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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13215
GARDNER DENVER, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 76-0419383
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1800 GARDNER EXPRESSWAY
QUINCY, ILLINOIS 62301
(Address of Principal Executive Offices and Zip Code)
(217) 222-5400
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of the issuer's Common Stock, par value
$.01 per share, as of May 6, 1999: 14,916,796 shares.
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
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<S> <C> <C>
Revenues $70,224 $89,792
Costs and Expenses:
Cost of sales (excluding depreciation
and amortization) 48,360 59,398
Depreciation and amortization 3,519 2,895
Selling and administrative expenses 11,798 12,954
Interest expense 1,207 1,179
Other expense 123 155
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Income before income taxes 5,217 13,211
Provision for income taxes 2,014 5,130
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Net income $ 3,203 $ 8,081
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Basic earnings per share $ 0.21 $ 0.51
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Diluted earnings per share $ 0.21 $ 0.49
======= =======
The accompanying notes are an integral part of this statement.
</TABLE>
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GARDNER DENVER, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts)
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 15,220 $ 24,474
Receivables, net 62,768 69,617
Inventories, net 56,004 53,115
Deferred income taxes 3,542 2,445
Other 2,487 2,154
-------- --------
Total current assets 140,021 151,805
-------- --------
Property, plant and equipment, net 59,646 59,261
Intangibles, net 112,317 114,254
Deferred income taxes 10,437 12,172
Other assets 4,698 4,638
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Total assets $327,119 $342,130
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 279 $ 2,452
Accounts payable and accrued liabilities 55,491 60,806
-------- --------
Total current liabilities 55,770 63,258
-------- --------
Long-term debt, less current maturities 78,011 81,058
Postretirement benefits other than pensions 45,608 46,612
Other long-term liabilities 9,144 8,516
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Total liabilities 188,533 199,444
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Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 14,949,079 shares issued and
outstanding at March 31, 1999 163 163
Capital in excess of par value 154,142 153,656
Treasury stock at cost, 1,405,486 shares at
March 31, 1999 (20,169) (12,259)
Retained earnings 6,509 3,306
Accumulated other comprehensive loss (2,059) (2,180)
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Total stockholders' equity 138,586 142,686
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Total liabilities and stockholders' equity $327,119 $342,130
======== ========
The accompanying notes are an integral part of this statement.
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<TABLE>
GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
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Cash flows from operating activities:
Net income $ 3,203 $ 8,081
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,519 2,895
Stock issued for employee benefit plans 454 466
Deferred income taxes 658 848
Changes in assets and liabilities:
Receivables 5,940 (9,096)
Inventories (3,744) (3,620)
Accounts payable and accrued liabilities (3,515) 9,967
Other assets and liabilities, net (249) (558)
-------- --------
Net cash provided by operating activities 6,266 8,983
-------- --------
Cash flows from investing activities:
Business acquisitions, net of cash acquired --- (39,602)
Foreign currency hedging transactions 682 1,278
Capital expenditures (3,486) (2,266)
-------- --------
Net cash used for investing activities (2,804) (40,590)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (12,080) (22,106)
Proceeds from long-term borrowings 7,940 57,950
Debt issuance costs --- (67)
Proceeds from stock options 32 219
Purchase of treasury stock (7,910) ---
-------- --------
Net cash (used for) provided by
financing activities (12,018) 35,996
-------- --------
Effect of exchange rate changes on cash and
equivalents (698) (1,251)
-------- --------
(Decrease) increase in cash and equivalents (9,254) 3,138
-------- --------
Cash and equivalents, beginning of period 24,474 8,831
-------- --------
Cash and equivalents, end of period $ 15,220 $ 11,969
======== ========
The accompanying notes are an integral part of this statement.
</TABLE>
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NOTES TO CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Basis of Presentation. The accompanying condensed financial statements
include the accounts of Gardner Denver, Inc. ("Gardner Denver" or the
"Company") and its subsidiaries. All significant intercompany
transactions and accounts have been eliminated. Investments in entities
in which the Company has twenty to fifty percent ownership are accounted
for by the equity method.
