.'s Registration Statement on Form 10, effective on March
31, 1994, and incorporated herein by reference.
10.6<F*> Gardner Denver Machinery Inc. Supplemental Excess Defined
Contribution Plan, filed as Exhibit 10.10 to Gardner Denver
Machinery Inc.'s Registration Statement on Form 10, effective
on March 31, 1994, and incorporated herein by reference.
10.7<F*> Form of Indemnification Agreements entered into between
Gardner Denver Machinery Inc. and each of its directors and
executive officers, filed as Exhibit 10.11 to Gardner Denver
Machinery Inc.'s Registration Statement on Form 10, effective
on March 31, 1994, and incorporated herein by reference.
10.8<F*> Form of Management Continuity Agreement between Gardner Denver
Machinery Inc. and each of its executive officers, filed as
Exhibit 10.12 to Gardner Denver Machinery Inc.'s Registration
Statement on Form 10, effective on March 31, 1994, and
incorporated herein by reference.
10.9 Administrative Services Agreement for Retiree Life Insurance
Program between Gardner Denver Machinery Inc. and Cooper
Industries, Inc., filed as Exhibit 10.13 to Gardner Denver
Machinery Inc.'s Registration Statement on Form 10, effective
on March 31, 1994, and incorporated herein by reference.
10.10 Trademark License Agreements by and between Gardner Denver
Machinery Inc. and Cooper Industries, Inc. for the Gardner
Denver(R) and Ajax(R) trademarks, filed as Exhibits 10.3 and
10.4 to Gardner Denver Machinery Inc.'s Registration Statement
on Form 10, effective on March 31, 1994, and incorporated
herein by reference.
10.11 Foreign Services Agreements by and between certain subsidiaries
of Gardner Denver Machinery Inc. and certain subsidiaries of
Cooper Industries, Inc., filed
Page 15
<PAGE> 16
as Exhibit 10.5 to Gardner Denver Machinery Inc.'s Registration
Statement on Form 10, effective on March 31, 1994, and
incorporated herein by reference.
10.12 Credit Agreement, dated as of November 30, 1995, among
Gardner Denver Machinery Inc., The First National Bank of
Chicago and the lenders named therein, with exhibits thereto,
filed as Exhibit 10.15 to Gardner Denver Machinery's Annual
Report on Form 10-K for the year ended December 31, 1995, and
incorporated herein by reference.
10.13 First Amendment, dated as of September 10, 1996, to the Credit
Agreement, dated as of November 30, 1995, filed as Exhibit 10.0
to Gardner Denver Machinery Inc.'s Quarterly Report on Form
10-Q, dated November 14, 1996, and incorporated herein by
reference.
11.0 Statement regarding computation of per share earnings.
13.0 The following portions of the Gardner Denver Machinery Inc.
1996 Annual Report to Stockholders.
Page No.
--------
Financial History 11
Management's Discussion and Analysis 12-17
Report of Independent Public Accountants 19
Consolidated Statement of Operations 20
Consolidated Balance Sheet 21
Consolidated Statement of Stockholders' Equity 22
Consolidated Statement of Cash Flows 23
Notes to Consolidated Financial Statements 24-35
Stock Information 36
Dividends 36
21.0 Subsidiaries of Gardner Denver Machinery Inc.
23.0 Consent of Arthur Andersen LLP.
24.0 Powers of Attorney from members of the Board of Directors of
Gardner Denver Machinery Inc.
27.0 Financial Data Schedule.
[FN]
<F*> Indicates management contract or compensatory plan or arrangement.
Page 16
<PAGE> 17
(b) Reports on Form 8-K.
-------------------
On October 23, 1996, the Company filed an amended Current Report on
Form 8-K/A, dated August 9, 1996, related to its acquisition of
NORAMPTCO, Inc. during the fourth quarter of 1996. This Form
8-K/A included a description of the acquisition (Item 2), the
audited financial statements for NORAMPTCO, Inc. for the fiscal
year ended January 31, 1996, in accordance with Rule 3.05 of
Regulation S-X (Item 7), and pro forma financial information
prepared pursuant to Article 11 of Regulation S-X (Item 7).
Page 17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 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.
By /s/Ross J. Centanni
---------------------------------
Name: Ross J. Centanni
Title: President and CEO
Date: March 27, 1997
----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Ross J. Centanni President and CEO, March 27, 1997
- -------------------------------------------------- (Principal Executive Officer)
(Ross J. Centanni) and Director
/s/Philip R. Roth Vice President, Finance and CFO March 27, 1997
- --------------------------------------------------- (Principal Financial and
(Philip R. Roth) Accounting Officer)
<F*>Alan E. Riedel Chairman of the March 27, 1997
(Alan E. Riedel) Board of Directors
<F*>Donald G. Barger, Jr. Director March 27, 1997
(Donald G. Barger, Jr.)
<F*>Thomas M. McKenna Director March 27, 1997
(Thomas M. McKenna)
<F*>Michael J. Sebastian Director March 27, 1997
(Michael J. Sebastian)
<FN>
<F*>By /s/Helen W. Cornell
------------------------------------
(Helen W. Cornell, as Attorney-In-Fact
for each of the persons indicated)
</TABLE>
Page 18
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gardner Denver Machinery Inc.
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Gardner Denver Machinery Inc's. 1996
Annual Report to Stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 5, 1997. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole.
Schedule II included in this Form 10-K is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
February 5, 1997
S-1
<PAGE> 20
<TABLE>
GARDNER DENVER MACHINERY INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31,
(dollars in thousands)
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
----------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
- ----
Allowance for doubtful accounts $ 2,405 $ 231 $394 $ (95) $ 2,935
Allowance for obsolete and slow- 7,606 1,938 165 (619) 9,090
moving inventory
1995
- ----
Allowance for doubtful accounts 2,404 584 (583) 2,405
Allowance for obsolete and slow- 6,110 2,441 (945) 7,606
moving inventory
1994
- ----
Allowance for doubtful accounts 106 2,512 (214) 2,404
Allowance for obsolete and slow- 11,168 (5,058) 6,110
moving inventory
</TABLE>
S-2
<PAGE> 21
<TABLE>
GARDNER DENVER MACHINERY INC.
EXHIBIT INDEX
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
<C> <S> <C>
2.1 Stock Purchase Agreement, dated as of July 11, 1996, among Gardner
Denver Machinery Inc., Jacques Lepage, Suzanne Lepage, Anne Lepage and Arthur
Lepage, filed as Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current
Report on Form 8-K, dated August 9, 1996, as amended, and incorporated
herein by reference.
2.2 Stock Purchase Agreement, dated as of August 10, 1996, among Gardner
Denver Machinery Inc., TCM Investments, Inc. and the Holders of all the
Issued and Outstanding Common Stock and Options to Acquire Common Stock of
TCM Investments, Inc., filed as Exhibit 2.2 to Gardner Denver Machinery
Inc.'s Quarterly Report on Form 10-Q, dated November 14, 1996, and
incorporated herein by reference.
3.1 Certificate of Incorporation of Gardner Denver Machinery Inc., dated as
of November 17, 1993, filed as Exhibit 3.1 to Gardner Denver Machinery
Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and
incorporated herein by reference.
3.2 ByLaws of Gardner Denver Machinery Inc., filed as Exhibit 3.2 to Gardner
Denver Machinery Inc.'s Registration Statement in Form 10, effective on
March 31, 1994, and incorporated herein by reference.
4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver
Machinery Inc. and First Chicago Trust Company of New York as Rights Agent,
filed as Exhibit 4 to Form 8-K, dated January 18, 1995, and incorporated
herein by reference.
4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as
Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form
10-Q, dated November 14, 1996, and incorporated herein by reference.
10.1 Asset Transfer Agreement, by and between Cooper Industries, Inc. and
Gardner Denver Machinery Inc., with schedules and exhibits thereto, filed
as Exhibit 10.2 to Gardner Denver Machinery Inc.'s Registration Statement on
Form 10, effective on March 31, 1994, and incorporated herein by reference.
10.2 Distribution Agreement by and between Cooper Industries, Inc. and
Gardner Denver Machinery Inc., filed as Exhibit 10.1 to Gardner Denver
Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994,
and incorporated herein by reference.
<PAGE> 22
10.3<F*> Gardner Denver Machinery Inc. Long-Term Stock Incentive Plan, as
amended.
10.4<F*> Gardner Denver Machinery Inc. Employee Stock Purchase Plan filed as
Exhibit 10.8 to Gardner Denver Machinery Inc.'s Registration Statement on
Form 10, effective on March 31, 1994, and incorporated herein by reference.
10.5<F*> Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan
filed as Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration
Statement on Form 10, effective on March 31, 1994, and incorporated herein
by reference.
10.6<F*> Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution
Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s Registration
Statement on Form 10, effective on March 31, 1994, and incorporated
herein by reference.
10.7<F*> Form of Indemnification Agreement entered into between Gardner Denver
Machinery Inc. and each of its directors and executive officers, filed as
Exhibit 10.11 to Gardner Denver Machinery Inc.'s Registration Statement on
Form 10, effective on March 31, 1994, and incorporated herein by
reference.
10.8<F*> Form of Management Continuity Agreement between Gardner Denver Machinery
Inc. and each of its executive officers, filed as Exhibit 10.12 to Gardner
Denver Machinery Inc.'s Registration Statement on Form 10, effective on
March 31, 1994, and incorporated herein by reference.
10.9 Administrative Services Agreement for Retiree Life Insurance Program
between Gardner Denver Machinery Inc. and Cooper Industries, Inc., filed as
Exhibit 10.13 to Gardner Denver Machinery Inc.'s Registration Statement on
Form 10, effective on March 31, 1994, and incorporated herein by
reference.
10.10 Trademark License Agreements by and between Gardner Denver Machinery
Inc. and Cooper Industries, Inc. for the Gardner Denver(R) and Ajax(R)
trademarks, filed as Exhibits 10.3 and 10.4 to Gardner Denver Machinery
Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and
incorporated herein by reference.
10.11 Foreign Services Agreements by and between certain subsidiaries of
Gardner Denver Machinery Inc. and certain subsidiaries of Cooper Industries,
Inc., filed as Exhibit 10.5 to Gardner Denver Machinery Inc.'s
Registration Statement on Form 10, effective on March 31, 1994, and
incorporated herein by reference.
<PAGE> 23
10.12 Credit Agreement, dated as of November 30, 1995, among Gardner Denver
Machinery Inc., The First National Bank of Chicago and the lenders named
therein, with exhibits thereto, filed as Exhibit 10.15 to Gardner Denver
Machinery's Annual Report on Form 10-K for the year ended December 31, 1995,
and incorporated herein by reference.
10.13 First Amendment, dated as of September 10, 1996, to the Credit
Agreement, dated as of November 30, 1995, filed as Exhibit 10.0 to Gardner
Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated November 14,
1996, and incorporated herein by reference.
11.0 Statement regarding computation of per share earnings.
13.0 The following portions of the Gardner Denver Machinery Inc. 1996 Annual
Report to Stockholders.
Page No.
--------
Financial History 11
Management's Discussion and Analysis 12-17
Report of Independent Public Accountants 19
Consolidated Statement of Operations 20
Consolidated Balance Sheet 21
Consolidated Statement of Stockholders' Equity 22
Consolidated Statement of Cash Flows 23
Notes to Consolidated Financial Statements 24-35
Stock Information 36
Dividends 36
21.0 Subsidiaries of Gardner Denver Machinery Inc.
23.0 Consent of Arthur Andersen LLP.
24.0 Powers of Attorney from members of the Board of Directors of Gardner
Denver Machinery Inc.
27.0 Financial Data Schedule.
<FN>
<F*> Indicates management contract or compensatory plan or arrangement.
</TABLE>
<PAGE> 1
Exhibit 10.3
GARDNER DENVER MACHINERY INC.
LONG-TERM INCENTIVE PLAN
(As Amended May 7, 1996)
1. PURPOSE
The purpose of the Gardner Denver Machinery Inc. Long-Term
Incentive Plan (the "Plan") is to promote the long-term financial interests of
Gardner Denver Machinery Inc. (the "Company"), including its growth and
performance, by encouraging employees of the Company and its subsidiaries to
acquire an ownership position in the Company, enhancing the ability of the
Company to attract and retain employees of outstanding ability, and providing
employees with an interest in the Company parallel to that of the Company's
stockholders.
2. DEFINITIONS
2.1 "Administrative Policies" means the administrative
policies and procedures adopted and amended from time to time by the Committee
to administer the Plan.
2.2 "Award" means any form of stock option, stock
appreciation right, restricted stock award, or performance share granted under
the Plan, whether singly, in combination, or in tandem, to a Participant by
the Committee pursuant to such terms, conditions, restrictions and
limitations, if any, as the Committee may establish by the Award Agreement or
otherwise.
2.3 "Award Agreement" means a written agreement with
respect to an Award between the Company and a Participant establishing the
terms, conditions, restrictions and limitations applicable to an Award. To the
extent an Award Agreement is inconsistent with the terms of the Plan, the Plan
shall govern the rights of the Participant thereunder.
2.4 "Board" shall mean the Board of Directors of the
Company.
