-----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, FlJtnF1joCBlr89NMdR10MrwCu0dfyaAyPXfIuGkZ4NESqS2Dkq3XdIKsFssgXLI K24eoe6ggG45Nl9y3AyOmw== 0001068800-03-000494.txt : 20030808 0001068800-03-000494.hdr.sgml : 20030808 20030808164126 ACCESSION NUMBER: 0001068800-03-000494 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030808 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13215 FILM NUMBER: 03832270 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-Q 1 gard10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-13215 GARDNER DENVER, INC. (Exact name of Registrant as Specified in its Charter) DELAWARE 76-0419383 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1800 GARDNER EXPRESSWAY QUINCY, ILLINOIS 62301 (Address of Principal Executive Offices and Zip Code) (217) 222-5400 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No --- --- Number of shares outstanding of the issuer's Common Stock, par value $.01 per share, as of July 25, 2003: 16,071,498 shares. ============================================================================== PART I FINANCIAL INFORMATION GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ----------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Revenues $109,388 $104,854 $210,879 $211,463 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 76,151 71,289 146,925 145,891 Depreciation and amortization 3,767 3,593 7,313 7,141 Selling and administrative expenses 20,681 20,308 41,358 40,280 Interest expense 1,136 1,730 2,341 3,412 Other income, net (210) (435) (97) (567) -------- -------- -------- -------- Income before income taxes 7,863 8,369 13,039 15,306 Provision for income taxes 2,517 2,845 4,173 5,204 -------- -------- -------- -------- Net income $ 5,346 $ 5,524 $ 8,866 $ 10,102 ======== ======== ======== ======== Basic earnings per share $ 0.33 $ 0.35 $ 0.55 $ 0.64 ======== ======== ======== ======== Diluted earnings per share $ 0.33 $ 0.34 $ 0.55 $ 0.63 ======== ======== ======== ======== The accompanying notes are an integral part of this statement.
-2- GARDNER DENVER, INC. CONSOLIDATED BALANCE SHEET (in thousands, except per share amounts)
(UNAUDITED) JUNE 30, DECEMBER 31, 2003 2002 -------- ------------ ASSETS Current assets: Cash and equivalents $ 23,031 $ 25,667 Receivables, net 75,986 74,490 Inventories, net 73,042 67,448 Deferred income taxes 6,178 5,902 Other 5,104 4,268 -------- -------- Total current assets 183,341 177,775 -------- -------- Property, plant and equipment, net 74,973 76,162 Goodwill 203,571 201,761 Other intangibles, net 9,354 9,418 Deferred income taxes 2,486 3,611 Other assets 4,001 3,454 -------- -------- Total assets $477,726 $472,181 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt $ 10,625 $ 7,500 Accounts payable and accrued liabilities 66,831 70,160 -------- -------- Total current liabilities 77,456 77,660 -------- -------- Long-term debt, less current maturities 100,272 112,663 Postretirement benefits other than pensions 33,316 34,539 Other long-term liabilities 26,863 24,396 -------- -------- Total liabilities 237,907 249,258 -------- -------- Stockholders' equity: Common stock, $0.01 par value; 50,000 shares authorized; 16,067 shares issued and outstanding at June 30, 2003 178 177 Capital in excess of par value 173,289 171,047 Treasury stock at cost, 1,718 shares at June 30, 2003 (25,847) (25,819) Retained earnings 90,530 81,664 Accumulated other comprehensive loss 1,669 (4,146) -------- -------- Total stockholders' equity 239,819 222,923 -------- -------- Total liabilities and stockholders' equity $477,726 $472,181 ======== ======== The accompanying notes are an integral part of this statement.
-3- GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------------- 2003 2002 -------- -------- Cash flows from operating activities: Net income $ 8,866 $ 10,102 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,313 7,141 Net (gain) loss on asset dispositions (367) 26 Stock issued for employee benefit plans 1,394 1,132 Deferred income taxes 824 (251) Changes in assets and liabilities: Receivables (1,574) 3,983 Inventories (4,157) 1,597 Accounts payable and accrued liabilities (2,940) (11,312) Other assets and liabilities, net (511) (658) -------- -------- Net cash provided by operating activities 8,848 11,760 -------- -------- Cash flows from investing activities: Capital expenditures (5,546) (4,842) Disposals of plant and equipment 915 72 Other -- (5) -------- -------- Net cash used in investing activities (4,631) (4,775) -------- -------- Cash flows from financing activities: Principal payments on long-term debt (29,266) (31,162) Proceeds from long-term debt 20,000 8,000 Proceeds from stock options 850 2,289 Purchase of treasury stock (28) (201) Other (3) (665) -------- -------- Net cash used in financing activities (8,447) (21,739) -------- -------- Effect of exchange rate changes on cash and equivalents 1,594 1,540 -------- -------- Decrease in cash and equivalents (2,636) (13,214) -------- -------- Cash and equivalents, beginning of period 25,667 29,980 -------- -------- Cash and equivalents, end of period $ 23,031 $ 16,766 ======== ======== The accompanying notes are an integral part of this statement.
-4- NOTES TO CONDENSED FINANCIAL STATEMENTS (in thousands, except per share amounts) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Basis of Presentation. The accompanying condensed consolidated financial statements include the accounts of Gardner Denver, Inc. ("Gardner Denver" or the "Company") and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. The financial information presented as of any date other than December 31 has been prepared from the books and records without audit. The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of such financial statements, have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto incorporated by reference in Gardner Denver's Annual Report on Form 10-K for the year ended December 31, 2002. The results of operations for the three and six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year. Certain prior year amounts have been reclassified to conform with current year presentation. NOTE 2. INVENTORIES.