The financial information presented as of any date other than December
31 has been prepared from the books and records without audit. The
accompanying condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally
accepted accounting principles for complete statements. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such financial
statements, have been included.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
incorporated by reference in Gardner Denver's Annual Report on Form 10-K
for the year ended December 31, 1998.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results to be expected for the full
year.
NOTE 2. RECENT 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. The Company 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 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 A.G. ("Wittig") for approximately $10.5 million.
Wittig is located in Schophfeim, Germany. The purchase price
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was allocated to assets and liabilities based on their respective fair
values at the date of acquisition and resulted in cost in excess of net
assets acquired of $4.1 million.
As a result of the stability of the product technology, markets and
customers associated with these three acquisitions, the cost in excess
of net assets acquired for each acquisition is being amortized over 40
years using the straight-line method.
All acquisitions have been accounted for by the purchase method, and
accordingly, the results of operations of Geoquip, Champion and Wittig
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.
NOTE 3. EARNINGS PER SHARE.
The following table details the calculation of basic and diluted
earnings per share:
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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1999 1998
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Basic EPS:
Net income $ 3,203 $ 8,081
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Shares
Weighted average number of common
shares outstanding 15,245 15,940
======= =======
Basic earnings per common share $ 0.21 $ 0.51
======= =======
Diluted EPS:
Net income $ 3,203 $ 8,081
======= =======
Shares
Weighted average number of common
shares outstanding 15,245 15,940
Assuming conversion of dilutive stock options issued
and outstanding 332 697
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Weighted average number of common
shares outstanding, as adjusted 15,577 16,637
======= =======
Diluted earnings per common share $ 0.21 $ 0.49
======= =======
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NOTE 4. INVENTORIES.
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<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
Raw materials, including parts and
subassemblies $39,570 $42,006
Work-in-process 8,700 8,167
Finished goods 20,051 17,159
Perishable tooling and supplies 2,525 2,525
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70,846 69,857
Excess of current standard costs
over LIFO costs (6,946) (7,037)
Allowance for obsolete and slow-
moving inventory (7,896) (9,705)
------- -------
Inventories, net $56,004 $53,115
======= =======
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NOTE 5. COMPREHENSIVE INCOME.
For the three months ended March 31, 1999 and 1998, comprehensive income
was $3.3 million and $8.1 million, respectively. Items impacting the
Company's comprehensive income, but not included in net income, consist
of foreign currency translation adjustments.
NOTE 6. CASH FLOW INFORMATION.
In the first three months of 1999 and 1998, the Company paid $0.2
million and $1.3 million, respectively, to the various taxing
authorities for income taxes. Interest paid for the first three months
of each 1999 and 1998, totaled $1.8 million.
NOTE 7. SEGMENT INFORMATION.
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
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<S> <C> <C>
Revenues:
Compressed Air Products $63,590 $70,030
Petroleum Products 6,634 19,762
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Total $70,224 $89,792
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Operating Earnings:
Compressed Air Products $ 6,579 $10,678
Petroleum Products 398 4,412
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Total 6,977 15,090
Interest Expense 1,207 1,179
General Corporate 553 700
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Income before Income Taxes $ 5,217 $13,211
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</TABLE>
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NOTE 8. SUBSEQUENT EVENTS.
On April 1, 1999, the Company acquired 100% of the stock of the Allen-
Stuart Equipment Company ("Allen-Stuart") and on April 5, 1999, the
Company acquired 100% of the stock of Butterworth Jetting Systems, Inc.
("Butterworth"). Allen-Stuart, located in Houston, Texas, designs and
fabricates custom-engineered packages for blower and compressor
equipment in air and gas applications. Allen-Stuart serves a wide
variety of industrial companies, including petrochemical, power
generation, oil and natural gas production and refining. Butterworth,
also located in Houston, Texas, is a manufacturer of water jet pumps and
systems serving the industrial cleaning and maintenance market.
Applications in this market include runway and ship-hull cleaning,
concrete demolition and metal surface preparation. The aggregate
purchase price for these acquisitions was approximately $17.6 million.
These acquisitions will be accounted for by the purchase method and
accordingly, the results of their operations will be included in the
Company's consolidated financial statements from the respective dates of
the acquisitions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
Revenues
Revenues decreased $19.6 million (22%) to $70.2 million for the three
months ended March 31, 1999, compared to the same period of 1998.