2.5 "Change of Control" means a change in control of the
Company (other than the initial distribution of Common Stock by Cooper
Industries, Inc.) of a nature that would be required to be reported (assuming
such event has not been "previously reported") in response to Item 6(e) of
Schedule 4A of Regulation 14A promulgated under the Exchange Act; provided
that, without limitation, a Change of Control shall be deemed to have occurred
at such time as (i) any "person" within the meaning of Section 14(d) of the
Exchange Act, is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then outstanding securities, or (ii) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period.
<PAGE> 2
2.6 "Change of Control Price" means the higher of (i) the
Fair Market Value on the date of determination of the Change of Control or (ii)
the highest price per share actually paid for the Common Stock in connection
with the Change of Control of the Company.
2.7 "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
2.8 "Committee" means the The Management Development and
Compensation Committee of the Board, or such other committee designated by the
Board to administer the Plan, provided that the members of the Committee
qualify as disinterested administrators under Rule 16b-3 of the Exchange Act.
2.9 "Common Stock" means the Common Stock, par value $0.01
per share, of the Company.
2.10 "Exchange Act" means the Securities Exchange Act of
1934, as amended.
2.11 "Fair Market Value" means the average of the high and
low price of a share of Common Stock as reported on the composite tape for
securities listed on the Stock Exchange for the applicable date, provided that
if no sales of Common Stock were made on the Stock Exchange on that date, the
average of the high and low prices as reported on the composite tape for the
preceding day on which sales of Common Stock were made.
2.12 "Participant" means an officer or employee of the
Company or its subsidiaries who is selected by the Committee to participate in
the Plan, and nonemployee directors of the Company to the extent provided in
Section 11 hereof.
2.13 "Stock Exchange" means the National Association of
Securities Dealers Automated Quotation National Market System ("NASDAQ NMS")
or, if the Common Stock is no longer included on the NASDAQ NMS, then such
other market price reporting system on which the Common Stock is traded or
quoted designated by the Committee after it determines that such other
exchange is both reliable and reasonably accessible.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Committee. A
majority of the Committee shall constitute a quorum, and the acts of a majority
of a quorum shall be the acts of the Committee.
3.2 Subject to the provisions of the Plan, the Committee (i)
shall select the Participants, determine the type of Awards to be made to
Participants, determine the shares or share units subject to Awards, and (ii)
shall have the authority to interpret the Plan, to establish, amend, and
rescind any Administrative Policies to determine the terms and provisions of
any agreements entered into hereunder, and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the
Plan or in any Award in the manner and to the extent it shall deem desirable
to carry it into effect. The determinations of the Committee in the
administration of the Plan, as described herein, shall be
<PAGE> 3
final and conclusive, provided, however, that no action shall be taken which
will prevent the options granted under Section 11 or any Award granted under the
Plan from meeting the requirements for exemption from Section 16(b) of the
Exchange Act, or subsequent comparable statute, as set forth in Rule 16(b)-3
of the Exchange Act or any subsequent comparable rule.
3.3 In order to enable Participants who are foreign nationals
or employed outside the United States, or both, to receive Awards under the
Plan, the Committee may adopt such amendments, Administrative Policies, subplans
and the like as are necessary or advisable, in the opinion of the Committee, to
effectuate the purposes of the Plan.
4. ELIGIBILITY
All employees of the Company and its subsidiaries who have
demonstrated significant management potential or who have the capacity for
contributing in a substantial measure to the successful performance of the
Company, as determined by the Committee, are eligible to be Participants in
the Plan. Participants may receive one or more Awards under the Plan.
Directors of the Corporation other than directors who are employees of the
Corporation shall be eligible only to receive stock options pursuant to
Section 11 hereof.
5. SHARES SUBJECT TO THE PLAN
5.1 The aggregate number of shares of Common Stock
available for grants of Awards under the Plan shall be that number of shares
remaining available for grant under the Plan on the close of business on the
date immediately prior to the 1996 Annual Meeting of Stockholders plus
300,000, subject to the adjustments provided for in Section 15 hereof. Shares
of Common Stock available for issuance under the Plan may be authorized and
unissued shares or treasury shares, as the Company may from time to time
determine.
5.2 Shares of Common Stock subject to an Award that
expires unexercised or that is forfeited, terminated or cancelled, in whole or
in part, or is paid in cash in lieu of Common Stock, shall thereafter again be
available for grant under the Plan, provided that if the Participant who had
been granted such Award (i) was an officer subject to the provisions of
Section 16(b) of the Exchange Act and (ii) received benefits of ownership of
such shares for purposes of Section 16(b) of the Exchange Act (such as
dividends with respect to forfeited shares of restricted stock), such shares
shall not thereafter be available for grant under the Plan to officers subject
to the provisions of Section 16(b) of the Exchange Act.
6. AWARDS
Awards under the Plan may consist of: stock options (either
incentive stock options within the meaning of Section 422 of the Code or
nonstatutory stock options), stock appreciation rights, restricted stock
grants and performance shares; provided that no participant may be granted
Awards during any calendar year with respect thereto in excess of 60,000
shares of Common Stock. Awards of performance shares and restricted stock may
provide the Participant with dividends or dividend equivalents and voting
rights prior to vesting (whether based on a period of time or based
<PAGE> 4
on attainment of specified performance conditions). The terms, conditions and
restrictions of each Award shall be set forth in an Award Agreement.
7. STOCK OPTIONS
7.1 Grants. Awards may be granted in the form of stock
options. Stock options may be incentive stock options within the meaning of
Section 422 of the Code or nonqualified stock options (i.e., stock options which
are not incentive stock options), or a combination of both, or any particular
type of tax advantage option authorized by the Code from time to time.
7.2 Terms and Conditions of Options. An option shall be
exercisable in whole or in such installments and at such times and upon such
terms as may be determined by the Committee; provided, however, that no stock
option shall be exercisable more than ten years after the date of grant
thereof. The option exercise price shall be established by the Committee, but
such price shall not be less than the Fair Market Value on the date of the
stock option's grant subject to adjustment as provided in Section 15 hereof.
7.3 Restrictions Relating to Incentive Stock Options. Stock
options issued in the form of incentive stock options shall, in addition to
being subject to all applicable terms, conditions, restrictions and
limitations established by the Committee, comply with Section 422 of the Code.
Incentive stock options shall be granted only to full time employees of the
Company and its subsidiaries within the meaning of Section 424 of the Code.
The aggregate Fair Market Value (determined as of the date the option is
granted) of shares with respect to which incentive stock options are
exercisable for the first time by an individual during any calendar year
(under this Plan or any other plan of the Company which provides for the
granting of incentive stock options) may not exceed $100,000 or such other
number as may be applicable under the Code from time to time.
7.4 Payment. Upon exercise, a Participant may pay the option
exercise price of a stock option in cash, shares of Common Stock, stock
appreciation rights or a combination of the foregoing, or such other
consideration as the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Common Stock and may impose such
conditions as it deems appropriate on the use of such Common Stock to exercise
a stock option.
7.5 Additional Terms and Conditions. The Committee may, by
way of the Award Agreement or Administrative Policies, establish such other
terms, conditions or restrictions, if any, on any stock option award, provided
they are consistent with the Plan. The Committee may condition the vesting of
stock options on the achievement of financial performance criteria established
by the Committee at the time of grant.
8. STOCK APPRECIATION RIGHTS
8.1 Grants. Awards may be granted in the form of stock
appreciation rights ("SARs"). SARs shall entitle the recipient to receive a
payment equal to the appreciation in market value of a stated number of shares
of Common Stock from the price stated in the Award Agreement to the Fair
Market Value on the date of exercise or surrender. An SAR may be granted in
tandem with all or a
<PAGE> 5
portion of a related stock option under the Plan ("Tandem SARs"), or may be
granted separately ("Freestanding SARs"); provided, however, that Freestanding
SARs shall be granted only to Participants who are foreign nationals or are
employed outside of the United States, or both, and as to whom the Committee
determines the interests of the Company could not as conveniently be served by
the grant of other forms of Awards under the Plan. A Tandem SAR may be granted
either at the time of the grant of the related stock option or at any time
thereafter during the term of the stock option. An SAR may be exercised no
sooner than six months after it is granted. In the case of SARs granted in
tandem with stock options granted prior to the grant of such SARs, the
appreciation in value shall be appreciation from the option exercise price of
such related stock option to the Fair Market Value on the date of exercise.
8.2 Terms and Conditions of Tandem SARs. A Tandem SAR shall
be exercisable to the extent, and only to the extent, that the related stock
option is exercisable. Upon exercise of a Tandem SAR as to some or all of the
shares covered in an Award, the related stock option shall be cancelled
automatically to the extent of the number of SAR's exercised, and such shares
shall not thereafter be eligible for grant under Section 5 hereof.
8.3 Terms and Conditions of Freestanding SARs. Freestanding
SARs shall be exercisable in whole or in such installments and at such times
as may be determined by the Committee. The base price of a Freestanding SAR
shall be determined by the Committee; provided, however, that such price shall
not be less than the Fair Market Value on the date of the award of the
Freestanding SAR.
8.4 Deemed Exercise. The Committee may provide that an SAR
shall be deemed to be exercised at the close of business on the scheduled
expiration date of such SAR, if at such time the SAR by its terms is otherwise
exercisable and, if so exercised, would result in a payment to the
Participant.
8.5 Additional Terms and Conditions. The Committee may, by
way of the Award Agreement or Administrative Policies, determine such other
terms, conditions and restrictions, if any, on any SAR Award, provided they
are consistent with the Plan.
9. RESTRICTED STOCK AWARDS
9.1 Grants. Awards may be granted in the form of
restricted stock ("Restricted Stock Awards"). Restricted Stock Awards shall be
awarded in such numbers and at such times as the Committee shall determine.
9.2 Award Restrictions. Restricted Stock Awards shall
be subject to such terms, conditions or restrictions as the Committee deems
appropriate including, but not limited to, restrictions on transferability,
requirements of continued employment, individual performance or the financial
performance of the Company. The period of vesting and the forfeiture
restrictions shall be established by the Committee at the time of grant,
except that each restriction period shall not be less than 12 months.
<PAGE> 6
9.3 Rights as Shareholders. During the period in
which any restricted shares of Common Stock are subject to forfeiture
restrictions imposed under the preceding paragraph, the Committee may, in its
discretion, grant to the Participant to whom such restricted shares have been
awarded, all or any of the rights of a shareholder with respect to such
shares, including, but not limited to, the right to vote such shares and to
receive dividends.
9.4 Evidence of Award. Any Restricted Stock Award
granted under the Plan may be evidenced in such manner as the Committee deems
appropriate, including, without limitation, book entry registration or
issuance of a stock certificate or certificates.
10. PERFORMANCE SHARES
10.1 Grants. Awards may be granted in the form of shares of
Common Stock that are earned only after the attainment of predetermined
performance targets during a performance period as established by the
Committee ("Performance Shares").
10.2 Performance Criteria. The Committee may grant an Award
of Performance Shares to Participants as of the first day of each Performance
Period. As used herein, the term "Performance Period" means the period during
which a Performance Target is measured and the term "Performance Target" means
the predetermined goals established by the Committee. A Performance Target
will be established at the beginning of each Performance Period. A
Performance Target shall be based upon one or any combination of the following
goals or business criteria: (i) revenues of the Company; (ii) operating income
of the Company; (iii) net income of the Company; (iv) earnings per share of
the Company's Common Stock; (v) the Company's return on equity; (vi) cash flow
of the Company; or (vii) Company stockholder total return. The Committee
shall be permitted to make adjustments when determining the attainment of a
Performance Target to reflect extraordinary or nonrecurring items or events,
or unusual nonrecurring gains or losses identified in the Company's financial
statements, as long as any such adjustments are made in a manner consistent
with Section 162(m) to the extent applicable. Awards of Performance Shares
made to Participants subject to Section 162(m) of the Code are intended to
qualify under Section 162(m) and provisions of such Awards shall be
interpreted in a manner consistent with that intent to the extent appropriate.
The foregoing provisions of this Section 10.2 also shall be applicable to
grants of Restricted Stock Awards made under Section 9 hereof to the extent
such Restricted Stock Awards are subject to the financial performance of the
Company. At the end of the Performance Period, Performance Shares shall be
converted into Common Stock (or cash or a combination of Common Stock and
cash, as determined by the Award Agreement) and distributed to Participants
based upon such entitlement. Award payments made in cash rather than the
issuance of Common Stock shall not, by reason of such payment in cash, result
in additional shares being available for reissuance pursuant to Section 5
hereof.
10.3 Additional Terms and Conditions. The Committee may, by
way of the Award Agreement or Administrative Policies, determine the manner of
payment of Awards of Performance Shares and other terms, conditions or
restrictions, if any, on any Award of Performance Shares, provided they are
consistent with the Plan.
<PAGE> 7
11. DIRECTORS' STOCK OPTIONS
11.1 Grants. Awards may be granted to nonemployee
directors only in the form of stock options satisfying the requirements of
this Section 11 ("Director Stock Options"). Subject to Section 15 hereof, on
the date following the commencement of the Company's annual meeting of
stockholders each year, there shall be granted to each nonemployee director an
option to purchase 1,000 shares of Common Stock. All such options shall be
nonstatutory stock options.
11.2 Option Exercise Price. The option exercise price of
Director Stock Options shall be 100 percent of the Fair Market Value on the
date such options are granted. The Committee shall be authorized to compute
the price per share on the date of grant. Payment of the option exercise price
may be made in cash or in shares of Common Stock or a combination of cash and
Common Stock.
