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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 June 30, 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 July 29, 1999: 14,923,368 shares.
===========================================================================
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $85,410 $103,509 $155,634 $193,301
Costs and Expenses:
Cost of sales (excluding depreciation
and amortization) 56,726 70,131 105,086 129,529
Depreciation and amortization 3,391 3,221 6,910 6,116
Selling and administrative expenses 13,967 13,738 25,765 26,692
Interest expense 1,469 1,386 2,676 2,565
Other expense 103 123 226 278
------- -------- -------- --------
Income before income taxes 9,754 14,910 14,971 28,121
Provision for income taxes 3,765 5,710 5,779 10,840
------- -------- -------- --------
Net income $ 5,989 $ 9,200 $ 9,192 $ 17,281
======= ======== ======== ========
Basic earnings per share $ 0.40 $ 0.57 $ 0.61 $ 1.08
======= ======== ======== ========
Diluted earnings per share $ 0.39 $ 0.55 $ 0.60 $ 1.04
======= ======== ======== ========
The accompanying notes are an integral part of this statement.
</TABLE>
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<TABLE>
GARDNER DENVER, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts)
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 19,932 $ 24,474
Receivables, net 71,425 69,617
Inventories, net 58,559 53,115
Deferred income taxes 2,307 2,445
Other 2,646 2,154
-------- --------
Total current assets 154,869 151,805
-------- --------
Property, plant and equipment, net 60,719 59,261
Intangibles, net 121,442 114,254
Deferred income taxes 9,965 12,172
Other assets 4,666 4,638
-------- --------
Total assets $351,661 $342,130
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 282 $ 2,452
Accounts payable and accrued liabilities 53,313 60,806
-------- --------
Total current liabilities 53,595 63,258
-------- --------
Long-term debt, less current maturities 103,733 81,058
Postretirement benefits other than pensions 44,780 46,612
Other long-term liabilities 8,051 8,516
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Total liabilities 210,159 199,444
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Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 14,903,980 shares issued and
outstanding at June 30, 1999 165 163
Capital in excess of par value 155,164 153,656
Treasury stock at cost, 1,585,790 shares at
June 30, 1999 (23,213) (12,259)
Retained earnings 12,498 3,306
Accumulated other comprehensive loss (3,112) (2,180)
-------- --------
Total stockholders' equity 141,502 142,686
-------- --------
Total liabilities and stockholders' equity $351,661 $342,130
======== ========
The accompanying notes are an integral part of this statement
</TABLE>
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<TABLE>
GARDNER DENVER, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(Unaudited)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,192 $ 17,281
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,910 6,116
Stock issued for employee benefit plans 981 963
Deferred income taxes 3,102 (189)
Changes in assets and liabilities:
Receivables 845 (13,953)
Inventories (2,700) (1,373)
Accounts payable and accrued liabilities (10,422) 1,766
Other assets and liabilities, net (2,682) (470)
-------- --------
Net cash provided by operating activities 5,226 10,141
-------- --------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (17,014) (39,295)
Foreign currency hedging transactions 2,424 851
Capital expenditures (6,261) (6,269)
Disposals of plant and equipment 581 ---
-------- --------
Net cash used for investing activities (20,270) (44,713)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (16,163) (28,890)
Proceeds from long-term borrowings 37,940 67,450
Debt issuance costs --- (67)
Proceeds from stock options 529 316
Purchase of treasury stock (10,954) ---
Other --- (163)
-------- --------
Net cash provided by financing activities 11,352 38,646
-------- --------
Effect of exchange rate changes on cash and
equivalents (850) (1,359)
-------- --------
(Decrease) increase in cash and equivalents (4,542) 2,715
-------- --------
Cash and equivalents, beginning of period 24,474 8,831
-------- --------
Cash and equivalents, end of period $ 19,932 $ 11,546
======== ========
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 six months ended June 30, 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 Schopfheim, 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.
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 $17.5 million.
The purchase price of each acquisition was allocated to assets and
liabilities based on their respective fair values at the date of
acquisition and resulted in an aggregate excess of net assets acquired
of $10.7 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,
Allen-Stuart and Butterworth 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 the acquisitions of Allen-Stuart and Butterworth have
not been finalized.
NOTE 3. EARNINGS PER SHARE.
The following table details the calculation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic EPS:
Net income $ 5,989 $ 9,200 $ 9,192 $17,281
======= ======= ======= =======
Shares
Weighted average number of common
shares outstanding 14,895 16,115 15,070 16,035
======= ======= ======= =======
Basic earnings per common share $ 0.40 $ 0.57 $ 0.61 $ 1.08
======= ======= ======= =======
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Diluted EPS:
Net income $ 5,989 $ 9,200 $ 9,192 $17,281
======= ======= ======= =======
Shares
Weighted average number of common
shares outstanding 14,895 16,115 15,070 16,035
Assuming conversion of dilutive stock
options issued and outstanding 386 593 361 645
------- ------- ------- -------
Weighted average number of common
shares outstanding, as adjusted 15,281 16,708 15,431 16,680
======= ======= ======= =======
Diluted earnings per common share $ 0.39 $ 0.55 $ 0.60 $ 1.04
======= ======= ======= =======
</TABLE>
NOTE 4. INVENTORIES.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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<S> <C> <C>
Raw materials, including parts and
subassemblies $39,142 $42,006
Work-in-process 9,395 8,167
Finished goods 23,296 17,159
Perishable tooling and supplies 2,525 2,525
------- -------
74,358 69,857
Excess of current standard costs
over LIFO costs (6,912) (7,037)
Allowance for obsolete and slow-
moving inventory (8,887) (9,705)
------- -------
Inventories, net $58,559 $53,115
======= =======
</TABLE>
NOTE 5. LONG TERM DEBT.
