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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, 2000
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 31, 2000: 15,316,013 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,
---------------------- -----------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues $93,963 $85,410 $182,266 $155,634
Costs and Expenses:
Cost of sales (excluding depreciation
and amortization) 65,241 56,726 126,519 105,086
Depreciation and amortization 4,031 3,391 7,922 6,910
Selling and administrative expenses 15,285 13,967 30,748 25,765
Interest expense 1,959 1,469 3,775 2,676
Other (income)/expense, net (62) 103 (590) 226
------- ------- -------- --------
Income before income taxes 7,509 9,754 13,892 14,971
Provision for income taxes 2,861 3,765 5,293 5,779
------- ------- -------- --------
Net income $ 4,648 $ 5,989 $ 8,599 $ 9,192
======= ======= ======== ========
Basic earnings per share $ 0.30 $ 0.40 $ 0.56 $ 0.61
======= ======= ======== ========
Diluted earnings per share $ 0.30 $ 0.39 $ 0.56 $ 0.60
======= ======= ======== ========
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,
2000 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 20,318 $ 27,317
Receivables, net 79,526 72,272
Inventories, net 62,157 60,356
Deferred income taxes 4,759 3,664
Other 3,049 2,770
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Total current assets 169,809 166,379
-------- --------
Property, plant and equipment, net 63,687 62,892
Intangibles, net 140,920 138,584
Deferred income taxes 5,318 6,151
Other assets 5,182 5,413
-------- --------
Total assets $384,916 $379,419
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 5,295 $ 5,289
Accounts payable and accrued liabilities 57,836 54,320
-------- --------
Total current liabilities 63,131 59,609
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Long-term debt, less current maturities 109,286 114,200
Postretirement benefits other than pensions 41,547 43,377
Other long-term liabilities 9,675 9,624
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Total liabilities 223,639 226,810
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Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 15,306,269 shares issued and
outstanding at June 30, 2000 169 167
Capital in excess of par value 159,088 157,367
Treasury stock at cost, 1,643,551 shares at
June 30, 2000 (24,251) (23,541)
Retained earnings 29,953 21,354
Accumulated other comprehensive loss (3,682) (2,738)
-------- --------
Total stockholders' equity 161,277 152,609
-------- --------
Total liabilities and stockholders' equity $384,916 $379,419
======== ========
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,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,599 $ 9,192
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,922 6,910
Net gain on asset dispositions (851) ---
Stock issued for employee benefit plans 916 981
Deferred income taxes 206 3,102
Changes in assets and liabilities:
Receivables (6,978) 845
Inventories (733) (2,700)
Accounts payable and accrued liabilities 974 (10,422)
Other assets and liabilities, net (1,845) (2,682)
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Net cash provided by operating activities 8,210 5,226
-------- --------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (9,261) (17,014)
Foreign currency hedging transactions 3,261 2,424
Capital expenditures (5,051) (6,261)
Disposals of plant and equipment 909 581
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Net cash used for investing activities (10,142) (20,270)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (16,187) (16,163)
Proceeds from long-term borrowings 12,000 37,940
Proceeds from stock options 807 529
Purchase of treasury stock (710) (10,954)
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Net cash (used)/provided by financing activities (4,090) 11,352
-------- --------
Effect of exchange rate changes on cash and
equivalents (977) (850)
-------- --------
Decrease in cash and equivalents (6,999) (4,542)
-------- --------
Cash and equivalents, beginning of period 27,317 24,474
-------- --------
Cash and equivalents, end of period $ 20,318 $ 19,932
======== ========
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, 1999.
The results of operations for the six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2. RECENT ACQUISITIONS.
Effective January 1, 2000, the Company acquired substantially all of the
assets and assumed certain agreed upon liabilities of Invincible Airflow
Systems, Co. ("Invincible"). Invincible, located in Baltic, Ohio,
manufactures single and fabricated multistage centrifugal blowers.
During 1999, the Company completed three acquisitions. On October 25,
1999, the Company purchased 100% of the issued and outstanding stock of
Air Relief, Inc. ("Air Relief"), located in Mayfield, Kentucky. On
April 5, 1999, the Company purchased 100% of the issued and outstanding
stock of Butterworth Jetting Systems, Inc. ("Butterworth"), located in
Houston, Texas. On April 1, 1999, the Company purchased 100% of the
issued and outstanding stock of Allen-Stuart Equipment Co., Inc.
