-----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, AFDirpn5XFjwE2JDHAh3YrDqojTjc7LyjVCEPxyRo2qEIVgfI4X3oB/Fh+gYoqyl ttCnlTSobME7ozETPVTMzQ== 0001068800-03-000655.txt : 20031112 0001068800-03-000655.hdr.sgml : 20031112 20031112165345 ACCESSION NUMBER: 0001068800-03-000655 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031112 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: 03994534 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 September 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 October 27, 2003: 16,098,426 shares. =============================================================================== PART I FINANCIAL INFORMATION GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ----------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Revenues $112,061 $102,791 $322,940 $314,254 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 78,198 70,261 225,123 216,152 Depreciation and amortization 3,740 3,718 11,053 10,859 Selling and administrative expenses 21,063 19,897 62,421 60,177 Interest expense 1,070 1,566 3,411 4,978 Other expense (income), net 230 32 133 (535) -------- -------- -------- -------- Income before income taxes 7,760 7,317 20,799 22,623 Provision for income taxes 2,483 2,488 6,656 7,692 -------- -------- -------- -------- Net income $ 5,277 $ 4,829 $ 14,143 $ 14,931 ======== ======== ======== ======== Basic earnings per share $ 0.33 $ 0.30 $ 0.88 $ 0.94 ======== ======== ======== ======== Diluted earnings per share $ 0.32 $ 0.30 $ 0.87 $ 0.93 ======== ======== ======== ======== The accompanying notes are an integral part of this statement.
- 2 - GARDNER DENVER, INC. CONSOLIDATED BALANCE SHEET (in thousands, except per share amounts)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------- ------------ ASSETS Current assets: Cash and equivalents $ 24,623 $ 25,667 Receivables, net 78,257 74,490 Inventories, net 70,351 67,448 Deferred income taxes 5,812 5,902 Other 3,493 4,268 -------- -------- Total current assets 182,536 177,775 -------- -------- Property, plant and equipment, net 75,750 76,162 Goodwill 203,927 201,761 Other intangibles, net 9,461 9,418 Deferred income taxes -- 3,611 Other assets 4,282 3,454 -------- -------- Total assets $475,956 $472,181 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt $ 13,750 $ 7,500 Accounts payable and accrued liabilities 65,747 70,160 -------- -------- Total current liabilities 79,497 77,660 -------- -------- Long-term debt, less current maturities 88,514 112,663 Postretirement benefits other than pensions 32,750 34,539 Deferred income taxes 518 -- Other long-term liabilities 28,050 24,396 -------- -------- Total liabilities 229,329 249,258 -------- -------- Stockholders' equity: Common stock, $0.01 par value; 50,000 shares authorized; 16,094 shares issued and outstanding at September 30, 2003 178 177 Capital in excess of par value 173,906 171,047 Treasury stock at cost, 1,720 shares at September 30, 2003 (25,909) (25,819) Retained earnings 95,807 81,664 Accumulated other comprehensive income (loss) 2,645 (4,146) -------- -------- Total stockholders' equity 246,627 222,923 -------- -------- Total liabilities and stockholders' equity $475,956 $472,181 ======== ======== The accompanying notes are an integral part of this statement.
- 3 - GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 2003 2002 -------- -------- Cash flows from operating activities: Net income $ 14,143 $ 14,931 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,053 10,859 Net gain on asset dispositions (359) (17) Stock issued for employee benefit plans 1,904 1,647 Deferred income taxes 4,189 244 Changes in assets and liabilities: Receivables (2,518) 9,099 Inventories (543) 3,932 Accounts payable and accrued liabilities (5,568) (13,269) Other assets and liabilities, net 1,432 (52) -------- -------- Net cash provided by operating activities 23,733 27,374 -------- -------- Cash flows from investing activities: Capital expenditures (8,194) (7,476) Business acquisitions, net of cash acquired (2,402) -- Disposals of property, plant and equipment 940 135 Other -- (5) -------- -------- Net cash used in investing activities (9,656) (7,346) -------- -------- Cash flows from financing activities: Principal payments on long-term debt (44,899) (48,808) Proceeds from long-term debt 27,000 12,000 Proceeds from stock options 956 2,289 Purchase of treasury stock (90) (201) Other (2) (745) -------- -------- Net cash used in financing activities (17,035) (35,465) -------- -------- Effect of exchange rate changes on cash and equivalents 1,914 1,642 -------- -------- Decrease in cash and equivalents (1,044) (13,795) -------- -------- Cash and equivalents, beginning of period 25,667 29,980 -------- -------- Cash and equivalents, end of period $ 24,623 $ 16,185 ======== ======== 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 nine months ended September 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. 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 nine months ended September 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; 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: - 5 -
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ----------------------- 2003 2002 2003 2002 ------- ------- ------- ------- Net income, as reported $ 5,277 $ 4,829 $14,143 $14,931 Less: Total stock-based employee compensation expense determined under fair value method, net of related tax effects 292 332 916 968 ------- ------- ------- ------- Pro forma net income $ 4,985 $ 4,497 $13,227 $13,963 ======= ======= ======= ======= Basic earnings per share, as reported $ 0.33 $ 0.30 $ 0.88 $ 0.94 ======= ======= ======= ======= Basic earnings per share, pro forma $ 0.31 $ 0.28 $ 0.82 $ 0.88 ======= ======= ======= ======= Diluted earnings per share, as reported $ 0.32 $ 0.30 $ 0.87 $ 0.93 ======= ======= ======= ======= Diluted earnings per share, pro forma $ 0.30 $ 0.28 $ 0.81 $ 0.87 ======= ======= ======= =======
Compensation costs charged against income (net of tax) for restricted stock issued under the Company's Incentive Plan totaled $0.2 million in the nine months ended September 30, 2003. NOTE 3. INVENTORIES.
SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------- ------------ Raw materials, including parts and subassemblies $ 35,522 $ 35,675 Work-in-process 10,593 9,077 Finished goods 26,750 25,355 Perishable tooling and supplies 2,456 2,456 -------- -------- 75,321 72,563 Excess of current costs over LIFO costs (4,970) (5,115) -------- -------- Inventories, net $ 70,351 $ 67,448 ======== ========
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS. The changes in the carrying amount of goodwill attributable to each business segment for the nine months ended September 30, 2003, are as follows:
COMPRESSED PUMP AIR PRODUCTS PRODUCTS ------------ -------- Balance as of December 31, 2002 $176,230 $25,531 Goodwill acquired during year -- 113 Foreign currency translation 2,053 -- -------- ------- Balance as of September 30, 2003 $178,283 $25,644 ======== =======
- 6 - Other intangible assets at September 30, 2003 consisted of the following:
GROSS CARRYING ACCUMULATED AMOUNT AMORTIZATION -------------- ------------ Amortized intangible assets: Acquired technology $12,209 $ (7,870) Other 4,234 (2,169) Unamortized intangible assets: Trademarks 3,057 -- ------- -------- Total other intangible assets $19,500 $(10,039) ======= ========
Amortization of intangible assets for the nine months ended September 30, 2003, was $1.1 million. Amortization of intangible assets is anticipated to be approximately $1.5 to $2.0 million per year for 2003 through 2007. NOTE 5. ACCRUED PRODUCT WARRANTY. The following is a rollforward of the Company's warranty accrual for the three and nine months ended September 30, 2003.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2003 ------------------ ------------------ Balance at beginning of period $ 6,695 $ 7,060 Product warranty accruals 1,589 3,640 Settlements (1,812) (4,394) Other 41 207 -------- -------- Balance at end of period $ 6,513 $ 6,513 ======== ========
NOTE 6. EARNINGS PER SHARE. The following table details the calculation of basic and diluted earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- --------------------------- 2003 2002 2003 2002 ---------- --------- ---------- ----------- Basic EPS: Net income $ 5,277 $ 4,829 $ 14,143 $ 14,931 ========== ========= ========== =========== Shares: Weighted average number of common shares outstanding 16,079 15,887 16,047 15,833 ========== ========= ========== =========== Basic earnings per common share $ 0.33 $ 0.30 $ 0.88 $ 0.94 ========== ========= ========== ===========
- 7 -
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- --------------------------- 2003 2002 2003 2002 ---------- --------- ----------- ----------- Diluted EPS: Net income $ 5,277 $ 4,829 $ 14,143 $ 14,931 ========== ========= =========== =========== Shares: Weighted average number of common shares outstanding 16,079 15,887 16,047 15,833 Assuming conversion of dilutive stock options issued and outstanding 314 151 222 225 ---------- --------- ----------- ----------- Weighted average number of common shares outstanding, as adjusted 16,393 16,038 16,269 16,058 ========== ========= =========== =========== Diluted earnings per common share $ 0.32 $ 0.30 $ 0.87 $ 0.93 ========== ========= =========== ===========
NOTE 7. COMPREHENSIVE INCOME. For the three months ended September 30, 2003 and 2002, comprehensive income was $6.3 million and $5.5 million, respectively. For the nine months ended September 30, 2003 and 2002, comprehensive income was $20.9 million and $20.1 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 nine months of 2003 and 2002, the Company paid $2.8 million and $5.3 million, respectively, to the various taxing authorities for income taxes. Interest paid for the first nine months of 2003 and 2002, was $3.6 million and $5.4 million, respectively. NOTE 9. CONTINGENCIES. The Company is a party to various other 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. We have also been named as a defendant in an increasing number of silicosis personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources, and typically the Company is one of approximately 25 or more named defendants. In our experience, the substantial majority of the plaintiffs have not been physically impaired by the alleged exposure. Predecessors to the Company manufactured, distributed and sold the products allegedly at issue in the pending asbestos and silicosis litigation lawsuits. The Company has potential responsibility for certain contingent liabilities with respect to these products, namely: (a) air compressors which used asbestos containing components manufactured and supplied by third parties; and (b) portable air compressors used in sandblasting operations as a component of sandblasting equipment manufactured and sold by others. The sandblasting equipment is alleged to have caused the silicosis disease plaintiffs' claim in these cases. - 8 - Neither the Company, nor its predecessors, ever mined, manufactured, mixed, produced or distributed asbestos fiber. The asbestos containing components used in the products at issue were completely encapsulated in a protective non-asbestos binder and enclosed within the subject products. Furthermore, the Company has never manufactured or distributed portable air compressors. The Company has entered into a series of cost sharing agreements with multiple insurance companies to secure coverage for asbestos and silicosis lawsuits. The Company also believes some of the potential liabilities regarding these lawsuits are covered by indemnity agreements with other parties. The Company's uninsured settlement payments for past asbestos and silicosis lawsuits have been immaterial. The Company believes that the pending, and future, asbestos and silicosis lawsuits will not, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Company's anticipated insurance and indemnification rights to address the risks of such matters; the limited potential asbestos exposure from the components described above; the fact that the substantial majority of plaintiffs are not impaired with a disease; various potential defenses available to the Company with respect to such matters; and the Company's prior disposition of comparable matters. However, because future developments could cause a different outcome, there can be no assurance that the resolution of pending or future lawsuits, whether by judgment, settlement or dismissal, will not have a material adverse effect on our consolidated financial position, results of operation or liquidity. 