-----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, VHVv1X4DW4opFnK1CKYJQ7OnuuhPMpPzE1bsL0TAU7Y6nl96XBstbCPAc0fFejo7 2oFu5Y608dSqcPCtbcnblg== 0001068800-00-000108.txt : 20000411 0001068800-00-000108.hdr.sgml : 20000411 ACCESSION NUMBER: 0001068800-00-000108 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARDNER DENVER INC CENTRAL INDEX KEY: 0000916459 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 760419383 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13215 FILM NUMBER: 583328 BUSINESS ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172225400 MAIL ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 FORMER COMPANY: FORMER CONFORMED NAME: GARDNER DENVER MACHINERY INC DATE OF NAME CHANGE: 19931221 10-K405 1 GARDNER DENVER, INC. FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the fiscal year ended December 31, 1999 / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the transition period from to - ---------- ----------- Commission file number 1-13215 --------------- GARDNER DENVER, INC. (formerly known as 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, IL 62301 - ---------------------------------------- ------------------------------ (Address of Principal Executive Offices) (Zip Code) (217) 222-5400 - ------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01 par value - ------------------------------------------------------------------------- (Title of Class) Rights to Purchase Preferred Stock - ------------------------------------------------------------------------- (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None 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 requirements for the past 90 days. Yes X No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the registrant's voting stock held by non- affiliates as of March 21, 2000 was $252,734,158. The number of shares outstanding of the registrant's Common Stock, as of March 21, 2000 was 15,296,922. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Gardner Denver, Inc. Proxy Statement, dated March 24, 2000 (incorporated into Part III of this Annual Report on Form 10-K). Portions of the 1999 Annual Report to Stockholders (incorporated into Parts I and II of this Annual Report on Form 10-K). ========================================================================= PART I ITEM 1. BUSINESS GENERAL Gardner Denver, Inc. ("Gardner Denver" or the "Company") believes, based on total sales in the United States, it is one of the leading manufacturers of stationary air compressors and blowers for industrial applications. Stationary air compressors are used in manufacturing, process applications and materials handling, and to power air tools and equipment. Blowers are used primarily in pneumatic conveying, wastewater aeration and engineered vacuum systems. Gardner Denver also believes that it is one of the leading manufacturers of petroleum pumps used in oil and natural gas drilling and production, well servicing and well stimulation. In 1999, Gardner Denver had revenues of $323.8 million, of which approximately 91 percent were derived from sales of compressed air products while approximately 9 percent were from sales of petroleum products. Approximately 71 percent of the total revenues in 1999 were derived from sales in the United States and approximately 29 percent were from sales to customers in various countries outside the United States. Of the total non-U.S. sales, 53 percent were to Europe, 15 percent to Canada, 13 percent to Latin America, 7 percent to Asia, and the remainder to Africa, the Middle East and Australia. HISTORY The Company's business of manufacturing industrial and petroleum equipment began in 1859 when Robert W. Gardner redesigned the fly-ball governor to provide speed control for steam engines. By 1900, the then Gardner Company had expanded its product line to include steam pumps and vertical high-speed air compressors. In 1927, the Gardner Company merged with Denver Rock Drill, a manufacturer of equipment for oil wells and mining and construction, and became the Gardner-Denver Company. In 1979, the Gardner-Denver Company was acquired by Cooper Industries, Inc. ("Cooper") and operated as 10 unincorporated divisions. Two of these divisions, the Gardner-Denver Air Compressor Division and the Petroleum Equipment Division, were combined in 1985 to form the Gardner-Denver Industrial Machinery Division (the "Division"). The OPI(R) pump product line was purchased in 1985 and added to the Division. In 1987, Cooper acquired the Sutorbilt(R) and DuroFlow(R) blower product lines and the Joy(R) industrial compressor product line, which were also consolidated into the Division. Effective December 31, 1993, the assets and liabilities of the Division were transferred by Cooper to the Company, which had been formed as a wholly owned subsidiary of Cooper. On April 15, 1994, the Company was spun-off as an independent company to the shareholders of Cooper. Gardner Denver has completed a number of acquisitions since becoming an independent company. In 1996, Gardner Denver acquired NORAMPTCO, Inc., renamed Gardner Denver Holdings Inc., and its primary operating subsidiary Lamson Corporation ("Lamson"). Lamson designs, manufactures and sells multistage centrifugal blowers and exhausters used in various industrial and wastewater applications. Lamson's products complemented the Company's product offering by enabling it to expand its participation in environmental and industrial segments requiring air and gas management. Also in 1996, the Company acquired TCM Investments, Inc., an oil field pump manufacturer based in Tulsa, Oklahoma. This acquisition extended the Company's well stimulation pump product line, provided a physical presence in the oil field market and allowed Gardner Denver to become a major supplier of repair parts and remanufacturing services to some of the Company's customers. In 1997, the Company acquired Oy Tamrotor Ab ("Tamrotor"), located in Tampere, Finland. Tamrotor designs and manufactures lubricated rotary screw compressor air ends and packages. The addition of Tamrotor provided the Company with a manufacturing base in Europe and growth opportunities through complementary product lines and international market penetration. In 1999, the Company liquidated Tamrotor and now conducts business in Finland as Gardner Denver OY. In January 1998, the Company purchased Champion Pneumatic Machinery Company, Inc. ("Champion"). Champion, located in Princeton, Illinois, is a leading manufacturer of low horsepower reciprocating compressors. Champion opened new market opportunities for Gardner Denver products and expanded the range of reciprocating compressors available to existing distributors. In January 1998, the Company also acquired Geological Equipment Corporation ("Geoquip"), a leading manufacturer of pumps, ranging from 350 to 2,400 horsepower, in Fort Worth, Texas. The operation also remanufactures pumps and provides repair services. The addition of Geoquip enhanced the Gardner Denver well servicing product line, expanded the Company's presence in remanufacturing and repair services and introduced the Company to the water jetting market. The Company purchased the Wittig Division of Mannesmann Demag AG ("Wittig") in March 1998. Wittig, located in Schopfheim, Germany, is a leading manufacturer of rotary sliding vane compressors and vacuum pumps. Wittig's products primarily serve the truck blower market for liquid and dry bulk conveyance, as well as other industrial applications. The acquisition of Wittig expanded the Company's manufacturing presence in Europe and provided distribution channels for its blower products, which are produced in the United States. In April 1999, the Company acquired Allen-Stuart Equipment Co., Inc. ("Allen-Stuart"), located in Houston, Texas. Allen-Stuart, which also conducts business as the Gardner Denver Engineered Packaging Center, designs, fabricates and services custom-engineered packages for blower and compressor equipment in air and gas applications. The addition of Allen-Stuart enhanced the Company's ability to supply engineered packages, incorporating the wide range of compressor and blower products manufactured by Gardner Denver. In April 1999, the Company also purchased Butterworth Jetting Systems, Inc., a manufacturer of water jet pumps and systems serving the industrial cleaning and maintenance market, located in Houston, Texas. This operation, which was renamed Gardner Denver Water Jetting Systems, Inc., expanded the Company's position in the rapidly growing water jet market. In October 1999, the Company acquired Air Relief, Inc. ("Air Relief"), located in Mayfield, Kentucky. Air Relief is an independent provider of replacement parts and service for centrifugal compressors. This operation enhanced the Company's ability to penetrate the centrifugal compressor market by adding key engineering, assembly, sales and service capabilities. MARKETS AND PRODUCTS Gardner Denver designs, manufactures and markets compressed air products and petroleum products. A description of the particular products manufactured and sold by Gardner Denver in its two industry segments is set forth below. Compressed Air Products Segment In the Compressed Air Products segment, Gardner Denver designs, manufactures, markets and services a broad line of reciprocating, rotary screw and sliding vane compressors, positive displacement and centrifugal blowers, and related aftermarket parts, to serve all aspects of the industrial market. Aftermarket parts and services for centrifugal compressors and water jet pumps and systems are also included in this segment. Reciprocating compressors range from 0.5 to 900 horsepower and are sold under the Gardner Denver(R) and Champion(R) trademarks. Rotary screw compressors range from 5 to 680 horsepower and are sold under the Gardner Denver(R), Electra-Screw(R), Electra-Saver(R), Twistair(R), Tamrotor(R), and Tempest(R) trademarks. Blowers are used to produce a high volume of air at low pressures and vacuums. Centrifugal blowers produce a constant level of pressure and varying volumes of air flow. Positive displacement blowers provide a constant volume of air flow at varying levels of pressure. The Company's positive displacement blowers range from 0 to 36 pounds per square inch gauge (PSIG) pressure and 0-28 inches of mercury ("Hg) vacuum and 0 to 35,000 cubic feet per minute (CFM) and are sold under the trademarks Sutorbilt(R), DuroFlow(R) and CycloBlower(R). The Company's multistage centrifugal blowers are sold under the tradename Lamson(TM) and range from 0.5 to 22 PSIG pressure and 0-18 "Hg vacuum and 100 to 50,000 CFM. The Company's rotary sliding vane compressors and vacuum pumps range from 0 to 150 PSIG and 0 to 3,000 CFM and are sold under the trademark Wittig(TM). The Company's water jet pumps and systems are used in industrial cleaning and maintenance and are sold under the Liqua-Blaster(R) trademark. Sales of compressed air products by Gardner Denver in 1999 were $294.5 million, of which approximately 71 percent were to customers in the United States. Almost all domestic manufacturing plants and industrial facilities, as well as many service industries, utilize air compressors and/or blowers. The largest markets for Gardner Denver's compressor products are durable goods manufacturers; process industries (petroleum, primary metals, pharmaceutical, food and paper); original equipment manufacturers ("OEMs"); manufacturers of carpet cleaning equipment, pneumatic conveying equipment, and dry and liquid bulk transports; wastewater treatment facilities; and automotive service centers. Manufacturers of machinery and related equipment use stationary compressors for automated systems, controls, materials handling and special machinery requirements. The petroleum, primary metals, pharmaceutical, food and paper industries require compressed air for process, instrumentation and control, packaging and pneumatic conveying. Blowers are instrumental to local utilities for aeration in treating industrial and municipal waste. Blowers are also used in service industries, for example, residential carpet cleaning to vacuum moisture from carpets during the shampooing and cleaning process. Blowers and rotary vane compressors are used on trucks to vacuum leaves and debris from street sewers and to unload liquid and dry bulk and powder materials such as cement, grain and plastic pellets. Additionally, blowers are used in numerous chemical process applications. Petroleum Products Segment Gardner Denver designs, manufactures, markets and services a diverse group of pumps used in oil and natural gas production, well servicing and stimulation, and oil and gas drilling markets. Positive displacement reciprocating pumps are marketed under the Gardner Denver(R), Geoquip(R), Ajax(R) and OPI(R) trademarks. Sales of petroleum products in 1999 were $29.3 million, of which approximately 72 percent were to customers in the United States. Typical applications of Gardner Denver(R) pumps in oil and natural gas production include oil transfer, water flooding, salt water disposal, pipeline testing, ammine pumping for gas processing, re-pressurizing, enhanced oil recovery, hydraulic power and other liquid transfer applications. Gardner Denver's production pumps range from 16 to 600 horsepower and consist of horizontal and vertical designed pumps. Gardner Denver markets one of the most complete product lines of well servicing pumps. Well servicing operations include general workover service, completions (bringing wells into production after drilling), and plugging and abandonment of wells. Gardner Denver's well servicing products consist of high pressure plunger pumps ranging from 165 to 400 horsepower. Gardner Denver also manufactures intermittent duty triplex and quintuplex plunger pumps ranging from 350 to 3,000 horsepower for well cementing and stimulation, including reservoir fracturing or acidizing. Duplex pumps, ranging from 16 to 135 horsepower, are produced for shallow drilling, which includes water well drilling, seismic drilling, mineral exploration. Continuous duty triplex mud pumps for oil and natural gas drilling rigs range from 275 to 2,000 horsepower. A small portion of Gardner Denver(R) and Ajax(R) pumps are sold for use in industrial applications. For financial information over the past three years on the Company's performance by industry segment and the Company's international sales, refer to Note 14 of the Notes to Consolidated Financial Statements included in Gardner Denver's 1999 Annual Report to Stockholders and incorporated herein by reference. CUSTOMERS AND CUSTOMER SERVICE Gardner Denver sells its products through independent distributors and sales representatives and directly to OEMs, engineering firms and end users. Gardner Denver uses a direct sales force to service OEM and engineering firm accounts because these typically require more technical assistance, shipment scheduling and product service. As a majority of Gardner Denver's products are marketed through independent distribution, Gardner Denver is committed to developing and supporting its distribution network of over 1,500 distributors and representatives. Generally, the distributors of Gardner Denver's compressed air products do not handle competing products. Gardner Denver has a Master Distribution Center in Memphis, Tennessee that stocks parts, accessories, blowers and small compressor products in order to provide adequate and timely availability. Gardner Denver also provides its distributors with sales and product literature, technical assistance and training programs, advertising and sales promotions, order-entry and tracking systems and an annual restocking program. Gardner Denver participates in major trade shows and has a telemarketing department to generate sales leads and support the distributors' sales staffs. The Company's distributors maintain an inventory of complete units and parts and provide aftermarket service to end users. There are several hundred field service representatives for Gardner Denver products in the distributor network. Gardner Denver's service personnel and product engineers provide the distributors' service representatives with technical assistance and field training, particularly with respect to installation and repair of equipment. Gardner Denver also provides aftermarket support through its remanufacturing facilities in Indianapolis, Indiana; Tulsa, Oklahoma; and Mayfield, Kentucky. The Indianapolis operation remanufactures and repairs air ends for rotary screw compressors, blowers and reciprocating compressors. The Tulsa facility repairs and remanufactures well servicing pumps. The Mayfield operation provides aftermarket parts and repairs for centrifugal compressors. Outside the United States, Gardner Denver markets its products through a network of sales representatives, as well as distributors and direct sales persons. As a result of the acquisition of Lamson, Tamrotor and Wittig, the Company also operates a blower packaging operation in France, a compressor manufacturing and packaging facility in Finland and a compressor manufacturing facility in Germany, respectively. COMPETITION Over 40 companies manufacture or market industrial air compressors in the United States. Of these, seven suppliers account for more than 80 percent of the domestic compressor market. Gardner Denver's principal competitors in the U.S. compressor market include Ingersoll-Rand, Sullair (a division of United Technologies Corporation), Atlas Copco, Quincy Compressor (a division of The BF Goodrich Company), CompAir (a division of Invensys P.L.C.) and Roots (a division of the Dresser Equipment Group of Halliburton Co.). The principal competitors in the petroleum market include National-Oilwell and IRI International. Each of the Company's business segments has a strong reputation and the Company's trademarks are recognized both domestically and internationally. Demand for air compressors is dependent upon capital spending by manufacturing and process industries, and general economic conditions. Demand for petroleum products is tied to the number of working and available rigs and oil and natural gas prices. The principal competitive factors in all product markets are quality, performance, price and availability. The relative importance of each of these factors varies depending on the specific type of product. The air compressor and petroleum pump markets are characterized by mature products, with steady and slow technological advances. Technological trends in the compressor market include development of oil-free air compressors, increased product efficiency, reduction of noise levels, and advanced control systems to upgrade the flexibility and precision of regulating pressure and capacity. Emerging compressor market niches result from new technologies in plastics extrusion, oil and natural gas well drilling, field gas gathering, mobile and stationary vacuum applications, utility and fiber optic installation, environmental impact minimization and air separation processes. Trends in the petroleum pump market include development of larger horsepower and lighter weight pumps. RESEARCH AND DEVELOPMENT The Company actively engages in a continuing research and development program. The Gardner Denver research and development centers are dedicated to various activities, including new product development, product performance improvement and new product applications. Gardner Denver's products are designed to satisfy the safety and performance standards set by various industry groups and testing laboratories. Care is exercised throughout the manufacturing and final testing process to ensure that products conform to industry, government and customer specifications. Gardner Denver has representatives on the American Petroleum Institute's working committee and the Company has relationships with standard enforcement organizations such as Underwriters Laboratories (U.L.), Det Norske Veritas (DNV) and the Canadian Standard Association (C.S.A.). The Company maintains ISO 9001 certification on the quality systems at a majority of its manufacturing and design locations. Expenditures for research and development sponsored by the Company were $2.8 million in 1999, $3.5 million in 1998 and $2.8 million in 1997. MANUFACTURING Gardner Denver has fourteen manufacturing facilities that utilize a broad variety of processes. At its manufacturing locations, the Company maintains advanced manufacturing, quality assurance and testing equipment geared to the specific products that it manufactures, and uses extensive process automation in its manufacturing operations. Most of the manufacturing facilities utilize computer aided numerical control tools and manufacturing techniques that concentrate the equipment necessary to produce similar products in one area of the plant (cell manufacturing). One operator using cell manufacturing can monitor and operate several machines, as well as assemble and test products made by such machines, thereby improving operating efficiency and product quality while reducing the amount of work-in-process and finished product inventories. RAW MATERIALS The primary raw materials used by Gardner Denver are cast iron and steel. Such materials are generally available from a number of suppliers. With one exception, the Company does not currently have long-term contracts with its suppliers of raw materials, but believes that its sources of raw materials are reliable and adequate for its needs. As part of the sale of its foundry in LaGrange, Missouri in December 1995, the Company signed a five-year agreement with the new owner for the supply of