("Allen-Stuart"), also located in Houston, Texas.
All acquisitions have been accounted for by the purchase method, and
accordingly, their results are included in the Company's consolidated
financial statements from the respective dates of acquisition. Under
the purchase method, the purchase price is allocated based on the fair
value of assets received and liabilities assumed as of the acquisition
date. The purchase price allocations for Invincible and Air Relief,
used in preparation of the June 30, 2000 consolidated balance sheet, are
preliminary and subject to adjustment when finalized.
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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.
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,
---------------------- ----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic EPS:
Net income $ 4,648 $ 5,989 $ 8,599 $ 9,192
======= ======= ======= =======
Shares
Weighted average number of common
shares outstanding 15,310 14,895 15,261 15,070
======= ======= ======= =======
Basic earnings per common share $ 0.30 $ 0.40 $ 0.56 $ 0.61
======= ======= ======= =======
Diluted EPS:
Net income $ 4,648 $ 5,989 $ 8,599 $ 9,192
======= ======= ======= =======
Shares
Weighted average number of common
shares outstanding 15,310 14,895 15,261 15,070
Assuming conversion of dilutive stock
options issued and outstanding 199 386 225 361
------- ------- ------- -------
Weighted average number of common
shares outstanding, as adjusted 15,509 15,281 15,486 15,431
======= ======= ======= =======
Diluted earnings per common share $ 0.30 $ 0.39 $ 0.56 $ 0.60
======= ======= ======= =======
</TABLE>
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NOTE 4. INVENTORIES.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Raw materials, including parts and
subassemblies $39,289 $37,597
Work-in-process 10,142 9,395
Finished goods 25,935 25,543
Perishable tooling and supplies 2,506 2,506
------- -------
77,872 75,041
Excess of current standard costs
over LIFO costs (6,767) (6,455)
Allowance for obsolete and slow-
moving inventory (8,948) (8,230)
------- -------
Inventories, net $62,157 $60,356
======= =======
</TABLE>
NOTE 6. COMPREHENSIVE INCOME.
For the three months ended June 30, 2000 and 1999, comprehensive income
was $4.5 million and $4.9 million, respectively. For the six months
ended June 30, 2000 and 1999, comprehensive income was $7.7 million and
$8.3 million, respectively. Items impacting the 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 2000 and 1999, the Company paid $2.1 million
and $5.4 million, respectively, to the various taxing authorities for
income taxes. Interest paid for the first six months of 2000 and 1999,
totaled $4.2 million and $2.7 million respectively.
NOTE 8. SEGMENT INFORMATION.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Compressed Air Products $80,976 $78,960 $158,678 $142,550
Petroleum Products 12,987 6,450 23,588 13,084
------- ------- -------- --------
Total $93,963 $85,410 $182,266 $155,634
======= ======= ======== ========
Operating Earnings:
Compressed Air Products $ 8,947 $11,682 $ 16,375 $ 18,261
Petroleum Products 1,067 202 1,913 600
------- ------- -------- --------
Total 10,014 11,884 18,288 18,861
Interest expense 1,959 1,469 3,775 2,676
General corporate 546 661 621 1,214
------- ------- -------- --------
Income before income taxes $ 7,509 $ 9,754 $ 13,892 $ 14,971
======= ======= ======== ========
</TABLE>
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NOTE 8. SUBSEQUENT EVENT.
Effective July 1, 2000, the Company acquired 100% of the stock of CRS
Power Flow, Inc. ("CRS"). CRS, located in Houston, Texas, manufactures
aftermarket products for the water jetting industry. This acquisition
will be accounted for by the purchase method and accordingly, the
results of its operations will be included in the Company's consolidated
financial statements from the date of acquisition.
- 8 -
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
PERFORMANCE IN THE QUARTER ENDED JUNE 30, 2000 COMPARED WITH
THE QUARTER ENDED JUNE 30, 1999
Revenues
Revenues increased $8.6 million (10%) to $94.0 million for the three
months ended June 30, 2000, compared to the same period of 1999.
Excluding incremental revenue from acquisitions, revenues increased $3.5
million (4%) over the same period of 1999. See Note 2 to the Financial
Statements for further information on the Company's recent acquisitions.