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. - 9 - NOTE 10. SEGMENT INFORMATION.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 2003 2002 2003 2002 ------------- ------------- ------------- ------------ Revenues: Compressed Air Products $ 91,554 $ 85,496 $ 271,183 $ 263,247 Pump Products 20,507 17,295 51,757 51,007 ------------- ------------- ------------- ------------ Total $ 112,061 $ 102,791 $ 322,940 $ 314,254 ============= ============= ============= ============ Operating Earnings: Compressed Air Products $ 7,089 $ 7,375 $ 21,364 $ 23,515 Pump Products 1,971 1,540 2,979 3,551 ------------- ------------- ------------- ------------ Total 9,060 8,915 24,343 27,066 Interest expense 1,070 1,566 3,411 4,978 Other expense (income), net 230 32 133 (535) ------------- ------------- ------------- ------------ Income before income taxes $ 7,760 $ 7,317 $ 20,799 $ 22,623 ============= ============= ============= ============
- 10 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS. PERFORMANCE IN THE QUARTER ENDED SEPTEMBER 30, 2003 COMPARED WITH THE QUARTER ENDED SEPTEMBER 30, 2002 Revenues Revenues increased $9.3 million to $112.1 million for the three months ended September 30, 2003, compared to $102.8 million in the same period of 2002 due to increased order activity in both reportable segments and changes in currency exchange rates. For the three months ended September 30, 2003, revenues for the Compressed Air Products segment increased $6.1 million (7%) to $91.6 million, compared to the same period of 2002. Revenues in this segment increased $3.1 million (4%) primarily due to improved orders for industrial products, particularly from Europe and Asia and $3.0 million (3%) from changes in currency exchange rates. Pump Products segment revenues increased $3.2 million (19%) to $20.5 million for the three months ended September 30, 2003, compared to the same period of 2002, primarily as a result of increased demand for well stimulation pumps and petroleum pump parts. Costs and Expenses Gross margin (defined as sales less cost of sales excluding depreciation and amortization) for the three months ended September 30, 2003 increased $1.3 million (4%) to $33.9 million compared to the same period of 2002. Gross margin as a percentage of revenues (gross margin percentage) decreased to 30.2% in the three-month period of 2003 from 31.6% in the same period of 2002. The decrease in gross margin percentage was principally attributable to unfavorable sales mix (including lower centrifugal blower and drilling pump sales and higher compressor package sales) combined with higher warranty expense (due to unusually low warranty expense in the third quarter of 2002, as a result of favorable claims experience). These negative factors were partially offset by cost reduction efforts, including continued acquisition integration. Selling and administrative expenses increased in the three-month period of 2003 by 6% to $21.1 million from $19.9 million in the same period of 2002. Selling and administrative expenses increased 3% primarily due to higher compensation and fringe benefit expense and 3% due to changes in currency exchange rates. Selling and administrative expenses as a percentage of revenues decreased to 18.8% for the three-month period of 2003 compared to 19.4% in 2002 primarily as a result of the increase in 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 7.7% for the three-month period ended September 30, 2003, a decrease from 8.6% for the same period of 2002. This decrease was primarily attributable to the higher warranty, compensation and fringe benefit expense discussed above. These negative factors were partially offset by cost reductions, including continued acquisition integration, combined with revenue and operating margin improvement on compressor packages. - 11 - The Pump Products segment generated operating margins of 9.6% of revenues for the three-month period ended September 30, 2003, compared to an operating margin of 8.9% 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. Interest expense decreased $0.5 million (32%) to $1.1 million for the three months ended September 30, 2003, compared to $1.6 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 4.0% compared to 4.6% in the prior year period. Other expense, net increased $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. Income before income taxes increased $0.4 million (6%) to $7.8 million for the three months ended September 30, 2003, compared to the same period of 2002. This increase was primarily the result of the positive impact of increased leverage of the Pump Products segment's fixed and semi-fixed costs over a higher revenue base, cost reduction efforts (including continued acquisition integration), lower interest expense and changes in currency exchange rates. These positive factors were partially offset by the negative factors driving the changes in the Compressed Air Products segment operating margins and other expense as discussed above. The provision for income taxes was $2.5 million in both three-month periods, as higher income before taxes was offset by a lower overall effective tax rate. The Company's effective tax rate for the three months ended September 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 September 30, 2003 increased $0.4 