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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, 1998
/ / 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 1-13215
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GARDNER DENVER, INC.
(formerly known as 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, Quincy, IL 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 12, 1999 was $180,407,256.
The number of shares outstanding of the registrant's Common Stock, as
of March 12, 1999 was 15,072,444.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Gardner Denver, Inc. Proxy Statement, dated March
26, 1999 (incorporated into Part III of this Annual Report on Form 10-K).
Portions of the 1998 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, Inc. ("Gardner Denver" or the "Company", formerly known
as Gardner Denver Machinery Inc.) 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, wastewater aeration and
vacuum systems. Gardner Denver also believes that it is one of the
leading manufacturers of petroleum pumps used in oil and natural gas
drilling and production, well servicing and well stimulation.
In 1998, Gardner Denver had revenues of $385.0 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 72 percent of the total revenues in 1998 were
derived from sales in the United States and approximately 28 percent
were from sales to customers in various foreign countries. Of the total
foreign sales, 50 percent were to Europe, 20 percent to Canada, 10
percent to Latin America, 6 percent to Asia, and the remainder to
Africa, the Middle East 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 based in Tulsa, Oklahoma. 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 and packages. The addition of Tamrotor
provided the Company with a manufacturing base in Europe and growth
opportunities through complementary product lines and international
market penetration.
In January 1998, the Company purchased Champion Pneumatic Machinery
Company, Inc. ("Champion"). Champion, located in Princeton, Illinois,
is a leading manufacturer of low horsepower reciprocating compressors.
Champion opens new market opportunities for Gardner Denver products and
expands the range of reciprocating compressors available to existing
distributors.
In January 1998, the Company also acquired Geological Equipment
Corporation ("Geoquip"), a leading manufacturer of pumps, ranging from
350 to 2,400 horsepower, in Fort Worth, Texas. The operation also
remanufactures pumps and provides repair services. The addition of
Geoquip enhances the Gardner Denver well servicing product line, expands
the Company's presence in remanufacturing and repair services and
introduces the Company to the water blast market.
The Company purchased the Wittig Division of Mannesmann Demag AG
("Wittig") in March 1998. Wittig, located in Schophfeim, Germany, is a
leading manufacturer of rotary sliding vane compressors and vacuum
pumps. Wittig's products primarily serve the truck blower market for
liquid and dry bulk conveyance, as well as other industrial
applications. The acquisition of Wittig expands the Company's
manufacturing presence in Europe and provides distribution channels for
its blower products, which are produced in the United States.
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, sliding vane
compressors, positive displacement blowers and centrifugal blowers to
serve all aspects of the industrial market. Reciprocating compressors
range from 0.5 to 900 horsepower and are sold under the Gardner
Denver(R) and Champion(R) trademarks. Rotary screw compressors range
from 5 to 680 horsepower and are sold under the Gardner Denver(R),
Electra-Screw(R), Electra-Saver(R), and Twistair(R), Tamrotor(R),
and Tempest(R) 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
displacement blowers provide a constant volume of air flow at varying
levels of pressure. The Company's positive displacement blowers range
from 0 to 50 pounds per square inch gauge (PSIG) and 0 to 35,000 cubic
feet per minute (CFM) and are sold under the
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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 22 PSIG and 100 to
50,000 CFM. The Company's rotary sliding vane compressors and vacuum
pumps range from 0 to 150 PSIG and 0 to 3,000 CFM and are sold under the
trademark Wittig(TM). Sales of compressed air products by Gardner
Denver in 1998 were $298.4 million, of which approximately 70 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; wastewater treatment
facilities; and automotive service centers.
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 and
rotary vane compressors are used on trucks to vacuum leaves and debris
from street sewers and to unload liquid and dry bulk and powder
materials such as cement, grain and plastic pellets. Additionally,
blowers are used in numerous chemical process applications.
Petroleum Products Segment
Gardner Denver designs, manufactures, markets and services a diverse
group of pumps used in oil and natural gas production, well servicing
and stimulation, oil and gas drilling and water blast markets. Positive
displacement reciprocating pumps are marketed under the Gardner
Denver(R), Geoquip(TM), Ajax(R) and OPI(R) trademarks. Sales of
petroleum products in 1998 were $86.6 million of which approximately 78
percent were to customers in the United States.
Typical applications of Gardner Denver(R) pumps in oil and natural 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.
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
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natural 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 1998 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 a direct sales force to service OEM and
engineering firm accounts since these typically require more technical
assistance, shipment scheduling and product service.
As a majority of Gardner Denver's products are marketed through
independent distribution, Gardner Denver is committed to developing and
supporting its distribution network of over 1,500 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, Tamrotor and
Wittig, the Company also operates a blower packaging operation in
France, a compressor manufacturing and packaging facility in Finland and
a compressor manufacturing facility in Germany.
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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), Atlas Copco, Quincy
Compressor (a division of Coltec Industries), CompAir (a division of
Siebe P.L.C.) and Roots (a division of Dresser Equipment Group of
Halliburton Co.). 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 natural 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 natural 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 at a
majority of its manufacturing and design locations.
Expenditures for research and development sponsored by the Company were
$3.5 million in 1998, $2.8 million in 1997 and $2.4 million in 1996.
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MANUFACTURING
Gardner Denver has eleven manufacturing facilities that utilize 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 $50.2 million at December 31,
1998 as compared to approximately $91.1 million at December 31, 1997 and
approximately $46.5 million at December 31, 1996. The reduction in
backlog from 1997 to 1998 is attributable to decreased demand for
petroleum products as a result of the decline in the prices of oil and
natural gas during the year and decreased overall manufacturing output
in the United States in the second half of 1998. This decrease in
backlog was partially offset by the addition of backlog from the
acquisitions completed in 1998. Backlog consists of firm 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 canceled, 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), OPI(R), Champion(R) and Geoquip(TM).
Joy(R) is a registered trademark of Joy Technologies, Inc. Gardner
Denver has the right to use the Joy(R) trademark on aftermarket parts
until November 2027. The Company's right to use this trademark on air
compressors expired in November 1995. Pursuant to trademark license
agreements, Cooper has rights to use the Gardner Denver(R) trademark
for certain power tools and Gardner Denver has rights to use the
Ajax(R) trademark for petroleum pumps. Gardner Denver has registered
its trademarks in the countries where it is deemed necessary.
The Company also relies upon trade secret protection for its
confidential and proprietary information. The Company routinely enters
into confidentiality agreements with its employees. There can be no
assurance, however, that others will not independently obtain similar
information and techniques or otherwise gain access to the Company's
trade secrets or that the Company can effectively protect its trade
secrets.
EMPLOYEES
As of February 19, 1999, the Company had approximately 1,600 full-time
employees, of which approximately 530, including most of the employees
in Finland and Germany, were represented by labor unions. In March
1997, the Company and the union at the Quincy, Illinois plant executed a
five-year labor contract. The Company believes its current relations
with employees are good.
ENVIRONMENTAL MATTERS
The Company is subject to numerous federal, state, local and foreign
laws and regulations relating to the storage, handling, emission and
discharge of materials into the environment. The Company believes that
its existing environmental control procedures are adequate and it has no
current plans for substantial capital expenditures in this area. Gardner
Denver has an environmental policy that confirms its commitment to a
clean environment and to compliance with environmental laws. Gardner
Denver has an active environmental management program aimed at
compliance with existing environmental regulations and developing
methods to eliminate or significantly reduce the generation of
pollutants in the manufacturing processes.
The Company has been identified as a potentially responsible party
("PRP") with respect to six sites designated for cleanup under federal
"Superfund" or similar state laws, which impose liability for cleanup of
certain waste sites and for related natural resource damages. Persons
potentially liable for such costs and damages generally include the site
owner or operator and persons that disposed or arranged for the disposal
of hazardous substances found at those sites. Although these laws impose
joint and several liability, in application, the PRPs typically allocate
the investigation and cleanup costs based upon the volume of waste
contributed by each PRP. Based on currently available information,
Gardner Denver was only a small contributor to four of these waste sites
and has made de minimus settlements for their cleanup.
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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, liquidity 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, 1998, Gardner Denver has eleven manufacturing
plants, one distribution center, four warehouses, a packaging operation
and numerous sales offices. The significant facilities are as follows:
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Owned
Location Facility Type Sq. Feet or Leased
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Quincy, Illinois Executive Office & Sales 600,000 Owned
Office; Manufacturing -
petroleum and
compressor products
Sedalia, Missouri Manufacturing - 325,000 Owned
compressor products
Princeton, Illinois Manufacturing - compressor 130,000 Owned
products
Peachtree City, Georgia Administrative Office & 120,000 Leased
Sales Office; Manufacturing -
compressor products
Memphis, Tennessee Distribution Center 98,000 Owned
and Warehouse
Fishers, Indiana Remanufacturing - 60,000 Leased
compressor products
Tulsa, Oklahoma Manufacturing - 46,000 Owned
petroleum products
Fort Worth, Texas Manufacturing - 42,000 Owned
petroleum products
Tulsa, Oklahoma Remanufacturing - 24,000 Leased
petroleum products
Manteca, California Manufacturing - compressor 19,200 Owned
products
Oklahoma City, Oklahoma Sales Office and 8,000 Owned
Warehouse
Schophfeim, Germany Administrative Office & Sales 423,000 Owned
Office; Manufacturing -
compressor products
Tampere, Finland Administrative Office & Sales 93,600 Leased
Office; Manufacturing -
compressor products
Vantaa, Finland Sales Office and 9,100 Leased
Warehouse
Bezons, France Packaging and Warehouse 6,300 Leased
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The Peachtree City, Georgia facility is currently leased from the
Fayette County Development Authority in connection with industrial
revenue bond financing. The Company has an option to purchase the
property at a nominal price when the bonds are repaid in 2018. 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 owns a 30,000 square foot facility
in Montgomery, Alabama, which was acquired as part of the purchase of
Champion. This facility is currently leased to an unrelated
manufacturing company and is 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 began operating in the fourth quarter of 1998, and the 250,000
square foot Syracuse plant was shut down, remains idle and is offered
for sale.
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 of which are of an ordinary or routine nature incidental to
the operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matters were submitted to a vote of the stockholders.
EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company, their positions with the Company,
business history and certain other information, as of March 16, 1999,
are set forth below. These officers serve at the pleasure of the Board
of Directors.
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Name Office Age
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Ross J. Centanni Chairman, President and Chief Executive Officer 53
Philip R. Roth Vice President, Finance and Chief Financial Officer 48
J. Dennis Shull Vice President and General Manager, 50
Gardner Denver Compressor & Pump Division
David Brown Vice President and General Manager, 50
Gardner Denver Blower Division
Steven M. Krivacek Vice President, Human Resources 50
Helen W. Cornell Vice President, Corporate Secretary and Treasurer 40
</TABLE>
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Ross J. Centanni, age 53, has been President and Chief Executive Officer
and a director of Gardner Denver since its incorporation in November
1993. He has been Chairman of Gardner Denver's Board of Directors since
November 1998. 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 48, 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 50, 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 50, 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.
Steven M. Krivacek, age 50, 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 40, 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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information under "Stock Information" and "Dividends", contained on
page 35 of Gardner Denver's 1998 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 1998 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 1998 Annual Report to
Stockholders, is hereby incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under "Management's Discussion and Analysis", contained
on page 17 of Gardner Denver's 1998 Annual Report to Stockholders, is
hereby incorporated herein by reference.
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 34 of Gardner Denver's 1998 Annual Report to Stockholders, is
hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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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
through 5 of the Gardner Denver Proxy Statement, dated March 26, 1999,
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 5 through 7, "Executive Management Compensation" on pages 9 and 10
and "Employee and Executive Benefit Plans" contained on pages 15 and 16
of the Gardner Denver Proxy Statement, dated March 26, 1999, 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 7 and 8 of the Gardner Denver
Proxy Statement, dated March 26, 1999, is hereby incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Alan E. Riedel, a director of the Company, currently is of counsel
to Squire, Sanders and Dempsey L.L.P., which provided legal services to
the Company during 1998 and continues to render such services to the
Company.
<PAGE>
<PAGE>
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 1998 Annual Report to Stockholders.
Page No.
--------
Report of Independent Public Accountants 19
Consolidated Statement of Operations for
Each of the Three Years in the Period
Ended December 31, 1998 20
Consolidated Balance Sheets as of
December 31, 1998 and December 31, 1997 21
Consolidated Statement of Stockholders' Equity for
Each of the Three Years in the Period Ended
December 31, 1998 22
Consolidated Statement of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1998 23
Notes to Consolidated Financial Statements 24-34
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
---------
Report of Arthur Andersen LLP S-1
Schedule II - Valuation and Qualifying Accounts S-2
3. Exhibits
--------
2.1 Stock Purchase Agreement, dated as of July 11, 1996,
among Gardner Denver Machinery Inc., Jacques Lepage,
Suzanne Lepage, Anne Lepage and Arthur Lepage, filed as
Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current
Report on Form 8-K, dated August 9, 1996, as amended, and
incorporated herein by reference.
<PAGE>
<PAGE>
2.2 Sale and Purchase Agreement, dated as of June 30, 1997,
by and between Tamrock Oy, 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.