For the three months ended June 30, 2000, revenues for the Compressed
Air Products segment increased $2.0 million (3%) to $81.0 million
compared to the same period of 1999. Excluding incremental revenue from
acquisitions, compressed air product revenues declined $3.1 million (4%)
due to unfavorable foreign currency translation and dampened economic
activity resulting from actions taken by the Federal Reserve to increase
interest rates. Petroleum Products segment revenues increased $6.5
million (101%) to $13.0 million for the three months ended June 30,
2000, compared to the same period of 1999. This increase resulted from
heightened demand for petroleum products, primarily well stimulation
pumps, due to higher oil prices.
Costs and Expenses
Gross margin (defined as sales less cost of sales excluding depreciation
and amortization) was $28.7 million for both three-month periods ended
June 30, 2000 and 1999. Gross margin as a percentage of revenues (gross
margin percentage) decreased to 30.6% in the three-month period of 2000
from 33.6% in the same period of 1999. This reduction in the gross
margin percentage was due to a significantly unfavorable sales mix
(including lower parts/aftermarket sales of compressed air products),
increased manufacturing overhead spending and deleverage on the lower
volume in the base compressed air products segment.
Depreciation and amortization increased 19% to $4.0 million in the
three-month period ended June 30, 2000, compared with $3.4 million for
the same period of 1999. This increase was due to goodwill amortization
associated with acquisitions and ongoing capital expenditures. Due to
these factors, depreciation and amortization as a percentage of revenues
also increased to 4.3% in the second quarter of 2000 from 4.0% in the
same period of 1999.
Selling and administrative expenses increased in the second quarter of
2000 by 9% to $15.3 million from $14.0 million in the same period of
1999. Excluding incremental expenses from acquisitions, selling and
administrative expenses increased $0.5 million (4%), which was primarily
the result of higher commissions, payroll related expenses and increased
spending on customer service initiatives. Selling and administrative
expenses as a percentage of revenues improved slightly to 16.3% in the
second quarter of 2000 compared to 16.4% in 1999 due to higher revenues.
- 9 -
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<PAGE>
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 11.0% for the three-month period ended June
30, 2000, a decrease from 14.8% for the same period of 1999. This
decline is primarily due to the unfavorable sales mix referred to above,
increased manufacturing overhead and selling and administrative expenses
and deleverage on the lower volume in the base compressed air products
business.
The Petroleum Products segment generated operating margins of 8.2% for
the three-month period ended June 30, 2000, compared to 3.1% for the
same period in 1999. This increase is primarily attributable to the
positive impact of increased leverage of the segment's fixed and semi-
fixed costs over a higher revenue base and improved manufacturing
efficiencies.
Interest expense increased $0.5 million (33%) to $2.0 million for the
three months ended June 30, 2000, as a result of higher average
borrowings and interest rates. The average interest rate for second
quarter of 2000 was 6.5%, compared to 6.0% for the same period of 1999.
Income before income taxes declined $2.2 million (23%) to $7.5 million
for the three months ended June 30, 2000, compared to the same period of
1999, primarily due to the lower gross margin percentage discussed
above. Higher levels of depreciation and amortization, interest expense
and selling and administrative expenses also contributed to the decline.
The provision for income taxes decreased by $0.9 million to $2.9 million
for the second quarter of 2000 compared to $3.8 million for the same
period in 1999, as a result of the lower income before taxes and a lower
overall effective tax rate. The Company's effective tax rate for the
three months ended June 30, 2000 was 38.1%, compared to 38.6% in the
prior year period.
Net income for the three months ended June 30, 2000 declined $1.3
million (22%) to $4.6 million ($0.30 diluted earnings per share),
compared to $6.0 million ($0.39 diluted earnings per share) for the same
period of 1999. This decrease 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, 2000 COMPARED WITH
THE SIX MONTHS ENDED JUNE 30, 1999
Revenues
Revenues increased $26.6 million (17%) to $182.2 million for the six
months ended June 30, 2000, compared to the same period of 1999.
Excluding incremental revenue from acquisitions, revenues increased $9.1
million (6%) over the same period of 1999. See Note 2 to the Financial
Statements for further information on the Company's recent acquisitions.
For the six months ended June 30, 2000, revenues for the Compressed Air
Products segment increased $16.1 million (11%) to $158.7 million
compared to the same period of 1999. Excluding incremental revenue
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from acquisitions, compressed air product revenues decreased $1.4
million (1%) primarily due to unfavorable foreign currency translation.
Petroleum Products segment revenues increased $10.5 million (80%) to
$23.6 million for the six months ended June 30, 2000, compared to the
same period of 1999, as a result of heightened demand due to higher
oil prices.
