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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, 1997
/ / 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:
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)
Securities registered pursuant to Section 12(g) of the Act: None
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 13, 1998 was $444,632,040.
The number of shares outstanding of the registrant's Common Stock, as of
March 13, 1998 was 16,004,753.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Gardner Denver Machinery Inc. Proxy Statement, dated
March 27, 1998 (incorporated into Part III of this Annual Report on Form
10-K).
Portions of the 1997 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 believes that it
is one of the leading manufacturers of petroleum pumps used in oil and gas
production, well servicing, well stimulation, and oil and gas drilling.
In 1997, Gardner Denver had revenues of $291.5 million, of which
approximately 78 percent were derived from sales of compressed air products
while approximately 22 percent were from sales of petroleum products.
Approximately 73 percent of the total revenues in 1997 were derived from
sales in the United States and approximately 27 percent were from sales to
customers in various foreign countries. Of the total foreign sales, 34
percent were to Europe, 24 percent to Canada, 18 percent to Asia, 16 percent
to Latin America 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
unincorporated 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, which had been formed as a wholly owned subsidiary of Cooper. On
April 15, 1994, the Company was spun-off as an independent company to the
shareholders of Cooper.
Gardner Denver has completed a number of acquisitions since becoming an
independent company. In 1996, Gardner Denver acquired NORAMPTCO, Inc.,
renamed Gardner Denver Holdings Inc. ("GDHI"), and its primary operating
subsidiary Lamson Corporation ("Lamson"). Lamson designs, manufactures and
sells multistage centrifugal blowers and exhausters used in various
industrial and wastewater applications. Lamson's products complemented 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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Also in 1996, the Company acquired TCM Investments, Inc. ("TCM"), an oil
field pump manufacturer. This acquisition extended the Company's well
stimulation pump product line, provided a physical presence in the oil field
market and allowed Gardner Denver to become a sole source supplier of repair
parts and remanufacturing services to some of the Company's customers.
In 1997, the Company acquired Oy Tamrotor Ab ("Tamrotor"), located in
Tampere, Finland. Tamrotor designs and manufactures lubricated rotary screw
compressor air ends. The addition of Tamrotor provided the Company with a
manufacturing base in Europe and growth opportunities through synergistic
product lines and international market penetration.
In January 1998, the Company acquired the assets of Geological Equipment
Corporation ("Geoquip"), a manufacturer of pumps utilized in the oil and gas
well servicing and water blast industries. Geoquip also remanufactures pumps
and provides repair services for the industries it serves. The acquisition
of Geoquip further strengthens Gardner Denver's market position in the well
servicing industry and the Company's ability to serve key well stimulation
customers.
The Company also acquired the assets of Champion Pneumatic Machinery Company,
Inc. ("Champion") in January 1998. Champion manufactures lubricated and
oil-less single-acting, single and two-stage compressors for the industrial
market, service support industry and consumer market. The acquisition of
Champion provides Gardner Denver with a more complete product offering to
penetrate the low horsepower compressor market and opens new markets and
channels of distribution, such as the automotive service market and catalog
sales.
In March 1998, Gardner Denver acquired the Wittig Division of Mannesmann
Demag A.G. ("Wittig"). Wittig, located in Schofpheim, Germany, manufactures
rotary sliding vane compressors and vacuum pumps for use on tankers, bulk
transporters and pneumatic handling systems. Wittig also manufactures
distillation units for use in the treatment of factory wastewater. The
acquisition of Wittig provides the Company with distribution channels for
products developed specifically for the European market and local packaging
and aftermarket capabilities for its compressor and blower products.
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 900 horsepower and are sold
under the Gardner Denver(R) trademark. Rotary screw compressors range from 5
to 500 horsepower and are sold under the Gardner Denver(R), Electra-Screw(R),
Electra-Saver(R), and Twistair(R), Tamrotor(R), and Tempest(TM) trademarks.
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
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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 35,000 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(R) and range from 0.5 to 25 PSIG and 100
to 50,000 CFM. Sales of compressed air products by Gardner Denver in 1997
were $228.2 million, of which approximately 73 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
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. Sales of
petroleum products in 1997 were $63.3 million of which approximately 73
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
1,000 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.
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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 1997 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 1997, approximately 75 percent of Gardner Denver's products were sold
through independent distributors and sales representatives, while the
remaining 25 percent were sold direct to OEMs, 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 Lamson and Tamrotor, the Company
also operates a blower packaging operation in France and a compressor
manufacturing and packaging facility in Finland.
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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 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 compressor market niches result from new technologies in plastics
extrusion, oil and gas well drilling, field gas gathering 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 $2.8
million in 1997, $2.4 million in 1996 and $1.3 million in 1995.
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MANUFACTURING
Gardner Denver has seven 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 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 $91 million at December 31, 1997 as
compared to approximately $47 million at December 31, 1996 and approximately
$31 million at December 31, 1995. This increase in backlog is attributable to
the significant increase in demand for petroleum products related to the
growth in oil and gas well drilling and servicing, continued expansion of the
U.S. economy and new niche market applications which strengthened demand for
compressor products, and the addition of the backlog from the acquisition
completed in 1997. 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.
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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(R),
Tamrotor(R) 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) trade-mark
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 February 21, 1998, the Company had approximately 1,600 full-time
employees, of which approximately 425, including most of the employees in
Finland, were represented by labor unions. In March 1997, the Company and
the union at the Quincy plant executed a five-year labor contract. In May
1995, prior to its acquisition by Gardner Denver, Lamson 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
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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
As of December 31, 1997, Gardner Denver has seven manufacturing plants, one
distribution center, four 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 and
compressor products
Sedalia, Missouri Manufacturing - 325,000 Owned
compressor products
Syracuse, New York Manufacturing - 250,000 Owned
compressor products
Tulsa, Oklahoma Manufacturing - 46,000 Owned
petroleum products
Tulsa, Oklahoma Remanufacturing - 12,500 Leased
petroleum products
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
Tampere, Finland Manufacturing 27,300 Leased
compressors
Helsinki, Finland Sales Office and 1,121 Leased
Warehouse
</TABLE>
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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 was
leased from the Onondaga County Industrial Development Agency, also in
connection with industrial revenue bond financing. The Company purchased the
property at a nominal price when the bonds were repaid in November 1997. The
Company also owns a 25,000 square foot facility in El Cajon, California,
which was acquired as part of the purchase of GDHI. This facility is
currently idle and offered for sale.
In 1997, the Company announced it would close its Syracuse, New York facility
and relocate the manufacture of the centrifugal blower product line to a
newly constructed site in Peachtree City, Georgia. The new plant is
scheduled to be operating by fourth quarter of 1998, at which time the
Syracuse plant will be shut down.
The Company leases sales office space in various U.S. locations and foreign
countries, and warehouse space in Quincy and Singapore.
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 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 $4.7million in compensatory damages and an
unspecified amount in punitive damages. In 1995, the plaintiffs' allegation
of 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 the plaintiffs' complaint. Mr. Zimmern
is no longer a plaintiff in this litigation. 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. The parties are engaged in settlement
discussions and management of the Company does not believe the ultimate
resolution of this legal action will have an 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.
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EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company, their positions with the Company,
business history and certain other information, as of March 16, 1998, are set
forth below. These officers serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Office Age
---- ------ ---
<C> <S> <C>
Ross J. Centanni President and Chief Executive Officer 52
Philip R. Roth Vice President, Finance and Chief Financial Officer 47
J. Dennis Shull Vice President and General Manager, 49
Gardner Denver Compressor & Pump Division
David Brown Vice President and General Manager, 49
Gardner Denver Blower Division
Roger A. Finnamore Vice President, Manufacturing Services and Technology 53
Steven M. Krivacek Vice President, Human Resources 49
Helen W. Cornell Vice President, Corporate Secretary and Treasurer 39
</TABLE>
Ross J. Centanni, age 52, 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 Denman Services, Inc., a
privately held supplier of medical products.
Philip R. Roth, age 47, 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
M.B.A. from the Olin School of Business at Washington University.
J. Dennis Shull, age 49, has been Vice President and General Manager, Gardner
Denver Compressor and Pump Division since its organization in August 1997.
He previously served the Company as Vice President, Sales and Marketing since
the Company's incorporation in November 1993. From August 1990 until
November 1993, Mr. Shull was the Director of Marketing for the Division. Mr.
Shull has a B.S. degree in business from Northeast Missouri State University
and an M.A. in business from Webster University.
David Brown, age 49, joined the Company as Vice President and General
Manager, Gardner Denver Blower Division in August 1997. Prior to that time
Mr. Brown was employed by Alfa Laval Separation ("Alfa Laval"), as Vice
President and General Manager of the Decanter Business Unit from 1992 until
joining the Company in August 1997. He previously held other management
positions with SKF USA from 1979 until joining Alfa Laval in 1992. Mr. Brown
has a B.S.M.E. from the Case Institute of Technology.
<PAGE> 12
Roger A. Finnamore, age 53, has been Vice President, Manufacturing Services
and Technology since the Company's reorganization in August 1997. He
previously served as Vice President, Engineering and Quality Assurance for
Gardner Denver from March 1995 until August 1997. Mr. Finnamore served the
Company as Director of Engineering and Quality Assurance from June 1991 until
his promotion in 1995. 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 49, 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 39, 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
The information under "Stock Information" and "Dividends", contained on page
36 of Gardner Denver's 1997 Annual Report to Stockholders, is hereby
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under "Financial History", contained on page 12 of Gardner
Denver's 1997 Annual Report to Stockholders, is hereby incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under "Management's Discussion and Analysis", contained on
pages 13 through 18 of Gardner Denver's 1997 Annual Report to Stockholders,
is hereby incorporated herein by reference.