2.3 Asset Purchase Agreement, dated as of December 23, 1997,
among Gardner Denver Machinery Inc., Champion Pneumatic
Machinery Company, Inc. and CRL Industries, Inc., filed
as exhibit 2.0 to Gardner Denver Machinery Inc.'s Current
Report on Form 8-K, dated January 29, 1998, and
incorporated herein by reference.
3.1 Certificate of Incorporation of Gardner Denver, Inc., as
amended on May 5, 1998, filed as Exhibit 3.1 to Gardner
Denver, Inc.'s Quarterly Report on Form 10-Q, dated
August 13, 1998, and incorporated herein by reference.
3.2 ByLaws of Gardner Denver, Inc., as amended on May 5,
1998, filed as Exhibit 3.2 to Gardner Denver, Inc.'s
Quarterly Report on Form 10-Q, dated August 13, 1998, 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.
10.0 Credit Agreement, dated as of January 20, 1998, among
Gardner Denver Machinery Inc., The First National Bank of
Chicago and the lenders named therein, filed as exhibit
10.0 to Gardner Denver Machinery Inc.'s Quarterly Report
on Form 10-Q, dated May 14, 1998, and incorporated herein
by reference.
10.1<F*> Gardner Denver, Inc. Long-Term Stock Incentive Plan, as
amended.
10.2<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.
10.3<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.
10.4<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,
<PAGE>
<PAGE>
effective on March 31, 1994, and incorporated herein
by reference.
10.5<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.
13.0 The following portions of the Gardner Denver, Inc. 1998
Annual Report to Stockholders.
Page No.
--------
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 24-34
Stock Information 35
Dividends 35
21.0 Subsidiaries of Gardner Denver, Inc.
23.0 Consent of Arthur Andersen LLP.
24.0 Powers of Attorney from members of the Board of Directors
of Gardner Denver, Inc.
27.0 Financial Data Schedule for the year ended December 31,
1998.
<F*> Indicates management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
-------------------
There were no reports on Form 8-K during the quarter ended December
31, 1998.
<PAGE>
<PAGE>
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, INC.
By /s/Ross J. Centanni
----------------------------------
Name: Ross J. Centanni
Title: Chairman, President and CEO
Date: March 30, 1999
--------------------
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 Chairman, President and CEO March 30, 1999
- ------------------------------- (Principal Executive Officer
(Ross J. Centanni) and Director)
/s/Philip R. Roth Vice President, Finance and CFO March 30, 1999
- ------------------------------- (Principal Financial Officer)
(Philip R. Roth)
/s/Daniel C. Rizzo, Jr. Vice President and Corporate March 30, 1999
- ------------------------------- Controller (Chief Accounting
(Daniel C. Rizzo, Jr.) Officer)
<F*>Donald G. Barger, Jr. Director March 30, 1999
- -------------------------------
(Donald G. Barger, Jr.)
<F*>Frank J. Hansen Director March 30, 1999
- -------------------------------
(Frank J. Hansen)
<F*>Raymond R. Hipp Director March 30, 1999
- -------------------------------
(Raymond R. Hipp)
<F*>Thomas M. McKenna Director March 30, 1999
- -------------------------------
(Thomas M. McKenna)
<F*>Alan E. Riedel Director March 30, 1999
- -------------------------------
(Alan E. Riedel)
<F*>Michael J. Sebastian Director March 30, 1999
- -------------------------------
(Michael J. Sebastian)
<F*>Richard L. Thompson Director March 30, 1999
- -------------------------------
(Richard L. Thompson)
<F*>By /s/Helen W. Cornell
--------------------------------------
(Helen W. Cornell, as Attorney-In-Fact
for each of the persons indicated)
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gardner Denver, Inc.
We have audited in accordance with generally accepted auditing
standards, the financial statements included in Gardner Denver, Inc.'s.
1998 Annual Report to Stockholders incorporated by reference in this Form
10-K, and have issued our report thereon dated February 12, 1999. 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 12, 1999
S-1
<PAGE>
<PAGE>
</TABLE>
<TABLE>
GARDNER DENVER, 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<F1> DEDUCTIONS YEAR
----------- ------------ ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
- ----
Allowance for doubtful accounts $ 2,866 $ 306 $1,608 $ (409) $ 4,371
Allowance for obsolete and slow- 11,945 1,799 1,459 (5,498) 9,705
moving inventory
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
<FN>
<F1> Includes the allowance for doubtful accounts and the allowance for
obsolete and slow-moving inventory of acquired businesses at the
dates of acquisition and the effect of foreign currency
translation adjustments for those companies whose functional
currency is not the U.S. dollar.
</TABLE>
S-2
<PAGE>
<PAGE>
GARDNER DENVER, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
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, 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.
2.3 Asset Purchase Agreement, dated as of December 23, 1997,
among Gardner Denver Machinery Inc., Champion Pneumatic
Machinery Company, Inc. and CRL Industries, Inc., filed as
exhibit 2.0 to Gardner Denver Machinery Inc.'s Current
Report on Form 8-K, dated January 29, 1998, and incorporated
herein by reference.
3.1 Certificate of Incorporation of Gardner Denver, Inc., as
amended on May 5, 1998, filed as Exhibit 3.1 to Gardner
Denver, Inc.'s Quarterly Report on Form 10-Q, dated August
13, 1998, and incorporated herein by reference.
3.2 ByLaws of Gardner Denver, Inc., as amended on May 5, 1998,
filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly
Report on Form 10-Q, dated August 13, 1998, 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.
10.0 Credit Agreement, dated as of January 20, 1998, among
Gardner Denver Machinery Inc., The First National Bank of
Chicago and the lenders named therein, filed as exhibit 10.0
to Gardner Denver Machinery Inc.'s Quarterly Report on Form
10-Q, dated May 14, 1998, and incorporated herein by
reference.
10.1<F*> Gardner Denver, Inc. Long-Term Stock Incentive Plan, as
amended.
<PAGE>
<PAGE>
10.2<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.
10.3<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.
10.4<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.
10.5<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.
13.0 The following portions of the Gardner Denver, Inc. 1998
Annual Report to Stockholders.
Page No.
--------
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 24-34
Stock Information 35
Dividends 35
21.0 Subsidiaries of Gardner Denver, Inc.
23.0 Consent of Arthur Andersen LLP.
24.0 Powers of Attorney from members of the Board of Directors of
Gardner Denver, Inc.
27.0 Financial Data Schedule for the year ended December 31,
1998.
<F*> Indicates management contract or compensatory plan or
arrangement.
<PAGE>
Exhibit 10.1
GARDNER DENVER, INC.
LONG-TERM INCENTIVE PLAN
(As amended May 7, 1996, May 4, 1998, November 2, 1998 and May 4, 1999)
(Adjusted to reflect two-for-one stock split January 15, 1997 and
three-for-two stock split December 29, 1997)
1. PURPOSE
The purpose of the Gardner Denver, Inc. Long-Term Incentive Plan
(the "Plan") is to promote the long-term financial interests of Gardner
Denver, Inc. (the "Company"), including its growth and performance, by
encouraging employees of the Company and its subsidiaries to acquire an
ownership position in the Company, enhancing the ability of the Company
to attract and retain employees of outstanding ability, and providing
employees with an interest in the Company parallel to that of the
Company's stockholders.
2. DEFINITIONS
2.1 "Administrative Policies" means the administrative policies
and procedures adopted and amended from time to time by the Committee to
administer the Plan.
2.2 "Award" means any form of stock option, stock appreciation
right, restricted stock award, or performance share granted under the
Plan, whether singly, in combination, or in tandem, to a Participant by
the Committee pursuant to such terms, conditions, restrictions and
limitations, if any, as the Committee may establish by the Award
Agreement or otherwise.
2.3 "Award Agreement" means a written agreement with respect to
an Award between the Company and a Participant establishing the terms,
conditions, restrictions and limitations applicable to an Award. To the
extent an Award Agreement is inconsistent with the terms of the Plan,
the Plan shall govern the rights of the Participant thereunder.
2.4 "Board" shall mean the Board of Directors of the Company.
2.5 "Change of Control" means a change in control of the Company
(other than the initial distribution of Common Stock by Cooper
Industries, Inc.) of a nature that would be required to be reported
(assuming such event has not been "previously reported") in response to
Item 6(e) of Schedule 4A of Regulation 14A promulgated under the
Exchange Act; provided that, without limitation, a Change of Control
shall be deemed to have occurred at such time as (i) any "person" within
the meaning of Section 14(d) of the Exchange Act, is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's
then outstanding securities, or (ii) during any period of two
consecutive years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by
the Company's shareholders, of each new director was approved by a
<PAGE>
<PAGE>
vote of at least two-thirds of the directors then still in office who
were directors at the beginning of the period.
2.6 "Change of Control Price" means the higher of (i) the Fair
Market Value on the date of determination of the Change of Control or
(ii) the highest price per share actually paid for the Common Stock in
connection with the Change of Control of the Company.
2.7 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.8 "Committee" means the Management Development and Compensation
Committee of the Board, or such other committee designated by the Board
to administer the Plan, provided that the members of the Committee
qualify as disinterested administrators under Rule 16b-3 of the Exchange
Act.
2.9 "Common Stock" means the Common Stock, par value $0.01 per
share, of the Company.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.11 "Fair Market Value" means the average of the high and low
price of a share of Common Stock as reported on the composite tape for
securities listed on the Stock Exchange for the applicable date,
provided that if no sales of Common Stock were made on the Stock
Exchange on that date, the average of the high and low prices as
reported on the composite tape for the preceding day on which sales of
Common Stock were made.
2.12 "Participant" means an officer or employee of the Company or
its subsidiaries who is selected by the Committee to participate in the
Plan, and nonemployee directors of the Company to the extent provided in
Section 11 hereof.
2.13 "Stock Exchange" means the composite tape of the New York
Stock Exchange ("NYSE") or, if the Common Stock is no longer included on
the NYSE, then such other market price reporting system on which the
Common Stock is traded or quoted designated by the Committee after it
determines that such other exchange is both reliable and reasonably
accessible.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Committee. A majority of
the Committee shall constitute a quorum, and the acts of a majority of a
quorum shall be the acts of the Committee.
3.2 Subject to the provisions of the Plan, the Committee (i)
shall select the Participants, determine the type of Awards to be made
to Participants, determine the shares or share units subject to Awards,
and (ii) shall have the authority to interpret the Plan, to establish,
amend, and rescind any Administrative Policies, to determine the terms
and provisions of any agreements entered into hereunder, and to make all
other determinations necessary or advisable
<PAGE>
<PAGE>
for the administration of the Plan. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the Plan
or in any Award in the manner and to the extent it shall deem desirable
to carry it into effect. The determinations of the Committee in the
administration of the Plan, as described herein, shall be final and
conclusive, provided, however, that no action shall be taken which will
prevent the options granted under Section 11 or any Award granted under
the Plan from meeting the requirements for exemption from Section 16(b)
of the Exchange Act, or subsequent comparable statute, as set forth in
Rule 16(b)-3 of the Exchange Act or any subsequent comparable rule.
3.3 In order to enable Participants who are foreign nationals or
employed outside the United States, or both, to receive Awards under the
Plan, the Committee may adopt such amendments, Administrative Policies,
subplans and the like as are necessary or advisable, in the opinion of
the Committee, to effectuate the purposes of the Plan.
4. ELIGIBILITY
All employees of the Company and its subsidiaries who have
demonstrated significant management potential or who have the capacity
for contributing in a substantial measure to the successful performance
of the Company, as determined by the Committee, are eligible to be
Participants in the Plan. Participants may receive one or more Awards
under the Plan. Directors of the Corporation other than directors who
are employees of the Corporation shall be eligible only to receive stock
options pursuant to Section 11 hereof.
5. SHARES SUBJECT TO THE PLAN
5.1 The aggregate number of shares of Common Stock available for grant
of Awards under the Plan shall be that number of shares remaining
available for grant under the Plan on the close of business on the date
immediately prior to the 1999 Annual Meeting of Stockholders plus
500,000, subject to the adjustments provided for in Section 15 hereof.
Shares of Common Stock available for issuance under the Plan may be
authorized and unissued shares or treasury shares, as the Company may
from time to time determine.
5.2 Shares of Common Stock subject to an Award that expires
unexercised or that is forfeited, terminated or canceled, in whole or in
part, or is paid in cash in lieu of Common Stock, shall thereafter again
be available for grant under the Plan, provided that if the Participant
who had been granted such Award (i) was an officer subject to the
provisions of Section 16(b) of the Exchange Act and (ii) received
benefits of ownership of such shares for purposes of Section 16(b) of
the Exchange Act (such as dividends with respect to forfeited shares of
restricted stock), such shares shall not thereafter be available for
grant under the Plan to officers subject to the provisions of Section
16(b) of the Exchange Act.
6. AWARDS
Awards under the Plan may consist of: stock options (either
incentive stock options within the meaning of Section 422 of the Code or
nonstatutory stock options), stock appreciation rights, restricted stock
grants and performance shares; provided that no participant may be
granted Awards during any calendar year with respect thereto in excess
of 180,000 shares of
<PAGE>
<PAGE>
Common Stock. Awards of performance shares and restricted stock may
provide the Participant with dividends or dividend equivalents and
voting rights prior to vesting (whether based on a period of time or
based on attainment of specified performance conditions). The terms,
conditions and restrictions of each Award shall be set forth in an Award
Agreement.