As of June 30, 1999 the Company was not in technical compliance with
three covenants associated with its commercial bank line of credit.
These violations related to exceeding capital expenditure limitations,
nonperformance in providing stock pledge agreements for a foreign
subsidiary acquired in March 1998 and nonperformance in executing
guarantees on domestic subsidiaries acquired in April 1999. The bank
group has waived these debt compliance requirements by entering into an
amendment and waiver to the credit agreement, dated as of August 12,
1999.
NOTE 6. COMPREHENSIVE INCOME.
For the three months ended June 30, 1999 and 1998, comprehensive income
was $4.9 million and $9.2 million, respectively. For the six months
ended June 30, 1999 and 1998, comprehensive income was $8.3 million and
$17.3 million, respectively. Items impacting the
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Company's comprehensive income, but not included in net income, consist
of foreign currency translation adjustments.
NOTE 7. CASH FLOW INFORMATION.
In the first six months of 1999 and 1998, the Company paid $5.4 million
and $11.3 million, respectively, to the various taxing authorities for
income taxes. Interest paid for the first six months of 1999 and 1998,
totaled $2.7 million and $2.5 million respectively.
NOTE 8. SEGMENT INFORMATION.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Compressed Air Products $78,960 $ 78,086 $142,550 $148,116
Petroleum Products 6,450 25,423 13,084 45,185
------- -------- -------- --------
Total $85,410 $103,509 $155,634 $193,301
======= ======== ======== ========
Operating Earnings:
Compressed Air Products $11,682 $ 10,684 $ 18,261 $ 21,362
Petroleum Products 202 6,247 600 10,659
------- -------- -------- --------
Total 11,884 16,931 18,861 32,021
Interest expense 1,469 1,386 2,676 2,565
General corporate 661 635 1,214 1,335
------- -------- -------- --------
Income before income taxes $ 9,754 $ 14,910 $ 14,971 $ 28,121
======= ======== ======== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
PERFORMANCE IN THE QUARTER ENDED JUNE 30, 1999 COMPARED WITH
THE QUARTER ENDED JUNE 30, 1998
Revenues
Revenues decreased $18.1 million (17%) to $85.4 million for the three
months ended June 30, 1999, compared to the same period of 1998.
Excluding incremental revenue from acquisitions which the Company
completed in April 1999, revenues decreased $22.9 million (22%) 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 June 30, 1999, revenues for the Compressed
Air Products segment increased $0.9 million (1%) to $79.0 million
compared to the same period of 1998. Excluding incremental revenue from
acquisitions completed in April 1999, which contributed $4.8 million,
compressed air product revenues decreased $3.9 million (5%). 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. Petroleum Products segment revenues decreased
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$19.0 million (75%) to $6.5 million for the three months ended June 30,
1999, compared to the same period of 1998. This reduction was primarily
due to lower oil prices in the second half of 1998 which resulted in
lower orders and backlog for petroleum products in 1999.
Costs and Expenses
Gross margin (defined as sales less cost of sales excluding depreciation
and amortization) for the three months ended June 30, 1999 decreased
$4.7 million (14%) to $28.7 million from $33.4 million in the same
period of 1998. Gross margin as a percentage of revenues (gross margin
percentage) increased to 33.6% in the three-month period of 1999 from
32.2% in the same period of 1998. This increase in the gross margin
percentage was principally attributable to a change in sales mix,
combined with improved operating efficiencies at our new manufacturing
facility in Georgia.
Depreciation and amortization increased 5% to $3.4 million in the first
three months of 1999, compared with $3.2 million for the same period of
1998. The increase in depreciation and amortization expense was due to
goodwill amortization associated with acquisitions and ongoing capital
expenditures. For the three-month periods, depreciation and
amortization expense as a percentage of revenues increased to 4.0% in
1999 from 3.1% in 1998. This percentage increase is due to the factors
noted above, combined with the effect of lower revenues.
Selling and administrative expenses increased in the three months of
1999 by 2% to $14.0 million from $13.7 million in the same period of
1998. Incremental expenses of $0.9 million related to acquisitions were
offset by decreases in manpower levels and discretionary spending.
Excluding the incremental impact of acquisitions, selling and
administrative expenses decreased by 5% from the comparable 1998 period.
As a percentage of revenues, selling and administrative expenses for the
three-month periods increased to 16.4% in 1999 from 13.3% in 1998. This
percentage increase is primarily due to the decrease in revenues and the
acquisitions referred to above which have higher selling and
administrative expenses 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 14.8% for the three-month period ended June
30, 1999, an increase from 13.7% for the three-month period of 1998.
This improvement is due to manpower reductions, reduced discretionary
spending, improved operating efficiencies at our new manufacturing
facility in Georgia and other cost reduction efforts. This improvement
was partially offset by an increased allocation of shared costs since
the segment's revenues represent a greater percentage of the Company's
total revenues in 1999 as compared to 1998.
The Petroleum Products segment generated operating margins of 3.1% for
three-month period ended June 30, 1999, compared to 24.6% 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 manpower reductions,
reduced discretionary spending and other cost reduction efforts.