cast iron products. The Company has not experienced any significant supply problems in its operations and does not anticipate any significant supply problems in the foreseeable future. BACKLOG The Company's backlog was approximately $53.9 million at December 31, 1999 as compared to approximately $50.2 million at December 31, 1998. This increase was due solely to newly acquired companies. Backlog consists of firm orders for which a customer purchase order has been received or communicated and which are scheduled for shipment within 12 months. Since orders may be rescheduled or canceled, backlog does not necessarily reflect future sales levels. PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY The Company believes that the success of its business depends more on the technical competence, creativity and marketing abilities of its employees than on any individual patent, trademark or copyright. Nevertheless, as part of its ongoing research, development and manufacturing activities, the Company has a policy of seeking appropriate patents concerning new products and product improvements. In the aggregate, patents and trademarks are of considerable importance to the manufacturing and marketing of many of the Company's products. However, the Company does not consider any single patent or trademark, or group of patents or trademarks, to be material to its business as a whole, except for the Gardner Denver(R) trademark. Other important trademarks used by Gardner Denver include DuroFlow(R), Sutorbilt(R), CycloBlower(R), Wittig(TM), Lamson(TM), Tamrotor(R), OPI(R), Champion(R) and Geoquip(R). Joy(R) is a registered trademark of Joy Technologies, Inc. Gardner Denver has the right to use the Joy(R) trademark on aftermarket parts until November 2027. The Company's right to use this trademark on air compressors expired in November 1995. Pursuant to trademark license agreements, Cooper has rights to use the Gardner Denver(R) trademark for certain power tools and Gardner Denver has rights to use the Ajax(R) trademark for petroleum pumps. Gardner Denver has registered its trademarks in the countries where it is deemed necessary. The Company also relies upon trade secret protection for its confidential and proprietary information. The Company routinely enters into confidentiality agreements with its employees. There can be no assurance, however, that others will not independently obtain similar information and techniques or otherwise gain access to the Company's trade secrets or that the Company can effectively protect its trade secrets. EMPLOYEES As of February 25, 2000, the Company had approximately 1,700 full-time employees, of which approximately 500, including most of the employees in Finland and Germany, were represented by labor unions. In March 1997, the Company and the union at the Quincy, Illinois plant executed a five-year labor contract. The Company believes its current relations with employees are good. ENVIRONMENTAL MATTERS The Company is subject to numerous federal, state, local and foreign laws and regulations relating to the storage, handling, emission and discharge of materials into the environment. The Company believes that its existing environmental control procedures are adequate and it has no current plans for substantial capital expenditures in this area. Gardner Denver has an environmental policy that confirms its commitment to a clean environment and to compliance with environmental laws. Gardner Denver has an active environmental management program aimed at compliance with existing environmental regulations and developing methods to eliminate or significantly reduce the generation of pollutants in the manufacturing processes. The Company has been identified as a potentially responsible party ("PRP") with respect to six sites designated for cleanup under federal "Superfund" or similar state laws, which impose liability for cleanup of certain waste sites and for related natural resource damages. Persons potentially liable for such costs and damages generally include the site owner or operator and persons that disposed or arranged for the disposal of hazardous substances found at those sites. Although these laws impose joint and several liability, in application, the PRPs typically allocate the investigation and cleanup costs based upon the volume of waste contributed by each PRP. Based on currently available information, Gardner Denver was only a small contributor to four of these waste sites and has made de minimus settlements for their cleanup. The clean-up of the remaining two sites is substantially complete and the Company's future obligations entail a share of the sites' ongoing operating and maintenance expense. The Company has an accrued liability on its balance sheet to the extent costs are known or can be estimated for its remaining financial obligations. Based upon consideration of currently available information, the Company does not anticipate any materially adverse effect on its results of operations, financial condition, liquidity or competitive position as a result of compliance with federal, state, local or foreign environmental laws or regulations or cleanup costs relating to the sites discussed above. ITEM 2. PROPERTIES As of December 31, 1999, Gardner Denver has fourteen manufacturing plants, three of which are remanufacturing operations, one distribution center, four warehouses, a packaging operation and numerous sales offices. The significant facilities are as follows:
Owned Location Facility Type Sq. Feet or Leased -------- ------------- -------- --------- Quincy, Illinois Executive, Administrative 600,000 Owned and Sales Offices; Manufacturing - petroleum and compressor products Sedalia, Missouri Manufacturing - 325,000 Owned compressor products Princeton, Illinois Manufacturing - compressor 130,000 Owned products Peachtree City, Georgia Administrative and Sales 120,000 Leased Offices; Manufacturing - compressor products Memphis, Tennessee Distribution Center 98,000 Owned and Warehouse Fishers, Indiana Remanufacturing - 60,000 Leased compressor products Tulsa, Oklahoma Manufacturing - 46,000 Owned petroleum products Fort Worth, Texas Manufacturing - 42,000 Owned petroleum products Tulsa, Oklahoma Remanufacturing - 24,000 Leased petroleum products Manteca, California Manufacturing - compressor 19,200 Owned products Oklahoma City, Oklahoma Sales Office and 8,000 Owned Warehouse Schopfheim, Germany Administrative and Sales 423,000 Owned Offices; Manufacturing - compressor products Tampere, Finland Administrative and Sales 93,600 Leased Offices; Manufacturing - compressor products Bezons, France Packaging and Warehouse 6,300 Leased Houston, Texas Manufacturing - compressor 66,300 Leased products Houston, Texas Manufacturing - compressor 57,200 Leased products Mayfield, Kentucky Remanufacturing - compressor 41,200 Owned products
The Peachtree City, Georgia facility is currently leased from the Fayette County Development Authority in connection with industrial revenue bond financing. The Company has an option to purchase the property at a nominal price when the bonds are repaid in 2018. In 1997, the Company announced it would close its Syracuse, New York facility and relocate the manufacture of the centrifugal blower product line to a newly constructed site in Peachtree City, Georgia. The new plant began operating in the fourth quarter of 1998. Portions of the 250,000 square foot Syracuse plant were leased to an unrelated manufacturing company in 1999, while some areas remained idle. This facility was sold in March 2000. The Company leases sales office space in various U.S. locations and foreign countries, and warehouse space in Singapore and Finland. ITEM 3. LEGAL PROCEEDINGS The Company is a party to various legal proceedings and administrative actions, all of which are of an ordinary or routine nature, incidental to the operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this report, no matters were submitted to a vote of the stockholders. EXECUTIVE OFFICERS OF REGISTRANT The executive officers of the Company, their positions with the Company, business history and certain other information, as of March 10, 2000, are set forth below. These officers serve at the pleasure of the Board of Directors.
Name Office Age ---- ------ --- Ross J. Centanni Chairman, President and Chief Executive Officer 54 Philip R. Roth Vice President, Finance and Chief Financial Officer 49 J. Dennis Shull Vice President and General Manager, 51 Gardner Denver Compressor and Pump Division David Brown Vice President and General Manager, 51 Gardner Denver Blower Division Steven M. Krivacek Vice President, Human Resources 51 Helen W. Cornell Vice President, Corporate Secretary and Treasurer 41
Ross J. Centanni, age 54, has been President and Chief Executive Officer and a director of Gardner Denver since its incorporation in November 1993. He has been Chairman of Gardner Denver's Board of Directors since November 1998. Prior to Gardner Denver's spin-off from Cooper, he was Vice President and General Manager of the Division, where he also served as Director of Marketing from August 1985 to June 1990. Mr. Centanni was Director of Corporate Planning for Cooper from August 1981 until joining the Division in 1985. He has a B.S. degree in industrial technology and an M.B.A. degree from Louisiana State University. Mr. Centanni is a director of Esterline Technologies, a publicly held manufacturer of components for avionics, propulsion and guidance systems, and Denman Services, Inc., a privately held supplier of medical products. He is also a member of the Board of Trustees of Quincy University. Philip R. Roth, age 49, joined the Company as Vice President, Finance and Chief Financial Officer in May 1996. Prior to joining Gardner Denver, Mr. Roth was employed by Emerson Electric Co. for fifteen years, most recently as the Vice President, Finance and Chief Financial Officer of the Wiegand Industrial Division. Mr. Roth, a Certified Public Accountant, received his B.S. degree in Business Administration from the University of Missouri and an M.B.A. from the Olin School of Business at Washington University. J. Dennis Shull, age 51, has been Vice President and General Manager, Gardner Denver Compressor and Pump Division since its organization in August 1997. He previously served the Company as Vice President, Sales and Marketing since the Company's incorporation in November 1993. From August 1990 until November 1993, Mr. Shull was the Director of Marketing for the Division. Mr. Shull has a B.S. degree in business from Northeast Missouri State University and an M.A. in business from Webster University. David Brown, age 51, joined the Company as Vice President and General Manager, Gardner Denver Blower Division in August 1997. Prior to that time Mr. Brown was employed by Alfa Laval Separation ("Alfa Laval"), as Vice President and General Manager of the Decanter Business Unit from 1992 until joining the Company in August 1997. He previously held other management positions with SKF USA from 1979 until joining Alfa Laval in 1992. Mr. Brown has a B.S.M.E. from the Case Institute of Technology. Steven M. Krivacek, age 51, has been Vice President, Human Resources for Gardner Denver since March 1995. He previously served the Company as Director of Human Resources from 1986 until his promotion. Mr. Krivacek has a B.A. in economics from California State College and an M.A. in industrial relations from St. Francis College. Helen W. Cornell, age 41, has been Vice President, Corporate Secretary and Treasurer of the Company since April 1996. She served the Company as Vice President, Corporate Secretary and Assistant Treasurer from March 1995 until April 1996 and as Corporate Secretary and Assistant Treasurer from November 1993 until March 1995. Ms. Cornell was Manager of Financial Planning and Analysis for the Division from May 1988 to November 1993. She holds a B.S. degree in accounting from the University of Kentucky and an M.B.A. from Vanderbilt University. She is a Certified Public Accountant and a Certified Management Accountant. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under "Stock Information" and "Dividends," contained on page 37 of Gardner Denver's 1999 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information under "Financial History," contained on page 14 of Gardner Denver's 1999 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under "Management's Discussion and Analysis," contained on pages 15 through 20 of Gardner Denver's 1999 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information under "Management's Discussion and Analysis - Market Risk," contained on page 20 of Gardner Denver's 1999 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information under "Report of Independent Public Accountants" and "Consolidated Financial Statements and Notes," contained on pages 21 through 36 of Gardner Denver's 1999 Annual Report to Stockholders, is hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information concerning the Company's directors contained under "Election of Directors," "Nominees for Election," and "Directors Whose Terms of Office Will Continue After the Meeting" contained on pages 2 through 4 of the Gardner Denver Proxy Statement, dated March 24, 2000, is hereby incorporated herein by reference. Information concerning the Company's executive officers is contained in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information related to executive compensation contained under "Committees, Compensation and Governance of the Board of Directors" on pages 5 and 6, "Executive Management Compensation" on pages 9 and 10 and "Employee and Executive Benefit Plans" contained on pages 15 and 16 of the Gardner Denver Proxy Statement, dated March 24, 2000, is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under "Security Ownership of Management and Certain Beneficial Owners" contained on pages 7 and 8 of the Gardner Denver Proxy Statement, dated March 24, 2000, is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Alan E. Riedel, a director of the Company, currently is of counsel to Squire, Sanders and Dempsey L.L.P., which provided legal services to the Company during 1999 and continues to render such services to the Company. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this Annual Report --------------------------------------------- 1. Financial Statements and the related report of independent public accountants are incorporated by reference to the pages shown below in Gardner Denver's 1999 Annual Report to Stockholders.
Page No. -------- Report of Independent Public Accountants 21 Consolidated Statement of Operations for Each of the Three Years in the Period Ended December 31, 1999 22 Consolidated Balance Sheet as of December 31, 1999 and December 31, 1998 23 Consolidated Statement of Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 1999 24 Consolidated Statement of Cash Flows for Each of the Three Years in the Period Ended December 31, 1999 25 Notes to Consolidated Financial Statements 26-36
The financial statement schedules listed below should be read in conjunction with the financial statements listed above. Financial statement schedules not included in this Annual Report on Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements or notes hereto. 2. Schedules --------- Report of Arthur Andersen LLP S-1 Schedule II - Valuation and Qualifying Accounts S-2 3. Exhibits -------- 2.1 Stock Purchase Agreement, dated as of July 11, 1996, among Gardner Denver Machinery Inc., Jacques Lepage, Suzanne Lepage, Anne Lepage and Arthur Lepage, filed as Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated August 9, 1996, as amended, and incorporated herein by reference. 2.2 Sale and Purchase Agreement, dated as of June 30, 1997, by and between Tamrock Oy, Gardner Denver Oy and Gardner Denver Machinery Inc., filed as Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated June 30, 1997, and incorporated herein by reference. 2.3 Asset Purchase Agreement, dated as of December 23, 1997, among Gardner Denver Machinery Inc., Champion Pneumatic Machinery Company, Inc. and CRL Industries, Inc., filed as exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated January 29, 1998, and incorporated herein by reference. 3.1 Certificate of Incorporation of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.1 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 3.2 ByLaws of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver Machinery Inc. and First Chicago Trust Company of New York as Rights Agent. 4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated November 14, 1996, and incorporated herein by reference. 10.0 Credit Agreement, dated as of January 20, 1998, among Gardner Denver Machinery Inc., The First National Bank of Chicago and the lenders named therein, filed as Exhibit 10.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated May 14, 1998, and incorporated herein by reference. 10.0.1 Amendment and Waiver No. 1, dated as of August 12, 1999, to the Credit Agreement dated as of January 20, 1998 filed as Exhibit 10.0.1 on Form 10-Q, dated August 13, 1999, and incorporated herein by reference. 10.1 Gardner Denver, Inc. Long-Term Stock Incentive Plan, as amended. 10.2 Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan filed as Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.3 Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.4 Form of Indemnification Agreements entered into between Gardner Denver Machinery Inc. and each of its directors and executive officers, filed as Exhibit 10.11 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.5 Form of Management Continuity Agreement between Gardner Denver Machinery Inc. and each of its executive officers, filed as Exhibit 10.12 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 13.0 The following portions of the Gardner Denver, Inc. 1999 Annual Report to Stockholders. Page No. -------- Financial History 14 Management's Discussion and Analysis 15-20 Report of Independent Public Accountants 21 Consolidated Statement of Operations 22 Consolidated Balance Sheet 23 Consolidated Statement of Stockholders' Equity 24 Consolidated Statement of Cash Flows 25 Notes to Consolidated Financial Statements 26-36 Stock Information 37 Dividends 37 21.0 Subsidiaries of Gardner Denver, Inc. 23.0 Consent of Arthur Andersen LLP. 24.0 Powers of Attorney from members of the Gardner Denver Inc. Board of Directors. 27.0 Financial Data Schedule for the year ended December 31, 1999. [FN] Indicates management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. -------------------- There were no reports on Form 8-K during the quarter ended December 31, 1999. SIGNATURES Pursuant to the requirements of Section 13 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. By /s/Ross J. Centanni ------------------------------------ Name: Ross J. Centanni Title: Chairman, President and CEO Date: March 29, 2000 ---------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/Ross J. Centanni Chairman, President and CEO March 29, 2000 - --------------------------- (Principal Executive Officer (Ross J. Centanni) and Director) /s/Philip R. Roth Vice President, Finance and CFO March 29, 2000 - --------------------------- (Principal Financial Officer) (Philip R. Roth) /s/Daniel C. Rizzo, Jr. Vice President and Corporate March 29, 2000 - --------------------------- Controller (Chief Accounting (Daniel C. Rizzo, Jr.) Officer) Donald G. Barger, Jr. Director March 29, 2000 - --------------------------- (Donald G. Barger, Jr.) Frank J. Hansen Director March 29, 2000 - --------------------------- (Frank J. Hansen) Raymond R. Hipp Director March 29, 2000 - --------------------------- (Raymond R. Hipp) Thomas M. McKenna Director March 29, 2000 - --------------------------- (Thomas M. McKenna) Alan E. Riedel Director March 29, 2000 - --------------------------- (Alan E. Riedel) Michael J. Sebastian Director March 29, 2000 - --------------------------- (Michael J. Sebastian) Richard L. Thompson Director March 29, 2000 - --------------------------- (Richard L. Thompson) By /s/Helen W. Cornell --------------------------------------- (Helen W. Cornell, as Attorney-In-Fact for each of the persons indicated)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Gardner Denver, Inc. We have audited in accordance with auditing standards generally accepted in the United States, the financial statements included in Gardner Denver, Inc.'s. 1999 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 7, 2000. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedule II included in this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP St. Louis, Missouri February 7, 2000 S-1 GARDNER DENVER, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, (dollars in thousands)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR ----------- ------------ ---------- ------------ ---------- ---------- 1999 - ---- Allowance for doubtful accounts $ 4,371 $ 380 $ 551 $ (464) $ 4,838 Allowance for obsolete and slow- 9,705 1,255 496 (3,226) 8,230 moving inventory 1998 - ---- Allowance for doubtful accounts $ 2,866 $ 306 $1,608 $ (409) $ 4,371 Allowance for obsolete and slow- 11,945 1,799 1,459 (5,498) 9,705 moving inventory 1997 - ---- Allowance for doubtful accounts 2,935 244 - (313) 2,866 Allowance for obsolete and slow- 9,090 2,613 731 (489) 11,945 moving inventory Includes the allowance for doubtful accounts and the allowance for obsolete and slow-moving inventory of acquired businesses at the dates of acquisition and the effect of foreign currency translation adjustments for those companies whose functional currency is not the U.S. dollar.
