-----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, Nw88BJSMcGLx+ShhbixQycm3PRX7/jOlWEisM7VL3u7y3+x5zdjEB/AImFoK9uSX 5bG+Y3PhvBwLVUSoByKlkg== 0001068800-04-000631.txt : 20041110 0001068800-04-000631.hdr.sgml : 20041110 20041109163527 ACCESSION NUMBER: 0001068800-04-000631 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041109 DATE AS OF CHANGE: 20041109 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: 041130070 BUSINESS ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172225400 MAIL ADDRESS: STREET 1: 1800 GARDNER EXPRESSWAY STREET 2: P O BOX 528 CITY: QUINCY STATE: IL ZIP: 62301 FORMER COMPANY: FORMER CONFORMED NAME: GARDNER DENVER MACHINERY INC DATE OF NAME CHANGE: 19931221 10-Q 1 gard10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 $0.01 per share, as of October 31, 2004: 19,858,503 shares. ============================================================================== PART I FINANCIAL INFORMATION GARDNER DENVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ----------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Revenues $182,616 $112,061 $498,341 $322,940 Costs and Expenses: Cost of sales (excluding depreciation and amortization) 123,296 78,198 336,457 225,123 Depreciation and amortization 5,925 3,740 16,074 11,053 Selling and administrative expenses 37,461 21,063 106,031 62,421 Interest expense 2,491 1,070 5,949 3,411 Other expense (income), net 332 230 (1,756) 133 -------- -------- -------- -------- Income before income taxes 13,111 7,760 35,586 20,799 Provision for income taxes 4,457 2,483 12,099 6,656 -------- -------- -------- -------- Net income $ 8,654 $ 5,277 $ 23,487 $ 14,143 ======== ======== ======== ======== Basic earnings per share $ 0.44 $ 0.33 $ 1.26 $ 0.88 ======== ======== ======== ======== Diluted earnings per share $ 0.43 $ 0.32 $ 1.23 $ 0.87 ======== ======== ======== ======== The accompanying notes are an integral part of this statement.
- 2 - GARDNER DENVER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------- ------------ ASSETS Current assets: Cash and equivalents $ 48,055 $132,803 Receivables, net 152,459 81,345 Inventories, net 141,977 64,327 Deferred income taxes 8,144 3,652 Other 10,339 5,682 -------- -------- Total current assets 360,974 287,809 -------- -------- Property, plant and equipment, net 142,029 75,428 Goodwill 359,153 205,488 Other intangibles, net 127,319 10,341 Deferred income taxes -- 5,374 Other assets 10,495 5,293 -------- -------- Total assets $999,970 $589,733 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings and current maturities of long-term debt $ 28,964 $ 16,875 Accounts payable and accrued liabilities 171,609 84,081 -------- -------- Total current liabilities 200,573 100,956 -------- -------- Long-term debt, less current maturities 309,564 165,756 Postretirement benefits other than pensions 30,936 32,110 Deferred income taxes 30,783 -- Other long-term liabilities 52,003 25,006 -------- -------- Total liabilities 623,859 323,828 -------- -------- Stockholders' equity: Common stock, $0.01 par value; 50,000 shares authorized; 19,850 shares issued and outstanding at September 30, 2004 216 178 Capital in excess of par value 259,236 174,474 Treasury stock at cost, 1,736 shares at September 30, 2004 (26,345) (25,947) Retained earnings 125,794 102,307 Accumulated other comprehensive income 17,210 14,893 -------- -------- Total stockholders' equity 376,111 265,905 -------- -------- Total liabilities and stockholders' equity $999,970 $589,733 ======== ======== The accompanying notes are an integral part of this statement.
- 3 - GARDNER DENVER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2004 2003 --------- -------- Cash flows from operating activities: Net income $ 23,487 $ 14,143 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,074 11,053 Foreign currency transaction gain (1,235) -- Net gain on asset dispositions (11) (359) Stock issued for employee benefit plans 1,768 1,904 Deferred income taxes 1,291 4,189 Changes in assets and liabilities: Receivables (638) (2,518) Inventories (8,324) (543) Accounts payable and accrued liabilities (8,746) (5,568) Other assets and liabilities, net (1,413) 1,432 --------- -------- Net cash provided by operating activities 22,253 23,733 --------- -------- Cash flows from investing activities: Business acquisitions, net of cash acquired (292,108) (2,402) Capital expenditures (12,301) (8,194) Disposals of property, plant and equipment 315 940 Other (126) -- --------- -------- Net cash used in investing activities (304,220) (9,656) --------- -------- Cash flows from financing activities: Principal payments on long-term debt (200,998) (44,899) Proceeds from long-term debt 315,959 27,000 Proceeds from issuance of common stock 79,557 -- Proceeds from stock options 3,475 956 Purchase of treasury stock (399) (90) Other (1,846) (2) --------- -------- Net cash provided by (used in) financing activities 195,748 (17,035) --------- -------- Effect of exchange rate changes on cash and equivalents 1,471 1,914 --------- -------- Decrease in cash and equivalents (84,748) (1,044) --------- -------- Cash and equivalents, beginning of period 132,803 25,667 --------- -------- Cash and equivalents, end of period $ 48,055 $ 24,623 ========= ======== 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. and its subsidiaries ("Gardner Denver" or the "Company"). 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 and nine months ended September 30, 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 and nine months ended September 30, 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 NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------------ ---------------------- 2004 2003 2004 2003 ------- ------- ------- ------- Net income, as reported $ 8,654 $ 5,277 $23,487 $14,143 Less: Total stock-based employee compensation expense determined under fair value method, net of related tax effects (363) (292) (1,014) (916) ------ ------ ------- ------- Pro forma net income $8,291 $4,985 $22,473 $13,227 ====== ====== ======= ======= Basic earnings per share, as reported $ 0.44 $ 0.33 $ 1.26 $ 0.88 ====== ====== ======= ======= Basic earnings per share, pro forma $ 0.42 $ 0.31 $ 1.20 $ 0.82 ====== ====== ======= ======= Diluted earnings per share, as reported $ 0.43 $ 0.32 $ 1.23 $ 0.87 ====== ====== ======= ======= Diluted earnings per share, pro forma $ 0.41 $ 0.30 $ 1.18 $ 0.81 ====== ====== ======= =======
Compensation costs charged against income (net of tax) for restricted stock issued under the Company's Incentive Plan totaled $0.2 million in the nine months ended September 30, 2003. There was no restricted stock issued in the current year. NEW ACCOUNTING STANDARDS In May 2004, the FASB issued Staff Position SFAS No. 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," ("FSP 106-2"). FSP 106-2 supersedes FSP 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," and provides guidance on the accounting, disclosure, effective date and transition related to the Prescription Drug Act. FSP 106-2 was effective for the third quarter of 2004. According to an actuarial assessment, the Company currently provides prescription drug benefits, which are actuarially equivalent to the Medicare-prescription drug benefit, to certain retired and other employees and will therefore qualify for the subsidy. As a result, the Company accounted for the federal subsidy attributable to past services as an actuarial gain, which reduced the accumulated post-retirement benefit obligation. This actuarial gain will then be amortized in future periods in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The federal subsidy attributable to employee service rendered in current and future periods will reduce future net periodic postretirement benefit cost as those employees provide service. The favorable impact to diluted earnings per share from adopting FSP 106-2 is expected to be $0.01 in 2004 and $0.02 in 2005. NOTE 2. ACQUISITIONS On September 1, 2004, the Company acquired nash_elmo Holdings, LLC ("Nash Elmo"). Nash Elmo is a leading global manufacturer of industrial vacuum pumps. Prior to the acquisition, Nash Elmo was primarily split between two businesses, liquid ring pumps and side channel blowers. Both businesses' products are complementary to the Compressor and Vacuum Products segment's existing product portfolio. The purchase price of $221.6 million including assumed bank debt (net of cash acquired) was paid in the form of cash ($208.5 million), the assumption of certain of Nash Elmo's debt ($10.4 million) and the assumption of other liabilities stemming - 6 - from the transaction ($2.7 million), which will be paid in the fourth quarter of 2004. 