JUNE 30, DECEMBER 31, 2003 2002 -------- ------------ Raw materials, including parts and subassemblies $33,752 $35,675 Work-in-process 11,252 9,077 Finished goods 30,553 25,355 Perishable tooling and supplies 2,457 2,456 ------- ------- 78,014 72,563 Excess of current standard costs over LIFO costs (4,972) (5,115) ------- ------- Inventories, net $73,042 $67,448 ======= =======
NOTE 3. GOODWILL AND OTHER INTANGIBLE ASSETS. The changes in the carrying amount of goodwill attributable to each business segment for the six months ended June 30, 2003, are as follows:
COMPRESSED PUMP AIR PRODUCTS PRODUCTS ------------ -------- Balance as of December 31, 2002 $176,230 $25,531 Foreign currency translation 1,810 --- -------- ------- Balance as of June 30, 2003 $178,040 $25,531 ======== =======
-5- Other intangible assets at June 30, 2003 consisted of the following:
GROSS CARRYING ACCUMULATED AMOUNT AMORTIZATION -------------- ------------ Amortized intangible assets: Acquired technology $11,826 $(7,583) Other 4,234 (2,080) Unamortized intangible assets: Trademarks 2,957 -- ------- ------- Total other intangible assets $19,017 $(9,663) ======= =======
Amortization of intangible assets for the six months ended June 30, 2003, was $0.7 million. Amortization of intangible assets is anticipated to be approximately $1.5 to $2.0 million per year for 2003 through 2007. NOTE 4. ACCRUED PRODUCT WARRANTY. The following is a rollforward of the Company's warranty accrual for the three and six months ended June 30, 2003.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2003 JUNE 30, 2003 ------------- ------------- Balance at beginning of period $ 6,883 $ 7,060 Product warranty accruals 1,159 2,051 Settlements (1,469) (2,582) Other (primarily foreign currency translation) 122 166 ------- ------- Balance at end of period $ 6,695 $ 6,695 ======= =======
NOTE 5. EARNINGS PER SHARE. The following table details the calculation of basic and diluted earnings per share:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2003 2002 2003 2002 ------- ------- ------- ------- Basic EPS: Net income $ 5,346 $ 5,524 $ 8,866 $10,102 ======= ======= ======= ======= Shares: Weighted average number of common shares outstanding 16,052 15,856 16,031 15,806 ======= ======= ======= ======= Basic earnings per common share $ 0.33 $ 0.35 $ 0.55 $ 0.64 ======= ======= ======= =======
-6-
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2003 2002 2003 2002 ------- ------- ------- ------- Diluted EPS: Net income $ 5,346 $ 5,524 $ 8,866 $10,102 ======= ======= ======= ======= Shares: Weighted average number of common shares outstanding 16,052 15,856 16,031 15,806 Assuming conversion of dilutive stock options issued and outstanding 208 283 183 263 ------- ------- ------- ------- Weighted average number of common shares outstanding, as adjusted 16,260 16,139 16,214 16,069 ======= ======= ======= ======= Diluted earnings per common share $ 0.33 $ 0.34 $ 0.55 $ 0.63 ======= ======= ======= =======
NOTE 6. STOCK-BASED COMPENSATION PLANS. As allowed under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company measures its compensation cost of equity instruments issued under employee compensation plans using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Stock options granted during the three and six months ended June 30, 2003 and 2002 were exercisable at prices equal to the fair market value of the Company's common stock on the dates the options were granted; and accordingly, no compensation expense has been recognized. If the Company had accounted for stock-based compensation using the fair value recognition provisions of SFAS No. 123 and related amendments, net income and basic and diluted earnings per share would have been as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2003 2002 2003 2002 ------- ------- ------- ------- Net income, as reported $ 5,346 $ 5,524 $ 8,866 $10,102 ======= ======= ======= ======= Less: Total stock-based employee compensation expense determined under fair value method, net of related tax effects 296 324 624 636 ------- ------- ------- ------- Pro forma net income $ 5,050 $ 5,200 $ 8,242 $ 9,466 ======= ======= ======= ======= Basic earnings per share, as reported $ 0.33 $ 0.35 $ 0.55 $ 0.64 ======= ======= ======= ======= Basic earnings per share, pro forma $ 0.31 $ 0.33 $ 0.51 $ 0.60 ======= ======= ======= ======= Diluted earnings per share, as reported $ 0.33 $ 0.34 $ 0.55 $ 0.63 ======= ======= ======= ======= Diluted earnings per share, pro forma $ 0.31 $ 0.32 $ 0.51 $ 0.59 ======= ======= ======= =======
-7- Compensation costs charged against income (net of tax) for restricted stock issued under the Company's Incentive Plan totaled $0.2 million in the six months ended June 30, 2003. NOTE 7. COMPREHENSIVE INCOME. For the three months ended June 30, 2003 and 2002, comprehensive income was $9.5 million and $12.5 million, respectively. For the six months ended June 30, 2003 and 2002, comprehensive income was $14.7 million and $15.3 million, respectively. Items impacting the Company's comprehensive income, but not included in net income, consist of foreign currency translation adjustments. NOTE 8. CASH FLOW INFORMATION. In the first six months of 2003 and 2002, the Company paid $1.5 million and $3.3 million, respectively, to the various taxing authorities for income taxes. Interest paid for the first six months of 2003 and 2002, was $2.2 million and $3.3 million, respectively. NOTE 9. CONTINGENCIES. The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature. Due to the bankruptcies of several asbestos manufacturers and other primary defendants, the Company has been named as a defendant in an increasing number of asbestos personal injury lawsuits. In addition, the Company has also been named as a defendant in a number of silicosis personal injury lawsuits. Predecessors to the Company manufactured and sold the products allegedly at issue in these asbestos and silicosis lawsuits, namely: (a) asbestos-containing components supplied by third parties; and (b) portable compressors that were used as components for sandblasting equipment manufactured and sold by other parties. These lawsuits represent potential contingent liabilities to the Company as a result of its predecessors' historical sales of these products. The Company believes that these pending legal proceedings, lawsuits and administrative actions will not, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: (1) the Company's anticipated insurance and indemnification rights to address the risks of such matters; (2) the limited risk of potential asbestos exposure from the components described above, due to the complete enclosure of the components within the subject products and the additional protective non-asbestos binder which encapsulated the components; (3) the fact that the substantial majority of claimants in the pending asbestos and silicosis lawsuits against the Company are not impaired with disease; (4) the fact that neither the Company, nor its predecessors, ever manufactured, marketed or sold sandblasting equipment; (5) various other potential defenses available to the Company with respect to such matters; and (6) the Company's prior disposition of comparable matters. The Company has also 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 does not believe that the future potential costs related to these sites will have a material adverse effect on its consolidated financial position, results of operations or liquidity. -8- NOTE 10. SEGMENT INFORMATION.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- ---------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Revenues: Compressed Air Products $ 92,443 $ 89,240 $179,629 $177,751 Pump Products 16,945 15,614 31,250 33,712 -------- -------- -------- -------- Total $109,388 $104,854 $210,879 $211,463 ======== ======== ======== ======== Operating Earnings: Compressed Air Products $ 7,699 $ 8,800 $ 14,275 $ 16,140 Pump Products 1,090 864 1,008 2,011 -------- -------- -------- -------- Total 8,789 9,664 15,283 18,151 Interest expense 1,136 1,730 2,341 3,412 Other income, net (210) (435) (97) (567) -------- -------- -------- -------- Income before income taxes $ 7,863 $ 8,369 $ 13,039 $ 15,306 ======== ======== ======== ========