S-2 GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 2.1 Stock Purchase Agreement, dated as of July 11, 1996, among Gardner Denver Machinery Inc., Jacques Lepage, Suzanne Lepage, Anne Lepage and Arthur Lepage, filed as Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated August 9, 1996, as amended, and incorporated herein by reference. 2.2 Sale and Purchase Agreement, dated as of June 30, 1997, by and between Tamrock Oy, Gardner Denver Oy and Gardner Denver Machinery Inc., filed as Exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated June 30, 1997, and incorporated herein by reference. 2.3 Asset Purchase Agreement, dated as of December 23, 1997, among Gardner Denver Machinery Inc., Champion Pneumatic Machinery Company, Inc. and CRL Industries, Inc., filed as exhibit 2.0 to Gardner Denver Machinery Inc.'s Current Report on Form 8-K, dated January 29, 1998, and incorporated herein by reference. 3.1 Certificate of Incorporation of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.1 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 3.2 ByLaws of Gardner Denver, Inc., as amended on May 5, 1998, filed as Exhibit 3.2 to Gardner Denver, Inc.'s Quarterly Report on Form 10-Q, dated August 13, 1998, and incorporated herein by reference. 4.1 Rights Agreement dated as of January 18, 1995, between Gardner Denver Machinery Inc. and First Chicago Trust Company of New York as Rights Agent. 4.2 Note Purchase Agreement, dated as of September 26, 1996, filed as Exhibit 4.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated November 14, 1996, and incorporated herein by reference. 10.0 Credit Agreement, dated as of January 20, 1998, among Gardner Denver Machinery Inc., The First National Bank of Chicago and the lenders named therein, filed as Exhibit 10.0 to Gardner Denver Machinery Inc.'s Quarterly Report on Form 10-Q, dated May 14, 1998, and incorporated herein by reference. 10.0.1 Amendment and Waiver No. 1, dated as of August 12, 1999, to the Credit Agreement dated as of January 20, 1998 filed as Exhibit 10.0.1 on Form 10-Q, dated August 13, 1999, and incorporated herein by reference. 10.1 Gardner Denver, Inc. Long-Term Stock Incentive Plan, as amended. 10.2 Gardner Denver Machinery Inc. Supplemental Excess Defined Benefit Plan filed as Exhibit 10.9 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.3 Gardner Denver Machinery Inc. Supplemental Excess Defined Contribution Plan, filed as Exhibit 10.10 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.4 Form of Indemnification Agreements entered into between Gardner Denver Machinery Inc. and each of its directors and executive officers, filed as Exhibit 10.11 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 10.5 Form of Management Continuity Agreement between Gardner Denver Machinery Inc. and each of its executive officers, filed as Exhibit 10.12 to Gardner Denver Machinery Inc.'s Registration Statement on Form 10, effective on March 31, 1994, and incorporated herein by reference. 13.0 The following portions of the Gardner Denver, Inc. 1999 Annual Report to Stockholders. Page No. -------- Financial History 14 Management's Discussion and Analysis 15-20 Report of Independent Public Accountants 21 Consolidated Statement of Operations 22 Consolidated Balance Sheet 23 Consolidated Statement of Stockholders' Equity 24 Consolidated Statement of Cash Flows 25 Notes to Consolidated Financial Statements 26-36 Stock Information 37 Dividends 37 21.0 Subsidiaries of Gardner Denver, Inc. 23.0 Consent of Arthur Andersen LLP. 24.0 Powers of Attorney from members of the Gardner Denver, Inc. Board of Directors. 27.0 Financial Data Schedule for the year ended December 31, 1999. [FN] Indicates management contract or compensatory plan or arrangement. EX-4.1 2 RIGHTS AGREEMENT Exhibit 4.1 CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF GARDNER DENVER MACHINERY INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware Gardner Denver Machinery Inc., a corporation (the "Corporation") organized and existing under the General Corporation Law of the State of Delaware (the "DGCL"), in accordance with the provisions of Section 103 thereof, HEREBY CERTIFIES: That pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, the Board of Directors on January 18, 1995, adopted the following resolution creating a series of five hundred thousand (500,000) shares of Preferred Stock designated as Series A Junior Participating Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of its Certificate of Incorporation and Section 151 of the DGCL, a series of Preferred Stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: 1. Designation and Amount. The shares of such series shall ---------------------- be designated as "Series A Junior Participating Preferred Stock, par value $.01 per share" (the "Series A Junior Preferred Stock"), and the number of shares constituting such series shall be 500,000. 2. Dividends and Distributions. (a) Subject to the --------------------------- prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Junior Preferred Stock with respect to dividends, the holders of shares of Series A Junior Preferred Stock in preference to the holders of Common Stock and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, dividends payable quarterly on the first day of January, April, July and October (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $2.50 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Preferred Stock. In the event the Corporation shall at any time after the record date for the initial distribu- tion of the Corporation's Preferred Stock Purchase Rights pursuant to the Rights Agreement, dated as of January 18, 1995, between the Corporation and First Chicago Trust Company of New York, as Rights Agent (the "Rights Declaration Date"), (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare a dividend or distribution on the Series A Junior Preferred Stock as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $2.50 per share on the Series A Junior Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determina- tion of holders of shares of Series A Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Series A Junior ------------- Preferred Stock shall have the following voting rights: (a) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Preferred Stock shall entitled the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common stock that were outstanding immediately prior to such event. (b) Except as otherwise provided herein, in the Certificate of Incorporation or under applicable law, the holders of shares of Series A Junior Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) (i) If at any time dividends on any shares of Series A Junior Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (a "default period") that shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of the outstanding shares of Series A Junior Preferred Stock together with any other series of Preferred Stock then entitled to such a vote under the terms of the Certificate of Incorporation, voting as a separate class, shall be entitled to elect two members of the Board of Directors of the Corporation. (ii) During any default period, such voting right of the holders of Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Subsection 3(c) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a separate class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two Directors, or if such right is exercised at an annual meeting, to elect two Directors. If the number that may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Chairman, President, a Vice President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Section 3(c)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 10 days and not later than 60 days after such order or request. In the event such meeting is not called within 60 days after such order or request, such meeting may be called on a similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstand- ing. Notwithstanding the provisions of this Section 3(c)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two Directors voting as a separate class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in Section 3(c)(ii) be filled by vote of a majority of the remaining Directors theretofore elected by the class which elected the Director whose office shall have become vacant. References in this Section 3(c)(iv) to Directors elected by a particular class shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (d) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock, as a separate class, to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock, as a separate class, shall terminate, and (z) the number of Directors shall be such number as may be provided for in, or pursuant to, the Certificate of Incorporation or By-laws irrespective of any increase made pursuant to the provisions of Section 3(c)(ii) (such number being subject, however, to change thereafter in any manner provided by law or in the Certificate of Incorporation or By-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors, even though less than a quorum. (e) Except as set forth herein or as otherwise provided in the Certificate of Incorporation, holders of Series A Junior Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 4. Certain Restrictions. (a) Whenever quarterly dividends -------------------- or other dividends or distributions payable on the Series A Junior Pre- ferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay or set apart for payment any dividends or make any other distributions on, or redeem or purchase or otherwise acquire, directly or indirectly, for consideration any shares of any class of stock of the Corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Preferred Stock, except dividends paid ratably on the Series A Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Series A Junior ----------------- Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. (a) Upon any -------------------------------------- voluntary or involuntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Preferred Stock shall have received $100.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Preferred Stock unless, prior thereto, the holders of shares of Common Sock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in paragraph (c) below to reflect such events as stock splits, stock dividends and recapital- izations with respect to the Common Stock) (such number in clause (ii) being hereinafter referred to as the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Preferred Stock and Common Stock, respectively, holders of Series A Junior Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Series A Junior Preferred Stock and Common Stock, on a per share basis, respectively. (b) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series A Junior Preferred Stock, then such remaining assets shall be distributed ratably to the holders of all such shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (c) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 7. Consolidation, Merger, Share Exchange, etc. In case the ------------------------------------------ Corporation shall enter into any consolidation, merger, share exchange, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 8. No Redemption. The shares of Series A Junior Preferred ------------- Stock shall not be redeemable. 9. Ranking. The Series A Junior Preferred Stock shall rank ------- junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. 10. Amendment. The Certificate of Incorporation of the --------- Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Junior Preferred Stock, voting together as a single voting group. 11. Fractional Shares. Series A Junior Preferred Stock may ----------------- be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Preferred Stock. IN WITNESS WHEREOF, Gardner Denver Machinery Inc. has caused this Certificate to signed by Ross J. Centanni, its President and Chief Executive Officer, this 18th day of January, 1995. GARDNER DENVER MACHINERY INC. By: /s/ Ross J. Centanni -------------------------------- Name: Ross J. Centanni Title: President and Chief Executive Officer EX-10.1 3 LONG-TERM INCENTIVE PLAN Exhibit 10.1 GARDNER DENVER, INC. LONG-TERM INCENTIVE PLAN (As amended May 7, 1996, May 4, 1998, November 2, 1998, May 4, 1999 and March 6, 2000) (Adjusted to reflect two-for-one stock split January 15, 1997 and three-for-two stock split December 29, 1997) 1. PURPOSE The purpose of the Gardner Denver, Inc. Long-Term Incentive Plan (the "Plan") is to promote the long-term financial interests of Gardner Denver, Inc. (the "Company"), including its growth and performance, by encouraging employees of the Company and its subsidiaries to acquire an ownership position in the Company, enhancing the ability of the Company to attract and retain employees of outstanding ability, and providing employees with an interest in the Company parallel to that of the Company's stockholders. 2. DEFINITIONS 2.1 "Administrative Policies" means the administrative policies and procedures adopted and amended from time to time by the Committee to administer the Plan. 2.2 "Award" means any form of stock option, stock appreciation right, restricted stock award, or performance share granted under the Plan, whether singly, in combination, or in tandem, to a Participant by the Committee pursuant to such terms, conditions, restrictions and limitations, if any, as the Committee may establish by the Award Agreement or otherwise. 2.3 "Award Agreement" means a written agreement with respect to an Award between the Company and a Participant establishing the terms, conditions, restrictions and limitations applicable to an Award. To the extent an Award Agreement is inconsistent with the terms of the Plan, the Plan shall govern the rights of the Participant thereunder. 2.4 "Board" shall mean the Board of Directors of the Company. 2.5 "Change of Control" means a change in control of the Company (other than the initial distribution of Common Stock by Cooper Industries, Inc.) of a nature that would be required to be reported (assuming such event has not been "previously reported") in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act; provided that, without limitation, a Change of Control shall be deemed to have occurred at such time as (i) any "person" within the meaning of Section 14(d) of the Exchange Act, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 2.6 "Change of Control Price" means the higher of (i) the Fair Market Value on the date of determination of the Change of Control or (ii) the highest price per share actually paid for the Common Stock in connection with the Change of Control of the Company. 2.7 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.8 "Committee" means the Management Development and Compensation Committee of the Board, or such other committee designated by the Board to administer the Plan, provided that the Committee shall be constituted so as to satisfy any applicable legal requirements, including the requirements of Rule 16b-3 promulgated under the Exchange Act and Section 162(m) of the Code, or any respective successor rule or statute. 2.9 "Common Stock" means the Common Stock, par value $0.01 per share, of the Company. 2.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.11 "Fair Market Value" means the average of the high and low price of a share of Common Stock as reported on the composite tape for securities listed on the Stock Exchange for the applicable date, provided that if no sales of Common Stock were made on the Stock Exchange on that date, the average of the high and low prices as reported on the composite tape for the preceding day on which sales of Common Stock were made. 2.12 "Participant" means an officer or employee of the Company or its subsidiaries who is selected by the Committee to participate in the Plan, and nonemployee directors of the Company to the extent provided in Section 11 hereof. 2.13 "Stock Exchange" means the composite tape of the New York Stock Exchange ("NYSE") or, if the Common Stock is no longer included on the NYSE, then such other market price reporting system on which the Common Stock is traded or quoted designated by the Committee after it determines that such other exchange is both reliable and reasonably accessible. 3. ADMINISTRATION 3.1 The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of a majority of a quorum shall be the acts of the Committee. 3.2 Subject to the provisions of the Plan, the Committee (i) shall select the Participants, determine the type of Awards to be made to Participants, determine the shares or share units subject to Awards, and (ii) shall have the authority to interpret the Plan, to establish, amend, and rescind any Administrative Policies, to determine the terms and provisions of any agreements entered into hereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem desirable to carry it into effect. The determinations of the Committee in the administration of the Plan, as described herein, shall be final and conclusive, provided, however, that no action shall be taken which will prevent the options granted under Section 11 or any Award granted under the Plan from meeting the requirements for exemption from Section 16(b) of the Exchange Act, or subsequent comparable statute, as set forth in Rule 16b-3 of the Exchange Act or any subsequent comparable rule. 3.3 In order to enable Participants who are foreign nationals or employed outside the United States, or both, to receive Awards under the Plan, the Committee may adopt such amendments, Administrative Policies, subplans and the like as are necessary or advisable, in the opinion of the Committee, to effectuate the purposes of the Plan. 4. ELIGIBILITY All employees of the Company and its subsidiaries who have demonstrated significant management potential or who have the capacity for contributing in a substantial measure to the successful performance of the Company, as determined by the Committee, are eligible to be Participants in the Plan. Participants may receive one or more Awards under the Plan. Directors of the Corporation other than directors who are employees of the Corporation shall be eligible only to receive stock options pursuant to Section 11 hereof. 5. SHARES SUBJECT TO THE PLAN 5.1 The aggregate number of shares of Common Stock available for grant of Awards under the Plan shall be that number of shares remaining available for grant under the Plan on the close of business on the date immediately prior to the 1999 Annual Meeting of Stockholders plus 500,000, subject to the adjustments provided for in Section 15 hereof. Shares of Common Stock available for issuance under the Plan may be authorized and unissued shares or treasury shares, as the Company may from time to time determine. 5.2 Shares of Common Stock subject to an Award that expires unexercised or that is forfeited, terminated or cancelled, in whole or in part, or is paid in cash in lieu of Common Stock, shall thereafter again be available for grant under the Plan. 6. AWARDS Awards under the Plan may consist of: stock options (either incentive stock options within the meaning of Section 422 of the Code or nonstatutory stock options), stock appreciation rights, restricted stock grants and performance shares; provided that no Participant may be granted Awards during any calendar year with respect thereto in excess of 180,000 shares of Common Stock, subject to the provisions of Section 15. Awards of performance shares and restricted stock may provide the Participant with dividends or dividend equivalents and voting rights prior to vesting (whether based on a period of time or based on attainment of specified performance conditions). The terms, conditions and restrictions of each Award shall be set forth in an Award Agreement. 7. STOCK OPTIONS 7.1 Grants. Awards may be granted in the form of stock options. Stock options may be incentive stock options within the meaning of Section 422 of the Code or nonstatutory stock options (i.e., stock options which are not incentive stock options), or a combination of both, or any particular type of tax advantage option authorized by the Code from time to time. 7.2 Terms and Conditions of Options. An option shall be exercisable in whole or in such installments and at such times and upon such terms as may be determined by the Committee; provided, however, that no stock option shall be exercisable more than ten years after the date of grant thereof. The option exercise price shall be established by the Committee, but such price shall not be less than the Fair Market Value on the date of the stock option's grant subject to adjustment as provided in Section 15 hereof. 