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Interest expense increased $0.1 million in the three-month period of
1999 compared to the same period of 1998 due to higher average
borrowings in 1999. The average interest rate was 6.0% for both three-
month periods ended 1999 and 1998.
Income before income taxes declined $5.2 million (35%) to $9.8 million
for the three months ended June 30, 1999, compared to the same period of
1998. This decrease is primarily the result of lower revenues
discussed above.
Compared to 1998, the provision for income taxes decreased by $1.9
million to $3.8 million for the three months primarily as a result of
the decreased income before taxes. The Company's effective tax rate for
the three months ended June 30, 1999 was 38.6%, compared to 38.3% in the
prior year period.
Net income for the three months ended June 30, 1999 decreased $3.2
million (35%) to $6.0 million ($0.39 diluted earnings per share),
compared to $9.2 million ($0.55 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.
PERFORMANCE IN THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH
THE SIX MONTHS ENDED JUNE 30, 1998
Revenues
Revenues decreased $37.7 million (19%) to $155.6 million for the six
months ended June 30, 1999, compared to the same period of 1998.
Excluding incremental revenue from acquisitions which the Company has
completed since late January 1998, revenues decreased $49.2 million
(25%) over the same period of 1998. See Note 2 to the Financial
Statements for further information on the Company's recent acquisitions.
For the six months ended June 30, 1999, revenues for the Compressed Air
Products segment decreased $5.6 million (4%) to $142.6 million compared
to the same period of 1998. Excluding incremental revenue from
acquisitions since late January 1998, which contributed $11.5 million,
compressed air product revenues decreased $17.1 million (12%). 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. Petroleum Products segment revenues decreased
$32.1 million (71%) to $13.1 million for the six months ended June 30,
1999, compared to the same period of 1998. This reduction was primarily
due to lower oil prices in the second half of 1998 which resulted in
lower orders and backlog for petroleum products in 1999.
Costs and Expenses
Gross margin (defined as sales less cost of sales excluding depreciation
and amortization) for the six months ended June 30, 1999 decreased $13.2
million (21%) to $50.5 million from $63.8 million in the same period of
1998. Gross margin as a percentage of revenues (gross margin
percentage) decreased to 32.5% in the six-month period of 1999 from
33.0% in the same period of 1998. This reduction in the gross margin
percentage was principally attributable to two 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
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production overhead costs over a lower revenue base was only partially
offset by cost reduction efforts and increased operating efficiencies at
our new manufacturing facility in Georgia.
Depreciation and amortization increased 13% to $6.9 million in the first
six months of 1999, compared with $6.1 million for the same period of
1998. The increase in depreciation and amortization expense was due to
goodwill amortization associated with acquisitions and ongoing capital
expenditures. For the six-month periods, depreciation and amortization
expense as a percentage of revenues increased to 4.4% 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 six months of 1999
by 3% to $25.8 million from $26.7 million in the same period of 1998.
Incremental expenses of $2.4 million related to acquisitions were offset
by decreases in manpower levels and discretionary spending. Excluding
the impact of acquisitions completed since late January 1998, selling
and administrative expenses decreased by more than 12% from the
comparable 1998 period. As a percentage of revenues, selling and
administrative expenses for the six-month periods increased to 16.6% in
1999 from 13.8% in 1998. This percentage increase is primarily due to
the decrease in revenues and the acquisitions referred to above, which
have higher selling and administrative expenses 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 12.8% for the six-month period ended June
30, 1999, a decrease from 14.4% for the six-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 since the segment's revenues represent a greater
percentage of the Company's total revenues in 1999 as compared to 1998.
Manpower reductions, reduced discretionary spending and other cost
reduction efforts partially offset these negative factors.
The Petroleum Products segment generated operating margins of 4.6% for
six-month period ended June 30, 1999, compared to 23.6% 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 manpower reductions,
reduced discretionary spending and other cost reduction efforts.
Interest expense increased $0.1 million for the six-month period of
1999, compared to the comparable period of 1998, due to higher average
borrowings in 1999, partially offset by lower average interest rates.
The average interest rate for the six-month period of 1999 was 5.8%,
compared to 6.2% for the same period of 1998.
Income before income taxes declined $13.2 million (47%) to $15.0 million
for the six months ended June 30, 1999, compared to the same period of
1998. This decrease is primarily the result of lower revenues and
reduced gross margins discussed above.
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<PAGE>
Compared to 1998, the provision for income taxes decreased by $5.1
million to $5.8 million for the six month period, as a result of the
decreased income before taxes. The Company's effective tax rate was
38.6% for the six month periods in both 1999 and 1998.
Net income for the six months ended June 30, 1999 decreased $8.1 million
(47%) to $9.2 million ($0.60 diluted earnings per share), compared to
$17.3 million ($1.04 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 $6.2 million in the second quarter, a decrease
of $16.4 million compared to the same period of 1998. For the first six
months of 1999, petroleum product orders were $10.1 million, a decrease
of $26.6 million compared to the same period of 1998. Compared to June
30, 1998, backlog for this business segment declined $24.6 million to
$3.6 million on June 30, 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 half 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 second quarter
of 1999, orders for compressed air products were $77.3 million,
including $7.2 million from acquisitions, compared to $69.4 million in
the same period of 1998. For the first six months of 1999, orders for
compressed air products, including $11.8 million from acquisitions, were
$142.6 million, compared to $134.5 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 resulted in reduced revenue for
compressed air products through the second quarter of 1999. However,
localized demand for compressed air products has improved recently and
the order rate for this segment increased approximately 7% in the second
quarter of 1999, compared to that of the first quarter. Backlog for
this segment was $50.7 million as of June 30, 1999, including $8.6
million from acquisitions, compared to $51.1 million as of June 30,
1998.