million (9%) to $5.3 million ($0.32 diluted earnings per share), compared to $4.8 million ($0.30 diluted earnings per share) for the same period of 2002. This increase in net income was primarily attributable to the same factors that resulted in increased income before taxes noted above combined with a lower effective tax rate in 2003. Changes in currency exchange rates increased net income by approximately $0.2 million in the three months ended September 30, 2003 compared to the prior year period. PERFORMANCE IN THE NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 2002 Revenues Revenues increased $8.7 million to $322.9 million for the nine months ended September 30, 2003, compared to the same period of 2002 primarily due to changes in currency exchange rates. For the nine months ended September 30, 2003, revenues for the Compressed Air Products segment increased $7.9 million (3%) to $271.2 million, compared to the same period of 2002. Revenues in this segment increased approximately 5% due to changes in currency exchange rates. Excluding the impact of changes in currency exchange rates, revenues in this segment decreased approximately 2% due to softer industrial economic conditions in the U.S. and Europe, which was partially offset by incremental demand of compressor packages used in PET bottle - 12 - blowing applications. Pump Products segment revenues increased $0.8 million (1%) to $51.8 million for the nine months ended September 30, 2003, compared to the same period of 2002. This increase is primarily attributable to higher shipments of well stimulation pumps and petroleum pump parts and was partially offset by lower drilling pump sales. 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 $0.04-$0.05 diluted earnings per share) on the Company's financial performance during the first nine months of 2003, as additional costs were incurred to expedite castings from new suppliers and accelerate depreciation expense of 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 for the nine months ended September 30, 2003 decreased $0.3 million to $97.8 million compared to the same period of 2002. The gross margin percentage decreased to 30.3% in the nine-month period of 2003 from 31.2% in the same period of 2002. This decrease in the gross margin percentage was principally attributable to unfavorable sales mix (including lower drilling pump and centrifugal blower sales and higher compressor package sales) and costs associated with the disruption in the Company's casting supply chain. These negative factors were partially offset by cost reduction efforts, including continued acquisition integration efforts. Selling and administrative expenses increased in the nine-month period of 2003 by 4% to $62.4 million from $60.2 million in the same period of 2002 primarily due to changes in foreign currency exchange rates. Excluding the impact of foreign currency exchange rate changes, selling and administrative expenses decreased approximately $0.2 million due to cost reductions, including continued acquisition integration efforts. These cost reductions were partially offset by higher compensation expense, sales commissions, fringe benefit and legal costs. Selling and administrative expenses as a percentage of revenues increased to 19.3% for the nine-month period of 2003 compared to 19.1% in 2002 primarily as a result of the factors discussed above which were partially offset by the impact of higher revenues. The Compressed Air Products segment generated operating margins of 7.9% for the nine-month period ended September 30, 2003, a decrease from 8.9% for the same period of 2002. This decrease was primarily attributable to higher warranty, compensation and fringe benefit expense combined with costs associated with the disruption within the Company's casting supply chain. These negative factors were partially offset by cost reductions, including continued acquisition - 13 - integration efforts, combined with revenue and operating margin improvement from compressor packages used in PET bottle blowing applications. The Pump Products segment generated operating margins of 5.8% of revenues for the nine-month period ended September 30, 2003, compared to an operating margin of 7.0% for the same period in 2002. This decrease was primarily attributable to a less favorable sales mix, which included a lower percentage of revenues from drilling pumps, which carry higher margins than other pump products. This negative factor was partially offset by lower warranty expense. Interest expense decreased $1.6 million (31%) to $3.4 million for the nine months ended September 30, 2003, compared to $5.0 million for the same period of 2002 due to lower average borrowings and interest rates. The average interest rate for the nine-month period of 2003 was 4.1% compared to 4.4% in the prior year period. Other expense, net increased $0.7 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. Income before income taxes decreased $1.8 million (8%) to $20.8 million for the nine months ended September 30, 2003, compared to the same period of 2002. This decrease was primarily the result of the factors driving the changes in segment operating margins and other expense noted above. These negative factors were partially offset by cost reductions, including continued acquisition integration efforts, changes in currency exchange rates and lower interest expense. The provision for income taxes decreased by $1.0 million (13%) to $6.7 million for the nine-month period of 2003, compared to $7.7 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 nine months ended September 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 nine months ended September 30, 2003 decreased $0.8 million (5%) to $14.1 million ($0.87 diluted earnings per share), compared to $14.9 million ($0.93 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 discussed above partially offset by a lower effective tax rate in 2003. Changes in currency exchange rates increased net income by approximately $0.7 million in the nine months ended September 30, 2003 compared to the prior year period. 