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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 September 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 October 31, 2000: 15,352,776 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues $90,708 $77,103 $272,974 $232,737
Costs and Expenses:
Cost of sales (excluding depreciation
and amortization) 64,519 52,672 191,038 157,758
Depreciation and amortization 4,007 3,439 11,929 10,349
Selling and administrative expenses 13,624 12,897 44,372 38,662
Interest expense 1,882 1,465 5,657 4,141
Other (income)/expense, net 173 118 (417) 344
------- ------- -------- --------
Income before income taxes 6,503 6,512 20,395 21,483
Provision for income taxes 2,477 2,513 7,770 8,292
------- ------- -------- --------
Net income $ 4,026 $ 3,999 $ 12,625 $ 13,191
======= ======= ======== ========
Basic earnings per share $ 0.26 $ 0.27 $ 0.83 $ 0.88
======= ======= ======== ========
Diluted earnings per share $ 0.26 $ 0.26 $ 0.82 $ 0.86
======= ======= ======== ========
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)
SEPTEMBER 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 18,291 $ 27,317
Receivables, net 81,102 72,272
Inventories, net 62,571 60,356
Deferred income taxes 5,941 3,664
Other 3,557 2,770
-------- --------
Total current assets 171,462 166,379
-------- --------
Property, plant and equipment, net 63,440 62,892
Intangibles, net 148,180 138,584
Deferred income taxes 4,653 6,151
Other assets 5,628 5,413
-------- --------
Total assets $393,363 $379,419
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 5,298 $ 5,289
Accounts payable and accrued liabilities 57,203 54,320
-------- --------
Total current liabilities 62,501 59,609
-------- --------
Long-term debt, less current maturities 116,426 114,200
Postretirement benefits other than pensions 40,480 43,377
Other long-term liabilities 9,027 9,624
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Total liabilities 228,434 226,810
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Stockholders' equity:
Common stock, $.01 par value; 50,000,000 shares
authorized; 15,339,197 shares issued and
outstanding at September 30, 2000 170 167
Capital in excess of par value 159,645 157,367
Treasury stock at cost, 1,647,041 shares at
September 30, 2000 (24,304) (23,541)
Retained earnings 33,979 21,354
Accumulated other comprehensive loss (4,561) (2,738)
-------- --------
Total stockholders' equity 164,929 152,609
-------- --------
Total liabilities and stockholders' equity $393,363 $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>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,625 $ 13,191
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,929 10,349
Net gain on asset dispositions (853) ---
Stock issued for employee benefit plans 1,422 1,435
Deferred income taxes 57 3,864
Changes in assets and liabilities:
Receivables (8,392) 2,982
Inventories (715) (4,592)
Accounts payable and accrued liabilities 929 (11,167)
Other assets and liabilities, net (4,677) (3,173)
-------- --------
Net cash provided by operating activities 12,325 12,889
-------- --------
Cash flows from investing activities:
Business acquisitions, net of cash acquired (19,656) (17,014)
Capital expenditures (7,709) (8,669)
Disposals of plant and equipment 998 565
Foreign currency hedging transactions 3,309 2,424
-------- --------
Net cash used for investing activities (23,058) (22,694)
-------- --------
Cash flows from financing activities:
Principal payments on long-term debt (29,262) (22,478)
Proceeds from long-term borrowings 32,500 40,103
Proceeds from stock options 859 718
Purchase of treasury stock (763) (11,266)
-------- --------
Net cash provided by financing activities 3,334 7,077
-------- --------
Effect of exchange rate changes on cash and
equivalents (1,627) (619)
-------- --------
Decrease in cash and equivalents (9,026) (3,347)
-------- --------
Cash and equivalents, beginning of period 27,317 24,474
-------- --------
Cash and equivalents, end of period $ 18,291 $ 21,127
======== ========
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 nine months ended September 30, 2000
are not necessarily indicative of the results to be expected for the
full year.
NOTE 2. RECENT ACQUISITIONS.
Effective July 1, 2000, the Company acquired 100% of the issued and
outstanding stock of CRS Power Flow, Inc. ("CRS"). On April 5, 2000,
the Company acquired 100% of the issued and outstanding stock of Jetting
Systems & Accessories, Inc. ("JSA"). CRS and JSA are located in
Houston, Texas, and both manufacture aftermarket products for the water
jetting industry. On 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. The aggregate purchase price of these
acquisitions was approximately $20.5 million. The purchase price of
each acquisition has been allocated primarily to receivables, inventory,
and property, plant and equipment, based on their respective fair values
at the date of acquisition and resulted in aggregate costs in excess of net
assets acquired of $14.7 million.
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
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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 CRS, Invincible and Air
Relief, used in preparation of the September 30, 2000 consolidated
balance sheet, are preliminary and subject to adjustment when finalized.