7.3 Restrictions Relating to Incentive Stock Options. Stock options issued in the form of incentive stock options shall, in addition to being subject to all applicable terms, conditions, restrictions and limitations established by the Committee, comply with Section 422 of the Code. Incentive stock options shall be granted only to full time employees of the Company and its subsidiaries within the meaning of Section 424 of the Code. The aggregate Fair Market Value (determined as of the date the option is granted) of shares with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year (under this Plan or any other plan of the Company which provides for the granting of incentive stock options) may not exceed $100,000 or such other number as may be applicable under the Code from time to time. 7.4 Payment. Upon exercise, a Participant may pay the option exercise price of a stock option in cash, shares of Common Stock, stock appreciation rights or a combination of the foregoing, or such other consideration as the Committee may deem appropriate. The Committee shall establish appropriate methods for accepting Common Stock and may impose such conditions as it deems appropriate on the use of such Common Stock to exercise a stock option. 7.5 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or Administrative Policies, establish such other terms, conditions or restrictions, if any, on any stock option award, provided they are consistent with the Plan. The Committee may condition the vesting of stock options on the achievement of financial performance criteria established by the Committee at the time of grant. 8. STOCK APPRECIATION RIGHTS 8.1 Grants. Awards may be granted in the form of stock appreciation rights ("SARs"). SARs shall entitle the recipient to receive a payment equal to the appreciation in market value of a stated number of shares of Common Stock from the price stated in the Award Agreement to the Fair Market Value on the date of exercise or surrender. An SAR may be granted in tandem with all or a portion of a related stock option under the Plan ("Tandem SARs"), or may be granted separately ("Freestanding SARs"); provided, however, that Freestanding SARs shall be granted only to Participants who are foreign nationals or are employed outside of the United States, or both, and as to whom the Committee determines the interests of the Company could not as conveniently be served by the grant of other forms of Awards under the Plan. A Tandem SAR may be granted either at the time of the grant of the related stock option or at any time thereafter during the term of the stock option. In the case of SARs granted in tandem with stock options granted prior to the grant of such SARs, the appreciation in value shall be appreciation from the option exercise price of such related stock option to the Fair Market Value on the date of exercise. 8.2 Terms and Conditions of Tandem SARs. A Tandem SAR shall be exercisable to the extent, and only to the extent, that the related stock option is exercisable. Upon exercise of a Tandem SAR as to some or all of the shares covered in an Award, the related stock option shall be cancelled automatically to the extent of the number of SARs exercised, and such shares shall not thereafter be eligible for grant under Section 5 hereof. 8.3 Terms and Conditions of Freestanding SARs. Freestanding SARs shall be exercisable in whole or in such installments and at such times as may be determined by the Committee. The base price of a Freestanding SAR shall be determined by the Committee; provided, however, that such price shall not be less than the Fair Market Value on the date of the award of the Freestanding SAR. 8.4 Deemed Exercise. The Committee may provide that an SAR shall be deemed to be exercised at the close of business on the scheduled expiration date of such SAR, if at such time the SAR by its terms is otherwise exercisable and, if so exercised, would result in a payment to the Participant. 8.5 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or Administrative Policies, determine such other terms, conditions and restrictions, if any, on any SAR Award, provided they are consistent with the Plan. 9. RESTRICTED STOCK AWARDS 9.1 Grants. Awards may be granted in the form of restricted stock ("Restricted Stock Awards"). Restricted Stock Awards shall be awarded in such numbers and at such times as the Committee shall determine. 9.2 Award Restrictions. Restricted Stock Awards shall be subject to such terms, conditions or restrictions as the Committee deems appropriate including, but not limited to, restrictions on transferability, requirements of continued employment, individual performance or the financial performance of the Company. The period of vesting and the forfeiture restrictions shall be established by the Committee at the time of grant, except that each restriction period shall not be less than 12 months. 9.3 Rights as Shareholders. During the period in which any restricted shares of Common Stock are subject to forfeiture restrictions imposed under the preceding paragraph, the Committee may, in its discretion, grant to the Participant to whom such restricted shares have been awarded, all or any of the rights of a shareholder with respect to such shares, including, but not limited to, the right to vote such shares and to receive dividends. 9.4 Evidence of Award. Any Restricted Stock Award granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book entry registration or issuance of a stock certificate or certificates. 10. PERFORMANCE SHARES 10.1 Grants. Awards may be granted in the form of shares of Common Stock that are earned only after the attainment of predetermined performance targets during a performance period as established by the Committee ("Performance Shares"). 10.2 Performance Criteria. The Committee may grant an Award of Performance Shares to Participants as of the first day of each Performance Period. As used herein, the term "Performance Period" means the period during which a Performance Target is measured and the term "Performance Target" means the predetermined goals established by the Committee. A Performance Target will be established at the beginning of each Performance Period. A Performance Target shall be based upon one or any combination of the following goals or business criteria: (i) revenues of the Company; (ii) operating income of the Company; (iii) net income of the Company; (iv) earnings per share of the Company's Common Stock; (v) the Company's return on equity; (vi) cash flow of the Company; or (vii) Company stockholder total return. The Committee shall be permitted to make adjustments when determining the attainment of a Performance Target to reflect extraordinary or nonrecurring items or events, or unusual nonrecurring gains or losses identified in the Company's financial statements, as long as any such adjustments are made in a manner consistent with Section 162(m) to the extent applicable. Awards of Performance Shares made to Participants subject to Section 162(m) of the Code are intended to qualify under Section 162(m) and provisions of such Awards shall be interpreted in a manner consistent with that intent to the extent appropriate. The foregoing provisions of this Section 10.2 also shall be applicable to grants of Restricted Stock Awards made under Section 9 hereof to the extent such Restricted Stock Awards are subject to the financial performance of the Company. At the end of the Performance Period, Performance Shares shall be converted into Common Stock (or cash or a combination of Common Stock and cash, as determined by the Award Agreement) and distributed to Participants based upon such entitlement. Award payments made in cash rather than the issuance of Common Stock shall not, by reason of such payment in cash, result in additional shares being available for reissuance pursuant to Section 5 hereof. 10.3 Additional Terms and Conditions. The Committee may, by way of the Award Agreement or Administrative Policies, determine the manner of payment of Awards of Performance Shares and other terms, conditions or restrictions, if any, on any Award of Performance Shares, provided they are consistent with the Plan. 11. DIRECTORS' STOCK OPTIONS 11.1 Grants. Awards may be granted to nonemployee directors only in the form of stock options satisfying the requirements of this Section 11 ("Director Stock Options"). Subject to Section 15 hereof, on the date following the commencement of the Company's annual meeting of stockholders each year, there shall be granted to each nonemployee director an option to purchase 3,000 shares of Common Stock. All such options shall be nonstatutory stock options. 11.2 Option Exercise Price. The option exercise price of Director Stock Options shall be 100 percent of the Fair Market Value on the date such options are granted. The Committee shall be authorized to compute the price per share on the date of grant. Payment of the option exercise price may be made in cash or in shares of Common Stock or a combination of cash and Common Stock. 11.3 Award Agreement. Director Stock Options shall be evidenced by an Award Agreement in the form of a stock option agreement, dated as of the date of the grant, which agreement shall be in such form, consistent with the terms and requirements of this Section 11, as shall be approved by the Committee from time to time and executed on behalf of the Company by its chief executive officer. 11.4 Terms and Conditions of Director Stock Options. Director Stock Options shall become fully exercisable on the first anniversary of the date of grant and shall terminate upon the expiration of five years from the date of grant. To the extent an option is not otherwise exercisable at the date of the nonemployee director's retirement under a retirement plan or policy of the Company or at the time a nonemployee director ceases to be a director on account of disability, it shall become fully exercisable upon such retirement or cessation of service as a director due to disability. Upon such retirement or cessation of service due to disability, such options shall be exercisable for a period of five years, subject to the original term thereof. Options not otherwise exercisable at the time of the death of a nonemployee director during service with the Company shall become fully exercisable upon his death. Upon the death of a nonemployee director while in service as a director or within the five-year period during which the options are exercisable following the retirement or disability of a nonemployee director, such options shall remain exercisable (subject to the original term of the option) for a period of one year after the date of death. To the extent an option is exercisable on the date a director ceases to be a director (other than by reason of disability, death or retirement), the option shall continue to be exercisable (subject to the original term of the option) for a period of 90 days thereafter. 11.5 Transferability. No option shall be transferable by a nonemployee director except by will or the laws of descent and distribution, and during the director's life time options may be exercised only by him or his legal representative. 11.6 Change of Control. Director Stock Options not otherwise exercisable at the time of a Change of Control shall become fully exercisable upon such Change of Control. In the case of a Change of Control: (i) The Company shall make payment to directors with respect to Director Stock Options in cash in an amount equal to the appreciation in the value of the Director Stock Option from the option exercise price specified in the Award Agreement to the Change of Control Price. (ii) The cash payments to directors shall be due and payable, and shall be paid by the Company, immediately upon the occurrence of such Change of Control; and (iii) After the payment provided for in (i) above, nonemployee directors shall have no further rights under Director Stock Options outstanding at the time of such Change in Control. 12. DIVIDENDS AND DIVIDEND EQUIVALENTS; DEFERRALS 12.1 If an Award is granted in the form of a Restricted Stock Award or Performance Shares, the Committee may choose, at the time of the grant of the Award, to include as part of such Award an entitlement to receive dividends or dividend equivalents, subject to such terms, conditions, restrictions or limitations, if any, as the Committee may establish. Dividends and dividend equivalents shall be paid in such form and manner and at such time as the Committee shall determine. 12.2 The Committee may permit Participants to elect to defer the issuance of shares or the settlement of Awards in cash under Administrative Policies established by the Committee. It may also provide that deferred settlements include the payment or crediting of interest on the deferral amounts or the payment or crediting of dividend equivalents on deferred settlements denominated in shares. 13. TERMINATION OF EMPLOYMENT The Committee shall adopt Administrative Policies determining the entitlement of Participants who cease to be employed by either the Company or its subsidiaries due to death, disability, resignation, termination or retirement pursuant to an established retirement plan or policy of the Company or its subsidiaries. 14. ASSIGNMENT AND TRANSFER The rights and interests of a Participant under the Plan may not be assigned, encumbered or transferred except, in the event of the death of a Participant, by will or the laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its discretion, grant stock options to one or more executive officers of the Company on terms that permit the stock options to be transferred by any such executive officer, for estate planning purposes, to (a) the executive officer's spouse, children, grandchildren, parents, siblings, stepchildren, stepgrandchildren or in-laws ("Family Members"), (b) entities that are exclusively family-related, including trusts for the exclusive benefit of Family Members and limited partnerships or limited liability companies in which Family Members are the only partners or members, or (c) such other persons or entities specifically approved by the Committee. The terms and conditions applicable to the transfer of any such stock options shall be established by the Committee, in its discretion but consistent with this Section 14, and shall be contained in the applicable stock option agreement between the Company and the executive officer. 15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION In the event of any change in the outstanding shares of Common Stock by reason of a reorganization, recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation or any change in the corporate structure or shares of the Company, the maximum aggregate number and class of shares as to which Awards may be granted under the Plan, including any limitations upon individual Participants or regarding Director Stock Options, as well as the number and class of shares issuable, and the related option exercise price, pursuant to then outstanding Awards, shall be appropriately adjusted by the Committee, whose determination shall be final. 16. WITHHOLDING TAXES The Company shall have the right to deduct from any payment to be made pursuant to the Plan the amount of any taxes required by law to be withheld therefrom, or to require a Participant to pay to the Company such amount required to be withheld prior to the issuance or delivery of any shares of Stock or the payment of cash under the Plan. The Committee may, in its discretion, permit a Participant to elect to satisfy such withholding obligation by having the Company retain the number of shares of Common Stock whose Fair Market Value equals the amount required to be withheld. Any fraction of a share of Common Stock required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash to the Participant. 17. REGULATORY APPROVALS AND LISTINGS Notwithstanding anything contained in this Plan to the contrary, the Company shall have no obligation to issue or deliver certificates of Common Stock evidencing Restricted Stock Awards or any other Award payable in Common Stock prior to (i) the obtaining of any approval from any governmental agency which the Company shall, in its sole discretion, determine to be necessary or advisable, (ii) the admission of such shares to listing on the Stock Exchange and (iii) the completion of any registration or other qualification of said shares under any state or federal law or ruling of any governmental body which the Company shall, in its sole discretion, determine to be necessary or advisable. 18. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or its subsidiaries. Further, the Company and its subsidiaries expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement entered into hereunder. 19. CHANGE OF CONTROL In the event of a Change of Control, (i) all SARs which have not been granted in tandem with stock options shall become exercisable in full, (ii) the restrictions applicable to all shares of restricted stock shall lapse and such shares shall be deemed fully vested and all restricted stock granted in the form of share units shall be paid in cash, (iii) all Performance Shares shall be deemed to be earned in full and all Performance Shares granted in the form of share units shall be paid in cash, and (iv) any Participant who has been granted a stock option which is not exercisable in full shall be entitled, in lieu of the exercise of the portion of the stock option which is not exercisable, to obtain a cash payment in an amount equal to the difference between the option price of such stock option and (A) in the event the Change of Control is the result of a tender offer or exchange offer for the Common Stock, the final offer price per share paid for the Common Stock, or such lower price as the Committee may determine with respect to any incentive stock option to preserve its incentive stock option status, multiplied by the number of shares of Common Stock covered by such portion of the stock option, or (B) in the event the Change of Control is the result of any other occurrence, the aggregate value of the Common Stock covered by such portion of the stock option, as determined by the Committee at such time. The Committee may, in its discretion, include such further provisions and limitations in any agreement documenting such Awards as it may deem equitable and in the best interests of the Company. 20. AMENDMENT The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that no amendment shall be made that would impair the rights of a Participant under an outstanding Award without the Participant's consent, and no amendment shall be made without stockholder approval if such approval is necessary in order to preserve the applicability of any exemption under Rule 16b-3 under the Exchange Act. 21. GOVERNING LAW The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of Delaware and applicable Federal law. 22. RIGHTS AS SHAREHOLDER Except as otherwise provided in the Award Agreement, a Participant shall have no rights as a shareholder until he or she becomes the holder of record. To the extent any person acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the rights of an unsecured creditor of the Company. 23. EFFECTIVE DATE The Plan became effective on December 23, 1993. Subject to earlier termination pursuant to Section 20, the Plan shall have a term of 10 years from its effective date. After termination of the Plan, no future Awards may be granted but previously made Awards shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of the Plan. EX-13.0 4 PORTIONS OF ANNUAL REPORT FINANCIAL HISTORY
(dollars in thousands, except per share amounts) Year ended December 31, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Income Statement Data: Revenues $323,823 384,992 291,547 218,000 191,541 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 220,918 252,842 191,617 148,191 132,876 Depreciation and amortization 14,222 12,978 9,662 8,097 8,263 Selling and administrative expenses 53,080 53,793 39,938 30,169 25,632 Interest expense 5,934 4,849 3,937 3,104 4,950 Other expense 512 636 242 -- -- - --------------------------------------------------------------------------------------------------------------------------------- 294,666 325,098 245,396 189,561 171,721 - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 29,157 59,894 46,151 28,439 19,820 Provision for income taxes 11,109 23,089 18,500 11,533 8,226 - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 18,048 36,805 27,651 16,906 11,594 ================================================================================================================================= Basic earnings per share $ 1.20 2.29 1.84 1.16 0.81 ================================================================================================================================= Diluted earnings per share $ 1.18 2.22 1.74 1.11 0.79 ================================================================================================================================= December 31, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data: Total assets $379,419 342,130 268,269 235,756 184,251 Long-term debt (excluding current maturities) 114,200 81,058 51,227 55,069 36,661 Other long-term obligations 53,001 55,128 56,237 57,289 60,754 Stockholders' equity 152,609 142,686 103,611 74,118 55,234 ================================================================================================================================= Earnings per share has been adjusted for two stock splits effected in the form of stock dividends in 1997. See Note 1 to the Consolidated Financial Statements.