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 third quarter of 2003, orders for compressed air products were $90.3 million, compared to $80.7 million in the same period of 2002. For the first nine months of 2003, orders for compressed air products were $265.1 million compared to $259.9 million in the same period of 2002. Order - 14 - backlog for the Compressed Air Products segment was $56.5 million as of September 30, 2003, compared to $56.9 million as of September 30, 2002. The favorable impact of changes in currency exchange rates was approximately $12.1 million and $1.7 million and for compressed air products orders and backlog, respectively, as of and for the nine months ended September 30, 2003. Excluding this impact, 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 $18.9 million in the third quarter of 2003 compared to $14.5 million in the same period of 2002. For the first nine months of 2003, pump product orders were $53.4 million compared to $40.7 million in the same period of 2002. The increase in orders can primarily be attributed to increasing demand for well stimulation pumps and petroleum pump parts. Compared to September 30, 2002, backlog for this business segment decreased $1.6 million to $8.7 million on September 30, 2003, primarily due to the significant drilling pump backlog in the third quarter of 2002, which was carried over from 2001 orders. During the fourth quarter of 2003, the Company announced and initiated restructuring plans to eliminate redundant manufacturing capacity, streamline operations and reduce costs. These activities represent further integration of previously completed acquisitions, which the Company expects will better leverage existing manufacturing facilities. As a result of the restructuring, the Company expects to realize a net reduction in headcount of approximately 80 personnel (approximately 4% of its current workforce) by 2005. The Company also announced a detailed inventory reduction plan and its intent to establish a compressor packaging and assembly operation in China. The Company estimates the aggregate financial impact of these programs (restructuring plans, inventory reduction plan and China operations establishment) will be a reduction in diluted earnings per share of approximately $0.10 to $0.12 in the fourth quarter of 2003. 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 $0.22 to $0.26 for the fourth quarter of 2003. Diluted earnings per share is expected to be approximately $1.09 to $1.13 for the year, which is within the range of the Company's previous guidance after adjustment for the programs discussed above. LIQUIDITY AND CAPITAL RESOURCES Operating Working Capital During the nine months ended September 30, 2003, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $11.1 million due to higher receivables and inventories and lower accounts payable and accrued liabilities. Additions to inventory resulted primarily from positioning long lead-time orders in backlog and changes in currency exchange rates. The increase in receivables is primarily due to timing of shipments and changes in currency exchange rates. The lower accounts payable and accrued liabilities are primarily due to timing of payments and were partially offset by changes in currency exchange rates. - 15 - Cash Flows During the first nine months of 2003, the Company generated cash flows from operating activities totaling $23.7 million, compared to $27.4 million in the prior year period. This unfavorable comparison is primarily due to an increase in operating working capital and lower net income in 2003, as discussed above. During the first nine months of 2003, cash from operating activities supported the Company's ability to invest in capital expenditures ($8.2 million), reduce total debt ($17.9 million) and acquire a small machine shop in Odessa, Texas ($2.4 million). The cash flows provided by operating activities and used in investing and financing activities, combined with the effect of changes in currency exchange rates, resulted in a net cash decrease of $1.0 million for the first nine 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 $8.2 million in the first nine 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 September 30, 2003 approximated $10 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, the Company'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 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. No shares were repurchased under these repurchase programs during 2002 or 2003. As of September 30, 2003, a total of 1,572,542 shares have been repurchased at a cost of $22.8 million under both repurchase programs. During the nine months ended September 30, 2003, the Company also acquired 3,983 shares of its common stock, valued at $0.1 million, which were tendered for the exercise of stock options. Liquidity The Company's amended and restated Revolving Line of Credit Agreement (the "Credit Line") has a borrowing capacity of $150.0 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 September 30, 2003, the Credit Line had an outstanding principal balance of $33.0 million, leaving $117.0 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 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 September 30, 2003, the Term Loan had an outstanding principal balance of $46.3 million. - 16 - 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. On September 24, 2003, the Company filed with the Securities and Exchange Commission ("SEC") a shelf registration statement regarding $150 million of its securities. The registration statement has since been declared effective by the SEC and allows the Company to complete one or more offerings of its common stock, preferred stock, debt securities or warrants. The Company intends to use the net proceeds from any offering for acquisitions, capital expenditures, repayment of borrowings, working capital and other general corporate purposes. 