-9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS. PERFORMANCE IN THE QUARTER ENDED JUNE 30, 2003 COMPARED WITH THE QUARTER ENDED JUNE 30, 2002 Revenues Revenues increased $4.5 million to $109.4 million for the three months ended June 30, 2003, compared to $104.9 million in the same period of 2002 primarily due to favorable changes in foreign currency exchange rates. For the three months ended June 30, 2003, revenues for the Compressed Air Products segment increased $3.2 million (4%) to $92.4 million, compared to the same period of 2002. This increase is primarily due to favorable changes in foreign currency exchange rates combined with unit growth of compressor packages used in PET bottle blowing applications. Excluding the favorable impact of changes in foreign currency exchange rates, revenues in this segment decreased $1.4 million (2%) due to softer U.S. and European industrial economies, which weakened demand for compressors and blowers. Pump Products segment revenues increased $1.3 million (9%) to $16.9 million for the three months ended June 30, 2003, compared to the same period of 2002, primarily as a result of increased international shipments of petroleum pump parts from backlog. Costs and Expenses Gross margin (defined as sales less cost of sales excluding depreciation and amortization) for the three months ended June 30, 2003 decreased $0.3 million (1%) to $33.2 million compared to the same period of 2002. Gross margin as a percentage of revenues (gross margin percentage) decreased to 30.4% in the three-month period of 2003 from 32.0% in the same period of 2002. This decrease in the gross margin percentage was principally attributable to unfavorable sales mix including lower compressor aftermarket sales and higher compressor package sales, higher warranty expense (due to unusually low warranty expense in the second quarter of 2002, as a result of favorable claims experience) and higher fringe benefit costs. These negative factors were partially offset by cost reduction efforts, including acquisition integration efforts. Depreciation and amortization expense increased in the three-month period of 2003 by 5% to $3.8 million from $3.6 million in the same period of 2002 primarily due to a $0.2 million (pre-tax) depreciation charge in 2003 to write-off pattern modification charges from casting suppliers no longer servicing the Company. Selling and administrative expenses increased in the three-month period of 2003 by 2% to $20.7 million from $20.3 million in the same period of 2002 primarily due to unfavorable changes in foreign currency exchange rates. Excluding the impact of foreign currency exchange rate changes, selling and administrative expenses decreased approximately 3% due to cost reductions, including acquisition integration efforts. These cost reductions were partially offset by higher sales commissions and fringe benefit costs. Selling and administrative expenses as a percentage of revenues decreased to 18.9% for the three-month period of 2003 compared to 19.4% in 2002 primarily as a result of the increase in revenues and the aforementioned cost reductions. -10- The Compressed Air Products segment generated operating margins (defined as revenues, less cost of sales, depreciation and amortization, and selling and administrative expenses) of 8.3% for the three-month period ended June 30, 2003, a decrease from 9.9% for the same period of 2002. This decrease was primarily attributable to lower gross margins as a percentage of revenues due to unfavorable sales mix and higher warranty expense combined with higher sales commissions and fringe benefit costs. These negative factors were partially offset by cost reductions, including acquisition integration, combined with revenue and operating margin improvement from compressor packages used in PET bottle blowing applications. On a sequential basis, operating margins for the Compressed Air Products segment improved to 8.3% from 7.5% for the three-month period ended March 31, 2003 as the Company leveraged its selling and administrative costs over a higher revenue base. The Pump Products segment generated operating margins of 6.4% of revenues for the three-month period ended June 30, 2003, compared to an operating margin of 5.5% for the same period in 2002. This increase was primarily attributable to the positive impact of increased leverage of the segment's fixed and semi-fixed costs over a higher revenue base. Also contributing to the higher percentage was a more favorable sales mix, which included a higher proportion of petroleum pump parts that carry higher margins than other pump products. Other income, net decreased $0.2 million compared to the prior year period primarily due to lower interest income and higher foreign currency transaction losses generated from U.S. dollar denominated balances of foreign subsidiaries in 2003. These negative factors were partially offset by a $0.4 million (pretax) gain on the sale of an idle manufacturing facility in Syracuse, New York in the second quarter of 2003. Interest expense decreased $0.6 million (34%) to $1.1 million for the three months ended June 30, 2003, compared to $1.7 million for the same period of 2002 due to lower average borrowings and interest rates. The average interest rate for the three-month period of 2003 was 4.2% compared to 4.5% in the prior year period. Income before income taxes decreased $0.5 million (6%) to $7.9 million for the three months ended June 30, 2003, compared to the same period of 2002. This decrease was primarily the result of the factors driving the decrease in the Compressed Air Products segment operating margins and other income noted above. These negative factors were partially offset by cost reduction efforts, including acquisition integration, favorable changes in foreign currency exchange rates and lower interest expense. The provision for income taxes decreased by $0.3 million to $2.5 million for the three-month period of 2003, compared to $2.8 million in 2002, as a result of the lower income before taxes and a lower overall effective tax rate. The Company's effective tax rate for the three months ended June 30, 2003 decreased to 32.0%, compared to 34.0% in the prior year period, principally as a result of a higher proportion of Extraterritorial Income Exclusion (EIE) benefit from U.S. export sales relative to pretax income. Net income for the three months ended June 30, 2003 decreased $0.2 million (3%) to $5.3 million ($0.33 diluted earnings per share), compared to $5.5 million ($0.34 diluted earnings per share) for the same period of 2002. This decrease in net income was primarily attributable to the same factors that resulted in decreased income before taxes noted above partially offset by a lower effective tax rate in 2003. -11- PERFORMANCE IN THE SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2002 Revenues Revenues decreased $0.6 million to $210.9 million for the six months ended June 30, 2003, compared to $211.5 million in the same period of 2002 primarily due to lower revenues in the Pump Products segment which were partially offset by an increase in the Compressed Air Products segment. For the six months ended June 30, 2003, revenues for the Compressed Air Products segment increased $1.9 million (1%) to $179.6 million, compared to the same period of 2002. This increase is primarily due to favorable foreign currency exchange rates combined with revenue growth of compressor packages used in PET bottle blowing applications. Excluding the favorable impact of changes in foreign currency exchange rates, revenues in this segment decreased $7.1 million (4%) due to softer U.S. and European industrial economies, which weakened demand for compressors and