-----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, WjCoj5XiGA9hog+g73HH0Rn0oOcBpGEmsYiF09x6Bgy1NaJ7LpS42lnvEY2mVQQN 0wMbqOc8ObEMWB7QQycDKA== 0001068800-04-000333.txt : 20040510 0001068800-04-000333.hdr.sgml : 20040510 20040510171333 ACCESSION NUMBER: 0001068800-04-000333 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 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: 04794124 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 March 31, 2004 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 April 30, 2004: 19,753,950 shares. ============================================================================ PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------------ 2004 2003 -------- -------- Revenues $154,428 $101,491 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 104,511 70,774 Depreciation and amortization 5,133 3,546 Selling and administrative expenses 34,903 20,677 Interest expense 2,022 1,205 Other (income) expense, net (2,076) 113 -------- -------- Income before income taxes 9,935 5,176 Provision for income taxes 3,378 1,656 -------- -------- Net income $ 6,557 $ 3,520 ======== ======== Basic earnings per share $ 0.40 $ 0.22 ======== ======== Diluted earnings per share $ 0.39 $ 0.22 ======== ======== The accompanying notes are an integral part of this statement.
- 2 - GARDNER DENVER, INC. CONSOLIDATED BALANCE SHEET (in thousands, except per share amounts)
(UNAUDITED) MARCH 31, DECEMBER 31, 2004 2003 ----------- ------------ ASSETS Current assets: Cash and equivalents $ 31,519 $132,803 Receivables, net 111,977 81,345 Inventories, net 90,991 64,327 Deferred income taxes 5,412 3,652 Other 5,582 5,682 -------- -------- Total current assets 245,481 287,809 -------- -------- Property, plant and equipment, net 107,675 75,428 Goodwill 264,619 205,488 Other intangibles, net 44,685 10,341 Deferred income taxes 2,265 5,374 Other assets 4,875 5,293 -------- -------- Total assets $669,600 $589,733 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt $ 44,673 $ 16,875 Accounts payable and accrued liabilities 123,747 84,081 -------- -------- Total current liabilities 168,420 100,956 -------- -------- Long-term debt, less current maturities 66,015 165,756 Postretirement benefits other than pensions 31,833 32,110 Other long-term liabilities 48,408 25,006 -------- -------- Total liabilities 314,676 323,828 -------- -------- Stockholders' equity: Common stock, $0.01 par value; 50,000 shares authorized; 19,739 shares issued and outstanding at March 31, 2004 215 178 Capital in excess of par value 256,945 174,474 Treasury stock at cost, 1,729 shares at March 31, 2004 (26,144) (25,947) Retained earnings 108,864 102,307 Accumulated other comprehensive income 15,044 14,893 -------- -------- Total stockholders' equity 354,924 265,905 -------- -------- Total liabilities and stockholders' equity $669,600 $589,733 ======== ======== The accompanying notes are an integral part of this statement.
- 3 - GARDNER DENVER, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------------------- 2004 2003 --------- -------- Cash flows from operating activities: Net income $ 6,557 $ 3,520 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,133 3,546 Unrealized foreign currency transaction gain (1,282) -- Net (gain) loss on asset dispositions (53) 3 Stock issued for employee benefit plans 659 889 Deferred income taxes (984) 1,339 Changes in assets and liabilities: Receivables (774) 5,982 Inventories (3,831) (3,433) Accounts payable and accrued liabilities (3,007) (7,100) Other assets and liabilities, net 1,105 606 --------- -------- Net cash provided by operating activities 3,523 5,352 --------- -------- Cash flows from investing activities: Business acquisitions, net of cash acquired (81,322) -- Capital expenditures (3,849) (2,765) Disposals of plant and equipment 202 23 --------- -------- Net cash used in investing activities (84,969) (2,742) --------- -------- Cash flows from financing activities: Principal payments on long-term debt (124,056) (12,633) Proceeds from long-term debt 21,331 4,000 Proceeds from issuance of common stock 79,557 -- Proceeds from stock options 2,292 828 Purchase of treasury stock (197) (14) Other -- (3) --------- -------- Net cash used in financing activities (21,073) (7,822) --------- -------- Effect of exchange rate changes on cash and equivalents 1,235 610 --------- -------- Decrease in cash and equivalents (101,284) (4,602) --------- -------- Cash and equivalents, beginning of period 132,803 25,667 --------- -------- Cash and equivalents, end of period $ 31,519 $ 21,065 ========== ======== 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, 2003. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the full year. 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 months ended March 31, 2004 and 2003 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: - 5 -
THREE MONTHS ENDED MARCH 31, ------------------------ 2004 2003 ------ ------ Net income, as reported $6,557 $3,520 Less: Total stock-based employee compensation expense determined under fair value method, net of related tax effects 305 328 ------ ------ Pro forma net income $6,252 $3,192 ====== ====== Basic earnings per share, as reported $ 0.40 $ 0.22 ====== ====== Basic earnings per share, pro forma $ 0.38 $ 0.20 ====== ====== Diluted earnings per share, as reported $ 0.39 $ 0.22 ====== ====== Diluted earnings per share, pro forma $ 0.37 $ 0.20 ====== ======
Compensation costs charged against income (net of tax) for restricted stock issued under the Company's Incentive Plan totaled $0.2 million in the three months ended March 31, 2003. There was no restricted stock issued in the current year period. NOTE 2. ACQUISITIONS On January 2, 2004, the Company effectively acquired the outstanding shares of Syltone plc ("Syltone"), previously a publicly traded company listed on the London Stock Exchange. Syltone, headquartered in Bradford, United Kingdom ("U.K."), is one of the world's largest manufacturers of equipment used for loading and unloading liquid and dry bulk products on commercial transportation vehicles. This equipment includes compressors, blowers and other ancillary products that are complementary to the Company's product line. Syltone is also one of the world's largest manufacturers of fluid transfer equipment (including loading arms, swivel joints, couplers and valves) used to load and unload ships, tank trucks and rail cars. The purchase price of (pounds)61.1 million including assumed bank debt (net of cash acquired) was paid in the form of cash ((pounds)44.4 million), new loan notes ((pounds)5.2 million) and the assumption of Syltone's existing bank debt, net of cash ((pounds)11.5 million). There are no additional contingent payments or commitments related to this acquisition. This acquisition has been accounted for by the purchase method and accordingly, its results are included in the Company's consolidated financial statements from the date of acquisition. Net of cash acquired, $81.3 million in cash was used to fund the Syltone acquisition (and related direct acquisition costs) during the first quarter. The aggregate purchase price (including direct acquisition costs) has been allocated primarily to receivables ($30,410); inventory ($22,413); property, plant and equipment ($33,297); intangible assets ($92,316); accounts payable and accrued liabilities ($41,586); bank debt, net ($20,570); net deferred income tax liabilities ($2,308) and other long-term liabilities ($21,993), based on their estimated fair values at the date of acquisition. This allocation reflects the Company's preliminary estimates of the purchase price allocation and is subject to change upon completion of appraisals in 2004. Further, other assets and liabilities may be identified to which a portion of the purchase price could be allocated. - 6 - The following table summarizes the preliminary fair values of the intangible assets acquired in the Syltone acquisition: Amortized intangible assets: Customer lists and relationships $19,646 Other 5,394 Unamortized intangible assets: Goodwill 58,346 Trademarks 8,930 ------- Total intangible assets $92,316 =======