7. STOCK OPTIONS
7.1 Grants. Awards may be granted in the form of stock options.
Stock options may be incentive stock options within the meaning of
Section 422 of the Code or nonqualified stock options (i.e., stock
options which are not incentive stock options), or a combination of
both, or any particular type of tax advantage option authorized by the
Code from time to time.
7.2 Terms and Conditions of Options. An option shall be
exercisable in whole or in such installments and at such times and upon
such terms as may be determined by the Committee; provided, however,
that no stock option shall be exercisable more than ten years after the
date of grant thereof. The option exercise price shall be established by
the Committee, but such price shall not be less than the Fair Market
Value on the date of the stock option's grant subject to adjustment as
provided in Section 15 hereof.
7.3 Restrictions Relating to Incentive Stock Options. Stock
options issued in the form of incentive stock options shall, in addition
to being subject to all applicable terms, conditions, restrictions and
limitations established by the Committee, comply with Section 422 of the
Code. Incentive stock options shall be granted only to full time
employees of the Company and its subsidiaries within the meaning of
Section 424 of the Code. The aggregate Fair Market Value (determined as
of the date the option is granted) of shares with respect to which
incentive stock options are exercisable for the first time by an
individual during any calendar year (under this Plan or any other plan
of the Company which provides for the granting of incentive stock
options) may not exceed $100,000 or such other number as may be
applicable under the Code from time to time.
7.4 Payment. Upon exercise, a Participant may pay the option
exercise price of a stock option in cash, shares of Common Stock, stock
appreciation rights or a combination of the foregoing, or such other
consideration as the Committee may deem appropriate. The Committee shall
establish appropriate methods for accepting Common Stock and may impose
such conditions as it deems appropriate on the use of such Common Stock
to exercise a stock option.
7.5 Additional Terms and Conditions. The Committee may, by way of
the Award Agreement or Administrative Policies, establish such other
terms, conditions or restrictions, if any, on any stock option award,
provided they are consistent with the Plan. The Committee may condition
the vesting of stock options on the achievement of financial performance
criteria established by the Committee at the time of grant.
8. STOCK APPRECIATION RIGHTS
8.1 Grants. Awards may be granted in the form of stock
appreciation rights ("SARs"). SARs shall entitle the recipient to
receive a payment equal to the appreciation in market value of a stated
number of shares of Common Stock from the price stated in the Award
<PAGE>
<PAGE>
Agreement to the Fair Market Value on the date of exercise or surrender.
An SAR may be granted in tandem with all or a portion of a related stock
option under the Plan ("Tandem SARs"), or may be granted separately
("Freestanding SARs"); provided, however, that Freestanding SARs shall
be granted only to Participants who are foreign nationals or are
employed outside of the United States, or both, and as to whom the
Committee determines the interests of the Company could not as
conveniently be served by the grant of other forms of Awards under the
Plan. A Tandem SAR may be granted either at the time of the grant of
the related stock option or at any time thereafter during the term of
the stock option. An SAR may be exercised no sooner than six months
after it is granted. In the case of SARs granted in tandem with stock
options granted prior to the grant of such SARs, the appreciation in
value shall be appreciation from the option exercise price of such
related stock option to the Fair Market Value on the date of exercise.
8.2 Terms and Conditions of Tandem SARs. A Tandem SAR shall be
exercisable to the extent, and only to the extent, that the related
stock option is exercisable. Upon exercise of a Tandem SAR as to some or
all of the shares covered in an Award, the related stock option shall be
cancelled automatically to the extent of the number of SAR's exercised,
and such shares shall not thereafter be eligible for grant under Section
5 hereof.
8.3 Terms and Conditions of Freestanding SARs. Freestanding SARs
shall be exercisable in whole or in such installments and at such times
as may be determined by the Committee. The base price of a Freestanding
SAR shall be determined by the Committee; provided, however, that such
price shall not be less than the Fair Market Value on the date of the
award of the Freestanding SAR.
8.4 Deemed Exercise. The Committee may provide that an SAR shall
be deemed to be exercised at the close of business on the scheduled
expiration date of such SAR, if at such time the SAR by its terms is
otherwise exercisable and, if so exercised, would result in a payment to
the Participant.
8.5 Additional Terms and Conditions. The Committee may, by way of
the Award Agreement or Administrative Policies, determine such other
terms, conditions and restrictions, if any, on any SAR Award, provided
they are consistent with the Plan.
9. RESTRICTED STOCK AWARDS
9.1 Grants. Awards may be granted in the form of restricted
stock ("Restricted Stock Awards"). Restricted Stock Awards shall be
awarded in such numbers and at such times as the Committee shall
determine.
9.2 Award Restrictions. Restricted Stock Awards shall be subject
to such terms, conditions or restrictions as the Committee deems
appropriate including, but not limited to, restrictions on
transferability, requirements of continued employment, individual
performance or the financial performance of the Company. The period of
vesting and the forfeiture restrictions shall be established by the
Committee at the time of grant, except that each restriction period
shall not be less than 12 months.
<PAGE>
<PAGE>
9.3 Rights as Shareholders. During the period in which any
restricted shares of Common Stock are subject to forfeiture restrictions
imposed under the preceding paragraph, the Committee may, in its
discretion, grant to the Participant to whom such restricted shares have
been awarded, all or any of the rights of a shareholder with respect to
such shares, including, but not limited to, the right to vote such
shares and to receive dividends.
9.4 Evidence of Award. Any Restricted Stock Award granted under
the Plan may be evidenced in such manner as the Committee deems
appropriate, including, without limitation, book entry registration or
issuance of a stock certificate or certificates.
10. PERFORMANCE SHARES
10.1 Grants. Awards may be granted in the form of shares of
Common Stock that are earned only after the attainment of predetermined
performance targets during a performance period as established by the
Committee ("Performance Shares").
10.2 Performance Criteria. The Committee may grant an Award of
Performance Shares to Participants as of the first day of each
Performance Period. As used herein, the term "Performance Period" means
the period during which a Performance Target is measured and the term
"Performance Target" means the predetermined goals established by the
Committee. A Performance Target will be established at the beginning of
each Performance Period. A Performance Target shall be based upon one
or any combination of the following goals or business criteria: (i)
revenues of the Company; (ii) operating income of the Company; (iii) net
income of the Company; (iv) earnings per share of the Company's Common
Stock; (v) the Company's return on equity; (vi) cash flow of the
Company; or (vii) Company stockholder total return. The Committee shall
be permitted to make adjustments when determining the attainment of a
Performance Target to reflect extraordinary or nonrecurring items or
events, or unusual nonrecurring gains or losses identified in the
Company's financial statements, as long as any such adjustments are made
in a manner consistent with Section 162(m) to the extent applicable.
Awards of Performance Shares made to Participants subject to Section
162(m) of the Code are intended to qualify under Section 162(m) and
provisions of such Awards shall be interpreted in a manner consistent
with that intent to the extent appropriate. The foregoing provisions of
this Section 10.2 also shall be applicable to grants of Restricted Stock
Awards make under Section 9 hereof to the extent such Restricted Stock
Awards are subject to the financial performance of the Company. At the
end of the Performance Period, Performance Shares shall be converted
into Common Stock (or cash or a combination of Common Stock and cash, as
determined by the Award Agreement) and distributed to Participants based
upon such entitlement. Award payments made in cash rather than the
issuance of Common Stock shall not, by reason of such payment in cash,
result in additional shares being available for reissuance pursuant to
Section 5 hereof.
10.3 Additional Terms and Conditions. The Committee may, by way
of the Award Agreement or Administrative Policies, determine the manner
of payment of Awards of Performance Shares and other terms, conditions
or restrictions, if any, on any Award of Performance Shares, provided
they are consistent with the Plan.
<PAGE>
<PAGE>
11. DIRECTORS' STOCK OPTIONS
11.1 Grants. Awards may be granted to nonemployee directors only in
the form of stock options satisfying the requirements of this Section 11
("Director Stock Options"). Subject to Section 15 hereof, on the date
following the commencement of the Company's annual meeting of
stockholders each year, there shall be granted to each nonemployee
director an option to purchase 3,000 shares of Common Stock. All such
options shall be nonstatutory stock options.
11.2 Option Exercise Price. The option exercise price of Director
Stock Options shall be 100 percent of the Fair Market Value on the date
such options are granted. The Committee shall be authorized to compute
the price per share on the date of grant. Payment of the option exercise
price may be made in cash or in shares of Common Stock or a combination
of cash and Common Stock.
11.3 Option Agreement. Director Stock Options shall be evidenced
by an Award Agreement, dated as of the date of the grant, which
agreement shall be in such form, consistent with the terms and
requirements of this Section 11, as shall be approved by the Committee
from time to time and executed on behalf of the Company by its chief
executive officer.
11.4 Terms and Conditions of Director Stock Option. Director
Stock Options shall become fully exercisable on the first anniversary of
the date of grant and shall terminate upon the expiration of five years
from the date of grant. To the extent an option is not otherwise
exercisable at the date of the nonemployee director's retirement under a
retirement plan or policy of the Company, it shall become fully
exercisable upon such retirement provided, however, that Director Stock
Options shall not become exercisable under this sentence prior to the
expiration of six months from the date of grant. Upon such retirement,
such options shall be exercisable for a period of one year, subject to
the original term thereof. Options not otherwise exercisable at the time
of the disability or death of a nonemployee director during continued
service with the Company shall become fully exercisable upon his
disability or death, unless the date of disability or death occurs prior
to the expiration of six months from the date of grant. Upon the
disability or death of a nonemployee director while in service as a
director, such options shall remain exercisable (subject to the original
term of the option) for a period of one year after the date of
disability or of death. To the extent an option is exercisable on the
date a director ceases to be a director (other than by reason of
disability, death or retirement), the option shall continue to be
exercisable (subject to the original term of the option) for a period of
90 days thereafter.
11.5 Transferability. No option shall be transferable by a
nonemployee director except by will or the laws of descent and
distribution, and during the director's life time options may be
exercised only by him or his legal representative.
11.6 Change of Control. Director Stock Options not otherwise
exercisable at the time of a Change of Control shall become fully
exercisable upon such Change of Control; provided, however, that options
shall not become exercisable under this provision prior to the
expiration of six months from the date of grant. In the case of a Change
of Control:
<PAGE>
<PAGE>
(i) The Company shall make payment to
directors with respect to Director Stock Options in cash in an amount
equal to the appreciation in the value of the Director Stock Option from
the option exercise price specified in the Award Agreement to the Change
of Control Price.
(ii) The cash payments to directors shall be due and payable, and
shall be paid by the Company, immediately upon the occurrence of such
Change of Control; and
(iii) After the payment provided for in (i) above, nonemployee
directors shall have no further rights under Director Stock Options
outstanding at the time of such Change in Control.
11.7 Initial Grant to Directors. Effective on the date for the
distribution of the Common Stock by Cooper Industries, Inc.
("Distribution Date"), each nonemployee director shall be granted an
option for 2,000 shares of Common Stock at an exercise price equal to
the average closing price of the Common Stock for the 30 trading days
beginning five days after the Distribution Date. The options will become
exercisable on the first anniversary of the date of grant and will
expire five years after the date of grant. Pursuant to Section 15 of the
Plan, each Initial Grant to nonemployee directors that was outstanding
on January 15, 1997 was increased to 4,000 shares and to 6,000 shares on
December 29, 1997. Except as provided in this Section 11.7, the terms
and conditions of the initial options shall be as set forth in Section
11 of the Plan.
12. DIVIDENDS AND DIVIDEND EQUIVALENTS; DEFERRALS
12.1 If an Award is granted in the form of a Restricted Stock Award or
a Freestanding SAR, the Committee may choose, at the time of the grant
of the Award, to include as part of such Award an entitlement to receive
dividends or dividend equivalents, subject to such terms, conditions,
restrictions or limitations, if any, as the Committee may establish.
Dividends and dividend equivalents shall be paid in such form and manner
and at such time as the Committee shall determine.
12.2 The Committee may permit Participants to elect to defer the
issuance of shares or the settlement of Awards in cash under Administrative
Policies established by the Committee. It may also provide that deferred
settlements include the payment or crediting of interest on the deferral
amounts or the payment or crediting of dividend equivalents on deferred
settlements denominated in shares.
13. TERMINATION OF EMPLOYMENT
The Committee shall adopt Administrative Policies determining the
entitlement of Participants who cease to be employed by either the
Company or its subsidiaries due to death, disability, resignation,
termination or retirement pursuant to an established retirement plan or
policy of the Company or its subsidiaries.
14. ASSIGNMENT AND TRANSFER
The rights and interests of a Participant under the Plan may not
be assigned, encumbered or transferred except, in the event of the death
of a Participant, by will or the laws of descent and distribution.
Notwithstanding the foregoing, the Committee may, in its discretion,
<PAGE>
<PAGE>
grant stock options to one or more executive officers of the Company on
terms that permit the stock options to be transferred by any such
executive officer, for estate planning purposes, to (a) the executive
officer's spouse, children, grandchildren, parents, siblings,
stepchildren, stepgrandchildren or in-laws ("Family Members"), (b)
entities that are exclusively family-related, including trusts for the
exclusive benefit of Family Members and limited partnerships or limited
liability companies in which Family Members are the only partners or
members, or (c) such other persons or entities specifically approved by
the Committee. The terms and conditions applicable to the transfer of
any such stock options shall be established by the Committee, in its
discretion but consistent with this Section 14, and shall be contained
in the applicable stock option agreement between the Company and the
executive officer.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding shares of Common
Stock by reason of a reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, merger, consolidation
or any change in the corporate structure or shares of the Company, the
maximum aggregate number and class of shares as to which Awards may be
granted under the Plan and the shares issuable pursuant to then
outstanding Awards shall be appropriately adjusted by the Committee,
whose determination shall be final.