14 MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. OVERVIEW The Company's operations are organized into two reportable segments - Compressed Air Products and Petroleum Products. In the Compressed Air Products segment, the Company designs, manufactures, markets and services the following products for industrial and commercial applications: reciprocating, rotary screw and sliding vane air compressors, and positive displacement and centrifugal blowers. Aftermarket parts and services for centrifugal compressors and water jet pumps and systems for industrial cleaning and maintenance are also included in this segment. The largest markets for Gardner Denver's compressed air products are durable goods manufacturers; process industries such as petroleum, primary metals, pharmaceuticals, food and paper; original equipment manufacturers; manufacturers of carpet cleaning equipment, pneumatic conveying equipment and dry bulk trailers; wastewater treatment facilities; industrial cleaning and maintenance; and automotive service centers. Revenues of the Compressed Air Products segment constituted approximately 91% of total revenues in 1999. In the Petroleum Products segment, the Company designs, manufactures, markets and services a diverse group of pumps used in oil and natural gas production, well servicing and stimulation and oil and gas drilling. Typical applications include oil transfer, saltwater disposal, ammine pumping for gas processing, enhanced oil recovery, hydraulic power, and other liquid transfer applications. Revenues of the Petroleum Products segment constituted approximately 9% of total revenues in 1999. The Company sells its products through independent distributors, sales representatives and directly to original equipment manufacturers, engineering firms and end users. In October 1999, the Company acquired Air Relief, Inc. ("Air Relief"). Air Relief, located in Mayfield, Kentucky, is an independent provider of replacement parts and service for centrifugal compressors. Air Relief enhances Gardner Denver's ability to penetrate the centrifugal compressor market by adding key centrifugal compressor engineering, assembly, sales and service capabilities. In April 1999, the Company acquired Allen-Stuart Equipment Co., Inc. ("Allen-Stuart"). Allen-Stuart, located in Houston, Texas, designs and fabricates custom-engineered packages for compressor and blower equipment in air and gas applications. Allen-Stuart serves a wide variety of industrial markets, including petrochemical, power generation, oil and natural gas production and refining. The addition of Allen-Stuart enhances Gardner Denver's ability to supply engineered packages, incorporating the wide range of compressor and blower products manufactured by Gardner Denver. It also enables Gardner Denver to establish a service center near key Southwestern customers. Also in April 1999, the Company acquired Butterworth Jetting Systems, Inc. ("Butterworth"). Butterworth, also located in Houston, Texas, is a manufacturer of water jet pumps and systems serving the industrial cleaning and maintenance market. Applications in this market include runway and shiphull cleaning, concrete demolition and metal surface preparation. This acquisition, which was renamed Gardner Denver Water Jetting Systems, Inc., enables Gardner Denver to expand its position in the rapidly-growing water jet market. Butterworth, Allen-Stuart and Air Relief are included in the Company's Compressed Air Products segment. The Company purchased the Wittig Division of Mannesmann Demag AG ("Wittig") in March 1998. Wittig, located in Schopfheim, Germany, is a leading manufacturer of rotary sliding vane compressors and vacuum pumps. Wittig's products primarily serve the truck blower market for liquid and dry bulk conveyance, as well as other industrial applications. The acquisition of Wittig expanded the Company's manufacturing presence in Europe and provided distribution channels for positive displacement blowers, which are produced in the United States. Wittig is included in the Company's Compressed Air Products segment. In January 1998, the Company purchased Champion Pneumatic Machinery Company, Inc. ("Champion"). Champion, located in Princeton, Illinois, is a leading manufacturer of low horsepower reciprocating compressors. Champion opened new market opportunities for Gardner Denver products and expanded the range of reciprocating compressors available to existing distributors. Champion is included in the Company's Compressed Air Products segment. In January 1998, the Company also acquired Geological Equipment Corporation ("Geoquip"). Geoquip, a leading manufacturer of pumps, ranging from 350 to 2,400 horsepower, is located in Fort Worth, Texas. The operation also remanufactures pumps and provides repair services. The addition of Geoquip enhanced the Gardner Denver well servicing product line and expanded the Company's presence in remanufacturing and repair services. Geoquip is included in the Company's Petroleum Products Segment. In 1997, Gardner Denver acquired Oy Tamrotor Ab ("Tamrotor"), located in Tampere, Finland. This operation designs and manufactures lubricated rotary screw compressor air ends and provides Gardner Denver with a manufacturing base in Europe, as well as market penetration in several European compressor markets. Tamrotor was liquidated in 1999 and the Company currently conducts business in Finland as Gardner Denver Oy ("GD Oy"). GD Oy is included in the Company's Compressed Air Products segment. The acquisitions completed in 1999, 1998 and 1997 provide growth opportunities through synergistic product lines and domestic and international market penetration. The following table sets forth percentage relationships to revenues of certain income statement items for the years presented. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS
Year ended December 31, ------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------------------------- Revenues 100.0% 100.0 100.0 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 68.2 65.7 65.7 Depreciation and amortization 4.4 3.4 3.3 Selling and administrative expenses 16.4 14.0 13.7 Interest expense 1.8 1.2 1.4 Other expense 0.2 0.1 0.1 - -------------------------------------------------------------------------------------------------- 91.0 84.4 84.2 - -------------------------------------------------------------------------------------------------- Income before income taxes 9.0 15.6 15.8 Provision for income taxes 3.4 6.0 6.3 - -------------------------------------------------------------------------------------------------- Net income 5.6% 9.6 9.5 ==================================================================================================
YEAR ENDED DECEMBER 31, 1999, COMPARED WITH YEAR ENDED DECEMBER 31, 1998 REVENUES Revenues decreased $61.2 million (16%) to $323.8 million in 1999, compared to $385.0 million in 1998. Excluding incremental revenue from acquisitions completed since January 1998, which added $27.6 million to compressor revenues in 1999, revenues decreased $88.8 million (23%) as compared to 1998. Revenues in the Compressed Air Products segment decreased $3.9 million (1%) to $294.5 million in 1999, compared to $298.4 million in 1998. Excluding incremental revenue from acquisitions, compressed air product revenues decreased $31.5 million (11%) from 1998. Reduced standard industrial compressor and engineered package revenues resulted primarily from a declining rate of growth in industrial production and lower manufacturing capacity utilization in the United States, which has occurred since the fourth quarter of 1997, and a softer European economy in 1999. The significant decline in the price of oil in 1998 and early 1999 caused a reduction in demand for drilling and well servicing pumps in 1999. As a result, petroleum revenues declined $57.2 million (66%) to $29.3 million in 1999, compared to $86.6 million in 1998 when revenues were generated through production from the order backlog. COSTS AND EXPENSES Gross margin (defined as revenues less cost of sales) in 1999 decreased $29.3 million (22%) to $102.9 million from $132.2 million in 1998. This reduction resulted primarily from the lower revenue volume, compounded by a decrease in the gross margin as a percentage of revenues (gross margin percentage). Gross margin percentage decreased to 31.8% in 1999 from 34.3% in 1998, principally attributable to three factors. First, acquisitions negatively affected the gross margin percentage as these companies, in the aggregate, currently generate lower gross margins than the Company's previously existing operations. Second, the negative impact of decreased leverage of production overhead costs over a lower revenue base was only partially offset by cost reduction efforts and increased operating efficiencies. Finally, gross margin was negatively impacted by a significantly lower LIFO liquidation benefit, as smaller reductions in LIFO inventory levels were realized in 1999 compared to 1998. In 1999, gross margins were enhanced $0.4 million as a result of the liquidation of LIFO inventory layers, compared to $4.5 million in 1998. Depreciation and amortization increased 10% to $14.2 million in 1999, compared to $13.0 million in 1998. The increase in depreciation and amortization expense was due to goodwill amortization associated with acquisitions and ongoing capital expenditures. Depreciation and amortization expense, as a percentage of revenues, increased to 4.4% in 1999 from 3.4% in 1998. This percentage increase was due to the factors noted above, combined with the effect of lower revenues. Selling and administrative expenses decreased in 1999 by 1% to $53.1 million from $53.8 million for 1998. Incremental expenses of $4.6 million related to acquisitions were more than offset by decreases in manpower levels and discretionary spending. Excluding the impact of acquisitions, selling and administrative expenses decreased $5.3 million (10%) from 1998. As a percentage of revenues, selling and administrative expenses were 16.4% in 1999, compared to 14.0% in 1998. This percentage increase was primarily due to the decrease in revenues and the addition of acquisitions referred to above, which, in the aggregate, have higher selling and administrative expenses relative to sales than the Company's previously existing operations. 16 Compressed Air Products' operating earnings (defined as revenues less cost of sales, depreciation and amortization, and selling and administrative expenses excluding unallocated corporate administrative expenses) decreased $11.0 million (24%) to $34.5 million, compared to $45.5 million in 1998. This decline was due to the revenue reduction, the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base and the effect of newly acquired operations that currently generate lower operating earnings (after amortization of goodwill associated with the acquisitions), as a percentage of revenues, than the Company's previously existing operations. Operating earnings were also negatively impacted by an increased allocation of shared costs since the segment's revenues represented a greater percentage of the Company's total revenues in 1999 as compared to 1998, and a reduced benefit resulting from the liquidation of LIFO inventory levels. Manpower reductions, reduced discretionary spending and other cost reduction efforts partially offset these negative factors. As a percentage of revenues, operating earnings declined to 11.7% in 1999 compared to 15.2% in 1998. Operating earnings for the Petroleum Products segment decreased $18.9 million to $3.0 million in 1999, an 86% decrease from $21.9 million in 1998. This decline was primarily attributable to the revenue reduction, the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base, and a reduced benefit resulting from the liquidation of LIFO inventory levels, partially offset by manpower reductions, reduced discretionary spending and other cost reduction efforts. As a percentage of revenues, operating earnings for this segment declined to 10.2% in 1999 compared to 25.3% in 1998. Interest expense increased $1.1 million (22%) to $5.9 million for 1999, compared to $4.8 million in 1998, due primarily to higher average debt outstanding in 1999. The average interest rate for 1999 was 5.9%, compared to 5.8% for 1998. See Note 9 to the Consolidated Financial Statements for further information on the Company's borrowing arrangements. INCOME Income before income taxes declined $30.7 million (51%) to $29.2 million in 1999 from $59.9 million in 1998. This decrease was primarily the result of lower revenues and reduced gross margins in 1999, as discussed above. The provision for income taxes decreased by $12.0 million to $11.1 million in 1999 compared to $23.1 million in 1998, as a result of the lower income before taxes and a lower overall effective tax rate. The Company's effective tax rate was 38.1% in 1999 compared to 38.6% in 1998. The lower effective tax rate in 1999 was primarily due to increased savings from the Company's foreign sales corporation (the "FSC") and the implementation of other tax strategies. Net income decreased $18.8 million, or 51%, to $18.0 million ($1.18 diluted earnings per share) in 1999 compared to $36.8 million ($2.22 diluted earnings per share) in 1998. In 1999, net income included $0.3 million in after-tax LIFO income ($0.02 diluted earnings per share), compared with $2.8 million ($0.17 diluted earnings per share) in 1998. Excluding the after-tax benefit of LIFO income, net income declined $16.3 million (48%), primarily due to the revenue reduction and less leverage of fixed costs over lower production volume, partially offset by lower income taxes. Acquisitions completed since January 1998 were slightly accretive to the Company's net income in 1999. OUTLOOK Demand for petroleum products is related to market expectations for oil and natural gas prices. During the first quarter of 1999, orders for the Company's petroleum products reached their lowest level for the 1998 - 1999 time frame, as a result of the substantial decline in the prices of oil and natural gas in 1998 and early 1999. Orders for petroleum products were $29.2 million in 1999, a decrease of $27.0 million compared to $56.2 million in 1998. Order backlog for the Petroleum Products segment was $6.5 million at both December 31, 1999 and 1998. Increases in demand for these products are dependent upon sustained appreciation in oil and natural gas prices, which the Company cannot predict. However, the price of oil increased significantly during 1999 and the Company experienced improvement in orders for petroleum parts during the third quarter of 1999 and orders for well servicing pumps began to improve during the fourth quarter. 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 in 2000 and increased drilling pump revenues may occur in the second half of the year. In 1999, orders for compressed air products, including $22.0 million from acquisitions, increased $13.0 million to $289.5 million, compared to $276.5 million in 1998. Order backlog for the Compressed Air Products segment was $47.4 million as of December 31, 1999, compared to $43.7 million as of December 31, 1998. The increase in both orders and backlog for this segment was due solely to newly acquired companies. Because air is often used as a fourth utility in the manufacturing process, demand for compressed air products is correlated to manufacturing capacity utilization rates and the rate of change of industrial equipment production. These indicators demonstrated some improvements in the fourth quarter of 1999, compared to their relative weakness in 1998 and early 1999. Over longer time periods, demand also follows the economic growth patterns indicated by the rates of change in the Gross Domestic Product. As the industrial economic environment continues to improve in the United States and Europe, orders for compressor products may continue to recover 17 MANAGEMENT'S DISCUSSION AND ANALYSIS slowly. However, since demand for these products tends to lag the cycle of industrial demand in general, significant changes in orders for compressor products are not anticipated until the second half of 2000. YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED DECEMBER 31, 1997 REVENUES Revenue growth in 1998 was primarily achieved through acquisitions and incremental shipments of petroleum products from backlog. Revenues were $385.0 million in 1998, which was $93.5 million or 32% higher than $291.5 million for 1997 and included $78.9 million from acquisitions completed since June 1997. Excluding incremental revenue from acquisitions, revenues increased $14.6 million (5%), primarily through shipments of petroleum products from the December 31, 1997 order backlog. Revenues in the Compressed Air Products segment increased $70.2 million (31%) to $298.4 million in 1998 compared to $228.2 million in 1997. Excluding incremental revenues from acquisitions, which contributed $68.7 million, Compressed Air Product revenues increased $1.5 million. Although revenues increased in this segment during the first part of 1998 as a result of the penetration of niche markets, such as field gas gathering, and growth in the U.S. economy, demand for compressed air products slowed during the second half of 1998, as overall manufacturing output decreased in the United States. This reduced demand caused revenues in this segment for the last half of 1998 to be less than revenues for the last half of 1997, excluding acquisitions. In the Petroleum Products segment, revenues increased $23.3 million (37%) to $86.6 million in 1998, compared to $63.3 million in 1997. An acquisition contributed $10.2 million of this increase. Excluding incremental revenues from this acquisition, petroleum products revenues increased $13.1 million (21%), primarily as a result of shipping drilling pumps from the order backlog that existed at the end of 1997. COSTS AND EXPENSES Gross margin in 1998 increased $32.2 million (32%) to $132.2 million from $99.9 million in 1997, primarily as a result of the additional sales volume. Incremental gross margin due to acquisitions completed since June 1997 accounted for $23.7 million of this increase. In 1998, gross margins were enhanced $4.5 million as a result of the liquidation of LIFO inventory layers, compared to $1.2 million in 1997. Gross margin was negatively affected by $1.1 million of severance and relocation expenses related primarily to re-sizing the Petroleum Products segment in response to decreased demand and integrating acquisitions in the fourth quarter of 1998. As a percentage of revenues, gross margin was 34.3% in both 1998 and 1997. The acquisitions completed since June 1997 negatively affected the gross margin percentage as these entities currently generate lower gross margins than the Company's previously existing operations. Excluding the impact of acquisitions, LIFO income and the fourth quarter severance and relocation expenses noted above, gross margin as a percentage of revenues improved to 34.3% in 1998 from 33.9% in 1997. This improvement in gross margin percentage was primarily the result of increased leverage of production overhead costs, petroleum product price increases implemented in 1997, cost reduction efforts such as manufacturing process improvements and an improved sales mix. These positive factors were partially offset by incremental expenses related to a plant relocation, which was completed in the fourth quarter of 1998, and the negative effects of inflation. Depreciation and amortization increased 34% to $13.0 million in 1998, compared with $9.7 million in 1997. Of the $3.3 million increase, $2.9 million was due to acquisitions completed in 1997 and 1998. Increased levels of capital expenditures also contributed to the increase in depreciation expense. Depreciation and amortization as a percentage of revenues was 3.4% in 1998, compared to 3.3% in 1997. Selling and administrative expenses increased in 1998 by 35% to $53.8 million from $39.9 million for 1997. Approximately $12.6 million of the $13.9 million increase was attributable to newly acquired operations. The remaining increase was due primarily to expenses related to a plant and division headquarters relocation, which was completed in the fourth quarter of 1998. As a percentage of revenues, selling and administrative expenses were 14.0% in 1998, compared