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 ongoing capital investments. CONTINGENCIES The Company is a party to various other 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. We have also been named as a defendant in an increasing number of silicosis personal injury lawsuits. The plaintiffs in these suits allege exposure to asbestos or silica from multiple sources, and typically the Company is one of approximately 25 or more named defendants. In our experience, the substantial majority of the plaintiffs have not been physically impaired by the alleged exposure. Predecessors to the Company manufactured, distributed and sold the products allegedly at issue in the pending asbestos and silicosis litigation lawsuits. The Company has potential responsibility for certain contingent liabilities with respect to these products, namely: (a) air compressors which used asbestos containing components manufactured and supplied by third parties; and (b) portable air compressors used in sandblasting operations as a component of sandblasting equipment manufactured and sold by others. The sandblasting equipment is alleged to have caused the silicosis disease plaintiffs' claim in these cases. Neither the Company, nor its predecessors, ever mined, manufactured, mixed, produced or distributed asbestos fiber. The asbestos containing components used in the products at issue were completely encapsulated in a protective non-asbestos binder and enclosed within the subject products. Furthermore, the Company has never manufactured or distributed portable air compressors. The Company has entered into a series of cost sharing agreements with multiple insurance companies to secure coverage for asbestos and silicosis lawsuits. The Company also believes some of the potential liabilities regarding these lawsuits are covered by indemnity agreements with other parties. The Company's uninsured settlement payments for past asbestos and silicosis lawsuits have been immaterial. The Company believes that the pending, and future, asbestos and silicosis lawsuits will not, in the aggregate, have a material adverse effect on its consolidated financial position, results of operations or liquidity, based on: the Company's anticipated insurance and indemnification rights - 17 - to address the risks of such matters; the limited potential asbestos exposure from the components described above; the fact that the substantial majority of plaintiffs are not impaired with a disease; various potential defenses available to the Company with respect to such matters; and the Company's prior disposition of comparable matters. However, because future developments could cause a different outcome, there can be no assurance that the resolution of pending or future lawsuits, whether by judgment, settlement or dismissal, will not have a material adverse effect on our consolidated financial position, results of operation or liquidity. 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. 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 successful implementation of other strategic initiatives, including, without limitation, restructuring plans, inventory reduction programs and other cost reduction efforts; (6) the domestic and/or - 18 - worldwide level of oil and natural gas prices and oil and gas drilling and production, which affect demand for the Company's petroleum products; (7) changes in domestic and/or worldwide industrial production and industrial capacity utilization rates, which affect demand for the Company's compressed air products; (8) pricing of Gardner Denver products; (9) the degree to which the Company is able to penetrate niche and international markets; (10) the ability to attract and retain quality management personnel; (11) market performance of pension plan assets and changes in discount rates used for actuarial assumptions in pension and other post-employment obligation and expense calculations; (12) the continued ability to effectively manage and defend litigation matters pending, or asserted in the future, against the Company; (13) the development and acceptance of the Company's new product offerings; and (14) 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 September 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 the Chairman, President and Chief Executive Officer and the 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 the Company's 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 the Company's internal control over financial reporting. 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. - 19 - PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 10.10 Form of Gardner Denver, Inc. Nonemployee Director Stock Option Agreement, as amended July 29, 2003. 12 Calculation of Ratio of Earnings to Fixed Charges. 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 October 20, 2003, Gardner Denver, Inc. filed a Current Report on Form 8-K to furnish its press release announcing the Company's earnings for the third quarter and nine months ended September 30, 2003, certain recent activities, and guidance as to certain future results. On September 17, 2003, Gardner Denver, Inc. filed a Current Report on Form 8-K to report a temporary suspension of trading under its employee benefits plans. - 20 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GARDNER DENVER, INC. Date: November 12, 2003 By: /s/Ross J. Centanni --------------------------------- Ross J. Centanni Chairman, President & CEO Date: November 12, 2003 By: /s/Philip R. Roth --------------------------------- Philip R. Roth Vice President, Finance & CFO Date: November 12, 2003 By: /s/Daniel C. Rizzo, Jr. --------------------------------- Daniel C. Rizzo, Jr. Vice President and Corporate Controller (Chief Accounting Officer) - 21 - GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 10.10 Form of Gardner Denver, Inc. Nonemployee Stock Option Agreement, as amended July 29, 2003. 12 Calculation of Ratio of Earnings to Fixed Charges. 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). - 22 - EX-10.10 3 exh10p10.txt [Gardner Denver logo] EXHIBIT 10.10