Excluding incremental revenue from acquisitions which the Company has
completed since late January 1998, revenues decreased $26.3 million
(29%) over the same period of 1998. See Note 2 to the Financial
Statements for further information on the Company's recent acquisitions.
For the three months ended March 31, 1999, revenues for the Compressed
Air Products segment decreased $6.4 million (9%) to $63.6 million
compared to the same period of 1998. Excluding incremental revenue from
acquisitions since late January 1998, which contributed $6.8 million,
compressed air product revenues decreased $13.2 million (19%). This
reduction was primarily related to declining industrial production in
the United States during the second half of 1998 which reduced orders
for compressor products, resulting in a decline of revenues in the first
quarter of 1999. Petroleum Products segment revenues decreased $13.1
million (66%) to $6.6 million for the three months ended March 31, 1999,
compared to the same period of 1998. This reduction was due to
depressed demand for petroleum products, resulting primarily from lower
oil prices in 1998.
Costs and Expenses
Gross margin (defined as sales less cost of sales excluding depreciation
and amortization) for the three months ended March 31, 1999 decreased
$8.5 million (28%) to $21.9 million from $30.4 million in the same
period of 1998. Gross margin as a percentage of revenues (gross margin
percentage) decreased to 31.1% in the three-month period of 1999 from
33.8% in the same period of 1998. This reduction in the gross margin
percentage was principally attributable to two
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factors. First, acquisitions completed since late January 1998
negatively affected the gross margin percentage as these companies
currently generate lower gross margins than the Company's previously
existing operations. Second, the negative impact of decreased leverage
of production overhead costs over a lower revenue base was only
partially offset by cost reduction efforts.
Depreciation and amortization increased 22% to $3.5 million in the first
three months of 1999, compared with $2.9 million for the same period of
1998. The increase in depreciation and amortization expense was due to
goodwill amortization associated with the 1998 acquisitions and ongoing
capital expenditures. For the three-month periods, depreciation and
amortization expense as a percentage of revenues increased to 5.0% in
1999 from 3.2% in 1998. This percentage increase is due to the factors
noted above, combined with the effect of lower revenues.
Selling and administrative expenses decreased in the first three months
of 1999 by 9% to $11.8 million from $13.0 million in the same period of
1998. Incremental expenses of $1.5 million related to acquisitions were
offset by decreases in staffing levels and discretionary spending.
Excluding the impact of acquisitions completed since late January 1998,
selling and administrative expenses decreased by more than 20% from the
comparable 1998 period. As a percentage of revenues, selling and
administrative expenses for the three-month periods increased to 16.8%
in 1999 from 14.4% in 1998. This percentage increase is primarily due
to the decrease in revenues and the acquisitions referred to above which
have higher costs relative to sales than the Company's existing
operations.
The Compressed Air Products segment generated operating margins (defined
as revenues, less cost of sales, depreciation and amortization, and
selling and administrative expenses excluding unallocated corporate
administrative expenses) of 10.3% for the three-month period ended March
31, 1999, a decrease from 15.2% for the three-month period of 1998.
This decline is due to the negative impact of decreased leverage of the
segment's fixed and semi-fixed costs over a lower revenue base and the
effect of newly acquired operations that currently generate lower
operating margins (after amortization of goodwill associated with the
acquisitions) than the Company's previously existing operations. The
operating margin was also negatively impacted by an increased allocation
of shared costs as a result of the segment's revenues representing a
greater percentage of the Company's total revenues in 1999 as compared
to 1998. Staffing reductions, reduced discretionary spending and other
cost reduction efforts partially offset these negative factors.
The Petroleum Products segment generated operating margins of 6.0% for
three-month period ended March 31, 1999, compared to 22.3% for the same
period in 1998. This decline is primarily attributable to the negative
impact of decreased leverage of the segment's fixed and semi-fixed costs
over a lower revenue base, partially offset by staffing reductions,
reduced discretionary spending and other cost reduction efforts.