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, $210.0 million in cash was used to fund the Nash Elmo acquisition (and related direct acquisition costs) during the third quarter. The aggregate purchase price (including direct acquisition costs) has been allocated primarily to receivables ($35,719); inventory ($45,749); property, plant and equipment ($34,461); intangible assets ($178,835); other assets ($7,205); accounts payable and accrued liabilities ($45,975); net deferred income tax liabilities ($28,031) and other long-term liabilities ($3,398), 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 2005. Further, other assets and liabilities may be identified to which a portion of the purchase price could be allocated. The following table summarizes the preliminary fair values of the intangible assets acquired in the Nash Elmo acquisition: Amortized intangible assets: Customer lists and relationships $ 44,000 Other 12,245 Unamortized intangible assets: Goodwill 94,590 Trademarks 28,000 -------- Total intangible assets $178,835 ======== 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 Compressor and Vacuum Products segment. This allocation is preliminary and subject to change upon completion of appraisals. See Note 13 for additional segment information. 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 acquired ((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 - 7 - 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 of cash acquired ($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. 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 Compressor and Vacuum 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 13 for additional segment information. The following table summarizes supplemental pro forma information as if the Nash Elmo and Syltone acquisition had been completed on January 1, 2003:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ----------------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Revenues $228,607 $202,445 $654,658 $579,927 Net Income 10,912 4,480 28,087 10,997 Diluted earnings per share $ 0.54 $ 0.27 $ 1.48 $ 0.68
The pro forma net income above for the three months ended September 30, 2003 reflects the negative impact of a one-time adjustment on cost of sales of approximately $0.6 million stemming from recording Nash Elmo's inventory at fair value. The pro forma net income above for the nine months ended September 30, 2003 reflects the negative impact of a one-time adjustment on cost of sales of approximately $3.6 million stemming from recording Syltone's and Nash Elmo's inventory at fair value. - 8 - NOTE 3. INVENTORIES
SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------- ------------ Raw materials, including parts and subassemblies $ 63,094 $33,850 Work-in-process 23,252 7,850 Finished goods 58,104 24,731 Perishable tooling and supplies 2,274 2,429 -------- ------- 146,724 68,860 Excess of FIFO costs over LIFO costs (4,747) (4,533) -------- ------- Inventories, net $141,977 $64,327 ======== =======
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS The changes in the carrying amount of goodwill attributable to each business segment for the nine months ended September 30, 2004, are as follows:
COMPRESSOR & FLUID TRANSFER VACUUM PRODUCTS PRODUCTS --------------- -------------- Balance as of December 31, 2003 $179,854 $25,634 Goodwill acquired during the period 135,432 17,504 Foreign currency translation 472 257 -------- ------- Balance as of September 30, 2004 $315,758 $43,395 ======== =======
Other intangible assets at September 30, 2004 consisted of the following:
ACCUMULATED COST AMORTIZATION -------- ------------ Amortized intangible assets: Acquired technology $ 23,687 $(12,328) Customer lists and relationships 66,136 (2,137) Other 14,080 (2,237) Unamortized intangible assets: Trademarks 40,118 -- -------- -------- Total other intangible assets $144,021 $(16,702) ======== ========
Amortization of intangible assets for the three and nine months ended September 30, 2004, was $1.3 million and $3.3 million, respectively. Amortization of intangible assets is anticipated to be approximately $5.5 million in 2004 and $8.0 to $9.0 million per year for 2005 through 2008. NOTE 5. ACCRUED PRODUCT WARRANTY The following is a rollforward of the Company's warranty accrual for the three and nine months ended September 30, 2004 and 2003. - 9 -
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ --------------------------- 2004 2003 2004 2003 ------- ------- ------- ------- Balance at beginning of period $ 7,808 $ 6,695 $ 6,635 $ 7,060 Product warranty accruals 2,284 1,589 6,012 3,640 Settlements (1,948) (1,812) (5,978) (4,394) Other (acquisitions and foreign currency translation) 3,059 41 4,534 207 ------- ------- ------- ------- Balance at end of period $11,203 $ 6,513 $11,203 $ 6,513 ======= ======= ======= =======
NOTE 6. DEBT On September 1, 2004, the Company entered into a $375.0 million amended and restated credit agreement (the "Credit Agreement"). The Credit Agreement provided the Company with access to senior secured credit facilities including a $150.0 million five-year Term Loan and a $225.0 million five-year Revolving Line of Credit (the "Credit Line"). Proceeds from the Credit Agreement were used to fund the Nash Elmo acquisition and retire debt outstanding under its previously existing Credit Line and Term Loan. The Credit Line has a borrowing capacity of $225.0 million and the total debt balance is due upon final maturity on September 1, 2009. Loans under this facility may be denominated in U.S. Dollars or several foreign currencies. The interest rate varies with prime, federal funds and/or LIBOR for the applicable currency and was 3.8% as of September 30, 2004. On September 30, 2004, the Credit Line had an outstanding principal balance of $127.0 million, leaving $98.0 million available for letters of credit or future use, subject to the terms of the Credit Line. The $150.0 million Term Loan has a final maturity of September 1, 2009. The Term Loan requires quarterly principal payments totaling $7.5 million, $15.0 million, $22.5 million, $37.5 million and $67.5 million in years one through five, respectively. The interest rate varies with prime, federal funds and/or LIBOR and was 3.8% as of September 30, 2004. On September 30, 2004, the Term Loan had an outstanding principal balance of $150.0 million. NOTE 7. PENSION AND OTHER POSTRETIREMENT BENEFITS The following table provides the components of net periodic expense for the Company's defined benefit pension plans and other postretirement benefit plans for the three and nine months ended September 30, 2004 and 2003: - 10 -