11.3 Option Agreement. Director Stock Options shall be
evidenced by an Award Agreement, dated as of the date of the grant, which
agreement shall be in such form, consistent with the terms and requirements of
this Section 11, as shall be approved by the Committee from time to time and
executed on behalf of the Company by its chief executive officer.
11.4 Terms and Conditions of Director Stock Option.
Director Stock Options shall become fully exercisable on the first anniversary
of the date of grant and shall terminate upon the expiration of five years
from the date of grant. To the extent an option is not otherwise exercisable
at the date of the nonemployee director's retirement under a retirement plan
or policy of the Company, it shall become fully exercisable upon such
retirement provided, however, that Director Stock Options shall not become
exercisable under this sentence prior to the expiration of six months from the
date of grant. Upon such retirement, such options shall be exercisable for a
period of one year, subject to the original term thereof. Options not
otherwise exercisable at the time of the disability or death of a nonemployee
director during continued service with the Company shall become fully
exercisable upon his disability or death, unless the date of disability or
death occurs prior to the expiration of six months from the date of grant.
Upon the disability or death of a nonemployee director while in service as a
director, such options shall remain exercisable (subject to the original term
of the option) for a period of one year after the date of disability or of
death. To the extent an option is exercisable on the date a director ceases to
be a director (other than by reason of disability, death or retirement), the
option shall continue to be exercisable (subject to the original term of the
option) for a period of 90 days thereafter.
11.5 Transferability. No option shall be transferable by a
nonemployee director except by will or the laws of descent and distribution,
and during the director's life time options may be exercised only by him or
his legal representative.
11.6 Change of Control. Director Stock Options not
otherwise exercisable at the time of a Change of Control shall become fully
exercisable upon such Change of Control; provided, however, that options shall
not become exercisable under this provision prior to the expiration of six
months from the date of grant. In the case of a Change of Control:
<PAGE> 8
(i) The Company shall make payment to directors with
respect to Director Stock Options in cash in an amount equal to the
appreciation in the value of the Director Stock Option from the option
exercise price specified in the Award Agreement to the Change of Control
Price.
(ii) The cash payments to directors shall be due and
payable, and shall be paid by the Company, immediately upon the occurrence of
such Change of Control; and
(iii) After the payment provided for in (i) above,
nonemployee directors shall have no further rights under Director Stock
Options outstanding at the time of such Change in Control.
11.7 Initial Grant to Directors. Effective on the date for
the distribution of the Common Stock by Cooper Industries, Inc. ("Distribution
Date"), each nonemployee director shall be granted an option for 2,000 shares
of Common Stock at an exercise price equal to the average closing price of the
Common Stock for the 30 trading days beginning five days after the
Distribution Date. The options will become exercisable on the first
anniversary of the date of grant and will expire five years after the date of
grant. Except as provided in this Section 11.7, the terms and conditions of
the initial options shall be as set forth in Section 11 of the Plan.
12. DIVIDENDS AND DIVIDEND EQUIVALENTS; DEFERRALS
12.1 If an Award is granted in the form of a
Restricted Stock Award or a Freestanding SAR, the Committee may choose, at the
time of the grant of the Award, to include as part of such Award an
entitlement to receive dividends or dividend equivalents, subject to such
terms, conditions, restrictions or limitations, if any, as the Committee may
establish. Dividends and dividend equivalents shall be paid in such form and
manner and at such time as the Committee shall determine.
12.2 The Committee may permit Participants to elect
to defer the issuance of shares or the settlement of Awards in cash under
Administrative Policies established by the Committee. It may also provide that
deferred settlements include the payment or crediting of interest on the
deferral amounts or the payment or crediting of dividend equivalents on
deferred settlements denominated in shares.
13. TERMINATION OF EMPLOYMENT
The Committee shall adopt Administrative Policies
determining the entitlement of Participants who cease to be employed by either
the Company or its subsidiaries due to death, disability, resignation,
termination or retirement pursuant to an established retirement plan or policy
of the Company or its subsidiaries.
14. ASSIGNMENT AND TRANSFER
The rights and interests of a Participant under the Plan may
not be assigned, encumbered or transferred except, in the event of the death
of a Participant, by will or the laws of descent and distribution.
<PAGE> 9
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding shares of
Common Stock by reason of a reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, merger, consolidation or
any change in the corporate structure or shares of the Company, the maximum
aggregate number and class of shares as to which Awards may be granted under
the Plan and the shares issuable pursuant to then outstanding Awards shall be
appropriately adjusted by the Committee, whose determination shall be final.
16. WITHHOLDING TAXES
The Company shall have the right to deduct from any payment
to be made pursuant to the Plan the amount of any taxes required by law to be
withheld therefrom, or to require a Participant to pay to the Company such
amount required to be withheld prior to the issuance or delivery of any shares
of Stock or the payment of cash under the Plan. The Committee may, in its
discretion, permit a Participant to elect to satisfy such withholding
obligation by having the Company retain the number of shares of Common Stock
whose Fair Market Value equals the amount required to be withheld. Any
fraction of a share of Common Stock required to satisfy such obligation shall
be disregarded and the amount due shall instead be paid in cash to the
Participant.
17. REGULATORY APPROVALS AND LISTINGS
Notwithstanding anything contained in this Plan to the
contrary, the Company shall have no obligation to issue or deliver
certificates of Common Stock evidencing Restricted Stock Awards or any other
Award payable in Common Stock prior to (i) the obtaining of any approval from
any governmental agency which the Company shall, in its sole discretion,
determine to be necessary or advisable, (ii) the admission of such shares to
listing on the Stock Exchange and (iii) the completion of any registration or
other qualification of said shares under any state or federal law or ruling of
any governmental body which the Company shall, in its sole discretion,
determine to be necessary or advisable.
18. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
No person shall have any claim or right to be granted
an Award, and the grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or its
subsidiaries. Further, the Company and its subsidiaries expressly reserve the
right at any time to dismiss a Participant free from any liability, or any
claim under the Plan, except as provided herein or in any Award Agreement
entered into hereunder.
19. CHANGE OF CONTROL
In the event of a Change of Control, (i) all SARs which have
not been granted in tandem with stock options and which have been outstanding
for at least six months shall become exercisable in full, (ii) the
restrictions applicable to all shares of restricted stock shall lapse and such
shares shall be deemed fully vested and all restricted stock granted in the
form of share units shall be
<PAGE> 10
paid in cash, (iii) all Performance Shares shall be deemed to be earned in full
and all Performance Shares granted in the form of share units shall be paid in
cash, and (iv) any Participant who has been granted a stock option which is not
exercisable in full shall be entitled, in lieu of the exercise of the portion of
the stock option which is not exercisable, to obtain a cash payment in an amount
equal to the difference between the option price of such stock option and (A) in
the event the Change of Control is the result of a tender offer or exchange
offer for the Common Stock, the final offer price per share paid for the Common
Stock, or such lower price as the Committee may determine with respect to any
incentive stock option to preserve its incentive stock option status, multiplied
by the number of shares of Common Stock covered by such portion of the stock
option, or (B) in the event the Change of Control is the result of any other
occurrence, the aggregate value of the Common Stock covered by such portion of
the stock option, as determined by the Committee at such time. The Committee
may, in its discretion, include such further provisions and limitations in any
agreement documenting such Awards as it may deem equitable and in the best
interests of the Company.
20. AMENDMENT
The Board may amend, suspend or terminate the Plan or any
portion thereof at any time, provided that no amendment shall be made without
stockholder approval if such approval is necessary in order for the Plan to
continue to comply with Rule 16b-3 under the Exchange Act; and provided
further, that the provisions of Section 11 shall not be amended more than once
every six months, other than to comport with changes in the Internal Revenue
Code, the Employee Retirement Income Security Act, or the rules thereunder.
21. GOVERNING LAW
The validity, construction and effect of the Plan and
any actions taken or relating to the Plan shall be determined in accordance
with the laws of the State of Delaware and applicable Federal law.
22. RIGHTS AS SHAREHOLDER
Except as otherwise provided in the Award Agreement, a
Participant shall have no rights as a shareholder until he or she becomes the
holder of record. To the extent any person acquires a right to receive
payments from the Company under this Plan, such rights shall be no greater
than the rights of an unsecured creditor of the Company.
23. EFFECTIVE DATE
The Plan shall be effective upon approval by the board and
approval by the holders of a majority of the shares of Common Stock. Subject
to earlier termination pursuant to Section 20, the Plan shall have a term of
10 years from its effective date. After termination of the Plan, no future
Awards may be granted but previously made Awards shall remain outstanding in
accordance with their applicable terms and conditions and the terms and
conditions of the Plan.
<PAGE> 11
24. INITIAL GRANT OF STOCK OPTIONS
Notwithstanding the provisions of Section 7 of the Plan, an
initial grant of options for the aggregate amount of 225,000 shares of Common
Stock shall be made on December 31, 1993 to the persons and in the amounts
shown on Exhibit A attached hereto. The initial options shall have an exercise
price equal to the average closing price of the Common Stock for the 30
trading days beginning five days after the date of the distribution of Common
Stock by Cooper Industries, Inc. The options will expire on December 31, 1998
and shall vest as to one-third of such options on each of the first three
anniversaries of the date of grant.
<PAGE> 1
Exhibit 11.0
<TABLE>
GARDNER DENVER MACHINERY INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(in thousands, except per share amounts)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary earnings (loss)
Net income (loss) $16,906 11,594 (89,615)
======= ====== =======
Shares
Weighted average number of common
shares outstanding 10,196 9,777 9,328
======= ====== =======
Primary earnings (loss) per common share $ 1.66 1.19 (9.61)
======= ====== =======
Fully diluted earnings (loss)<F*>
Net income (loss) $16,906 11,594 (89,615)
======= ====== =======
Shares
Weighted average number of common
shares outstanding 10,196 9,777 9,328
Assuming conversion of options issued
and outstanding 31 42 42
------- ------ -------
Weighted average number of common
shares outstanding as adjusted 10,227 9,819 9,370
======= ====== =======
Fully diluted earnings (loss) per common share $ 1.65 1.18 (9.56)
======= ====== =======
<FN>
<F*> 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%.
</TABLE>
<PAGE> 1
<TABLE>
FINANCIAL HISTORY
(dollars in thousands, except per share data)
<CAPTION>
Gardner Denver Gardner Denver
Machinery Inc. Division <F1>
Year ended December 31,
--------------------------------------------------------------------
1996 1995 1994<F2> 1993 1992
---- ---- -------- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $218,000 191,541 175,854 158,215 154,636
Costs and Expenses:
Cost of sales (excluding depreciation
and amortization) 148,191 132,876 126,802 113,273 110,375
Depreciation and amortization 8,097 8,263 12,908 13,942 14,300
Selling and administrative expenses 30,169 25,632 25,994 22,753 24,276
Interest expense 3,104 4,950 4,667 2,592 3,102
Nonrecurring expense (income) <F3> ---- ---- 99,710 ---- (2,545)
-------- ------- ------- ------- -------
189,561 171,721 270,081 152,560 149,508
-------- ------- ------- ------- -------
Income (loss) before income taxes and
cumulative effect of changes in accounting
principles 28,439 19,820 (94,227) 5,655 5,128
Provision (benefit) for income taxes 11,533 8,226 (4,612) 3,859 3,607
-------- ------- ------- ------- -------
Income (loss) before cumulative effect of
changes in accounting principles 16,906 11,594 (89,615) 1,796 1,521
Cumulative effect on prior years of changes in
accounting principles <F4> ---- ---- ---- ---- (41,182)
-------- ------- ------- ------- -------
Net income (loss) $ 16,906 11,594 (89,615) 1,796 (39,661)
======== ======= ======= ======= =======
Earnings (loss) per share <F5> $ 1.66 1.19 (9.61)
======== ======= =======
<CAPTION>
Gardner Denver Gardner Denver
Machinery Inc. Division <F1>
December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 235,756 184,251 203,315 303,766 309,466
Short-term debt <F6> ---- ---- ---- 70,000 ----
Long-term debt (excluding current
maturities) 55,069 36,661 56,103 4,171 75,951
Other long-term obligations 57,289 60,754 64,446 65,372 64,887
Net assets <F7> ---- ---- ---- ---- 134,560
Stockholders' equity $ 74,118 55,234 42,295 132,349 ----
<FN>
<F1> During the periods 1992-1993, the Company operated as the Gardner
Denver Industrial Machinery Division of Cooper Industries, Inc. (the
"Gardner Denver Division"). Essentially, all of the assets and
liabilities of the Gardner Denver Division were transferred to Gardner
Denver Machinery Inc. ("Gardner Denver " or the "Company") at December
31, 1993.
<F2> In 1994, through April 15, Gardner Denver Machinery Inc. was a wholly-
owned subsidiary of Cooper Industries, Inc. ("Cooper"). As such, the
first quarter expenses were lower than if Gardner Denver had been a
stand-alone company.
<F3> In 1994, the Company had nonrecurring expenses related to the
discontinuance of product lines, write-off of goodwill, and reserve
for the sale of the Company's foundry. See Note 14 of the Notes to
Financial Statements.