<PAGE> 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information under "Report of Independent Public Accountants" and
"Consolidated Financial Statements and Notes", contained on pages 19 through
35 of Gardner Denver's 1997 Annual Report to Stockholders, is 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 27, 1998, 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 27, 1998, 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 27, 1998, is hereby incorporated herein by reference.
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 1997 and continues to render such
services to the Company.
<PAGE> 14
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 1997 Annual Report to Stockholders.
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
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, 1997 20
Consolidated Balance Sheets as of
December 31, 1997 and December 31, 1996 21
Consolidated Statement of Stockholders' Equity for
Each of the Three Years in the Period Ended
December 31, 1997 22
Consolidated Statement of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1997 23
Notes to Consolidated Financial Statements 24-35
</TABLE>
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.
2. Schedules
---------
<TABLE>
<S> <C>
Report of Arthur Andersen LLP S-1
Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
3. Exhibits
--------
<C> <S>
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 Sale and Purchase Agreement, dated as of June 30, 1997,
by and between Tamrock Oy, and Gardner Denver Oy
and Gardner Denver Machinery Inc., filed as
Exhibit 2.0 to Gardner Denver Machinery Inc.'s
Current Report on Form 8-K, dated June 30, 1997,
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 on 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<F*> Gardner Denver Machinery Inc. Long-Term Stock Incentive
Plan, as amended, filed as Exhibit 10.3 to Gardner
Denver Machinery Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, and
incorporated herein by reference.
10.2 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.
<PAGE> 16
10.3 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.
10.4<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.
10.5<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.
10.6<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.
10.7<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.
11.0 Statement regarding computation of per share earnings.
13.0 The following portions of the Gardner Denver Machinery
Inc. 1997 Annual Report to Stockholders.
<CAPTION>
Page No.
--------
<S> <C>
Financial History 12
Management's Discussion and Analysis 13-18
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
<PAGE> 17
<C> <S>
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.
27.1 Financial Data Schedule for the year ended December 31,
1997.
27.2 Restated Financial Data Schedule for the year-to-date
period ended September 30, 1997.
27.3 Restated Financial Data Schedule for the year-to-date
period ended June 30, 1997.
27.4 Restated Financial Data Schedule for the year-to-date
period ended March 31, 1997.
27.5 Restated Financial Data Schedule for the year ended
December 31, 1996.
27.6 Restated Financial Data Schedule for the year-to-date
period ended September 30, 1996.
27.7 Restated Financial Data Schedule for the year-to-date
period ended June 30, 1996.
27.8 Restated Financial Data Schedule for the year-to-date
period ended March 31, 1996.
<FN>
<F*> Indicates management contract or compensatory plan or
arrangement.
</TABLE>
(b) Reports on Form 8-K.
-------------------
There were no reports on Form 8-K during the quarter ended
December 31, 1997.
<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 30, 1998
--------------------
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 30, 1998
- ------------------------------ (Principal Executive Officer)
(Ross J. Centanni) and Director
/s/Philip R. Roth Vice President, Finance and CFO March 30, 1998
- ------------------------------ (Principal Financial and
(Philip R. Roth) Accounting Officer)
<F*>Alan E. Riedel Chairman of the March 30, 1998
(Alan E. Riedel) Board of Directors
<F*>Donald G. Barger, Jr. Director March 30, 1998
(Donald G. Barger, Jr.)
<F*>Frank J. Hansen Director March 30, 1998
(Frank J. Hansen)
<F*>Thomas M. McKenna Director March 30, 1998
(Thomas M. McKenna)
<F*>Michael J. Sebastian Director March 30, 1998
(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> 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. 1997 Annual Report to Stockholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 10, 1998. 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 10, 1998
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>
1997
- ----
Allowance for doubtful accounts $2,935 $ 244 $ $(313) $ 2,866
Allowance for obsolete and slow- 9,090 2,613 731 (489) 11,945
moving inventory
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
</TABLE>
S-2
<PAGE> 21
<TABLE>
GARDNER DENVER MACHINERY INC.
EXHIBIT INDEX
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
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 Sale and Purchase Agreement, dated as of June 30, 1997, by and between Tamrock Oy, and
Gardner Denver Oy and Gardner Denver Machinery Inc., filed as Exhibit 2.0 to Gardner
Denver Machinery Inc.'s Current Report on Form 8-K, dated June 30, 1997, 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 on 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<F*> Gardner Denver Machinery Inc. Long-Term Stock Incentive Plan, as amended, filed as Exhibit
10.3 to Gardner Denver Machinery Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
10.2 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.
<PAGE> 22
10.3 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.
10.4<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.
10.5<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.
10.6<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.
10.7<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.
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.
<CAPTION>
Page No.
--------
<S> <C>
Financial History 12
Management's Discussion and Analysis 13-18
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
<C> <S>
21.0 Subsidiaries of Gardner Denver Machinery Inc.
23.0 Consent of Arthur Andersen LLP.
<PAGE> 23
24.0 Powers of Attorney from members of the Board of Directors of Gardner Denver Machinery Inc.
27.1 Financial Data Schedule for the year ended December 31, 1997.
27.2 Restated Financial Data Schedule for the year-to-date period ended September 30, 1997.
27.3 Restated Financial Data Schedule for the year-to-date period ended June 30, 1997.
27.4 Restated Financial Data Schedule for the year-to-date period ended March 31, 1997.
27.5 Restated Financial Data Schedule for the year ended December 31, 1996.
27.6 Restated Financial Data Schedule for the year-to-date period ended September 30, 1996.
27.7 Restated Financial Data Schedule for the year-to-date period ended June 30, 1996.
27.8 Restated Financial Data Schedule for the year-to-date period ended March 31, 1996.
<FN>
<F*> Indicates management contract or compensatory plan or arrangement.
</TABLE>
<PAGE> 1
Exhibit 11.0
<TABLE>
GARDNER DENVER MACHINERY INC.
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic earnings per share
Net income $27,651 16,906 11,594
======= ====== ======
Shares
Weighted average number of shares
outstanding 15,060 14,625 14,273
======= ====== ======
Basic earnings per share $ 1.84 1.16 .81
======= ====== ======
Diluted earnings per share
Net income $27,651 16,906 11,594
======= ====== ======
Shares
Weighted average number of shares
outstanding 15,060 14,625 14,273
Stock options granted and outstanding 812 669 302
------- ------ ------
Weighted average number of shares
outstanding, as adjusted 15,871 15,294 14,665
======= ====== ======
Diluted earnings per share $ 1.74 1.11 .79
======= ====== ======
</TABLE>
<PAGE> 1
Gardner Denver Machinery Inc.
<TABLE>
Financial History
(dollars in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Gardner Denver Gardner Denver
Machinery Inc. Division <F1>
Year ended December 31,
--------------------------------------------------------
1997 1996 1995 1994 <F2> 1993
-------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $291,547 218,000 191,541 175,854 158,215
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 191,617 148,191 132,876 126,802 113,273
Depreciation and amortization 9,662 8,097 8,263 12,908 13,942
Selling and administrative expenses 39,938 30,169 25,632 25,994 22,753
Interest expense 3,937 3,104 4,950 4,667 2,592
Other expense 242 -- -- -- --
Nonrecurring expense <F3> -- -- -- 99,710 --
-------- ------- ------- ------- -------
245,396 189,561 171,721 270,081 152,560
-------- ------- ------- ------- -------
Income (loss) before income taxes 46,151 28,439 19,820 (94,227) 5,655
Provision (benefit) for income taxes 18,500 11,533 8,226 (4,612) 3,859
-------- ------- ------- ------- -------
Net income (loss) $ 27,651 16,906 11,594 (89,615) 1,796
======== ======= ======= ======= =======
Basic earnings (loss) per share <F4>, <F5> $ 1.84 1.16 0.81 (6.41)
======== ======= ======= =======
Diluted earnings (loss) per share <F4>, <F5> $ 1.74 1.11 0.79 (6.39)
======== ======= ======= =======
<CAPTION>
December 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $269,138 235,756 184,251 203,315 303,766
Short-term debt -- -- -- -- 70,000
Long-term debt (excluding current maturities) 51,227 55,069 36,661 56,103 4,171
Other long-term obligations 55,370 57,289 60,754 64,446 65,372
Stockholders' equity $103,611 74,118 55,234 42,295 132,349
<FN>
<F1> During 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. 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.
<F4> During 1993, when the Company operated as the Gardner Denver Division,
there was no capital stock outstanding.
<F5> Earnings per share have been adjusted for two stock splits effected in
the form of stock dividends in 1997. See Note 1 of the Notes to
Financial Statements.
</TABLE>
12
<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 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 78% of total
revenues in 1997.
In the Petroleum Products segment, the Company manufactures 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 22% of total revenues in 1997.
The Company sells approximately 75% of its products through independent
distributors and sales representatives and the remainder directly to original
equipment manufacturers, engineering firms and end users.