16. WITHHOLDING TAXES
The Company shall have the right to deduct from any payment to be
made pursuant to the Plan the amount of any taxes required by law to be
withheld therefrom, or to require a Participant to pay to the Company
such amount required to be withheld prior to the issuance or delivery of
any shares of Stock or the payment of cash under the Plan. The Committee
may, in its discretion, permit a Participant to elect to satisfy such
withholding obligation by having the Company retain the number of shares
of Common Stock whose Fair Market Value equals the amount required to be
withheld. Any fraction of a share of Common Stock required to satisfy
such obligation shall be disregarded and the amount due shall instead be
paid in cash to the Participant.
17. REGULATORY APPROVALS AND LISTINGS
Notwithstanding anything contained in this Plan to the contrary,
the Company shall have no obligation to issue or deliver certificates of
Common Stock evidencing Restricted Stock Awards or any other Award
payable in Common Stock prior to (i) the obtaining of any approval from
any governmental agency which the Company shall, in its sole discretion,
determine to be necessary or advisable, (ii) the admission of such
shares to listing on the Stock Exchange and (iii) the completion of any
registration or other qualification of said shares under any state or
federal law or ruling of any governmental body which the Company shall,
in its sole discretion, determine to be necessary or advisable.
18. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
No person shall have any claim or right to be granted an Award,
and the grant of an Award shall not be construed as giving a Participant
the right to be retained in the employ of the
<PAGE>
<PAGE>
Company or its subsidiaries. Further, the Company and its subsidiaries
expressly reserve the right at any time to dismiss a Participant free
from any liability, or any claim under the Plan, except as provided
herein or in any Award Agreement entered into hereunder.
19. CHANGE OF CONTROL
In the event of a Change of Control, (i) all SARs which have
not been granted in tandem with stock options and which have been
outstanding for at least six months shall become exercisable in full,
(ii) the restrictions applicable to all shares of restricted stock shall
lapse and such shares shall be deemed fully vested and all restricted
stock granted in the form of share units shall be paid in cash, (iii)
all Performance Shares shall be deemed to be earned in full and all
Performance Shares granted in the form of share units shall be paid in
cash, and (iv) any Participant who has been granted a stock option which
is not exercisable in full shall be entitled, in lieu of the exercise of
the portion of the stock option which is not exercisable, to obtain a
cash payment in an amount equal to the difference between the option
price of such stock option and (A) in the event the Change of Control is
the result of a tender offer or exchange offer for the Common Stock, the
final offer price per share paid for the Common Stock, or such lower
price as the Committee may determine with respect to any incentive stock
option to preserve its incentive stock option status, multiplied by the
number of shares of Common Stock covered by such portion of the stock
option, or (B) in the event the Change of Control is the result of any
other occurrence, the aggregate value of the Common Stock covered by
such portion of the stock option, as determined by the Committee at such
time. The Committee may, in its discretion, include such further
provisions and limitations in any agreement documenting such Awards as
it may deem equitable and in the best interests of the Company.
20. AMENDMENT
The Board may amend, suspend or terminate the Plan or any portion
thereof at any time, provided that no amendment shall be made without
stockholder approval if such approval is necessary in order for the Plan
to continue to comply with Rule 16b-3 under the Exchange Act; and
provided further, that the provisions of Section 11 shall not be amended
more than once every six months, other than to comport with changes in
the Internal Revenue Code, the Employee Retirement Income Security Act,
or the rules thereunder.
21. GOVERNING LAW
The validity, construction and effect of the Plan and any actions
taken or relating to the Plan shall be determined in accordance with the
laws of the State of Delaware and applicable Federal law.
22. RIGHTS AS SHAREHOLDER
Except as otherwise provided in the Award Agreement, a Participant
shall have no rights as a shareholder until he or she becomes the holder
of record. To the extent any person acquires a right to receive payments
from the Company under this Plan, such rights shall be no greater than
the rights of an unsecured creditor of the Company.
<PAGE>
<PAGE>
23. EFFECTIVE DATE
The Plan shall be effective upon approval by the Board and
approval by the holders of a majority of the shares of Common Stock.
Subject to earlier termination pursuant to Section 20, the Plan shall
have a term of 10 years from its effective date. After termination of
the Plan, no future Awards may be granted but previously made Awards
shall remain outstanding in accordance with their applicable terms and
conditions and the terms and conditions of the Plan.
24. INITIAL GRANT OF STOCK OPTIONS
Notwithstanding the provisions of Section 7 of the Plan, an
initial grant of options for the aggregate amount of 675,000 shares of
Common Stock (adjusted for the two stock splits completed in 1997) shall
be made on December 31, 1993 to the persons and in the amounts shown on
Exhibit A attached hereto. The initial options shall have an exercise
price equal to the average closing price of the Common Stock for the 30
trading days beginning five days after the date of the distribution of
Common Stock by Cooper Industries, Inc. (adjusted for the two stock
splits completed in 1997). The options will expire on December 31, 1998
and shall vest as to one-third of such options on each of the first
three anniversaries of the date of grant.
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Financial History
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994<F1>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $384,992 291,547 218,000 191,541 175,854
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 252,842 191,617 148,191 132,876 126,802
Depreciation and amortization 12,978 9,662 8,097 8,263 12,908
Selling and administrative expenses 53,793 39,938 30,169 25,632 25,994
Interest expense 4,849 3,937 3,104 4,950 4,667
Other expense 636 242 -- -- --
Nonrecurring expense <F2> -- -- -- -- 99,710
- ---------------------------------------------------------------------------------------------------------------------------------
325,098 245,396 189,561 171,721 270,081
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 59,894 46,151 28,439 19,820 (94,227)
Provision (benefit) for income taxes 23,089 18,500 11,533 8,226 (4,612)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 36,805 27,651 16,906 11,594 (89,615)
=================================================================================================================================
Basic earnings (loss) per share <F3> $ 2.29 1.84 1.16 0.81 (6.41)
=================================================================================================================================
Diluted earnings (loss) per share <F3> $ 2.22 1.74 1.11 0.79 (6.39)
=================================================================================================================================
<CAPTION>
December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $342,130 268,269 235,756 184,251 203,315
Long-term debt (excluding current maturities) 81,058 51,227 55,069 36,661 56,103
Other long-term obligations 55,128 56,237 57,289 60,754 64,446
Stockholders' equity $142,686 103,611 74,118 55,234 42,295
=================================================================================================================================
<FN>
<F1> In 1994, through April 15, Gardner Denver, Inc. ("Gardner Denver"
or the "Company") 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.
<F2> 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.
<F3> Earnings per share have been adjusted for two stock splits
effected in the form of stock dividends in 1997. See Note 1 to the
Consolidated Financial Statements.
</TABLE>
12
<PAGE>
<PAGE>
- ------------------------------------------------------------------------
Management's Discussion and Analysis
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
========================================================================
Overview
The Company's operations are organized into two separate
reportable segments - Compressed Air Products and Petroleum Products. In
the Compressed Air Products segment, the Company designs, manufactures,
markets and services reciprocating, rotary screw and sliding vane 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; wastewater treatment facilities; and
automotive service centers. Revenues of the Compressed Air Products
segment constituted approximately 78% of total revenues in 1998.
In the Petroleum Products segment, the Company designs,
manufactures, markets and services a diverse group of pumps used in oil
and natural gas production, well servicing and stimulation, oil and gas
drilling and water blast markets. Typical applications include oil
transfer, salt water disposal, ammine pumping for gas processing,
enhanced oil recovery, hydraulic power, and other liquid transfer
applications. Revenues of the Petroleum Products segment constituted
approximately 22% of total revenues in 1998.
The Company sells its products through independent distributors,
sales representatives and directly to original equipment manufacturers,
engineering firms and end users.
In January 1998, the Company purchased Champion Pneumatic
Machinery Company, Inc. ("Champion"). Champion, located in Princeton,
Illinois, is a leading manufacturer of low horsepower reciprocating
compressors. Champion opens new market opportunities for Gardner Denver
products and expands the range of reciprocating compressors available to
existing distributors.
In January 1998, the Company also acquired Geological Equipment
Corporation ("Geoquip"), a leading manufacturer of pumps, ranging from
350 to 2,400 horsepower, in Fort Worth, Texas. The operation also
remanufactures pumps and provides repair services. The addition of
Geoquip enhances the Gardner Denver well servicing product line, expands
the Company's presence in remanufacturing and repair services and
introduces the Company to the fast-growing water blast market.
The Company purchased the Wittig Division of Mannesmann Demag AG
("Wittig") in March 1998. Wittig, located in Schophfeim, Germany, is a
leading manufacturer of rotary sliding vane compressors and vacuum
pumps. Wittig's products primarily serve the truck blower market for
liquid and dry bulk conveyance, as well as other industrial
applications. The acquisition of Wittig expands the Company's
manufacturing presence in Europe and provides distribution channels for
its positive displacement blowers, which are produced in the United
States.
The Champion and Wittig acquisitions are included in the Company's
Compressed Air Products segment. Geoquip is included in the Company's
Petroleum Products segment.
In 1997, Gardner Denver acquired Oy Tamrotor Ab ("Tamrotor").
Tamrotor, formerly a subsidiary of Tamrock Corporation, is located in
Tampere, Finland, and designs and manufactures lubricated rotary screw
compressor air ends. The addition of Tamrotor provided Gardner Denver
with a manufacturing base in Europe as well as market penetration in
several European compressor markets. Tamrotor is included in the
Company's Compressed Air Products segment.
In 1996, Gardner Denver completed two acquisitions. The first
acquisition was NORAMPTCO, Inc. (renamed Gardner Denver Holdings Inc.),
including its primary operating subsidiary, Lamson Corporation
("Lamson"). 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 acquisition in 1996 was TCM Investments, Inc. ("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.
<PAGE>
The acquisitions completed in 1996, 1997 and 1998 provide growth
opportunities through synergistic product lines and international market
penetration.
The following table sets forth percentage relationships
to revenues of certain income statement items for the years presented.
13
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Management's Discussion and Analysis
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0 100.0
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 65.7 65.7 68.0
Depreciation and amortization 3.4 3.3 3.7
Selling and administrative expenses 14.0 13.7 13.8
Interest expense 1.2 1.4 1.4
Other expense 0.1 0.1 --
- ---------------------------------------------------------------------------------------------------
84.4 84.2 86.9
- ---------------------------------------------------------------------------------------------------
Income before income taxes 15.6 15.8 13.1
Provision for income taxes 6.0 6.3 5.3
- ---------------------------------------------------------------------------------------------------
Net income 9.6% 9.5 7.8
===================================================================================================
</TABLE>
YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997
========================================================================
Revenues
Revenue growth in 1998 was primarily achieved through acquisitions
and incremental shipments of petroleum products from backlog. Revenues
were $385.0 million in 1998, which was $93.4 million or 32% higher than
in 1997 and included $78.9 million from acquisitions completed since
June 1997. Excluding incremental revenue from acquisitions, revenues
increased $14.5 million (5%), primarily through shipments of petroleum
products from the December 31, 1997 order backlog.
Revenues in the Compressed Air Products segment increased $70.2
million (31%) to $298.4 million in 1998 compared to 1997. Excluding
incremental revenues from acquisitions, which contributed $68.7 million,
Compressed Air Product revenues increased $1.5 million. Although
revenues increased in this segment during the first part of 1998 as a
result of the penetration of niche markets, such as field gas gathering,
and growth in the U.S. economy, demand for compressed air products
slowed during the second half of 1998 as overall manufacturing output
decreased in the United States. This reduced demand caused revenues in
this segment for the last half of 1998 to be less than revenues for the
last half of 1997, excluding acquisitions.
In the Petroleum Products segment, revenues increased $23.2
million (37%) to $86.6 million in 1998, compared to 1997. An acquisition
contributed $10.2 million of this increase. Excluding incremental
revenues from this acquisition, petroleum products revenues increased
$13.0 million (21%), primarily as a result of shipping drilling pumps
from the order backlog that existed at the end of 1997.
=========================================================================
Costs and Expenses
Gross margin (defined as revenues less cost of sales) in 1998
increased $32.2 million (32%) to $132.2 million from $99.9 million in
1997 primarily as a result of the additional sales volume. Incremental
gross margin due to acquisitions completed since June 1997 accounted for
$23.7 million of this increase. In 1998, gross margins were enhanced
$4.5 million as a result of the liquidation of LIFO inventory layers,
compared to $1.2 million in 1997. Gross margin was negatively affected
by $1.1 million of severance and relocation expenses related primarily
to re-sizing the Petroleum Products segment in response to decreased
demand and integrating acquisitions in the fourth quarter of 1998. As a
percentage of revenues, gross margin was 34.3% in both 1998 and 1997.