THREE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------------------- Pension Benefits ---------------------------------------- Other U.S. Plans Non-U.S. Plans Postretirement Benefits ---------- -------------- ----------------------- 2004 2003 2004 2003 2004 2003 ---- ---- ---- ---- ---- ---- Service cost $ 528 $ 494 $ 858 $ 385 $ 4 $ 3 Interest cost 831 850 1,453 362 410 421 Expected return on plan assets (925) (817) (1,328) (369) -- -- Amortization of transition liability -- 1 -- -- -- -- Amortization of prior-service cost (20) (22) 5 -- (37) (152) Amortization of net loss (gain) 57 105 61 57 (137) (240) ----- ----- ------- ----- ----- ----- Net periodic expense $ 471 $ 611 $ 1,049 $ 435 $ 240 $ 32 ===== ==== ======= ==== ===== ===== NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------------------- Pension Benefits ---------------------------------------- Other U.S. Plans Non-U.S. Plans Postretirement Benefits ---------- -------------- ----------------------- 2004 2003 2004 2003 2004 2003 ---- ---- ---- ---- ---- ---- Service cost $ 1,583 $ 1,483 $ 2,424 $ 1,154 $ 11 $ 9 Interest cost 2,493 2,550 4,057 1,085 1,229 1,264 Expected return on plan assets (2,776) (2,452) (3,885) (1,106) -- -- Amortization of transition liability -- 4 -- -- -- -- Amortization of prior-service cost (61) (65) 15 -- (110) (455) Amortization of net loss (gain) 170 316 183 172 (411) (719) ------- ------- ------- ------- ------ ------ Net periodic expense $ 1,409 $ 1,836 $ 2,794 $ 1,305 $ 719 $ 99 ======= ======= ======= ======= ====== ======
NOTE 8. STOCKHOLDERS' EQUITY Pursuant to its previously filed shelf registration with the Securities and Exchange Commission, the Company completed an offering of 3.45 million shares of its common stock for net proceeds of approximately $79.6 million during March 2004. These proceeds were used to repay borrowings under the Company's previously existing Credit Line. See Note 6 for additional information regarding the Company's debt. - 11 - NOTE 9. EARNINGS PER SHARE The following table details the calculation of basic and diluted earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ------------------------ 2004 2003 2004 2003 ------- ------- ------- ------- Basic EPS: Net income $ 8,654 $ 5,277 $23,487 $14,143 ======= ======= ======= ======= Shares: Weighted average number of common shares outstanding 19,806 16,079 18,645 16,047 ======= ======= ======= ======= Basic earnings per common share $ 0.44 $ 0.33 $ 1.26 $ 0.88 ======= ======= ======= ======= Diluted EPS: Net income $ 8,654 $ 5,277 $23,487 $14,143 ======= ======= ======= ======= Shares: Weighted average number of common shares outstanding 19,806 16,079 18,645 16,047 Assuming conversion of dilutive stock options issued and outstanding 382 314 387 222 ------- ------- ------- ------- Weighted average number of common shares outstanding, as adjusted 20,188 16,393 19,032 16,269 ======= ======= ======= ======= Diluted earnings per common share $ 0.43 $ 0.32 $ 1.23 $ 0.87 ======= ======= ======= =======
NOTE 10. COMPREHENSIVE INCOME For the three months ended September 30, 2004 and 2003, comprehensive income was $11.9 million and $6.3 million, respectively. For the nine months ended September 30, 2004 and 2003, comprehensive income was $25.8 million and $20.9 million, respectively. Items impacting the Company's comprehensive income, but not included in net income, consist of foreign currency translation adjustments. NOTE 11. CASH FLOW INFORMATION In the first nine months of 2004 and 2003, the Company paid $11.5 million and $2.8 million, respectively, to the various taxing authorities for income taxes. Interest paid for the first nine months of 2004 and 2003 was $5.4 million and $3.6 million, respectively. NOTE 12. CONTINGENCIES The Company is a party to various legal proceedings, lawsuits and administrative actions, which are of an ordinary or routine nature. In addition, 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 - 12 - 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 vast majority of the plaintiffs are not impaired with a disease for which the Company bears any responsibility. Predecessors to the Company manufactured, distributed and sold products allegedly at issue in the pending asbestos and silicosis litigation lawsuits (the "Products"). The Company has potential responsibility for certain of these Products, namely: (a) air compressors which used asbestos containing components manufactured and supplied by third parties; and (b) portable air compressors used in sandblasting operations as a component of sandblasting equipment manufactured and sold by others. The sandblasting equipment is alleged to have caused the silicosis disease plaintiffs claim in these cases. Neither the Company nor its predecessors ever mined, manufactured, mixed, produced or distributed asbestos fiber. The asbestos-containing components used in the Products 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 vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products; various potential 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 13. SEGMENT INFORMATION Subsequent to the acquisition of Nash Elmo and Syltone, the Company continues to be organized based upon the products and services it offers and has four operating divisions: Compressor, Blower, Liquid Ring Pump and Fluid Transfer. These divisions comprise two reportable segments, Compressor and Vacuum Products (formerly Compressed Air Products) and Fluid Transfer Products. The Compressor, Blower (which now includes the Syltone transportation- - 13 - related activities and Nash Elmo's side channel blower business) and Liquid Ring Pump (consisting of Nash Elmo's liquid ring pump business) Divisions are aggregated into one reportable segment (Compressor and Vacuum 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. During the third quarter, the Company's former Pump and Fluid Transfer (which consisted of the Syltone fluid transfer-related activities) Divisions were combined into one division, Fluid Transfer. These two divisions were previously aggregated into one reportable segment (Fluid Transfer Products) primarily due to the same factors as noted above, and thus, there has been no change to the Fluid Transfer Products segment.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Revenues: Compressor and Vacuum Products $147,148 $ 91,554 $396,170 $271,183 Fluid Transfer Products 35,468 20,507 102,171 51,757 -------- -------- -------- -------- Total $182,616 $112,061 $498,341 $322,940 ======== ======== ======== ======== Operating Earnings: Compressor and Vacuum Products $ 13,519 $ 7,089 $ 32,422 $ 21,364 Fluid Transfer Products 2,415 1,971 7,357 2,979 -------- -------- -------- -------- Total 15,934 9,060 39,779 24,343 Interest expense 2,491 1,070 5,949 3,411 Other expense (income), net 332 230 (1,756) 133 -------- -------- -------- -------- Income before income taxes $ 13,111 $ 7,760 $ 35,586 $ 20,799 ======== ======== ======== ========
- 14 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RECENT DEVELOPMENTS. On September 1, 2004, the Company acquired the outstanding shares of nash_elmo Holdings, LLC ("Nash Elmo"). Nash Elmo is a leading global manufacturer of industrial vacuum pumps. Prior to the acquisition, Nash Elmo was primarily split between two businesses, liquid ring pumps and side channel blowers. Both businesses' products are complementary to the Compressor and Vacuum Products segment's existing product portfolio. Nash Elmo, headquartered in Trumbull, CT, has primary manufacturing facilities located in Bad Neustadt and Nuremberg, Germany; Zibo, China; and Campinas, Brazil. The purchase price of $221.6 million, including assumed bank debt (net of cash acquired), was paid in the form of cash ($208.5 million), the assumption of certain of Nash Elmo's debt ($10.4 million) and the assumption of other liabilities stemming from the transaction ($2.7 million), which will be paid in the fourth quarter of 2004. There are no additional contingent payments or commitments related to this acquisition. For the year ended December 31, 2003, Nash Elmo's revenues and earnings before income taxes were $212.4 million and $7.8 million, respectively. Nash Elmo's largest markets are in Europe, North America, South America and Asia. Approximately 70% of Nash Elmo's revenues are generated from liquid ring pump products (including related engineered systems and aftermarket services), while the remaining 30% are derived from side channel blower products (including aftermarket services). 