<F4> In the first quarter of 1992, Cooper and the Company adopted the
following accounting standards: SFAS No. 106 (Employers' Accounting for
Postretirement Benefits Other Than Pensions), SFAS No. 109 (Accounting
for Income Taxes), and SFAS No. 112 (Employers' Accounting for
Postemployment Benefits).
<F5> During the periods from 1992-1993, when the Company operated as the
Gardner Denver Division, there was no capital stock outstanding.
<F6> The $70 million in short-term debt was refinanced into a longer term
credit facility. See Note 9 of the Notes to Financial Statements.
<F7> Net assets represent Cooper's net investment in the Gardner Denver
Division.
</TABLE>
11
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the financial
statements and the notes thereto.
OVERVIEW
The Company's operations are organized into two separate and distinct
business segments - Compressed Air Products and Petroleum Products. In the
Compressed Air Products segment, the Company manufactures stationary rotary
screw and reciprocating air compressors and blowers for industrial
applications. The largest markets for Gardner Denver's compressors and
blowers are durable goods manufacturers; process industries such as
petroleum, primary metals, pharmaceuticals, food and paper; original
equipment manufacturers; manufacturers of carpet cleaning equipment,
pneumatic conveying equipment and dry bulk trailers; and wastewater treatment
facilities. Revenues of the Compressed Air Products segment constituted
approximately 86% of total revenues in 1996.
In the Petroleum Products segment, the Company manufactures petroleum
pumps used in oil and gas production, well servicing and stimulation, and oil
and gas drilling. Typical applications include oil transfer, salt water
disposal, ammine pumping for gas processing, enhanced oil recovery, hydraulic
power, and other liquid transfer requirements. Revenues of the Petroleum
Products segment constituted approximately 14% of total revenues in 1996.
The Company sells approximately 80% of its products through independent
distributors and sales representatives and the remainder directly to original
equipment manufacturers, engineering firms and end users.
In 1996, Gardner Denver completed two acquisitions and experienced
significant revenue growth in the Petroleum Products segment. The first
acquisition was NORAMPTCO, Inc., including its primary operating subsidiary,
Lamson Corporation, based in Syracuse, New York. This company, renamed
Gardner Denver Holdings Inc. ("GDHI"), designs, manufactures and sells
multistage centrifugal blowers and exhausters used in various industrial and
wastewater applications. The acquisition complements the Company's product
offering by enabling it to participate in the centrifugal segment of the air
and gas handling industry. In addition, since centrifugal blowers operate at
reduced noise levels, the acquisition allows the Company to compete in niche
markets having lower noise requirements.
The second acquisition was TCM Investments, Inc. ("TCM"), an oil field
pump manufacturer based in Tulsa, Oklahoma. This acquisition further extends
the Company's product line in well stimulation pumps, provides a physical
presence in the oil field market and allows Gardner Denver to become a sole
source supplier of repair parts and remanufacturing services to some of the
Company's customers.
Significant developments occurred in the Petroleum Products segment in
1996. Excluding revenues from the TCM acquisition in 1996 and drilling
components in 1995, petroleum products revenues increased 29.8% in 1996
compared to 1995. Additionally, the Petroleum Products segment returned to
profitability for the first time since 1981. The Company anticipates at least
comparable revenue growth in this segment in 1997 and continuing improvement
in margins.
In 1995, the Company sold its LaGrange, Missouri foundry and entered into a
five-year supply agreement for castings with the new owner. The Company also
completed the sale of its drilling components inventory in 1995. Neither of
these sales had a material effect on earnings due to reserves established in
1994 in anticipation of the transactions. In 1995, the Company entered into a
new credit agreement with a group of commercial banks and used the proceeds
from the new loan to extinguish debt outstanding under an existing credit
agreement. The new credit agreement provided for an interest rate of almost
two percentage points less than the prior agreement.
The following table sets forth percentage relationships to revenues of
certain income statement items for the years presented.
12
<PAGE> 3
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
<CAPTION>
Year ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0 100.0
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 68.0 69.4 72.1
Depreciation and amortization 3.7 4.3 7.3
Selling and administrative expenses 13.8 13.4 14.8
Interest expense 1.4 2.6 2.7
Nonrecurring expense ---- ---- 56.7
-------- -------- ---------
86.9 89.7 153.6
-------- -------- ---------
Income (loss) before income taxes 13.1 10.3 (53.6)
Provision (benefit) for income taxes 5.3 4.3 (2.6)
-------- -------- ---------
Net income (loss) 7.8% 6.0 (51.0)
======== ======== =========
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
REVENUES
Revenues for 1996 increased $26.5 million or 13.8% over 1995 to $218.0
million. Revenues in the Compressed Air Products segment improved 9.4% to
$188.0 million, while revenues in the Petroleum Products segment increased
52.8% to $30.0 million.
Revenues included approximately $24.3 million attributable to the August
1996 acquisitions of GDHI and TCM. Revenues for 1995 included approximately
$5.1 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 revenues from these
acquisitions from 1996 and sales of castings and drilling components from
1995, revenues increased approximately $7.3 million (3.9%) from 1995 to 1996.
Revenues in the Compressed Air Products segment increased $18.7 million in
1996 due to the acquisition of GDHI, while the sale of the LaGrange foundry
in 1995 resulted in a $4.3 million reduction in revenues. Excluding revenues
from the acquisition in 1996 and casting sales in 1995, revenues increased
approximately $1.7 million (1.0%) to $169.3 million for 1996 from $167.6
million for 1995. Unit volume increases for reciprocating compressors and
aftermarket products contributed to the increase as industrial demand
remained steady and penetration of niche markets favorably impacted sales.
However, screw compressor volume declined slightly from the unusually high
levels experienced in 1995, offsetting the reciprocating compressor and
aftermarket volume increases. Price increases were implemented for most
products in 1996, contributing to revenue improvement.
In the Petroleum Products segment, revenues increased $5.6 million in 1996
due to the acquisition of TCM, while the sale of the drilling components
business in 1995 reduced revenues by $0.8 million. Excluding revenues from
the acquisition in 1996 and drilling component sales in 1995, revenues
increased approximately $5.6 million (29.8%) to $24.4 million for 1996
from $18.8 million in 1995 due to higher volume of drilling and high pressure
well stimulation pumps, aftermarket products and selected price increases.
The increased volume is directly related to the improved economics of oil and
gas exploration and production. With higher oil and natural gas prices in
1996, which remained relatively stable during the year, oil and gas drilling
and production began to increase, resulting in a corresponding increase in
demand for products used for drilling, well servicing and production.
COSTS AND EXPENSES
Cost of sales (excluding depreciation and amortization) increased $15.3
million or 11.5% to $148.2 million as a result of the additional sales
volume. As a percentage of revenues, cost of sales decreased from 69.4% in
1995 to 68.0% in 1996. In 1996, cost of sales were reduced $2.0 million as a
result of the liquidation of LIFO inventory layers, compared to a reduction of
$2.5 million in 1995.
Excluding LIFO income, cost of sales as a percentage of revenues improved
from 70.7% in 1995 to 68.9% in 1996. The lower cost of sales as a percentage
of revenues was a result of the combined effects of cost reduction efforts,
manufacturing efficiency improvements, leverage of fixed costs over higher
volume and price increases. Manufacturing efficiency improvements resulted
from continuous improvement programs to reduce set-up, improve quality,
reduce rework and improve production flow. Programs were also put in place in
1995 and 1996 to reduce costs for
13
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
purchased parts used in the Company's products. The GDHI acquisition
positively affected the cost of sales percentage, since its products are sold
by commissioned sales representatives rather than through distributors which
resell to the end user, resulting in higher mark-ups.
Depreciation and amortization declined $0.2 million in 1996 from 1995
levels, as additional assets became fully depreciated and new assets were not
added to fully offset the reduction. Depreciation expense declined $0.7
million in 1996 compared to 1995 as a result of the disposal of the foundry
assets upon the completion of the sale in 1995. This reduction was more than
offset by depreciation and amortization expense related to the acquisitions.
Amortization increased $0.6 million or 29.0% from the prior year, primarily
due to amortization of goodwill related to 1996 acquisitions. As a percentage
of revenues, depreciation and amortization declined from 4.3% in 1995 to 3.7%
in 1996, due to the combined effects of higher revenues and the reduction in
depreciation and amortization as discussed.
Selling and administrative expenses increased by 17.7% to $30.2 million
for 1996 from $25.6 million in 1995. As a percentage of revenues, selling and
administrative expenses increased from 13.4% in 1995 to 13.8% in 1996. This
increase was due in part to the GDHI acquisition, which has higher selling
costs due to commissions paid to agents and sales representatives. Selling
and administrative expenses were reduced in 1996 by approximately $1.4
million as a result of the amortization of actuarial gains and plan
amendments for other postretirement employee benefits ("OPEB") compared to a
reduction of $1.0 million in 1995 (see Note 7). In 1996, professional fees
associated with acquisition activities totaled approximately $0.4 million. In
1995, selling and administrative expenses included $0.7 million related to
the early extinguishment of a long-term debt agreement. Excluding the impact
of acquisitions in 1996, the net annual OPEB expense and the cost related to
the early extinguishment of debt in 1995, selling and administrative expenses
as a percent of revenues were 13.9% in 1996 compared to 13.6% in 1995.
Compressed Air Products segment operating earnings, before interest and an
allocation of general corporate expenses, increased 9.2% over 1995 operating
earnings to $30.4 million. The Petroleum Products segment had operating
earnings of $2.3 million in 1996, compared to an operating loss in 1995 of
$1.4 million.
Interest expense for 1996 decreased $1.8 million to $3.1 million due to
lower floating interest rates under a new credit agreement and lower debt
levels through the first seven months of 1996 (prior to borrowings required
for acquisitions). Interest rates on the Company's long-term debt in 1996
averaged 7.1% compared to 8.7% in 1995. The average interest rate decline in
1996 compared to 1995 was due to a reduction in the interest rate of
approximately two percentage points after the refinancing under a new credit
agreement effective November 30, 1995. This reduction was partially offset by
the Company's unsecured note agreement effective September 1996 which has a
fixed interest rate of 7.3%. See Note 9 of the Notes to Financial Statements
for further information on the Company's borrowing arrangements.
INCOME
Income before taxes increased $8.6 million, from $19.8 million to $28.4
million, or 43.5%. Approximately $2.2 million of this improvement was
provided by the acquisitions, with the remaining $6.4 million increase
primarily a result of incremental revenue volume, improved gross margin and
lower interest expense in 1996 compared to the previous year. Additionally,
income before income taxes was reduced by $0.7 million in 1995 due to
expenses related to the early extinguishment of a long-term debt agreement.
Income tax expense increased $3.3 million from 1995 to $11.5 million, a
40.2% increase, as a result of the incremental income before taxes. The
Company's effective tax rate in 1996 was 40.6% compared to 41.5% in 1995. The
lower effective tax rate in 1996 is due to the tax savings from the Foreign
Sales Corporation (FSC) and the implementation of other tax strategies,
partly offset by an increase in nondeductible goodwill related to the
acquisitions (see Note 11).
Net income increased $5.3 million, or 45.8%, to $16.9 million for 1996
compared to $11.6 million for 1995. In 1996, net income included
approximately $1.2 million after tax from the acquisitions and approximately
$1.2 million after tax in income from reductions in LIFO inventory layers.
Net income for 1995 included approximately $1.6 million after tax in income
from reductions in LIFO inventory layers and $0.4 million after tax in
expenses related to the early extinguishment of debt. Excluding net income
provided by acquisitions and LIFO inventory layer reductions, and after-tax
expenses related to the early extinguishment of debt, net income increased
$4.1 million (39.4%) in 1996 compared to 1995. This increase was primarily a
result of incremental revenue volume, improved gross margin and lower
interest expense in 1996 compared to 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
REVENUES
Revenues for 1995 increased $15.7 million over 1994 (8.9%) to $191.5
million. Revenues in the Compressed Air
14
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
Products segment improved 11.7% to $171.9 million, while revenues in the
Petroleum Products segment declined 10.6% to $19.6 million.
Revenues in the Compressed Air Products segment increased in 1995 in all
product lines compared to the previous year, generally as a result of
additional unit volume. Volume increased primarily as a result of continued
improvement in industrial demand which resulted in increased capacity
utilization and subsequently higher demand for compressed air. Revenue
increases also resulted from market growth in niche areas, such as large
blower packages utilized in the air separation market. Reciprocating
compressor sales increased in 1995 as a result of strong locomotive sales and
the resulting increased demand for compressors used on these units, and
additional sales of specially-engineered, double-acting compressor packages
for specific applications, such as the PET bottle blowing market. Revenues
from reciprocating compressors also increased when compared to 1994 because
the seven-week strike at the Quincy, Illinois facility in 1994 restricted
production volume. Revenues from casting sales totaled $4.3 million in 1995.
With the sale of the Company's foundry in LaGrange, Missouri in December
1995, this revenue will not recur in future periods. However, casting
revenues historically generated low margin and therefore the revenue loss
will not significantly impair the Company's future earnings. Price increases
were implemented during 1995, but were generally limited to the recovery of
cost increases due to the competitive nature of the industrial markets
served.
In the Petroleum Products segment, 1995 revenues were less than 1994 due
to lower demand for replacement parts and drilling equipment, reflecting
continued weak conditions in this industry as a result of low oil prices.
