-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EJF3cDkPmbv93lA9Hc34k0Xd0Zis2XnTZm5HwMe+7BipOLJoAKxhWSbhTuyOvajB X63b6DkR4sLn2lVydrftSA== 0000916459-96-000006.txt : 19960703 0000916459-96-000006.hdr.sgml : 19960703 ACCESSION NUMBER: 0000916459-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARDNER DENVER MACHINERY INC CENTRAL INDEX KEY: 0000916459 STANDARD INDUSTRIAL CLASSIFICATION: 3532 IRS NUMBER: 760419383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23654 FILM NUMBER: 96565181 BUSINESS ADDRESS: STREET 1: 1800 GARNER EXPRESSWAY CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172225400 MAIL ADDRESS: STREET 1: ONE POST OFFICE SQUARE 23RD FL CITY: BOSTON STATE: MA ZIP: 02109 10-Q 1 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-23612 GARDNER DENVER MACHINERY INC. (Exact Name of Registrant as Specified in its Charter) Delaware 76-0419383 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1800 Gardner Expressway Quincy, Illinois 62301 (Address of Principal Executive Offices and Zip Code) (217) 222-5400 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No ----- ----- Number of shares outstanding of the issuer's Common Stock, par value $.01 per share, as of May 10, 1996: 4,865,340 shares. ----------------------------------------------------------------- 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements. GARDNER DENVER MACHINERY INC. CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited)
Three Months Ended March 31, 1996 1995 ------ ------ Revenues $48,569 $49,974 Costs and expenses: Cost of sales (exclusive of depreciation and amortization) 33,556 35,057 Depreciation and amortization 1,887 2,168 Selling and administrative expenses 6,097 6,250 Interest expense 594 1,406 ------ ------ Income before income taxes 6,435 5,093 Provision for income taxes 2,574 2,292 ------ ------ Net income $3,861 $2,801 ====== ====== Earnings per share $0.77 $0.59 ====== ====== The accompanying notes are an integral part of this statement.
3 GARDNER DENVER MACHINERY INC. CONSOLIDATED BALANCE SHEET (dollars in thousands, except per share amounts)
(Unaudited) March 31, December 31, 1996 1995 ------ ------ ASSETS Current Assets: Cash and cash equivalents $8,040 $1,869 Receivables, net 37,488 39,933 Inventories 43,695 46,318 Deferred income taxes 402 - Other 994 2,217 -------- -------- Total current assets 90,619 90,337 -------- -------- Plant and equipment, net 31,374 32,184 Intangibles, net 42,511 43,050 Deferred income taxes 18,180 17,808 Investment in and advances to affiliate 440 - Other assets 822 872 -------- -------- Total assets $183,946 $184,251 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $1,444 $1,441 Accounts payable and accrued liabilities 31,949 29,675 Deferred income taxes - 486 -------- -------- Total current liabilities 33,393 31,602 -------- -------- Long-term debt, less current maturities 31,300 36,661 Postretirement benefits other than pensions 59,033 60,108 Other long-term liabilities 571 646 -------- -------- Total liabilities 124,297 129,017 -------- -------- Stockholders' equity: Common stock, $.01 par value; 50,000,000 shares authorized; 4,853,319 shares issued and outstanding at March 31, 1996 48 48 Capital in excess of par value 133,729 133,175 Retained deficit (74,128) (77,989) -------- -------- Total stockholders' equity 59,649 55,234 -------- -------- Total liabilities and stockholders' equity $183,946 $184,251 ======== ======== The accompanying notes are an integral part of this statement.