The preliminary weighted average amortization period for customer lists and relationships and other amortized intangible assets is 20 years and 5 years, respectively. The total amount of goodwill that is expected to be deductible for tax purposes is not anticipated to be significant given the stock nature of the acquisition. The assignment of goodwill has been allocated to the Compressed Air Products segment ($40,842) and the Fluid Transfer Products segment ($17,504). This allocation is preliminary and subject to change upon completion of appraisals in 2004. See Note 12 for additional segment information. The following table summarizes supplemental pro forma information as if the Syltone acquisition had been completed on January 1, 2003:
THREE MONTHS ENDED MARCH 31, ------------------ 2003 ------------------ Revenues $134,021 Net income 3,505 Diluted earnings per share $ 0.22
The pro forma net income above reflects the negative impact of a one-time adjustment on cost of sales of approximately $1.1 million stemming from recording Syltone's inventory at fair value. NOTE 3. INVENTORIES
MARCH 31, DECEMBER 31, 2004 2003 --------- ------------ Raw materials, including parts and subassemblies $ 42,147 $ 33,850 Work-in-process 13,203 7,850 Finished goods 38,061 24,731 Perishable tooling and supplies 2,294 2,429 -------- -------- 95,705 68,860 Excess of FIFO costs over LIFO costs (4,714) (4,533) -------- -------- Inventories, net $ 90,991 $ 64,327 ======== ========
- 7 - NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying amount of goodwill attributable to each business segment for the three months ended March 31, 2004, are as follows:
COMPRESSED AIR FLUID TRANSFER PRODUCTS PRODUCTS -------------- -------------- Balance as of December 31, 2003 $179,854 $25,634 Goodwill acquired during the period 40,842 17,504 Foreign currency translation 395 390 -------- ------- Balance as of March 31, 2004 $221,091 $43,528 ======== =======
Other intangible assets at March 31, 2004 consisted of the following:
ACCUMULATED COST AMORTIZATION ------- ------------ Amortized intangible assets: Acquired technology $20,798 $(11,377) Customer lists and relationships 22,292 (1,273) Other 3,820 (1,761) Unamortized intangible assets: Trademarks 12,186 -- ------- -------- Total other intangible assets $59,096 $(14,411) ======= ========
Amortization of intangible assets for the three months ended March 31, 2004, was $1.0 million. Amortization of intangible assets is anticipated to be approximately $3.5 to $4.0 million per year for 2004 through 2008. NOTE 5. ACCRUED PRODUCT WARRANTY The following is a rollforward of the Company's warranty accrual for the three months ended March 31, 2004 and 2003.
THREE MONTHS ENDED MARCH 31, -------------------------- 2004 2003 ------- ------- Balance at beginning of period $ 6,635 $ 7,060 Product warranty accruals 1,853 892 Settlements (1,802) (1,113) Other (acquisitions and foreign currency translation) 1,398 44 ------- ------- Balance at end of period $ 8,084 $ 6,883 ======= =======
- 8 - NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFITS The following table provides the components of net periodic benefit expense (income) for the Company's defined benefit pension plans and other postretirement benefit plans for the three months ended March 31, 2004 and 2003:
Pension Benefits ------------------------------------------ Other U.S. Plans Non-U.S. Plans Postretirement Benefits ---------------- ----------------- ----------------------- 2004 2003 2004 2003 2004 2003 ---- ---- ---- ---- ---- ---- Service cost $ 574 600 $ 791 385 $ -- -- Interest cost 853 908 1,310 362 425 500 Expected return on plan assets (950) (855) (1,286) (369) -- -- Amortization of transition liability -- -- -- -- -- -- Amortization of prior-service cost (24) (25) 5 -- (25) (125) Amortization of net loss (gain) 53 130 59 58 (65) (150) ----- ---- ------- ---- ---- ---- Net periodic benefit expense (income) $ 506 758 $ 879 436 $335 225 ===== ==== ======= ==== ==== ====
NOTE 7. STOCKHOLDERS' EQUITY Pursuant to its previously filed shelf registration with the Securities and Exchange Commission, the Company completed an offering of 3,450,000 shares of its common stock for net proceeds of approximately $79.6 million during March of 2004. These proceeds were used to repay borrowings under its Revolving Line of Credit Agreement (the "Credit Line"). NOTE 8. EARNINGS PER SHARE The following table details the calculation of basic and diluted earnings per share:
THREE MONTHS ENDED MARCH 31, -------------------------- 2004 2003 ---------- --------- Basic EPS: Net income $ 6,557 $ 3,520 ========== ========= Shares Weighted average number of common shares outstanding 16,352 16,010 ========== ========= Basic earnings per common share $ 0.40 $ 0.22 ========== ========= Diluted EPS: Net income $ 6,557 $ 3,520 ========== ========= Shares Weighted average number of common shares outstanding 16,352 16,010 Assuming conversion of dilutive stock options issued and outstanding 401 161 ---------- --------- Weighted average number of common shares outstanding, as adjusted 16,753 16,171 ========== ========= Diluted earnings per common share $ 0.39 $ 0.22 ========== =========
- 9 - NOTE 9. COMPREHENSIVE INCOME For the three months ended March 31, 2004 and 2003, comprehensive income was $6.7 million and $5.2 million, respectively. Items impacting the Company's comprehensive income, but not included in net income, consist of foreign currency translation adjustments. NOTE 10. CASH FLOW INFORMATION In the first three months of 2004 and 2003, the Company paid $0.7 million and $0.8 million, respectively, to the various taxing authorities for income taxes. Interest paid for the first three months of 2004 and 2003, was $2.0 million and $1.5 million, respectively. NOTE 11. 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. The Company has 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 the Company's experience, the substantial majority of the plaintiffs are not impaired with a disease attributable to 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 plaintiff's 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 to address the risks of such matters; the limited potential asbestos exposure from the components described above; the Company's experience that the substantial majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica; various potential - 10 - defenses available to the Company with respect to such matters; and the Company's prior disposition of comparable matters. However, due to inherent uncertainties of litigation and 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 its consolidated financial position, results of operations or liquidity. The Company has also been identified as a potentially responsible party with respect to several sites designated for environmental 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. NOTE 12. SEGMENT INFORMATION Subsequent to the acquisition of Syltone, the Company continues to be organized based upon the products and services it offers but now has four operating divisions: Compressor, Blower, Pump and Fluid Transfer. These divisions comprise two reportable segments, Compressed Air Products and Fluid Transfer Products. The Compressor and Blower (which now includes the Syltone transportation-related activities) divisions are aggregated into one reportable segment (Compressed Air Products) since the long-term financial performance of these businesses are affected by similar economic conditions, coupled with the similar nature of their products, manufacturing processes and other business characteristics. The Pump and Fluid Transfer (which consists of the Syltone fluid transfer-related activities) divisions are aggregated into one reportable segment (Fluid Transfer Products) primarily due to the same factors as noted above.