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 lines. 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 Nash Elmo and Syltone, the Company continues to be organized based upon the products and services it offers and has four operating divisions: Compressor, Blower, Liquid Ring Pump and Fluid Transfer. These divisions comprise two reportable - 15 - segments, Compressor and Vacuum Products (formerly Compressed Air Products) and Fluid Transfer Products. The Compressor, Blower (which now includes the Syltone transportation-related activities and Nash Elmo's side channel blower business) and Liquid Ring Pump (consisting of Nash Elmo's liquid ring pump business) Divisions are aggregated into one reportable segment (Compressor and Vacuum 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. During the third quarter, the Company's former Pump and Fluid Transfer (which consisted of the Syltone fluid transfer-related activities) Divisions were combined into one division, Fluid Transfer. These two divisions were previously aggregated into one reportable segment (Fluid Transfer Products) primarily due to the same factors as noted above, and thus, there has been no change to the Fluid Transfer Products segment. RESULTS OF OPERATIONS. PERFORMANCE IN THE QUARTER ENDED SEPTEMBER 30, 2004 COMPARED WITH THE QUARTER ENDED SEPTEMBER 30, 2003 Revenues Revenues increased $70.6 million (63%) to $182.6 million for the three months ended September 30, 2004, compared to the same period of 2003. This increase was primarily due to acquisitions, which contributed $58.8 million in revenues. Increased shipments of well stimulation pumps, compressors and blowers, combined with changes in currency exchange rates and price increases, also contributed to this increase. For the three months ended September 30, 2004, revenues for the Compressor and Vacuum Products segment increased $55.6 million to $147.1 million, compared to the same period of 2003. This 61% increase is primarily due to the acquisition of Syltone and Nash Elmo (52%), increased volume of compressor and blower shipments in the U.S., Europe, South Africa and China (4%), changes in currency exchange rates (3%) and price increases (2%). Fluid Transfer Products segment revenues increased $15.0 million to $35.5 million for the three months ended September 30, 2004, compared to the same period of 2003. This 73% increase is primarily due to the acquisition of Syltone (53%), and increased shipments of well stimulation pumps, water jetting systems and related aftermarket (34%) and price increases (4%). These positive factors were partially offset by lower drilling pump shipments (18%). Costs and Expenses Gross margin (defined as revenues less cost of sales) for the three months ended September 30, 2004 increased $25.5 million (75%) to $59.3 million compared to the same period of 2003, primarily due to the increase in revenues. Gross margin as a percentage of revenues (gross margin percentage) increased to 32.5% in the three-month period of 2004 from 30.2% in the same period of 2003. This increase in gross margin percentage was principally attributable to increased volume in both segments and the related positive impact of increased leverage of fixed and semi-fixed costs over a higher revenue base. Acquisitions also positively impacted gross margin percentage as their gross margin percentage (35.4%) is higher than the Company's previously existing businesses. Favorable sales mix also contributed to the increased gross margin as the third quarter of 2004 included a higher percentage of aftermarket sales compared to the prior year. - 16 - Depreciation and amortization for the three months ended September 30, 2004 increased $2.2 million to $5.9 million, compared to $3.7 million in the same period of 2003, primarily due to the Syltone and Nash Elmo acquisitions. Selling and administrative expenses increased in the three-month period of 2004 by 78% to $37.5 million from $21.1 million in the same period of 2003, primarily due to the acquisition of Syltone and Nash Elmo ($15.1 million). Changes in currency exchange rates also contributed to this increase. The Compressor and Vacuum 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 9.2% in the three-month period ended September 30, 2004, an increase from 7.7% for the same period of 2003. This increase was primarily attributable to the positive impact of increased leverage of the segment's fixed and semi-fixed costs over a higher revenue base. Favorable sales mix also contributed to this increase. These favorable factors were partially offset by acquisitions, as their operating margins were lower than the segment's previously existing businesses. Operating earnings as a percentage of revenues from Compressor and Vacuum Products segment businesses that existed prior to the Nash Elmo and Syltone acquisitions were 9.5% for the three-month period ended September 30, 2004. The Fluid Transfer Products segment generated operating earnings as a percentage of revenues of 6.8% for the three-month period ended September 30, 2004, compared to 9.6% in the same period of 2003. This decrease was primarily attributable to the Syltone business included in this segment which generated an operating loss of $0.5 million during the third quarter primarily due to a $3.0 million shipment scheduled for the third quarter which was delayed due to a customer logistics issue. This order subsequently shipped in October 2004. This negative factor was partially offset by 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 from Fluid Transfer Products segment businesses that existed prior to the Syltone acquisition were 13.0% for the three-month period ended September 30, 2004. Interest expense increased $1.4 million (133%) to $2.5 million for the three months ended September 30, 2004, compared to the same period of 2003, due to higher average borrowings stemming from the Nash Elmo and Syltone acquisitions and higher average rates. The average interest rate for the three-month period ended September 30, 2004 was 5.6% compared to 4.0% in the comparable prior year period. Income before income taxes increased $5.4 million (69%) to $13.1 million for the three months ended September 30, 2004. This increase is primarily due to the increased volume in both segments and the related positive impact of increased leverage of fixed and semi-fixed costs over a higher revenue base. Acquisitions also contributed $1.5 million to this increase. These positive factors were partially offset by higher interest expense. The provision for income taxes increased by $2.0 million to $4.5 million for the three-month period of 2004, compared to the prior year period, as a result of the incremental income before taxes and a higher overall effective tax rate. The Company's effective tax rate for the three months ended September 30, 2004 increased to 34.0% compared to 32.0% in the prior year period, principally due to the acquisition of Syltone. - 17 - Net income for the three months ended September 30, 2004 increased $3.4 million (64%) to $8.7 million ($0.43 diluted earnings per share), compared to $5.3 million ($0.32 diluted earnings per share) in same period of 2003. This increase was 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. The incremental impact on diluted earnings per share from acquisitions was $0.04. PERFORMANCE IN THE NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 2003 Revenues Revenues increased $175.4 million (54%) to $498.3 million for the nine months ended September 30, 2004, compared to the same period of 2003. This increase was primarily due to