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 the anticipated delay
in orders compared to previous expectations, the Company now anticipates
that diluted earnings per share will be approximately 30% to 35% lower
in 1999 compared to 1998.
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LIQUIDITY AND CAPITAL RESOURCES
Operating Working Capital
During the six months ended June 30, 1999, operating working capital
(defined as receivables plus inventories, less accounts payable and
accrued liabilities) increased $14.7 million, with acquisitions
completed in 1999 representing $5.1 million of this increase. Excluding
acquisitions, the remaining increase in operating working capital is
related to a decrease in accounts payable and accrued liabilities and an
increase in inventory, partially 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 and a buildup of some petroleum
products inventory in anticipation of a potential recovery in demand in
late 1999.
Cash Flows
During the six months of 1999, the Company generated cash flows from
operations totaling $5.2 million, a decrease of $4.9 million (48%) from
the comparable period in 1998. This reduction was primarily the result
of the decrease in net income and accounts payable and accrued
liabilities, partially offset by lower receivables as discussed
previously. Net borrowings of long-term debt totaled $21.8 million and
$11.0 million of treasury stock was purchased during the six months
ended June 30, 1999. The cash flows provided by operating and financing
activities and used for investing activities resulted in a net cash
decrease of $4.5 million for the six months ended June 30, 1999.
Capital Expenditures and Commitments
Capital projects to increase operating efficiency, production capacity
and product quality resulted in expenditures of $6.3 million in the
first six months of both 1999 and 1998. Commitments for capital
expenditures at June 30, 1999 totaled $4.6 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 for machining capacity and cost
reduction projects. 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. Approximately 200,000 shares
remain available for repurchase under this program. 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
six months ended June 30, 1999, 766,342 shares were repurchased under
these repurchase programs at a cost of $10.7 million. As of June 30,
1999, a total of 1,521,442 shares have been repurchased at a cost of
$22.8 million under both repurchase programs.
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 June 30,
1999, the Credit Line had an outstanding balance of approximately $55.7
million, leaving $69.3 million available for letters of credit or future
borrowings. The Credit
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<PAGE>
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.
As of June 30, 1999, the Company was not in technical compliance with
three covenants associated with its Credit Line. These violations related
to exceeding capital expenditure limitations, nonperformance in providing
stock pledge agreements for a foreign subsidiary acquired in March 1998
and nonperformance in executing guarantees on domestic subsidiaries
acquired in April 1999. The bank group has waived these debt compliance
requirements by entering into an amendment and waiver to the credit
agreement, dated as of August 12, 1999.
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 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 third quarter of 1999. These upgrades relate primarily to the
systems utilized by operations acquired in 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
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
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<PAGE>
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 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"). In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement
No. 133 - an amendment of FASB Statement No. 133" ("SFAS 137"). SFAS
137 delays the effective date of SFAS 133 for one year, to fiscal years
beginning after June 15, 2000 and thus, the Company will adopt SFAS 133
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 June 30, 1999.
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 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
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<PAGE>
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 June 30, 1999.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was
held pursuant to notice on May 4, 1999. At the Annual Meeting, Donald
G. Barger, Jr., Raymond R. Hipp and Michael Sebastian were elected to
serve as directors for a three-year term expiring in 2002. Richard L.
Thompson was elected to serve as a director for a one-year term expiring
in 2000. There were 12,551,421 affirmative votes cast and 223,155 votes
withheld concerning Mr. Barger's election as a director; 12,544,031
affirmative votes cast and 230,545 votes withheld concerning Mr. Hipp's
election as a director; 12,536,419 affirmative votes cast and 238,157
votes withheld concerning Mr. Sebastian's election as a director; and
12,552,814 affirmative votes cast and 221,762 votes withheld concerning
Mr. Thompson's election as a director. At the Annual Meeting, the
Company's stockholders approved an amendment to the Company's Long-Term
Incentive Plan, increasing the shares available for issuance by 500,000.
There were 10,447,281 affirmative votes cast, 2,238,896 votes against
and 88,399 abstaining votes concerning this amendment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.0.1 Amendment and Waiver No. 1, dated as of August 12,
1999, to the Credit Agreement dated as of January 20,
1998.
27.0 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
June 30, 1999.
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<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: August 13, 1999 By: /s/Ross J. Centanni
----------------------------------
Ross J. Centanni
Chairman, President & CEO
Date: August 13, 1999 By: /s/Philip R. Roth
----------------------------------
Philip R. Roth
Vice President, Finance & CFO
Date: August 13, 1999 By: /s/Daniel C. Rizzo, Jr.
----------------------------------
Daniel C. Rizzo, Jr.
Vice President and Corporate
Controller (Chief Accounting Officer)
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<PAGE>
GARDNER DENVER, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
10.0.1 Amendment and Waiver No. 1, dated as of August 12, 1999, to
the Credit Agreement, dated as of January 20, 1998.