THREE MONTHS ENDED MARCH 31, ------------------------------- 2004 2003 -------------- ------------- Revenues: Compressed Air Products $ 122,996 $ 87,186 Fluid Transfer Products 31,432 14,305 ------------- ------------- Total $ 154,428 $ 101,491 ============= ============= Operating earnings (loss): Compressed Air Products $ 8,274 $ 6,576 Fluid Transfer Products 1,607 (82) ------------- ------------- Total 9,881 6,494 Interest expense 2,022 1,205 Other (income) expense, net (2,076) 113 ------------- ------------- Income before income taxes $ 9,935 $ 5,176 ============= =============
- 11 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RECENT DEVELOPMENTS. On January 2, 2004, the Company effectively acquired the outstanding shares of Syltone plc ("Syltone"), previously a publicly traded company listed on the London Stock Exchange. Syltone, headquartered in Bradford, United Kingdom ("U.K."), is one of the world's largest manufacturers of equipment used for loading and unloading liquid and dry bulk products on commercial transportation vehicles. This equipment includes compressors, blowers and other ancillary products that are complementary to the Company's product line. Syltone is also one of the world's largest manufacturers of fluid transfer equipment (including loading arms, swivel joints, couplers and valves) used to load and unload ships, tank trucks and rail cars. The purchase price of (pounds)61.1 million including assumed bank debt (net of cash acquired) was paid in the form of cash ((pounds)44.4 million), new loan notes ((pounds)5.2 million) and the assumption of Syltone's existing bank debt, net of cash ((pounds)11.5 million). There are no additional contingent payments or commitments related to this acquisition. Syltone generated revenues and operating profit (in accordance with accounting principles generally accepted in the U.K.) of (pounds)84.4 million and (pounds)6.3 million, respectively (approximately $151.1 million and $11.3 million, respectively as calculated using the December 31, 2003 exchange rate of $1.79/(pounds)) for the twelve months ended September 30, 2003. Syltone's largest markets are Europe and North America, which represent approximately 67% and 20% of its revenues, respectively. Approximately 70% of Syltone's revenues are generated through transportation-related activities while the remaining 30% are derived from fluid transfer-related activities. Subsequent to the acquisition of Syltone, the Company continues to be organized based upon the products and services it offers but now has four operating divisions: Compressor, Blower, Pump and Fluid Transfer. These divisions comprise two reportable segments, Compressed Air Products and Fluid Transfer Products. The Compressor and Blower (which now includes the Syltone transportation-related activities) divisions are aggregated into one reportable segment (Compressed Air Products) since the long-term financial performance of these businesses are affected by similar economic conditions, coupled with the similar nature of their products, manufacturing processes and other business characteristics. The Pump and Fluid Transfer (which consists of the Syltone fluid transfer-related activities) divisions are aggregated into one reportable segment (Fluid Transfer Products) primarily due to the same factors as noted above. RESULTS OF OPERATIONS. PERFORMANCE IN THE QUARTER ENDED MARCH 31, 2004 COMPARED WITH THE QUARTER ENDED MARCH 31, 2003 Revenues Revenues increased $52.9 million (52%) to $154.4 million for the three months ended March 31, 2004, compared to $101.5 million in the same period of 2003. This increase is primarily due to the acquisition of Syltone, which contributed $42.3 million in revenues. Increased volume of well stimulation pumps and pump parts shipments, changes in currency exchange rates and price increases also contributed to this increase. - 12 - For the three months ended March 31, 2004, revenues for the Compressed Air Products segment increased $35.8 million (41%) to $123.0 million, compared to the same period of 2003. This increase is primarily due to the acquisition of Syltone ($29.2 million), changes in currency exchange rates ($4.3 million) and price increases (approximately $0.8 million). Fluid Transfer Products segment revenues increased $17.1 million (120%) to $31.4 million for the three months ended March 31, 2004 compared to the same period of 2003. This increase is primarily due to the acquisition of Syltone ($13.1 million), increased volume of well stimulation pumps and pump parts shipments ($4.5 million) and price increases ($0.4 million) partially offset by a decrease in volume of drilling pump shipments. Costs and Expenses Gross margin (defined as revenues less cost of sales) for the three months ended March 31, 2004 increased $19.2 million (63%) to $49.9 million compared to the same period of 2003. Gross margin as a percentage of revenues (gross margin percentage) increased to 32.3% in the three-month period of 2004 from 30.3% in the same period of 2003. This increase in the gross margin percentage was principally attributable to Syltone, which has higher gross margins than the Company's previously existing business. Syltone's gross margin percentage was 34.4% during the first quarter and included a non-recurring negative impact of approximately $1.2 million stemming from recording their inventory at fair value on the acquisition date. Gross margin percentage was also favorably impacted by the increased volume of well stimulation pumps and pump parts shipments and the related positive impact of increased leverage of the Fluid Transfer segment's fixed and semi-fixed costs over a higher revenue base. Finally, due to the closure of a significant casting supplier in the second half of 2002, the first quarter of 2003 included costs of approximately $0.6 million to expedite castings from new suppliers which did not recur in 2004. These positive factors were partially offset by higher warranty expense in 2004. Depreciation and amortization for the three months ended March 31, 2004 increased $1.6 million to $5.1 million compared to $3.5 million in the same period of 2003 primarily due to the Syltone acquisition. Selling and administrative expenses increased in the three-month period of 2004 by 69% to $34.9 million from $20.7 million in the same period of 2003 primarily due to the acquisition of Syltone ($10.1 million). Higher compensation and fringe benefit costs and changes in currency exchange rates also contributed to this increase. Other income, net was $2.1 million for the three months ended March 31, 2004 compared to other expense, net in the comparable prior year period of $0.1 million. This change was primarily due to foreign currency transaction gains recorded in 2004. These gains included $1.2 million specifically related to a portion of the proceeds from U.S. dollar borrowings, which were converted to British pounds and appreciated in U.S. dollars in 2004 prior to being used to consummate the Syltone acquisition in January 2004. The Compressed Air Products segment generated operating earnings (defined as revenues, less cost of sales, depreciation and amortization, and selling and administrative expenses) as a percentage of revenues of 6.7% for the three-month period ended March 31, 2004, a decrease from 7.5% for the same period of 2003. This decrease was primarily attributable to higher compensation, fringe benefit and warranty expense. These negative factors were partially offset by non-recurring costs to expedite castings from new suppliers incurred in 2003. Operating - 13 - earnings as a percentage of revenues for the portion of Syltone's business included in this segment were 7.6%. The Fluid Transfer Products segment generated operating earnings as a percentage of revenues of 5.1% for the three-month period ended March 31, 2004, compared to an operating loss of 0.6% for the same period in 2003. This improvement was primarily attributable to the positive impact of increased leverage of the segment's fixed and semi-fixed costs over a higher revenue base and operational improvements. Operating earnings as a percentage of revenues for the portion of Syltone's business included in this segment were 4.7%. Interest expense increased $0.8 million (68%) to $2.0 million for the three months ended March 31, 2004, compared to $1.2 million for the same period of 2003 due to higher average borrowings and rates stemming from the Syltone acquisition. The average interest rate for the three-month period ended March 31, 2004 was 4.4% compared to 4.1% in the comparable prior year period. Income before income taxes increased $4.8 million (92%) to $9.9 million for the three months ended March 31, 2004, compared to the same period of 2003. This increase is primarily due to Syltone, foreign currency gains and the increased volume of well stimulation pumps and pump parts shipments, as discussed above. These positive factors were partially offset by higher compensation, fringe benefit and warranty expense in 2004. The provision for income taxes increased by $1.7 million to $3.4 million for the three-month period of 2004, compared to $1.7 million for the same period in 2003, as a result of the higher income before taxes and a higher overall effective tax rate. The Company's effective tax rate for the three months ended March 31, 2004 increased to 34.0% compared to 32.0% in the prior year period, principally due to the acquisition of Syltone. Net income for the three months ended March 31, 2004 increased $3.1 million (86%) to $6.6 million ($0.39 diluted earnings per share), compared to $3.5 million ($0.22 diluted earnings per share) for the same period of 2003. This increase in net income is primarily attributable to the same factors that resulted in increased income before taxes noted above partially offset by a higher effective tax rate in 2004. Syltone contributed approximately $0.07 to diluted earnings per share during the first quarter of 2004. 