These factors more than offset the increase in petroleum production pump
sales compared to 1994 levels. The seven-week strike at the Quincy facility
depressed 1994 production volume for these pumps. Market conditions of low
demand and high availability of surplus equipment continued to limit the
Company's ability to raise prices in this segment. However, selected price
increases did provide some margin improvement in 1995.
COSTS AND EXPENSES
Cost of sales (excluding depreciation and amortization) of $132.9 million
increased $6.1 million (or 4.8%), compared with 1994 cost of sales of $126.8
million, as a result of the additional sales volume. As a percentage of
revenues, cost of sales decreased from 72.1% in 1994 to 69.4% in 1995. In
1995, cost of sales were reduced by $2.5 million as a result of the
liquidation of LIFO inventory layers, compared to a reduction of $1.4 million
in 1994. Furthermore, cost of sales in 1995 included a $1.0 million
non-operational reduction compared to 1994 resulting from the amortization of
OPEB actuarial gains and plan amendments (see Note 7).
Excluding LIFO income and net annual OPEB expenses, cost of sales as a
percentage of revenues improved from 72.6% in 1994 to 70.9% in 1995. The
lower cost of sales as a percent of revenues was a result of the combined
effects of cost reduction efforts, manufacturing efficiency improvements,
sales mix and leverage of fixed costs over higher volume. Manufacturing
efficiency improvements resulted from the establishment of manufacturing
cells and other process improvements made in 1994. The improved sales mix in
1995 resulted from the relative increase in revenues from the Compressed Air
Products segment and the elimination of drilling components revenues.
Compressed air products have typically been sold at higher incremental
margins than petroleum products, and therefore compressed air products cost
of sales as a percentage of revenues is lower than that of petroleum
products. Additionally, the 1994 work stoppage in Quincy significantly
reduced production volume from this plant although fixed costs continued to
be incurred and during 1994 a number of parts were subcontracted at a premium
to improve availability during the work stoppage.
Depreciation and amortization declined $4.6 million, a 36.0% reduction
from the prior year. The effect of the 1994 write-off of intangibles reduced
annual amortization by $3.2 million. Approximately $1.2 million of the
reduction in the amortization is attributable to the Compressed Air Products
segment, and $2.0 million is associated with the Petroleum Products segment.
The decreased level of capital expenditures in 1994 and 1995 contributed to a
$1.6 million reduction in depreciation expense in 1995 as existing assets
became fully depreciated in 1995. As a percentage of revenues, depreciation
and amortization declined from 7.3% in 1994 to 4.3% in 1995, due to the
combined effects of higher revenues and the reduction in depreciation and
amortization as discussed.
Selling and administrative expenses decreased by 1.4% to $25.6 million for
1995 from $26.0 million in 1994. As a percentage of revenues, selling and
administrative expenses decreased to 13.4% in 1995 from 14.8% in 1994.
Compared to 1994, selling and administrative expenses were reduced in 1995 by
approximately $2.0 million as a result of the amortization of OPEB actuarial
gains and plan amendments (see Note 7). Selling and administrative expenses
for 1995 included $0.7 million related to the early extinguishment of the
Company's long-term debt agreement. In 1994, selling and administrative
expenses included reserving $1.7 million for an international receivable.
Excluding the net annual OPEB expense, the cost related to the early
extinguishment of debt and the international receivable reserve, selling and
15
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
administrative expenses as a percent of revenues were 13.6% in 1995 compared
to 13.2% in 1994.
Compressed Air Products segment operating earnings, before interest,
nonrecurring items, and an allocation of general corporate expenses,
increased 67.2% over 1994 operating earnings to $27.8 million. In 1995, the
operating loss in the Petroleum Products segment decreased 73.0% from the
1994 operating loss to $1.4 million.
Interest expense for 1995 increased $0.3 million to $5.0 million due to
higher floating interest rates and the additional interest payable under the
interest rate swap agreements utilized by the Company to limit its interest
rate risk. Long-term debt reductions mitigated some of this increase.
Interest rates on the Company's long-term debt in 1995 averaged 8.7% for the
eleven months ended November 30, 1995. The Company executed a new credit
facility effective November 30, 1995 with an average interest rate of 6.5%.
During 1994, interest rates increased from 5.8% for the allocated
indebtedness from Cooper prior to the spin-off to 7.1% on the Company's
long-term debt as an independent entity after the spin-off. See Note 9 of the
Notes to Financial Statements for further information on the Company's
borrowing arrangements and cost of borrowing.
There were no nonrecurring expenses in 1995. Nonrecurring expense in 1994
totaled $99.7 million for several different transactions. These transactions
included the discontinuation of the petroleum drilling components and Joy(R)
screw compressor product lines, the write-down of foundry assets in
connection with a proposed sale, write-offs for impaired petroleum goodwill
and reserves for the write-off of software development costs (see Note 14).
INCOME
Income before taxes increased $114.0 million from 1994. Excluding the
effect of $99.7 million in nonrecurring expenses recognized in 1994, income
before taxes increased $14.3 million, from $5.5 million to $19.8 million, or
261.5%, primarily as a result of the increased revenues, manufacturing
efficiency improvements, reductions in goodwill amortization and OPEB
expenses and the nonrecurrence of the 1994 international receivable reserve
and work stoppage.
Income tax expense increased significantly from 1994 as a result of the
incremental income before taxes. Income taxes were a $4.6 million benefit in
1994 and an $8.2 million expense in 1995, a $12.8 million increase. Most of
the income tax benefit in 1994 resulted from the nonrecurring expenses.
In 1995, net income included approximately $0.4 million after tax expenses
related to the early extinguishment of the Company's long-term debt
agreement. The net loss in 1994 included $91.3 million after tax in
nonrecurring expenses. Without these items, net income increased $10.3
million, from $1.7 million in 1994 to $12.0 million in 1995. The write-down
of the goodwill in the fourth quarter of 1994, the 1995 reduction in OPEB
expenses, and the nonrecurrence of the 1994 international receivable
contributed approximately $5.9 million of this improvement. Excluding the
non-operational improvements, net income in 1995 increased $4.4 million
compared to 1995, for the reasons discussed previously.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING WORKING CAPITAL
During 1996, operating working capital (defined as receivables plus
inventories, less accounts payable and accrued liabilities) decreased $9.5
million to $47.1 million. Receivables increased $7.6 million due to the
impact of acquisitions which added $12.5 million.Without acquisitions,
receivables would have declined $4.9 million due to higher collections,
increased use of progress payments, and collection of a $2.4 million tax
refund in 1996 resulting from overpayment of taxes in the fourth quarter of
1995.
Inventories increased $1.6 million due to the effect of the acquisitions.
Without the impact of the acquisitions, inventories would have declined $6.2
million due to continued focus on reducing manufacturing and purchased
material leadtimes and the shipment of several large orders in 1996 which had
been manufactured in 1995 and held at the customers' request. Inventories
also declined due to increased sales of petroleum products, components of
which are substantially from stock. Accounts payable and accrued liabilities
increased $18.7 million from the balance at the end of 1995. The acquisitions
account for $16.3 million of the increase, including $6.1 million for
purchase accounting reserves and $4.1 million for accrued pension liability.
The remaining increase in accounts payable and accrued liabilities (excluding
the impact of acquisitions) was a result of increased sales volume causing
increased material purchases, as well as higher expenses.
CASH FLOWS
During 1996, the Company generated cash flows from operations totaling
$33.9 million and $11.1 million from financing activities. These cash flows
enabled the Company to expend $4.2 million on capital expenditures, including
capitalized software, and make acquisitions totaling $34.8 million. The cash
balance increased $6.7 million to $8.6 million at the end of the year.
CAPITAL EXPENDITURES AND COMMITMENTS
Capital projects to reduce product costs, improve product quality,
increase manufacturing efficiency and operating
16
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
flexibility, improve management information systems and expand production
capacity resulted in expenditures of $4.2 million in 1996, compared with $3.3
million in 1995, and $4.3 million in 1994. The increase in expenditures in
1996 was related to a project to install an integrated management information
system. The Company anticipates that expenditures for capital will increase
to approximately $10 to $12 million in 1997, primarily due to additional
expenditures for the integrated management information system, expenditures
to improve manufacturing processes at newly acquired subsidiaries and the
purchase of several large machine tools to increase capacity, quality and
flexibility in manufacturing compressor products.
At December 31, 1996, commitments for capital expenditures amounted to
$4.6 million. Capital expenditures related to environmental projects have not
been significant in the past and are not expected to be significant in the
foreseeable future.
LIQUIDITY
GENERAL
In September 1996, the Company entered into an unsecured senior note
agreement for $35.0 million at a fixed interest rate of 7.3%. This debt has a
ten-year final, seven-year average, maturity with principal payments
beginning in 2000. The Company also utilizes a revolving line of credit
providing for an aggregate $65 million borrowing capacity (the "Credit
Line"). On December 31, 1996, the Credit Line had an outstanding balance of
$18 million, leaving $47 million available for future use. The Credit Line
requires no principal payments during the term of the agreement, only a
principal repayment at its termination. Both of the Company's borrowing
agreements are unsecured and permit certain investments and dividend
payments. There are no material restrictions on the Company as a result of
these agreements, 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 the unsecured senior note
and the Credit Line and provide required resources for working capital and
capital investments.
The Company has two interest rate swap agreements with notional amounts
totaling $30 million with one commercial bank. One agreement expired in
November 1996, but was extended for one year at the discretion of the bank.
The other swap agreement expires in November 1997, but may also be extended
for one year at the bank's discretion. The two agreements result in a fixed
LIBOR rate of approximately 6% for $30 million of debt. These interest rate
swap agreements are subject to credit risk in that they depend on the
performance of the contracting commercial bank (see Note 13).
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 $4.7 million in
compensatory damages and an unspecified amount of punitive damages. In 1995,
the plaintiffs' complaint regarding tortious interference with contractual
relations was dismissed as a result of the expiration of the applicable
statute of limitations. In 1996, the court found that attorneys' fees
incurred by the plaintiffs in prior litigation, and requested by the
plaintiffs as compensatory damages in this litigation, were not recoverable.
These attorneys' fees constituted a large portion of the damages requested in
plaintiffs' complaint. The plaintiffs have commenced the process to request
an appeal to the court's ruling. 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.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report to Stockholders, including Management's Discussion and
Analysis and the letter "To Our Shareholders", contains forward-looking
statements within the meaning of the federal securities laws. 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 the Company's operations and business
environment, all of which are difficult to predict and many of which are
beyond the control of the Company, that could cause actual results of the
Company to differ materially from those matters expressed in or implied by
such forward-looking statements. Such factors could include among others: the
speed with which the Company is able to integrate its recent acquisitions;
the level of oil and gas drilling and production, which affects demand for
the Company's petroleum products; pricing of Gardner Denver's products;
changes in the general level of industrial production and industrial capacity
utilization rates in the United States, which affect demand for the Company's
compressor products; and the degree to which the Company is able to penetrate
niche markets.
17
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gardner Denver Machinery Inc.
We have audited the accompanying consolidated balance sheet of Gardner
Denver Machinery Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gardner Denver Machinery
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
St. Louis, Missouri
February 5, 1997
19
<PAGE> 9
<TABLE>
GARDNER DENVER MACHINERY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<CAPTION>
Year ended December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues $ 218,000 191,541 175,854
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 148,191 132,876 126,802
Depreciation and amortization 8,097 8,263 12,908
Selling and administrative expenses 30,169 25,632 25,994
Interest expense 3,104 4,950 4,667
Nonrecurring expense (Note 14) ---- ---- 99,710
--------- -------- --------
189,561 171,721 270,081
--------- -------- --------
Income (loss) before income taxes 28,439 19,820 (94,227)
Provision (benefit) for income taxes 11,533 8,226 (4,612)
--------- -------- --------
Net income (loss) $ 16,906 11,594 (89,615)
========= ======== ========
Earnings (loss) per share $ 1.66 1.19 (9.61)
========= ======== ========
The accompanying notes are an integral part of this statement.
</TABLE>
20
<PAGE> 10
<TABLE>
GARDNER DENVER MACHINERY INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts)
<CAPTION>
December 31,
-------------------------------------
1996 1995
<S> ---- ----
ASSETS <C> <C>
Current Assets:
Cash and equivalents $ 8,610 1,869
Receivables (net of allowance for doubtful accounts
of $2,935 in 1996 and $2,405 in 1995) 47,547 39,933
Inventories 47,882 46,318
Deferred income taxes 2,910 ----
Other 2,186 2,217
-------- -------
Total current assets 109,135 90,337
-------- -------
Plant and equipment, net 33,710 32,184
Intangibles, net 70,304 41,264
Deferred income taxes 18,437 17,808
Other assets 4,170 2,658
-------- -------
Total assets $235,756 184,251
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 932 1,441
Accounts payable and accrued liabilities 48,348 29,675
Deferred income taxes ---- 486
-------- -------
Total current liabilities 49,280 31,602
-------- -------
Long-term debt, less current maturities 55,069 36,661
Postretirement benefits other than pensions 56,662 60,108
Other long-term liabilities 627 646
-------- -------
Total liabilities 161,638 129,017
-------- -------
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized;
9,864,842 and 9,618,348 shares issued and outstanding in 1996
and 1995, respectively 99 96
Capital in excess of par value 135,161 133,127
Retained deficit (61,083) (77,989)
Cumulative translation adjustment (59) ----
-------- -------
Total stockholders' equity 74,118 55,234
-------- -------
Total liabilities and stockholders' equity $235,756 184,251
======== =======
The accompanying notes are an integral part of this statement.