4 GARDNER DENVER MACHINERY INC. CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands) (Unaudited)
Three Months Ended March 31, 1996 1995 -------- -------- Cash flows from operating activities: Net income $3,861 $2,801 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,343 1,636 Amortization 544 532 Stock issued for employee benefit plans 287 321 Deferred income taxes (1,260) (730) Changes in assets and liabilities: Receivables, net 2,445 (4,090) Inventories 2,623 (1,267) Accounts payable and accrued liabilities 2,274 5,565 Other assets and liabilities, net (86) (944) ------ ------ Net cash provided by operating activities 12,031 3,824 ------ ------ Cash flows from investing activities: Capital expenditures (533) (460) Disposals of plant and equipment - 13 Investment in affiliate (236) - ------ ------ Net cash used for investing activities (769) (447) ------ ------ Cash flows from financing activities: Principal payments on long-term debt (5,358) (4,282) Proceeds from stock options 267 - ------ ------ Net cash used for financing activities (5,091) (4,282) ------ ------ Increase (decrease) in cash and cash equivalents 6,171 (905) ------ ------ Cash and cash equivalents, beginning of period 1,869 3,330 ------ ------ Cash and cash equivalents, end of period $8,040 $2,425 ====== ====== The accompanying notes are an integral part of this statement.
5 NOTES TO FINANCIAL STATEMENTS Note 1: Summary of Significant Accounting Policies. Organization. The accompanying financial statements reflect the operations of Gardner Denver Machinery Inc. ("Gardner Denver"or the "Company"). Gardner Denver was incorporated in Delaware on November 18, 1993 and was a wholly-owned U.S. subsidiary of Cooper Industries, Inc. ("Cooper") until April 15, 1994, (the "Record Date") when Cooper declared a distribution of shares of Common Stock of Gardner Denver payable to holders of record of Cooper's Common Stock at the close of business on the Record Date. Prior to December 31, 1993, Gardner Denver operated as the Gardner-Denver Industrial Machinery Division (the "Gardner-Denver Division") of Cooper. Basis of Presentation. The accompanying financial statements include the accounts of the Company and its majority-owned subsidiaries. All transactions between Gardner Denver Machinery Inc. and its majority-owned subsidiaries have been eliminated. The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. The accompanying consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and the 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. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1995 contained in the Company's 1995 Annual Report to Stockholders. Interest Rate Swap Agreements. The interest differential to be paid or received under these agreements is accrued as the interest rates change, and is recognized over the life of the agreements. See Note 6 in this document for additional information on these agreements. Note 2. Income Taxes. In the first three months of 1996 and 1995, the Company paid $0.2 million and $0.6 million, respectively to the various taxing authorities and recognized $2.6 million and $2.3 million, respectively in tax expense. In addition, during the first quarter of 1996, the Company received $2.3 million in tax refunds from an overpayment of federal income taxes in the fourth quarter of 1995. 6 Note 3. Inventories. March 31, December 31, 1996 1995 -------- -------- Raw materials $ 7,806 $ 7,398 Work-in-process 6,357 6,702 Finished goods, including parts and subassemblies 47,921 47,334 Perishable tooling and supplies 3,096 3,096 ------- ------- 65,180 64,530 Excess of current standard costs over LIFO costs (13,665) (10,606) Excess and slow-moving inventory (7,820) (7,606) ------- ------- Total net inventories $43,695 $46,318 ======= ======= Note 4. Long-term Debt and Other Borrowing Arrangements. Long-term debt at March 31, 1996 consisted of certain industrial revenue bonds and other notes due between 1997 and 2001, as well as $30 million from a $65 million credit facility entered into on November 30, 1995. Proceeds from this three-year, unsecured, revolving loan were used to repay a secured, term loan and revolving line of credit, and to provide for general corporate purposes. At March 31, 1996, $35 million remained available for additional borrowings. The revolving loan will mature on November 30, 1998. Maturities of long-term debt for the five years subsequent to March 31, 1996 are $1.4 million for 1997; $0.3 million for 1998; $30.3 million for 1999; $0.3 million for 2000; and $0.3 million for 2001. Total interest expense during the first three