In 1997, Gardner Denver completed the acquisition of Oy Tamrotor Ab
("Tamrotor"). Tamrotor, formerly a subsidiary of Tamrock Corp., is located
in Tampere, Finland, and designs and manufactures lubricated rotary screw
compressor air ends. The addition of Tamrotor provides Gardner Denver with a
manufacturing base in Europe, as well as market penetration in several
European compressor markets. The acquisition provides growth opportunities
through synergistic product lines and international market penetration.
The Petroleum Products segment again had significant growth in 1997 due
to the increased demand for products used in improved recovery techniques in
the oil and gas industry, including the Company's high pressure pumps. The
profitability of the segment continued to improve in 1997 due to cost
reductions, leveraging of fixed costs and price increases. Excluding the
incremental revenue from the acquisition of TCM Investments, Inc. ("TCM") in
1996, petroleum products revenues increased 70.2% during 1997 on the strength
of the petroleum market, while operating earnings improved to 20.9% of
revenues.
In 1996, Gardner Denver completed two acquisitions and experienced
significant revenue growth in the Petroleum Products segment. The first
acquisition was NORAMPTCO, Inc. (renamed Gardner Denver Holdings Inc.),
including its primary operating subsidiary, Lamson Corporation ("Lamson"),
based in Syracuse, New York. Lamson designs, manufactures and sells
multistage centrifugal blowers and exhausters used in various industrial and
wastewater applications. The acquisition complemented 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 allowed the Company to compete in niche
markets having lower noise requirements. This acquisition is included in the
Company's Compressed Air Products segment.
The second 1996 acquisition was TCM, an oil field pump manufacturer
based in Tulsa, Oklahoma. This acquisition further extended the Company's
product line in well stimulation pumps, provided a physical presence in the
oil field market and allowed Gardner Denver to become a sole source supplier
of repair parts and remanufacturing services to some of the Company's
customers. TCM is included in the Company's Petroleum Products segment.
Performance in the Petroleum Products segment improved significantly in
1996. Excluding revenues from the TCM acquisition in 1996 and the drilling
components product line which the Company sold in 1995, petroleum products
revenues increased 29.8% in 1996 compared to 1995.
The following table sets forth percentage relationships to revenues of
certain income statement items for the years presented.
13
<PAGE> 3
Gardner Denver Machinery Inc.
Management's Discussion and Analysis
<TABLE>
- ------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
-----------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenues 100.0% 100.0 100.0
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 65.7 68.0 69.4
Depreciation and amortization 3.3 3.7 4.3
Selling and administrative expenses 13.7 13.8 13.4
Interest expense 1.4 1.4 2.6
Other expense 0.1 -- --
----- ----- -----
84.2 86.9 89.7
----- ----- -----
Income before income taxes 15.8 13.1 10.3
Provision for income taxes 6.3 5.3 4.3
----- ----- -----
Net income 9.5% 7.8 6.0
===== ===== =====
- ------------------------------------------------------------------------------------------------
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Revenues
Revenues for 1997 increased $73.5 million or 33.7% over 1996 to $291.5
million. Revenues in the Compressed Air Products segment improved 21.4% to
$228.2 million, while revenues in the Petroleum Products segment increased
111.3% to $63.3 million.
Revenues included approximately $48.7 million attributable to the
incremental revenues from three acquisitions which the Company has completed
since August 1996. Excluding incremental revenues from acquisitions,
revenues increased approximately $24.8 million (11.4%) for the year, compared
to 1996, due to significant growth in oil and gas well drilling and
servicing, and continued expansion of the U.S. economy which strengthened
demand for compressor products.
Revenues in the Compressed Air Products segment increased $40.2 million
in 1997. Acquisitions generated approximately $36.4 million of the increase.
Excluding the incremental revenues from acquisitions, revenues for this
segment increased 2.0% in 1997 compared to the previous year, primarily due
to price increases. Price increases were implemented in 1997 for most
products in the Compressed Air Products segment, generally offsetting cost
increases. Selected volume increases resulted from expansion of industrial
investment and niche compressor applications in the petroleum industry. The
order backlog as of December 31, 1997 for the Company's compressor products,
excluding acquisitions, increased 34.0% to $49.7 million, compared to the
previous year.
In the Petroleum Products segment, revenues increased 111.3% to $63.3
million for the year ended December 31, 1997, as compared to 1996.
Incremental revenues from acquisitions generated $12.3 million of the $33.3
million increase in revenues. Significant price increases were implemented
in this segment in 1997. The remaining revenue increase resulted from volume
growth in oil and gas well drilling and well servicing activity. The order
backlog for the Company's petroleum products, as of December 31, 1997,
increased 246.8% to $32.6 million, compared to the previous year.
Costs and Expenses
Gross margins (defined as revenues less cost of sales) increased $30.1
million or 43.1% to $99.9 million in 1997 compared to 1996, as a result of
the additional sales volume. Incremental gross margin due to the acquisitions
accounts for $17.5 million of the increase. As a percentage of revenues,
gross margins increased from 32.0% in 1996 to 34.3% in 1997. In 1997, gross
margins were enhanced $1.2 million as a result of the liquidation of LIFO
inventory layers, compared to $2.0 million in 1996. The Lamson acquisition
positively affected the gross margin 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.
Excluding the acquisition of Lamson and LIFO income, gross margin as a
percentage of revenues improved from 30.6% in 1996 to 33.3% in 1997. The
higher gross margin as a percentage of revenues was a result of the combined
effects of cost reduction efforts such as manufacturing process improvements,
leverage of fixed costs over higher volume and price increases.
Manufacturing process improvements included programs to reduce set-up,
improve quality, reduce rework and improve production flow. Programs were
also put in place in 1996 and 1997 to reduce costs for purchased parts used
in the Company's products.
Depreciation and amortization increased $1.6 million in 1997 from 1996
levels. Depreciation expense increased $0.8 million in 1997 compared to
1996, primarily as a result
14
<PAGE> 4
- --------------------------------------------------------------------------------
of acquisitions. Excluding acquisitions, depreciation declined $0.4 million,
as additional assets became fully depreciated. Amortization expense increased
$0.8 million or 29.2% from the prior year, primarily due to amortization of
goodwill related to 1996 and 1997 acquisitions. As a percentage of revenues,
depreciation and amortization declined from 3.7% in 1996 to 3.3% in 1997, due
to the effect of higher revenues.
Selling and administrative expenses increased by 32.4% to $39.9 million
for 1997 from $30.2 million in 1996. As a percentage of revenues, selling
and administrative expenses decreased from 13.8% in 1996 to 13.7% in 1997.
Newly acquired operations accounted for approximately $5.8 million of the
$9.7 million increase. The remainder of the increase is due primarily to
higher manpower levels and an increase in travel and purchased services, most
of which is related to the increased revenues and integration
of the acquisitions.
Operating earnings for the Compressed Air Products segment increased
27.0% over 1996 to $38.6 million. As a percentage of revenues, operating
earnings were 16.9% in 1997, compared to 16.2% in 1996. The increase was due
to additional revenues and improved manufacturing efficiencies. The
Petroleum Products segment had operating earnings of $13.2 million in 1997,
compared to $2.3 million in 1996. The Company was able to leverage its
manufacturing operations and obtain significant price increases as a result
of the increased demand for petroleum products, resulting in operating
earnings of 20.9% of petroleum products revenues, compared to 7.5% in 1996.
Interest expense for 1997 increased $0.8 million to $3.9 million due to
incremental debt incurred for the acquisitions and higher average interest
rates. Interest rates on the Company's long-term debt in 1997 averaged 7.3%
compared to 7.1% in 1996. The higher interest rate is primarily due to the
$35 million senior note issued in September 1996 at a fixed rate of
approximately 7.3% and the assumption of a fixed rate industrial development
bond as part of one of the acquisitions. See Note 9 of the Notes to
Financial Statements for further information on the Company's borrowing
arrangements.
Income
Income before taxes increased $17.8 million, from $28.4 million to $46.2
million, or 62.3%. Approximately $6.8 million of this improvement was
provided by the incremental impact of the acquisitions, net of goodwill
amortization and interest expense on debt incurred to complete the
acquisitions. The remaining $11.0 million increase is primarily a result of
incremental revenues, improved gross margin and lower interest expense
(excluding debt related to acquisitions) in 1997 compared to the previous
year.
Income tax expense increased $7.0 million from 1996 to $18.5 million, a
60.4% increase, as a result of the incremental income before taxes. The
Company's effective tax rate in 1997 was 40.1% compared to 40.6% in 1996.
The lower effective tax rate in 1997 is due to the tax savings from the
Foreign Sales Corporation (the "FSC"), the lower statutory tax rate in
Finland compared to the U.S., and the implementation of other tax strategies,
partly offset by an increase in nondeductible goodwill related to the
acquisitions. See Note 11 of the Notes to Financial Statements.
Net income increased $10.7 million, or 63.6%, to $27.7 million for 1997
compared to $16.9 million for 1996. The increase in net income included
approximately $3.1 million incremental after tax income from the acquisitions
in 1997 compared to 1996, offset by $0.5 million less in after tax LIFO
income in 1997 compared to 1996. Excluding LIFO income and incremental
income from acquisitions, net income increased $8.2 million (51.8%) for the
year due to revenue growth and process improvements in manufacturing
operations. On a per share basis, diluted earnings increased $0.63 (56.8%)
to $1.74 in 1997, compared to $1.11 in the previous year. Excluding LIFO
income and incremental income from acquisitions, diluted earnings per share
increased $0.47 (45.6%) in 1997 compared to the previous year.