to 13.7% in 1997. The increase in this ratio was attributable to acquisitions completed since June 1997, which have higher costs relative to sales than the Company's existing operations. Excluding these acquisitions, selling and administrative expenses, as a percentage of revenues, decreased to 13.5% in 1998, from 13.7% in the previous year. Compressed Air Products' operating earnings increased $6.9 million (18%) to $45.5 million in 1998 compared to 1997 levels of $38.6 million. As a percentage of revenues, operating earnings declined to 15.2% in 1998 compared to 16.9% in 1997. This deterioration in Compressed Air Products' operating earnings (as a percentage of revenues), was primarily due to newly acquired operations. These acquired operations generated lower operating earnings (after amortization of goodwill associated with the acquisitions) than the Company's previously existing operations. Operating earnings (as a percentage of revenues) were also negatively affected by expenses associated with a plant and division headquarters relocation, completed in the fourth quarter of 1998, and the impact of fourth quarter expenses associated with further integrating recent acquisitions, partially offset by incremental LIFO income generated in 1998. Operating earnings in the Petroleum Products segment increased $8.7 million to $21.9 million in 1998, a 66% increase from $13.2 18 million in 1997. As a percentage of revenues, operating earnings for this segment improved significantly to 25.3% in 1998 compared to 20.9% in 1997. This improvement was primarily the result of significant volume increases, as the Company was able to increase the leverage of its manufacturing operations and administrative expenses, incremental LIFO income compared to the prior year and price increases implemented in the second half of 1997. This improvement was partially offset by the impact of fourth quarter expenses associated with re-sizing the segment in response to decreased demand. Interest expense increased $0.9 million (23%) to $4.8 million in 1998 compared to $3.9 million in 1997, due to incremental debt incurred for the acquisitions, partially offset by a lower overall average borrowing rate in 1998. The average interest rate for 1998 was 5.8% compared to 7.3% for 1997, primarily due to lower interest rates on incremental 1998 borrowings. INCOME Income before income taxes increased $13.7 million (30%) to $59.9 million in 1998 from $46.2 million in 1997. Approximately $3.6 million of this improvement was attributable to the incremental impact of acquisitions completed since June 1997, net of goodwill amortization and interest expense on debt incurred to complete these transactions. The remaining $10.1 million increase was primarily a result of higher revenue volume, incremental LIFO income, increased leverage of costs and lower interest expense (excluding debt related to acquisitions) in 1998, compared to the previous year. The provision for income taxes increased by $4.6 million to $23.1 million in 1998 compared to 1997, as a result of the increase in income before taxes, partially offset by a reduction in the Company's overall effective tax rate. The Company's effective tax rate for 1998 was 38.6%, compared to 40.1% for 1997. The lower effective tax rate in 1998 was due to savings from the FSC, the lower statutory tax rate in Finland compared to the United States and the implementation of other tax strategies. Net income increased $9.1 million, or 33%, to $36.8 million ($2.22 diluted earnings per share) in 1998 compared to $27.7 million ($1.74 diluted earnings per share) in 1997. In 1998, net income included approximately $2.2 million ($0.13 diluted earnings per share) incremental after-tax income from acquisitions and $2.1 million ($0.13 diluted earnings per share) additional after-tax LIFO income, compared to 1997. Net income for 1998 was reduced by $0.6 million ($0.04 diluted earnings per share) due to after-tax expenses to re-size the Petroleum Products segment and integrate acquisitions. Excluding incremental income from acquisitions and LIFO, and expenses incurred to re-size the Petroleum Products segment and integrate acquisitions, net income increased $5.4 million (20%) in 1998 compared to 1997 and diluted earnings per share increased $0.26. This increase was primarily attributable to sales volume growth of petroleum products, the related increased leverage of manufacturing costs and administrative expenses, and price increases for petroleum products. LIQUIDITY AND CAPITAL RESOURCES OPERATING WORKING CAPITAL During 1999, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $16.4 million, with acquisitions completed in 1999 representing $10.5 million of this increase. Excluding acquisitions, the remaining increase in operating working capital was related to a decrease in accounts payable and accrued liabilities, partially offset by a reduction in receivables. The decrease in accounts payable and accrued liabilities was due to lower capital expenditures and reduced purchases as production volume declined. The decrease in revenues resulted in the receivables reduction. CASH FLOWS During 1999, the Company generated cash flows from operations totaling $26.6 million, a decrease of $25.9 million (49%) compared to 1998. This reduction was primarily the result of the decrease in net income and increase in operating working capital discussed above (net of the impact of acquired working capital). During 1999, the Company had net borrowings of $37.5 million under its credit facilities. These funds, along with cash generated from operations, were used to complete acquisitions valued at $41.0 million, repurchase shares of the Company's common stock and fund capital projects. The cash flows provided by operating and financing activities and used for investing activities resulted in a net cash increase of $2.8 million for 1999. CAPITAL EXPENDITURES AND COMMITMENTS Capital projects to increase operating efficiency, production capacity and product quality resulted in expenditures of $11.9 million in 1999 compared to $19.7 million in 1998. This decline was primarily due to completion of a new manufacturing facility in Georgia in 1998. Commitments for capital expenditures at December 31, 1999 totaled $3.4 million. Capital expenditures related to environmental projects have not been significant in the past and are not expected to be significant in the foreseeable future. In October 1998, Gardner Denver's Board of Directors authorized the repurchase of up to 1,600,000 shares of the Company's common stock to be used for general corporate purposes. Approximately 200,000 shares remain available for repurchase under this program. The Company has also established a Stock Repurchase Program for its executive officers to provide a means for them to sell Gardner Denver common stock and obtain sufficient funds to meet alternative minimum tax obligations which arise from the exercise of incentive stock options. During 1999, 780,442 shares were repurchased 19 MANAGEMENT'S DISCUSSION AND ANALYSIS under these repurchase programs at a cost of $10.9 million. As of December 31, 1999, a total of 1,535,542 shares have been repurchased at a cost of $22.1 million under both repurchase programs. In 1999, the Company also acquired 20,859 shares of its common stock, valued at $0.4 million, which were tendered for the exercise of stock options. LIQUIDITY During 1998, the Company entered into a new revolving line of credit agreement with an aggregate $125 million borrowing capacity (the "Credit Line") and terminated the previous line of credit. On December 31, 1999, the Credit Line had an outstanding balance of $74.3 million, leaving $50.7 million available for future use or to issue as letters of credit. 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 its credit 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 its scheduled debt service and provide required resources for working capital and capital investments. MARKET RISK The Company is exposed to market risk related to changes in interest rates and European and other foreign currency exchange rates, and selectively uses derivative financial instruments, including forwards and swaps, to manage these risks. The Company does not hold derivatives for trading purposes. The value of market-risk sensitive derivatives and other financial instruments is subject to change as a result of movements in market rates and prices. Sensitivity analysis is one technique used to evaluate these impacts. Based on a hypothetical ten percent change in interest rates or ten percent weakening in the U.S. Dollar across relevant foreign currencies, principally the Euro, the potential losses in future earnings, fair value and cash flows are not material to the Company. IMPACT OF YEAR 2000 ISSUES Many older computer systems, and other systems with embedded chip technology, processed dates based on two digits for the year of a transaction rather than a full four digits. These systems may have been unable to properly process dates in the year 2000 and beyond. The Company utilizes a number of computer systems across its worldwide operations. Based on activity to date, the Company believes that all of its key computer systems are year 2000 compliant. The Company has resolved its year 2000 coding issues through either replacement of old systems with new year 2000 compatible systems or reprogramming of existing systems. Costs incurred solely to address its year 2000 issues were less than $0.5 million. To date, the Company is not aware of any significant year 2000 problems involving its major customers and suppliers. NEW ACCOUNTING STANDARD In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133" or the "Statement"). The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability, measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. 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 had a material impact on its consolidated financial statements as of December 31, 1999. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS This Annual Report to Stockholders, including Management's Discussion and Analysis and the Chairman's Letter, 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. 20 REPORT OF MANAGEMENT AND INDEPENDENT PUBLIC ACCOUNTANTS REPORT OF MANAGEMENT The Company's management is responsible for the integrity and accuracy of the financial statements. Management believes that the financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances. In preparing the financial statements, management makes informed judgments and estimates, where necessary, to reflect the expected effects of events and transactions that have not been completed. In meeting its responsibility for the reliability of the financial statements, management relies on a system of internal accounting controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. The design of this system recognizes that errors or irregularities may occur and that estimates and judgments are required to assess the relative cost and expected benefits of the controls. Management believes that the Company's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period. The Audit and Finance Committee of the Board of Directors (the "Committee"), which is comprised solely of Directors who are not employees of the Company, is responsible for monitoring the Company's accounting and reporting practices. The Committee meets with management periodically to review its activities and ensure that it is properly discharging its responsibilities. The Committee also meets periodically with the independent auditors, who have free access to the Committee and the Board of Directors, to discuss internal accounting control and auditing, financial reporting and tax matters. The independent auditors are engaged to express an opinion on the Company's consolidated financial statements. Their opinion is based on procedures which they believe to be sufficient to provide reasonable assurance that the financial statements contain no material errors. /s/ Ross J. Centanni /s/ Philip R. Roth Ross J. Centanni Philip R. Roth Chairman, President and Vice President, Finance and Chief Executive Officer Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Gardner Denver, Inc. We have audited the accompanying consolidated balance sheet of Gardner Denver, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gardner Denver, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP St. Louis, Missouri February 7, 2000 21 CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts) Year ended December 31, ---------------------------------------- 1999 1998 1997 - ---------------------------------------------------------------------------------------------------- Revenues $323,823 384,992 291,547 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 220,918 252,842 191,617 Depreciation and amortization 14,222 12,978 9,662 Selling and administrative expenses 53,080 53,793 39,938 Interest expense 5,934 4,849 3,937 Other expense 512 636 242 - ---------------------------------------------------------------------------------------------------- 294,666 325,098 245,396 - ---------------------------------------------------------------------------------------------------- Income before income taxes 29,157 59,894 46,151 Provision for income taxes 11,109 23,089 18,500 - ---------------------------------------------------------------------------------------------------- Net income $ 18,048 36,805 27,651 ==================================================================================================== Basic earnings per share $ 1.20 2.29 1.84 ==================================================================================================== Diluted earnings per share $ 1.18 2.22 1.74 ==================================================================================================== The accompanying notes are an integral part of this statement.
22 CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share amounts) December 31, ------------------------- 1999 1998 - ------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 27,317 24,474 Receivables (net of allowances of $4,838 in 1999 and $4,371 in 1998) 72,272 69,617 Inventories, net 60,356 53,115 Deferred income taxes 3,664 2,445 Other 2,770 2,154 - ------------------------------------------------------------------------------------------------------------------- Total current assets 166,379 151,805 - ------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, net 62,892 59,261 Intangibles, net 138,584 114,254 Deferred income taxes 6,151 12,172 Other assets 5,413 4,638 - ------------------------------------------------------------------------------------------------------------------- Total assets $379,419 342,130 =================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt $ 5,289 2,452 Accounts payable and accrued liabilities 54,320 60,806 - ------------------------------------------------------------------------------------------------------------------- Total current liabilities 59,609 63,258 - ------------------------------------------------------------------------------------------------------------------- Long-term debt, less current maturities 114,200 81,058 Postretirement benefits other than pensions 43,377 46,612 Other long-term liabilities 9,624 8,516 - ------------------------------------------------------------------------------------------------------------------- Total liabilities 226,810 199,444 =================================================================================================================== Stockholders' equity: Common stock, $.01 par value; 50,000,000 shares authorized; 15,079,247 and 15,496,849 shares issued and outstanding in 1999 and 1998, respectively 167 163 Capital in excess of par value 157,367 153,656 Treasury stock at cost, 1,604,587 and 803,286 shares in 1999 and 1998, respectively (23,541) (12,259) Retained earnings 21,354 3,306 Accumulated other comprehensive loss (2,738) (2,180) - ------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 152,609 142,686 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $379,419 342,130 =================================================================================================================== The accompanying notes are an integral part of this statement.
23 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands) Accumulated Capital In Retained Other Total Common Excess of Treasury Earnings Comprehensive Stockholders' Comprehensive Stock Par Value Stock (Deficit) Loss Equity Income - ----------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1997 $148 135,112 -- (61,083) (59) 74,118 Stock issued for benefit plans and options 6 4,412 4,418 Treasury stock (333) (333) Net income 27,651 27,651 27,651 Foreign currency translation adjustments (2,243) (2,243) (2,243) - ----------------------------------------------------------------------------------------------------------------------------------- 25,408 ======== Balance December 31, 1997 $154 139,524 (333) (33,432) (2,302) 103,611 ==================================================================================================================== Stock issued for benefit plans and options 5 3,636 3,641 Stock issued for acquisition 4 10,496 10,500 Treasury stock (11,926) (11,926) Other (67) (67) Net income 36,805 36,805 36,805 Foreign currency translation adjustments 122 122 122 - ----------------------------------------------------------------------------------------------------------------------------------- 36,927 ======== Balance December 31, 1998 $163 153,656 (12,259) 3,306 (2,180) 142,686 ==================================================================================================================== Stock issued for benefit plans and options 4 3,711 3,715 Treasury stock (11,282) (11,282) Net income 18,048 18,048 18,048 Foreign currency translation adjustments (558) (558) (558) - ----------------------------------------------------------------------------------------------------------------------------------- 17,490 ======== Balance December 31, 1999 $167 157,367 (23,541) 21,354 (2,738) 152,609 ==================================================================================================================== The accompanying notes are an integral part of this statement.
24 CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands) Year ended December 31, --------------------------------------------- 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 18,048 36,805 27,651 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,222 12,978 9,662 LIFO liquidation income (407) (4,541) (1,220) Stock issued for employee benefit plans 2,261 2,423 1,769 Deferred income taxes 6,157 3,403 2,471 Changes in assets and liabilities: Receivables 1,437 2,669 (7,822) Inventories (1,977) 11,695 5,476 Accounts payable and accrued liabilities (8,330) (8,702) 6,757 Other assets and liabilities, net (4,792) (4,211) (3,942) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 26,619 52,519 40,802 - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Business acquisitions, net of cash (41,003) (37,578) (26,211) Capital expenditures (11,941) (19,679) (9,808) Disposals of property, plant and equipment 728 602 117 Foreign currency hedging transactions 1,749 (427) (1,971) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (50,467) (57,082) (37,873) - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Principal payments on long-term debt (24,554) (38,833) (27,986) Proceeds from long-term borrowings 62,103 69,512 23,000 Purchase of treasury stock (11,282) (11,926) (333) Proceeds from stock options 1,454 1,218 2,649 Other -- (136) -- - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities 27,721 19,835 (2,670) - ---------------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and equivalents (1,030) 371 (38) - ---------------------------------------------------------------------------------------------------------------------------------- Increase in cash and equivalents 2,843 15,643 221 Cash and equivalents, beginning of year 24,474 8,831 8,610 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and equivalents, end of year $ 27,317 24,474 8,831 ================================================================================================================================== The accompanying notes are an integral part of this statement.