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 first quarter of 2004, orders for compressed air products were $139.7 million, compared to $93.1 million in the same period of 2003. Backlog for the Compressed Air Products segment was $77.9 million as of March 31, 2004, compared to $65.4 million as of March 31, 2003. The increase in orders and backlog compared to the prior year is primarily due to the addition of Syltone's transportation-related activities, which contributed $31.5 million and $15.0 million to orders and backlog, respectively. Favorable changes in foreign currency exchange rates also added approximately $5.3 million and $3.3 million to orders and backlog, respectively. Excluding these favorable items, the growth in orders for this segment stems primarily from an improvement in the U.S. industrial economy and increased demand for European compressors. - 14 - Demand for fluid transfer products, the majority of which are petroleum related, has historically corresponded to market conditions and expectations for oil and natural gas prices. Orders for fluid transfer products were $36.4 million in the first quarter of 2004 compared to $20.7 million in the same period of 2003. Backlog for this business segment was $30.5 million as of March 31, 2004, compared to $13.1 million as of March 31, 2003. The increase in orders and backlog compared to the prior year is primarily due to the addition of Syltone's fluid transfer-related, which contributed $9.3 million and $12.0 million to orders and backlog, respectively. Excluding the impact of Syltone, the increase in orders for this segment stems primarily from increased demand for well stimulation pumps and petroleum pump parts due to continued high prices for oil and natural gas. Future increases in demand for these products will likely be dependent upon oil and natural gas prices and rig counts, which the Company cannot predict. On April 28, 2004, the Company announced the closure of a facility located in Louisville, Kentucky, which was purchased in the Syltone acquisition. Manufacturing of blower products at this operation will be relocated to an existing facility in Sedalia, Missouri. Fluid transfer operations performed in Louisville will be transferred to another Syltone facility in Houston, Texas. This action is expected to be completed by year-end and anticipated to reduce diluted earnings per share by as much as $0.03 in 2004, the majority of which will occur in the second quarter. LIQUIDITY AND CAPITAL RESOURCES Operating Working Capital During the three months ended March 31, 2004, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $17.6 million primarily due to Syltone ($7.5 million) and higher inventory and receivable balances stemming from increased activity levels. Cash Flows During the first three months of 2004, the Company generated cash from operations totaling $3.5 million, compared to $5.4 million in the prior year period. This change is primarily due to the unfavorable change in operating working capital (excluding the impact of the Syltone acquisition) due to increased activity levels, partially offset by higher net income. Net of cash acquired, $81.3 million in cash was used to fund the Syltone acquisition (and related direct acquisition costs) during the first quarter. This use of cash was partially offset by net proceeds from the sale of 3,450,000 shares of common stock in March 2004, which totaled $79.6 million. These proceeds along with other cash reserves were used to reduce debt by approximately $102.7 million. The cash flows provided by operating activities and used in financing and investing activities, combined with the effect of exchange rate changes, resulted in a net cash decrease of $101.3 million during the first quarter of 2004. Capital Expenditures and Commitments Capital projects designed to increase operating efficiency and flexibility, expand production capacity and bring new products to market resulted in expenditures of $3.8 million in the first three months of 2004. This was $1.1 million higher than the level of capital expenditures in the comparable period in 2003, primarily due to the timing of capital projects. Commitments for - 15 - capital expenditures at March 31, 2004 were approximately $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, 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 income 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 March 31, 2004, a total of 1,572,542 shares have been repurchased at a cost of $22.8 million under both repurchase programs. Liquidity Pursuant to its previously filed shelf registration with the Securities and Exchange Commission, the Company completed an offering of 3,450,000 shares of its common stock for net proceeds of approximately $79.6 million during March of 2004. These proceeds were used to repay borrowings under its Revolving Line of Credit Agreement (the "Credit Line"). The Credit Line has a borrowing capacity of $150.0 million and the total debt balance is due upon final maturity 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. On March 31, 2004, the Credit Line had an outstanding principal balance of $11.0 million, leaving $139.0 million available for future use or for letters of credit, subject to the terms of the Credit Line. The Company also has a five-year $50.0 million Term Loan with a final maturity of March 6, 2007. The Term Loan requires principal payments of $2.5 million in years one and two, and $15.0 million in years three through five. On March 31, 2004, the Term Loan had an outstanding principal balance of $45.0 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 for at least the next twelve months. 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. The Company has 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 the Company's experience, the substantial - 16 - majority of the plaintiffs are not physically impaired with a disease attributable to 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 plaintiff's 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 to address the risks of such matters; the limited potential asbestos exposure from the components described above; the Company's experience that the substantial majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica; various potential defenses available to the Company with respect to such matters; and the Company's prior disposition of comparable matters. However, due to the inherent uncertainties of litigation and 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 its consolidated financial position, results of operations or liquidity. The Company has also been identified as a potentially responsible party with respect to several sites designated for environmental 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. NEW ACCOUNTING STANDARDS In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities," an interpretation of Accounting Research Bulletin No. 51, which addresses consolidation by business enterprises of variable interest entities. This interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the interest entities do not effectively disperse risks among the parties involved. This interpretation applies to variable interest entities created after January 31, 2003. It applies in the - 17 - first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company has no variable interest entities and has adopted this interpretation which did not have a material impact on its financial statements. In December 2003, the FASB issued SFAS No. 132 (revised), "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement requires additional disclosures about plan assets, benefit obligations, cash flows, benefit costs and other relevant information. In addition to expanded annual disclosures, the statement also requires disclosures of various elements of pension and other postretirement benefit costs on an interim basis. The Company has adopted SFAS No.132 (revised) and included the required disclosures in Note 6 to the Condensed 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 calculating 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 2003 Annual Report on Form 10-K, filed on March 10, 2004, in the Critical Accounting Policies Section of Management's Discussion and Analysis and in Note 1 to the Consolidated Financial Statements contained in our 2003 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 the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company. 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 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 - 18 - production and industrial capacity utilization rates, which affect demand for the Company's compressed air products; (8) pricing of the Company's products; (9) the degree to which the Company is able to penetrate niche and international markets; (10) changes in currency exchange rates (primarily between the U.S. dollar, the euro and the British pound); (11) changes in interest rates; (12) the ability to attract and retain quality management personnel; (13) market performance of pension plan assets and changes in discount rates used for actuarial assumptions in pension and other postretirement obligation and expense calculations; (14) the continued ability to effectively manage and defend litigation matters pending, or asserted in the future, against the Company; (15) the development and acceptance of the Company's new product offerings; and (16) 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, 2003 and March 31, 2004. 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 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 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
- ---------------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES PURCHASED AS MAXIMUM NUMBER OF PART OF PUBLICLY SHARES THAT MAY YET TOTAL NUMBER OF AVERAGE PRICE PAID ANNOUNCED PLANS OR BE PURCHASED UNDER PERIOD SHARES PURCHASED PER SHARE PROGRAMS (1) THE PLANS OR PROGRAMS - ---------------------------------------------------------------------------------------------------------------------- January 1, 2004 - January 31, 2004 -- -- -- 210,300 - ---------------------------------------------------------------------------------------------------------------------- February 1, 2004 - February 29, 2004 -- -- -- 210,300 - ---------------------------------------------------------------------------------------------------------------------- March 1, 2004 - March 31, 2004 -- -- -- 210,300 -- -- - ---------------------------------------------------------------------------------------------------------------------- Total -- -- -- 210,300 == == - --------------------------- -------------------- ----------------------- ---------------------- ---------------------- (1) 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.