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 Lamson 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 Lamson, 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 revenues.
However, screw compressor volume declined slightly from the unusually high
levels experienced in 1995, offsetting
15
<PAGE> 5
Gardner Denver Machinery Inc.
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
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 was 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 purchased parts used in the
Company's products. The Lamson 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 Lamson 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 of the Notes to Financial
Statements. 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 taxes was
16
<PAGE> 6
- --------------------------------------------------------------------------------
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 FSC
and the implementation of other tax strategies, partly offset by an increase
in nondeductible goodwill related to the acquisitions. See Note 11 of the
Notes to Financial Statements.
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.
LIQUIDITY AND CAPITAL RESOURCES
Operating Working Capital
During 1997, operating working capital (defined as receivables plus
inventories, less accounts payable and accrued liabilities) increased $5.1
million to $52.2 million. Receivables increased $14.8 million since the end
of 1996, of which $6.4 million was due to the acquisition of Tamrotor.
Excluding Tamrotor, receivables increased $8.4 million due to higher revenues
in 1997 compared to 1996 and the timing of sales within the fourth quarter of
1997.
Inventories increased $0.4 million since the end of 1996. Without the
impact of the Tamrotor acquisition, inventories declined $4.7 million due to
reductions in petroleum inventory as a result of increased customer demand,
and improved inventory turnover as programs to reduce raw materials and
finished goods inventories took effect. Accounts payable and accrued
liabilities increased $10.1 million from the balance at the end of 1996.
Tamrotor accounted for $5.7 million of the increase. The remaining increase
in accounts payable and accrued liabilities was primarily a result of
increased capital expenditures and expenses.
Cash Flows
During 1997, the Company generated cash flows from operations totaling $42.1
million. These cash flows enabled the Company to expend $9.8 million on
capital expenditures, including capitalized software, and make an acquisition
for $26.2 million. Net cash used by financing activities totaled $2.7
million. The cash balance increased $0.2 million to $8.8 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 flexibility, improve management
information systems and expand production capacity resulted in expenditures
of $9.8 million in 1997, compared with $4.2 million in 1996, and $3.3 million
in 1995. Part of the increase in expenditures in 1997 was related to a
project to install an integrated management information system.
The Company anticipates that capital expenditures will increase to
approximately $20 million in 1998, primarily due to the construction of a new
manufacturing facility in Peachtree City, Georgia.
In 1997, the Company announced that it would close its blower
manufacturing plant in Syracuse, New York, and consolidate operations at its
new Georgia site. The new plant should be operating by the fourth quarter of
1998, at which time the Syracuse plant will be shut down. The Company
expects to spend approximately $7.0 million in capital for the new facility
and plans to issue industrial revenue bonds in 1998 in connection with this
project. Additionally, expenditures will be made to improve manufacturing
processes at newly acquired businesses and purchase several large machine
tools to increase capacity, quality and flexibility in manufacturing
compressor and petroleum products.
At December 31, 1997, commitments for capital expenditures amounted to
$9.7 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
During 1997, the Company utilized a revolving line of credit providing for an
aggregate $65.0 million borrowing capacity (the "Credit Line"). On December
31, 1997, the Credit Line had an outstanding balance of $15.0 million,
leaving $50.0 million available for future use. The Credit Line requires no
principal payments during the term of the agreement. Principal repayment is
due at termination in the year 2000. The Company has outstanding $35.0
million of unsecured senior debt at a fixed interest rate of 7.3% and a final
maturity of September 26, 2006. Principal payments on this debt begin in the
year 2000. These borrowing arrangements are unsecured and permit certain
investments and dividend payments. There are no material restrictions on the
Company as a result of these arrangements, other than
17
<PAGE> 7
Gardner Denver Machinery Inc.
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
customary covenants regarding certain earnings, liquidity, and capital ratios.
Subsequent to December 31, 1997, the Company entered into a new
revolving line of credit agreement with an aggregate $125 million borrowing
capacity and terminated the previous Credit Line. The new agreement's terms
and restrictions are similar to the previous Credit Line except that the new
agreement matures in 2003. As in the previous Credit Line, the Company's
interest rate is adjusted, depending on the Company's level of debt relative
to its cash flows. The lowest interest rate on the new credit facility will
be 10 basis points less than the original Credit Line, while the highest
interest rate will be 25 basis points less than the original Credit Line.
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 new credit facility and provide required resources for working
capital and capital investments.
The Company has one interest rate swap agreement with a notional amount
of $15 million. The swap agreement expired in November 1997, but was
extended for one year at the counter party's discretion. The swap agreement
results in a fixed interest rate of approximately 6% for $15 million of debt.
This interest rate swap agreement is subject to credit risk in that it
depends on the performance of the contracting commercial bank. See Note 12
of the Notes to Financial Statements.
Pending Litigation
The Company is a defendant (together with its former parent, Cooper
Industries, Inc.) 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 Company is engaged in settlement discussions with respect to
this case and management does not believe the ultimate resolution of this
legal action will have an adverse impact on the results of operations or the
financial condition of the Company.
Impact of the Year 2000 Issue
The "Year 2000 Issue" is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or statements, perform material requirements
planning or engage in similar normal business activities.
The Company believes the recent implementation of its integrated
management information system addresses the Year 2000 Issue for the programs
replaced with the new system. The Company is in the process of assessing the
impact of the Year 2000 Issue on other parts of its business. The Company
expects to implement the necessary upgrades in 1998 without a material impact
on the results of operations. These upgrades include significant
enhancements other than addressing the Year 2000 Issue, the costs of which
will be capitalized in accordance with the Statement of Position 98-1:
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Although its assessment process relating to the Year 2000
Issue is not yet complete, the Company presently believes that modifications
to existing software and conversions to new software can be made such that
the Company will be able to operate its systems without significant
disruptions due to the Year 2000 Issue and without a material impact upon its
results of operations or financial condition.
The Company intends to communicate with its significant suppliers and
large customers to determine the extent to which the Company would be
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. The success of the Company's suppliers and customers in remediating
their respective Year 2000 Issue is not within the Company's control, but the
Company does not currently expect that its operations will be materially
impacted by the Year 2000 Issue due to its suppliers or customers.
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; the degree to which the Company
is able to penetrate niche markets; and the extent to which the Company is
able to operate without disruption due to the Year 2000 Issue.
18
<PAGE> 8
Report of Management
- --------------------------------------------------------------------------------
The Company's management is responsible for the integrity and accuracy of the
financial statements. Management believes that the financial statements have
been prepared in conformity with generally accepted accounting principles
appropriate in the circumstances. In preparing the financial statements,
management makes informed judgments and estimates, where necessary, to
reflect the expected effects of events and transactions that have not been
completed.
In meeting its responsibility for the reliability of the financial
statements, management relies on a system of internal accounting controls.
This system is designed to provide reasonable assurance that assets are
safeguarded and transactions are executed in accordance with management's
authorization and recorded properly to permit the preparation of financial
statements in accordance with generally accepted accounting principles. The
design of this system recognizes that errors or irregularities may occur and
that estimates and judgments are required to assess the relative cost and
expected benefits of the controls. Management believes that the Company's
accounting controls provide reasonable assurance that errors or
irregularities that could be material to the financial statements are
prevented or would be detected within a timely period.
The Audit and Finance Committee of the Board of Directors (the
"Committee"), which is comprised solely of Directors who are not employees of
the Company, is responsible for monitoring the Company's accounting and
reporting practices. The Committee meets with management periodically to
review its activities and ensure that it is properly discharging its
responsibilities. The Committee also meets periodically with the independent
auditors, who have free access to the Committee and the Board of Directors,
to discuss internal accounting control and auditing, financial reporting and
tax matters.
The independent auditors are engaged to express an opinion on the
Company's consolidated financial statements. Their opinion is based on
procedures which they believe to be sufficient to provide reasonable
assurance that the financial statements contain no material errors.
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,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
St. Louis, Missouri
February 10, 1998
19
<PAGE> 9
Gardner Denver Machinery Inc.
<TABLE>
Consolidated Statement of Operations
(dollars in thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
--------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Revenues $291,547 218,000 191,541
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 191,617 148,191 132,876
Depreciation and amortization 9,662 8,097 8,263
Selling and administrative expenses 39,938 30,169 25,632
Interest expense 3,937 3,104 4,950
Other expense 242 -- --
-------- ------- -------
245,396 189,561 171,721
-------- ------- -------
Income before income taxes 46,151 28,439 19,820
Provision for income taxes 18,500 11,533 8,226
-------- ------- -------
Net income $ 27,651 16,906 11,594
======== ======= =======
Basic earnings per share $ 1.84 1.16 0.81
======== ======= =======
Diluted earnings per share $ 1.74 1.11 0.79
======== ======= =======
The accompanying notes are an integral part of this statement.