</TABLE>
21
<PAGE> 11
<TABLE>
GARDNER DENVER MACHINERY INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands)
<CAPTION>
Capital In Cumulative Total
Common Excess of Retained Translation Stockholders'
Stock Par Value Deficit Adjustment Equity
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1994 $ ---- 132,349 ---- ---- 132,349
Net loss prior to spin-off (32) 32 ----
Stock issued in connection with spin-off 93 (93) ----
Balanced transferred to Cooper in connection
with spin-off (1,204) (1,204)
Stock issued for Company match to Savings Plan
and options 1 764 765
Net loss (89,615) (89,615)
-------- -------- -------- -------- --------
Balance December 31, 1994 $ 94 131,784 (89,583) ---- 42,295
Stock issued for Company match to Savings Plan
and options 2 1,343 1,345
Net income 11,594 11,594
-------- -------- -------- -------- --------
Balance December 31, 1995 $ 96 133,127 (77,989) ---- 55,234
Stock issued for Company match to Savings Plan
and options 3 2,034 2,037
Net income 16,906 16,906
Cumulative translation adjustment (59) (59)
-------- -------- -------- -------- --------
Balance December 31, 1996 $ 99 135,161 (61,083) (59) 74,118
======== ======== ======== ======== ========
The accompanying notes are an integral part of this statement.
</TABLE>
22
<PAGE> 12
<TABLE>
GARDNER DENVER MACHINERY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION>
Year ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 16,906 11,594 (89,615)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 5,444 6,207 7,757
Amortization 2,653 2,056 5,151
LIFO liquidation income, net of provision for
obsolete and slow-moving inventory (627) (1,134) (434)
Stock issued for employee benefit plans 1,389 1,306 701
Nonrecurring expense (Note 14) ---- ---- 99,710
Deferred income taxes 456 6,578 (8,700)
Changes in assets and liabilities:
Receivables 3,155 (4,851) 54
Inventories - current 7,210 10,322 (25,364)
Accounts payable and accrued liabilities 837 (1,440) 287
Inventories - long-term ---- ---- 29,923
Other assets and liabilities, net (3,493) (5,662) (1,991)
--------- -------- --------
Net cash provided by operating activities 33,930 24,976 17,479
--------- -------- --------
Cash flows from investing activities:
Business acquisitions (net of cash) (34,845) ---- ----
Capital expenditures (4,171) (3,289) (4,267)
Disposals of plant and equipment 735 4,376 1,082
--------- -------- --------
Net cash (used for) provided by investing activities (38,281) 1,087 (3,185)
--------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt (52,556) (67,357) (80,342)
Proceeds from long-term borrowings 63,000 40,000 70,500
Debt issuance costs ---- (205) ----
Proceeds from stock options 648 38 63
Transferred to Cooper ---- ---- (1,204)
--------- -------- --------
Net cash provided by (used for) financing activities 11,092 (27,524) (10,983)
--------- -------- --------
Increase (decrease) in cash and equivalents 6,741 (1,461) 3,311
Cash and equivalents, beginning of year 1,869 3,330 19
--------- -------- --------
Cash and equivalents, end of year $ 8,610 1,869 3,330
========= ======== ========
The accompanying notes are an integral part of this statement.
</TABLE>
23
<PAGE> 13
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements reflect the operations of Gardner
Denver Machinery Inc. ("Gardner Denver" or the "Company"). Gardner Denver was
a wholly-owned subsidiary of Cooper Industries, Inc. ("Cooper") until April
15, 1994, when Cooper declared a distribution of shares of common stock of
Gardner Denver.
Certain prior year amounts have been reclassified to conform with the
current year presentation.
All shares of common stock and per share amounts have been adjusted to
give retroactive effect to a two-for-one stock split effected in the form of a
stock dividend distributed on January 15, 1997 to stockholders of record at
the close of business on December 27, 1996.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
and accounts have been eliminated. Investments in entities in which the
Company has twenty percent to fifty percent ownership are accounted for by
the equity method.
USE OF ESTIMATES
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, the
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 these estimates.
REVENUE RECOGNITION
The Company recognizes revenues when goods are shipped to a customer.
INVENTORIES
Inventories are carried at the lower of cost or market value, primarily
using the last-in, first-out (LIFO) method.
PLANT AND EQUIPMENT
Plant and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets:
buildings -10 to 45 years; machinery and equipment -10 to 12 years; and
tooling, dies, patterns, etc.-5 years.
INTANGIBLES
Intangibles consist primarily of goodwill related to the various purchase
acquisitions that comprise the Company's business. Goodwill is amortized on a
straight-line basis over the period estimated to be benefited, not exceeding
40 years. The Company assesses the recoverability of an intangible asset by
determining whether the amortization of the asset balance over its remaining
life can be recovered through related estimated undiscounted future cash
flows.
INCOME TAXES
The Company has determined tax expense and other deferred tax information
in compliance with the provisions of SFAS No.109 (Accounting for Income
Taxes), which requires accounting for income taxes based on the liability
method. Deferred income taxes are provided to reflect temporary differences
between financial and tax reporting. For the period January 1, 1994 through
April 15, 1994, the Company was included in Cooper's consolidated tax
returns. Income taxes were provided as if the Company was a stand-alone
business filing a separate tax return.
RESEARCH AND DEVELOPMENT
Costs for research and development are expensed as incurred and were
$2,405, $1,316 and $1,002 for the years ended December 31, 1996, 1995, and
1994, respectively.
EARNINGS PER SHARE
The 1996 and 1995 earnings per share were calculated based on 10,196,220
and 9,776,532 weighted shares outstanding, respectively.
24
<PAGE> 14
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: ACQUISITIONS
On August 9, 1996, the Company purchased 100% of the issued and
outstanding stock of Gardner Denver Holdings Inc., formerly NORAMPTCO, Inc.
("GDHI") for $26.8 million. The purchase price was allocated to assets and
liabilities based on their respective fair values at the date of acquisition
and resulted in cost in excess of net assets acquired of $26.4 million. As a
result of the stability of the product technology, markets and customers,
this amount is being amortized over 40 years using the straight-line method.
The following presents the unaudited pro forma consolidated results of
operations as if this acquisition had occurred at the beginning of the years
presented. The results are not necessarily indicative of what would have
occurred had this transaction been consummated as of the beginning of the
fiscal year presented or of future operations of the consolidated companies.
The Company's pro forma results of operations for the twelve months ended
December 31, 1996 were: revenues of $241.5 million, income before income
taxes of $30.0 million, net income of $17.8 million and earnings per share of
$1.75. The Company's pro forma results of operations for the twelve months
ended December 31, 1995 were: revenues of $232.9 million, income before
income taxes of $21.5 million, net income $12.3 million and earnings per
share of $1.26.
On August 14, 1996, the Company purchased 100% of the issued and
outstanding stock of TCM Investments, Inc. ("TCM") for $7.2 million. The
purchase price was allocated to assets and liabilities based on their
respective fair values at the date of acquisition and resulted in cost in
excess of net assets acquired of $4.1 million. As a result of the stability
of TCM's products, markets and customers, this amount is being amortized over
40 years using the straight-line method.
Both acquisitions have been accounted for by the purchase method, and
accordingly, the results of operations of GDHI and TCM are included in the
Company's Consolidated Statement of Operations from the dates of acquisition.
Certain estimates of fair market value of assets received and liabilities
assumed were made with adjustments to each separate company's historical
financial statements. These adjustments included estimates of various
expenditures planned by management totaling $6.2 million to fully integrate
the acquisitions into Gardner Denver's operations. For the year ended
December 31, 1996, $0.1 million has been charged against this reserve for
expenses incurred for this integration. These estimates and adjustments have
not yet been finalized.
NOTE 3: INVENTORIES
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Raw materials $ 7,787 7,398
Work-in-process 8,676 6,702
Finished goods, including parts and subassemblies 49,408 47,334
Perishable tooling and supplies 2,644 3,096
-------- --------
68,515 64,530
Excess of current standard costs over LIFO costs (11,543) (10,606)
Allowance for obsolete and slow-moving inventory (9,090) (7,606)
-------- --------
Total net inventories $ 47,882 46,318
======== ========
</TABLE>
During 1996, 1995 and 1994, reductions in inventory quantities (net of
acquisitions) resulted in liquidations of LIFO inventory layers carried at
lower costs prevailing in prior years. The effect was to increase net income
in 1996 and 1995 by $1,213 and $1,619, respectively, and to decrease the net
loss by $840 in 1994. It is the Company's policy to record the earnings
effect of LIFO inventory liquidations in the quarter in which a decrease for
the entire year becomes certain. In each of the years 1994 through 1996, the
LIFO liquidation income was recorded in the fourth quarter.
25
<PAGE> 15
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: PLANT AND EQUIPMENT AND INTANGIBLES
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Plant and equipment:
Land and land improvements $ 2,753 2,412
Buildings 25,695 23,806
Machinery and equipment 66,273 61,646
Tooling, dies, patterns, etc. 25,493 25,276
Other 10,870 10,067
Construction in progress 808 2,086
--------- --------
131,892 125,293
Accumulated depreciation (98,182) (93,109)
--------- --------
Net plant and equipment $ 33,710 32,184
========= ========
Intangibles:
Goodwill $ 85,092 54,490
Other 1,372 1,159
--------- --------
86,464 55,649
Accumulated amortization (16,160) (14,385)
--------- --------
Net intangibles $ 70,304 41,264
========= ========
</TABLE>
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Accounts payable - trade $ 12,993 10,860
Checks issued and outstanding 2,535 1,333
Salaries, wages and related fringe benefits 4,590 3,175
Accrued purchase accounting reserves 6,083 ----
Product liability, workers' compensation and other insurance 3,346 3,346
Accrued warranty 2,618 2,752
Accrued legal and environmental expenses 2,613 3,158
Accrued pension liability 4,224 ----
Other 9,346 5,051
-------- -------
Total accounts payable and accrued liabilities $ 48,348 29,675
======== =======
</TABLE>
26
<PAGE> 16
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: EMPLOYEE BENEFIT PLANS
The Company sponsors retirement plans covering substantially all
employees. Benefits are provided to employees under defined benefit
pay-related and service-related plans which are noncontributory. Annual
contributions to retirement plans equal or exceed the minimum funding
requirements of the Employee Retirement Income Security Act.
The Company also sponsors defined contribution plans. Benefits are
determined and funded annually based on terms of the plans or as stipulated
in a collective bargaining agreement.
Retirement plan expenses are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Defined benefit plans:
Service cost - benefits earned during the year $ 962 527 891
Interest cost on projected benefit obligation 2,850 2,901 2,497
Actual return on assets (6,264) (9,689) (1,345)
Net amortization and deferral 2,311 6,524 (2,104)
--------- -------- --------
Net pension (income) expense (141) 263 (61)
Defined contributions plans 1,981 2,260 2,286
--------- -------- --------
Total retirement plan expense $ 1,840 2,523 2,225
========= ======== ========
</TABLE>
The actuarial present value of benefit obligations and the funded status of
the Company's defined benefit pension plans as of December 31, 1996 and 1995,
follow:
<TABLE>
<CAPTION>
Plans with Assets in Plans with Accumulated
Excess of Accumulated Benefits in Excess of
Benefits Assets
-------------------- ------------------
December 31, December 31,
-------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Vested benefit obligation $ 36,804 39,153 8,831 169
======== ======== ======= =====
Accumulated benefit obligation $ 38,496 41,206 9,324 169
======== ======== ======= =====
Projected benefit obligation $ 39,322 42,360 9,919 169
Plan assets at fair value 45,860 44,578 5,940 ----
-------- -------- ------- -----
Plan assets in excess of (less than) projected
benefit obligation 6,538 2,218 (3,979) (169)
Unrecognized net (gain) loss (5,695) (1,164) (203) 46
Unrecognized net (asset) liability from adoption date (656) (875) 75 85
Unrecognized prior service cost 297 (35) ---- ----
Adjustment required to recognize minimum liability ---- ---- (117) (131)
-------- -------- ------- -----
Pension asset (liability) at end of year $ 484 144 (4,224) (169)
======== ======== ======= =====
</TABLE>
<TABLE>
<CAPTION>
Computational Assumptions
Projected Benefit
Net Pension Cost Obligation
December 31, December 31,
----------------------------- ----------------
1996 1995 1994 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Discount rate 7.00% 7.00% 8.25% 7.50% 7.00%
Rate of increase in compensation levels 5.50% 5.50% 5.00% 5.50% 5.50%
Expected long-term rate of return on assets 8.50% 8.50% 8.50% ---- ----
</TABLE>
27
<PAGE> 17
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain of the Company's full-time salaried and nonunion hourly employees
are eligible to participate in the Company's Retirement Savings Plan (the
"Savings Plan"), which is intended to meet the requirements of Section
401(k) of the Internal Revenue Code (the "Code"). The Company's matching
contributions are in the form of the Company's common stock that has been
authorized for issuance under the Savings Plan.