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: 10.1 Gardner Denver, Inc. Long-Term Incentive Plan, as amended May 4, 2004. 10.17 Gardner Denver, Inc. Employee Stock Purchase Plan, as amended May 4, 2004. 12 Calculation of Ratio of Earnings to Fixed Charges. 31.1 Certification of Principal Executive Officer Pursuant to Rule 13a-15(e) or 15d-15(e) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Pursuant to Rule 13a-15(e) or 15d-15(e) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - 20 - (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K, dated January 13, 2004, relating to a press release issued on January 5, 2004 which announced that the cash offer by its wholly-owned subsidiary GD First (UK) plc for the outstanding ordinary shares of Syltone plc had become unconditional in all respects and would remain open for acceptance until further notice. The Company filed a Current Report on Form 8-K, dated February 3, 2004, relating to a press release issued on that date announcing the Company's earnings for the fourth quarter and fiscal year ended December 31, 2003, certain recent activities, and guidance as to results for 2004. The Company filed a Current Report on Form 8-K, dated March 11, 2004, relating to a press release issued on March 10, 2004 announcing its intention to offer, subject to market and other conditions, 3,000,000 shares of its common stock (pursuant to its existing shelf registration) and to grant the underwriters an option to purchase an additional 450,000 shares of its common stock to cover over-allotments, if any. The prospectus supplement and related financial statements and pro forma financial information were filed as exhibits to this Form 8-K. The Company filed a Current Report on Form 8-K, dated March 24, 2004, relating to a press release issued on March 23, 2004 announcing the pricing of its offering of 3,000,000 shares of its common stock and its related registration statement on Form S-3. The Company filed a Current Report on Form 8-K, dated March 29, 2004, relating to a press release issued on that date announcing the closing of its offering of 3,450,000 shares of its common stock, which includes 450,000 shares sold at the underwriters' option. - 21 - 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: May 10, 2004 By: /s/Ross J. Centanni ---------------------------------------- Ross J. Centanni Chairman, President & CEO Date: May 10, 2004 By: /s/Philip R. Roth ---------------------------------------- Philip R. Roth Vice President, Finance & CFO Date: May 10, 2004 By: /s/Daniel C. Rizzo, Jr. ---------------------------------------- Daniel C. Rizzo, Jr. Vice President and Corporate Controller (Chief Accounting Officer) - 22 - GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 10.1 Gardner Denver, Inc. Long-Term Incentive Plan, as amended May 4, 2004. 10.17 Gardner Denver, Inc. Employee Stock Purchase Plan, as amended May 4, 2004. 12 Calculation of Ratio of Earnings to Fixed Charges. 31.1 Certification of Principal Executive Officer Pursuant to Rule 13a-15(e) or 15d-15(e) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Pursuant to Rule 13a-15(e) or 15d-15(e) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - 23 - EX-10.1 2 ex10p1.txt Exhibit 10.1 GARDNER DENVER, INC. LONG-TERM INCENTIVE PLAN 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. 2.20 "Performance Targets" means the predetermined goal or goals established by 3 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 2004 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 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 5 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 ("SAR"). 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 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 SAR"), or may be granted separately ("Freestanding SAR"); provided, however, that Freestanding SARs shall be granted only to Participants who are foreign nationals or are employed outside of the 6 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 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. 7 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. Notwithstanding the attainment of the Performance Targets, Long-Term Cash Bonuses for 10 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). 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. 11 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 stock options to one or more executive officers or nonemployee directors of the Company (or amend existing stock options) 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 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 12 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. An Award Agreement may be amended by action of the Board or the Committee, provided that no such amendment shall be made that would impair the rights of a Participant under such Award Agreement without the Participant's consent. 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, 2008. 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-10.17 3 ex10p17.txt Exhibit 10.17 GARDNER DENVER, INC. EMPLOYEE STOCK PURCHASE PLAN SECTION 1. PURPOSE The Gardner Denver, Inc. Employee Stock Purchase Plan (the "Plan") is designed to provide employees of Gardner Denver, Inc. (the "Company") and its subsidiaries with the opportunity to acquire shares of common stock of the Company ("Stock"), by granting options to such employees on such dates not later than December 31, 2008 as the Board of Directors of the Company (the "Board") may from time to time determine (each such date is herein referred to as an "Offering Date"), which options shall be exercised on such dates, in each case not later than 15 months after the related Offering Date, as are established in accordance with the provisions of this Plan (each such date of exercise is herein referred to as an "Exercise Date"). This Plan is intended to constitute an "employee stock purchase plan" within the meaning of section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). SECTION 2. ELIGIBLE EMPLOYEES All persons who on an Offering Date are employees of the Company or of such of its subsidiary corporations (within the meaning of Section 424(f) of the Code) as may be designated prior to such Offering Date by the Board ("Participating Subsidiaries") will be eligible to participate in the Plan except for: (a) directors of the Company or a Participating Subsidiary that are not employees; (b) employees that have been continuously employed by the Company, its Participating Subsidiaries or predecessors of such subsidiaries for less than two months prior to such Offering Date; (c) employees whose customary employment is less than 20 hours per week or for not more than five months in any calendar year; and (d) any employee who, if granted an option under the Plan, would immediately after the option is granted own stock equal to five percent or more of the total combined voting power or value of all classes of stock of the Company or of its parent or subsidiary corporations (within the meaning of sections 423(b)(3) and 424(d) of the Code). SECTION 3. GRANT OF OPTIONS 3.01. As of each Offering Date, each eligible employee shall be granted an option to purchase a maximum number of shares of Stock (increased by any fractional amount required to make a whole share), which number of shares, when multiplied by the option price described in Section 3.02(a), will most closely approximate a percentage fixed by the Board prior to such Offering Date (which percentage shall not exceed 5%) of the annual compensation of that eligible employee as in effect as of October 31 of that calendar year, determined as follows: (a) the straight-time hourly base wage rate of the employee in effect on October 31 of that calendar year multiplied by 2,080, or by such number as the Board deems to constitute the number of straight-time hours in a normal work year for such employee; (b) the monthly base salary of the employee in effect on October 31 of that calendar year multiplied by 12; or (c) if the Management Development and Compensation Committee (the "Committee") believes that neither of the amounts determined pursuant to the methods described in (a) and (b) above would properly reflect the employee's normal compensation for one year, such compensation determined in a manner the Committee considers to be equitable. The number of shares so determined is subject to possible adjustment as provided in Sections 3.03 and 5 below. 3.02. The option price for all shares for which options are granted on an Offering Date will be the lesser of: (a) an amount equal to 85% of the mean between the high and low quoted selling prices of Stock on the composite tape of the New York Stock Exchange on the Offering Date, or if there is no such sale on the Offering Date, on the then most recent preceding day on which any such sale occurred; or (b) an amount equal to 85% of the mean between the high and low quoted selling prices of Stock on the composite tape of the New York Stock Exchange on the Exercise Date (as defined in Section 1 above), or if there is no such sale on the Exercise Date, on the then most recent preceding day on which any such sale occurred. 