acquisitions, which contributed $138.6 million in revenues. Increased shipments of well stimulation pumps, pump parts, compressors and blowers combined with changes in currency exchange rates and price increases also contributed to this increase. For the nine months ended September 30, 2004, revenues for the Compressor and Vacuum Products segment increased $125.0 million (46%) to $396.2 million, compared to the same period of 2003. This increase is primarily due to acquisitions (38%), changes in currency exchange rates (4%), increased volume of compressor and blower shipments in the U.S., Europe, South Africa and China (3%) and price increases (1%). Fluid Transfer Products segment revenues increased $50.4 million to $102.2 million for the nine months ended September 30, 2003, compared to the same period of 2003. This 97% increase is primarily due to the acquisition of Syltone (69%), increased shipments of well stimulation pumps, water jetting systems and related aftermarket (36%) and price increases (3%). These positive factors were partially offset by a decreased volume of drilling pump shipments (11%). Costs and Expenses Gross margin for the nine months ended September 30, 2004 increased $64.1 million (66%) to $161.9 million compared to the same period of 2003. Gross margin percentage increased to 32.5% in the nine-month period of 2004 from 30.3% in the same period of 2003. This increase in gross margin percentage was principally attributable to the increased volume in both segments and the related positive impact of increased leverage of fixed and semi-fixed costs over a higher revenue base. Acquisitions also positively impacted gross margin percentage, as their gross margin percentage (34.6%) is higher than the Company's previously existing businesses. Finally, favorable sales mix also contributed to the increased gross margin as the first nine months of 2004 included a higher percentage of aftermarket sales compared to the prior year. These positive factors were partially offset by higher warranty expense in 2004. Depreciation and amortization for the nine months ended September 30, 2004 increased $5.0 million to $16.1 million compared to $11.1 million in the same period of 2003, primarily due to the Syltone and Nash Elmo acquisitions. Selling and administrative expenses increased $43.6 million (70%) in the nine-month period of 2004 to $106.0 million compared to $62.4 million in the same period of 2003, primarily due to acquisitions ($35.8 million). Higher compensation and fringe benefit costs and changes in currency exchange rates also contributed to this increase. - 18 - Other income, net was $1.8 million for the nine-month period ended September 30, 2004, compared to expense of $0.1 million in the comparable prior year period. This change was primarily due to foreign currency transaction gains recorded in 2004. These gains included $1.2 million in the first quarter 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. This change was partially offset by a $0.4 million pretax gain on the sale of an idle manufacturing facility in Syracuse, New York in the second quarter of 2003. The Compressor and Vacuum Products segment generated operating earnings as a percentage of revenues of 8.2% in the nine-month period ended September 30, 2004, an increase from 7.9% for the same period of 2003. This increase was primarily attributable to the positive impact of increased leverage of the segment's fixed and semi-fixed costs over a higher revenue base and favorable sales mix. These positive factors were partially offset by higher compensation, fringe benefit and warranty expense and acquisitions, which had lower operating earnings as a percentage of revenues than the segment's previously existing businesses. Operating earnings as a percentage of revenues from Compressor and Vacuum Products segment businesses that existed prior to the Nash Elmo and Syltone acquisitions were 8.4% for the nine-month period ended September 30, 2004. The Fluid Transfer Products segment generated operating earnings as a percentage of revenues of 7.2% for the nine-month period ended September 30, 2004, compared to 5.8% in the same period of 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. This positive factor was partially offset by the impact of the Syltone business included in this segment which had lower operating earnings as a percentage of revenues than the segment's previously existing businesses. Operating earnings as a percentage of revenues from Fluid Transfer Products segment businesses that existed prior to the Syltone acquisition were 12.4% for the nine-month period ended September 30, 2004. Interest expense increased $2.5 million (74%) to $5.9 million for the nine months ended September 30, 2004, compared to the same period of 2003, due to higher average borrowings stemming from the Syltone and Nash Elmo acquisitions and higher average rates. The average interest rate for the nine-month period ended September 30, 2004 was 4.9% compared to 4.1% in the comparable prior year period. Income before income taxes increased $14.8 million (71%) to $35.6 million for the nine months ended September 30, 2004. This increase is primarily due to the increased volume in both segments and the related positive impact of increased leverage of fixed and semi-fixed costs over a higher revenue base. Acquisitions also contributed $3.4 million to this increase. These positive factors were partially offset by higher interest expense. The provision for income taxes increased by $5.4 million to $12.1 million for the nine-month period of 2004, compared to the prior year period, as a result of the incremental income before taxes and a higher overall effective tax rate. The Company's effective tax rate for the nine months ended September 30, 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 nine months ended September 30, 2004 increased $9.3 million (66%) to $23.5 million ($1.23 diluted earnings per share), compared to $14.1 million ($0.87 diluted - 19 - earnings per share) in 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. The incremental impact on diluted earnings per share from acquisitions was $0.10. Outlook In general, demand for compressor and vacuum products correlates to the rate of manufacturing capacity utilization and the rate of change of industrial production because compressed air is often used as a fourth utility in the manufacturing process. Over longer time periods, demand also follows the economic growth patterns indicated by the rates of change in the Gross Domestic Product. In the third quarter of 2004, orders for compressor and vacuum products were $146.5 million, compared to $90.3 million in the same period of 2003. Backlog for the Compressor and Vacuum Products segment was $161.2 million as of September 30, 2004, compared to $56.5 million as of September 30, 2003. The increase in orders and backlog compared to the prior year was primarily due to the addition of Syltone's transportation-related activities and Nash Elmo, which contributed $44.0 million and $93.4 million to orders and backlog, respectively. Favorable changes in foreign currency exchange rates also added approximately $2.9 million and $2.2 million to orders and backlog, respectively. Excluding these favorable items, the growth in orders in the three-month period for this segment was primarily driven by an improvement in industrial demand in the U.S. and Europe, combined with incremental market share gains in Europe, South Africa and China. The Company also experienced an increase in demand for positive displacement blowers and locomotive compressors due to an improved transportation market in the U.S. 