27.0 Financial Data Schedule.
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<PAGE>
Exhibit 10.0.1
AMENDMENT AND WAIVER NO. 1
TO
CREDIT AGREEMENT
DATED AS OF JANUARY 20, 1998
THIS AMENDMENT AND WAIVER NO. 1 TO CREDIT AGREEMENT ("Amendment")
is made as of August 12, 1999 by and among GARDNER DENVER, INC. (f/k/a
Gardner Denver Machinery Inc., the "Borrower"), the financial
institutions listed on the signature pages hereof as lenders (the
"Lenders"), THE FIRST NATIONAL BANK OF CHICAGO, individually as a
Lender, as LC Issuer and as agent (the "Agent") for the Lenders under
that certain Credit Agreement dated as of January 20, 1998 by and among
the Borrower, the Lenders and the Agent (as amended, modified or
restated, the "Credit Agreement"). Defined terms used herein and not
otherwise defined herein shall have the meaning given to them in the
Credit Agreement.
WITNESSETH
WHEREAS, the Borrower, the Lenders and the Agent are parties to
the Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders waive
certain provisions of the Credit Agreement and amend the Credit Agreement in
certain respects; and
WHEREAS, the Lenders and the Agent are willing to waive certain
provisions of the Credit Agreement and amend the Credit Agreement on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above,
the terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower, the Lenders and the Agent have agreed to the
following waivers of and amendments to the Credit Agreement.
1. AMENDMENTS TO CREDIT AGREEMENT. Effective as of August 12,
------------------------------
1999 and subject to the satisfaction of the conditions precedent set
forth in Section 3 below, the Credit Agreement is hereby amended as
---------
follows:
1.1. ARTICLE I OF THE CREDIT AGREEMENT IS HEREBY AMENDED AS
---------
FOLLOWS:
1.1.1. THE DEFINITIONS OF "AGREED CURRENCIES," "BUSINESS
DAY," "EUROCURRENCY BASE RATE" AND "OBLIGOR SUBSIDIARY" ARE
DELETED IN THEIR ENTIRETY AND THE FOLLOWING SUBSTITUTED THEREFOR:
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<PAGE>
<PAGE>
"AGREED CURRENCIES" means (i) Dollars, (ii) so long as such
currencies remain Eligible Currencies, Pounds Sterling,
French Francs, Deutsche Marks, Canadian Dollars, Swiss
Francs, Japanese Yen, Italian Lire and Dutch Guilders;
(iii) from and after becoming generally available in the
international currency and exchange markets, euro only for
so long as the euro is and remains an Eligible Currency, and
(iv) any other Eligible Currency which the Borrower requests
the Agent to include as an Agreed Currency hereunder and
which is acceptable to one-hundred percent (100%) of the
Lenders; provided that the Agent shall promptly notify each
Lender of each such request and each Lender shall be deemed
not to have agreed to each such request unless its written
consent thereto has been received by the Agent within five
(5) Business Days from the date of such notification by the
Agent to such Lender.
"BUSINESS DAY" means (i) with respect to any borrowing,
payment or rate selection of Eurocurrency Advances, a day
(other than Saturday or Sunday) on which banks generally are
open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and
on which dealings in United States Dollars and the other
Agreed Currencies (other than the euro) are carried on in
the London interbank market, (ii) with respect to any
Advances denominated in euro, a day (other than Saturday or
Sunday) on which a clearing system determined by the Agent
to be suitable for clearing or settlement of the euro is
open for business, and (iii) for all other purposes, a day
(other than Saturday or Sunday) on which banks generally are
open in Chicago and New York for the conduct of
substantially all of their commercial lending activities.
"EUROCURRENCY BASE RATE" means, with respect to a
----------------------
Eurocurrency Advance for any specified Eurocurrency Interest
Period:
(a) for any Eurocurrency Advance in any Alternate
Currency other than euro, either:
(i) the rate of interest per annum equal to the
rate for deposits in the applicable Agreed Currency in
the approximate amount of the pro rata share of the
Agent of such Eurocurrency Advance with a maturity
approximately equal to such Interest Period which
appears on Telerate Page 3740 or Telerate Page 3750,
as applicable, or, if there is more than one such
rate, the average of such rates rounded to the nearest
1/100 of 1%, as of 11:00 a.m. (London time) two (2)
Business Days prior to the first day of such Interest
Period or
(ii) if no such rate of interest appears on
Telerate Page 3740 or Telerate Page 3750, as
applicable, for any specified Interest Period, the
rate at which deposits in the applicable Agreed
Currency are offered by the Agent to first-class banks
in the London interbank market at approximately 11:00
a.m. (London time) two (2) Business Days prior to the
first day of such Interest Period, in the approximate
amount of the Pro Rata Share of First Chicago of such
Eurocurrency Advance and having a maturity
approximately equal to such Interest Period; and
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<PAGE>
(b) with respect to any Eurocurrency Advance in euro
for any Interest Period, the interest rate per annum equal
to the rate determined by the Agent to be the rate at which
deposits in euro appear on that page of the Bloomberg's or
Reuters' Screen which displays British Bankers Association
Interest Settlement Rates for deposits in euro for such
Interest Period or, if such page or service shall cease to
be available, such other page or such other service (as the
case may be) for the purpose of displaying British Bankers
Association Interest Settlement Rates for euro as the Agent,
in its discretion, shall select; provided, that if no such
--------
rate is displayed for euro and the relevant Interest Period
and there is no euro alternative service on which two or
more such quotations for euro are displayed, then
Eurocurrency Base Rate shall be an interest rate per annum
equal to rate per annum at which deposits in euro are
offered by the Agent for that Interest Period to prime banks
in the London interbank market on or about 11:00 a.m.
(London time) on the date which is two (2) Business Days
prior to the first day of such Interest Period.