Interest expense was $1.2 million for the three-month periods of 1999
and 1998 as higher average borrowings in 1999 were offset by lower
average interest rates. The average interest rate for the three-month
period of 1999 was 5.8%, compared to 6.4% for the same period of 1998.
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Income before income taxes declined $8.0 million (61%) to $5.2 million
for the three months ended March 31, 1999, compared to the same period
of 1998. This decrease is primarily the result of lower revenues and
reduced gross margins discussed above.
Compared to 1998, the provision for income taxes decreased by $3.1
million to $2.0 million for the first three months primarily as a result
of the decreased income before taxes. The Company's effective tax rate
for the three months ended March 31, 1999 was 38.6%, compared to 38.8%
in the prior year period.
Net income for the three months ended March 31, 1999 decreased $4.9
million (60%) to $3.2 million ($0.21 diluted earnings per share),
compared to $8.1 million ($0.49 diluted earnings per share) for the same
period of 1998. This reduction in net income is attributable to the
same factors that resulted in decreased income before taxes noted above.
Outlook
Demand for petroleum products is related to market expectations
concerning prices of oil and natural gas. During the first quarter of
1999, orders for the Company's petroleum products reached their lowest
level of the previous twelve months as a result of the substantial
decline in the prices of oil and natural gas in 1998. Orders for
petroleum products were $3.9 million in the first quarter, a decrease of
$10.2 million compared to the same period of 1998. Compared to March
31, 1998, backlog for this business segment declined $27.2 million to
$3.8 million on March 31, 1999. Increases in demand for these products
are dependent upon sustained appreciation in oil and natural gas prices,
which the Company cannot predict. However, the price of oil increased
significantly during the first quarter of 1999 and if it remains at
current elevated levels, the Company believes a recovery in demand could
occur late in 1999. Nonetheless, the Company anticipates significantly
lower revenue for petroleum products in 1999, but believes that this
segment will continue to generate operating earnings in 1999.
In general, demand for compressed air products follows economic growth
patterns as indicated by the rate of change in GDP, manufacturing
capacity utilization and industrial production. In the first quarter of
1999, orders for compressed air products were $65.3 million, including
$4.6 million from acquisitions, compared to $65.0 million in the same
period of 1998. The Company experienced softer orders for compressed
air products, beginning in the second half of 1998 due to slowing growth
in industrial production in the United States, which is expected to
limit the rate of revenue growth for compressed air products through the
second quarter of 1999. However, localized demand for compressed air
products has improved recently and the decline in the order rate for
this segment appears to have stabilized during the first quarter of
1999. Backlog for this segment increased approximately 5% during the
first three months of 1999. Compared to March 31, 1998, however,
backlog for compressed air products declined $9.6 to $45.8 million on
March 31, 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
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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.
LIQUIDITY AND CAPITAL RESOURCES
Operating Working Capital
During the three months ended March 31, 1999, operating working capital
(defined as receivables plus inventories, less accounts payable and
accrued liabilities) increased $1.4 million. The increase is related to
a decrease in accounts payable and accrued liabilities and an increase
in inventory, offset by a decrease in receivables. The decrease in
accounts payable and accrued liabilities and receivables is due to
reduced spending and revenues. The increase in inventory is primarily
due to the timing of shipments.
Cash Flows
During the three months of 1999, the Company generated cash flows from
operations totaling $6.3 million, a decrease of $2.7 million (30%) from
the comparable period in 1998. This decrease was primarily the result
of the decrease in net income and accounts payable and accrued
liabilities, partially offset by a decrease in receivables as discussed
previously. Net payments of long-term debt totaled $4.1 million and
$7.9 million of treasury stock was purchased during the three months
ended March 31, 1999. The cash flows provided by operating activities
and used for financing and investing activities resulted in a net cash
decrease of $9.3 million for the three months ended March 31, 1999.
Capital Expenditures and Commitments
Capital projects to increase operating efficiency and flexibility,
expand production capacity and product quality resulted in expenditures
of $3.5 million in the first three months of 1999. This was $1.2
million higher than the level of capital expenditures in the comparable
period in 1998. Most of the increase was due to expenditures made for
production equipment and manufacturing efficiency improvements.