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 $50.4 million in the third quarter of 2004, compared to $18.9 million in the same period of 2003. Backlog for this business segment was $51.6 million as of September 30, 2004, compared to $8.7 million as of September 30, 2003. The increase in orders and backlog compared to the prior year was primarily due to the addition of Syltone's fluid transfer-related activities, which contributed $15.5 million and $23.7 million to orders and backlog, respectively. Excluding the impact of Syltone, the increase in orders for this segment was principally due to increased demand for well stimulation pumps, drilling pumps and petroleum pump parts, as a result of 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 October 22, 2004, the President of the United States signed into law the "American Jobs Creation Act of 2004." The Company is currently analyzing this tax legislation to determine its impact, if any, on the Company's future income tax accounting and consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCES Operating Working Capital During the nine months ended September 30, 2004, operating working capital (defined as receivables plus inventories, less accounts payable and accrued liabilities) increased $61.2 million, primarily due to incremental operating working capital from the Nash Elmo and Syltone - 20 - acquisitions and higher inventory and receivable balances stemming from increased activity levels. Cash Flows During the first nine months of 2004, the Company generated cash from operations totaling $22.3 million, compared to $23.7 million in the prior year period. This change was primarily due to the unfavorable change in operating working capital due to increased activity levels, partially offset by higher net income and cash from operations provided by acquisitions. Net of cash acquired, $292.1 million in cash was used to fund the Nash Elmo and Syltone acquisitions (and related direct acquisition costs) during the first nine months of 2004. This use of cash was primarily funded by net borrowings ($115.0 million), the sale of 3.45 million shares of common stock in March 2004 ($79.6 million) and excess cash reserves. The cash flows provided by operating and financing activities and used in investing activities, combined with the effect of exchange rate changes, resulted in a net cash decrease of $84.7 million during the first nine months 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 $12.3 million in the first nine months 2004. This was $4.1 million higher than the level of capital expenditures in the comparable period in 2003, primarily due to the timing of capital projects and spending at acquisitions. Commitments for capital expenditures at September 30, 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 September 30, 2004, a total of 1,572,542 shares have been repurchased at a cost of $22.8 million under both repurchase programs. Liquidity On September 1, 2004, the Company entered into a $375.0 million amended and restated credit agreement (the "Credit Agreement"). The Credit Agreement provided the Company with access to senior secured credit facilities including a $150.0 million five-year Term Loan and a $225.0 million five-year Revolving Line of Credit (the "Credit Line"). Proceeds from the Credit Agreement were used to fund the Nash Elmo acquisition and retire debt outstanding under its previously existing Credit Line and Term Loan. The Credit Line has a borrowing capacity of $225.0 million and the total debt balance is due upon final maturity on September 1, 2009. Loans under this facility may be denominated in U.S. Dollars or several foreign currencies. The interest rate varies with prime, federal funds and/or - 21 - LIBOR for the applicable currency and was 3.8% as of September 30, 2004. On September 30, 2004, the Credit Line had an outstanding principal balance of $127.0 million, leaving $98.0 million available for letters of credit or for future use, subject to the terms of the Credit Line. The $150.0 million Term Loan has a final maturity of September 1, 2009. The Term Loan requires quarterly principal payments totaling $7.5 million, $15.0 million, $22.5 million, $37.5 million and $67.5 million in years one through five, respectively The interest rate varies with prime, federal funds and/or LIBOR and was 3.8% as of September 30, 2004. On September 30, 2004, the Term Loan had an outstanding principal balance of $150.0 million. Pursuant to its previously filed shelf registration with the Securities and Exchange Commission, the Company completed an offering of 3.45 million shares of its common stock for net proceeds of approximately $79.6 million during March 2004. These proceeds were used to repay borrowings under its previously existing Credit Line. The Company's borrowing arrangements permit certain investments and dividend payments and are generally unsecured with the exception of the Credit Agreement, which requires the pledge of certain subsidiaries' stock. 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. In addition, 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 vast majority of the plaintiffs are not impaired with a disease for which the Company bears any responsibility. Predecessors to the Company manufactured, distributed and sold products allegedly at issue in the pending asbestos and silicosis litigation lawsuits (the "Products"). The Company has potential responsibility for certain of these Products, namely: (a) air compressors which used asbestos containing components manufactured and supplied by third parties; and (b) portable air compressors used in sandblasting operations as a component of sandblasting equipment manufactured and sold by others. The sandblasting equipment is alleged to have caused the silicosis disease plaintiffs claim in these cases. Neither the Company nor its predecessors ever mined, manufactured, mixed, produced or distributed asbestos fiber. The asbestos-containing components used in the Products 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. - 22 - 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 vast majority of plaintiffs are not impaired with a disease attributable to alleged exposure to asbestos or silica from or relating to the Products; various potential 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. NEW ACCOUNTING STANDARDS In May 2004, the FASB issued Staff Position SFAS No. 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," ("FSP 106-2"). FSP 106-2 supersedes FSP 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," and provides guidance on the accounting, disclosure, effective date and transition related to the Prescription Drug Act. FSP 106-2 was effective for the third quarter of 2004. According to an actuarial assessment, the Company currently provides prescription drug benefits, which are actuarially equivalent to the Medicare-prescription drug benefit to certain retired and other employees and will therefore qualify for the subsidy. As a result, the Company accounted for the federal subsidy attributable to past services as an actuarial gain, which reduced the accumulated post-retirement benefit obligation. This actuarial gain will then be amortized in future periods in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The federal subsidy attributable to employee service rendered in current and future periods will reduce future net periodic postretirement benefit cost as those employees provide service. The favorable impact to diluted earnings per share from adopting FSP 106-2 is expected to be $0.01 in 2004 and $0.02 in 2005. 