months of 1996 and 1995 totaled $0.6 and $1.4 million respectively. Interest paid for each period was not materially different from the amount expensed. Note 5. Earnings per share. Earnings per share were calculated for the three months ended March 31, 1996 based on 5,010,961 weighted average shares outstanding for the period, while earnings per share for the three months ended March 31, 1995 were calculated based on 4,776,618 weighted average shares outstanding. Note 6. Interest Rate Swap Agreements. At March 31, 1996, the Company had two interest rate swap agreements with a commercial bank (the "Counter Party") outstanding, having a cumulative notional principal amount of $30 million. The swaps provide an average fixed LIBOR rate of 6%. One interest rate swap terminates in November 1996 and the second in November 1997. The Counter Party has an option to extend either, or both agreements for one additional year each. The Company is exposed to credit loss in the event of nonperformance by the Counter Party to the interest rate swap agreements. However, the Company does not anticipate such nonperformance. 7 Note 7. Investment in and Advances to Affiliate. On February 13, 1996 the Company exercised an option to purchase 25% of the common stock in GVM Gesellschaft fur Schraubenverdichter und Schraubenmotorentechnologie mbH ("GVM"), a private German company. The investment is accounted for using the equity method. As part of the agreement, the Company has committed to loan GVM a total of $0.9 million over the remainder of 1996. As of March 31, 1996, the Company has loaned its affiliate $0.2 million of this commitment. The agreement specifies the payment of market interest rates and the re-payment of the loan at the end of five years. The loan is included in Investment in and Advances to Affiliate. The Company has an option to acquire an additional 24% of GVM's aggregate authorized capital by converting part of its claim to any payments of principal and accrued interest under the loan into such capital interest. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. Results of Operations. Three Months Ended March 31, 1996 Compared with Three Months Ended March 31, 1995 Revenues Revenues in the first quarter of 1996 were $48.6 million compared to $50.0 million in the same quarter of 1995, a decrease of 2.8%. Revenues in the first quarter of 1995 included approximately $1.9 million from sales of castings and drilling components which did not recur in 1996 since the Company's foundry and drilling components product line were sold in the fourth quarter of 1995. Excluding casting and drilling components sales in 1995, revenues in the first quarter of 1996 increased 1.0% from the same period in 1995. Revenues in the first quarter of 1996 increased $2.0 million (4.2%) from the fourth quarter of 1995, excluding the sales of castings and drilling components in 1995. Excluding castings, revenues for the Compressed Air Products segment rose 1.1% from $42.8 million in the first quarter of 1995 to $43.3 million in the same period of 1996. The Compressed Air Products segment revenues increased $0.3 million (0.6%) in the first three months of 1996 compared to the fourth quarter of 1995, excluding casting sales in the fourth quarter. Revenues in the Compressed Air Products segment reflect the slow growth rate of the U.S. economy over the past six months compared to the first half of 1995, as indicated by the lower annual rate of change in GNP and the decreased capacity utilization rates in manufacturing facilities. However, orders in the first quarter of 1996 increased 7% over the fourth quarter of 1995, indicating an improving rate of growth in the U.S. economy and the Company's further market penetration of niche markets. 8 In the first quarter of 1996, Petroleum Products segment revenues remained level with the first quarter of 1995, excluding drilling components, at $5.3 million. Revenues for the Petroleum Products segment increased $1.7 million (45.9%) in the first quarter of 1996 compared to the fourth quarter of 1995, excluding the impact of drilling component sales in 1995. The significant increase in the Petroleum Products segment was a result of increased gas prices and drilling activity, which increased demand for drilling pumps and replacement parts. Costs and Expenses Gross margins (defined as revenues less cost of sales, exclusive of depreciation and amortization) for the first three months of 1996 increased $0.1 million (0.6%) from $14.9 million in the first quarter of 1995 to $15.0 million in the same period of 1996, despite the reduction in revenues. Gross