The acquisitions completed since June 1997 negatively affected the
gross margin percentage as these entities currently generate lower gross
margins than the Company's previously existing operations. Excluding the
impact of acquisitions, LIFO income and the fourth quarter severance and
relocation expenses noted above, gross margin as a percentage of
revenues improved to 34.3% in 1998 from 33.9% in 1997. This improvement
in gross margin percentage was primarily the result of increased
leverage of production overhead costs, petroleum product price increases
implemented in 1997, cost reduction efforts such as manufacturing
process improvements and an improved sales mix. These positive factors
were partially offset by incremental expenses related to a plant
relocation, which was completed in the fourth quarter of 1998, and the
negative effects of inflation.
<PAGE>
Depreciation and amortization increased 34% to $13.0 million in
1998, compared with $9.7 million in 1997. Of the $3.3 million increase,
$2.9 million is due to acquisitions completed in 1997 and 1998.
Increased levels of capital expenditures also contributed to the
increase in depreciation expense. Depreciation and amortization as a
percentage of revenues was 3.4% in 1998, compared to 3.3% in 1997.
Selling and administrative expenses increased in 1998 by 35% to $53.8
million from $39.9 million for 1997. Approximately $12.6 million of the
$13.9 million increase is attributable to newly acquired operations. The
remaining increase is due primarily to expenses related to a plant and
division headquarters relocation, which was completed in the fourth
quarter of 1998. As a percentage of revenues, selling and administrative
expenses were 14.0% in 1998, compared to 13.7% in 1997. The increase in
this ratio is attributable to acquisitions completed since June 1997,
which have higher costs relative to sales than the Company's existing
operations. Excluding these acquisitions, selling and administrative
expenses, as a percentage of revenues, decreased to 13.5% in 1998, from
13.7% in the previous year.
Compressed Air Products' operating earnings (defined as revenues
less cost of sales, depreciation and amortization, and selling and
administrative expenses, excluding unallocated corporate administrative
expenses) increased $6.9 million or 18% over 1997 levels to $45.5
million. As a percentage of revenues, operating earn-
14
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
ings declined to 15.2% in 1998 compared to 16.9% in 1997. This
deterioration in Compressed Air Products operating earnings (as a
percentage of revenues), is primarily due to newly acquired operations.
These acquired operations currently generate lower operating earnings
(after amortization of goodwill associated with the acquisitions) than
the Company's previously existing operations. Operating earnings (as a
percentage of revenues) were also negatively affected by expenses
associated with a plant and division headquarters relocation, completed
in the fourth quarter of 1998, and the impact of fourth quarter expenses
associated with further integrating recent acquisitions, partially
offset by incremental LIFO income generated in 1998.
Operating earnings in the Petroleum Products segment increased
$8.7 million to $21.9 million, a 66% increase from 1997. As a percentage
of revenues, operating earnings for this segment improved significantly
to 25.3% in 1998 compared to 20.9% in 1997. This improvement was
primarily the result of significant volume increases, as the Company was
able to increase the leverage of its manufacturing operations and
administrative expenses, incremental LIFO income compared to the prior
year and price increases implemented in the second half of 1997. This
improvement was partially offset by the impact of fourth quarter
expenses associated with re-sizing the segment in response to decreased
demand.
Interest expense increased $0.9 million (23%) for 1998 compared to
1997, due to incremental debt incurred for the acquisitions, partially
offset by a lower overall average borrowing rate in 1998. The average
interest rate for 1998 was 5.8% compared to 7.3% for 1997, primarily due
to lower interest rates on incremental 1998 borrowings. See Note 9 to
the Consolidated Financial Statements for further information on the
Company's borrowing arrangements.
=========================================================================
Income
Income before income taxes increased $13.7 million (30%), to $59.9
million in 1998 from $46.2 million in 1997. Approximately $3.6 million
of this improvement is attributable to the incremental impact of
acquisitions completed since June 1997, net of goodwill amortization and
interest expense on debt incurred to complete these transactions. The
remaining $10.1 million increase is primarily a result of higher revenue
volume, incremental LIFO income, increased leverage of costs and lower
interest expense (excluding debt related to acquisitions) in 1998,
compared to the previous year.
The provision for income taxes increased by $4.6 million to $23.1
million in 1998 compared to 1997, as a result of the increase in income
before taxes, partially offset by a reduction in the Company's overall
effective tax rate. The Company's effective tax rate for 1998 was 38.6%,
compared to 40.1% for 1997. The lower effective tax rate in 1998 is due
to savings from the Foreign Sales Corporation ("FSC"), the lower
statutory tax rate in Finland compared to the United States and the
implementation of other tax strategies.
Net income increased $9.1 million, or 33%, to $36.8 million ($2.22
diluted earnings per share) in 1998 compared to $27.7 million ($1.74
diluted earnings per share) in 1997. In 1998, net income included
approximately $2.2 million ($0.13 diluted earnings per share)
incremental after-tax income from acquisitions and $2.1 million ($0.13
diluted earnings per share) additional after-tax LIFO income, compared
to 1997. Net income for 1998 was reduced by $0.6 million ($0.04 diluted
earnings per share) due to after-tax expenses to re-size the Petroleum
Products segment and integrate acquisitions. Excluding incremental
income from acquisitions and LIFO, and expenses incurred to re-size the
Petroleum Products segment and integrate acquisitions, net income
increased $5.4 million (20%) in 1998 compared to 1997 and diluted
earnings per share increased $0.26. This increase was primarily
attributable to sales volume growth of petroleum products, the related
increased leverage of manufacturing costs and administrative expenses,
and price increases for petroleum products.
=========================================================================
Outlook
During the third quarter of 1998, demand for the Company's
petroleum products reached its lowest level of the previous four
quarters as a result of the decline in the prices of oil and natural gas
during the year. Orders for petroleum products were $56.2 million in
1998, including $7.3 million from acquisitions, a decrease of $30.3
million compared to 1997. Order backlog for the Petroleum Products
segment was $6.5 million on December 31, 1998, compared to $32.6 million
at the end of 1997. The Company does not believe that demand for its
petroleum products will recover in 1999. Future increases in demand for
these products are dependent upon appreciation in oil and natural gas
prices, which the Company cannot predict. However, even if the price of
oil and natural gas were to increase, the Company believes such a
recovery would occur too late in 1999 to significantly improve its
financial results. Even with the significantly lower revenue projections
for petroleum products, the Company believes that this segment will
continue to generate operating earnings in 1999.
<PAGE>
In general, demand for compressed air products follows economic
growth patterns as indicated by the rate of change in industrial
production and capacity utilization rates. In 1998, orders for
compressed air products, including $65.3 million from acquisitions,
increased $33.9 million to $276.5 million, compared to 1997. Order
backlog for the Compressed Air Products segment was $43.7 million as of
December 31, 1998, including $4.1 million from acquisitions, compared to
$58.5 million as of December 31, 1997. The Company experienced softer
orders for its industrial products, primarily during the second half of
1998, which is expected to limit the rate of revenue growth for
compressor products during the first and second quarters of 1999.
At present, the Company anticipates cost reduction efforts and the
financial benefits of completing acquisition integration projects to
enhance profitability in 1999. However, the decreased revenues as a
result of depressed demand for petroleum products and softer orders for
compressed air products will result in unfavorable earnings comparisons
in 1999 compared to 1998. Accordingly, based on its current economic
outlook, the Company anticipates that diluted earnings per share will be
approximately 20% to 25% lower in 1999 compared to 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
=========================================================================
Revenues
Revenues for 1997 increased $73.5 million or 34% over 1996 to
$291.5 million. Revenues in the Compressed Air Products segment improved
21% to $228.2 million, while revenues in the Petroleum Products segment
increased 111% to $63.3 million.
15
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Management's Discussion and Analysis
Revenues included approximately $48.7 million attributable to the
incremental revenues from three acquisitions completed since August
1996. Excluding incremental revenues from acquisitions, revenues
increased approximately $24.8 million (11%) 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% 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 revenue 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% to $49.7 million, compared to the previous year.
In the Petroleum Products segment, revenues increased 111% to
$63.3 million for the year ended December 31, 1997, 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 247% 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%, to $99.9 million in 1997 compared to 1996, as
a result of the additional sales volume. Incremental gross margin due to
the acquisitions accounted for $17.5 million of the increase. As a
percentage of revenues, gross margins increased to 34.3% in 1997 from
32.0% in 1996. In 1997, gross margins were enhanced $1.2 million as a
result of the liquidation of LIFO inventory layers, compared to an
increase of $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 to 33.3% in 1997 from 30.6% in
1996. 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 of acquisitions. Excluding
acquisitions, depreciation declined $0.4 million, as additional assets
became fully depreciated. Amortization expense increased $0.8 million,
or 29%, from the prior year, primarily due to amortization of goodwill
related to the 1996 and 1997 acquisitions. As a percentage of revenues,
depreciation and amortization declined to 3.3% in 1997 from 3.7% in
1996, due to the effect of higher revenues.
Selling and administrative expenses increased by 32% to $39.9
million for 1997 from $30.2 million in 1996. Newly acquired operations
accounted for approximately $5.8 million of the $9.7 million increase.
The remainder of the increase was due primarily to higher manpower
levels and an increase in travel and purchased services, most of which
was related to the increased revenues and integration of acquisitions.
As a percentage of revenues, selling and administrative expenses
decreased to 13.7% in 1997 from 13.8% in 1996.
Operating earnings for the Compressed Air Products segment
increased 27% 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 was
primarily due to a $35 million senior note (the "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.
<PAGE>
=========================================================================
Income
Income before taxes increased $17.8 million, or 62%, to $46.2
million from $28.4 million. Approximately $6.8 million of this
improvement was provided by the incremental impact of acquisitions, net
of goodwill amortization and interest expense on debt incurred to
complete these transactions. The remaining $11.0 million increase was
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% 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 was due to the
savings from the FSC, the lower statutory tax rate in Finland compared
to the United States and the implementation of other tax strategies,
partly offset by an increase in nondeductible goodwill related to the
acquisitions.
Net income increased $10.7 million, or 64%, 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, 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 (52%) for the year
due to revenue growth and process improvements in manufacturing
operations. On a per share basis, diluted earnings increased $0.63 (57%)
to $1.74 in 1997, compared to $1.11 in the
16
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
previous year. Excluding LIFO income and incremental income from
acquisitions, diluted earnings per share increased $0.47 (46%) in 1997
compared to the previous year.
LIQUIDITY AND CAPITAL RESOURCES
=========================================================================
Operating Working Capital
During 1998, operating working capital (defined as receivables
plus inventories, less accounts payable and accrued liabilities)
increased $8.0 million to $61.9 million. Excluding the impact of
operating working capital acquired as a result of the Company's 1998
acquisitions and the impact of changes in foreign currency exchange
rates, operating working capital decreased by $5.7 million in 1998.
Receivables were reduced by $2.7 million, primarily as a result of
intensified collection efforts. Inventories decreased $11.7 million
principally as a result of reductions in petroleum products inventory
due to product shipments, coupled with continued improvement in
inventory turnover in both segments as programs to reduce all categories
of inventory yielded positive results. Reduced spending and inventory
purchases resulted in an $8.7 million decrease in accounts payable and
accrued liabilities.
=========================================================================
Cash Flows
During 1998, the Company generated cash flows from operations
totaling $52.5 million, an increase of $11.7 million (29%) compared to
1997. This increase was primarily the result of incremental net income
and increased depreciation and amortization, combined with the
reductions in operating working capital discussed above (net of the
impact of acquired working capital and changes in foreign exchange
rates). During 1998, the Company borrowed $18.0 million under a new
revolving credit facility and utilized the funds to repay all
outstanding commitments under its previous credit facility. The Company
also borrowed $40.0 million to finance acquisitions, and issued $10.5
million of its common stock to fund a portion of the purchase price for
Geoquip. Cash flows from the items discussed above enabled the Company
to spend $19.7 million on capital expenditures, repurchase $11.2 million
of the Company's common stock and repay $38.8 million of long-term debt,
and resulted in an increase in the cash balance of $15.6 million as of
December 31, 1998.
=========================================================================
Capital Expenditures and Commitments
Capital projects to increase operating efficiency and flexibility,
expand production capacity and improve product quality resulted in
expenditures totaling $19.7 million in 1998. This was $9.9 million
higher than the level in 1997, primarily due to expenditures for
production equipment and construction of the new manufacturing facility
in Peachtree City, Georgia and capital invested in recently acquired
operations.
In 1997, the Company announced that it would close its centrifugal
blower manufacturing plant in Syracuse, New York, and consolidate
operations at its new site in Georgia. The new plant began operations in
the fourth quarter of 1998, at which time the Syracuse plant was shut
down.
The Company anticipates that capital expenditures will decrease to
approximately $15 million in 1999, primarily due to completion of the
new facility in Georgia in 1998. Commitments for capital expenditures at
December 31, 1998 totaled $6.9 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.
In October 1998, Gardner Denver's Board of Directors authorized
the repurchase of up to 1,600,000 shares of the Company's common stock
to be used for general corporate purposes. The shares will be purchased
from time to time in open market or private transactions. In 1998,
755,100 shares were repurchased under this repurchase program at a cost
of $11.2 million.
=========================================================================
Liquidity
During 1998, the Company entered into a new revolving line of
credit agreement with an aggregate $125.0 million borrowing capacity
(the "Credit Line") and terminated the previous line of credit. On
December 31, 1998, the Credit Line had an outstanding balance of
approximately $36.0 million, leaving $89.0 million available for future
use. The Credit Line requires no principal payments during the term of
the agreement, which expires in January 2003. The Company's borrowing
arrangements are generally unsecured and permit certain investments and
dividend payments. There are no material restrictions on the Company as
a result of these arrangements, other than customary covenants regarding
certain earnings, liquidity, and capital ratios.