Commitments for capital expenditures at March 31, 1999 totaled $9.8
million. Management expects additional capital authorizations to be
committed during the remainder of the year and that capital expenditures
for 1999 will approximate $15 million, primarily due to expenditures
made at newly acquired facilities for machining capacity and cost
reductions at certain operations. Capital expenditures related to
environmental projects have not been significant in the past and are not
expected to be significant in the foreseeable future.
In October 1998, Gardner Denver's Board of Directors authorized the
repurchase of up to 1,600,000 shares of the Company's common stock to be
used for general corporate purposes. The shares will be purchased from
time to time in open market or private transactions. The Company has
also established a Stock Repurchase Program for its executive officers
to provide a means for them to sell Gardner Denver common stock and
obtain sufficient funds to meet alternative minimum tax obligations
which arise from the exercise of incentive stock options. During the
three months ended March 31, 1999, 602,200 shares were repurchased under
these repurchase programs at a cost of $7.9 million. As of March 31,
1999, a total of 1,357,300 shares have been repurchased at a cost of
$19.1 million under these repurchase programs.
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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 March 31,
1999, the Credit Line had an outstanding balance of approximately $33
million, leaving $92 million available for future use. The Credit Line
requires no principal payments during the term of the agreement, which
expires in January 2003. The Company's borrowing arrangements are
generally unsecured and permit certain investments and dividend
payments. There are no material restrictions on the Company as a result
of these arrangements, other than customary covenants regarding certain
earnings, liquidity, and capital ratios.
Management currently expects that the Company's future cash flows will
be sufficient to fund the scheduled debt service under existing credit
facilities and provide required resources for working capital and
capital investments.
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 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 end of the second quarter 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 onsite
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.
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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 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 necessary 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 STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133" or the "Statement").
SFAS 133 is effective for fiscal years beginning after June 15, 1999 and
will be adopted by the Company 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 March 31, 1999.
SUBSEQUENT EVENTS
On April 1, 1999, the Company acquired 100% of the stock of the Allen-
Stuart Equipment Company and on April 5, 1999, the Company acquired 100%
of the stock of Butterworth Jetting Systems, Inc. See Note 8 to the
Financial Statements for further information on the Company's subsequent
events.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis 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
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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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's exposure to market risk
between December 31, 1998 and March 31, 1999.
-14-
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 5, 1998, the Company issued 430,695 shares of common stock to
two individuals in connection with the acquisition of a Company owned by
them. The shares were valued at $10.5 million. The shares issued in
this transaction were exempt from registration under the Securities Act
of 1933 by virtue of Section 4(2).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
27.0 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
March 31, 1999.
-15-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GARDNER DENVER, INC.
Date: May 14, 1999 By: /s/ Ross J. Centanni
--------------------------------------
Ross J. Centanni
Chairman, President & CEO
Date: May 14, 1999 By: /s/ Philip R. Roth
--------------------------------------
Philip R. Roth
Vice President, Finance & CFO
Date: May 14, 1999 By: /s/ Daniel C. Rizzo, Jr.
--------------------------------------
Daniel C. Rizzo, Jr.
Vice President and Corporate
Controller (Chief Accounting Officer)
-16-
<PAGE>
<PAGE>
GARDNER DENVER, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
27.0 Financial Data Schedule.
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER, INC.
FOR THE YEAR-TO-DATE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,220
<SECURITIES> 0
<RECEIVABLES> 67,000
<ALLOWANCES> (4,232)
<INVENTORY> 56,004
<CURRENT-ASSETS> 140,021
<PP&E> 167,225
<DEPRECIATION> (107,579)
<TOTAL-ASSETS> 327,119
<CURRENT-LIABILITIES> 55,770
<BONDS> 78,290
<COMMON> 163
0
0
<OTHER-SE> 138,423
<TOTAL-LIABILITY-AND-EQUITY> 327,119
<SALES> 69,839
<TOTAL-REVENUES> 70,224
<CGS> 48,338
<TOTAL-COSTS> 48,360
<OTHER-EXPENSES> 22
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 1,207
<INCOME-PRETAX> 5,217
<INCOME-TAX> 2,014
<INCOME-CONTINUING> 3,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,203
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