Management does not expect the finalization of this allocation to have a
significant impact on the company's financial position or results of
operations.
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic EPS:
Net income $ 4,026 $ 3,999 $12,625 $13,191
======= ======= ======= =======
Shares
Weighted average number of common
shares outstanding 15,321 14,922 15,281 15,021
======= ======= ======= =======
Basic earnings per common share $ 0.26 $ 0.27 $ 0.83 $ 0.88
======= ======= ======= =======
Diluted EPS:
Net income $ 4,026 $ 3,999 $12,625 $13,191
======= ======= ======= =======
Shares
Weighted average number of common
shares outstanding 15,321 14,922 15,281 15,021
Assuming conversion of dilutive stock
options issued and outstanding 146 370 196 364
------- ------- ------- -------
Weighted average number of common
shares outstanding, as adjusted 15,467 15,292 15,477 15,385
======= ======= ======= =======
Diluted earnings per common share $ 0.26 $ 0.26 $ 0.82 $ 0.86
======= ======= ======= =======
</TABLE>
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NOTE 4. INVENTORIES.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials, including parts and
subassemblies $39,056 $37,597
Work-in-process 10,179 9,395
Finished goods 26,924 25,543
Perishable tooling and supplies 2,506 2,506
------- -------
78,665 75,041
Excess of current standard costs
over LIFO costs (6,767) (6,455)
Allowance for obsolete and slow-
moving inventory (9,327) (8,230)
------- -------
Inventories, net $62,571 $60,356
======= =======
</TABLE>
NOTE 6. COMPREHENSIVE INCOME.
For the three months ended September 30, 2000 and 1999, comprehensive
income was $3.1 million and $4.5 million, respectively. For the nine
months ended September 30, 2000 and 1999, comprehensive income was $10.8
million and $12.8 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 nine months of 2000 and 1999, the Company paid $5.9 million
and $5.6 million, respectively, to the various taxing authorities for
income taxes. Interest paid for the first nine months of 2000 and 1999,
totaled $6.8 million and $4.9 million, respectively.
NOTE 8. SEGMENT INFORMATION.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Compressed Air Products $76,282 $70,781 $234,960 $213,331
Petroleum Products 14,426 6,322 38,014 19,406
------- ------- -------- --------
Total $90,708 $77,103 $272,974 $232,737
======= ======= ======== ========
Operating Earnings:
Compressed Air Products $ 7,640 $ 7,402 $ 24,015 $ 25,663
Petroleum Products 1,391 1,136 3,304 1,736
------- ------- -------- --------
Total 9,031 8,538 27,319 27,399
Interest expense 1,882 1,465 5,657 4,141
General corporate 646 561 1,267 1,775
------- ------- -------- --------
Income before income taxes $ 6,503 $ 6,512 $ 20,395 $ 21,483
======= ======= ======== ========
</TABLE>
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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 SEPTEMBER 30, 2000 COMPARED WITH
THE QUARTER ENDED SEPTEMBER 30, 1999
Revenues
Revenues increased $13.6 million (18%) to $90.7 million for the three
months ended September 30, 2000, compared to the same period of 1999.
Excluding incremental revenue from acquisitions, revenues increased $8.5
million (11%) 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 September 30, 2000, revenues for the
Compressed Air Products segment increased $5.5 million (8%) to $76.3
million compared to the same period of 1999. Excluding incremental
revenue from acquisitions, compressed air product revenues were
relatively flat despite an unfavorable foreign currency exchange rate
impact of approximately $1.9 million. Petroleum Products segment
revenues increased $8.1 million (128%) to $14.4 million for the three
months ended September 30, 2000, compared to the same period of 1999.
This increase resulted from heightened demand for petroleum products,
primarily well stimulation pumps and drilling pumps, due to higher oil
prices.
Costs and Expenses
Gross margin (defined as sales less cost of sales excluding depreciation
and amortization) increased $1.8 million (7%) to $26.2 million for the
three-month period ended September 30, 2000 compared to the same period
of 1999. Gross margin as a percentage of revenues (gross margin
percentage) decreased to 28.9% in the three-month period of 2000 from
31.7% in the same period of 1999. This reduction in the gross margin
percentage was due to a significantly unfavorable sales mix in the
petroleum segment (including an increased proportion of well stimulation
pumps as opposed to higher margin replacement parts). Increased
manufacturing overhead spending (including engineering, product
development and lean manufacturing initiatives) and increased
manufacturing variances on well servicing pumps also contributed to the
decline in gross profit margin percentage.
Depreciation and amortization increased 17% to $4.0 million in the
three-month period ended September 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. Depreciation and amortization as a percentage of revenues
decreased slightly to 4.4% in the third quarter of 2000 from 4.5% in the
same period of 1999 due to higher revenues.