<PAGE>
In April 1998, the Fayette County Development Authority issued
$9.5 million in industrial revenue bonds (the "IRB"), on behalf of the
Company, to finance the cost of constructing and equipping the Company's
new manufacturing facility in Georgia. The principal amount of the IRB
is to be repaid in full in March 2018. The IRB is secured by a letter of
credit.
Management currently expects that the Company's future cash flows
will be sufficient to fund the scheduled debt service under the Note,
the Credit Line and the IRB and provide required resources for working
capital and capital investments.
=========================================================================
Market Risk
The Company is exposed to market risk related to changes in
interest rates and European and other foreign currency exchange rates,
and selectively uses derivative financial instruments, including
forwards and swaps, to manage these risks. The Company does not hold
derivatives for trading purposes. The value of market-risk sensitive
derivatives and other financial instruments is subject to change as a
result of movements in market rates and prices. Sensitivity analysis is
one technique used to evaluate these impacts. Based on a hypothetical
ten percent change in interest rates or ten percent weakening in the
U.S. Dollar across relevant foreign currencies, principally the German
Mark and Finnish Markka, the potential losses in future earnings, fair
value and cash flows are not material.
=========================================================================
Impact of Year 2000 Issues
"Year 2000 Issues" are 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
17
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Management's Discussion and Analysis
or statements, perform material requirements planning or engage in
similar normal business activities.
The Company believes the 1997 and 1998 implementations of new and
upgraded management information systems appropriately address the Year
2000 Issues for the programs replaced with these systems. These upgrades
include significant enhancements for purposes other than addressing Year
2000 Issues. The Company has completed its assessment of the impact of
Year 2000 Issues on other parts of its business, including embedded
systems not involving information technology. The Company expects to
implement the remaining upgrades necessary to address Year 2000 Issues
by the first half of 1999. The Company anticipates that the costs
incurred solely to address its Year 2000 Issues will be less than $0.5
million.
The Company is communicating with its significant suppliers and
customers to determine the extent to which the Company would be
vulnerable to those third parties' failure to remediate their own Year
2000 Issues. The Company is also in the process of performing on-site
reviews of critical suppliers and customers to assess their state of
readiness as considered appropriate.
If required modifications related to Year 2000 Issues are not
successfully made on a timely basis by the Company or its significant
suppliers or customers, the Company's operations, liquidity or financial
condition could be materially affected. Although not anticipated, the
most reasonably likely worst case scenario of failure by the Company or
its significant suppliers or customers to resolve the Year 2000 Issues
would be a short-term interruption of manufacturing operations at one or
more of the Company's facilities and a short-term inability on the part
of the Company to deliver product to customers.
As noted above, the Company expects its internal systems to be
Year 2000 compliant in a timely manner. However, the success of the
Company's suppliers and customers in remediating their respective Year
2000 Issues is not within the Company's control. The Company does not
currently expect that its operations will be materially impacted by its
suppliers' or customers' Year 2000 Issues. Nonetheless, the Company is
currently developing contingency plans, particularly as related to its
significant suppliers, which include the identification and
qualification of alternate supply sources for key materials and
services.
=========================================================================
Impact of the Conversion to the Euro
On January 1, 1999, eleven of the member countries of the European
Union converted from their sovereign currencies to a common currency,
the euro. At that time, fixed conversion rates between the legacy
currencies and the euro were set.
The Company has evaluated the potential effect upon its business
of the euro conversion, and developed plans to address any such effect,
including changes to information systems to accommodate various aspects
of the new currency and potentially increased competitive pressures from
greater price transparency. Given the status of the implementation of
new and upgraded information systems at appropriate locations and the
relative size of its current European operations, the Company does not
anticipate that its consolidated financial position, results of
operations or liquidity will be materially adversely affected as a
result of the euro conversion.
=========================================================================
New Accounting Standard
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133" or the
"Statement"). The Statement establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the
balance sheet as either an asset or liability, measured at its fair
value. The Statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15,
1999 and will be adopted at that time. The Company has reviewed its
current derivative instruments and hedging activities and has determined
that the adoption of SFAS 133 would not have a material impact on its
consolidated financial statements as of December 31, 1998.
<PAGE>
========================================================================
Cautionary Statements Regarding Forward-Looking Statements
This Annual Report to Stockholders, including Management's
Discussion and Analysis and the Chairman's Letter, 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. Such uncertainties and factors could cause actual results of
the Company to differ materially from those matters expressed in or
implied by such forward-looking statements. Such uncertainties and
factors could include among others: the speed with which the Company is
able to integrate its recent acquisitions and realize the related
financial benefits; the level of oil and natural gas prices, drilling
and production, which affect 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 and the rate of economic growth outside the United
States, which affect demand for the Company's compressed air products;
the degree to which the Company is able to penetrate niche markets; the
successful implementation of cost reduction efforts; and the extent to
which the Company is able to operate without disruption due to Year 2000
Issues.
18
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
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.
/s/ Ross J. Centanni
Ross J. Centanni
Chairman, President and
Chief Executive Officer
/s/ Philip R. Roth
Philip R. Roth
Vice President, Finance and
Chief Financial Officer
- -------------------------------------------------------------------------
Report of Independent Public Accountants
To Gardner Denver, Inc.
We have audited the accompanying consolidated balance sheet of
Gardner Denver, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. 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, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
St. Louis, Missouri
February 12, 1999
19
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Consolidated Statement of Operations
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $384,992 291,547 218,000
Costs and Expenses:
Cost of sales (excluding depreciation and amortization) 252,842 191,617 148,191
Depreciation and amortization 12,978 9,662 8,097
Selling and administrative expenses 53,793 39,938 30,169
Interest expense 4,849 3,937 3,104
Other expense 636 242 --
- ------------------------------------------------------------------------------------------------------------
325,098 245,396 189,561
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 59,894 46,151 28,439
Provision for income taxes 23,089 18,500 11,533
- ------------------------------------------------------------------------------------------------------------
Net income $ 36,805 27,651 16,906
============================================================================================================
Basic earnings per share $ 2.29 1.84 1.16
============================================================================================================
Diluted earnings per share $ 2.22 1.74 1.11
============================================================================================================
The accompanying notes are an integral part of this statement.
</TABLE>
20
<PAGE>
<PAGE>
- ------------------------------------------------------------------------
Consolidated Balance Sheet
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 24,474 8,831
Receivables (net of allowances of $4,371 in 1998
and $2,866 in 1997) 69,617 62,307
Inventories, net 53,115 48,324
Deferred income taxes 2,445 2,784
Other 2,154 1,768
- ---------------------------------------------------------------------------------------------
Total current assets 151,805 124,014
- ---------------------------------------------------------------------------------------------
Property, plant and equipment, net 59,261 37,530
Intangibles, net 114,254 85,524
Deferred income taxes 12,172 15,845
Other assets 4,638 5,356
- ---------------------------------------------------------------------------------------------
Total assets $342,130 268,269
=============================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings and current maturities of
long-term debt $ 2,452 459
Accounts payable and accrued liabilities 60,806 56,735
- ---------------------------------------------------------------------------------------------
Total current liabilities 63,258 57,194
- ---------------------------------------------------------------------------------------------
Long-term debt, less current maturities 81,058 51,227
Postretirement benefits other than pensions 46,612 50,689
Other long-term liabilities 8,516 5,548
- ---------------------------------------------------------------------------------------------
Total liabilities 199,444 164,658
=============================================================================================
Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 15,496,849 and 15,435,953 shares issued
and outstanding in 1998 and 1997, respectively 163 154
Capital in excess of par value 153,656 139,524
Treasury stock at cost, 803,286 and 18,937 shares in
1998 and 1997, respectively (12,259) (333)
Retained earnings (deficit) 3,306 (33,432)
Accumulated other comprehensive loss (2,180) (2,302)
- ---------------------------------------------------------------------------------------------
Total stockholders' equity 142,686 103,611
- ---------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $342,130 268,269
=============================================================================================
The accompanying notes are an integral part of this statement.
</TABLE>
21
<PAGE>
<PAGE>
Gardner Denver
- ------------------------------------------------------------------------
Consolidated Statement of Stockholders' Equity
(dollars in thousands)
<TABLE>
<CAPTION> Accumulated
Capital In Retained Other Total
Common Excess of Treasury (Deficit) Comprehensive Stockholders' Comprehensive
Stock Par Value Stock Earnings Income (Loss) Equity Income (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 $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 16,906
Foreign currency translation adjustments (59) (59) (59)
- -----------------------------------------------------------------------------------------------------------------------------------
16,847
======
Balance December 31, 1996 $148 135,112 -- (61,083) (59) 74,118
====================================================================================================================
Stock issued for benefit plans and options 6 4,412 4,418
Treasury stock (333) (333)
Net income 27,651 27,651 27,651
Foreign currency translation adjustments (2,243) (2,243) (2,243)
- -----------------------------------------------------------------------------------------------------------------------------------
25,408
======
Balance December 31, 1997 $154 139,524 (333) (33,432) (2,302) 103,611
====================================================================================================================
Stock issued for benefit plans and options 5 3,636 3,641
Stock issued for acquisition 4 10,496 10,500
Treasury stock (11,926) (11,926)
Other (67) (67)
Net income 36,805 36,805 36,805
Foreign currency translation adjustments 122 122 122
- -----------------------------------------------------------------------------------------------------------------------------------
36,927
======
Balance December 31, 1998 $163 153,656 (12,259) 3,306 (2,180) 142,686
====================================================================================================================
The accompanying notes are an integral part of this statement.
</TABLE>
22
<PAGE>
<PAGE>
- ------------------------------------------------------------------------
Consolidated Statement of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 36,805 27,651 16,906
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,978 9,662 8,097
LIFO liquidation income (4,541) (1,220) (2,021)
Stock issued for employee benefit plans 2,423 1,769 1,389
Deferred income taxes 3,403 2,471 456
Changes in assets and liabilities:
Receivables 2,669 (7,822) 3,155
Inventories 11,695 5,476 8,604
Accounts payable and accrued liabilities (8,702) 6,757 837
Other assets and liabilities, net (4,211) (3,942) (3,493)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 52,519 40,802 33,930
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Business acquisitions, net of cash (37,578) (26,211) (34,845)
Capital expenditures (19,679) (9,808) (4,171)
Disposals of property, plant and equipment 602 117 735
Foreign currency hedging transactions (427) (1,971) --
- ------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (57,082) (37,873) (38,281)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (38,833) (27,986) (52,556)
Proceeds from long-term borrowings 69,512 23,000 63,000
Purchase of treasury stock (11,926) (333) --
Proceeds from stock options 1,218 2,649 648
Other (136) -- --
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 19,835 (2,670) 11,092
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents 371 (38) --
- ------------------------------------------------------------------------------------------------------------
Increase in cash and equivalents 15,643 221 6,741
Cash and equivalents, beginning of year 8,831 8,610 1,869
- ------------------------------------------------------------------------------------------------------------
Cash and equivalents, end of year $ 24,474 8,831 8,610
============================================================================================================
The accompanying notes are an integral part of this statement.
</TABLE>
23
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
=========================================================================
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements reflect the
operations of Gardner Denver, Inc. ("Gardner Denver" or the "Company")
and its subsidiaries (formerly known as Gardner Denver Machinery Inc.).
Certain prior year amounts have been reclassified to conform with
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% to 50% ownership
are accounted for by the equity method.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
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 in accumulated
other comprehensive income, a separate component of stockholders'
equity.
Revenue Recognition
The Company recognizes revenues when goods are shipped to the
customer.
Cash Equivalents
Cash equivalents are highly liquid investments (valued at cost,
which approximates fair value), acquired with an original maturity of
three months or less.
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 $3,479, $2,845 and $2,405 for the years ended December 31, 1998,
1997 and 1996, respectively.
<PAGE>
Financial Instruments
Included on the balance sheet is a foreign currency forward
contract in Finnish Markka to hedge foreign exchange translation risk
associated with the Company's investment in its Finnish subsidiary, Oy
Tamrotor Ab ("Tamrotor"). The contract is marked to market and both
unrealized and realized gains and losses are included as a component of
accumulated other comprehensive income in stockholders' equity. There
are no off balance sheet derivative financial instruments as of December
31, 1998. As of December 31, 1997, such instruments consisted of an
interest rate swap agreement used to fix interest rates on floating rate
debt.
Earnings Per Share
The 1998 and 1997 basic earnings per share were calculated based
on 16,066,699 and 15,059,569 weighted average shares outstanding,
respectively. The 1998 and 1997 diluted earnings per share were
calculated based on 16,610,007 and 15,871,727 weighted average shares
outstanding, respectively. For additional information on the calculation
of earnings per share, see Note 8.
24
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
=========================================================================
Note 2: Acquisitions
On January 5, 1998, the Company acquired substantially all of the
assets and assumed certain agreed upon liabilities of Geological
Equipment Corporation ("Geoquip") located in Fort Worth, Texas, for
approximately $12.0 million. Gardner Denver also paid approximately
$2.0 million in cash to acquire patents, previously owned by Geoquip's
shareholders, for products manufactured by 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. 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 $8.3 million.