The terms "Telerate Page 3740" and "Telerate Page 3750" mean
the display designated as "Page 3740" and "Page 3750", as
applicable, on the Associated Press-Dow Jones Telerate
Service (or such other page as may replace Page 3740 or Page
3750, as applicable, on the Associated Press-Dow Jones
Telerate Service or such other service as may be nominated
by the British Bankers' Association as the information
vendor for the purpose of displaying British Bankers'
Association interest rate settlement rates for the relevant
Agreed Currency). Any Eurocurrency Base Rate determined on
the basis of the rate displayed on Telerate Page 3740 or
Telerate Page 3750, or on the Bloomberg's or Reuter's
Screen, in accordance with the foregoing provisions of this
subparagraph shall be subject to corrections, if any, made
in such rate and displayed by the Associated Press-Dow Jones
Telerate Service, or Bloomberg's or Reuters, as applicable,
within one hour of the time when such rate is first
displayed by such service.
"OBLIGOR SUBSIDIARY" means (i) a Subsidiary which is a party
to a Subsidiary Guaranty or (ii) a Material Foreign
Subsidiary in connection with which a Pledge Agreement has
been executed.
1.1.2. INSERT THE FOLLOWING DEFINITIONS IN THE APPROPRIATE
ALPHABETICAL LOCATIONS:
"EURO" means the euro referred to in Council
Regulation (EC) No. 1103/97 dated June 17, 1997 passed by
the Council of the European Union, or, if different, the
then lawful currency of the member states of the European
Union that participate in the third stage of the Economic
and Monetary Union.
"NATIONAL CURRENCY UNIT" means the unit of currency
(other than a euro unit) of each member state of the
European Union that participates in the third stage of the
Economic and Monetary Union.
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<PAGE>
<PAGE>
1.2. SECTION 2.12 IS AMENDED AS FOLLOWS:
------------
1.2.1. TO DELETE THE THIRD SENTENCE THEREFROM AND
SUBSTITUTE THE FOLLOWING THEREFOR:
Each Advance shall be repaid or prepaid and each payment of
interest thereon shall be paid in the currency in which such
Advance was made or, where such currency has converted to
the euro, in the euro.
1.2.2. TO ADD THE FOLLOWING AT THE END THEREOF:
For purposes of this Section 2.12, the commencement of the
------------
third stage of European Economic and Monetary Union shall
not constitute the imposition of currency control or
exchange regulations.
1.3. THE FOLLOWING SHALL BE INSERTED AT THE END OF ARTICLE
II AS SECTION 2.23:
------------
2.23. European Economic and Monetary Union.
------------------------------------
2.23.1. Advances in Euro. If any Advance made
----------------
would, but for the provisions of this Section 2.23.1,
--------------
be capable of being made in either the euro or in a
National Currency Unit, such Advance shall be made in
the euro unless otherwise consented to by the Agent.
2.23.2. Rounding and Other Consequential Changes.
----------------------------------------
With effect on and after the date hereof:
(i) without prejudice to any method of conversion or
rounding prescribed by any legislative measures
of the Council of the European Union, each
reference in this Agreement to a fixed amount or
to fixed amounts in a National Currency Unit to
be paid to or by the Agent shall,
notwithstanding any other provision of this
Agreement, be replaced by a reference to such
comparable and convenient fixed amount or fixed
amounts in the euro as the Agent may from time
to time specify; and
(ii) the Agent may notify the other parties to this
Agreement of any modifications to this Agreement
which the Agent (acting reasonably and after
consultation with the other parties to this
Agreement) determines to be necessary as a
result of the commencement of the third stage of
the European Economic and Monetary Union.
Notwithstanding any other provision of this
Agreement, any modifications of which the Agent
so notifies the other parties shall take effect
in accordance with the terms of such
notification. So far as possible, such
modifications shall be such as to put the
parties in the same position as if the euro
Implementation Date had not occurred. However,
if and to the
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<PAGE>
extent that the Agent determines that it is not
possible to put the parties in such position,
the Agent may give priority to putting the
Agent, the Arranger and the Lenders into such
position.
1.4 SECTION 6.15 IS AMENDED TO ADD THE FOLLOWING TO THE END
------------
THEREOF:
In addition to the foregoing provisions, if any
Foreign Subsidiary becomes a Material Foreign
Subsidiary (whether through investment, add-on
acquisitions, growth or otherwise), the Borrower shall
or shall cause its applicable domestic Subsidiary
promptly (but in any event within 60 days following
the end of the fiscal quarter during which such
Foreign Subsidiary becomes a Material Foreign
Subsidiary) to execute a Pledge Agreement with respect
to the stock of such material Foreign Subsidiary,
provided the Lien created under such Pledge Agreement
shall be extended equally and ratably to the Senior
Noteholders pursuant to a collateral sharing
agreement, intercreditor agreement or collateral trust
agreement executed with the Senior Noteholders or with
respect to the Indebtedness evidenced by the Senior
Notes on terms and conditions reasonably acceptable to
the Agent; and shall deliver appropriate corporate
resolutions, opinions and other documentation in form
and substance satisfactory to the Agent in connection
therewith; provided, however, that the provisions of
-------- -------
this sentence shall not be applicable to Gardner
Denver Wittig GmbH, provided the Borrower is in
compliance with the provisions of Section 6.24.