25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements reflect the operations of Gardner Denver, Inc. ("Gardner Denver" or the "Company") and its subsidiaries. Certain prior year amounts have been reclassified to conform with current year presentation. All shares of common stock and per share amounts have been adjusted to give retroactive effect to a three-for-two stock split distributed on December 29, 1997 to stockholders of record at the close of business on December 8, 1997 and a two-for-one stock split distributed on January 15, 1997 to stockholders of record at the close of business on December 27, 1996. Both stock splits were effected in the form of a stock dividend. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Investments in entities in which the Company has 20% to 50% ownership are accounted for by the equity method. USE OF ESTIMATES 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, the 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 these estimates. FOREIGN CURRENCY TRANSLATION Assets and liabilities of the Company's foreign operations are translated at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average rates prevailing during the year. Translation adjustments are reported in accumulated other comprehensive loss, a separate component of stockholders' equity. REVENUE RECOGNITION The Company recognizes revenues when goods are shipped to the customer. CASH EQUIVALENTS Cash equivalents are highly liquid investments (valued at cost, which approximates fair value), acquired with an original maturity of three months or less. INVENTORIES Inventories are carried at the lower of cost or market value. The majority of the Company's inventory is accounted for on a last-in, first-out (LIFO) basis. The remaining inventory is accounted for on a first-in, first-out (FIFO) basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets: buildings - 10 to 45 years; machinery and equipment - 10 to 12 years; office furniture and equipment - 3 to 10 years; and tooling, dies, patterns, etc. - 3 to 7 years. INTANGIBLES Intangibles consist primarily of goodwill related to the various acquisitions completed by the Company. Goodwill is amortized on a straight-line basis over the period estimated to be benefited, not exceeding 40 years. The Company assesses the recoverability of an intangible asset by determining whether the amortization of the asset balance over its remaining life can be recovered through related estimated undiscounted future cash flows. INCOME TAXES The Company has determined tax expense and other deferred tax information based on the liability method. Deferred income taxes are provided to reflect temporary differences between financial and tax reporting. RESEARCH AND DEVELOPMENT Costs for research and development are expensed as incurred and were $2,754, $3,479 and $2,845 for the years ended December 31, 1999, 1998 and 1997, respectively. FINANCIAL INSTRUMENTS Included on the balance sheet is a foreign currency forward contract in Finnish Markka to hedge foreign exchange translation risk associated with the Company's investment in its Finnish subsidiary, Gardner Denver Oy. The contract is marked to market and both unrealized and realized gains and losses are included as a component of accumulated other comprehensive loss in stockholders' equity. There were no off- balance sheet derivative financial instruments as of December 31, 1999 and 1998. 26 NOTE 2: ACQUISITIONS 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. The aggregate purchase price for these three acquisitions was approximately $41.0 million and was allocated to assets and liabilities based on their respective fair values at the dates of acquisition. This allocation resulted in aggregate costs in excess of net assets acquired of $29.5 million. On March 9, 1998, the Company purchased substantially all of the assets and assumed certain agreed upon liabilities of the Wittig Division of Mannesmann Demag AG ("Wittig"). Wittig is located in Schopfheim, Germany. On January 29, 1998, the Company purchased substantially all of the assets and assumed certain agreed upon liabilities of Champion Pneumatic Machinery Company, Inc. ("Champion"), located in Princeton, Illinois. On January 5, 1998, the Company acquired substantially all of the assets and assumed certain agreed upon liabilities of Geological Equipment Corporation ("Geoquip") located in Fort Worth, Texas. The aggregate purchase price for these three acquisitions was approximately $48.0 million. The purchase price for these acquisitions was paid in cash ($37.6 million) and 430,695 shares of Gardner Denver common stock. The aggregate purchase price was allocated to assets and liabilities based on their respective fair values at the dates of acquisition and resulted in aggregate costs in excess of net assets acquired of $29.2 million. On June 30, 1997, the Company purchased 100% of the issued and outstanding stock of Oy Tamrotor Ab ("Tamrotor"), located in Tampere, Finland, for approximately $26.2 million. The purchase price was allocated to assets and liabilities based on their respective fair values at the date of acquisition, and resulted in cost in excess of net assets acquired of $15.4 million. Tamrotor was liquidated in 1999 and the Company now conducts business in Finland as Gardner Denver Oy. 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 Allen-Stuart, Butterworth and Air-Relief, used in preparation of the December 31, 1999 consolidated balance sheet, are preliminary and subject to adjustment in 2000, when finalized. 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: INVENTORIES
December 31, --------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------- Raw materials, including parts and subassemblies $37,597 42,006 Work-in-process 9,395 8,167 Finished goods 25,543 17,159 Perishable tooling and supplies 2,506 2,525 - ---------------------------------------------------------------------------------------------- 75,041 69,857 Excess of current standard costs over LIFO costs (6,455) (7,037) Allowance for obsolete and slow-moving inventory (8,230) (9,705) - ---------------------------------------------------------------------------------------------- Inventories, net $60,356 53,115 ==============================================================================================
During 1999, 1998 and 1997, reductions in inventory quantities (net of acquisitions) resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in prior years. The effect was to increase net income in 1999, 1998 and 1997 by $252, $2,788 and $732, respectively. It is the Company's policy to record the earnings effect of LIFO inventory liquidations in the quarter in which a decrease for the entire year becomes certain. In each of the years 1997 through 1999, the LIFO liquidation income was recorded in the fourth quarter. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) NOTE 4: PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLES
December 31, ---------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------------- Property, plant and equipment: Land and land improvements $ 4,695 4,453 Buildings 36,069 35,187 Machinery and equipment 81,812 78,950 Tooling, dies, patterns, etc. 30,671 28,241 Office furniture and equipment 10,479 10,144 Other 3,484 1,507 Construction in progress 8,258 6,823 - ---------------------------------------------------------------------------------------------------- 175,468 165,305 Accumulated depreciation (112,576) (106,044) - ---------------------------------------------------------------------------------------------------- Property, plant and equipment, net $ 62,892 59,261 ==================================================================================================== Intangibles: Goodwill $ 159,494 132,541 Other 5,145 3,855 - ---------------------------------------------------------------------------------------------------- 164,639 136,396 Accumulated amortization (26,055) (22,142) - ---------------------------------------------------------------------------------------------------- Intangibles, net $ 138,584 114,254 ====================================================================================================
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31, -------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------------- Accounts payable - trade $28,405 26,762 Salaries, wages and related fringe benefits 3,840 7,978 Product liability, workers' compensation and other insurance 4,058 3,752 Other 18,017 22,314 - ---------------------------------------------------------------------------------------------------- Total accounts payable and accrued liabilities $54,320 60,806 ====================================================================================================
NOTE 6: PENSION AND OTHER POSTRETIREMENT BENEFITS The Company sponsors retirement plans covering substantially all employees. Benefits are provided to employees under defined benefit pay-related and service-related plans which are noncontributory. Annual contributions to retirement plans equal or exceed the minimum funding requirements of the Employee Retirement Income Security Act. The Company also sponsors defined contribution plans. Benefits are determined and funded annually based on terms of the plans or as stipulated in a collective bargaining agreement. In addition, salaried employees who retired prior to 1989, as well as certain other employees who were near retirement and elected to receive certain benefits, have retiree medical, prescription and life insurance benefits. All other active salaried employees will not have postretirement medical benefits. The hourly employees have separate plans with varying benefit formulas. In all cases, however, currently active hourly employees, except for certain employees who are near retirement, will not receive healthcare benefits after retirement. All of the Company's postretirement medical plans are unfunded. The following tables provide a reconciliation of the changes in both the pension and other postretirement plans benefit obligations and fair value of assets over the two-year period ending December 31, 1999, and a statement of the funded status as of December 31, 1999 and 1998: 28
Other Postretirement Pension Benefits Benefits ------------------------------------------------------ 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- RECONCILIATION OF BENEFIT OBLIGATION Obligation at January 1 $ 54,106 48,781 $ 27,481 27,939 Service cost 1,721 1,243 24 28 Interest cost 3,453 3,569 1,877 1,860 Actuarial (gain) loss (4,627) 3,782 (1,866) (58) Acquisition -- 2,328 -- -- Benefit payments (5,850) (5,826) (2,255) (2,288) New participants 396 -- -- -- Effect of exchange rate changes (339) 229 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Obligation at December 31 $ 48,860 54,106 $ 25,261 27,481 ================================================================================================================================== RECONCILIATION OF FAIR VALUE OF PLAN ASSETS Fair value of plan assets at January 1 $ 55,083 55,178 Actual return on plan assets 6,273 5,134 Employer contributions 576 597 Benefit payments (5,850) (5,826) - ---------------------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at December 31 $ 56,082 55,083 $ -- -- ================================================================================================================================== FUNDED STATUS Funded status at December 31 $ 7,222 977 $(25,261) (27,481) Unrecognized transition liability (asset) 43 (163) -- -- Unrecognized prior-service cost (880) (966) (4,040) (5,240) Unrecognized gain (11,422) (4,903) (16,444) (16,259) - ---------------------------------------------------------------------------------------------------------------------------------- Accrued benefit liability $ (5,037) (5,055) $(45,745) (48,980) ==================================================================================================================================
The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets at December 31, 1999 and 1998 are as follows:
December 31, ------------------------ 1999 1998 ------------------------ Accumulated benefit obligation $7,890 8,487 ================================================================================================================================== Fair value of plan assets $3,914 3,791 ==================================================================================================================================
29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) The following table provides the components of net periodic benefit expense (income) for the plans for the years ended December 31, 1999, 1998 and 1997.
Pension Benefits Other Postretirement Benefits -------------------------------------- -------------------------------------- 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------- -------------------------------------- Service cost $ 1,721 1,243 904 $ 24 28 30 Interest cost 3,453 3,569 3,500 1,877 1,860 2,005 Expected return on plan assets (4,424) (4,443) (4,148) -- -- -- Amortization of transition asset (206) (209) (209) -- -- -- Amortization of prior-service cost 167 (86) 10 (1,200) (1,200) (1,200) Amortization of net gain 4 (64) (16) (1,673) (2,431) (2,504) - ------------------------------------------------------------------------------------- -------------------------------------- Net periodic benefit expense (income) 715 10 41 $ (972) (1,743) (1,669) Defined contribution plans 3,471 3,576 2,723 ====================================== - ------------------------------------------------------------------------------------- Total retirement plan expense $ 4,186 3,586 2,764 ===================================================================================== COMPUTATIONAL ASSUMPTIONS Pension and Other Postretirement Benefits ------------------------------------------------------------------- Net Periodic Expense Benefit Obligation ------------------------------------------------------------------- Year ended December 31, December 31, - ---------------------------------------------------------------------------------------------------- --------------------- 1999 1998 1997 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Discount rate 6.75% 7.25% 7.50% 8.25% 6.75% Pension Benefits ------------------------------------------------------------------- Rate of increase in compensation levels 5.00% 5.50% 5.50% 5.00% 5.00% Expected long-term rate of return on assets 8.50% 8.50% 8.50% -- -- ==================================================================================================================================
For measurement purposes, the annual rate of increase in the per capita cost of covered healthcare benefits assumed for 1999 was 7.0% for participants under age 65 and 6.0% for participants over age 65. The rates were assumed to decrease gradually each year to a rate of 5.5% for 2004 and remain at that level thereafter. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement medical plans. A one percentage point change in assumed healthcare cost trend rates would have the following effects:
One Percentage Point ----------------------------- Increase Decrease - --------------------------------------------------------------------------------------------------------------------------------- Effect on total of service and interest cost components of net periodic other postretirement benefit cost - increase (decrease) 8.2% (7.2%) Effect on the postretirement benefit obligation - increase (decrease) 8.0% (7.0%) - ----------------------------------------------------------------------------------------------------------------------------------
The full-time salaried and hourly employees of the Company's Wittig operation in Germany, acquired in March 1998, have pension benefits provided under defined benefit pay-related and service-related plans which are noncontributory. Consistent with the practice in Germany, these plans are unfunded. As a result of the acquisition of Wittig and the unfunded nature of the plans, the full amount of the projected pension benefit obligation as of the acquisition date was recorded as an accrued benefit liability on the Consolidated Balance Sheet. The change in the pension benefit obligation and the net periodic pension benefit expense from the acquisition date forward have been included in the preceding pension benefit tables. The full-time salaried and hourly employees of the Company's operations in Finland have pension benefits which are guaranteed by the Finnish government. Although the plans are similar to defined benefit plans, the guarantee feature of the government causes the substance of the plans to be defined contribution. Therefore, the discounted future liability of these plans is not included in the liability for defined benefit plans, but the expense for the Company's contribution is included in the pension benefit cost for defined contribution plans. Certain of the Company's full-time salaried and nonunion hourly employees are eligible to participate in the Company's Retirement Savings Plan (the "Savings Plan"), which is a qualified plan under the requirements of Section 401(k) of the Internal Revenue Code. The Company's matching contributions to the Savings Plan are in the form of the Company's common stock. 30 NOTE 7: STOCK-BASED COMPENSATION PLANS Under the Company's Long-Term Incentive Plan (the "Incentive Plan"), designated employees are eligible to receive awards in the form of stock options, stock appreciation rights, restricted stock grants or performance shares, as determined by the Management Development and Compensation Committee of the Board of Directors. An aggregate of 2,750,000 shares of common stock has been reserved for issuance under the Incentive Plan. Through December 31, 1999, the Company has granted options on 2,379,009 shares. Under the Incentive Plan, the option exercise price equals the fair market value of the common stock on the date of grant. One-third of employee options granted become vested and exercisable on each of the first three anniversaries of the date of grant. The options granted to employees in 1997 expire five years after the date of grant. The options granted to employees in 1998 and 1999 expire ten years after the date of the grant. Under the Incentive Plan, each nonemployee director is automatically granted an option to purchase 3,000 shares of common stock on the day after each annual meeting of stockholders. These options are granted at the fair market value of the common stock on the date of grant, become exercisable on the first anniversary of the date of grant (or upon retirement, death or cessation of service due to disability, if earlier) and expire five years after the date of grant. The Company also has an employee stock purchase plan (the "Stock Purchase Plan"), a qualified plan under the requirements of Section 423 of the Internal Revenue Code, and has reserved 675,000 shares for issuance. In 1997, all eligible employees who enrolled in the offering received options to purchase shares of common stock at the lesser of 90% of the fair market price of the stock on the offering date or 100% of the fair market price on the exercise date. The 1997 offering under the Stock Purchase Plan required participating employees to have the purchase price of the options withheld from their pay over a two-year period. The exercise date for the 1997 offering was November 8, 1999, at which time employees elected to purchase 30,328 shares at $13.56 per share, the fair market price on this date. In November 1999, the Stock Purchase Plan was amended to permit eligible employees to purchase shares at the lesser of 90% of the fair market price of the common stock on either the offering date or the exercise date. At that time, the Stock Purchase Plan was also amended to require participants to have the purchase price of their options withheld from their pay over a one-year period. The exercise date for the most recent offering is January 2, 2001. As of December 31, 1999, employees had enrolled to purchase 148,582 shares at an offering price of $10.74 per share and 218,905 shares remained available under the Stock Purchase Plan for future offerings. The Company accounts for both the Incentive Plan and the Stock Purchase Plan using the intrinsic value methodology prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123" or the "Statement"), requires pro forma disclosure of the impact on earnings as if the compensation costs for these plans had been determined consistent with the fair value methodology of this Statement. The Company's net income and earnings per share would have been reduced to the following pro forma amounts under SFAS 123:
1999 1998 1997 - ---------------------------------------------------------------------------------------------------- Net income As reported $18,048 36,805 27,651 Pro forma 17,043 35,655 26,817 Basic earnings per share As reported $ 1.20 2.29 1.84 Pro forma 1.13 2.22 1.78 Diluted earnings per share As reported $ 1.18 2.22 1.74 Pro forma 1.11 2.15 1.69 - ----------------------------------------------------------------------------------------------------
A summary of the status of the Company's Incentive Plan at December 31, 1999, 1998 and 1997, and changes during the years then ended, is presented in the table and narrative below (underlying shares in thousands):
1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- WTD. AVG. Wtd. Avg. Wtd. Avg. EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price ---------------------------------------------------------------------------------- Options outstanding, beginning of year 1,077 $12.36 1,174 $ 6.91 1,371 $ 4.88 Granted 223 13.00 257 26.01 159 18.28 Exercised (219) 4.76 (334) 3.64 (293) 3.96 Forfeited (9) 19.36 (20) 13.57 (63) 5.27 ----- ----- ----- Options outstanding, end of year 1,072 13.99 1,077 12.36 1,174 6.91 ===== ===== ===== Options exercisable, end of year 647 11.11 623 6.49 627 4.17 ==================================================================================================================================
31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) The following table summarizes information about fixed-price stock options outstanding at December 31, 1999 (underlying shares in thousands):
Options Outstanding Options Exercisable ------------------------------------------------------------------------------------ Number Wtd. Avg. Wtd. Avg. Number Wtd. Avg. Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 12/31/99 Contractual Life Price at 12/31/99 Price - ---------------------------------------------------------------------------------------------------------------------------------- $ 3.00 - 5.00 204 0.2 years $ 3.58 204 $ 3.58 5.01 - 10.00 248 6.1 8.68 248 8.68 10.01 - 20.00 354 6.7 14.33 85 16.62 20.01 - 30.00 266 7.2 26.42 110 26.17 ==================================================================================================================================
The fair value of each option granted under the Incentive Plan and the Stock Purchase Plan is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for grants in 1999, 1998 and 1997, respectively: risk-free interest rates of 5.4%, 5.4% and 6.3%; expected volatility of 38%, 36% and 35%; and expected lives of 2.9, 4.8 and 3.3 years. The valuations assume no dividends are paid. The weighted average fair values of options granted in 1999, 1998 and 1997 were $4.07, $10.31 and $7.01, respectively. NOTE 8: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE At December 31, 1999 and 1998, 50,000,000 shares of $.01 par value common stock and 10,000,000 shares of $.01 par value preferred stock were authorized. Shares of common stock issued and outstanding at December 31, 1999 and 1998, were 15,079,247 and 15,496,849, respectively. No shares of preferred stock were issued or outstanding at December 31, 1999 or 1998. The shares of preferred stock, which may be issued without further stockholder approval (except as may be required by applicable law or stock exchange rules), may be issued in one or more series, with the number of shares of each series and the rights, preferences and limitations of each series to be determined by the Board of Directors. The following table details the calculation of basic and diluted earnings per share:
Year ended December 31, ---------------------------------------------------------------------------------- 1999 1998 AMT. Amt. NET WTD. AVG. PER Net Wtd. Avg. Per INCOME SHARES SHARE Income Shares Share - ---------------------------------------------------------------------------------------------------------------------------------- Basic earnings per share: Income available to common stockholders $18,048 15,018,219 $1.20 $36,805 16,066,699 $2.29 ===== ===== Diluted earnings per share: Effect of dilutive securities: Stock options granted and outstanding -- 340,057 -- 543,308 - ---------------------------------------------------------------------------------------------------------------------------------- Income available to common stockholders and assumed conversions $18,048 15,358,276 $1.18 $36,805 16,610,007 $2.22 ================================================================================================================================== Year ended December 31, ------------------------------------- 1997 - ------------------------------------------------------------------------------------- Amt. Net Wtd. Avg. Per Income Shares Share Basic earnings per share: Income available to common stockholders $27,651 15,059,569 $1.84 ===== Diluted earnings per share: Effect of dilutive securities: Stock options granted and outstanding -- 812,158 - ------------------------------------------------------------------------------------- Income available to common stockholders and assumed conversions $27,651 15,871,727 $1.74 =====================================================================================
32 NOTE 9: LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
December 31, --------------------------- 1999 1998 - ---------------------------------------------------------------------------------------- Credit line, due 2003 $ 74,297 35,987 Unsecured senior note, due 2006 35,000 35,000 Variable rate industrial revenue bond, due 2018 9,500 9,500 Other 692 3,023 - ---------------------------------------------------------------------------------------- 119,489 83,510 Current maturities of long-term debt (5,289) (2,452) - ---------------------------------------------------------------------------------------- Long-term debt, less current maturities $114,200 81,058 ======================================================================================== The facility was effective January 20, 1998. The loans under the facility may be denominated in U.S. Dollars or in several foreign currencies. At December 31, 1999, the outstanding balance consisted of two loans: $64,000 and DM 20,000. The interest rate varies with market rates for federal funds and/or LIBOR for the applicable currency and the Company's debt to adjusted income ratio. As of December 31, 1999, the rates for the U.S. Dollar loan and the German Mark loan were 6.5% and 3.5%, respectively, and averaged 5.7% and 3.5%, respectively, for the year ended December 31, 1999. On September 26, 1996, the Company entered into an unsecured senior note agreement at a fixed interest rate of 7.3%. This debt matures in ten years and requires equal annual principal payments for seven years beginning September 26, 2000. The interest rate varies with market rates for tax-exempt industrial revenue bonds. As of December 31, 1999, this rate was 5.5% and averaged 3.4% for the year ended December 31, 1999. ========================================================================================
On January 20, 1998, the Company entered into an agreement for a new revolving line of credit with an aggregate $125,000 borrowing capacity and terminated the previous agreement. Of the available credit line, $74,297 was outstanding at December 31, 1999, leaving $50,703 available for additional borrowings or to issue as letters of credit. The total debt balance will mature on January 20, 2003. In September 1996, the Company obtained fixed rate financing by entering into an unsecured senior note agreement for $35,000. This note has a ten-year final, seven-year average maturity with principal payments beginning in 2000. Both of the Company's borrowing agreements are unsecured and permit certain investments and dividend payments. There are no material restrictions on the Company as a result of these agreements, other than customary covenants regarding certain earnings, liquidity and capital ratios. On April 23, 1998, the Fayette County Development Authority issued $9,500 in industrial revenue bonds, on behalf of the Company, to finance the cost of constructing and equipping a new manufacturing facility in Peachtree City, Georgia. The principal for these industrial revenue bonds is to be repaid in full on March 1, 2018. These industrial revenue bonds are secured by a letter of credit. Maturities of long-term debt for the five years subsequent to December 31, 1999 are $5,289, $5,320, $5,028, $79,310 and $5,004, respectively. Included in short-term borrowings and current maturities of long- term debt at December 31, 1998 was a credit facility for Tamrotor, denominated in Finnish Markka, with an outstanding balance of $2,156. At December 31, 1999, there was no outstanding balance under this facility. The average interest rate for this facility was 3.6% for the year ended December 31, 1999. Interest paid in 1999, 1998 and 1997 was $5,489, $5,494 and $4,374, respectively. The rentals for all operating leases were $2,437, $2,531 and $2,108 in 1999, 1998 and 1997, respectively. NOTE 10: INCOME TAXES The following table details the components of the provision for income taxes. A portion of these income taxes will be payable within one year and are, therefore, classified as current, while the remaining balance is deferred.