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 - 23 - 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 identify, negotiate and complete possible future acquisitions; (2) the speed with which the Company is able to integrate acquisitions and realize the related financial benefits; (3) the ability to maintain and to enter into key purchasing, supply and outsourcing relationships; (4) purchased material cost changes, including metal surcharges; (5) the ability to effectively manage the transition of iron casting supply to alternate sources and the skill, commitment and availability of such alternate sources; (6) the successful implementation of other strategic initiatives, including, without limitation, restructuring plans, inventory reduction programs and other cost reduction efforts; (7) 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; (8) changes in domestic and/or worldwide industrial production and industrial capacity utilization rates, which affect demand for the Company's compressor and vacuum products; (9) pricing of the Company's products; (10) the degree to which the Company is able to penetrate niche and international markets; (11) changes in currency exchange rates (primarily between the U.S. dollar, the euro and the British pound); (12) changes in interest rates; (13) the ability to attract and retain quality management personnel; (14) market performance of pension plan assets and changes in discount rates used for actuarial assumptions in pension and other postretirement obligation and expense calculations; (15) the continued ability to effectively manage and defend litigation matters pending, or asserted in the future, against the Company; (16) the development and acceptance of the Company's new product offerings; (17) the continued successful implementation and utilization of the Company's electronic services; and (18) changes in laws and regulations, including accounting standards and tax requirements. 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. - 24 - ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk related to changes in interest rates as well as European and other foreign currency exchange rates, and selectively uses derivative financial instruments, including forwards and swaps, to manage these risks. The Company does not hold derivatives for trading purposes. The value of market-risk sensitive derivatives and other financial instruments is subject to change as a result of movements in market rates and prices. Sensitivity analysis is one technique used to evaluate these impacts. Based on a hypothetical ten percent change in interest rates or ten percent change in the U.S. dollar across relevant foreign currencies, principally the euro and British pound, the potential changes in future earnings, fair value and cash flows are not material to the Company. 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 disclosure 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. The Company completed the acquisition of Nash Elmo on September 1, 2004. For the year ended December 31, 2003, Nash Elmo's revenues were $212.4 million. Total assets for this business were $323.0 million as of September 30, 2004. This business is a separate control environment. The evaluation of disclosure controls and procedures referred to in the paragraph above included Nash Elmo. However, the Company will exclude this business from management's report on internal control over financial reporting, as permitted by SEC guidance, to be included in our Form 10-K for the year ended December 31, 2004. - 25 - 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 ANNOUNCED PLANS OR BE PURCHASED UNDER PERIOD SHARES PURCHASED (1) PAID PER SHARE PROGRAMS (2) THE PLANS OR PROGRAMS - ---------------------------------------------------------------------------------------------------------------------- July 1, 2004 - July 31, 2004 -- -- -- 210,300 - ---------------------------------------------------------------------------------------------------------------------- August 1, 2004 - August 31, 2004 -- -- -- 210,300 - ---------------------------------------------------------------------------------------------------------------------- September 1, 2004 - September 30, 2004 -- -- -- 210,300 - ---------------------------------------------------------------------------------------------------------------------- Total -- -- -- 210,300 - ---------------------------------------------------------------------------------------------------------------------- (1) The shares purchased do not include shares acquired by the Company in connection with the exercise of stock options via a stock swap. (2) 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 (a) List of Exhibits: 10.1 Salary Continuation Agreement dated August 16, 2004 between Gardner Denver, Inc. and Philip R. Roth. 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. - 26 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GARDNER DENVER, INC. Date: November 9, 2004 By: /s/Ross J. Centanni --------------------------------- Ross J. Centanni Chairman, President & CEO Date: November 9, 2004 By: /s/Helen W. Cornell --------------------------------- Helen W. Cornell Vice President, Finance & CFO Date: November 9, 2004 By: /s/Daniel C. Rizzo, Jr. --------------------------------- Daniel C. Rizzo, Jr. Vice President and Corporate Controller (Chief Accounting Officer) - 27 - GARDNER DENVER, INC. EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 10.1 Salary Continuation Agreement dated August 16, 2004 between Gardner Denver, Inc. and Philip R. Roth. 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. - 28 - EX-10.1 2 exh10p1.txt Exhibit 10.1 August 16, 2004 Philip R. Roth [omitted for confidentiality] Dear Phil: As discussed today, your active employment with the Company has terminated, effective August 16, 2004. Because of your service to the company and to assist with your transition, we will offer you the following additional benefits if you agree to the terms of this Salary Continuation Agreement. SALARY, BONUS AND BENEFITS CONTINUATION If you agree to the terms described in this letter, you will continue to receive your monthly salary ($23,417), paid on a semi-monthly basis through August 31, 2005. These salary continuation/severance payments are guaranteed and will continue even if you should find alternate employment before that time. However, our obligation to continue your salary will cease in the unlikely event of your death. Please note that salary continuation is inclusive of any and all vacation pay entitlements. Also, you will remain eligible to receive the full 2004 Executive Annual Bonus Plan and the full 2002 Long Term Bonus Opportunity payments to be paid in February 2005, if all of the conditions for the bonus payment are met (other than your continuing employment by the Company--you will be treated as if still employed as of the date of the bonus is awarded). If you have not found alternate employment by August 31, 2005, your monthly salary will be continued for up to an additional six (6) months or the date on which you secure new employment, whichever is sooner. Your group insurance coverage, including life, medical, and dental, will continue during your salary continuation period unless you sooner receive alternate coverage with another employer, even if this alternate coverage is less comprehensive. Information concerning group insurance coverage will be forwarded to you by the Benefits Department. Please contact Tracy Pagliara regarding any questions you may have. Furthermore, you have also agreed to immediately notify Tracy Pagliara when you have secured alternate employment. PENSION PLAN AND SAVINGS PLAN PARTICIPATION During your salary continuation period, you will continue to earn vesting service and to accrue benefits under the Gardner Denver Pension Plan and under the Gardner Denver Supplemental Excess Pension Plan. Company contributions will also continue during this time. Subject to and in accordance with the applicable terms of the Plans, you will be eligible to receive your vested Pension Plan benefits at the time of your retirement in accordance with the Plans. During your salary continuation period, you may also continue to contribute to the Retirement Savings Plan and the Excess Savings Plan. Company contributions will also continue