</TABLE>
20
<PAGE> 10
<TABLE>
Consolidated Balance Sheet
(dollars in thousands, expect per share amounts)
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31,
--------------------------
1997 1996
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 8,831 8,610
Receivables (net of allowances of $2,866 in 1997 and $2,935 in 1996) 62,307 47,547
Inventories, net 48,324 47,882
Deferred income taxes 2,784 2,910
Other 2,637 2,186
-------- -------
Total current assets 124,883 109,135
-------- -------
Property, plant and equipment, net 37,530 33,710
Intangibles, net 85,524 70,304
Deferred income taxes 15,845 18,437
Other assets 5,356 4,170
-------- -------
Total assets $269,138 235,756
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 459 932
Accounts payable and accrued liabilities 58,471 48,348
-------- -------
Total current liabilities 58,930 49,280
-------- -------
Long-term debt, less current maturities 51,227 55,069
Postretirement benefits other than pensions 52,977 56,662
Other long-term liabilities 2,393 627
-------- -------
Total liabilities 165,527 161,638
-------- -------
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares authorized; 15,435,953 and
14,797,263 shares issued and outstanding in 1997 and 1996, respectively 154 148
Capital in excess of par value 139,524 135,112
Treasury stock at cost, 18,937 shares in 1997 (333) --
Retained deficit (33,432) (61,083)
Cumulative translation adjustments (2,302) (59)
Total stockholders' equity 103,611 74,118
-------- -------
Total liabilities and stockholders' equity $269,138 235,756
======== =======
The accompanying notes are an integral part of this statement.
</TABLE>
21
<PAGE> 11
Gardner Denver Machinery Inc.
<TABLE>
Consolidated Statement of Stockholders' Equity
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Capital In Cumulative Total
Common Excess of Treasury Retained Translation Stockholders'
Stock Par Value Stock Deficit Adjustments Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995 $141 131,737 -- (89,583) -- 42,295
Stock issued for benefit plans
and options 3 1,342 1,345
Net income 11,594 11,594
---- ------- ---- ------- ------ -------
Balance December 31, 1995 $144 133,079 -- (77,989) -- 55,234
Stock issued for benefit plans
and options 4 2,033 2,037
Net income 16,906 16,906
Cumulative translation adjustments (59) (59)
---- ------- ---- ------- ------ -------
Balance December 31, 1996 $148 135,112 -- (61,083) (59) 74,118
Stock issued for benefit plans
and options 6 4,412 4,418
Net income 27,651 27,651
Treasury stock (333) (333)
Cumulative translation adjustments (2,243) (2,243)
---- ------- ---- ------- ------ -------
Balance December 31, 1997 $154 139,524 (333) (33,432) (2,302) 103,611
==== ======= ==== ======= ====== =======
The accompanying notes are an integral part of this statement.
</TABLE>
22
<PAGE> 12
<TABLE>
Consolidated Statement of Cash Flows
(dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
----------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 27,651 16,906 11,594
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,662 8,097 8,263
LIFO liquidation income, net of provision for
obsolete and slow-moving inventory (3,227) (627) (1,134)
Stock issued for employee benefit plans 1,769 1,389 1,306
Deferred income taxes 2,471 456 6,578
Changes in assets and liabilities:
Receivables (7,822) 3,155 (4,851)
Inventories 7,483 7,210 10,322
Accounts payable and accrued liabilities 6,757 837 (1,440)
Other assets and liabilities, net (2,633) (3,493) (5,662)
-------- ------- -------
Net cash provided by operating activities 42,111 33,930 24,976
-------- ------- -------
Cash flows from investing activities:
Business acquisitions, net of cash (26,211) (34,845) --
Foreign currency hedging transactions (1,971) -- --
Capital expenditures (9,808) (4,171) (3,289)
Disposals of property, plant and equipment 117 735 4,376
-------- ------- -------
Net cash (used for) provided by investing activities (37,873) (38,281) 1,087
-------- ------- -------
Cash flows from financing activities:
Principal payments on long-term debt (27,986) (52,556) (67,357)
Proceeds from long-term borrowings 23,000 63,000 40,000
Debt issuance costs -- -- (205)
Proceeds from stock options, net of treasury stock transactions 2,316 648 38
-------- ------- -------
Net cash (used for) provided by financing activities (2,670) 11,092 (27,524)
-------- ------- -------
Effect of exchange rate changes (1,347) -- --
-------- ------- -------
Increase (decrease) in cash and equivalents 221 6,741 (1,461)
Cash and equivalents, beginning of year 8,610 1,869 3,330
-------- ------- -------
Cash and equivalents, end of year $ 8,831 8,610 1,869
======== ======= =======
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 consolidated financial statements reflect the operations of
Gardner Denver Machinery Inc. ("Gardner Denver" or the "Company") and its
subsidiaries. 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 three-for-two stock split distributed on
December 29, 1997 to stockholders of record at the close of business on
December 8, 1997 and a two-for-one stock split distributed on January 15,
1997 to stockholders of record at the close of business on December 27, 1996.
Both stock splits were effected in the form of a stock dividend.
Principles of Consolidation
The accompanying consolidated 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 20% - 50% ownership are accounted for by the equity
method.
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations are translated at
the exchange rate in effect at the balance sheet date, while revenues and
expenses are translated at average rates prevailing during the year.
Translation adjustments are reported as a separate component of stockholders'
equity.
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 the customer.
Inventories
Inventories are carried at the lower of cost or market value, primarily using
the last-in, first-out ("LIFO") method.
Property, Plant and Equipment
Property, 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
based on the liability method. Deferred income taxes are provided to reflect
temporary differences between financial and tax reporting.
Research and Development
Costs for research and development are expensed as incurred and were $2,845,
$2,405, and $1,316 for the years ended December 31, 1997, 1996, and 1995,
respectively.
Financial Instruments
Off balance sheet derivative financial instruments as of December 31, 1997
consist of an interest rate swap agreement used to fix interest rates on
floating rate debt. Included on the balance sheet is a foreign currency
forward contract in Finnish Marka to hedge foreign exchange risk on the
Company's investment in Tamrotor. The contract is marked to market and both
unrealized and realized gains and losses are included in the cumulative
translation adjustments component of stockholders' equity.
Earnings Per Share
The 1997 and 1996 basic earnings per share were calculated based on 15,059,569
and 14,625,078 weighted shares outstanding, respectively. The 1997 and 1996
diluted earnings per share were calculated based on 15,871,727 and
24
<PAGE> 14
- -------------------------------------------------------------------------------
15,294,330 weighted shares outstanding, respectively. The basic and
diluted earnings per share were calculated in accordance with Statement of
Financial Accounting Standards 128 ("SFAS 128"). For additional information
on the calculation of earnings per share required by SFAS 128, see Note 8.
NOTE 2: Acquisitions
On June 30, 1997, the Company purchased 100% of the issued and outstanding
stock of Tamrotor, a subsidiary of Tamrock Corporation located in Tampere,
Finland, for approximately $26.2 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
$15.4 million.
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.
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 the product technology, markets and
customers associated with these three acquisitions, the cost in excess of net
assets acquired for each acquisition is being amortized over 40 years using
the straight-line method.
All acquisitions have been accounted for by the purchase method, and
accordingly, the results of operations of Tamrotor, 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. The estimates and adjustments for Tamrotor
have not been finalized.
- -------------------------------------------------------------------------------
<TABLE>
NOTE 3: INVENTORIES
<CAPTION>
December 31,
--------------------------
1997 1996
-------- -------
<S> <C> <C>
Raw materials, including parts and subassemblies $ 47,992 45,632
Work-in-process 9,667 7,914
Finished goods 11,003 12,325
Perishable tooling and supplies 2,571 2,644
-------- -------
71,233 68,515
Excess of current standard costs over LIFO costs (10,964) (11,543)
Allowance for obsolete and slow-moving inventory (11,945) (9,090)
-------- -------
Inventories, net $ 48,324 47,882
======== =======
</TABLE>
- -------------------------------------------------------------------------------
During 1997, 1996 and 1995, 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 1997, 1996 and 1995 by $732, $1,213 and $1,619, respectively. 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 1995 through 1997, the LIFO liquidation income was recorded
in the fourth quarter.
25
<PAGE> 15
Gardner Denver Machinery Inc.