Costs and Expenses
Gross margin (defined as sales less cost of sales excluding depreciation
and amortization) for the six months ended June 30, 2000 increased $5.2
million (10%) to $55.7 million from $50.5 million in the same period of
1999. Gross margin as a percentage of revenues (gross margin
percentage) decreased to 30.6% in the six-month period of 2000 from
32.5% in the same period of 1999. This reduction in the gross margin
percentage was principally attributable to an unfavorable sales mix,
increased manufacturing overhead spending and deleverage on the lower
volume in the base compressed air products segment.
Depreciation and amortization increased 15% to $7.9 million in the first
six months of 2000, compared with $6.9 million for the same period of
1999. The increase in depreciation and amortization expense was due to
goodwill amortization associated with acquisitions and ongoing capital
expenditures. For both six-month periods, depreciation and amortization
expense as a percentage of revenues was 4.4%.
Selling and administrative expenses increased in the first six months of
2000 by 19% to $30.7 million from $25.8 million in the same period of
1999. Excluding incremental expenses from acquisitions, selling and
administrative expenses increased $2.3 million (9%), which was primarily
the result of higher commissions, payroll related expenses and customer
service initiatives. Due to these factors, selling and administrative
expenses as a percentage of revenues also increased to 16.9% in the six
months of 2000 compared to 16.6% in 1999.
The change in other (income)/expense, net is primarily due to a gain
recorded from the sale of the Company's idle facility in Syracuse, New
York.
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 six-month period ended June
30, 2000, a decrease from 12.8% for the six-month period of 1999. This
decline is due to an unfavorable sales mix, increased manufacturing
overhead spending and deleverage on the lower volume in the base
compressed air products segment combined with increased commission,
payroll and customer service related expenses.
The Petroleum Products segment generated operating margins of 8.1% for
the six-month period ended June 30, 2000, compared to 4.6% for the same
period in 1999. This increase is primarily attributable to the positive
impact of increased leverage of the segment's fixed and semi-fixed costs
over a higher revenue base and improved manufacturing efficiencies.
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Interest expense increased $1.1 million (41%) to $3.8 million for the
six-month period ended June 30, 2000, as a result of higher average
borrowings and average interest rates. The average interest rate for
the first half of 2000 was 6.2%, compared to 5.8% for the same period of
1999.
Income before income taxes declined $1.1 million (7%) to $13.9 million
for the six months ended June 30, 2000, compared to the same period of
1999, primarily due to the lower gross margin percentage discussed
above. Higher levels of depreciation and amortization, interest expense
and selling and administrative expenses also contributed to the decline.
These negative factors were partially offset by the gain on the sale of
the Syracuse property.
The provision for income taxes decreased by $0.5 million to $5.3 million
for the first six months of 2000 compared to $5.8 million for the same
period of 1999, as a result of the lower income before taxes and a lower
overall effective tax rate. The Company's effective tax rate for the
six months ended June 30, 2000 was 38.1%, compared to 38.6% in the prior
year period.
Net income for the six months ended June 30, 2000 decreased $0.6 million
(6%) to $8.6 million ($0.56 diluted earnings per share), compared to
$9.2 million ($0.60 diluted earnings per share) for the same period of
1999. This decrease 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 for oil
and natural gas prices. Orders for petroleum products were $15.0 million
in the second quarter of 2000, an increase of $6.2 million compared to
the same period of 1999. For the first six months of 2000, petroleum
product orders were $28.6 million, an increase of $18.5 million compared
to the same period of 1999. Compared to June 30, 1999, backlog for this
business segment increased $8.0 million to $11.6 million on June 30,
2000. These increases are primarily the result of market recovery from
the depressed level of demand during the first half of 1999 due to the
substantial decline in the prices of oil and natural gas in 1998 and
early 1999. Demand for these products are dependent upon oil and
natural gas prices, which the Company cannot predict. However, the
price of oil increased significantly in late 1999 and during the first
half of 2000, and the Company has experienced appreciable improvement in
orders for well servicing and drilling pumps. The Company believes that
if oil and natural gas prices remain near current levels, and day rates
and the rig count continue to increase, demand for well servicing pumps
may continue to improve during the second half of 2000 and increased
drilling pump revenues may occur by the fourth quarter of 2000.