Selling and administrative expenses increased in the third quarter of
2000 by 6% to $13.6 million from $12.9 million in the same period of
1999 due to incremental expenses from acquisitions. Selling and
administrative expenses as a percentage of revenues improved to 15.0% in
the third quarter of 2000 compared to 16.7% in 1999 due to higher
revenues.
The Compressed Air Products segment generated operating margins (defined
as revenues, less
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cost of sales, depreciation and amortization, and selling and
administrative expenses excluding unallocated corporate administrative
expenses) of 10.0% for the three-month period ended September 30, 2000,
a decrease from 10.5% for the same period of 1999. This decline was due
to an unfavorable sales mix and increases in manufacturing overhead
spending as mentioned above. In addition, acquisitions negatively
affected the operating margin percentage as these entities are currently
generating lower operating margins than the Company's previously
existing operations.
The Petroleum Products segment generated operating margins of 9.6% for the
three-month period ended September 30, 2000, compared to 18.0% for the same
period in 1999. This decline is primarily due to the unfavorable sales mix
and increased variances mentioned above.
Interest expense increased $0.4 million (28%) to $1.9 million for the
three months ended September 30, 2000, as a result of higher average
borrowings and interest rates. The average interest rate for third
quarter of 2000 was 6.2%, compared to 5.8% for the same period of 1999.
Income before income taxes was $6.5 million for both three months ended
September 30, 2000 and 1999, as higher revenues were offset by the lower
gross margin percentage and higher levels of depreciation and
amortization, interest expense and selling and administrative expenses.
The provision for income taxes was $2.5 million for both the third
quarter of 2000 and 1999. The Company's effective tax rate for the
three months ended September 30, 2000 was 38.1%, compared to 38.6% in
the prior year period.
Net income was $4.0 million ($0.26 diluted earnings per share) for both
the third quarter of 2000 and 1999, for the same reasons as noted above
for income before taxes.
PERFORMANCE IN THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues
Revenues increased $40.2 million (17%) to $273.0 million for the nine
months ended September 30, 2000, compared to the same period of 1999.
Excluding incremental revenue from acquisitions, revenues increased
$17.7 million (8%) over the same period of 1999. See Note 2 to the
Financial Statements for further information on the Company's recent
acquisitions.
For the nine months ended September 30, 2000, revenues for the
Compressed Air Products segment increased $21.6 million (10%) to $235.0
million compared to the same period of 1999. Excluding incremental
revenue from acquisitions, compressed air product revenues were
relatively flat despite an unfavorable foreign currency exchange rate
impact of approximately $5.3 million. Petroleum Products segment
revenues increased $18.6 million (96%) to $38.0 million for the nine
months ended September 30, 2000, compared to the same period of 1999, as
a result of the heightened demand for well stimulation pumps and
drilling pumps due to higher oil prices.
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Costs and Expenses
Gross margin (defined as sales less cost of sales excluding depreciation
and amortization) for the nine months ended September 30, 2000 increased
$7.0 million (9%) to $81.9 million compared to the same period of 1999.
Gross margin as a percentage of revenues (gross margin percentage)
decreased to 30.0% in the nine-month period of 2000 from 32.2% in the
same period of 1999. This reduction in the gross margin percentage was
principally attributable to an unfavorable sales mix (including a lower
proportion of aftermarket products in both segments), increased
manufacturing overhead spending and increased variances on well
servicing pumps.
Depreciation and amortization increased 15% to $11.9 million in the
first nine months of 2000, compared with $10.3 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 the nine-month period ended September
30, 2000, depreciation and amortization expense as a percentage of
revenues declined slightly to 4.4% from 4.5% for the same period in
1999, as a result of the higher revenues.
Selling and administrative expenses increased in the first nine months
of 2000 by 15% to $44.4 million from $38.7 million in the same period of
1999. Excluding incremental expenses from acquisitions, selling and
administrative expenses increased $2.1 million (6%), which was primarily
the result of higher commissions, payroll related expenses and customer
service initiatives. Selling and administrative expenses as a
percentage of revenues decreased slightly to 16.3% compared to the prior
year nine-month period of 16.6%, as a result of the higher revenues.
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 10.2% for the nine-month period ended
September 30, 2000, a decrease from 12.0% for the nine-month period of
1999. This decline is due to an unfavorable sales mix, increased
manufacturing overhead spending, and increased commission, payroll and
customer service related expenses. In addition, acquisitions negatively
affected the operating margin percentage as these entities are currently
generating lower operating margins than the Company's previously
existing operations.
The Petroleum Products segment generated operating margins of 8.7% for
the nine-month period ended September 30, 2000, compared to 8.9% for the
same period in 1999. This decrease is due to an unfavorable sales mix
(including an increased proportion of well stimulation pumps as opposed
to higher margin replacement parts). Increased manufacturing variances
on well servicing pumps also contributed to this decline.