margin as a percentage of sales improved from 29.8% in the first quarter of 1995 to 30.9% in the first quarter of 1996. If adjusted to exclude castings and drilling components sales, which generate below average gross margins, the gross margin percentage for the first quarter of 1995 would have been 30.6%. The improvement in 1996 compared to 1995 results from the combined effect of previously completed cost reduction efforts and manufacturing process improvements and the fact that 1996 results include increased revenues from aftermarket sales which generate higher incremental gross margin. Gross margin as a percentage of revenues also improved from the level achieved during the fourth quarter of 1995, adjusted to exclude the effects of LIFO liquidation income which the Company recognizes in the fourth quarter of the year and the nonrecurring castings and drilling component revenues. The fourth quarter of 1995 adjusted gross margin percentage was 30.5%. Most of the improvement in 1996 compared to the gross margin percentage in the fourth quarter of 1995 was due to the increased revenues from aftermarket sales. Depreciation and amortization decreased 13.0% to $1.9 million, compared with $2.2 million for the first quarter of 1995. The decrease was primarily a result of the disposal of the foundry assets upon the completion of the sale in 1995. In addition, the decreased level of capital expenditures in 1994 and 1995 contribute to an expense reduction as existing assets become fully depreciated. As a percentage of revenues, depreciation and amortization decreased from 4.3% to 3.9% due to the effect of lower depreciation and amortization discussed above. Selling and administrative expenses decreased by 2.4% to $6.1 million in the first quarter of 1996 from $6.3 million in the same period of 1995. As a percentage of revenues, selling and administrative expenses for the three months were approximately 12.5% in both 1996 and 1995. Management continues to focus on cost control, resulting in lower costs for commissions, salaries and fringe benefits. Interest expense decreased $0.8 million (57.8%) to $0.6 million in the quarter compared to the same period of 1995 due to a significantly lower debt level and reduced interest rates in effect during 1996 compared to 1995. The lower interest rates result from replacing the credit facility which was in effect during most of 1995 with a revolving credit facility which provides for a lower rate. See Note 4 of the 9 Notes to Financial Statements contained in this document for further information on the Company's borrowing arrangements. Income before taxes increased $1.3 million (26.3%) in the quarter to $6.4 million, compared to $5.1 million for the first quarter of 1995, due to the interest expense and depreciation reductions. Lower expenses for selling and administration and increased gross margin also contributed to the improvement. Income taxes increased by $0.3 million to $2.6 million as a result of the increase in income before taxes. The Company's effective tax rate declined from 45% in the first quarter of 1995 to 40% in the same period of 1996, which resulted in a $0.3 million improvement in net income. The reduction in the Company's effective tax rate is due to benefits generated through the Company's Foreign Sales Corporation (FSC) and other tax strategies. Net income for the three months ended March 31, 1996 increased $1.1 million (37.8%) to $3.9 million from $2.8 million for the same period in 1995 for the reasons previously discussed. When compared to the fourth quarter of 1995, net income declined $0.6 million (13.0%) from $4.4 million. The reduction is caused by the $1.3 million (net of taxes) LIFO liquidation income which was recognized in the fourth quarter of 1995 but does not recur in the first quarter of 1996. Excluding the effect of the LIFO liquidation income, net income increased $0.7 million (24.9%) in the first quarter of 1996 compared to the fourth quarter of 1995, primarily as a result of lower selling and administration expenses and interest. Liquidity and Capital Resources Operating Working Capital During the three months ended March 31, 1996, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) decreased $7.3 million to $49.2 million. Receivables decreased $2.4 million since the end of 1995, substantially due to the receipt of a federal income tax refund in the first quarter of 1996. The refund resulted from an overpayment of taxes related to the timing of the sale of the drilling components product line and the associated inventory liquidation. Taxes were paid assuming that the