GARDNER DENVER, INC. NONEMPLOYEE DIRECTOR STOCK OPTION AGREEMENT - -------------------------------------------------------------------------------------------------------------------------------- RECIPIENT: SHARES: PURCHASE GRANT EXPIRATION PRICE: DATE: DATE: - --------------------------------------------------------------------------------------------------------------------------------
This Agreement is made between Gardner Denver, Inc., a Delaware corporation, having its principal executive office in Quincy, Illinois (the "Company"), and the undersigned, a nonemployee director of the Company (the "Director"). The parties have agreed as follows: 1. Pursuant to the Gardner Denver, Inc. Long-Term Incentive Plan, as amended, (the "Plan"), the Company grants to the Director a nonstatutory option to purchase the number of shares of the Company's common stock, par value $0.01 per share (the "Shares"), specified above, at the price specified above, subject to the following conditions: (a) Subject to Sections 2 and 6, the option rights are fully exercisable on the first anniversary of the date of grant of this option (the "Grant Date"). (b) During the lifetime of the Director, the option rights are exercisable only by the Director or the Director's legal representative. (c) The option rights shall expire at the Expiration Date specified above, or at such earlier time as may be provided by Sections 2 or by cash payments made in cancellation pursuant to Section 6, and such option rights shall not be exercisable after such expiration. 2. If the Director shall cease to serve as a director of the Company by reason of retirement in accordance with any retirement plan or policy of the Company then in effect or by reason of disability during service as a director, option rights not otherwise fully exercisable at the time of such retirement or cessation of service as a director due to disability shall become fully exercisable upon such retirement or cessation of service, and such option rights shall be exercisable for five years following such retirement or cessation of service (but not after the Expiration Date). If the Director shall die during service as a director or shall die within the five-year period during which the option rights may be exercised following retirement or disability, option rights not otherwise fully exercisable at the time of the death of the Director shall become fully exercisable upon such death, and such option rights shall be exercisable for one year following such death (but not after the Expiration Date). If after the expiration of one year from the Grant Date, the Director shall cease to serve as a director of the Company for any reason other than death, disability or retirement, the option rights shall continue to be exercisable for a period of 90 days after such cessation of service (but not after the Expiration Date). 3. This option may be exercised by delivering to the Company at its principal executive office (directed to the attention of the Corporate Secretary) a written notice, signed by the Director or a person entitled to exercise the option by will or the laws of descent and distribution, as the case may be, of the election to exercise the option and stating the number of Shares in respect of which it is then being exercised. The option shall be deemed exercised as of the date the Company receives such notice. As an essential part of such notice, it shall be accompanied by payment of the full purchase price of the Shares then being purchased. In the event the option shall be exercised by any person other than the Director, such notice shall be accompanied by appropriate evidence of the right of such person to exercise the option. Payment of the full purchase price may be made in (a) cash, (b) Shares, or (c) any combination of cash and Shares, provided that any Shares used by the Director in payment of the purchase price must have been held by the Director for a period of more than six months, and provided further that the Company reserves the right to prohibit the use of Shares as payment of the purchase price. Shares used in payment of the purchase price shall be valued at the average of the high and low trading prices of such Shares on the composite tape of the New York Stock Exchange or as reported in the consolidated transaction reporting system for the date of exercise. Upon the proper exercise of the option, the Company shall issue in the name of the person exercising the option, and deliver to such person, a certificate or certificates for the Shares purchased, or shall otherwise properly evidence the purchase of such Shares in the Company's stock records. The Director shall have no rights as a stockholder in respect of any Shares as to which the option shall not have been effectively exercised as provided in this Agreement. 