------------
1.5 SECTION 6.23 IS AMENDED TO ADD THE FOLLOWING AT THE END
------------
THEREOF:
Notwithstanding anything herein to the contrary, for purposes of
calculating compliance with the provisions of this Section 6.23 as
------------
of the end of the fiscal quarter ending September 30, 1999, there
shall be excluded from such calculations the amount of Capital
Expenditures incurred during the previous 12-month period with
respect to the Borrower's Peachtree facility in Atlanta, Georgia
so long as the aggregate amount (without limitation as to time) of
Capital Expenditures expended for such facility do not exceed
$9,000,000.
1.5 SECTION 6.24 IS AMENDED TO DELETE THE PHRASE "(OTHER
------------
THAN OY TAMROTOR AB)" CONTAINED THEREIN AND TO SUBSTITUTE IT WITH
"(OTHER THAN OY TAMROTOR AB OR ANY OTHER FOREIGN SUBSIDIARY OF THE
BORROWER INTO WHICH OY TAMROTOR AB IS MERGED OR LIQUIDATED)".
2. Waivers. Effective as of the date hereof and subject to the
-------
satisfaction of the conditions precedent set forth in Section 3 below,
---------
the Lenders hereby waive:
(a) the Borrower's non-compliance with the provisions of
Section 6.23 of the Credit Agreement for the quarters ending
------------
December 31, 1998, March 31, 1999 and June 30, 1999 resulting from
Capital Expenditures incurred with respect to the Borrower's
Peachtree facility in Atlanta, Georgia so long as the aggregate
amount (without limitation
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<PAGE>
<PAGE>
as to time) of Capital Expenditures expended for such facility do
not exceed $9,000,000; and
(b) the Borrower's non-compliance with the provisions of
Section 6.10 of the Credit Agreement with respect to Subsidiaries
------------
(other than Foreign Subsidiaries) of the Borrower created or
acquired since the date of the Credit Agreement.
3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
---------------------------
effective and be deemed effective as of August 12, 1999, if, and only
if, the Agent shall have received each of the following:
(a) duly executed originals of this Amendment from the
Borrower and each of the Lenders;
(b) a duly executed supplement to the Subsidiary Guaranty
in form and substance acceptable to the Agent or a duly executed
Subsidiary Guaranty, substantially in the form of Exhibit "B" to
the Credit Agreement, duly executed and delivered by each
Subsidiary of the Borrower (other than Foreign Subsidiaries) which
have become Subsidiaries since the date of the Credit Agreement,
together with:
(i) copies of the articles or certificate of incorporation
of such Subsidiaries, together with all amendments, and a
certificate of good standing, both certified by the appropriate
governmental officer in its jurisdiction of incorporation;
(ii) copies, certified by the Secretary or Assistant
Secretary of such Subsidiaries, of its by-laws and of its Board of
Directors' resolutions authorizing its execution of the Subsidiary
Guaranty and certifying that no amendments have been made to its
articles or certificate of incorporation subsequent to the date of
certification by the applicable governmental officer referred to
in item (i) above;
(iii) an incumbency certificate, executed by the Secretary
or Assistant Secretary of such Subsidiaries, which shall identify
by name and title and bear the signature of the officers of such
Subsidiary authorized to sign the Subsidiary Guaranty; and
(iv) an opinion of such Subsidiaries' counsel with respect
to the Subsidiary Guaranties, in substantially the form of the
opinion received at the closing of the Credit Agreement;
(c) a reaffirmation from each of the Borrower's other
Subsidiaries which are parties to a Subsidiary Guaranty in the
form of Exhibit A attached hereto and made a part hereof; and
---------
(d) such other documents, instruments and agreements as
the Agent may reasonably request.
4. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The
-----------------------------------------------
Borrower hereby represents and warrant as follows:
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<PAGE>
(a) This Amendment and the Credit Agreement as previously
executed and as amended hereby, constitute legal, valid and binding
obligations of the Borrower and are enforceable against the Borrower in
accordance with their terms.
(b) Upon the effectiveness of this Amendment, the Borrower
hereby reaffirms all covenants, representations and warranties made in
the Credit Agreement and other loan documents, to the extent the same
are not amended hereby, and agrees that all such covenants,
representations and warranties shall be deemed to have been remade as of
the effective date of this Amendment.
(c) Other than the Defaults waived pursuant to Section 2
above, no Default or Unmatured Default has occurred under the Credit
Agreement.
5. REFERENCE TO THE EFFECT ON THE CREDIT AGREEMENT.
-----------------------------------------------
(a) Upon the effectiveness of Section 1 hereof, on and
---------
after the date hereof, each reference in the Credit Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like import
shall mean and be a reference to the Credit Agreement, as amended
previously and as amended hereby.
(b) Except as specifically amended and waived above, the
Credit Agreement and all other documents, instruments and agreements
executed and/or delivered in connection therewith shall remain in full
force and effect, and are hereby ratified and confirmed.
(c) Except to the limited extent set forth in Section 2
above, the execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the Agent or
any of the Lenders, nor constitute a waiver of any provision of the
Credit Agreement or any other documents, instruments and agreements
executed and/or delivered in connection therewith.
6. COSTS AND EXPENSES. The Borrower agrees to pay all
------------------
reasonable costs, fees and out-of-pocket expenses (including attorneys'
fees and expenses charged to the Agent) incurred by the Agent in
connection with the preparation, arrangement, execution and enforcement
of this Amendment.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
CONFLICT OF LAW PROVISIONS) OF THE STATE OF ILLINOIS.
8. HEADINGS. Section headings in this Amendment are included
--------
herein for convenience of reference only and shall not constitute a part
of this Amendment for any other purpose.