On January 29, 1998, the Company purchased substantially all of
the assets and assumed certain agreed upon liabilities of Champion
Pneumatic Machinery Company, Inc. ("Champion"), located in Princeton,
Illinois, a subsidiary of CRL Industries, Inc., for approximately $23.5
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 $16.8 million.
On March 9, 1998, the Company purchased substantially all of the
assets and assumed certain agreed upon liabilities of the Wittig
Division of Mannesmann Demag AG ("Wittig") for approximately $10.5
million. Wittig is located in Schophfeim, Germany. 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 $3.6 million.
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 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 Geoquip, Champion, Wittig,
Tamrotor, GDHI and TCM are included in the Company's Consolidated
Statement of Operations from the respective 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 Wittig have not been finalized.
=========================================================================
Note 3: Inventories
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials, including parts and subassemblies $42,006 47,992
Work-in-process 8,167 9,667
Finished goods 17,159 11,003
Perishable tooling and supplies 2,525 2,571
- ---------------------------------------------------------------------------------------
69,857 71,233
Excess of current standard costs over LIFO costs (7,037) (10,964)
Allowance for obsolete and slow-moving inventory (9,705) (11,945)
- ---------------------------------------------------------------------------------------
Inventories, net $53,115 48,324
=======================================================================================
</TABLE>
<PAGE>
During 1998, 1997 and 1996, 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 1998, 1997 and 1996 by $2,788, $732 and $1,213,
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 1996 through
1998, the LIFO liquidation income was recorded in the fourth quarter.
=========================================================================
25
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
=========================================================================
Note 4: Property, Plant and Equipment and Intangibles
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment:
Land and land improvements $ 4,453 2,836
Buildings 35,187 25,278
Machinery and equipment 78,950 67,850
Tooling, dies, patterns, etc. 28,241 26,462
Office furniture and equipment 10,144 9,353
Other 1,507 1,360
Construction in progress 6,823 3,484
- ---------------------------------------------------------------------------------------
165,305 136,623
Accumulated depreciation (106,044) (99,093)
- ---------------------------------------------------------------------------------------
Property, plant and equipment, net $ 59,261 37,530
=======================================================================================
Intangibles:
Goodwill $ 132,541 102,351
Other 3,855 1,841
- ---------------------------------------------------------------------------------------
136,396 104,192
Accumulated amortization (22,142) (18,668)
- ---------------------------------------------------------------------------------------
Intangibles, net $ 114,254 85,524
=======================================================================================
</TABLE>
=========================================================================
Note 5: Accounts Payable and Accrued Liabilities
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable - trade $ 26,762 23,371
Salaries, wages and related fringe benefits 7,978 4,364
Product liability, workers' compensation and other
insurance 3,752 3,595
Other 22,314 25,405
- ---------------------------------------------------------------------------------------
Total accounts payable and accrued liabilities $ 60,806 56,735
=======================================================================================
</TABLE>
=========================================================================
Note 6: Pension and Other Postretirement Benefits
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.
In addition, 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 healthcare benefits after retirement. All
of the Company's postretirement medical plans are unfunded.
The following tables provide a reconciliation of the changes in
both the pension and other postretirement plans' benefit obligations and
fair value of assets over the two-year period ending December 31, 1998,
and a statement of the funded status as of December 31, 1998 and 1997:
26
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
-------------------------------------------------------------
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation
Obligation at January 1 $48,781 49,241 $ 27,939 27,990
Service cost 1,243 904 28 30
Interest cost 3,569 3,500 1,860 2,005
Plan amendments -- (1,339) -- --
Actuarial loss (gain) 3,782 1,327 (58) (71)
Acquisition 2,328 -- -- --
Benefit payments (5,826) (4,852) (2,288) (2,015)
Effect of exchange rate changes 229 -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Obligation at December 31 $54,106 48,781 $ 27,481 27,939
===========================================================================================================================
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 $55,178 51,800
Actual return on plan assets 5,134 7,679
Employer contributions 597 551
Benefit payments (5,826) (4,852)
- ---------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31 $55,083 55,178 $ -- --
===========================================================================================================================
Funded status
Funded status at December 31 $ 977 6,397 $(27,481) (27,939)
Unrecognized transition asset (163) (372) -- --
Unrecognized prior-service cost (966) (1,052) (5,240) (6,440)
Unrecognized gain (4,903) (8,090) (16,259) (18,598)
- ---------------------------------------------------------------------------------------------------------------------------
Accrued benefit liability $(5,055) (3,117) $(48,980) (52,977)
===========================================================================================================================
</TABLE>
The aggregate accumulated benefit obligation and fair value of
plan assets for pension plans with accumulated benefit obligations
in excess of plan assets at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation $8,487 5,924
===========================================================================================================================
Fair value of plan assets $3,791 3,253
===========================================================================================================================
</TABLE>
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.
27
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The following table provides the components of net periodic
benefit expense (income) for the plans for the years ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
--------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,243 904 962 $ 28 30 100
Interest cost 3,569 3,500 2,850 1,860 2,005 1,800
Expected return on plan assets (4,443) (4,148) (3,774) -- -- --
Amortization of transition asset (209) (209) (220) -- -- --
Amortization of prior-service cost (86) 10 41 (1,200) (1,200) (1,200)
Amortization of net gain (64) (16) -- (2,431) (2,504) (2,800)
- -------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit expense (income) 10 41 (141) $(1,743) (1,669) (2,100)
Defined contribution plans 3,576 2,723 1,981 ==================================
- ---------------------------------------------------------------------------------------
Total retirement plan expense $ 3,586 2,764 1,840
=======================================================================================
<CAPTION>
COMPUTATIONAL ASSUMPTIONS
Pension and Other Postretirement Benefits
----------------------------------------------------------
Net Pension Cost Benefit Obligation
----------------------------------------------------------
December 31, December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount rate 7.25% 7.50% 7.00% 6.75% 7.25%
<CAPTION>
Pension Benefits
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rate of increase in compensation levels 5.50% 5.50% 5.50% 5.00% 5.50%
Expected long-term rate of return on assets 8.50% 8.50% 8.50% -- --
===============================================================================================================================
</TABLE>
For measurement purposes, the annual rate of increase in the per
capita cost of covered healthcare benefits assumed for 1998 was 7.5% for
participants under age 65 and 6.5% for participants over age 65. The
rates were assumed to decrease gradually each year to a rate of 5.5% for
2005 and remain at that level thereafter.
Assumed healthcare cost trend rates have a significant effect on
the amounts reported for the postretirement medical plans. A one
percentage point change in assumed healthcare cost trend rates would
have the following effects:
<TABLE>
<CAPTION>
One Percentage Point
-----------------------
Increase Decrease
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components of
net periodic other postretirement benefit cost - increase (decrease) 8.9% (7.8%)
Effect on the postretirement benefit obligation - increase (decrease) 9.6% (8.4%)
===============================================================================================
</TABLE>
The full-time salaried and hourly employees of the Company's
Wittig operation in Germany, acquired in March 1998, have pension
benefits provided under defined benefit pay-related and service-related
plans which are noncontributory. Consistent with the practice in
Germany, these plans are unfunded. As a result of the acquisition of
Wittig and the unfunded nature of the plans, the full amount of the
projected pension benefit obligation as of the acquisition date was
recorded as an accrued benefit liability on the Consolidated Balance
Sheet. The change in the pension benefit obligation and the net periodic
pension benefit expense from the acquisition date forward have been
included in the preceding pension benefit tables.
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 benefit cost for defined contribution plans.
<PAGE>
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 to the Savings Plan are in the form of
the Company's common stock.
28
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
=========================================================================
Note 7: 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, 1998, the Company has granted
options on 2,155,609 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 and 1998 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 the purchase price of the options
withheld from their pay 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, 1998, employees had enrolled to purchase
77,490 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, "Accounting for Stock Issued to Employees." Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), requires pro forma disclosure of the impact
on earnings as if the compensation costs for these plans had been
determined consistent with the fair value methodology of this Statement.
The Company's net income and earnings per share would have been reduced
to the following pro forma amounts under SFAS 123:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $36,805 27,651 16,906
Pro forma 35,655 26,817 16,328
Basic earnings per share As reported $ 2.29 1.84 1.16
Pro forma 2.22 1.78 1.12
Diluted earnings per share As reported $ 2.22 1.74 1.11
Pro forma 2.15 1.69 1.07
- -------------------------------------------------------------------------------------------------------------------------------
</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, 1998, 1997 and 1996, and changes during the years then
ended, is presented in the table and narrative below (shares in
thousands):
<PAGE>
<TABLE>
<CAPTION>
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year 1,174 $ 6.91 1,371 $ 4.88 1,225 $3.33
Granted 257 26.01 159 18.28 384 8.77
Exercised (334) 3.64 (293) 3.96 (223) 3.18
Forfeited (20) 13.57 (63) 5.27 (15) 3.42
----- ----- -----
Options outstanding, end of year 1,077 12.36 1,174 6.91 1,371 4.88
===== ===== =====
Options exercisable, end of year 623 6.49 627 4.17 581 3.20
===== ===== =====
Weighted average fair value of options granted 10.31 6.76 5.04
===============================================================================================================================
</TABLE>
29
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The following table summarizes information about fixed-price
stock options outstanding at December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------
Number Wtd. Avg. Wtd. Avg. Number Wtd. Avg.
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Contractual Life Price at 12/31/98 Price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.00 - 5.00 372 1.1 years $ 3.57 372 $ 3.57
5.01 - 10.00 298 7.1 8.70 193 8.65
10.01 - 25.00 174 4.0 17.97 58 18.14
25.01 - 30.00 233 8.9 26.91 -- --
============================================================================================================================
</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 1998, 1997 and 1996, respectively: risk-
free interest rates of 5.4%, 6.3% and 6.8%; expected lives of 4.8, 4.1
and 8.8 years; and expected volatility of 36%, 35% and 35%. No
dividends payments are included in this valuation.
=========================================================================
Note 8: Stockholders' Equity and Earnings Per Share
At December 31, 1998 and 1997, 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, 1998 and 1997, were 15,496,849 and 15,435,953,
respectively. No shares of preferred stock were issued or outstanding
at December 31, 1998 or 1997. 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 table details the calculation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Amt. Amt. Amt.
Net Wtd. Avg. Per Net Wtd. Avg. Per Net Wtd. Avg. Per
Income Shares Share Income Shares Share Income Shares Share
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Income available to
common stockholders $36,805 16,066,699 $2.29 $27,651 15,059,569 $1.84 $16,906 14,625,078 $1.16
===== ===== =====
Diluted earnings per share:
Effect of dilutive securities:
Stock options granted
and outstanding -- 543,308 -- 812,158 -- 669,252
- ---------------------------------------------------------------------------------------------------------------------------------
Income available to
common stockholders
and assumed conversions $36,805 16,610,007 $2.22 $27,651 15,871,727 $1.74 $16,906 15,294,330 $1.11
=================================================================================================================================
</TABLE>
30
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
=========================================================================
Note 9: Long-Term Debt and Other Borrowing Arrangements
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit line, due 2000 <F1> $ -- 15,000
Credit line, due 2003 <F2> 35,987 --
Unsecured senior note, due 2006 <F3> 35,000 35,000
Variable rate industrial revenue bond, due 2018 <F4> 9,500 --
5.0% Note, due 2001 636 828
3.0% Industrial development note, due 2001 209 281
Bank note due in Finnish Markka <F5> 20 575
Other 2 2
- -------------------------------------------------------------------------------------------------------------------
81,354 51,686
Current maturities of long-term debt (296) (459)
- -------------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities $81,058 51,227
===================================================================================================================
<FN>
<F1> The facility, effective November 30, 1995, was terminated on
January 20, 1998. The interest rate varied with market rates for
prime, CD's and/or LIBOR and the Company's debt to adjusted income
ratio. As of December 31, 1997, this rate was 6.5% and averaged
6.3% for the year ended December 31, 1997.
<F2> The facility was effective January 20, 1998. The loans under the
facility may be denominated in U.S. Dollars or in several foreign
currencies. At December 31, 1998, the outstanding balance
consisted of two loans: $24.0 million and DM20.0 million. The
interest rate varies with market rates for federal funds and/or
LIBOR for the applicable currency and the Company's debt to
adjusted income ratio. As of December 31, 1998, the rate for the
U.S. Dollar loan and the German Mark loan was 6.0% and 3.8%,
respectively, and averaged 5.9% and 4.0%, respectively, for the
year ended December 31, 1998.
<F3> 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.
<F4> The interest rate varies with market rates for tax-exempt
industrial revenue bonds. As of December 31, 1998, this rate was
4.2% and averaged 3.5% for the year ended December 31, 1998.
<F5> This Finnish Markka denominated debt was assumed upon the
acquisition of Tamrotor and provides for an interest rate of
5.0%. The debt was used to purchase machinery and equipment and
is secured by such equipment.
===================================================================================================================
</TABLE>
On January 20, 1998, the Company entered into an agreement for a
new revolving line of credit with an aggregate $125,000 borrowing
capacity and terminated the previous agreement. Of the available credit
line, $35,987 was outstanding at December 31, 1998, leaving $89,013
available for additional borrowings or to issue as letters of credit.
The total debt balance will mature on January 20, 2003. In September
1996, the Company obtained fixed rate financing by entering into an
unsecured senior note agreement for $35,000. This note 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.