during this time. At the end of your salary continuation period, you have a choice of whether to withdraw or Mr. Philip R. Roth August 16, 2004 Page 2 to leave your account in the Retirement Savings Plan. If you choose to leave your account in the Retirement Savings Plan, you may choose to withdraw it at a later date, but not later than April 1 following your attainment of age 70 1/2. Your Excess Savings Plan account will be paid to you pursuant to the terms of such Plan. Further information on these plans will be forwarded to you by the Benefits Department. Again, please feel free to contact Tracy Pagliara regarding any questions you might have or for any information you may need. STOCK OPTIONS According to our records, you currently have the stock option grants described on Exhibit 1 to this letter. Subject to the terms and conditions --------- of the applicable option agreement, you may exercise your vested options anytime through August 31, 2007, including those options that vest prior to August 31, 2007. Please contact Tracy Pagliara regarding any questions you have concerning your stock options. For the six (6) month period following your employment termination date, you will remain subject to the requirements of Section 16 of the Securities Exchange Act of 1934 with respect to certain transactions in Gardner Denver stock. In addition, you will still be required to refrain from making open market purchases or sales of Gardner Denver's stock while you are in possession of material non-public information about the Company. Accordingly, you will be required to obtain pre-clearance from the Gardner Denver Corporate Secretary's office prior to engaging in purchases or sales of Gardner Denver stock during your salary continuation period. Your failure to abide by this requirement will result in the immediate forfeiture of your remaining stock options. Please feel free to contact Tracy Pagliara for further information. UNEMPLOYMENT COMPENSATION Gardner Denver does not pay the full separation allowance if you are drawing Unemployment Compensation during the salary continuation period. Any Unemployment Compensation you do receive will reduce the Severance Allowance by that amount. Therefore, we encourage you to save the Unemployment Compensation benefits until after your salary continuation period. OUT PLACEMENT We have agreed to provide out placement services through a firm of your choosing at Company expense (up to an amount no greater than $35,000) to help you find a new position. If you decide to use these services, the outplacement firm will provide you with the following assistance: A. A complete and total assessment of your work background, experience, talents, skills, education, personal values and motivations. B. Preparation of a professional presentation reflecting your executive talents, accomplishments and professional experience. Mr. Philip R. Roth August 16, 2004 Page 3 C. A complete interview orientation that should enable you to acquire the skills needed for presentation in the most professional manner to prospective employers. MISCELLANEOUS Upon departure from Gardner Denver, please make certain that any outstanding cash advances and business expenses be reconciled immediately. If not, any amounts due the Company will be withheld from your salary during your salary continuation period. Any amount to which you may have been entitled shall be reimbursed through the normal accounting procedures upon submission of appropriate expense report forms. Also, please turn in all of your Company credit cards at that time. During your employment with Gardner Denver, you had access to much of the Company's confidential information including: product margins, product strengths and weaknesses, Company policies, objectives, strategies, long range plans, plans for market product development, financial information, payroll information, personnel information and other similar information. As a result, and in consideration of the salary and other benefits to be provided by Gardner Denver pursuant to this agreement, you will not disclose any of the information gained in your position with Gardner Denver to the advantage of a competitor of Gardner Denver or to the disadvantage of Gardner Denver. You further agree that you will not make any disparaging or other negative comments about the Company or its officers, agents and representatives. In addition, no representatives of the Company will be authorized to make any disparaging or other negative comments about you. However, as discussed, the Company undertakes no, and hereby expressly disclaims any, obligation with respect to unauthorized statements. We are in agreement that you will not take with you any documents or copies of documents, or use in any way in direct or indirect employment, any confidential and proprietary information that you gained during your service with Gardner Denver, Inc. To receive the benefits described in this letter, you must agree to the attached Waiver and Release, which is incorporated by reference and should be considered part of this letter. If you are in agreement and if the foregoing clearly and fully reflects our understanding, please so indicate by signing and returning to me a copy of this letter and a signed copy of the attached Waiver and Release. By signing this agreement, you acknowledge that you have read the Salary Continuation Agreement offered by the Company, understand its terms and that you are voluntarily accepting it in lieu of any other separation benefits that the Company may offer, including, without limitation, the Separation Allowance Plan. Mr. Philip R. Roth August 16, 2004 Page 4 Sincerely, /s/ Ross J. Centanni Ross J. Centanni Chairman, President and CEO Agreed to and accepted: /s/ Philip R. Roth Philip R. Roth Date of Acceptance: 9/3/04 ------------ Attachments cc: Tracy Pagliara EX-12 3 exh12.txt EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES GARDNER DENVER, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FOR THE YEAR ENDED ------------- ------------------------------------------------------------- 2004 2003 2002 2001 2000 1999 1998 ------------- ------------------------------------------------------------- Earnings: Income before income taxes $35,586 30,358 28,827 34,683 29,894 29,157 59,894 Plus: Fixed Charges 7,617 6,019 7,483 7,789 8,486 6,746 5,692 ------- ----- ------ ------ ------ ------ ------ Total $43,203 36,377 36,310 42,472 38,380 35,903 65,586 ======= ====== ====== ====== ====== ====== ====== Fixed Charges: Interest expense incl. amortization of debt expense $ 5,949 4,748 6,365 6,796 7,669 5,934 4,849 Rentals-portion representative of interest 1,668 1,271 1,118 993 817 812 843 ------- ----- ------ ------ ------ ------ ------ Total $ 7,617 6,019 7,483 7,789 8,486 6,746 5,692 ======= ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges 5.7 6.0 4.9 5.5 4.5 5.3 11.5 ======= ====== ====== ====== ====== ====== ======
EX-31.1 4 exh31p1.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 November 9, 2004 EX-31.2 5 exh31p2.txt EXHIBIT 31.2 PRINCIPAL FINANCIAL OFFICER CERTIFICATION I, Helen W. Cornell, 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/ Helen W. Cornell -------------------- Helen W. Cornell Vice President, Finance & CFO November 9, 2004 EX-32.1 6 exh32p1.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 September 30, 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. November 9, 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 7 exh32p2.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 September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Helen W. Cornell, 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/ Helen W. Cornell -------------------- Helen W. Cornell Title: Vice President, Finance & CFO Gardner Denver, Inc. November 9, 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-----