STOCK-BASED COMPENSATION PLANS
Under the Company's Long-Term Incentive Plan (the "Incentive Plan"),
designated employees are eligible to receive awards in the form of stock
options, stock appreciation rights, restricted stock grants or performance
shares, as determined by the Management Development and Compensation
Committee of the Board of Directors. An aggregate of 1,500,000 shares of
common stock has been reserved for issuance under the Incentive Plan. Through
December 31, 1996, the Company has granted options on 1,088,002 shares. Under
the Incentive Plan, the option exercise price equals the fair market value of
the common stock on the date of grant. One-third of employee options granted
become vested and exercisable on each of the first three anniversaries of the
date of grant. The options granted to employees in 1993, 1994, and 1995
expire five years after the date of grant. The options granted to employees
in 1996 expire ten years after the date of grant.
Under the Incentive Plan, each nonemployee director is automatically
granted an option to purchase 2,000 shares of common stock on the day after
each annual meeting of stockholders. These options are granted at the fair
market value of the common stock on the date of grant, become exercisable on
the first anniversary of the date of grant and expire five years after the
date of grant. Each nonemployee director was also granted an option for 4,000
shares of common stock upon the spin-off from Cooper, at an exercise price of
$4.50. These latter options became exercisable on April 15, 1995 and expire
April 15, 1999.
The Company has an employee stock purchase plan (the "Stock Purchase
Plan") and has reserved 450,000 shares for issuance. All eligible employees
who enroll in an offering receive options to purchase shares of common stock
at the lesser of 90% of the fair market price of the stock on the offering
date or 100% of the fair market price on the exercise date. The fair market
price for a share of common stock on the most recent offering date was $8.53
and the current offering price under the Stock Purchase Plan is $7.68 per
share. The first exercise date is in November 1997. At December 31, 1996,
employees had enrolled to purchase 188,744 shares.
The Company accounts for both the Incentive Plan and the Stock Purchase
Plan using the intrinsic value methodology prescribed by APB Opinion No. 25.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation", requires pro forma disclosure of the impact on
earnings if compensation cost for these plans had been determined consistent
with this Statement. The Company's net income and earnings per share would
have been reduced to the following pro forma amounts under SFAS 123:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net income As reported $ 16,906 11,594
Pro forma $ 16,328 11,389
EPS As reported $ 1.66 1.19
Pro forma $ 1.60 1.17
</TABLE>
28
<PAGE> 18
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
A summary of the status of the Company's Incentive Plan at December 31,
1996, 1995 and 1994, and changes during the years then ended, is presented
in the table and narrative below (shares in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year 816 $ 5.00 431 $ 4.53 450 $ 4.50
Granted 256 13.16 421 5.44 32 4.91
Exercised (148) 4.78 (26) 4.50 --- ----
Forfeited (10) 5.13 (10) 5.03 (51) 4.50
---- ---- ----
Options outstanding, end of year 914 7.32 816 5.00 431 4.53
Options exercisable, end of year 387 4.79 260 4.52 133 4.50
Weighted average fair value of options granted 7.56 2.06 1.74
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ----------------------------
Wtd. Avg.
Number Remaining Wtd. Avg. Number Wtd. Avg.
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 4.50 271 2.0 years $ 4.50 271 $ 4.50
5.31 11 3.0 5.31 7 5.31
5.38-7.56 376 3.2 5.43 109 5.49
13.00-13.88 256 9.2 13.16 ---- ----
</TABLE>
The fair value of each option grant under the Incentive Plan and the Stock
Purchase Plan is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
grants in 1996 and 1995, respectively: risk-free interest rates of 6.8% and
6.6%; expected lives of 8.8 and 3.3 years; and expected volatility of 35%. No
dividends payments are included in this valuation.
NOTE 7: POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Salaried employees who retired prior to 1989, as well as certain other
employees who were near retirement and elected to receive certain benefits,
have retiree medical, prescription and life insurance benefits. All other
active salaried employees will not have postretirement medical benefits. The
hourly employees have separate plans with varying benefit formulas. In all
cases, however, currently active hourly employees, except for certain
employees who are near retirement, will not receive health care benefits
after retirement. All of the Company's postretirement medical plans are
unfunded.
29
<PAGE> 19
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Accumulated Items Not Yet Amounts Per
Postretirement Recorded In Financial Statements
Benefit Obligation Financial Statements --------------------
(APBO) --------------------
------ Liability for Net
Prior Postretirement Annual
Service Actuarial Benefits Other Expense
Cost Net Gain Than Pensions (Income)
---- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balances - December 31, 1994 $ (30,304) (10,000) (23,400) (63,704) 1,500
========== ========== ========== ========== ==========
1995 Plan Activity:
Service cost (100) 100
Interest cost (2,500) 2,500
Benefit payments 2,096 2,096
Actuarial net gain 2,159 (2,159)
Amortization of unrecognized prior service
cost 1,200 (1,200)
Amortization of actuarial net gain 2,900 (2,900)
Net annual income 1,500
---------- ---------- ---------- ---------- ----------
Balances - December 31, 1995 $ (28,649) (8,800) (22,659) (60,108) (1,500)
========== ========== ========== ========== ==========
1996 Plan Activity:
Service cost (100) 100
Interest cost (1,800) 1,800
Benefit payments 2,081 2,081
Actuarial net gain 1,046 (1,046)
Amortization of unrecognized prior service
cost 1,200 (1,200)
Amortization of actuarial net gain 2,800 (2,800)
Net annual income 2,100
Impact of acquisitions (735) (735)
---------- ---------- ---------- ---------- ----------
Balances - December 31, 1996 $ (28,157) (7,600) (20,905) (56,662) (2,100)
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Amount of APBO related to:
Retired employees $(26,293) (26,849)
Employees eligible to retire (1,477) (1,599)
Other employees (220) (201)
Actuarial assumptions:
Discount rate 7.5% 7.0%
Ensuing year to 2005-health care cost trend rate Pre-65: 8.0% ratable to 5.5% Pre-65: 8.5% ratable to 5.5%
Post-65: 7.5% ratable to 5.5% Post-65: 7.5% ratable to 5.5%
Effect of 1% change in health care cost trend rate:
Increased year-end APBO 9% 8%
Increased expense 9% 15%
</TABLE>
NOTE 8: STOCKHOLDERS' EQUITY
At December 31, 1996 and 1995, 50,000,000 shares of $.01 par value common
stock and 10,000,000 shares of $.01 par value Preferred Stock were
authorized. Shares of common stock issued and outstanding at December 31,
1996 and 1995, were 9,864,842 and 9,618,348, respectively. No shares of
Preferred Stock are issued or outstanding at December 31, 1996 or 1995. The
shares of Preferred Stock, which may be issued without further stockholder
approval (except as may be required by applicable law or stock exchange
rules), may be issued in one or more series, with the number of shares of
each series and the rights, preferences and limitations of each series to be
determined by the Board of Directors.
30
<PAGE> 20
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Credit Facility, due 1999 <F1> $ 18,000 35,000
Unsecured senior note, due 2006 <F2> 35,000 ----
Fixed rate industrial revenue bond, due 2000 <F3> 1,329 ----
Variable rate industrial revenue bond, due 1997 <F4> 300 1,500
5.0% Note, due 2001 1,011 1,184
3.0% Industrial development note, due 2001 350 418
Other 11 ----
--------- --------
56,001 38,102
Current maturities (932) (1,441)
--------- --------
Long-term portion $ 55,069 36,661
========= ========
<FN>
<F1> The facility was effective November 30, 1995. The interest rate varies
with market rates for prime, CD's and/or LIBOR and the Company's debt
to adjusted income ratio. As of December 31, 1996 and 1995, this rate
was 6.2% and 6.5%, respectively, and averaged 6.2% and 6.5% for the
years ended December 31, 1996 and 1995, respectively.
<F2> On September 26, 1996, the Company entered into an unsecured senior
note agreement at a fixed interest rate of 7.3%. This debt matures in
ten years and requires equal annual principal payments for seven
years beginning September 26, 2000.
<F3> The fixed rate industrial revenue bond carries interest at 8.0% and is
secured by a letter of credit which guarantees the outstanding
principal. This bond was assumed by the Company at the acquisition of
GDHI.
<F4> Interest at 63% of the prime rate, averaged 5.0% and 5.6% for 1996 and
1995, respectively.
</TABLE>
In September 1996, the Company obtained additional financing by entering
into an unsecured senior note agreement for $35,000. This debt has a ten-year
final, seven-year average maturity with principal payments beginning in 2000.
In November 1995, the Company refinanced its existing bank debt with a
three-year revolving loan. This revolving loan permits two one-year
extensions. On September 30, 1996, the Company requested, and its lenders
agreed to, the first such extension. Both of the Company's borrowing
agreements are unsecured and permit certain investments and dividend payments.
There are no material restrictions on the Company as a result of these
agreements, other than customary covenants regarding certain earnings,
liquidity and capital ratios. The total available credit line is $65,000, with
$18,000 outstanding at December 31, 1996, leaving $47,000 available for
additional borrowings or to issue as letters of credit. The total debt balance
will mature on November 30, 1999. Maturities of long-term debt for the five
years subsequent to December 31, 1996 are $932, $676, $18,586, $5,526 and
$5,281, respectively.
Total interest expense during 1996, 1995 and 1994 was $3,104, $4,950 and
$4,667, respectively. Interest paid for 1996, 1995 and 1994 was $2,423,
$5,348 and $3,765, respectively.
The rentals for all operating leases were $1,519, $1,351 and $1,471 in
1996, 1995 and 1994, respectively.
NOTE 10: INDUSTRY SEGMENTS
The Company's operations are organized into two segments, Compressed Air
Products and Petroleum Products. The Compressed Air Products segment
designs, manufactures, markets and services rotary screw and reciprocating
compressors and blowers to serve all aspects of the industrial air market.
The markets served are primarily the United States, but a growing portion of
revenue is from exports. The Petroleum Products segment designs,
manufactures, markets and services a diverse group of pump products used in
oil and gas production, well servicing, well stimulation and oil and gas
drilling markets.
31
<PAGE> 21
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Revenues Operating Earnings Identifiable Assets
Year ended December 31, Year ended December 31, December 31,
--------------------------- -------------------------- --------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Compressed Air Products $ 188,027 171,926 153,919 $ 30,399 27,836 16,652 $ 166,987 132,877 138,184
Petroleum Products 29,973 19,615 21,935 2,258 (1,432) (5,298) 38,812 31,697 37,901
--------- ------- ------- -------- ------ ------- --------- ------- -------
Total $ 218,000 191,541 175,854 32,657 26,404 11,354 205,799 164,574 176,085
========= ======= =======
Interest expense (3,104) (4,950) (4,667)
Nonrecurring expense <F1> ---- ---- (99,710)
General corporate (1,114) (1,634) (1,204) 29,957 19,677 27,230
-------- ------ ------- --------- ------- -------
Income (loss) before income taxes 28,439 19,820 (94,227)
======== ====== =======
Total assets $ 235,756 184,251 203,315
========= ======= =======
<FN>
<F1> See Note 14 of the Notes to Financial Statements for further
information. In 1994, nonrecurring expense of $31,394 related to the
Compressed Air Products segment while $68,316 related to the
Petroleum Products segment.
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income from reductions of inventory quantities resulting in
liquidations of LIFO inventory layers included in operating
earnings above:
Compressed Air Products $ 1,164 1,762 579
Petroleum Products 857 691 798
------- ------- -------
Total $ 2,021 2,453 1,377
======= ======= =======
Provision for obsolete and slow-moving inventory included in
operating earnings and nonrecurring expense above:
Compressed Air Products $ 1,048 58 ----
Petroleum Products 750 231 14,400
------- ------- -------
Total $ 1,798 289 14,400
======= ======= =======
Depreciation and amortization included in operating earnings
above:
Compressed Air Products $ 7,043 7,143 9,794
Petroleum Products 1,054 1,120 3,114
------- ------- -------
Total $ 8,097 8,263 12,908
======= ======= =======
Capital expenditures:
Compressed Air Products $ 3,510 2,987 3,713
Petroleum Products 661 302 554
------- ------- -------
Total $ 4,171 3,289 4,267
======= ======= =======
</TABLE>
Sales outside the United States were comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sold to unaffiliated companies in:
Asia $14,937 10,311 12,016
Canada 14,282 14,240 10,854
Latin America 10,434 8,563 8,103
Europe 9,787 5,934 3,845
Other 4,109 2,582 1,871
-------- ------- -------
$53,549 41,630 36,689
======== ======= =======
</TABLE>
32
<PAGE> 22
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: INCOME TAXES
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes:
Current:
U.S. federal $ 9,422 1,437 3,563
U.S. state and local 1,385 211 525
-------- -------- --------
10,807 1,648 4,088
Deferred:
U.S. federal 633 5,735 (7,585)
U.S. state and local 93 843 (1,115)
-------- -------- --------
726 6,578 (8,700)
-------- -------- --------
Income tax expense (benefit) $ 11,533 8,226 (4,612)
======== ======== ========
Items giving rise to deferred income taxes:
Excess of tax over book depreciation $ (16) (1,992) (18)
Reserves and accruals 351 (380) (1,322)
LIFO inventory (1,057) 3,942 (6,139)
LaGrange foundry write-down ---- 1,600 (1,600)
Software write-off (194) (105) (244)
VEBA trust (202) 585 ----
Other 1,844 2,928 623
-------- -------- --------
Deferred income taxes $ 726 6,578 (8,700)
======== ======== ========
The differences between the provision (benefit)
for income taxes and income taxes using the U.S.
federal income tax rate were as follows:
Income tax provision at 35% (34% for 1995 and
1994) $ 9,953 6,739 (32,037)
State and local income taxes 1,238 989 (587)
Nondeductible goodwill 592 480 28,115
Other (net) (250) 18 (103)
-------- -------- --------
Total $ 11,533 8,226 (4,612)
======== ======== ========
Total income taxes paid $ 9,839 4,284 4,325
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Components of deferred tax balances:
Deferred tax liabilities:
LIFO inventory $ (4,968) (5,808)
Plant and equipment (3,667) (3,982)
VEBA trust (383) (585)
Other (2,596) (2,230)
--------- --------
Total deferred tax liabilities (11,614) (12,605)
Deferred tax assets:
Reserves and accruals 10,695 6,338
Postretirement benefits other than pensions 22,106 23,442
Other 160 147
--------- --------
Total deferred tax assets 32,961 29,927
--------- --------
Net deferred tax assets $ 21,347 17,322
========= ========
</TABLE>
33
<PAGE> 23
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's operations were included in the consolidated U.S. federal and
certain combined and separate state income tax returns of Cooper for the
period from January 1, 1994 through April 15, 1994. The tax provisions and
tax liabilities presented have been determined as if the Company's operations
were a stand-alone business filing a separate tax return for the full year of
1994.