3.03. No employee may be granted an option that permits his rights to purchase stock under the Plan and under all other employee stock purchase plans of the Company and its parent and subsidiary corporations to exceed the amount provided by Section 423(b)(8) of the Code from time to time for each calendar year in which such option is outstanding at anytime. If an employee would become entitled to purchase a number of shares exceeding such maximum amount, the number of shares available for purchase by the employee shall be reduced by such excess. 2 SECTION 4. ELECTIONS TO PURCHASE SHARES AND PAYROLL DEDUCTIONS Subject to Section 9, not later than 45 days after the Offering Date, an employee may elect to purchase all or part of the shares that he is entitled to purchase with respect to that Offering Date. Such election shall be made by the execution by the employee of an approved form authorizing uniform payroll deductions over a 12-month period beginning on the January 1 next following the Offering Date and ending on December 31 of that same year (the "Offering Termination Date"). Such payroll deductions shall be in such amounts as will in the aggregate equal the total option price described in Section 3.02(a) of all shares that he has elected to purchase. The minimum payroll deduction shall be $10 per month. Any election to purchase may be changed or terminated as hereinafter set forth. With respect to shares as to which no election to purchase is made by the employee on or before 45 days after the Offering Date, the option granted to the employee on that Offering Date shall expire. SECTION 5. NUMBER OF SHARES OFFERED 5.01. The aggregate number of shares which may be issued under the Plan is 1,150,000 shares of Stock, which shares may be authorized but unissued shares or treasury shares, or both. The aggregate number of shares for which options are to be granted on each Offering Date shall be determined by the Board prior to such Offering Date. Should the total number of shares specified in all employees' initial elections to purchase as provided in Section 4 with respect to any Offering Date exceed the aggregate number of shares for which options are granted on that Offering Date, the Company will, on the Offering Termination Date, make a pro rata allocation of the aggregate number of shares for which options were granted on such Offering Date in a uniform manner to all employees who have remained enrolled in the Plan through the Offering Termination Date. In such event, the initial election to purchase of each such employee will be canceled with respect to any shares in excess of the number of shares allocated to each such employee, written notice will be given to the employee that his election has become effective for a reduced number of shares and any excess funds in the employee's Account (as defined in Section 6 below) will be refunded to him. 5.02. The aggregate number of shares that may be issued under the Plan may be increased to reflect a change in capitalization of the Company, such as a stock dividend or stock split. 5.03. If, prior to the expiration of an option theretofore granted, the Company shall effect a subdivision or consolidation of shares of Stock or the payment of a stock dividend on Stock without receipt of consideration by the Company, the number of shares of Stock thereafter subject to such option (i) in the event of an increase in the number of outstanding shares shall be proportionately increased, and the option price per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding shares shall be proportionately reduced, and the option price per share shall be proportionately increased. 5.04. 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 of the assets and business of the Company are to 3 be sold, or (iv) there occurs a "change in control of the Company," then the Board may, in its sole discretion, with respect to any or all options then outstanding under this Plan (a) at any time on or prior to the effective date of such merger, consolidation, dissolution and liquidation, or sale, and, at any time on or after a change in control cause the Offering Termination Date and Exercise Date to be accelerated to a date or dates fixed by the Board ("Acceleration Date") and permit an employee (or his legal representative) to make a lump-sum deposit prior to the Acceleration Date in lieu of the remaining payroll deductions or periodic payments which otherwise would have been made, and upon such Acceleration Date, exercise his option to the extent of moneys deposited by the employee and cancel any unexercised options; or (b) at any time during the 20-day period ending on the effective date of such merger, consolidation, dissolution and liquidation or sale or during the 20-day period beginning on the date of a change in control or, if later, the date the Company has notice thereof, cancel any option in whole or in part by payment in cash to the employee of an amount equal to the excess, but only if the amount is positive, of the fair market value of the Company's Common Stock on the date of said cancellation over the option price per share times the number of shares covered by the option or portion thereof so canceled. For purposes hereof, a "change in control of the Company" shall be deemed to have occurred if (i) any "person," as such term is used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") is or becomes the "beneficial owner," as such term is used in Rule 13d-3 issued under the Exchange Act, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 5.05. Any adjustment provided for in this Section 5 shall be subject to any required shareholder action. No adjustment shall be made if such adjustment would result in a modification of an option (within the meaning of Section 424 of the Code), or cause such option to fail to continue to qualify as an option granted under an employee stock purchase plan (within the meaning of Section 423 of the Code). SECTION 6. APPLICATION OF FUNDS; EXERCISE OF OPTIONS 6.01. The Company will establish a stock purchase account for each employee who elects to purchase shares with respect to an Offering Date (an "Account"), to which all payroll deductions or cash payments of that employee with respect to the Offering Date will be credited. Interest will not be accrued or credited in the Account. 6.02. Amounts credited to all Accounts will be under the control of the Company, may be maintained or controlled as a single fund or account, and may be used for any corporate purpose. Amounts credited to Accounts for employees of Participating Subsidiaries will be remitted to the Company from time to time. The amount credited to each Account as of the close of business on the respective Exercise Date for that Offering Date will be applied by the Company to the payment for the shares to be purchased by such employee on that Exercise Date, any amount not used for this purpose shall be paid in cash to the employee, and the option granted the employee on that Offering Date shall thereupon terminate. 4 6.03. In the event that any law or regulation, in the opinion of counsel for the Company, may prohibit the handling or use of all or any part of the funds in the manner contemplated by the Plan, the Company may deal with such funds in any lawful manner it may deem advisable, including the deposit of any such funds in individual bank accounts opened for employees. 6.04. Promptly following an Exercise Date, the Company shall provide all employees who remained enrolled in the Plan on the Offering Termination Date with written notice as to the applicable option price and the date by which such employees must notify the Company in writing with respect to the number of shares, if any, that the employee desires to purchase pursuant to his option. The amount credited to an employee's Account as of the close of business on the applicable Offering Termination Date shall be applied by the Company to the payment for the shares to be purchased by such employee on the day next following the notification deadline set forth in the Company's notice described immediately above. Any amount not used for this purpose shall be paid in cash to the employee, and the option granted the employee on that Offering Date shall thereupon terminate. If an employee does not notify the Company by the deadline so established by the Company, then such amount shall be applied for the purchase of the total number of shares of Stock purchasable under the option, and any amount not used for such purpose shall be paid in cash to the employee and the related option shall thereupon terminate. 