Year ended December 31, - ---------------------------------------------------------------------------------------------------- 1999 1998 1997 -------------------------------------- Income taxes: Current: U.S. federal $ 5,298 16,164 13,936 U.S. state and local 605 1,847 1,593 Non - U.S. 404 1,066 253 - ---------------------------------------------------------------------------------------------------- Current 6,307 19,077 15,782 - ---------------------------------------------------------------------------------------------------- Deferred: U.S. federal 4,309 3,587 2,190 U.S. state and local 493 410 251 Non - U.S. -- 15 277 - ---------------------------------------------------------------------------------------------------- Deferred 4,802 4,012 2,718 - ---------------------------------------------------------------------------------------------------- Provision for income taxes $11,109 23,089 18,500 ====================================================================================================
33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) The following table reconciles the statutory U.S. federal corporate income tax rate to the Company's effective tax rate (as a percentage of the Company's income before income taxes):
Year ended December 31, ----------------------------------- 1999 1998 1997 - ---------------------------------------------------------------------------------------------------- U. S. federal income tax rate 35.0% 35.0 35.0 Changes in the tax rate resulting from: State and local income taxes 3.4 3.4 3.4 Nondeductible goodwill 3.5 1.6 1.7 Foreign sales corporation benefit (2.5) (1.1) (1.5) Other, net (1.3) (0.3) 1.5 - ---------------------------------------------------------------------------------------------------- Effective income tax rate 38.1% 38.6 40.1 ==================================================================================================== December 31, --------------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------------- Components of deferred tax balances: Deferred tax assets: Reserves and accruals $ 11,046 11,601 Postretirement benefits other than pensions 17,841 19,102 Other 1,318 628 - ---------------------------------------------------------------------------------------------------- Total deferred tax assets 30,205 31,331 ==================================================================================================== Deferred tax liabilities: LIFO inventory (4,507) (4,398) Plant and equipment (6,022) (5,048) Intangibles (2,028) (973) Other (7,833) (6,295) - ---------------------------------------------------------------------------------------------------- Total deferred tax liabilities (20,390) (16,714) - ---------------------------------------------------------------------------------------------------- Net deferred tax assets $ 9,815 14,617 ====================================================================================================
U.S. deferred income taxes are not provided on certain undistributed earnings of non-U.S. subsidiaries because the Company intends to reinvest such earnings indefinitely. The estimated amount of income taxes that would be incurred should such earnings be distributed is not significant due to available foreign tax credits and earnings and profit levels. Income taxes paid in 1999, 1998 and 1997 were $6,975, $17,827 and $15,138, respectively. NOTE 11: OFF-BALANCE SHEET RISK, CONCENTRATIONS OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK There were no off-balance sheet derivative financial instruments as of December 31, 1999 and 1998. Concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers and markets into which the Company's products are sold, as well as their dispersion across many different geographic areas. As a result, as of December 31, 1999, the Company does not consider itself to have any significant concentrations of credit risk. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and equivalents, trade receivables, trade payables, debt instruments and a forward foreign currency contract hedging the Company's investment in its Finnish operations. The book values of these instruments are not materially different from their respective fair values. NOTE 12: CONTINGENCIES The Company has been identified as a potentially responsible party with respect to various sites designated for cleanup under various state and federal laws. The Company does not own any of these sites. The Company believes that the costs related to these sites will not have a materially adverse effect on its consolidated financial position, results of operations or liquidity. In addition to the environmental matters, the Company is a party to various other legal proceedings and administrative actions, which are of an ordinary or routine nature, incidental to the operations of the Company. 34 NOTE 13: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1999 QUARTER ENDED ------------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, - ------------------------------------------------------------------------------------------------------------------- Revenues $70,224 85,410 77,103 91,086 Gross margin 21,864 28,684 24,431 27,926 Net income 3,203 5,989 3,999 4,857 Basic earnings per share $ 0.21 0.40 0.27 0.32 Diluted earnings per share $ 0.21 0.39 0.26 0.32 =================================================================================================================== 1998 Quarter Ended ------------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, - ------------------------------------------------------------------------------------------------------------------- Revenues $89,792 103,509 96,605 95,086 Gross margin 30,394 33,378 32,581 35,797 Net income 8,081 9,200 8,748 10,776 Basic earnings per share $ 0.51 0.57 0.54 0.67 Diluted earnings per share $ 0.49 0.55 0.52 0.66 =================================================================================================================== Gross margin equals revenues less cost of sales. Includes an increase in net income in 1999 and 1998 of $252 and $2,788, respectively, related to LIFO inventory liquidations.
NOTE 14: SEGMENT INFORMATION The Company is organized based on the products and services it offers. Under this organizational structure, the Company has three operating units: compressor products, blower products and petroleum products, which result in two reportable segments, Compressed Air Products and Petroleum Products. The compressor and blower products operating units have been aggregated into one reportable segment (Compressed Air Products) since the long-term financial performance of these businesses are affected by similar economic conditions, coupled with the similar nature of their products, manufacturing processes, served markets and other business characteristics. In the Compressed Air Products segment, the Company designs, manufactures, markets and services the following products for industrial and commercial applications: reciprocating, rotary screw and sliding vane air compressors, and positive displacement and centrifugal blowers. Aftermarket parts and services for centrifugal compressors and water jet pumps and systems for industrial cleaning and maintenance are also included in this segment. The markets served are primarily in the United States, but a growing portion of revenue is from exports and expanding European operations. The Petroleum Products segment designs, manufactures, markets and services a diverse group of pump products used in oil and natural gas production, well servicing and oil and gas drilling markets. The accounting policies of the segments are the same as those described in Note 1. The Company evaluates the performance of its segments based on income before interest expense and income taxes. A portion of the expenses and certain assets attributable to corporate activity are not allocated to the segments. Unallocated assets primarily consist of cash and equivalents and deferred tax assets. Intersegment sales and transfers are not significant. 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts)
Revenues Operating Earnings ------------------------------------------------------------------------------------- Year ended December 31, Year ended December 31, ------------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Compressed Air Products $294,493 298,440 228,214 $34,542 45,496 38,554 Petroleum Products 29,330 86,552 63,333 2,998 21,911 13,211 ------------------------------------------------------------------------------------ Total $323,823 384,992 291,547 37,540 67,407 51,765 Interest expense ====================================== (5,934) (4,849) (3,937) General corporate (2,449) (2,664) (1,677) -------------------------------------- Income before income taxes $29,157 59,894 46,151 ====================================== Total assets Identifiable Assets --------------------------------------- December 31, --------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------- Compressed Air Products $296,446 252,386 199,205 Petroleum Products 45,841 50,653 41,604 --------------------------------------- Total 342,287 303,039 240,809 Interest expense General corporate 37,132 39,091 27,460 --------------------------------------- Income before income taxes Total assets $379,419 342,130 268,269 ======================================= Year ended December 31, -------------------------------------------- 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Income from reductions of inventory quantities resulting in liquidations of LIFO inventory layers, included in operating earnings above: Compressed Air Products $ 369 2,543 442 Petroleum Products 38 1,998 778 - ---------------------------------------------------------------------------------------------------------------------------------- Total $ 407 4,541 1,220 ================================================================================================================================== Depreciation and amortization, included in operating earnings above: Compressed Air Products $12,494 10,602 8,458 Petroleum Products 1,728 2,376 1,204 - ---------------------------------------------------------------------------------------------------------------------------------- Total $14,222 12,978 9,662 ================================================================================================================================== Capital expenditures: Compressed Air Products $10,493 17,025 7,755 Petroleum Products 1,448 2,654 2,053 - ---------------------------------------------------------------------------------------------------------------------------------- Total $11,941 19,679 9,808 ================================================================================================================================== Year ended December 31, Revenues outside the United States were --------------------------------------------- comprised of sales to unaffiliated companies in: 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Europe $ 49,647 54,815 26,652 Canada 14,300 21,942 19,245 Latin America 12,268 10,837 12,413 Asia 6,904 6,512 14,240 Other 11,252 14,859 6,165 - ---------------------------------------------------------------------------------------------------------------------------------- Total $ 94,371 108,965 78,715 - ---------------------------------------------------------------------------------------------------------------------------------- Net long-lived assets by geographic area are as follows: December 31, --------------------------------------------- 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- United States $178,173 145,895 104,299 Europe 23,303 27,620 18,755 - ---------------------------------------------------------------------------------------------------------------------------------- Total $201,476 173,515 123,054 - ----------------------------------------------------------------------------------------------------------------------------------
NOTE 15: SUBSEQUENT EVENT 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 multi-stage centrifugal blowers. This acquisition will be accounted for by the purchase method and accordingly, its results will be included in the Company's consolidated financial statements from the date of acquisition. 36 SHAREHOLDER INFORMATION STOCK INFORMATION Gardner Denver's common stock has traded on the New York Stock Exchange since August 14, 1997 under the ticker symbol GDI. Prior to this date, the Company's common stock traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol GDMI. The quarterly high and low sales prices for the Company's common stock for the two most recent years, as reported by the New York Stock Exchange, are as follows:
1999 QUARTER ENDED ========================================================================================== MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, - ------------------------------------------------------------------------------------------ HIGH $17 19 5/16 21 3/4 16 13/16 LOW $11 9/16 14 1/16 14 3/4 11 ========================================================================================== 1998 Quarter Ended =========================================================================================== March 31, June 30, September 30, December 31, - ------------------------------------------------------------------------------------------- High $29 15/16 30 7/16 28 1/4 18 3/4 Low $19 1/2 24 1/2 13 23/32 10 3/8 ===========================================================================================
As of March 1, 2000, there were approximately 8,600 holders of record of Gardner Denver's common stock. DIVIDENDS Gardner Denver has not paid a cash dividend since its spin-off in April 1994. The cash flow generated by the Company is currently utilized for debt service and capital accumulation and reinvestment. TRANSFER AGENT AND REGISTRAR EquiServe P.O. Box 2500 Jersey City, New Jersey 07303-2500 (800) 519-3111 (201) 324-1225 (201) 222-4955 (for the hearing impaired) E-mail address: equiserve@equiserve.com NEWS RELEASES BY FAX Gardner Denver's news releases, including the quarterly earnings release, are available by fax, without charge, by calling (800) 758-5804, extension 303875, or by visiting our website at http://www.gardnerdenver.com. FORM 10-K A copy of the annual report on Form 10-K filed with the Securities and Exchange Commission is available, without charge, upon written request to the Corporate Secretary at the Company's address indicated below. ANNUAL MEETING The 2000 Annual Meeting of Stockholders will be held on May 2 at the Holiday Inn Quincy, 201 South Third Street, Quincy, Illinois, starting at 1:30 p.m. CORPORATE OFFICES Gardner Denver, Inc. 1800 Gardner Expressway Quincy, Illinois 62301 (217) 222-5400 E-mail address: mktg@gardnerdenver.com INTERNET ACCESS For access to information on your Gardner Denver investment via the Internet, registered shareholders may contact the Company's transfer agent at (877) 843-9327 for a personal identification number and then visit their website at http://www.equiserve.com. 37 EX-21.0 5 SCHEDULE OF SUBSIDIARIES Exhibit 21.0 GARDNER DENVER, INC. SCHEDULE OF SUBSIDIARIES YEAR ENDED DECEMBER 31, 1999
Name Subsidiary Uses Subsidiary Name Incorporation for Doing Business --------------- ------------- -------------------- Gardner Denver International, Inc. Delaware Gardner Denver International, Inc. Gardner Denver Export, Inc. Barbados Gardner Denver Export, Inc. Gardner Denver Holdings Inc. Delaware Gardner Denver Holdings Inc. Lamson Corporation TCM Investments, Inc. Oklahoma TCM Investments, Inc. Gardner Denver Wittig GmbH Germany Gardner Denver Wittig GmbH Gardner Denver Oy Finland Gardner Denver Oy Allen-Stuart Equipment Co., Inc. Texas Gardner Denver Engineered Packaging Center Gardner Denver Water Jetting Texas Gardner Denver Water Jetting Systems, Inc. Systems, Inc. Air Relief, Inc. Kentucky Air Relief, Inc.
EX-23.0 6 CONSENT OF EXPERTS Exhibit 23.0 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report incorporated by reference in this Form 10-K for the year ended December 31, 1999, into the Company's previously filed Registration Statements, File Numbers 33-91088, 333-24921 and 333-83397. ARTHUR ANDERSEN LLP St. Louis, Missouri March 27, 2000 EX-24.0 7 POWERS OF ATTORNEYS Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1999 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 7th day of March 2000. ----------- ---------- ----- /s/ Thomas M. McKenna ----------------------------- Thomas M. McKenna Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1999 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 7th day of March 2000. ----------- ---------- ----- /s/ Alan E. Riedel ---------------------------- Alan E. Riedel Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1999 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 7th day of March 2000. ----------- ---------- ----- /s/ Michael J. Sebastian -------------------------------- Michael J. Sebastian Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1999 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 7th day of March 2000. ----------- ---------- ----- /s/ Donald G. Barger, Jr. -------------------------------- Donald G. Barger, Jr. Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1999 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 7th day of March 2000. ----------- ---------- ----- /s/ Frank J. Hansen ----------------------------- Frank J. Hansen Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1999 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 7th day of March 2000. ----------- ---------- ----- /s/ Richard L. Thompson --------------------------------- Richard L. Thompson Exhibit 24.0 GARDNER DENVER, INC. ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY OF DIRECTORS The undersigned, a director of Gardner Denver, Inc., a Delaware corporation (the "Company"), which anticipates filing with the Securities and Exchange Commission (the "Commission") under the provisions of the Exchange Act of 1934 (the "Act") an Annual Report on Form 10-K (the "Annual Report") for the fiscal year ended December 31, 1999 (together with any and all subsequent amendments) does hereby constitute and appoint Ross J. Centanni and Helen W. Cornell, and each of them, with full power of substitution and resubstitution, as attorney or attorneys to execute and file on behalf of the undersigned, in his capacity as a director of the Company, the Annual Report and any and all other documents to be filed with the Commission pertaining to the Annual Report with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at St. Louis , Missouri this 7th day of March 2000. ----------- ---------- ----- /s/ Raymond R. Hipp -------------------------------- Raymond R. Hipp EX-27.0 8 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GARDNER DENVER, INC. FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 27,317 0 71,865 (4,838) 60,356 166,379 175,468 (112,576) 379,419 59,609 119,489 167 0 0 152,442 379,419 321,928 323,823 220,918 220,918 14,734 380 5,934 29,157 11,109 18,048 0 0 0 18,048 1.20 1.18
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