blowers. Pump Products segment revenues decreased $2.5 million (7%) to $31.3 million for the six months ended June 30, 2003, compared to the same period of 2002. The depressed demand for petroleum pump products resulted from previously low levels of rig count, which began negatively impacting order rates in the second half of 2001. In 2002, Pump Products segment revenues were primarily supported by drilling pump backlog carried over from 2001 orders. Costs and Expenses Atchison Casting Corporation, the Company's largest supplier of iron castings in 2002, downsized and subsequently closed its LaGrange, Missouri foundry ("LaGrange Foundry"), in the second half of 2002. As a result, the Company implemented its previously developed contingency plan to secure alternate supply sources. The Company does not anticipate that the closure of the LaGrange Foundry will materially impact its long-term financial performance. However, there was a negative impact (estimated at $0.02-$0.03 diluted earnings per share) on the Company's financial performance in the first quarter of 2003, as additional costs were incurred to expedite castings from new suppliers. In addition, the Company recorded a $0.2 million (pre-tax) depreciation charge in the second quarter of 2003 to write-off pattern modification charges from alternate casting suppliers who are no longer servicing the Company. The most significant aspects of the changes related to the LaGrange Foundry closure have been completed and the Company expects to benefit going forward from reduced material costs from alternate suppliers. At the same time, the Company anticipates that it will need to address some lingering problems over the balance of the year as it re-balances its casting supply chain while dealing with suppliers that are experiencing lower volumes, high fixed cost structures and increased competitive pressures. Gross margin (defined as sales less cost of sales excluding depreciation and amortization) for the six months ended June 30, 2003 decreased $1.6 million (2%) to $64.0 million compared to the same period of 2002. Gross margin as a percentage of revenues (gross margin percentage) decreased to 30.3% in the six-month period of 2003 from 31.0% in the same period of 2002. This decrease in the gross margin percentage was principally attributable to unfavorable sales mix including lower drilling pump sales and higher compressor package sales and higher fringe -12- benefit costs. These negative factors were partially offset by cost reduction efforts, including acquisition integration efforts. Depreciation and amortization expense increased in the six-month period of 2003 by 2% to $7.3 million from $7.1 million in the same period of 2002 primarily due to a $0.2 million (pre-tax) depreciation charge in 2003 to write-off pattern modification charges from casting suppliers no longer servicing the Company. Selling and administrative expenses increased in the six-month period of 2003 by 3% to $41.4 million from $40.3 million in the same period of 2002 primarily due to unfavorable changes in foreign currency exchange rates. Excluding the impact of foreign currency exchange rate changes, selling and administrative expenses decreased approximately 2% due to cost reductions, including acquisition integration efforts. These cost reductions were partially offset by higher compensation, sales commissions and fringe benefit costs. Selling and administrative expenses as a percentage of revenues increased to 19.6% for the six-month period of 2003 compared to 19.0% in 2002 primarily as a result of the increase in sales commissions and fringe benefit costs combined with lower revenues. The Compressed Air Products segment generated operating margins (defined as revenues, less cost of sales, depreciation and amortization, and selling and administrative expenses) of 7.9% for the six-month period ended June 30, 2003, a decrease from 9.1% for the same period of 2002. This decrease was primarily attributable to lower gross margins as a percentage of revenues due to unfavorable sales mix combined with higher compensation, fringe benefit and sales commissions. These negative factors were partially offset by cost reductions, including acquisition integration, combined with revenue and operating margin improvement from compressors packages used in PET bottle blowing applications. The Pump Products segment generated operating margins of 3.2% of revenues for the six-month period ended June 30, 2003, compared to an operating margin of 6.0% for the same period in 2002. This decrease was primarily attributable to the negative impact of decreased leverage of the segment's fixed and semi-fixed costs over a lower revenue base. Also contributing to the lower percentage was a less favorable sales mix, which included a lower percentage of revenues from drilling pumps, which carry higher margins than other pump products. Other income, net decreased $0.5 million compared to the prior year period primarily due to lower interest income and higher foreign currency transaction losses generated from U.S. dollar denominated balances of foreign subsidiaries in 2003. These negative factors were partially offset by a $0.4 million (pretax) gain on the sale of an idle manufacturing facility in Syracuse, New York in the second quarter of 2003. Interest expense decreased $1.1 million (31%) to $2.3 million for the six months ended June 30, 2003, compared to $3.4 million for the same period of 2002 due to lower average borrowings and interest rates. The average interest rate for the six-month period of 2003 was 4.1% compared to 4.3% in the prior year period. Income before income taxes decreased $2.3 million (15%) to $13.0 million for the six months ended June 30, 2003, compared to the same period of 2002. This decrease was primarily the result of the factors driving the decrease in segment operating margins and other income noted above. These negative factors were partially offset by cost reduction efforts, including acquisition integration, favorable changes in foreign currency exchange rates and lower interest expense. -13- The provision for income taxes decreased by $1.0 million (20%) to $4.2 million for the six-month period of 2003, compared to $5.2 million in 2002, as a result of the lower income before taxes and a lower overall effective tax rate. The Company's effective tax rate for the six months ended June 30, 2003 decreased to 32.0%, compared to 34.0% in the prior year period, principally as a result of a higher proportion of Extraterritorial Income Exclusion (EIE) benefit from U.S. export sales relative to pretax income. Net income for the six months ended June 30, 2003 decreased $1.2 million (12%) to $8.9 million ($0.55 diluted earnings per share), compared to $10.1 million ($0.63 diluted earnings per share) for the same period of 2002. This decrease in net income was primarily attributable to the same factors that resulted in decreased income before taxes noted above partially offset by a lower effective tax rate in 2003. Outlook In general, demand for compressed air products correlates to the rate of manufacturing capacity utilization and the rate of change of industrial production because compressed air is often used as a fourth utility in the manufacturing process. Over longer time periods, demand also follows the economic growth patterns indicated by the rates of change in the Gross Domestic Product. In the second quarter of 2003, orders for compressed air products were $81.7 million, compared to $93.6 million in the same period of 2002. For the first six months of 2003, orders for compressed air products were $174.9 million compared to $179.2 million in the same period of 2002. Order backlog for the Compressed Air Products segment was $56.9 million as of June 30, 2003, compared to $61.2 million as of June 30, 2002. The favorable impact of changes in foreign currency exchange rates was approximately $1.3 million and $8.6 million for compressed air products backog and