6.05. An employee shall have no interest or voting rights in shares covered by his option, and no right to receive any dividends with respect to such shares, until such option has been exercised. SECTION 7. CHANGES IN ELECTION TO PURCHASE At any time on or before the Offering Termination Date with respect to an Offering Date, an employee may give written notice that his payroll deductions with respect to such Offering Date shall thereafter be reduced or shall terminate (or, if periodic cash payments for shares are being made as permitted in Sections 9, 10 and 11, that such payments thereafter will be reduced or will terminate) and, as the case may be: (a) reduce the amount of his subsequent payroll deductions (or periodic cash payments) by such amounts as will, in the aggregate, be equal to a reduction of 25%, 50%, or 75% of the amount of his initial payroll deduction, in which event his election to purchase shall be reduced to the number of shares that may be purchased, at the option price described in Section 3.02(a), with the aggregate amount of the payroll deductions (or periodic cash payments) theretofore made and to be made thereafter; (b) terminate further payroll deductions (or periodic cash payments) and continue his election to purchase with respect to the number of shares that may be purchased, at the option price described in Section 3.02(a), with the amount then credited to his Account; or 5 (c) withdraw the entire amount in his Account and terminate his election to purchase shares. Any such reduction, termination or withdrawal shall be irrevocable. SECTION 8. TERMINATION OF EMPLOYMENT In the event that on or prior to the Exercise Date with respect to an Offering Date, an employee leaves the employ of the Company or of a Participating Subsidiary otherwise than by retirement under a plan of the Company or such Participating Subsidiary, or is discharged for cause, any election to purchase shares made by him with respect to that Offering Date shall terminate and any amount then credited to his Account shall be paid in cash to him. In the event that on or prior to the Exercise Date, an employee leaves the employ of the Company in connection with the sale of a subsidiary, division or line of business of the Company, the Company may, in the discretion of the officer referred to in Section 14.01 hereof, terminate the election of such employee to purchase shares (refunding any amount credited to the employee's Account) or continue said election on any basis deemed appropriate by said officer, including the making of arrangements for continued payroll deductions by a successor employer willing to provide that service. SECTION 9. RETIREMENT In the event an employee leaves the employ of the Company or of a Participating Subsidiary by retirement under a plan of the Company or the participating Subsidiary: (a) at a time after an Offering Date but before payroll deductions have commenced with respect to that Offering Date, he shall not have the right to elect to purchase shares of Stock under the option granted to him on that Offering Date and such option shall be of no effect, or (b) at a time after he has made an election to purchase shares under an option granted to him and payroll deductions have commenced with respect to that election, he may continue his election to purchase shares by undertaking to make periodic cash payments in amounts equal to the payroll deductions previously authorized by him. An employee, in lieu of making periodic payments under the circumstances described in this Section 9, may elect to purchase (or continue his election to purchase) shares by making a single lump-sum payment in cash in an amount equal to the total of his future periodic payments. Such lump-sum payment may be made either (i) within 30 days after the employee's employment terminates, or (ii) in the case of an employee who has undertaken to make periodic cash payments, at any time when he is not in default in such payments. SECTION 10. LAYOFF, STRIKE OR AUTHORIZED LEAVE OF ABSENCE Payroll deductions for shares for which an election to purchase with respect to an Offering Date has been made will be suspended during any period of layoff, strike, or authorized 6 leave of absence without pay of an employee and, in such case, if the employee so elects, periodic payments for such shares may be made by him in lieu thereof. If such an employee returns to active service prior to the last payroll deduction period preceding the Offering Termination Date with respect to that Offering Date, his payroll deductions will be resumed and, if the employee did not make periodic cash payments during his period of absence, he shall, by written notice within ten days after his return to active service, elect to either: (a) make up any deficiency in his Account resulting from suspension of his payroll deductions by an immediate cash payment; or (b) not make up such deficiency, in which event the number of shares to be purchased by him with respect to that Offering Date shall be reduced to the number of whole shares that may be purchased, at the option price described in Section 3.02(a), with the amount then credited to his Account plus the aggregate amount, if any, of all payroll deductions with respect to that Offering Date to be made thereafter. An employee on layoff, strike, or authorized leave of absence without pay as of 15 days preceding such Offering Termination Date shall give written notice prior to such Offering Termination Date specifying his choice of one of the options described in (a) or (b) above. If such an employee fails to give such notice, he shall be deemed to have elected the option provided in (b). If the period of an employee's layoff, strike or authorized leave of absence without pay shall terminate prior to such Offering Termination Date and the employee shall not promptly resume active employment, his election to purchase shares with respect to such Offering Date shall terminate and the amount then credited to his Account shall be paid in cash to him. SECTION 11. DEATH An employee may file a written designation of a beneficiary who is to receive any shares and cash from the employee's Account under the Plan in the event of such employee's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such employee of such shares and cash. In addition, an employee may file a written designation of a beneficiary who is to receive any cash from the employee's Account under the Plan in the event of such employee's death prior to exercise of the option. If an employee is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. Such designation of beneficiary may be changed by the employee at any time by written notice. In the event of the death of an employee while an election by him to purchase shares with respect to an Offering Date is in effect, the legal representative or beneficiary of such employee may, within 90 days after his death but not later than the Offering Termination Date with respect to such Offering Date, by written notice elect to either: (a) make up any deficiency in such employee's Account and (i) make periodic payments in cash for the remainder of the period ending on such Offering Termination Date in the amounts theretofore elected by the employee, or (ii) in lieu of such future periodic payments, make an immediate lump-sum payment in an amount equal to the total of such periodic payments; or 7 (b) continue the employee's election to purchase with respect to such number of shares as may be purchased, at the option price described in Section 3.02(a), with the amount then credited to the employee's Account, and make no further payments; or (c) withdraw the entire amount in the employee's Account and terminate his election to purchase shares. In the event the legal representative or beneficiary of such an employee shall fail to give notice within the prescribed period, the employee's election to purchase shares shall terminate and the amount then credited to the employee's Account shall be paid in cash to such legal representative or beneficiary. SECTION 12. FAILURE TO MAKE PAYMENTS Under any of the circumstances contemplated by the Plan, where the purchase of shares with respect to an Offering Date is to be made through periodic or other cash payments in lieu of payroll deductions, the failure to make any such payment shall reduce, to the extent of the amount unpaid, the number of shares purchasable with respect to that Offering Date, determined by the option price described in Section 3.02(a). SECTION 13. NONASSIGNABILITY No option granted under the Plan shall be transferable by the employee otherwise than by will or the laws of descent and