Notes to Consolidated Financial Statements (Continued)
- -------------------------------------------------------------------------------
<TABLE>
NOTE 4: PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLES
<CAPTION>
December 31,
--------------------
1997 1996
-------- -------
<S> <C> <C>
Property, plant and equipment:
Land and land improvements $ 2,836 2,753
Buildings 25,278 25,695
Machinery and equipment 67,850 66,273
Tooling, dies, patterns, etc. 26,462 25,493
Office furniture and equipment 9,353 8,872
Other 1,360 1,998
Construction in progress 3,484 808
-------- -------
136,623 131,892
Accumulated depreciation (99,093) (98,182)
-------- -------
Property, plant and equipment, net $ 37,530 33,710
======== =======
Intangibles:
Goodwill $102,351 85,092
Other 1,841 1,372
-------- -------
104,192 86,464
Accumulated amortization (18,668) (16,160)
-------- -------
Intangibles, net $ 85,524 70,304
======== =======
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<CAPTION>
December 31,
-------------------------
1997 1996
------- ------
<S> <C> <C>
Accounts payable - trade $23,371 12,993
Salaries, wages and related fringe benefits 4,364 4,590
Product liability, workers' compensation and other insurance 3,595 3,346
Accrued warranty 2,519 2,618
Accrued legal and environmental expenses 2,257 2,613
Accrued pension liability 4,063 4,224
Other 18,302 17,964
------- ------
Total accounts payable and accrued liabilities $58,471 48,348
======= ======
</TABLE>
26
<PAGE> 16
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
<TABLE>
Retirement plan expenses are as follows:
<CAPTION>
Year ended December 31,
-------------------------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Defined benefit plans:
Service cost - benefits earned during the year $ 904 962 527
Interest cost on projected benefit obligation 3,500 2,850 2,901
Actual return on assets (7,679) (6,264) (9,689)
Net amortization and deferral 3,316 2,311 6,524
------- ------ ------
Net pension expense (income) 41 (141) 263
Defined contribution plans 2,330 1,981 2,260
------- ------ ------
Total retirement plan expense $ 2,371 1,840 2,523
======= ====== ======
</TABLE>
- -------------------------------------------------------------------------------
The actuarial present value of benefit obligations and the funded status of
the Company's defined benefit pension plans are as follows:
<TABLE>
<CAPTION>
Plans with Assets in Plans with
Excess of Accumulated Accumulated Benefits
Benefits in Excess of Assets
--------------------- --------------------
December 31, December 31,
--------------------- --------------------
1997 1996 1997 1996
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Vested benefit obligation $41,528 36,804 5,770 8,831
======= ====== ====== ======
Accumulated benefit obligation $42,417 38,496 5,924 9,324
======= ====== ====== ======
Projected benefit obligation $42,857 39,322 5,924 9,919
Plan assets at fair value 51,925 45,860 3,253 5,940
------- ------ ------ ------
Plan assets in excess of (less than) projected benefit obligation 9,068 6,538 (2,671) (3,979)
Unrecognized net (gain) loss (8,023) (5,695) 36 (203)
Unrecognized net (asset) liability from adoption date (436) (656) 64 75
Unrecognized prior service cost (1,052) 297 -- --
Adjustment required to recognize minimum liability -- -- (103) (117)
------- ------ ------ ------
Pension (liability) asset, end of year $ (443) 484 (2,674) (4,224)
======= ====== ====== ======
</TABLE>
27
<PAGE> 17
Gardner Denver Machinery Inc.
Notes to Consolidated Financial Statements (Continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Computational Assumptions
Projected Benefit
Net Pension Cost Obligation
------------------------------ -----------------
December 31, December 31,
------------------------------ -----------------
1997 1996 1995 1997 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Discount rate 7.50% 7.00% 7.00% 7.25% 7.50%
Rate of increase in compensation levels 5.50% 5.50% 5.50% 5.50% 5.50%
Expected long-term rate of return on assets 8.50% 8.50% 8.50% -- --
</TABLE>
- -------------------------------------------------------------------------------
The full-time salaried and hourly employees of the Company's operations
in Finland have pension benefits which are guaranteed by the Finnish
government. Although the plans are similar to defined benefit plans, the
guarantee feature of the government causes the substance of the plans to be
defined contribution. Therefore, the discounted future liability of these
plans is not included in the liability for defined benefit plans, but the
expense for the Company's contribution is included in the pension cost for
defined contribution plans.
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 Company's matching
contributions are in the form of the Company's common stock, previously
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 2,250,000 shares of
common stock has been reserved for issuance under the Incentive Plan.
Through December 31, 1997, the Company has granted options on 1,898,409
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
1994, 1995, and 1997 expire five years after the date of grant. The options
granted to employees in 1996 expire ten years after the date of the grant.
Under the Incentive Plan, each nonemployee director is automatically
granted an option to purchase 3,000 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.
The Company has an employee stock purchase plan (the "Stock Purchase
Plan") and has reserved 675,000 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. Each offering
under the Stock Purchase Plan requires participating employees to have
withheld from pay the purchase price of the options over a two year period.
The exercise date for the previous offering was November 7, 1997, at which
time employees elected to purchase 277,185 shares at the offering price of
$5.12 per share. The exercise date for the most recent offering is November
8, 1999. As of December 31, 1997, employees had enrolled to purchase 103,146
shares at the current offering price of $21.97 per share.
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 as if the compensation costs 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:
28
<PAGE> 18
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C> <C>
Net income As reported $27,651 16,906 11,594
Pro forma 26,817 16,328 11,389
Basic EPS As reported $ 1.84 1.16 0.81
Pro forma 1.78 1.12 0.80
Diluted EPS As reported $ 1.74 1.11 0.79
Pro forma 1.69 1.07 0.78
</TABLE>
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,
1997, 1996 and 1995, and changes during the years then ended, is presented in
the table and narrative below (shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------- -------------------- -----------------
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 1,371 $ 4.88 1,225 $3.33 647 $3.02
Granted 159 18.28 384 8.77 631 3.63
Exercised (293) 3.96 (223) 3.18 (38) 3.00
Forfeited (63) 5.27 (15) 3.42 (15) 3.35
----- ----- -----
Options outstanding, end of year 1,174 6.91 1,371 4.88 1,225 3.33
===== ===== =====
Options exercisable, end of year 627 4.17 581 3.20 390 3.01
Weighted average fair value of options granted 6.76 5.04 1.37
</TABLE>
- -------------------------------------------------------------------------------
The following table summarizes information about fixed-price stock
options outstanding at December 31, 1997
(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 12/31/97 Life Price at 12/31/97 Price
--------------- -------------------------------------------- ------------------------
<C> <C> <C> <C> <C> <C>
$ 3.00 - 3.58 680 1.7 years $ 3.36 521 $3.29
5.04 - 9.25 334 8.2 8.70 106 8.54
16.42 - 16.79 122 4.2 16.75 -- --
22.44 - 24.50 38 4.7 23.26 -- --
</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 1997, 1996 and 1995, respectively: risk-free interest rates of
6.3%, 6.8% and 6.6%; expected lives of 4.1, 8.8 and 3.3 years; and expected
volatility of 35%. No dividends payments are included in this valuation.
29
<PAGE> 19
Gardner Denver Machinery Inc.
Notes to Consolidated Financial Statements (Continued)
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
Net postretirement plan income is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Service cost $ 30 100 100
Interest cost 2,005 1,800 2,500
Net amortization and deferrals (3,704) (4,000) (4,100)
------- ------ ------
Net annual income $(1,669) (2,100) (1,500)
======= ====== ======
</TABLE>
- -------------------------------------------------------------------------------
The actuarial present value of accumulated postretirement benefit
obligations other than pensions ("APBO") is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
------- ------
<S> <C> <C>
Retired employees $26,486 26,460
Employees eligible to retire 1,419 1,477
Other employees 200 220
------- ------
Accumulated postretirement benefit obligations 28,105 28,157
------- ------
Unrecognized actuarial net gain 18,472 20,905
Unrecognized prior service benefit 6,400 7,600
------- ------
Postretirement benefit obligations other than pensions $52,977 56,662
======= ======
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial assumptions:
Discount rate 7.25% 7.5%
Ensuing year to 2005-health care cost trend rate Pre-65: 7.5% ratable to 5.5% Pre-65: 8.0% ratable to 5.5%
Post-65: 6.5% 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 8.25% 9%
Increased expense 7.75% 9%
</TABLE>
30
<PAGE> 20
- -------------------------------------------------------------------------------
NOTE 8: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
At December 31, 1997 and 1996, 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,
1997 and 1996, were 15,435,953 and 14,797,263, respectively. No shares of
preferred stock were issued or outstanding at December 31, 1997 or 1996. 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.
The following is the disclosure required for SFAS 128, "Earnings Per
Share," which shows the calculation of basic and diluted earnings per share:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ------------------------- -------------------------
Amt. Amt. Amt.
Net Per Net Per Net Per
Income Shares Share Income Shares Share Income Shares Share
---------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Income available
to common stock-
holders $27,651 15,059,569 $1.84 16,906 14,625,078 1.16 11,594 14,273,334 0.81
===== ==== ====
DILUTED EPS:
Effect of dilutive
securities:
Stock options granted
and outstanding -- 812,158 -- 669,252 -- 391,464
------- ---------- ------ ---------- ------ ----------
Income available to
common stockholders
and assumed conversions $27,651 15,871,727 $1.74 16,906 15,294,330 1.11 11,594 14,664,798 0.79
======= ========== ===== ====== ========== ==== ====== ========== ====
</TABLE>
31
<PAGE> 21
Gardner Denver Machinery Inc.
Notes to Consolidated Financial Statements (Continued)
- -------------------------------------------------------------------------------
<TABLE>
NOTE 9: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
<CAPTION>
December 31,
-------------------------
1997 1996
------- ------
<S> <C> <C>
Credit Line, due 2000 <F1> $15,000 18,000
Unsecured senior note, due 2006 <F2> 35,000 35,000
Fixed rate industrial revenue bond, due 2000 <F3> -- 1,329
Variable rate industrial revenue bond, due 1997 -- 300
5.0% Note, due 2001 828 1,011
3.0% Industrial development note, due 2001 281 350
Bank note due in Finnish Marka <F4> 575 --
Other 2 11
------- ------
51,686 56,001
Current maturities of long-term debt (459) (932)
------- ------
Long-term debt, less current maturities $51,227 55,069
======= ======
<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, 1997 and 1996, this rate
was 6.5% and 6.2%, respectively, and averaged 6.3% and 6.2% for the
years ended December 31, 1997 and 1996, 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 carried interest at 8.0% and was
secured by a letter of credit which guaranteed the outstanding
principal. This bond was assumed by the Company at the acquisition of
Lamson and prepaid in 1997.
<F4> This debt was assumed upon the acquisition of Tamrotor and provides for
an interest rate of 4.9%. The debt was used to purchase machinery
and equipment and is secured by such equipment.