NOTE 12: RELATED PARTY TRANSACTIONS
For the periods presented up to April 15, 1994, the Company received
services provided by Cooper which included employee benefits administration,
cash management, risk management, certain legal services, public relations,
domestic tax reporting and internal and domestic external audit. The costs
associated with these services were allocated to the Company based on the
ratio of the Company's revenues to consolidated revenues of Cooper.
Pursuant to the Asset Transfer Agreement between the Company and Cooper,
Cooper was entitled to the net income of the Company plus or minus the
changes in the balance sheet from September 30, 1993 through April 15, 1994.
For 1994, the Company distributed $1,204 to Cooper as settlement of the Asset
Transfer Agreement.
The Company sold products to Cooper on third-party terms that amounted to
$927 for the period from January 1, 1994 through April 15, 1994.
NOTE 13: OFF-BALANCE SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE
OF FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
At December 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 $30,000. The swaps provide an average fixed
LIBOR rate of 6%. One interest rate swap terminated in November 1996, but was
extended for one additional year at the option of the Counter Party. The
second interest rate swap terminates in November 1997, but may also be
extended for one additional year at the option of the Counter Party. 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.
Concentrations of credit risk with respect to trade receivables are limited
due to the wide variety of customers and markets into which the Company's
products are sold, as well as their dispersion across many different
geographic areas. As a result, at December 31, 1996, the Company does not
consider itself to have any significant concentrations of credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of trade receivables,
trade payables, debt instruments and the swap agreements. The book values of
these instruments are considered to be representative of their respective
fair values. The interest rate swap agreements are not valued in the
financial statements and any incremental interest expense or income generated
is accrued as incurred. The market value of these agreements was $159 at
December 31, 1996.
34
<PAGE> 24
GARDNER DENVER MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14: NONRECURRING EXPENSE
The Company's 1994 results of operations included expenses from
nonrecurring items highlighted in the following table:
<TABLE>
<CAPTION>
Impact On 1994
-------------------------------
Earnings
before taxes Net income
------------ ----------
<S> <C> <C>
Write-off of goodwill associated with discontinued product lines $ 72,126 72,126
Inventory write-off for discontinued product lines 14,400 8,784
Inventory disposal costs for discontinued product lines 2,200 1,342
Loss on sale of LaGrange foundry 3,911 2,390
Write-off of goodwill associated with the LaGrange foundry 6,089 6,089
Write-off of computer software not expected to be fully utilized 984 600
-------- --------
Total $ 99,710 91,331
======== ========
</TABLE>
Two product lines were discontinued: the Joy(R) screw compressor product
offering and the petroleum drilling rig component business. The drilling rig
component business and inventory was sold in December 1995. The sale of the
LaGrange foundry was also completed in December 1995.
NOTE 15: CONTINGENCIES
The Company has been identified as a potentially responsible party ("PRP")
with respect to various sites designated for cleanup under various state and
federal laws. Gardner Denver does not own any of these sites. Current
estimates of the Company's remaining maximum exposure before reimbursement by
other PRPs are in a range between $1,500 and $3,500. The Company believes
that the costs related to these sites will not have a materially adverse
effect on its results of operations, financial condition or liquidity. In
addition to the environmental matters, the Company is a party to various
other legal proceedings and administrative actions, most of which are of an
ordinary or routine nature, incidental to the operations of the Company.
However, one lawsuit alleges misappropriation of trade secrets and
interference with contractual relations. The lawsuit requests $4,660 in
compensatory damages and an unspecified amount of punitive damages. As of
December 31, 1996, the trial court has dismissed one of the complaint's six
counts against the Company and excluded the plaintiff's recovery of
attorney's fees as compensatory damages. The Company believes that the
outcome of this litigation will not have a materially adverse effect on its
results of operations, financial condition or liquidity.
NOTE 16: UNAUDITED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
1996
------------------------------------------------------
1 2 3 4 <F2>
--- --- --- ------
<S> <C> <C> <C> <C>
Revenues $ 48,569 48,914 56,519 63,998
Gross margin <F1> 15,013 14,938 17,542 22,316
Net income 3,861 3,691 3,735 5,619
Earnings per share $ 0.39 0.36 0.37 0.54
<CAPTION>
1995
------------------------------------------------------
1 2 3 4 <F2>
--- --- --- ------
<S> <C> <C> <C> <C>
Revenues $ 49,974 49,215 44,894 47,458
Gross margin <F1> 14,917 13,851 12,991 16,906
Net income 2,801 2,472 1,882 4,439
Earnings per share $ 0.29 0.26 0.19 0.45
<FN>
<F1> Gross margin equals revenues less cost of sales.
<F2> Includes an increase in net income in 1996 and 1995 of $1,213 and
$1,619, respectively, related to LIFO inventory liquidations.
</TABLE>
35
<PAGE> 25
SHAREHOLDER INFORMATION
STOCK INFORMATION
Gardner Denver's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol GDMI. On January 15, 1997, the
Company effected a two-for-one stock split in the form of a stock dividend.
The quarterly high and low sales prices for the Company's common stock for
the most recent two years, adjusted to reflect this stock split, as reported
by The Nasdaq Stock Market, are as follows:
<TABLE>
<CAPTION>
High/Low Qtr 1 Qtr 2 Qtr 3 Qtr 4
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $ 11-7/8 - $ 8-3/4 14-1/8 - 10-3/4 15-3/4 - 12-1/4 19-3/8 - 14-5/8
1995 $ 6-3/16 - $ 5-1/16 9 - 5-1/2 9-1/8 - 7-1/8 9-5/8 - 7-5/8
</TABLE>
As of March 3, 1997, there were approximately 9,620 holders of record of
Gardner Denver's Common Stock.
DIVIDENDS
Gardner Denver has not paid a cash dividend since its spin-off from Cooper
in April 1994. The cash flow generated by the Company is currently utilized
for debt service and capital accumulation and reinvestment.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York
P. O. Box 2500
Jersey City, New Jersey 07303-2500
201-324-1225
201-222-4955 (for the hearing impaired)
E-mail address: [email protected]
36
<PAGE> 1
Exhibit 21.0
<TABLE>
GARDNER DENVER MACHINERY INC.
SCHEDULE OF SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1996
<CAPTION>
Name Subsidiary Uses
Subsidiary Name Incorporation for Doing Business
--------------- ------------- --------------------
<S> <C> <C>
Gardner Denver International, Inc. Delaware Gardner Denver International, Inc.
Gardner Denver Export, Inc. Barbados Gardner Denver Export, Inc.
Gardner Denver Holdings Inc. Delaware Gardner Denver Holdings Inc.,
Lamson Corporation New York Lamson Corporation
TCM Investments, Inc. Oklahoma TCM Investments, Inc.,
20th Century Mfg. & Supply Co. Oklahoma 20th Century Mfg. & Supply Co.
</TABLE>
<PAGE> 1
Exhibit 23.0
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K for the year ended December
31, 1996, into the Company's previously filed Registration Statement on Form
S-8, File Number 33-91088.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
March 31, 1997
<PAGE> 1
Exhibit 24.0
GARDNER DENVER MACHINERY INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver Machinery Inc., a Delaware
corporation (the "Company"), which anticipates filing with the Securities and
Exchange Commission (the "Commission") under the provisions of the Exchange
Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report")
for the fiscal year ended December 31, 1996 (together with any and all
subsequent amendments) does hereby constitute and appoint Ross J. Centanni and
Helen W. Cornell, and each of them, with full power of substitution and
resubstitution, as attorney or attorneys to execute and file on behalf of the
undersigned, in his capacity as a director of the Company, the Annual Report
and any and all other documents to be filed with the Commission pertaining to
the Annual Report with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises,
as fully as to all intents and purposes as he could do if personally present,
hereby ratifying and approving the acts of said attorneys and any of them and
any such substitution.
Executed at St. Louis, Missouri this 4th day of March 1997.
------------- ------------- ---------
/s/Thomas M. McKenna
------------------------------------
Thomas M. McKenna
<PAGE> 2
Exhibit 24.0
GARDNER DENVER MACHINERY INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver Machinery Inc., a Delaware
corporation (the "Company"), which anticipates filing with the Securities and
Exchange Commission (the "Commission") under the provisions of the Exchange
Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report")
for the fiscal year ended December 31, 1996 (together with any and all
subsequent amendments) does hereby constitute and appoint Ross J. Centanni and
Helen W. Cornell, and each of them, with full power of substitution and
resubstitution, as attorney or attorneys to execute and file on behalf of the
undersigned, in his capacity as a director of the Company, the Annual Report
and any and all other documents to be filed with the Commission pertaining to
the Annual Report with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises,
as fully as to all intents and purposes as he could do if personally present,
hereby ratifying and approving the acts of said attorneys and any of them and
any such substitution.
Executed at St. Louis, Missouri this 4th day of March 1997.
------------ ------------ ----------
/s/Michael J. Sebastian
--------------------------------------
Michael J. Sebastian
<PAGE> 3
Exhibit 24.0
GARDNER DENVER MACHINERY INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver Machinery Inc., a Delaware
corporation (the "Company"), which anticipates filing with the Securities and
Exchange Commission (the "Commission") under the provisions of the Exchange
Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report")
for the fiscal year ended December 31, 1996 (together with any and all
subsequent amendments) does hereby constitute and appoint Ross J. Centanni and
Helen W. Cornell, and each of them, with full power of substitution and
resubstitution, as attorney or attorneys to execute and file on behalf of the
undersigned, in his capacity as a director of the Company, the Annual Report
and any and all other documents to be filed with the Commission pertaining to
the Annual Report with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises,
as fully as to all intents and purposes as he could do if personally present,
hereby ratifying and approving the acts of said attorneys and any of them and
any such substitution.
Executed at St. Louis, Missouri this 4th day of March 1997.
-------------- -------------- ---------
/s/Donald G. Barger, Jr.
----------------------------------------
Donald G. Barger, Jr.
<PAGE> 4
Exhibit 24.0
GARDNER DENVER MACHINERY INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver Machinery Inc., a Delaware
corporation (the "Company"), which anticipates filing with the Securities and
Exchange Commission (the "Commission") under the provisions of the Exchange
Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report")
for the fiscal year ended December 31, 1996 (together with any and all
subsequent amendments) does hereby constitute and appoint Ross J. Centanni and
Helen W. Cornell, and each of them, with full power of substitution and
resubstitution, as attorney or attorneys to execute and file on behalf of the
undersigned, in his capacity as a director of the Company, the Annual Report
and any and all other documents to be filed with the Commission pertaining to
the Annual Report with full power and authority to do and perform any and all
acts and things whatsoever required or necessary to be done in the premises,
as fully as to all intents and purposes as he could do if personally present,
hereby ratifying and approving the acts of said attorneys and any of them and
any such substitution.
Executed at St. Louis, Missouri this 4th day of March 1997.
-------------- -------------- --------
/s/Alan E. Riedel
------------------------------------
Alan E. Riedel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR
THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,610
<SECURITIES> 0
<RECEIVABLES> 50,482
<ALLOWANCES> (2,935)
<INVENTORY> 47,882
<CURRENT-ASSETS> 109,135
<PP&E> 131,892
<DEPRECIATION> (98,182)
<TOTAL-ASSETS> 235,756
<CURRENT-LIABILITIES> 49,280
<BONDS> 56,001
<COMMON> 99
0
0
<OTHER-SE> 74,019
<TOTAL-LIABILITY-AND-EQUITY> 235,756
<SALES> 216,598
<TOTAL-REVENUES> 218,000
<CGS> 148,164
<TOTAL-COSTS> 148,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 231
<INTEREST-EXPENSE> 3,104
<INCOME-PRETAX> 28,439
<INCOME-TAX> 11,533
<INCOME-CONTINUING> 16,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,906
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.65
</TABLE>