distribution. Each option shall be exercisable, during his lifetime, only by the employee to whom granted. Any purported assignment or transfer, whether voluntary or by operation of law (other than by will or the laws of descent and distribution) shall have the effect of terminating such option and the related election to purchase shares thereunder. SECTION 14. ADMINISTRATION 14.01. The Plan shall be administered by the Committee. The Committee is authorized to interpret the Plan and from time to time to adopt such rules and regulations, consistent with the provisions of the Plan, as may be deemed advisable to carry out the Plan. The decision of the Committee shall be final and binding for all purposes with respect to any question arising under the Plan. 14.02. Uniform policies shall be pursued in the administration of the Plan, and there shall be no discrimination among employees or groups of employees. The administration of the Plan shall include the authority, which shall be exercised without discrimination, to make exceptions (available on a uniform basis to all employees) to provisions of the Plan in the case of unusual circumstances where strict adherence to such provisions would work undue hardship. All eligible employees under the Plan shall have the same rights and privileges under the Plan with respect to the number of shares for which options may be granted as provided in Section 3. 14.03. The Board shall have the right to amend, modify or terminate the Plan at any time without notice; provided, that no amendment, modification or termination may be made which 8 would impair the rights of the employee in any option theretofore granted without the consent of such employee; and provided, further, that the Board may not make any alteration or amendment to the Plan which would increase the aggregate number of shares that may be issued under the Plan (other than an increase pursuant to Section 5.02 of the Plan) or change the group from among which Participating Subsidiaries may be designated. Without limitation on the Board's or the Committee's authority, the Board (or the Committee) shall be entitled to change the length of the period between the Offering Date and the Offering Termination Date, limit the frequency and/or number of changes in the amount withheld by an employee, permit payroll withholding in excess of the amount designated by an employee in order to adjust for delays or mistakes in the Company's processing of withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of shares of Stock for each employee properly correspond with amounts withheld from the employee's compensation, and establish such other limitations or procedures as the Board (or Committee) determines in its sole discretion are advisable. SECTION 15. TERMINATION OF PLAN The period for payroll deductions or cash payments with respect to any Offering Date may not be extended beyond the Offering Termination Date for such Offering Date. If not sooner terminated by the Board, the Plan will terminate following the delivery to employees, as soon as practicable after the Exercise Date with respect to the last Offering Date, of stock certificates for all shares purchased and the repayment to them of all funds not used for the purchase of shares on that Exercise Date. SECTION 16. HOLIDAYS In the event any date specified in the Plan falls on other than a business day of the Company at its principal office in Quincy, Illinois, such date shall be deemed to refer to the next succeeding business day. SECTION 17. LIENS NOT AUTHORIZED There is no provision in the Plan, or in any contract in connection therewith, whereby any person has or may create a lien on any funds, securities or other property held under the Plan. SECTION 18. 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. 9 EX-12 4 ex12.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 THREE MONTHS ENDED MARCH 31, FOR THE YEAR ENDED ------------- -------------------------------------------------------------- 2004 2003 2002 2001 2000 1999 1998 ------------- ------ ------ ------ ------ ------ ------ Earnings: Income before income taxes $ 9,935 30,358 28,827 34,683 29,894 29,157 59,894 Plus: Fixed Charges 2,581 6,019 7,483 7,789 8,486 6,746 5,692 -------- ------ ------ ------ ------ ------ ------ Total $ 12,516 36,377 36,310 42,472 38,380 35,903 65,586 ======== ====== ====== ====== ====== ====== ====== Fixed Charges: Interest expense incl. amortization of debt expense $ 2,022 4,748 6,365 6,796 7,669 5,934 4,849 Rentals-portion representative of interest 559 1,271 1,118 993 817 812 843 -------- ------ ------ ------ ------ ------ ------ Total $ 2,581 6,019 7,483 7,789 8,486 6,746 5,692 ======== ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges 4.8 6.0 4.9 5.5 4.5 5.3 11.5 ======== ====== ====== ====== ====== ====== ======
EX-31.1 5 ex31p1.txt EXHIBIT 31.1 PRINCIPAL EXECUTIVE OFFICER CERTIFICATION I, Ross J. Centanni, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gardner Denver, Inc. ("Gardner Denver"); 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 statements 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 Gardner Denver as of, and for, the periods presented in this report; 4. Gardner Denver'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 Gardner Denver 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 Gardner Denver, 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 Gardner Denver'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 Gardner Denver's internal control over financial reporting that occurred during Gardner Denver's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Gardner Denver's internal control over financial reporting; and 5. Gardner Denver's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Gardner Denver's auditors and the audit committee of Gardner Denver's Board of Directors: 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 Gardner Denver'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 Gardner Denver's internal control over financial reporting. By: /s/ Ross J. Centanni --------------------- Ross J. Centanni Chairman, President & CEO May 10, 2004 EX-31.2 6 ex31p2.txt EXHIBIT 31.2 PRINCIPAL FINANCIAL OFFICER CERTIFICATION I, Philip R. Roth, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gardner Denver, Inc. ("Gardner Denver"); 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 statements 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 Gardner Denver as of, and for, the periods presented in this report; 4. Gardner Denver'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 Gardner Denver 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 Gardner Denver, 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 Gardner Denver'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 Gardner Denver's internal control over financial reporting that occurred during Gardner Denver's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Gardner Denver's internal control over financial reporting; and 5. Gardner Denver's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Gardner Denver's auditors and the audit committee of Gardner Denver's Board of Directors: 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 Gardner Denver'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 Gardner Denver's internal control over financial reporting. By: /s/ Philip R. Roth ------------------------- Philip R. Roth Vice President, Finance & CFO May 10, 2004 EX-32.1 7 ex32p1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Gardner Denver, Inc. on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ross J. Centanni, Chairman, President and Chief Executive Officer of Gardner Denver, Inc., certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 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 Gardner Denver, Inc. By: /s/ Ross J. Centanni ----------------------------- Ross J. Centanni Title: Chairman, President & CEO Gardner Denver, Inc. May 10, 2004 A signed original of this written statement has been provided to Gardner Denver, Inc. and will be retained by Gardner Denver, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 8 ex32p2.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Gardner Denver, Inc. on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Philip R. Roth, Vice President, Finance & Chief Financial Officer of Gardner Denver, Inc., certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 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 Gardner Denver, Inc. By: /s/ Philip R. Roth --------------------------------- Philip R. Roth Title: Vice President, Finance & CFO Gardner Denver, Inc. May 10, 2004 A signed original of this written statement has been provided to Gardner Denver, Inc. and will be retained by Gardner Denver, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----