orders, respectively, as of and for the six months ended June 30, 2003. The decrease in orders and backlog compared to the prior year is primarily due to softer U.S. and European industrial economies. Demand for pump products, which are primarily petroleum related, has historically corresponded to market conditions and expectations for oil and natural gas prices. Orders for pump products were $13.7 million in the second quarter of 2003 compared $12.9 million in the same period of 2002. For the first six months of 2003, pump product orders were $34.4 million compared to $26.2 in the same period of 2002. The increase in orders can primarily be attributed to increasing international drilling pump activity. Compared to June 30, 2002, backlog for this business segment decreased $3.0 million to $10.1 million on June 30, 2003, primarily due to the significant backlog in the second quarter of 2002, which was carried over from 2001 orders. The Company's postretirement expenses have not increased in 2003 as significantly as originally anticipated due to lower staffing levels and less dramatic increases in medical costs than initially assumed. However, consistent with the experience of many other companies in the U.S., these expenses will be higher in 2003 than in previous years. The Company now expects diluted earnings per share deterioration as a result of increased fringe benefits of approximately $0.08 to $0.10 compared to 2002, rather than previous expectations of $0.15 to $0.18 per share. The Company expects that material cost reductions, process improvements to operations and further capital investment will offset most of the volume reductions and unfavorable mix in our Pump Products segment (due to decreased drilling pump sales). Based upon the above and the current economic environment and activity levels in both reporting segments, the Company anticipates that diluted earnings per share will be approximately $0.30 to $0.34 for the third quarter of 2003. -14- Diluted earnings per share is expected to be approximately $1.17 to $1.27 for the year, which is within in the range of our previous guidance, assuming that a modest recovery in demand for compressed air products occurs in the fourth quarter. LIQUIDITY AND CAPITAL RESOURCES Operating Working Capital During the six months ended June 30, 2003, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $10.4 million due to higher inventories and receivables and lower accounts payable and accrued liabilities. Additions to inventory resulted from positioning long lead-time orders in backlog, unfavorable changes in foreign currency exchange rates and increases related to iron casting supply disruptions. The increase in receivables is primarily due to unfavorable changes in foreign currency exchange rates. The lower accounts payable and accrued liabilities are primarily due to reduced activity levels partially offset by favorable changes in foreign currency exchange rates. Cash Flows During the first six months of 2003, the Company generated cash from operations totaling $8.8 million, compared to $11.8 million in the prior year period. This change is primarily due the unfavorable change in operating working capital and lower net income in 2003 as noted above. Net payments on total debt were $9.3 million during the first six months 2003. The cash flows provided by operating activities and used in investing and financing activities, combined with the effect of changes in foreign currency exchange rates, resulted in a net cash decrease of $2.6 million for the first six months of 2003. Capital Expenditures and Commitments Capital projects designed to increase operating efficiency and flexibility, expand production capacity and increase product quality resulted in expenditures of $5.5 million in the first six months of 2003. This was $0.7 million higher than the level of capital expenditures in the comparable period in 2002, primarily due to the timing of capital projects. Commitments for capital expenditures at June 30, 2003 totaled $8.1 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 tax obligations which arise from the exercise or vesting of incentive stock options, restricted stock or performance shares. The Gardner Denver Board has authorized up to 400,000 shares for repurchase under this program and, of this amount, approximately 200,000 shares remain available for repurchase. As of June 30, 2003, a total of 1,572,542 shares have been repurchased at a cost of $22.8 million under both repurchase programs. -15- Liquidity The Company's amended and restated Revolving Line of Credit Agreement (the "Credit Line") has a borrowing capacity to $150 million and matures on March 6, 2005. Subject to approval by lenders holding more than 75% of the debt, the Company may request up to two, one-year extensions. The total debt balance will be due upon final maturity. On June 30, 2003, the Credit Line had an outstanding principal balance of $36.0 million, leaving $114.0 million available for future use or for letters of credit, subject to the terms of the Credit Line. The Credit Line also provided for an additional $50.0 million Term Loan which was used to retire debt outstanding under a previous interim credit agreement. The five-year Term Loan requires principal payments of $2.5 million in years one and two, and $15.0 million in years three through five. On June 30, 2003, the Term Loan had an outstanding principal balance of $46.9 million. 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 agreements, other than customary covenants regarding certain earnings, liquidity and capital ratios. Management currently expects the Company's future cash flows to be sufficient to fund its scheduled debt service and provide required resources for working capital and capital investments. CONTINGENCIES The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature. Due to the bankruptcies of several asbestos manufacturers and other primary defendants, the Company has been named as a defendant in an increasing number of asbestos personal injury lawsuits. In addition, the Company has also been named as a defendant in a number of silicosis personal injury lawsuits. Predecessors to the Company manufactured and sold the products allegedly at issue in these asbestos and silicosis lawsuits, namely: (a) asbestos-containing components supplied by third parties; and (b) portable compressors that were used as components for sandblasting equipment manufactured and sold by other parties. These lawsuits represent potential contingent liabilities to the Company as a result of its predecessors' historical sales of these products. The Company believes that these pending legal proceedings, lawsuits and administrative actions will not, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: (1) the Company's anticipated insurance and indemnification rights to address the risks of such matters; (2) the limited risk of potential asbestos exposure from the components described above, due to the complete enclosure of the components within the subject products and the additional protective non-asbestos binder which encapsulated the components; (3) the fact that the substantial majority of claimants in the pending asbestos and silicosis lawsuits against the Company are not impaired with disease; (4) the fact that neither the Company, nor its predecessors, ever manufactured, marketed or sold sandblasting equipment; (5) various other potential defenses available to the Company with respect to such matters; and (6) the Company's prior disposition of comparable matters. The Company has also 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 does not believe that the future potential costs related to these -16- sites will have a material adverse effect on its consolidated financial position, results of operations or liquidity. NEW ACCOUNTING STANDARDS In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for classifying and measuring certain financial instruments with both liabilities and equity and is effective for financial instruments entered into or modified after May 31, 2003. Adoption of SFAS No. 150 did not have a material impact on the Company's consolidated financial statements. CRITICAL ACCOUNTING POLICIES Management has evaluated the accounting policies used in the preparation of the Company's financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by management in selecting appropriate assumptions for calculation of financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving management judgments and estimates may be found in our 2002 Annual Report on Form 10-K, filed on March 26, 2003, in the Critical Accounting Policies Section of Management's Discussion and Analysis and in Note 1 to the Consolidated Financial Statements contained in our 2002 Annual Report to Stockholders filed as Exhibit 13.0 thereto. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS All of the statements in this Management's Discussion and Analysis, other than historical facts, are forward-looking statements made in reliance upon the safe harbor of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements made under the caption "Outlook." 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 Gardner Denver's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. These uncertainties and factors could cause actual results to differ materially from those matters expressed in or implied by such forward-looking statements. The following uncertainties and factors, among others, could affect future performance and cause actual results to differ materially from those expressed in or implied by forward-looking statements: (1) the ability to maintain and to enter into key purchasing, supply and outsourcing relationships; (2) the ability to effectively manage the transition of iron casting supply to alternate sources and the skill, commitment and availability of such alternate sources; (3) the ability to identify, negotiate and complete future acquisitions; (4) the speed with which the Company is able to integrate acquisitions and realize the related financial benefits; (5) the domestic and/or worldwide level of oil and natural gas prices and oil and gas drilling and production, which affect demand for the Company's petroleum products; (6) changes in domestic and/or worldwide industrial production and industrial capacity utilization rates, which affect demand for the Company's compressed air products; (7) pricing of Gardner Denver products; (8) the degree to which the Company is able to penetrate niche and international markets; (9) the ability to attract and retain quality management personnel; (10) market performance of pension -17- plan assets and changes in discount rates used for actuarial assumptions in pension and other post-employment obligation and expense calculations; (11) the continued successful implementation of cost reduction efforts; (12) the ability to manage and defend litigation matters pending, or asserted in the future, against the Company: (13) the successful implementation of the Company's strategic initiatives and partnering relationships; (14) the acceptance of the Company's new product offerings; and (15) the continued successful implementation and utilization of the Company's electronic services. The Company does not undertake, and hereby disclaims, any duty to update these forward-looking statements, even though its situation and circumstances may change in the future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes in the Company's exposure to market risk between December 31, 2002 and June 30, 2003. ITEM 4. CONTROLS AND PROCEDURES As required by Rule 13a-15 of the Exchange Act, the Company has carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company's management, including our Chairman, President and Chief Executive Officer and our Vice President, Finance and Chief Financial Officer. Based upon that evaluation, the Chairman, President and Chief Executive Officer and Vice President, Finance and Chief Financial Officer concluded that our controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company's periodic SEC reports is recorded, processed, summarized, and reported as and when required. In addition, they concluded that there were no significant changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to materially affect, our ability to record, process, summarize and report financial information. In designing and evaluating the disclosure controls and procedures, the Company's management recognized that any controls and procedures, no matter how well designed, can provide only reasonable assurances of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders (the "Annual Meeting") was held pursuant to notice on May 6, 2003. At the Annual Meeting, Ross J. Centanni and Richard L. Thompson were elected to serve as directors for a three-year term expiring in 2006. There were 15,549,087 affirmative votes cast and 191,324 non-votes concerning Mr. Centanni's election as a director and 14,591,312 affirmative votes cast and 149,099 non-votes concerning Mr. Thompson's election as a director. -18- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 10.1 Gardner Denver, Inc. Long-Term Incentive Plan, as amended May 6, 2003. 10.15 Gardner Denver, Inc. Executive Retirement Planning Program Services, dated May 5, 2003. 31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a). 31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a). 32 Certification pursuant to 18 U.S.C. Section 1350 and Exchange Act Rule 13a-14(b). (b) Reports on Form 8-K On July 23, 2003, Gardner Denver, Inc. filed an 8-K to furnish its press release announcing the Company's earnings for the second quarter and six months ended June 30, 2003. -19- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GARDNER DENVER, INC. Date: August 8, 2003 By: /s/Ross J. Centanni --------------------------------------- Ross J. Centanni Chairman, President & CEO Date: August 8, 2003 By: /s/Philip R. Roth --------------------------------------- Philip R. Roth Vice President, Finance & CFO Date: August 8, 2003 By: /s/ Daniel C. Rizzo, Jr. --------------------------------------- Daniel C. Rizzo, Jr. Vice President and Corporate Controller (Chief Accounting Officer) -20- GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 10.1 Gardner Denver, Inc. Long-Term Incentive Plan, as amended May 6, 2003. 10.15 Gardner Denver, Inc. Executive Retirement Planning Program Services, dated May 5, 2003. 31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a). 31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a). 32 Certification pursuant to 18 U.S.C. Section 1350 and Exchange Act Rule 13a-14(b). -21- EX-10.1 3 exh10p1.txt EXHIBIT 10.1 GARDNER DENVER, INC. LONG-TERM INCENTIVE PLAN (As amended May 7, 1996, May 4, 1998, November 2, 1998, May 4, 1999, March 6, 2000, January 1, 2001, May 7, 2002, July 30, 2002 and May 6, 2003) (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, performance share or long-term cash bonus 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 "Base Salary" means the base salary paid by the Company to the Participant, exclusive of any bonuses, commissions or other actual or imputed income from any Company-provided benefits or perquisites, but prior to any reductions for salary deferred pursuant to any deferred compensation plan or for contributions to a plan qualifying under Section 401(k) of the Code or contributions pursuant to a cafeteria plan under Section 125 of the Code. 2.5 "Base Salary Factor" means a multiplier expressed as a percentage of the Executive Officer's Base Salary, as determined by the Committee pursuant to Section 12.3 of the Plan for purposes of calculating an Executive Officer's Long-Term Cash Bonus. 2.6 "Board" shall mean the Board of Directors of the Company. 1 2.7 "Business Criteria" means any one, or a combination, of the following: (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) earnings before taxes of the Company; (vi) the Company's return on equity; (vii) cash flow of the Company; or (viii) Company stockholder total return. 