4. This option shall not be exercisable if such exercise would violate (a) any applicable requirement under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended, or the listing requirements of any stock exchange; (b) any applicable state securities law; or (c) any other applicable legal requirement. Furthermore, if a registration statement with respect to the Shares to be issued upon the exercise of this option is not in effect or if counsel for the Company deems it necessary or desirable in order to avoid possible violation of the Act, the Company may require, as a condition to its issuance of the Shares, the delivery to the Company of a commitment in writing by the person exercising the option that at the time of such exercise it is the person's intention to acquire such Shares for the person's own account for investment only and not with a view to, or for resale in connection with, the distribution of such Shares, that such person understands that the Shares may be "restricted securities" as defined in Rule 144 issued under the Act, and that any resale, transfer or other disposition of the Shares will be accomplished only in compliance with Rule 144, the Act, or other or subsequent applicable rules and regulations under the Act. The Company may place on the certificates evidencing such Shares an appropriate legend reflecting such commitment and the Company may refuse to permit transfer of such Shares until it has been furnished evidence satisfactory to it that no violation of the Act or the applicable rules and regulations would be involved in such transfer. 5. This option may not be assigned, encumbered or transferred except, in the event of the death of a Participant by will or by the laws of descent and distribution. The Director shall have the right, subject to the provisions of this Section 5, to transfer all or any portion of the option granted under this Agreement (or an amendment thereto), for estate planning purposes, to (a) the 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 of the Board of Directors that administers the Plan (the "Committee"). The terms and conditions applicable to the transfer of any such stock options or portion of an option transferred by the Director shall be established by the Committee, in its discretion but in accordance with this Section 5 shall remain subject to the same terms and conditions as were applicable immediately prior to the transfer, including those provisions regarding exercisability of the option following the cessation of employment of the Director by the Company and the death of the Director, except that no transferee may further transfer an option or portion of an option transferred by the Director in accordance with this Section 5, other than by will or the laws of descent and distribution. In order to effect a transfer in accordance with this Section 5, the Director shall deliver to the Company (in the manner set forth in Section 4) a Notice of Transfer of Option substantially in the form attached to this Agreement. 6. If (i) the Company is to be merged into or consolidated with one or more corporations and the Company is not to be the surviving corporation, (ii) the Company is to be dissolved and liquidated, (iii) substantially all the assets and business of the Company are to be sold, or (iv) there occurs a "change of control" of the Company, then the option rights not otherwise exercisable shall become fully exercisable. In the case of a change of control, (i) the Company shall make payment in cash to the Director in an amount equal to the appreciation in the value of the option from the purchase price specified in this Agreement to the "change of control price"; (ii) such cash payment shall be due and payable, and shall be paid by the Company, immediately upon the occurrence of the change of control; and (iii) after such payment, the Director shall have no further rights under this Agreement with respect to option rights outstanding at the time of the change of control. For purposes of this Agreement, a "change of control" and the "change of control price" shall be as defined in Section 2 of the Plan. 7. The committee of the Board of Directors that administers the Plan (the "Committee") shall have authority, subject to the express provisions of the Plan, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect. All action by the Committee under the provisions of this paragraph shall be conclusive for all purposes. 8. The Director agrees to notify the Company promptly of the disposition, whether by sale, exchange or otherwise, of any Shares acquired pursuant to the exercise of this option if such disposition occurs within one year from the acquisition of the Shares. Such notice shall state the date and manner of disposition and the proceeds, if any, received by the Director. 9. This Agreement and the option granted under this Agreement shall be subject to all of the provisions of the Plan as are in effect from time to time, which provisions of the Plan shall govern if there is any inconsistency between this Agreement and the Plan. 2 EX-12 4 exh12.txt EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES GARDNER DENVER, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED ------------- -------------------------------------------------- 2003 2002 2001 2000 1999 1998 ------------- ------ ------ ------ ------ ------ Earnings: Income before income taxes $ 20,799 28,827 34,683 29,894 29,157 59,894 Plus: Fixed Charges 4,378 7,483 7,789 8,486 6,746 5,692 -------- ------ ------ ------ ------ ------ Total $ 25,177 36,310 42,472 38,380 35,903 65,586 ======== ====== ====== ====== ====== ====== Fixed Charges: Interest expense incl. amortization of debt expense $ 3,411 6,365 6,796 7,669 5,934 4,849 Rentals-portion representative of interest 967 1,118 993 817 812 843 -------- ------ ------ ------ ------ ------ Total $ 4,378 7,483 7,789 8,486 6,746 5,692 ======== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges 5.8 4.9 5.5 4.5 5.3 11.5 ======== ====== ====== ====== ====== ======
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. November 12, 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. November 12, 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 September 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. November 12, 2003 By: /s/ Ross J. Centanni ---------------------------- Ross J. Centanni Chairman, President & CEO November 12, 2003 By: /s/ Philip R. Roth ---------------------------- Philip R. Roth Vice President, Finance & CFO -----END PRIVACY-ENHANCED MESSAGE-----