9. COUNTERPARTS. This Amendment may be executed by one or more
------------
of the parties to the Amendment on any number of separate counterparts
and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A facsimile signature page
hereto sent to the Agent or the Agent's counsel shall be effective as a
counterpart signature provided each party executing such a facsimile
counterpart agrees to deliver originals to the Agent thereof.
- 7 -
<PAGE>
<PAGE>
IN WITNESS WHEREOF, this Amendment and Waiver No. 1 has been
duly executed as of the day and year first above written.
GARDNER DENVER, INC. (formerly known as
GARDNER DENVER MACHINERY INC.),
as Borrower
By: /s/ Helen W. Cornell
---------------------------------------
Name: Helen W. Cornell
Title: Vice President, Corporate
Secretary & Treasurer
THE FIRST NATIONAL BANK OF CHICAGO,
Individually as a Lender,
as LC Issuer and as Agent
By: /s/ Patricia S. Carpen
---------------------------------------
Name: Patricia S. Carpen
Title: Vice President
MERITA BANK PLC,
as a Lender
By: /s/ Anu Seppala
---------------------------------------
Name: Anu Seppala
Title: Vice President
By: /s/ William Keller
---------------------------------------
Name: William Keller
Title: Vice President
THE BANK OF NEW YORK,
as a Lender
By: /s/ John M. Lokay, Jr.
---------------------------------------
Name: John M. Lokay, Jr.
Title: Vice President
- 8 -
<PAGE>
<PAGE>
CREDIT AGRICOLE INDOSUEZ,
as a Lender
By: /s/ Raymond A. Falkenberg
---------------------------------------
Name: Raymond A. Falkenberg
Title: Vice President, Manager
By: /s/ David Bouhl
---------------------------------------
Name: David Bouhl
Title: First Vice President
Managing Director
HARRIS TRUST & SAVINGS BANK,
as a Lender
By: /s/ Lee A. Vandermyde
---------------------------------------
Name: Lee A. Vandermyde
Title: Managing Director
BANK OF AMERICA, NATIONAL ASSOCIATION
(f/k/a NationsBank, N.A.), as a Lender
By: /s/ Keith M. Schmelder
---------------------------------------
Name: Keith M. Schmelder
Title: Senior Vice President
- 9 -
<PAGE>
<PAGE>
EXHIBIT A
TO
AMENDMENT NO. 1
Reaffirmation of Subsidiary Guaranty
------------------------------------
Attached
- 10 -
<PAGE>
<PAGE>
REAFFIRMATION
-------------
Each of the undersigned hereby acknowledges receipt of a copy of
Amendment and Waiver No. 1 to the Agreement dated as of January 20,
1998, by and among Gardner Denver, Inc. (f/k/a Gardner Denver Machinery,
Inc.), the Lenders and the Agent (as so amended thereby, the "Credit
Agreement") which Amendment and Waiver No. 1 is dated as of August 12,
1999 (the "Amendment"). Capitalized terms used in this Reaffirmation
and not defined herein shall have the meanings given to them in the
Credit Agreement. Without in any way establishing a course of dealing
by the Agent or any Lender, the undersigned reaffirms the terms and
conditions of the Subsidiary Guaranty dated as of January 20, 1998
executed by it and acknowledges and agrees that such Subsidiary Guaranty
and each and every other Loan Document executed by the undersigned in
connection with the Credit Agreement remain in full force and effect and
are hereby ratified, reaffirmed and confirmed. All references to the
Credit Agreement contained in the above-referenced documents shall be a
reference to the Credit Agreement as so amended by the Amendment and as
the same may from time to time hereafter be amended, modified or
restated.
GARDNER DENVER INTERNATIONAL, INC.
By: /s/ Helen W. Cornell
-----------------------------------------------
Its: Vice President, Corporate Secretary & Treasurer
GARDNER DENVER HOLDINGS INC.
By: /s/ Helen W. Cornell
-----------------------------------------------
Its: Vice President, Corporate Secretary & Treasurer
-----------------------------------------------
LAMSON CORPORATION
By: /s/ Helen W. Cornell
-----------------------------------------------
Its: Vice President, Corporate Secretary & Treasurer
-----------------------------------------------
TCM INVESTMENTS, INC. (individually and as
successor to the business previously
conducted by Adex, Inc.)
By: /s/ Helen W. Cornell
-----------------------------------------------
Its: Secretary & Treasurer
-----------------------------------------------
- 11 -
<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 JUNE 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 19,932
<SECURITIES> 0
<RECEIVABLES> 76,072
<ALLOWANCES> (4,647)
<INVENTORY> 58,559
<CURRENT-ASSETS> 154,869
<PP&E> 167,906
<DEPRECIATION> (107,187)
<TOTAL-ASSETS> 351,661
<CURRENT-LIABILITIES> 53,595
<BONDS> 104,015
<COMMON> 163
0
0
<OTHER-SE> 141,339
<TOTAL-LIABILITY-AND-EQUITY> 351,661
<SALES> 154,824
<TOTAL-REVENUES> 155,634
<CGS> 104,940
<TOTAL-COSTS> 105,086
<OTHER-EXPENSES> 146
<LOSS-PROVISION> 338
<INTEREST-EXPENSE> 2,676
<INCOME-PRETAX> 14,971
<INCOME-TAX> 5,779
<INCOME-CONTINUING> 9,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,192
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.60
</TABLE>