2.8 "Change of Control" means the occurrence of any one of the following events: (i) any "person" (as defined in Sections 13(d) and 14(d) of U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, acquires "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing 20% of the combined voting power of the Company; or (ii) during any period of not more than two consecutive years, individuals who, at the beginning of such period, constitute the Board and any new directors (other than any director designated by a person who has entered into an agreement with the Company to effect a transaction described in subsections 2.8(i), 2.8(iii), or 2.8(iv) of this Plan) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; or (iii) the stockholders of the Company approve and the Company consummates a merger other than (A) a merger that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company and any Subsidiary, at least 50% of the combined voting power of all classes of stock of the Company or such surviving entity outstanding immediately after such merger or (B) a merger effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve and the Company consummates a plan of complete liquidation or dissolution of the Company, or a sale of all or substantially all of the assets of the Company. 2 2.9 "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. 2.10 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 2.11 "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. 2.12 "Common Stock" means the Common Stock, par value $0.01 per share, of the Company. 2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.14 "Executive Officer" means the Chairman, Chief Executive Officer, President, any Executive Vice President, any Senior Vice President, any senior officer reporting directly to the Chief Executive Officer and any other Vice President or senior executive or officer designated by the Chief Executive Officer. 2.15 "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. 2.16 "Long-Term Cash Bonus" means a payment in cash of an Executive Officer's Payment Opportunity. 2.17 "Payment Opportunity" means the amount determined pursuant to any bonus formula established by the Committee for an Executive Officer for a given Performance Period pursuant to Section 12.3 of the Plan, taking into account the actual achievement of the relevant Performance Targets and the Executive Officer's Base Salary Factor. 2.18 "Performance Period" means a stated period over which the Company's performance is measured for purposes of Awards under the Plan. The duration of Performance Periods may vary with respect to different types of Awards under the Plan, as determined by the Committee. 2.19 "Performance Shares" means Awards in the form of shares of Common Stock that may be earned pursuant to the terms set forth in Section 10 of the Plan. 3 2.20 "Performance Targets" means the predetermined goal or goals established by the Committee in writing (which may be cumulative or alternative) based upon one, or any combination, of the Business Criteria. 2.21 "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. 2.22 "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; and, provided further, that no action shall be taken which will prevent Awards that are intended to constitute "qualified performance-based compensation," within the meaning of Section 162(m) of the Code, from doing so. 3.3 Notwithstanding the powers and authorities of the Committee under the Plan, the Committee shall not permit the repricing of stock options by any method, including by cancellation and reissuance. 3.4 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 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 2001 Annual Meeting of Stockholders plus 750,000, subject to the adjustments provided for in Section 16 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 Subject to adjustment as set forth in Section 16 hereof, the maximum aggregate number of shares of Common Stock that may be granted under the Plan in the form of restricted stock grants shall not exceed 50% of the aggregate shares of Common Stock available under the Plan. 5.3 Shares of Common Stock subject to an Award that expires unexercised or that is forfeited, terminated or canceled, 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, except that any such shares attributable to a Restricted Stock Award (as defined in Section 9) shall be counted against the restricted stock limit set forth in Section 5.2 hereof. 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, performance shares and long-term cash bonuses; 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 16. 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 5 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. Awards of stock options made to Participants subject to Section 162(m) of the Code are intended to qualify as "qualified performance-based compensation" under Section 162(m) and the provisions of such Awards shall be interpreted in a manner consistent with that intent, to the extent appropriate. 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 16 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 (or amendments thereto), 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"). Awards of SARs made to Participants subject to 162(m) of the Code are intended to qualify as "qualified performance-based compensation" under Section 162(m) and the provisions of such Awards shall be interpreted in a manner consistent with that intent, to the extent appropriate. 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 6 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 canceled 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, achievement of individual performance goals or Performance Targets. 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. To the extent Restricted Awards are subject to Performance 7 Targets, it is intended that all such Restricted Stock Awards granted to Participants subject to Section 162(m) of the Code will qualify as "qualified performance-based compensation" under Section 162(m) and such Awards shall be interpreted in a manner consistent with that intent, to the extent appropriate. 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 established for Performance Shares. Performance Targets will be established at the beginning of each Performance Period. The Committee shall be permitted to make adjustments when determining the attainment of the applicable Performance Targets 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. 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 and to the extent applicable, Section 162(m) of the Code. 8 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 16 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 up to a maximum of 9,000 shares of Common Stock. The amount of shares subject to the option shall be determined in the Committee's discretion. 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. Except as provided in Section 15 hereof, no option shall be transferable by a nonemployee director except by will or the laws of descent and distribution, and during the director's lifetime options may be exercised only by him or his legal representative. 9 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. LONG-TERM CASH BONUS 12.1 Eligibility. Only Executive Officers shall be eligible to receive a Long-Term Cash Bonus. Not later than ninety (90) days after the commencement of a Performance Period, the Committee shall select the Executive Officers eligible to receive a Long-Term Cash Bonus for the Performance Period. Each Executive Officer participating in a Performance Period shall be eligible to receive a Long-Term Cash Bonus upon completion of a Performance Period only if Executive Officer is still employed by the Company upon the last day of such Performance Period, provided, however, that the Committee shall have the discretion to grant eligibility to the Executive Officer in its discretion, notwithstanding the fact that the Executive Officer is not still employed by the Company at such point. 