</TABLE>
- -------------------------------------------------------------------------------
On August 1, 1997, the Company requested, and its lenders agreed to, the
second and final extension of its three-year revolving loan, which was
refinanced in November 1995. 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. 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 $15,000 outstanding at
December 31, 1997, leaving $50,000 available for additional borrowings or to
issue as letters of credit. The total debt balance will mature on November
30, 2000. Maturities of long-term debt for the five years subsequent to
December 31, 1997 are $459, $463, $20,455, $5,309 and $5,000, respectively.
Interest paid for 1997, 1996 and 1995 was $4,374, $2,423 and $5,348,
respectively.
The rentals for all operating leases were $2,108, $1,519 and $1,351 in
1997, 1996 and 1995, 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 and European operations. 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.
32
<PAGE> 22
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Revenues Operating Earnings Identifiable Assets
Year ended December 31, Year ended December 31, December 31,
------------------------------------------------------------------------------------------
Industry Segments 1997 1996 1995 1997 1996 1995 1997 1996 1995
- ----------------------- ----------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Compressed Air Products $228,214 188,027 171,926 $38,554 30,399 27,836 $199,971 166,987 132,877
Petroleum Products 63,333 29,973 19,615 13,211 2,258 (1,432) 41,707 38,812 31,697
-------- ------- ------- ------- ------ ------ -------- ------- -------
Total $291,547 218,000 191,541 51,765 32,657 26,404 241,678 205,799 164,574
======== ======= =======
Interest expense (3,937) (3,104) (4,950)
General corporate (1,677) (1,114) (1,634) 27,460 29,957 19,677
------- ------ ------ -------- ------- -------
Income before income
taxes $46,151 28,439 19,820
======= ====== ======
Total assets $269,138 235,756 184,251
======== ======= =======
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------
1997 1996 1995
------ ----- -----
<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 $ 442 1,164 1,762
Petroleum Products 778 857 691
------ ----- -----
Total $1,220 2,021 2,453
====== ===== =====
Provision for obsolete and slow-moving inventory, included in operating
earnings above:
Compressed Air Products $ 507 1,048 58
Petroleum Products 358 750 231
------ ----- -----
Total $ 865 1,798 289
====== ===== =====
Depreciation and amortization, included in operating earnings above:
Compressed Air Products $8,458 7,043 7,143
Petroleum Products 1,204 1,054 1,120
------ ----- -----
Total $9,662 8,097 8,263
====== ===== =====
Capital expenditures:
Compressed Air Products $7,755 3,510 2,987
Petroleum Products 2,053 661 302
------ ----- -----
Total $9,808 4,171 3,289
====== ===== =====
</TABLE>
- -------------------------------------------------------------------------------
Revenues outside the United States were comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
Geographic Segments 1997 1996 1995
- ---------------------------------- ------- ------ ------
<S> <C> <C> <C>
Sold to unaffiliated companies in:
Asia $14,240 14,937 10,311
Canada 19,245 14,282 14,240
Latin America 12,413 10,434 8,563
Europe 26,652 9,787 5,934
Other 6,165 4,109 2,582
------- ------ ------
$78,715 53,549 41,630
======= ====== ======
</TABLE>
33
<PAGE> 23
Gardner Denver Machinery Inc.
Notes to Consolidated Financial Statements (Continued)
- -------------------------------------------------------------------------------
<TABLE>
NOTE 11: INCOME TAXES
<CAPTION>
Year ended December 31,
-------------------------------
1997 1996 1995
------- ------ -----
<S> <C> <C> <C>
Income taxes:
Current:
U.S. federal $13,936 9,422 1,437
U.S. state and local 1,593 1,385 211
International 253 -- --
------- ------ -----
15,782 10,807 1,648
Deferred:
U.S. federal 2,190 633 5,735
U.S. state and local 251 93 843
International 277 -- --
------- ------ -----
2,718 726 6,578
------- ------ -----
Provision for income taxes $18,500 11,533 8,226
======= ====== =====
The differences between the provision 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) $16,153 9,953 6,739
State and local income taxes 1,573 1,238 989
Nondeductible goodwill 769 592 480
Other, net 5 (250) 18
------- ------ -----
Total $18,500 11,533 8,226
======= ====== =====
Total income taxes paid $15,138 9,839 4,284
======= ====== =====
<CAPTION>
- ------------------------------------------------------------------------------------
December 31,
--------------------
1997 1996
-------- -------
<S> <C> <C>
Components of deferred tax balances:
Deferred tax assets:
Reserves and accruals $ 11,746 10,695
Postretirement benefits other than pensions 20,677 22,106
Other 175 160
-------- -------
Total deferred tax assets $ 32,598 32,961
======== =======
Deferred tax liabilities:
LIFO inventory $ (4,039) (4,968)
Plant and equipment (4,428) (3,667)
VEBA trust (468) (383)
Other (5,034) (2,596)
-------- -------
Total deferred tax liabilities (13,969) (11,614)
Net deferred tax assets $ 18,629 21,347
======== =======
</TABLE>
United States taxes and foreign country withholding taxes are not provided on
undistributed earnings of international subsidiaries because the Company
intends to reinvest such earnings indefinitely. The estimated amount of
income taxes that would be incurred should such earnings be distributed is
not significant due to available foreign tax credits.
34
<PAGE> 24
- -------------------------------------------------------------------------------
NOTE 12: 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, 1997, the Company had an interest rate swap agreement with a
commercial bank (the "Counter Party") outstanding, having a notional
principal amount of $15,000. The swap provides a fixed interest rate of 6%.
The interest rate swap terminated in November 1997, but was 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 agreement. 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, as of December 31, 1997, 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, the swap agreement and a forward foreign
currency contract hedging the Company's investment in its Finnish operations.
The book values of these instruments are not materially different from their
respective fair values. The interest rate swap agreement is not valued in
the financial statements and any incremental interest expense or income
generated is accrued as incurred.
NOTE 13: 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. The Company 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 Company is engaged in settlement
discussions with respect to this case and management does not believe that
the outcome of this litigation will have an adverse effect on its results of
operations, financial condition or liquidity.
NOTE 14: SUBSEQUENT EVENTS
On January 5, 1998, the Company acquired substantially all the assets of
Geological Equipment Corporation ("Geoquip") for approximately $12 million
and paid approximately $2 million in cash to acquire patents, previously
owned by Geoquip's shareholders, for products manufactured by Geoquip. The
Company also assumed certain liabilities of Geoquip. The purchase price for
the assets of Geoquip was paid in cash ($1.5 million) and 430,695 shares of
Gardner Denver common stock. Geoquip, located in Fort Worth, Texas, is a
leading manufacturer of pumps, ranging from 250 to 2,400 horsepower, for the
well service and water blast industries. Geoquip also remanufactures pumps
and provides repair services.
On January 29, 1998, the Company purchased substantially all of the
assets and assumed certain liabilities of Champion Pneumatic Machinery
Company, Inc. ("Champion"), a subsidiary of CRL Industries, Inc., for
approximately $24 million. Champion, located in Princeton, Illinois, is a
leading manufacturer of lubricated and non-lubricated single acting, single
and two-stage reciprocating compressors. Champion's products serve the
industrial market, service support industry, oil-free applications and
consumer market.
On January 20, 1998, the Company entered into a new revolving line of
credit agreement with an aggregate $125 million borrowing capacity and
terminated the existing Credit Line. The new agreement's terms and
restrictions are similar to the previous Credit Line except that the new
agreement matures in 2003.
- -------------------------------------------------------------------------------
<TABLE>
NOTE 15: UNAUDITED QUARTERLY OPERATING RESULTS
<CAPTION>
1997 1996
------------------------------------------- ------------------------------------------
1 2 3 4<F2> 1 2 3 4<F2>
------- ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $66,075 69,447 76,451 79,574 $48,569 48,914 56,519 63,998
Gross margin <F1> 21,622 23,704 25,742 28,862 15,013 14,938 17,542 22,316
Net income 5,324 6,813 6,965 8,549 3,861 3,691 3,735 5,619
Basic earnings per share $ 0.36 0.46 0.46 0.56 $ 0.27 0.25 0.26 0.38
Diluted earnings per share $ 0.34 0.43 0.44 0.53 $ 0.26 0.24 0.25 0.36
<FN>
<F1> Gross margin equals revenues less cost of sales.
<F2> Includes net income in 1997 and 1996 of $732 and $1,213, respectively,
related to LIFO inventory liquidations.
</TABLE>
35
<PAGE> 25
Shareholder Information
Stock Information
Gardner Denver's common stock has traded on the New York Stock Exchange since
August 14, 1997 under the ticker symbol GDI. Prior to this date, the
Company's common stock traded 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 and
on December 29, 1997, the Company completed a three-for-two stock split. The
quarterly high and low sales prices for the Company's common stock for the
most recent two years, adjusted to reflect these stock splits, as reported by
the New York Stock Exchange and the Nasdaq Stock Market, are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
High/Low Qtr 1 Qtr 2 Qtr 3 Qtr 4
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $21 11/64 - $10 11/64 20 21/64 - 12 25 53/64 - 17 21/64 28 27/64 - 20 5/8
1996 $ 7 59/64 - $ 5 53/64 9 27/64 - 7 11/64 10 1/2 - 8 11/64 12 59/64 - 9 3/4
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 2, 1998, there were approximately 9,500 holders of record of
Gardner Denver's common stock.