inventory liquidation would not be consummated in 1995, but this sale was completed in late December. The $2.6 million decrease in inventories was a result of continued focus on improving inventory turnover and the shipment of several large orders in 1996 which had been manufactured in 1995 and held at the customer's request. Accounts payable and accrued liabilities increased $2.3 million due to the timing of payments of federal and state income taxes. Cash Flows During the three months ended March 31, 1996, the Company generated cash flows from operations totaling $12.0 million, an increase of $8.2 million (214.6%) over the comparable period in 1995. This substantial increase was primarily the result of the increased net income ($1.1 million) and the 10 decreased operating working capital ($7.3 million) discussed previously. The cash flows enabled the Company to expend $0.5 million on capital expenditures, invest $0.2 million in an affiliate and repay $5.4 million of long-term debt, resulting in an increase in the cash balance of $6.2 million. Capital Expenditures and Commitments Capital projects to reduce product costs, improve product quality, increase manufacturing efficiency and operating flexibility or expand production capacity resulted in expenditures of $0.5 million in the first three months of 1996, which was not materially different than capital expenditures in the same period in 1995. Commitments for capital expenditures as of March 31, 1996 totaled $5.9 million, although management expects additional capital authorizations to be committed during the remainder of the year. Pending Litigation The Company is a defendant (together with Cooper) in a lawsuit alleging misappropriation of trade secrets and interference with contractual relations in connection with research and development of single screw design technology and its related manufacturing techniques. The suit requests $4.66 million in compensatory damage and an unspecified amount in punitive damages. As part of the spin-off of the Company from Cooper, the Company agreed to indemnify Cooper for losses incurred in this type of lawsuit. Although the extent of the liability, if any, remains unknown, management does not believe the ultimate resolution of this legal action will have a materially adverse impact on the results of operations or the financial condition of the Company. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) List of Exhibits: 11.0 Computation of earnings per share for the three months ended March 31, 1996. 27.0 Financial Data Schedule (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended March 31, 1996. 11 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 MACHINERY INC. Date: May 10, 1996 By: /s/Ross J. Centanni ------------------------------ Ross J. Centanni President and Chief Executive Officer Date: May 10, 1996 By: /s/Harry Jefferson III ------------------------------ Harry Jefferson III Vice President, Finance (Principal Financial Officer) 12 GARDNER DENVER MACHINERY INC. Exhibit Index Exhibit No. Description 11.0 Computation of earnings per share for the three months ended March 31, 1996. 27.0 Financial Data Schedule. EX-11 2 COMPUTATION OF EARNINGS PER COMMON SHARE 1 Exhibit 11.0 COMPUTATION OF EARNINGS PER COMMON SHARE (in thousands, except per share amounts)
Three Months Ended March 31, 1996 1995 ------ ------ Primary earnings Net Income $3,861 $2,801 ====== ====== Shares Weighted average number of common shares outstanding 4,828 4,721 Assuming conversion of options issued and outstanding 183 56 ------ ------ Weighted average number of common shares outstanding as adjusted 5,011 4,777 ====== ====== Primary earnings per common share $0.77 $0.59 ====== ====== Fully diluted earnings* Net Income $3,861 $2,801 ====== ====== Shares Weighted average number of common shares outstanding 4,828 4,721 Assuming conversion of options issued and outstanding 216 51 ------ ------ Weighted average number of common shares outstanding as adjusted 5,044 4,772 ====== ====== Fully diluted earnings per common share $0.77 $0.59 ====== ====== *This calculation is submitted in accordance with Securities Exchange Act of 1934 Release No. 9083 although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER MACHINERY INC. FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000916459 GARDNER DENVER MACHINERY INC. 1,000 3-MOS DEC-31-1996 MAR-31-1996 8,040 0 39,936 (2,448) 43,695 90,619 125,826 (94,452) 183,946 33,393 32,744 0 0 48 59,601 183,946 48,283 48,569 33,550 33,556 0 43 594 6,435 2,574 3,861 0 0 0 3,861 .77 .77
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