12.2 Performance Target(s); Business Criteria; Base Salary Factors. The applicable Business Criteria and Performance Targets for a given Performance Period shall be established by the Committee in advance of the deadlines set forth in the regulations under Section 162(m) of the Code and while the performance relating to the Performance Targets remains substantially uncertain within the meaning of Section 162(m) of the Code. The Committee shall be permitted to make adjustments when determining the attainment of Performance Targets 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) of the Code, to the extent applicable. 12.3 Calculation of Long-Term Cash Bonus. At the beginning of each Performance Period, the Committee shall provide in terms of an objective formula or standard for each Executive Officer: (a) the method of computing the specific amount that will represent the Executive Officer's Long-Term Cash Bonus; and (b) the Base Salary Factor to be used in calculating any Executive Officer's Long-Term Cash Bonus. Subject to Section 12.4, at the first meeting of the Committee after the expiration of the Performance Period, the Committee shall determine the extent to which the Performance Targets have been achieved, and shall determine each Executive Officer's Payment Opportunity based on his or her Base Salary Factor. 10 Notwithstanding the attainment of the Performance Targets, Long-Term Cash Bonuses for individual Executive Officers may be denied or adjusted by the Committee, in its sole judgment, based on its assessment of the Executive Officer's performance. However, no upward adjustment may be made to a Long-Term Cash Bonus for an Executive Officer if Section 162(m) of the Code would limit the deduction the Company may claim for that Executive Officer's compensation. 12.4 Maximum Long-Term Cash Bonus. Notwithstanding any other provision in the Plan, no Executive Officer shall receive for any Performance Period any Long-Term Cash Bonus under the Plan in excess of $3,000,000 or, if less, three times his or her Base Salary as of the last day of the applicable Performance Cycle. Any Payment Opportunity in excess of the foregoing limits shall be reduced automatically to the extent of the excess. 12.5 Payment. Long-Term Cash Bonuses shall be paid in cash or Restricted Stock Awards, as determined by the Committee and subject to the remaining terms of this Plan. Payment of Long-Term Cash Bonuses shall occur within a reasonable time after the Committee has certified in writing the extent to which the Performance Targets have been achieved and determined the amount of each Executive Officer's Long-Term Cash Bonus for the given Performance Period pursuant to Sections 12.3 and 12.4 hereof. 13. DIVIDENDS AND DIVIDEND EQUIVALENTS; DEFERRALS 13.1 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. 13.2 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. Notwithstanding the foregoing, to the extent the Award being deferred is that of a Participant subject to Section 162(m) of the Code, the Committee will ensure that any increase in the Award will be based upon a reasonable rate of interest or on one or more predetermined actual investments such that the amount payable at the later date will be based upon actual returns, including any decrease or increase in the value of the investment(s). 11 14. TERMINATION OF EMPLOYMENT Consistent with the requirements of Section 162(m) regarding "qualified performance-based compensation," 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. 15. 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 (or amend) stock options to one or more executive officers or nonemployee directors of the Company on terms that permit the stock options to be transferred by any such executive officer or nonemployee director, for estate planning purposes, to (a) the executive officer's or nonemployee director'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 15, and shall be contained in the applicable stock option agreement (or an amendment thereto) between the Company and the executive officer. 16. 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. 17. 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 12 Stock required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash to the Participant. 18. 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. 19. 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. 20. 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 and Long-Term Cash Bonuses shall be deemed to be earned in full at the Payment Opportunity associated with the achievement of 100% of the Performance Targets assigned to such Awards, 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. 13 21. 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 or qualification of any Award under Section 162(m), or is otherwise required as a matter of law. Further, no amendment to the Plan shall be effective that would: (a) increase the maximum amount that can be paid to a Participant under the Plan; (b) change the Business Criteria for payment of performance-based Awards; or (c) modify the eligibility requirements for Participants in the Plan, unless first approved by the Company's stockholders. 22. 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. 23. 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. 24. EFFECTIVE DATE The Plan became effective on December 23, 1993. Subject to earlier termination pursuant to Section 20, the Plan shall terminate effective December 31, 2005. 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. 14 EX-10.15 4 exh10p15.txt EXHIBIT 10.15 GARDNER DENVER, INC. EXECUTIVE RETIREMENT PLANNING PROGRAM SERVICES On May 5, 2003, the Management Development Compensation Committee of the Gardner Denver, Inc. Board of Directors approved the following tax retirement planning program services for executive officers of Gardner Denver, Inc. o Within 12 months of retirement o Data Collection o Familiarization of company plans specifically applicable to retiree o Determination of most tax efficient manner to draw down both qualified and non-qualified company and non-company plans o Determine adequacy of retirement cash flow including recommendations for maximizing same o Assistance with determining proper elections with respect to any company benefit plan at retirement o Stock option planning o Fees $8,500 - $15,000 based on today's billing rates EX-31.1 5 exh31p1.txt EXHIBIT 31.1 CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a) I, Ross J. Centanni, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gardner Denver, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Reserved] c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 8, 2003 By: /s/ Ross J. Centanni ---------------------- Ross J. Centanni Chairman, President & CEO EX-31.2 6 exh31p2.txt EXHIBIT 31.2 CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a) I, Philip R. Roth, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gardner Denver, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Reserved] c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. August 8, 2003 By: /s/ Philip R. Roth ------------------------- Philip R. Roth Vice President, Finance & CFO EX-32 7 exh32.txt EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AND EXCHANGE ACT RULE 13a-14(b) In connection with the quarterly report of Gardner Denver, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company does hereby certify, to the best of such officer's knowledge, pursuant to 18 U.S.C. Section 1350 and Exchange Act Rule 13a-14(b), that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 8, 2003 By: /s/ Ross J. Centanni ------------------------- Ross J. Centanni Chairman, President & CEO August 8, 2003 By: /s/ Philip R. Roth ------------------------- Philip R. Roth Vice President, Finance & CFO -----END PRIVACY-ENHANCED MESSAGE-----