Dividends
Gardner Denver has not paid a cash dividend since its spin-off 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
(800) 519-3111
(201) 324-1225
(201) 222-4955 (for the hearing impaired)
E-mail address: [email protected]
News Releases by Fax
Gardner Denver's news releases, including the quarterly earnings release, are
available by fax, without charge, by calling (800) 758-5804, extension
303875, or by visiting our homepage at http://www.gardnerdenver.com.
Form 10-K
A copy of the annual report on Form 10-K filed with the Securities and
Exchange Commission is available, without charge, upon written request to the
Corporate Secretary at the Company's address indicated below.
Annual Meeting
The 1998 Annual Meeting of Stockholders will be held on May 5 at the Holiday
Inn Quincy, 201 South Third Street, Quincy, Illinois, starting at 1:30 p.m.
Corporate Offices
Gardner Denver Machinery Inc.
1800 Gardner Expressway
Quincy, Illinois 62301
(217) 222-5400
36
<PAGE> 26
Directors and Officers
BOARD OF DIRECTORS
ALAN E. RIEDEL
Chairman of the Board
Gardner Denver Machinery Inc.
DONALD G. BARGER, JR.
Vice President, Chief Financial Officer
Worthington Industries, Inc.
ROSS J. CENTANNI
President and Chief Executive Officer
Gardner Denver Machinery Inc.
FRANK J. HANSEN
President and Chief Operating Officer
IDEX Corporation
THOMAS M. MCKENNA
Past President and Chief Executive Officer
Moorman Manufacturing Company
MICHAEL J. SEBASTIAN
Executive Vice President (retired)
Cooper Industries, Inc.
EXECUTIVE OFFICERS
ROSS J. CENTANNI
President and Chief Executive Officer
DAVID BROWN
Vice President and General Manager,
Gardner Denver Blower Division
HELEN W. CORNELL
Vice President, Corporate Secretary and Treasurer
ROGER A. FINNAMORE
Vice President, Manufacturing Services and Technology
STEVEN M. KRIVACEK
Vice President, Human Resources
PHILIP R. ROTH
Vice President, Finance and Chief Financial Officer
J. DENNIS SHULL
Vice President and General Manager,
Gardner Denver Compressor and Pump Division
37
<PAGE> 1
Exhibit 21.0
<TABLE>
GARDNER DENVER MACHINERY INC.
SCHEDULE OF SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1997
<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
TCM Investments, Inc. Oklahoma TCM Investments, Inc.
Oy Tamrotor Ab Finland Oy Tamrotor Ab
</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, 1997, into the Company's previously filed Registration
Statements on Form S-8, File Numbers 33-91088 and 333-24921.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
March 30, 1998
<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 Quincy, Illinois this 24th day of March 1998.
------ -------- ----
/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 Houston, Texas this 24th day of March 1998.
------- ----- ----
/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 New Albany, Ohio this 24th day of March 1998.
---------- ---- ----
/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 Houston, Texas this 24th day of March 1998.
------- ----- ----
/s/Alan E. Riedel
------------------------------------
Alan E. Riedel
<PAGE> 5
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 Northbrook, Illinois this 24th day of March 1998.
---------- -------- ----
/s/Frank J. Hansen
-------------------------------------
Frank J. Hansen
<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, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,831
<SECURITIES> 0
<RECEIVABLES> 64,194
<ALLOWANCES> (2,866)
<INVENTORY> 48,324
<CURRENT-ASSETS> 124,883
<PP&E> 136,623
<DEPRECIATION> (99,093)
<TOTAL-ASSETS> 269,138
<CURRENT-LIABILITIES> 58,930
<BONDS> 51,686
<COMMON> 154
0
0
<OTHER-SE> 103,457
<TOTAL-LIABILITY-AND-EQUITY> 269,138
<SALES> 290,140
<TOTAL-REVENUES> 291,547
<CGS> 191,477
<TOTAL-COSTS> 191,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 244
<INTEREST-EXPENSE> 3,937
<INCOME-PRETAX> 46,151
<INCOME-TAX> 18,500
<INCOME-CONTINUING> 27,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,651
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.74
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR
THE YEAR-TO-DATE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,965
<SECURITIES> 0
<RECEIVABLES> 65,558
<ALLOWANCES> (2,794)
<INVENTORY> 47,905
<CURRENT-ASSETS> 128,488
<PP&E> 133,090
<DEPRECIATION> (97,715)
<TOTAL-ASSETS> 272,742
<CURRENT-LIABILITIES> 62,209
<BONDS> 62,152
<COMMON> 101
0
0
<OTHER-SE> 92,702
<TOTAL-LIABILITY-AND-EQUITY> 272,742
<SALES> 210,863
<TOTAL-REVENUES> 211,973
<CGS> 140,816
<TOTAL-COSTS> 140,905
<OTHER-EXPENSES> 89
<LOSS-PROVISION> 190
<INTEREST-EXPENSE> 3,147
<INCOME-PRETAX> 31,975
<INCOME-TAX> 12,873
<INCOME-CONTINUING> 19,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,102
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR
THE YEAR-TO-DATE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,688
<SECURITIES> 0
<RECEIVABLES> 62,727
<ALLOWANCES> (2,904)
<INVENTORY> 50,988
<CURRENT-ASSETS> 124,073
<PP&E> 132,807
<DEPRECIATION> (97,324)
<TOTAL-ASSETS> 268,871
<CURRENT-LIABILITIES> 55,822
<BONDS> 70,274
<COMMON> 100
0
0
<OTHER-SE> 87,684
<TOTAL-LIABILITY-AND-EQUITY> 268,871
<SALES> 134,803
<TOTAL-REVENUES> 135,522
<CGS> 90,157
<TOTAL-COSTS> 90,196
<OTHER-EXPENSES> 39
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 1,913
<INCOME-PRETAX> 20,310
<INCOME-TAX> 8,173
<INCOME-CONTINUING> 12,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,137
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR
THE YEAR-TO-DATE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,860
<SECURITIES> 0
<RECEIVABLES> 57,694
<ALLOWANCES> (2,830)
<INVENTORY> 47,785
<CURRENT-ASSETS> 112,835
<PP&E> 128,816
<DEPRECIATION> (95,944)
<TOTAL-ASSETS> 237,916
<CURRENT-LIABILITIES> 52,466
<BONDS> 49,633
<COMMON> 99
0
0
<OTHER-SE> 79,836
<TOTAL-LIABILITY-AND-EQUITY> 237,916
<SALES> 65,665
<TOTAL-REVENUES> 66,075
<CGS> 44,434
<TOTAL-COSTS> 44,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 1,094
<INCOME-PRETAX> 9,024
<INCOME-TAX> 3,700
<INCOME-CONTINUING> 5,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,324
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.34
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED 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>
<RESTATED>
<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> 1.16
<EPS-DILUTED> 1.11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR
THE YEAR-TO-DATE PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 16,012
<SECURITIES> 0
<RECEIVABLES> 49,575
<ALLOWANCES> (2,806)
<INVENTORY> 47,800
<CURRENT-ASSETS> 115,133
<PP&E> 131,373
<DEPRECIATION> (97,023)
<TOTAL-ASSETS> 245,705
<CURRENT-LIABILITIES> 52,486
<BONDS> 69,956
<COMMON> 49
0
0
<OTHER-SE> 67,836
<TOTAL-LIABILITY-AND-EQUITY> 245,705
<SALES> 152,980
<TOTAL-REVENUES> 154,002
<CGS> 106,480
<TOTAL-COSTS> 106,509
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 66
<INTEREST-EXPENSE> 2,000
<INCOME-PRETAX> 19,074
<INCOME-TAX> 7,629
<INCOME-CONTINUING> 11,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,287
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.75
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR
THE YEAR-TO-DATE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,511
<SECURITIES> 0
<RECEIVABLES> 37,979
<ALLOWANCES> (2,442)
<INVENTORY> 40,726
<CURRENT-ASSETS> 85,139
<PP&E> 124,486
<DEPRECIATION> (94,050)
<TOTAL-ASSETS> 176,865
<CURRENT-LIABILITIES> 30,482
<BONDS> 25,384
<COMMON> 49
0
0
<OTHER-SE> 63,685
<TOTAL-LIABILITY-AND-EQUITY> 176,865
<SALES> 96,547
<TOTAL-REVENUES> 97,483
<CGS> 67,507
<TOTAL-COSTS> 67,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 37
<INTEREST-EXPENSE> 1,094
<INCOME-PRETAX> 12,684
<INCOME-TAX> 5,034
<INCOME-CONTINUING> 7,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,552
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<CASH> 8,040
<SECURITIES> 0
<RECEIVABLES> 39,936
<ALLOWANCES> (2,448)
<INVENTORY> 43,695
<CURRENT-ASSETS> 90,619
<PP&E> 125,826
<DEPRECIATION> (94,452)
<TOTAL-ASSETS> 183,946
<CURRENT-LIABILITIES> 33,393
<BONDS> 32,744
<COMMON> 48
0
0
<OTHER-SE> 59,601
<TOTAL-LIABILITY-AND-EQUITY> 183,946
<SALES> 48,283
<TOTAL-REVENUES> 48,569
<CGS> 33,550
<TOTAL-COSTS> 33,556
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 594
<INCOME-PRETAX> 6,435
<INCOME-TAX> 2,574
<INCOME-CONTINUING> 3,861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,861
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.26
</TABLE>