Interest expense increased $1.5 million (37%) to $5.7 million for the
nine-month period ended September 30, 2000, as a result of higher
average borrowings and average interest rates. The average interest
rate for the first nine months of 2000 was 6.2%, compared to 5.8% for
the same period of 1999.
The change in other (income)/expense, net is primarily due to a gain
recorded in the second
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<PAGE>
quarter of 2000 from the sale of the Company's idle facility in
Syracuse, New York.
Income before income taxes declined $1.1 million (5%) to $20.4 million
for the nine months ended September 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 $7.8 million
for the first nine months of 2000 compared to $8.3 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
nine months ended September 30, 2000 was 38.1%, compared to 38.6% in the
prior year period.
Net income for the nine months ended September 30, 2000 decreased $0.6
million (4%) to $12.6 million ($0.82 diluted earnings per share),
compared to $13.2 million ($0.86 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 $13.7 million
in the third quarter of 2000, an increase of $7.0 million compared to
the same period of 1999. For the first nine months of 2000, petroleum
product orders were $42.3 million, an increase of $25.5 million compared
to the same period of 1999. Compared to September 30, 1999, backlog for
this business segment increased $6.9 million to $10.9 million on
September 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 was sustained
through the third quarter 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 and drilling pumps may continue to improve
during the fourth quarter of 2000 and into the first half of 2001.
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 third quarter of 2000, orders for
compressed air products were $76.7 million, including $5.5 million from
acquisitions, compared to $66.7 million in the same period of 1999. For
the first nine months of 2000, orders for compressed air products,
including $22.6 million from acquisitions, were $231.2 million, compared
to $209.2 million in the same period of 1999. Order backlog for compressed
air products, including $1.3 million from acquisitions, was $45.1 million
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<PAGE>
as of September 30, 2000, compared to $47.3 million as of September 30,
1999. Adjusted for acquisitions and an unfavorable foreign currency
exchange impact, the order level is relatively flat with prior year
despite the actions taken by the Federal Reserve in late 1999 and early
2000 to increase interest rates and dampen U.S economic activity. The
decline in the backlog levels is due to a reduction in manufacturing lead
times and increased inventory levels on certain products. The Company
believes the order and sales levels for the compressed air products segment
will be relatively flat for the remainder of 2000 and into the first half
of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Operating Working Capital
During the nine months ended September 30, 2000, operating working
capital (defined as receivables plus inventories, less accounts payable
and accrued liabilities) increased $8.2 million with acquisitions
representing $2.6 million of this increase. Excluding acquisitions, the
remaining increase in operating working capital was primarily related to
an increase in receivables, due to timing of shipments within the third
quarter of 2000.
Cash Flows
During the first nine months of 2000, the Company generated cash from
operations totaling $12.3 million, compared to $12.9 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 and other assets and liabilities. Borrowings
of $32.5 million on long-term debt were used to fund acquisitions and
capital expenditures. Total repayments on long-term debt were $29.3
million during the nine months ended September 30, 2000. The cash flows
provided by operating and financing and used for investing activities
resulted in a net cash decrease of $9.0 million for the nine months
ended September 30, 2000.
Capital Expenditures and Commitments
Capital projects to increase operating efficiency and flexibility,
expand production capacity and product quality resulted in expenditures
of $7.7 million in the first nine months of 2000. This was $1.0 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 September 30, 2000 totaled $6.0
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
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<PAGE>
September 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 nine months
ended September 30, 2000, the Company also accepted shares of its common
stock, valued at $0.3 million, which were tendered for the exercise of stock
options.
Liquidity
The Company has a revolving line of credit agreement with an aggregate
$125 million borrowing capacity (the "Credit Line"). On September 30,
2000, the Credit Line had an outstanding balance of approximately $72.0
million, leaving $53.0 million available for future use. The Credit
Line requires no principal payments during the term of the agreement,
which expires in January 2003.
The Company's borrowing arrangements are generally unsecured and permit
certain investments and dividend payments. There are no material
restrictions on the Company as a result of these arrangements, other
than customary covenants regarding certain earnings, liquidity, and
capital ratios.
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 September 30, 2000.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements", which summarizes
certain of the SEC staff's views on applying generally accepted
accounting principles to revenue recognition in financial statements.
The Company will adopt the accounting provisions of SAB 101 in the
fourth quarter of 2000. Implementation of SAB 101 will not have a material
impact on the Company's financial condition or results of operations.
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
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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 September 30, 2000.
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PART II - OTHER INFORMATION
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
September 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: November 13, 2000 By: /s/Ross J. Centanni
----------------------------------
Ross J. Centanni
Chairman, President & CEO
Date: November 13, 2000 By: /s/Philip R. Roth
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Philip R. Roth
Vice President, Finance & CFO
Date: November 13, 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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