On April 23, 1998, the Fayette County Development Authority issued
$9,500 in industrial revenue bonds, on behalf of the Company, to finance
the cost of constructing and equipping the new manufacturing facility in
Peachtree City, Georgia. The principal for these industrial revenue
bonds is to be repaid in full on March 1, 2018. These industrial
revenue bonds are secured by a letter of credit.
Maturities of long-term debt for the five years subsequent to
December 31, 1998 are $296, $5,290, $5,281, $5,000 and $40,987,
respectively.
Included in short-term borrowings and current maturities of long-
term debt is a credit facility for Tamrotor, denominated in Finnish
Markka. At December 31, 1998, the outstanding balance under the
facility was $2,156 and the interest rate was 3.6%. The average
interest rate was 4.1% for the year ended December 31, 1998.
<PAGE>
Interest paid in 1998, 1997 and 1996 was $5,494, $4,374 and
$2,423, respectively.
The rentals for all operating leases were $2,531, $2,108 and
$1,519 in 1998, 1997 and 1996, respectively.
31
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
=========================================================================
Note 10: Segment Information
The Company has adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). The Company is organized based on
the products and services it offers. Under this organizational
structure, the Company has three operating units: compressor products,
blower products and petroleum products, which result in two reportable
segments under SFAS 131, Compressed Air Products and Petroleum Products.
The compressor and blower products operating units have been aggregated
into one reportable segment (Compressed Air Products) since the long-
term financial performance of these businesses are affected by similar
economic conditions, coupled with the similar nature of their products,
manufacturing processes, served markets and other business
characteristics.
The Compressed Air Products segment designs, manufactures, markets
and services reciprocating, rotary screw and sliding vane compressors
and blowers to serve all aspects of the industrial air market. The
markets served are primarily in the United States, but a growing portion
of revenue is from exports and expanding European operations. The
Petroleum Products segment designs, manufactures, markets and services a
diverse group of pump products used in oil and natural gas production,
well servicing, oil and gas drilling and water blast markets.
The accounting policies of the segments are the same as those
described in Note 1. The Company evaluates the performance of its
segments based on income before interest expense and income taxes. A
portion of the expenses and certain assets attributable to corporate
activity are not allocated to the segments. Unallocated assets
primarily consist of cash and equivalents and deferred tax assets.
Intersegment sales and transfers are not significant.
<TABLE>
<CAPTION>
Revenues Operating Earnings Identifiable Assets
-------------------------------------------------------------------------------------------------------
Year ended December 31, Year ended December 31, December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Compressed Air Products $298,440 228,214 188,027 $45,496 38,554 30,399 $252,386 199,205 166,987
Petroleum Products 86,552 63,333 29,973 21,911 13,211 2,258 50,653 41,604 38,812
-------------------------------------------------------------------------------------------------------
Total $384,992 291,547 218,000 67,407 51,765 32,657 303,039 240,809 205,799
================================
Interest expense (4,849) (3,937) (3,104)
General corporate (2,664) (1,677) (1,114) 39,091 27,460 29,957
------------------------------------------------------------------
Income before income
taxes $59,894 46,151 28,439
===============================
Total assets $342,130 268,269 235,756
===============================
<CAPTION>
Year ended December 31,
-------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<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 $ 2,543 442 1,164
Petroleum Products 1,998 778 857
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 4,541 1,220 2,021
=================================================================================================================================
Provision for obsolete and slow-moving inventory, included in operating earnings above:
Compressed Air Products $ 489 507 1,048
Petroleum Products 130 358 750
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 619 865 1,798
=================================================================================================================================
Depreciation and amortization, included in operating earnings above:
Compressed Air Products $10,602 8,458 7,043
Petroleum Products 2,376 1,204 1,054
- ---------------------------------------------------------------------------------------------------------------------------------
Total $12,978 9,662 8,097
=================================================================================================================================
<PAGE>
Capital expenditures:
Compressed Air Products $17,025 7,755 3,510
Petroleum Products 2,654 2,053 661
- ---------------------------------------------------------------------------------------------------------------------------------
Total $19,679 9,808 4,171
=================================================================================================================================
</TABLE>
32
<PAGE>
<PAGE>
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
Revenues outside the United States were --------------------------------
comprised of sales to unaffiliated companies in: 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe $ 54,815 26,652 9,787
Canada 21,942 19,245 14,282
Latin America 10,837 12,413 10,434
Asia 6,512 14,240 14,937
Other 14,859 6,165 4,109
- ---------------------------------------------------------------------------------------------------------------------------------
Total $108,965 78,715 53,549
=================================================================================================================================
<CAPTION>
Net long-lived assets by geographic area are as follows: December 31,
--------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $145,895 104,299 103,854
Europe 27,620 18,755 160
- ---------------------------------------------------------------------------------------------------------------------------------
Total $173,515 123,054 104,014
=================================================================================================================================
</TABLE>
=========================================================================
Note 11: Income Taxes
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes:
Current:
U.S. federal $ 16,164 13,936 9,422
U.S. state and local 1,847 1,593 1,385
International 1,066 253 --
- ---------------------------------------------------------------------------------------------------------------------------------
Current 19,077 15,782 10,807
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred:
U.S. federal 3,587 2,190 633
U.S. state and local 410 251 93
International 15 277 --
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred 4,012 2,718 726
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 23,089 18,500 11,533
=================================================================================================================================
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% $ 20,963 16,153 9,953
State and local income taxes 2,008 1,573 1,238
Nondeductible goodwill 979 769 592
Other, net (861) 5 (250)
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 23,089 18,500 11,533
=================================================================================================================================
Total income taxes paid $ 17,827 15,138 9,839
=================================================================================================================================
<CAPTION>
December 31,
--------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Components of deferred tax balances:
Deferred tax assets:
Reserves and accruals $ 11,601 11,746
Postretirement benefits other than pensions 19,102 20,677
Other 628 175
- ---------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 31,331 32,598
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
LIFO inventory (4,398) (4,039)
Plant and equipment (5,048) (4,428)
VEBA trust (643) (468)
Other (6,625) (5,034)
- ---------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (16,714) (13,969)
- ---------------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 14,617 18,629
=================================================================================================================================
</TABLE>
33
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
U.S. taxes and foreign country withholding taxes are not provided
on undistributed earnings of international subsidiaries because the
Company intends to reinvest 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.
=========================================================================
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
There were no off balance sheet derivative financial instruments
as of December 31, 1998. As of December 31, 1997, such instruments
consisted solely of an interest rate swap agreement used to fix interest
rates on floating rate debt. This agreement was with a commercial bank
and had a notional principal amount of $15,000. The swap provided a
fixed interest rate of 6%. The interest rate swap terminated in
November 1998.
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, 1998, 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 cash and
equivalents, trade receivables, trade payables, debt instruments 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.
=========================================================================
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 PRP's are in a range between $1,300 and
$3,600. The Company believes that the costs related to these sites will
not have a materially adverse effect on its consolidated financial
position, results of operations 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.
=========================================================================
Note 14: Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1998 Quarter Ended
------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,<F2>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $89,792 103,509 96,605 95,086
Gross margin <F1> 30,394 33,378 32,581 35,797
Net income 8,081 9,200 8,748 10,776
Basic earnings per share $ 0.51 0.57 0.54 0.67
Diluted earnings per share $ 0.49 0.55 0.52 0.66
=====================================================================================================================
<CAPTION>
1997 Quarter Ended
------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,<F2>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $66,075 69,447 76,451 79,574
Gross margin <F1> 21,622 23,704 25,742 28,862
Net income 5,324 6,813 6,965 8,549
Basic earnings per share $ 0.36 0.46 0.46 0.56
Diluted earnings per share $ 0.34 0.43 0.44 0.53
=====================================================================================================================
<FN>
<F1> Gross margin equals revenues less cost of sales.
<F2> Includes an increase in net income in 1998 and 1997 of $2,788 and
$732, respectively, related to LIFO inventory liquidations.
</TABLE>
34
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
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 two most recent 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>
1998 $29 15/16 -- $19 1/2 30 7/16 -- 24 1/2 28 1/4 -- 13 23/32 18 3/4 -- 10 3/8
1997 $21 11/64 -- $10 11/64 20 21/64 -- 12 25 53/64 -- 17 21/64 28 27/64 -- 20 5/8
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of March 1, 1999, there were approximately 9,000 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, A Division of EquiServe
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 1999 Annual Meeting of Stockholders will be held on May 4
at the Holiday Inn Quincy, 201 South Third Street, Quincy, Illinois,
starting at 1:30 p.m.
Corporate Offices
Gardner Denver, Inc.
1800 Gardner Expressway
Quincy, Illinois 62301
(217) 222-5400
E-mail address: [email protected]
Internet Access
For access to information on your Gardner Denver investment
via the Internet, registered shareholders may contact the Company's
transfer agent at (877) 843-9327 for a personal identification number
and then visit their website at http://www.fctc.com.
35
<PAGE>
<PAGE>
Gardner Denver
- -------------------------------------------------------------------------
Board of Directors
Donald G. Barger, Jr.
Vice President and Chief Financial Officer
Hillenbrand Industries Inc.
Ross J. Centanni
Chairman, President and
Chief Executive Officer
Gardner Denver, Inc.
Frank J. Hansen
President and Chief Operating Officer
IDEX Corporation
Raymond R. Hipp
Chairman, President and
Chief Executive Officer
Alternative Resources Corporation
Thomas M. McKenna
President
United Sugars Corporation
Alan E. Riedel
Vice Chairman (retired)
Cooper Industries, Inc.
Michael J. Sebastian
Executive Vice President (retired)
Cooper Industries, Inc.
Richard L. Thompson
Group President and
Executive Office Member
Caterpillar Inc.
- -------------------------------------------------------------------------
Corporate Officers
Ross J. Centanni
Chairman, 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
Steven M. Krivacek
Vice President, Human Resources
Daniel C. Rizzo, Jr.
Vice President and Corporate Controller
Philip R. Roth
Vice President, Finance and
Chief Financial Officer
J. Dennis Shull
Vice President and General Manager,
Gardner Denver Compressor
and Pump Division
36
<PAGE>
Exhibit 21.0
<TABLE>
GARDNER DENVER, INC.
SCHEDULE OF SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1998
<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
Gardner Denver Wittig GmbH Germany Gardner Denver Wittig GmbH
Gardner Denver Oy Finland Gardner Denver Oy
</TABLE>
<PAGE>
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, 1998, 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, 1999
<PAGE>
Exhibit 24.0
GARDNER DENVER, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver, 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,
1998 (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 Atlanta , Georgia this 2nd day of March 1999.
----------- ------------ -------
/s/Thomas M. McKenna
----------------------------------
Thomas M. McKenna
<PAGE>
<PAGE>
Exhibit 24.0
GARDNER DENVER, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver, 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,
1998 (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 Atlanta , Georgia this 2nd day of March 1999.
----------- ------------ -------
/s/Alan E. Riedel
-------------------
Alan E. Riedel
<PAGE>
<PAGE>
Exhibit 24.0
GARDNER DENVER, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver, 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,
1998 (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 Atlanta , Georgia this 2nd day of March 1999.
----------- ------------ -------
/s/Michael J. Sebastian
-------------------------------------------
Michael J. Sebastian
<PAGE>
<PAGE>
Exhibit 24.0
GARDNER DENVER, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver, 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,
1998 (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 Atlanta , Georgia this 2nd day of March 1999.
----------- ------------ -------
/s/Donald G. Barger, Jr.
------------------------------------
Donald G. Barger, Jr.
<PAGE>
<PAGE>
Exhibit 24.0
GARDNER DENVER, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver, 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,
1998 (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 Atlanta , Georgia this 2nd day of March 1999.
----------- ------------ -------
/s/Frank J. Hansen
------------------
Frank J. Hansen
<PAGE>
<PAGE>
Exhibit 24.0
GARDNER DENVER, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver, 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,
1998 (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 Atlanta , Georgia this 2nd day of March 1999.
----------- ------------ -------
/s/Richard L. Thompson
--------------------------------
Richard L. Thompson
<PAGE>
<PAGE>
Exhibit 24.0
GARDNER DENVER, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY OF DIRECTORS
The undersigned, a director of Gardner Denver, 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,
1998 (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 Atlanta , Georgia this 2nd day of March 1999.
----------- ------------ -------
/s/Raymond R. Hipp
--------------------------------
Raymond R. Hipp
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER, INC. FOR THE YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 24,474
<SECURITIES> 0
<RECEIVABLES> 71,616
<ALLOWANCES> (4,371)
<INVENTORY> 53,115
<CURRENT-ASSETS> 151,805
<PP&E> 165,305
<DEPRECIATION> (106,044)
<TOTAL-ASSETS> 342,130
<CURRENT-LIABILITIES> 63,258
<BONDS> 83,510
<COMMON> 163
0
0
<OTHER-SE> 142,523
<TOTAL-LIABILITY-AND-EQUITY> 342,130
<SALES> 383,131
<TOTAL-REVENUES> 384,992
<CGS> 252,301
<TOTAL-COSTS> 252,842
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 306
<INTEREST-EXPENSE> 4,849
<INCOME-PRETAX> 59,894
<INCOME-TAX> 23,089
<INCOME-CONTINUING> 36,805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,805
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 2.22
</TABLE>