In general, demand for compressed air products follows the rate of
manufacturing capacity utilization and the rate of change of industrial
production because air is often used as a fourth utility in the
manufacturing process. Over longer time periods, demand also follows
the economic growth patterns indicated by the rates of change in the
Gross Domestic Product. In the second quarter of 2000, orders for
compressed air products were $74.8 million, including $5.1 million from
acquisitions, compared to $77.3 million in the same period of 1999. For
the first six months of 2000, orders for compressed air products,
including $17.0 million from acquisitions, were $154.5 million, compared
to $142.6 million in the same period of 1999. Order backlog for
compressed air products, including $0.8 million from acquisitions, was
$44.2 million
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<PAGE>
as of June 30, 2000, compared to $50.7 million as of June 30, 1999.
Adjusted for acquisitions, the decline in both orders and backlog for
the compressed air products segment is a result of actions taken by the
Federal Reserve in late 1999 and early 2000 to increase interest rates
and dampen U.S economic activity, which have had a significantly
negative impact on the sectors of the manufacturing economy served by
this segment. The Company believes these depressed order and sales
levels should not continue much beyond the third quarter of this year.
LIQUIDITY AND CAPITAL RESOURCES
Operating Working Capital
During the six months ended June 30, 2000, operating working capital
(defined as receivables plus inventories, less accounts payable and
accrued liabilities) increased $5.5 million with acquisitions
representing $1.4 million of this increase. Excluding acquisitions, the
remaining increase in operating working capital was primarily related to
an increase in receivables due to the timing of shipments and
collections in the second quarter.
Cash Flows
During the first half of 2000, the Company generated cash from
operations totaling $8.2 million, compared to $5.2 million in the prior
year period. This source of cash was primarily the result of net income
plus depreciation and amortization partially offset by an increase in
receivables. Borrowings of $12.0 million on long-term debt were used
to fund acquisitions and capital expenditures. Total repayments on
long-term debt were $16.2 million during the six months ended June 30,
2000. The cash flows provided by operating and used for investing and
financing activities resulted in a net cash decrease of $7.0 million for
the six months ended June 30, 2000.
Capital Expenditures and Commitments
Capital projects to increase operating efficiency and flexibility,
expand production capacity and product quality resulted in expenditures
of $5.1 million in the first six months of 2000. This was $1.2 million
less than the level of capital expenditures in the comparable period in
1999, due to the timing of expenditures on capital projects.
Commitments for capital expenditures at June 30, 2000 totaled $4.2
million. Management expects additional capital authorizations to be
committed during the remainder of the year and that capital expenditures
for 2000 will approximate $12-15 million, primarily due to expenditures
made 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. 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. As of June
30, 2000, a total of 1,563,542 shares have been repurchased at a cost of
$22.6 million under both repurchase programs. During the six months
ended June 30, 1999, the Company accepted shares of its common stock,
valued at $0.2 million, which were tendered for the exercise of stock
options.
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Liquidity
The Company has a revolving line of credit agreement with an aggregate
$125 million borrowing capacity (the "Credit Line"). On June 30, 2000,
the Credit Line had an outstanding balance of approximately $69.6
million, leaving $55.4 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.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective
for fiscal years beginning after June 15, 2000 and thus, the Company
will adopt SFAS 133 on January 1, 2001. 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, 2000.
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 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; and
the successful implementation of cost reduction efforts.
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, 1999 and June 30, 2000.
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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 2, 2000. At the Annual Meeting, Ross J.
Centanni, Alan E. Riedel and Richard L. Thompson were elected to serve
as directors for a three-year term expiring in 2003. There were
13,090,417 affirmative votes cast and 130,807 votes withheld concerning
Mr. Centanni's election as a director; 13,044,594 affirmative votes cast
and 176,630 votes withheld concerning Mr. Riedel's election as a
director; and 13,104,591 affirmative votes cast and 116,633 votes
withheld concerning Mr. Thompson's election as a director.
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
June 30, 2000.
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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 11, 2000 By: /s/Ross J. Centanni
----------------------------------
Ross J. Centanni
Chairman, President & CEO
Date: August 11, 2000 By: /s/Philip R. Roth
----------------------------------
Philip R. Roth
Vice President, Finance & CFO
Date: August 11, 2000 By: /s/Daniel C. Rizzo, Jr.
----------------------------------
Daniel C. Rizzo, Jr.
Vice President and Corporate
Controller (Chief Accounting Officer)
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GARDNER DENVER, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
27.0 Financial Data Schedule.
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